Social Security

Stephen Timms Excerpts

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

The hon. Lady asks an important question. I will deal specifically with the budget deficit. However, when we looked at this issue as a new Government, we were prompted particularly by the context of a year in which the RPI had been negative. We arrived in May 2010. In April 2010, uprating had been nil for the state earnings-related pension scheme, public sector pensions and all the connected pensions. That is not because inflation for pensioners had been nil—I have never met a pensioner who thought they had negative inflation in the year to September 2009—but because that is what the RPI said. The RPI was clearly not doing its job then, and that focused our mind on whether it was the right thing. It is true that, on average, the CPI tends to be lower—not always, but generally. I have looked at the past 20 years, and in five of those the RPI has been lower than the CPI. That improves the situation in a difficult financial position; I would not pretend that it does not. However, our job is to have an appropriate, stable measure of inflation, and that is what the CPI achieves. [Interruption.] Indeed, it is much less volatile.

I sometimes think—perhaps this makes me sound a bit sad—that if the CPI were a person, it would be taking people to court for slander and libel for some of the things that have been said about it over the past few weeks and months. It is almost as if it is a stray number that we found on the back of a fag packet and decided to use to up-rate benefits. In fact, it is a careful calculation by the Office for National Statistics, with excruciating amounts of thorough methodological detail about the general increase in consumer prices. It is not the only measure, but it is an entirely decent and proper one.

I want to respond to some of the myths that have grown up about CPI, and to stress that this is not a choice between a good index and a bad index, but about trying to find the most appropriate measure for the purpose. The first argument that is made is that CPI is always lower. As I have pointed out, that is not true, although it is lower on average over the long term. People criticise the methodology that is used. I will explain what the difference is and why we think it is appropriate. Somewhat more than half the difference between RPI and CPI is to do with the way in which CPI assumes that people change their behaviour when prices change. CPI uses a substitution method, which assumes that people substitute for cheaper goods. Interestingly, the Institute for Fiscal Studies, which has looked at this issue, has said that that difference is a

“sound rationale for the switch”

that we are making today. RPI does not do that. Even the Royal Statistical Society, which has been critical of aspects of our proposals, states that RPI arguably overstates inflation as a result. I stress that we are trying to find not a high number or a low number, but an appropriate number with an appropriate method. Particularly for those on benefits, the substitution approach is important.

It is worth adding in parenthesis that people who say that RPI is the only possible way in which we can uprate pensions, because it is appropriate for pensioners, seem to be oblivious to the fact that RPI excludes the poorest fifth of pensioners from its consumption patterns. Their spending patterns are deliberately excluded in the construction of RPI. It seems odd that people are so wedded to RPI on purity grounds when it excludes the most vulnerable pensioners, about whom we should be most concerned.

The second myth is that the UK Statistics Authority does not think that CPI is a proper measure of inflation. [Interruption.] The hon. Member for Leeds West (Rachel Reeves) says that she has not said that, but I assure her that I have seen it in plenty of letters. The UK Statistics Authority oversees the Office for National Statistics, so it would be very odd if it thought that the ONS was producing dodgy figures. CPI is the headline measure and it is the target for the Bank of England, so it is hard to see how it is not a proper measure of inflation.

Thirdly, some say that the Royal Statistical Society does not like CPI. It has certainly criticised some aspects of the change, but it takes a more balanced view and sees limitations in CPI and RPI. As I have said, no single measure is perfect. The Royal Statistical Society has highlighted the issue of housing costs, and I will come on to that because it is clearly important.

The fourth thing that people say is that this is a real cut to the value of benefits. [Interruption.] The hon. Member for Glasgow East (Margaret Curran) says that it is, but it is not. What we are doing is measuring inflation in an entirely proper manner and increasing benefits—revaluing and reflating them—every year in line with inflation, measured in an appropriate way. That is what indexation is meant to do. There is no argument for saying that it is a cut when we are increasing benefits and pensions by inflation. Only a couple of nights ago, the lead story on the BBC news was “Inflation hits 4%”. Indeed, CPI inflation had hit 4%. That was the headline, that is inflation, and that is what we are uprating benefits by.

[Stephen Timms (East Ham) (Lab)]

I think that I know the answer to my question on the basis of what the Minister is saying, but I want him to confirm it. Is it the Government’s intention that the change from RPI to CPI will not be temporary, but permanent?

[Steve Webb]

Yes. For all the reasons I have been giving, we regard CPI as a more stable and appropriate measure for uprating pensions and benefits. We see no reason to change it in the future. The arguments that I am advancing, it seems to me, will stand the test of time.

There is an issue with the treatment of housing costs. One of the reasons why CPI is more appropriate than RPI for pensioners is that only 7% of pensioners have a mortgage. Mortgage interest fluctuations dominate the changes in RPI, sometimes swooping it up and sometimes swooping it down. The year in which RPI went negative, it happened because mortgage rates slumped. Not only was that of no benefit to the vast majority of pensioners; it was a penalty to the vast majority of pensioners because their savings rate fell. Just at the point when pensioners were suffering through low interest rates, RPI came along—to humanise it once again—and kicked them in the teeth and said, “Oh, inflation is falling so you don’t need a benefit rise.” I do not see how that can be right.

--- Later in debate ---

[Steve Webb]

Just to be clear, my right hon. Friend the Chancellor was talking about the CPI indexation of all social security benefits, not just pensions. Clearly, compared with previous plans, benefits for people of working age will generally increase by less over the Parliament, which will lead to significant savings. I should mention therefore in passing that any political party that went into the election promising to reverse that would also have to indicate where many billions of pounds would come from over the course of a Parliament. However, specifically for pensioners, the earnings link in the long-term is much more generous than the reduction from the CPI change.

[Stephen Timms]

The Minister says that the order enshrines the earnings link. Is there a reference in the text to earnings uprating? I could not find it, but if there is one, where is it?

[Steve Webb]

No. This is the first set of upratings to which we have applied the triple lock. Indeed, we have gone further, and said that because RPI was built into the spending plans, we did not want to go lower than that, so there is an RPI increase of 4.6% this April. When we reintroduced the earnings link last summer, we did not know what the earnings figures would be, but had earnings been higher than any of those figures, we would have used it.

I ought to move on, because many hon. Members want to contribute to the debate. To conclude on occupational pensions, we have not overridden scheme rules. As the Chair of the Work and Pensions Committee pointed out, many people will still get RPI, if that is what the scheme rules say, but those that are free to link to CPI may do so. We will report shortly on our research on the balance between different schemes.

The approach adopted in the uprating order seeks to strike a fair balance between the interests of benefit recipients and pensioners, and the burden placed on the taxpayers of the UK, who often end up footing the bill. Despite the fact that the nation’s finances remain under severe pressure, this Government will spend an extra £4.3 billion in 2011-12 to ensure that people are protected against cost-of-living increases.

We have restored the link between earnings and the basic pension and confirmed that most people on pension credit will benefit from the cash increase enjoyed by those on the state pension. The move to CPI for the uprating of the majority of other pensions and benefits will result in an uplift of 3.1% from April, and sets the future of uprating on a more appropriate, consistent and stable basis that is fair to individuals and fair to the taxpayer. Through this package of uprating, I have outlined our firm commitment to ensure that no one is left behind, and I commend the order to the House.

[Stephen Timms (East Ham) (Lab)]

It is a happy coincidence that we are debating the order on the same day as the publication of the Welfare Reform Bill, and I am pleased to see the Secretary of State in the Chamber. I welcome the opportunity to make some observations on the Bill—of course, only in so far as they impinge on matters in the order.

However, I want first to respond to some of the Minister’s remarks. The truth is that the two orders signal the start of an ideological move from the use of RPI to CPI as the measure of inflation for uprating benefits, including pensions. The Minister told us that this is the first outing for the much-vaunted triple lock, but actually, in their first effort, the Government have had to override the triple lock. Had they not done so, they would have been rightly criticised for a very low increase to the basic state pension.

The Minister set out in some detail and at some length why it is right to use CPI rather than RPI, but the order uses RPI and not CPI. If he is so persuaded by his arguments on why CPI is the right measure to use, why has he used RPI in the order? The argument that he has put to the House is holed below the water line by the fact that he clearly does not believe it, because on this occasion, he has used RPI.

My hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, rightly asked whether the measure is to do with reducing the deficit. Of course, both the Government and the Opposition agree that we need to cut the budget deficit, even if we take very different views on the speed at which that ought to be done, but we should be clear from the outset that the orders, despite what the Government will tell us fundamentally about deficit reduction, are part of a wider quest. Changing permanently from RPI to CPI, other than in this year, and keeping things that way even after the deficit is long gone, is plainly not a deficit reduction measure—it is ideologically driven, and the Opposition do not support it.

As my hon. Friend the Member for Aberdeen South hinted in her intervention, there would be a case for a time-limited change ensuring that benefits do not fall behind earnings in the next few years. That might well be a fairer alternative to deep cuts in departmental expenditure. Were that on the table, it would be an argument that we would be willing to discuss, and we would work with the Government to consider it. However, that is not the proposal. As the Minister rightly made clear, the Government want a permanent change, with entitlement and pensions continuing to be reduced every year relative to RPI, saving money for the Government even long after the deficit has been eliminated. We will be making our position on that very clear as we go through these debates, and as we seek to amend the Pensions Bill, when the same matter is raised.

[Mike Freer (Finchley and Golders Green) (Con)]

If the right hon. Gentleman looks at the local authority pension schemes here in London, he will see that there is only 75% or 80% viability on future liabilities. A lot of the contribution rates and the inflation from RPI to CPI are about balancing the books for future pensioners, not deficit reduction.

[Stephen Timms]

I was familiar with the call often made when I was in the Minister’s office to release occupational funds from the constraints under which they had long operated, and RPI uprating was one of them. However, the question that has to be asked is whether it is right to change the rules at this stage, effectively to undermine the accrued rights that people have always believed they would benefit from in retirement, and to shift the goalposts. I will come to that very point in a moment. However, I suggest to the hon. Gentleman that this change raises a very serious question about fairness.

Of course, we need to get the economy back on track, but that will take some time. The coalition is doing it too fast. Why do they want pensioners, the armed forces and those on the lowest incomes and least able to bear the burden to continue to lose out even long after the deficit has gone? On average, RPI is between 0.5% and 0.75% higher than CPI, as the Minister pointed out, so in any given year, benefits linked to CPI will give people a lower income by that amount. The CPI for the year to September 2010 is 3.1%, and the RPI figure is 4.6%. At 1.5%, that is a very big percentage point difference. The Minister has decided, perhaps because of the scale of that difference, to use RPI and overrule his triple lock in its first year. However, if the Government intend, as they clearly do, to make CPI indexation permanent and apply that across the pension system, experts estimate that it could cost pensioners 15% of the income that they expect in retirement.

[Jane Ellison (Battersea) (Con)]

We are weeks away from the point when the Opposition, had they won the election, would have commenced their own deficit reduction plan. Given the enormous sum that the welfare bill represents within the public finances, it is inconceivable that the right hon. Gentleman could intend to go through this debate without addressing some serious long-term issues regarding his own policy on deficit reduction.

[Stephen Timms]

I am grateful to the hon. Lady, because that is exactly the point that I have been making. If this was about deficit reduction, there would be a worthwhile point to debate. However, the Government are saying that they want this change to be permanent and lower uprating to be a feature of the pensions and benefit system not just while we are reducing the deficit—I agree with her that there would be an argument for doing it during that period—but long after and into the indefinite future.

[Jane Ellison]

In part, Government Members are talking about addressing the much longer term problems that this country faces, of structural deficits building up and having to be addressed. The right hon. Gentleman has only to look around the world, at the problems in California and all sorts of places where enormous long-term structural problems have built up, particularly in relation to pensions. It is inconceivable that he cannot take a long-term view on this issue.

[Stephen Timms]

The hon. Lady makes an interesting argument. I have to say, however, that before the election I did not hear from her and her hon. Friends the argument that the structural deficit required a reduction in the incomes of the least well-off people in the land. That is the implication of what she is putting to the House. The real key to reducing the deficit is to secure new growth, new investment and new jobs in the economy. As we saw yesterday in the new unemployment figures, however, that is what the Government’s policies are signally failing to produce.

[Mike Freer]

The problem is that for public sector pensions, the fund can meet only 75% or 80% of future liabilities. If we do not reduce the indexation to reduce that drain on future liabilities, we will have to increase contribution rates. Which would the right hon. Gentleman do?

[Stephen Timms]

My point is that people who have been contributing to those schemes throughout their working lives have done so on the basis of a promise, but the Government are now saying that that promise should be torn up, perhaps just a few months before somebody retires. Is that fair? As I am sure that we will hear in this debate, a lot of people feel that it is deeply unfair—and we can all understand why they take that view.

Lord Hutton’s report on public sector occupational pensions pointed out:

“This change in the indexation measure”—

from RPI to CPI—

“may have reduced the value of benefits to scheme members by around 15 per cent on average. When this change is combined with other reforms to date across the major schemes the value to current members of reformed schemes with CPI indexation is, on average, around 25 per cent less than the pre-reform schemes with RPI indexation.”

Even the Minister’s own Department, in numbers slipped out at the end of last week, estimated a fall of £83 billion in the value of occupational pensions over the next 15 years as a result. For the 2 million members of defined benefit schemes, that is broadly the same as a pay cut, on average, of between £2,250 and £2,500 a year.

The figure of £83 billion has gone up by more than 8% since the Department last calculated it in December. We ought to know why the Department got their figures so wrong last time round. My worry is that the Department does not really know what the impact of this ill-thought-through measure will be in reality. I ask the Minister, therefore, whether he can assure us that this—in itself alarming—estimate of the scale of the loss to defined benefit pension scheme members will not be revised any further.

[Rehman Chishti]

Am I right in thinking that the shadow Minister was a Treasury Minister in the previous Government? If so, will he clarify the fact that when the coalition Government came into office last May, we inherited the worst financial deficit of the G20 and the worst structural deficit of the G7 countries, and that that is why we have to make some tough decisions?

[Stephen Timms]

I was indeed a Treasury Minister—on four separate occasions. We managed the global economic crisis with great skill, to the extent that the increase in unemployment, which was widely anticipated before the crisis hit, did not happen. Under the previous Government there was about half the unemployment and half the home repossessions that we experienced in the recession of the early 1990s. I was indeed a Minister at the Treasury when those successes were being achieved.

[Rehman Chishti]

The shadow Minister talks about unemployment and the previous Government’s actions. Is that why my constituency of Gillingham had 30% unemployment for 18 to 24-year-olds in 2006? The figure for youth unemployment remained at 30% in 2007 and 2009, and was the same in 2010 before we came into government. Will the right hon. Gentleman apologise to my constituents for that record?

[Stephen Timms]

I agree with the hon. Gentleman about the damaging impact of youth unemployment, and I hope that he shares my deep regret that it has increased again. It is now the highest that it has been since comparable figures began to be compiled nearly 20 years ago. The highest figure ever recorded was published in the statistics yesterday. I certainly take the view that the Government need to do more to reduce that figure.

The estimate of a hit of £83 billion on defined pension schemes makes it clear that long after the deficit is gone, the Government will be keeping pensioners out of pocket. I fear that the order is the start of a move that will mean that millions of pensioners and other benefit claimants experience a fall in the value of their benefits every year, relative to RPI. If the Government had simply applied the much-vaunted triple lock this year, the basic state pension would be uprated next year far below the RPI level that the previous system would have delivered. That is the problem with the Government’s proposition.

That is not the only Government measure to hit pensioners. The Minister proudly and fairly read out a list of excellent things that the previous Government did for pensioners, which the present Government will not abolish. I am glad that they will not. However, they have increased VAT, which means that pensioner couples will be £275 a year worse off, and single pensioners £125 a year worse off.

The Pensions Bill means that some women approaching retirement will have their state pension delayed by up to two years, with very little time to prepare. That will mean a loss of up to £10,000 in basic state pension, and up to £15,000 for those who would have qualified for pension credit.

My hon. Friend the Member for Leeds West (Rachel Reeves) asked the Minister previously about an individual’s accrued rights, and I referred to that in response to an earlier intervention. Let me press the Minister again on the same subject. Why has he made such an abrupt U-turn? Before the election, he said:

“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

I am sure that the Minister would agree that all those who contracted out—all those in the local government scheme that was mentioned a few minutes ago—did so on the basis that RPI would be used for uprating. On the basis of what the Minister said before the election, those rights should also be protected. They are not; they are being explicitly downgraded in the Government’s proposals.

[Mr Robert Syms (Poole) (Con)]

I am listening carefully to the right hon. Gentleman. Can we be clear about the Labour party’s position? Do you oppose the CPI? Do you oppose it just for this year—or are you in favour this year and next year, but want to go back to the RPI in a future year?

[Stephen Timms]

There is a persuasive case for making a change to CPI uprating for a period of time while we are tackling the deficit. However, I do not agree that that should be a permanent change. That aspect of the Government’s proposal is very damaging.

[Jane Ellison]

Does that mean that in the Labour manifesto for the next general election, the Labour party will commit itself to reverting to RPI?

[Stephen Timms]

The whole country eagerly awaits the next Labour party manifesto, but I must urge the hon. Lady to be patient on that front.

We welcome the 4.6% increase in the basic state pension this year, for which the order provides, in line with RPI for next year, not the triple lock or the lower CPI. But this is something of a smokescreen to cover up the true nature of the Government’s intentions, which we have been able to smoke out a little in this debate.

Why does the Minister think that CPI would be a better measure of inflation for pensioners than RPI? I am yet to be convinced of that. For pensioners and low-income families, a strong argument can be made that average inflation is more than either RPI or CPI, because of fuel and food. That point was certainly made in the representations that many of us will have received in recent weeks. In opening the debate, the Minister mentioned the views of the Royal Statistical Society. In its letter to my hon. Friend the Member for Leeds West, it said:

“while the consumer price index (CPI) is acceptable for macroeconomic purposes and for international comparisons within the EU we do not believe its coverage is generally appropriate for inflation compensation purposes”.

That looks like a strong criticism by the society.

[Guy Opperman (Hexham) (Con)]

When answering the question asked by my hon. Friend the Member for Poole (Mr Syms), you said you would—

[Guy Opperman]

The right hon. Gentleman mentioned “a period of time”. How long would that be?

[Stephen Timms]

If that were the proposition, we would be happy to debate it and consider it, and perhaps work with the Government on it. Sadly, that proposition has not been made. The proposition before the House is that the change should be made for ever, and that is what I object to. It is not just me: the Civil Service Pensioners Alliance—

[The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)]

I had not planned to intervene, but I wanted to tease out the right hon. Gentleman’s meaning. He is being a little disingenuous, so I invite him to be a little clearer. He knows that commitments are made for a Parliament, at most, and that if there were to be a change of power, the next Government could do whatever they want. He talks about “for ever”, but decisions can be made at the next election. Can we tempt him to say on behalf of his party that during the lifetime of this Parliament—or perhaps for one year or two years—it supports the change to CPI? Or is he saying that his party utterly detests the change and will not support it?

[Stephen Timms]

The Secretary of State is putting a different gloss on this from the one that the Pensions Minister put on it. I asked the Minister directly whether this change was intended to be permanent, and he confirmed that. The Secretary of State suggests that it would be only for this Parliament—[Interruption.] Well, I am anxious to establish the Government’s position. We have had two contradictory positions set out now—

[Mr Duncan Smith]

The right hon. Gentleman may have failed to understand my point. The Opposition are not in government, by definition, and they have to decide what they will do in this Parliament. What is his position in this Parliament? We have said that the change is permanent. Do they support that for this Parliament or not? Do they support it for a year, two years, three years or four years? What is their position on CPI? All we need to know is whether they support it for this Parliament.

[Stephen Timms]

Well, the Secretary of State has shifted back a little way towards the Minister by suggesting that the Government view the change as permanent. 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. But sadly it is not. As we have heard from the Minister—and as I think the Secretary of State has now reluctantly confirmed—the Government’s intention is that this arrangement should be permanent. That is what I strongly object to.

I was just about to refer to what the Civil Service Pensioners Alliance said. It

“firmly”

rejects

“the assertion that the CPI is a ‘better’ measure of inflation for pensioners.”

It urges the Government

“to take account of the advice of their own statisticians before embarking upon a change which will adversely affect the incomes of pensioners for the rest of their lives and not just for the term of the current financial crisis.”

Age UK has made a similar point.

All the main public service schemes are contracted out of the additional state pension. Of course, in the current climate we need restraint over public sector pay and pensions, but one group that the proposed permanent change will hit particularly hard is those who serve in the armed forces and their dependants, who rely on their pensions at an earlier age than almost anyone else. A permanent switch would, as I understand it, mean that somebody who had perhaps lost both legs in a bomb blast in Afghanistan could miss out on half a million pounds in benefit and benefit-related payments over the rest of their life. War widows, too, will lose out severely. For instance, if this change were made permanent, the 34-year-old wife of a staff sergeant killed in Afghanistan would be almost three quarters of a million pounds worse off over her lifetime.

If Ministers are going to pursue this policy, they need to explain why those serving in Afghanistan—already in some cases, as we have heard in the last few days, facing redundancy of which they were informed by e-mail—should see their pensions reduced for the rest of their lives compared with the expectations that they have had until now, and why—

[Steve Webb]

The right hon. Gentleman has raised a serious point. I think both sides of the House would be united in our respect and admiration for our forces and our forces veterans, but surely the issue is that we pay decent forces pensions, not that we choose to measure inflation in a particular way. Those are two quite separate issues. There is the adequacy of forces pensions and there is the proper measurement of inflation, but to conflate the two seems confusing.

[Stephen Timms]

In opening the debate the Minister accepted that in 15 years out of 20, CPI uprating is less than RPI uprating. My point is that those serving in Afghanistan have been contributing to their pensions on the understanding that their pensions, when in payment, would be uprated in line with RPI. Now the Government are saying, “No, they won’t; they’ll be uprated by a smaller amount,” and that is a very worrying development. In view of the sympathy that the Minister has expressed for people in that position, the Government must give further thought to this matter—why war widows, who have had the person most special to them taken away, deserve to have the support that they would otherwise have been able to depend on cut as well.

[John McDonnell (Hayes and Harlington) (Lab)]

May I, through my right hon. Friend, give the Minister an opportunity to respond to a question? Is it not clear that as we identify anomalies like this—and they are bound to arise—it is important for the Government to introduce corrective measures fairly quickly?

[Stephen Timms]

Yes, there are some serious problems here, and I hope we will hear responses to them. I pay tribute to my hon. Friend for the work that he has done on this subject, and I hope that the Government will think again.

The Welfare Reform Bill, which was published this morning, touches on a number of the points that the Social Security Benefits Up-rating Order also touches on. One of the Government’s original proposals, which Opposition Members strongly opposed, was to cut housing benefit by 10% for people in receipt of jobseeker’s allowance for one year. We were all absolutely delighted this morning to hear the Secretary of State say that the Government have reconsidered their position and will not implement that draconian cut. We understand from newspaper reports that the change was brought about as a result of pressure from the leader of the Pensions Minister’s party. The Minister himself may well have had a hand in bringing about that change. If so, I—and many of us—would want to join in congratulating him on his success against the views of the members of the other coalition party, particularly, perhaps, the views of those serving in the Treasury.

As the Minister is on a bit of roll, may I suggest that he go further in changing the Government’s proposals? Under the existing system, most out-of-work benefits are subject to savings limits—currently £16,000, but the Government intend to extend that threshold to in-work benefits as part of the universal credit, and I notice that that threshold is not uprated in the order before us. Under the proposed limit, in future anyone in work who would be entitled to tax credits but has savings of more than £6,000 will have their payment reduced. Those who have savings of more than £16,000 will lose their entitlement to tax credits altogether.

According to calculations by the Social Market Foundation, 400,000 families with children, who are now in receipt of tax credits, would be punished for having £16,000 in the bank by losing all their tax credits. For example, anyone saving up for a deposit to buy a home would suddenly find that they had lost all their tax credits as a punishment for having £16,000 in the bank. Such families would have been doing the right thing, working and saving their money, perhaps to put down a deposit on a house. For many such families, putting down a deposit will be made not only difficult but impossible. The Opposition cannot possibly support the proposed change, and I cannot imagine that many Government Members would want to see such an extraordinary assault on family savings either. I hope that we shall see another initiative by Liberal Democrat Ministers—we saw the benefits of such an initiative this morning—to persuade the Government to abandon that policy as well.

I hope the Government will also scrap the proposal to remove eligibility for the mobility component of disability living allowance for those in residential care. The order does uprate disability living allowance, and my hon. Friend the Member for Glasgow East (Margaret Curran), who is on the Front Bench today, has been making powerful arguments to the Government about the iniquity of removing that benefit from people simply because they are in residential care. I hope the Government will think again about that, and I am delighted that the Under-Secretary of State for Work and Pensions, the hon. Member for Basingstoke (Maria Miller), who is responsible for that part of the policy, is on the Government Front Bench today.

The Government are signalling today that they intend a permanent shift from RPI to CPI as the inflation measure for uprating benefits and pensions. The Opposition do not support that. It is not right to continue to reduce the incomes of pensioners, widows and those on low incomes long after the deficit has gone. [Interruption.] From a sedentary position, the Minister says that we will not vote against the order, but that is because it uprates the basic state pension next year by RPI. Therefore, it does not do what the Government have told us they want to do in perpetuity. The order overrides the policy that he set out today, and no Labour Member would object to uprating the basic state pension by RPI, as that was always the practice under the previous Government—and quite right, too. As the Minister rightly pointed out, pension credit, which has done an enormous amount to reduce pensioner poverty in the UK since its introduction, will also be uprated accordingly, and we support that as well.

[Jane Ellison]

As the right hon. Gentleman has opened up the debate about other welfare payments, I shall have one more go at my question before he concludes his remarks. Given the scale of the welfare bill and the fact that we are weeks away from when the Opposition’s deficit reduction plan would have commenced, will he please comment on how he would reduce that bill if he were running affairs?

[Stephen Timms]

On a number of occasions during the debate I have made the point that there is a case for temporary lower uprating to contribute to reducing the deficit. My objection is to the permanent character of what is being proposed, and I hope the House will not support it.

The order does not uprate the basic state pension by CPI or by the triple lock; it overrides that, and increases the payment by RPI. I do not expect Labour Members to object to that, but the move to commit to CPI uprating and to make the change permanent, not just while the deficit is being reduced but in perpetuity, is what we object to, and we will be working hard in the months ahead to try to persuade the Government that their policy on that is wrong.

--- Later in debate ---

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

We have had a worthwhile debate, with some thoughtful and well-informed contributions. I compliment all Members who have taken part, as the issue is important to our constituents. All Members will have received representations on the matter, and Members who are here on the final Thursday afternoon before a recess show their sense of priorities.

I enjoyed the accusation from the right hon. Member for East Ham (Stephen Timms), whom I think of as my right hon. Friend, that the policy is ideologically driven. I have never heard the use of the geometric mean described as ideologically driven. Intriguingly, his position seemed to be that it would be bad to make such a proposal on a point of principle, but that he could support it if it was a temporary expedient because of a financial mess. That is not the position of the Government, whose judgment is that CPI is a better measure of inflation, not a temporary fix. I am grateful that he appeared to be saying that he would support us for three years on grounds of expediency.

[Stephen Timms]

If CPI uprating is right in principle, why are the Government not doing it this year?

[Steve Webb]

We are doing it this year for pretty much every benefit in the entire uprating order, which runs to many pages. The ones we are not doing it for are the basic pension and the pension credit. We are not doing it for the basic pension because the budget we inherited provided for a larger increase and we did not want to pay a smaller increase than was planned. If the right hon. Gentleman thinks we should have done so, I will take that advice, but he probably welcomes the fact that we did not follow it.

The Chair of the Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), indicated that unfortunately she could not be in the Chamber for the wind-ups. She asked why we had chosen a different figure for the pension credit. As I think I explained in my opening remarks, as we were putting the basic state pension up by about £4.50 a week, we did not want the increase in pension credit to be less than that, because the poorest pensioners would not have the full benefit of the pension rise. That was the basis for the increase in pension credit.

The right hon. Member for East Ham asked about the impact assessment on occupational pensions, and I am happy to say a few words about that. In December, we published an impact assessment suggesting a £76 billion impact from the reduction in revaluation and indexation. To respond to a point made by my hon. Friend the Member for Finchley and Golders Green (Mike Freer), one way of looking at that is to see £76 billion less in pensions, but another way is to see a £76 billion boost for British business. We are trying to reduce the regulatory burden on British business, so an advantage of the change—albeit not the purpose—is that major British firms will make a saving, and they and their pension funds will be in a stronger position as a result. Many pension schemes and companies have welcomed the change for that reason.

We discovered an error. We made a mistake, for which I apologise. As soon as we found it, we decided to give the House a revised estimate. In addition, we were asked by the Regulatory Policy Committee to revise the way we calculate net present values; I know that the right hon. Gentleman takes a close interest in such matters, and if he is not careful I shall tell him what it was. To draw the threads together, we reissued the figures last week, ahead of this debate, with an £83 billion estimate. That is a further interim estimate. We then undertook field research, as I mentioned, to ask companies how they will respond to CPI/RPI. We have early results; it would be premature to say what the impact will be, but early indications are that fewer pension funds will take advantage of CPI than we had thought. Such things are complex and there could be factors that move them in the other direction, but my sense is that the final version of the figures is more likely to be lower than the one we have already published, but we thought we should give the latest estimate as soon as we had it.

The right hon. Gentleman raised the important issue of accrued rights. It is a fundamental point and it relates to my pre-election remarks about a pension promise made being a pension promise kept. What is the accrued right of someone in a public sector pension scheme, or any pension scheme? The first point is that everything accrued to date—all the revaluations to date, based on RPI—stand; we are not going back and saying that all the revaluations to date have to be reworked according to CPI. The provision is prospective, not retrospective.

The question then is what future expectation people legitimately have. If they are in a company scheme that has RPI in the rules, we actively chose not to override that. If that was their expectation, because it was in the rules, that is what they will get. However, people in the public sector are members of a scheme whose rules are tied by statute to what we do to SERPS. That is the accrued right they have always had, and we are not changing it. We shall go on indexing their pensions in line with what we do to SERPS each year. That was the pension promise they were made; that is the pension promise we are keeping. We are indexing SERPS by CPI. I accept that, and I also accept that on average that will be lower than RPI, typically by about 0.8% a year. I do not dispute that. The accrued right is the one we are honouring.

The right hon. Gentleman said in parenthesis that pensioner inflation is typically higher than general inflation. I do not know whether he actually believes that; it was never something his Government took into account when setting pensions. They never uprated pensions differently because of pensioner inflation. There are certainly periods when pensioner inflation is higher when, as the right hon. Gentleman said, the costs of fuel and food are rising faster than the norm, but there are other periods when it is lower. I have asked officials to look at the matter and there is no evidence over a 20-year run that pensioners buy goods that have that inflation time bomb ticking away inside them. There are times when inflation is higher, which may include recently, and times when it is lower, but over the long run there is no evidence for that proposition.

My hon. Friend the Member for Cardiff Central (Jenny Willott) welcomed the restoration of the earnings link, and the triple lock. I am grateful for her support. She quite properly put me on the spot about the future of the pension system. I accept her analysis; we need a pension system fit for the future. If we are to auto-enrol 10 million of our fellow citizens, we need to be confident that it pays to save, and that they will be better off. I assure her that that is absolutely central to our thinking about long-term pension reform. We are making good progress on that project.

The Chair of the Select Committee asked a number of questions. I will respond to one or two on the record, although she has explained why she is not here to hear the response. She kept making the point that the basic state pension is not the only part of a pensioner’s income. Of course it is not.

I thought that the hon. Member for North Ayrshire and Arran (Katy Clark) made some sincere comments. She raised the issue of people with relatively modest occupational pensions who will get less under CPI. The state pension is bigger than all of those figures. Every one of the figures she quoted is less than the basic state pension. The package of Government policy on pension indexation is for an earnings link on the basic and a CPI link on the additional. The basic pension of every person she is concerned about is bigger than their additional pension, the earnings link in the long run is worth 2% more than prices and CPI is 0.8% less than RPI. The people she is most concerned about will overwhelmingly benefit from our package of policies. Therefore, I can assure her on that point. Taking the package as a whole, they will be better off, not worse off.

My hon. Friend the Member for Gillingham and Rainham (Rehman Chishti) made an important contribution and pointed out that Age UK, which is very much an independent organisation, was delighted by the triple lock, because it is a historic move to give pensioners the best of earnings, prices, plus 2.5%. I wish only that we were able to do this in a normal year—in 16 of the past 20 years, earnings were greater than prices. People would then start to see the benefit of the earnings link and the triple lock, and in time they will.

The hon. Member for Arfon (Hywel Williams) quoted some civil service pension figures. I make the same point to him. All the figures he quoted, based on average civil service pensions, prove my point. If we take them in isolation, CPI is lower than RPI, but people do not just get their civil service pension—they also get their state pension. We are putting more in through the state pension than we are taking away typically through the additional pension because of the relative sizes and the difference between the various indices. Our constituents write to us and raise the bit they see, but overall the state pension will more than make up for that for the vast majority of people, although not for people with very large pensions.

On the ratchet, I simply accept the hon. Gentleman’s rebuke for fiscal irresponsibility. I will take it on the chin and pass it on to the Chancellor for him.

I enjoyed the contribution of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) and his account of his conversation with Jack Jones. I am delighted to say that both coalition partners supported that. We needed the Chancellor on board for that one. I regard it as being to the credit of both coalition partners that we have been able finally to restore the earnings link. I am grateful to my hon. Friend for raising the case of his constituent. As he was describing it, I was thinking that I was sure I signed a letter on that the other day, and I gather he has now received it. I apologise to his constituent for the mistake that was made and I hope that that has now been resolved.

The hon. Member for Hayes and Harlington (John McDonnell) perfectly properly says that he will not support the order and that he is against mass means-testing and so am I. A pension system that allows too many people to retire poor and means that they have to be swept up by a leaky safety net is not a good, sustainable long-term pension system. I have set it as my goal to do something about that. We may not agree about these orders but we have common cause on that principle.