Pensions and Social Security

Stephen Timms Excerpts

Wednesday 13th February 2013 Commons Chamber

[Steve Webb]

I am grateful to my hon. Friend for pointing that out. He will know that we have set a minimum increase of 2.5%, which is what we are having this year. Under that policy, it would now be impossible for us ever to go back to the days of 75p increases.

[Stephen Timms (East Ham) (Lab)]

Will the Minister confirm that the order contains a real-terms cut in the amount of the basic state pension?

[Steve Webb]

The right hon. Gentleman is well aware that the Government increase benefits in line with inflation in the year to September, as did his Government. He will know that inflation under the consumer prices index in the year to September was 2.2%, and we have increased not in line with inflation, but by more than inflation, at 2.5%.

[Stephen Timms]

rose—

[Steve Webb]

I have obviously dealt with the point, but I am happy to give way again.

[Stephen Timms]

The Minister will have heard today’s announcement that CPI is currently at 2.7%. Last year he claimed that he was introducing a substantial real-terms increase in the level of the basic state pension. On precisely the same terms he used last year, this order has a real-terms cut. Will he confirm that the order contains a real-terms cut in the level of the basic state pension?

[Steve Webb]

I well remember our exchanges last year, and I seem to recall that the right hon. Gentleman rejected that way of measuring things.

Our above-inflation increase will be £2.70 a week, taking the new level of the basic state pension to £110.15 a week. That means that from April 2013 the basic pension is forecast to be around 18% of average earnings. My right hon. and hon. Friends might be pleased to know that that is a higher share of average earnings than at any time in the past 20 years. Our triple-lock commitment means that the average person reaching state pension age in 2012 with a full basic pension can expect to receive an additional £12,000 in basic state pension over the course of their retirement.

Let me turn to additional state pensions, often referred to as state earnings-related pension schemes. This year SERPS pensions will rise by 2.2%, which means that the total state pension increase for someone with a full basic pension and average additional pension will be around £3.33 a week, or £175 a year. Unlike the Labour party, which froze SERPS in 2010, the coalition Government will, for the third year in a row, uprate SERPS by the full value of CPI.

Let me turn to pension credit. As I announced in my statement on 6 December, we have taken steps to ensure that the poorest pensioners will benefit from the effects of our triple lock. Each year the standard minimum guarantee must be increased by law at least in line with earnings. That means that the minimum increase this year would be 1.6%. However, we decided to increase the value of the standard minimum guarantee credit by 1.9% so that single people will receive the full increase of £2.70 a week, which is equal to the increase in the basic state pension, while couples will receive £4.15 a week. Consistent with our approach last year, the resources needed to pay that above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase.

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[Steve Webb]

Yes. My hon. Friend is right. The specific benefits for the extra costs of disability are all rising by the full 2.2%.

[Stephen Timms]

Will the Minister tell the House by how much the benefit paid to people in the ESA support group will go up overall under the order?

[Steve Webb]

As the right hon. Gentleman knows, the main rate of ESA will rise by 1%, which is just over 70p a week, and the addition that people in the support group receive will go up by 2.2%.

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[Stephen Timms (East Ham) (Lab)]

I thank the Minister for his explanation of the measures, albeit that it was brief. He reminded us, correctly, that this is the third year since the announcement of the triple lock for the basic state pension. There is absolutely no doubt that the triple lock has been a great success as a rhetorical device. The term has entered the lexicon, and I note that the Minister’s right hon. Friend the Secretary of State for Culture, Media and Sport has gone one better and announced a quadruple lock for the Bill that she recently placed before the House.

While in rhetorical terms the triple lock has undoubtedly been successful, I am afraid that the reality has been rather different, because once again the increase in the state pension is less this year than it would have been if the uprating method previously used was still in place. In retail prices index terms, for the second year this is a real-terms cut in the value of the basic state pension, as well as—I made this point earlier—a real-terms cut in today’s consumer prices index rate.

[Mr Reid]

Will the right hon. Gentleman clarify what his party’s current policy is on uprating? Should it be CPI or RPI?

[Stephen Timms]

We have made it plain, in all the three uprating debates since the election, that in our view there would have been a case for a temporary move from RPI to CPI uprating, as a contribution to reducing the deficit. Unfortunately, the Government decided that this should not be a temporary move, but a permanent move—or so we thought. Now it turns out that they are not even uprating in line with CPI for a large part of the benefits, but the position is the one that I have set out.

[Richard Graham (Gloucester) (Con)]

Will the right hon. Gentleman confirm whether the change from RPI to CPI, for the pension indexation of Labour party agents, is temporary or permanent?

[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.

[Greg Mulholland (Leeds North West) (LD)]

The right hon. Gentleman highlights the pension credit, but if he truly believes that all pensioners should receive that extra money, why does he not support the Government’s idea to move towards a higher pension rate for all?

[Stephen Timms]

I am sure we will have an interesting debate on the Government’s proposals when the time comes, but there is no doubt that pension credits made enormous inroads—thankfully—into pensioner poverty in Britain.

[Mr Winnick]

Shortly after we were elected in 1997, did we not introduce both the non-means-tested winter fuel allowance, which the previous Tory Government had refused to do, and the free television licence for pensioners, which I had tried to introduce in a private Member’s Bill on Friday 16 January 1987, when the Tories opposed it with a three-line Whip?

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[Stephen Timms]

I congratulate my hon. Friend on his foresight in pushing for that change. I am delighted that, partly thanks to his work, the previous Government were able to deliver it. It is greatly appreciated by pensioners.

In my view, the triple lock has been a triumph of rhetoric, but a damp squib in reality. One can only hope that the quadruple lock delivers rather more for those following the Marriage (Same Sex Couples) Bill than the triple lock has done, but perhaps we should be a bit kinder to the triple lock. Perhaps we should credit it at least with saving pensioners from the fate of strivers. The order locks in the strivers tax to working-age benefits for the coming years. Strivers are being hammered.

It is worth looking back at what the Minister said last year about working-age benefits. It is hard to believe now, but last year he announced a 5.2% increase in working-age benefits:

“These increases will ensure that the most vulnerable people in society are protected and that those looking for work get the support they need to move into the labour market.”—[Official Report, 23 February 2012; Vol. 540, c. 1046.]

How different is the picture today! After another 12 months of failed economic policy in which the economy has hardly grown and the Government’s forecasts for unemployment and borrowing have risen sharply, the most vulnerable are no longer being protected; they are being hammered and are paying the price for the failure of the Government’s economic policy and the Chancellor’s inability to deliver the steady growth and falling unemployment that he promised.

Let me remind the Minister of something else he said last year. He said that

“there were siren voices from some quarters suggesting that we could not afford, or that we should not go for, this inflation figure. He is absolutely right that the coalition parties decided that it was a priority. That is something that I am proud to be associated with.”—[Official Report, 23 February 2012; Vol. 540, c. 1045.]

I think we can safely assume that he is not proud to be associated with the shabby treatment of working-age people in the social security system. This year, the siren voices have won. This year, the coalition parties have decided that safeguarding strivers is not a priority. This year, and for the next two years, the most vulnerable are being kicked in the teeth. The measures will come into effect at the beginning of April, on the same day as the introduction of the tax cut for everyone earning over £150,000 a year.

[Steve Webb]

The right hon. Gentleman will have noticed that I did not use the word “strivers”. Will he clarify who he means by “strivers” and who he is excluding from that definition?

[Stephen Timms]

The term “strivers” refers to those who are working, who are often struggling to make ends meet and who are going to find things a good deal harder because tax credits are being uprated by only 1%. That is being done on exactly the same day as every one of the 8,000 people earning over £1 million a year will get a tax cut averaging over £2,000 a week. Let me remind the Minister that that will happen on the same day as the employment and support allowance paid to a single person aged over 25 goes up by 70p a week. The hon. Member for Eastbourne (Stephen Lloyd) reminded the House a few minutes ago about the 75p a week pension rise some time ago. This order will give the people I have just described a 70p a week increase, and that is a disgrace.

[Mr Michael McCann (East Kilbride, Strathaven and Lesmahagow) (Lab)]

Will my right hon. Friend confirm that, although strivers are the very people the Prime Minister has said he wants to protect, he will ultimately be damaging them as a result of the new regulations?

[Stephen Timms]

That is undoubtedly the case. The rhetoric and the reality are quite different.

[Dame Anne Begg (Aberdeen South) (Lab)]

Does my right hon. Friend acknowledge that the bedroom tax will also come into effect on 1 April? That means that a large group of people whose income has not gone up by very much will have to subsidise their housing costs to a far greater extent than they are doing at the moment.

[Stephen Timms]

My hon. Friend is absolutely right. It is fair to say that the bedroom tax is increasingly being seen as a hated tax across the country, as its impact becomes clearer and the date on which it will be applied approaches. It will make life a great deal harder for those people who have no option to move into a smaller place because there are no smaller places available in the council or housing association stock.

I commend to the Minister the speech made by the Bishop of Leicester in the other place in the Second Reading debate on the Welfare Benefits Up-rating Bill on Monday. He said of the Bill:

“It will depress hard-working families even further, remove much needed support for the vulnerable and unable to work, and potentially take us in the wrong direction for a generation, condemning countless children to poverty. It is a proposal that I cannot support.”—[Official Report, House of Lords, 11 February 2013; Vol. 743, c. 471.]

He was speaking for Britain. The Resolution Foundation has pointed out that the measure is a strivers tax, and that well over half the savings from uprating working-age benefits by just 1% over three years will be taken from people in work, because tax credits are being cut in real terms.

My hon. Friend the Member for Stretford and Urmston (Kate Green) has pointed out that the provisions will hit women particularly hard. The House of Commons Library has calculated that two thirds of those hit will be women. The real-terms cut of £180 to statutory maternity pay has already been dubbed the “mummy tax”. Taking into account all the cuts that will affect a woman during pregnancy and the first year of her baby’s life, including maternity pay, pregnancy support, tax credits and child benefit, the loss adds up to an average of £1,700. So, on the day when the highest paid are getting a massive tax cut and the rich are getting a £3 billion tax giveaway, people who are striving will be hammered.

[Steve Webb]

The right hon. Gentleman’s words in Hansard will show that he is very concerned about all this. Will he therefore tell the House whether it is his intention to reverse any of these measures?

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[Stephen Timms]

The hon. Gentleman knows that we have demanded not only an inflation-level rise this year but a similar rise for both the two years covered by the Welfare Benefits Up-rating Bill. As to our policies for beyond the next election, he will have to await our manifesto, just as the whole country is eagerly awaiting it. It will tell him how we will put these problems right.

[Ian Murray (Edinburgh South) (Lab)]

Is my right hon. Friend as surprised as I am—I asked the Secretary of State for Scotland this question this morning—that it is a Liberal Democrat Minister who is about to give the biggest tax cut to millionaires the country has ever seen, while at the same time ensuring that people trying to do the right thing are worse off?

[Stephen Timms]

My hon. Friend is absolutely right. That does surprise me very much because in opposition the Minister’s party used to champion reducing child poverty. In government, however, it has surrendered and is cutting in real terms the incomes of the poorest in what is frankly a craven surrender to the Tory party at its worst. It is implementing policies that even Mrs Thatcher did not dare propose.

[Kate Green]

My right hon. Friend is right. This order will simply make poor people poorer. Is it not absolutely cynical that, rather than face up to the fact that more children will be in poverty as a result of these miserable measures, the Government decide instead to change the definition of child poverty?

[Stephen Timms]

That appears to be what they are going to do, and it was striking that the impact assessment for the Welfare Benefits Up-rating Bill did not tell us what the impact on child poverty would be. After the election, the Minister and his colleagues started well and said, “Yes, we are serious about tackling child poverty; here are the figures.” They have stopped that now and it is difficult to get an answer out of them even with a parliamentary question. My hon. Friend is absolutely right—they apparently want to change the definition of child poverty, but they will not get away with it because we will be able to tell what is going on.

[Mr Winnick]

My right hon. Friend is being very generous with his time. Is he aware that, as someone who from time to time did not always agree with every aspect of the Labour Government during their 13 years—although I certainly did in the vast majority of cases—one of the things that most pleased me were the measures that lifted so many families out of poverty? Both Tony Blair and his successor as Prime Minister can be proud of that.

[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.

[Kate Green]

I am grateful to my right hon. Friend for allowing a further intervention. When Government Members say that the uprating of benefits is in line with the uprating of wages, including in the public sector, are we not talking about the exactly the same people who are facing a double whammy? Those receiving the 1% benefits uprating are the same as those receiving the 1% pay uprating.

[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.

[Mr Reid]

The right hon. Gentleman is being generous in taking interventions. I have been sitting listening and wondering what the Labour party’s policy is. If my memory is correct, he said earlier that CPI was currently 2.7%. Will he tell the House by how much all these benefits would have been increased if a Labour Government were in power?

[Stephen Timms]

I answered that point earlier. I was hoping the hon. Gentleman was going to tell us why, after he attacked us a few moments ago for the 75p pension rise of many years ago, he is this evening supporting a 70p increase for people such as those who are dependent on employment and support allowance in the work-related activity group. If he explained the conflict between the two positions he has taken, I would be very grateful to him.

[Mr Reid]

I am sure the right hon. Gentleman will recall that I spoke in debate in support of an amendment to the Welfare Benefits Up-rating Bill to increase benefits in line with average earnings, and that is still my view. As he knows, the order is not amendable, so either we vote for the whole thing, including the triple lock for pensioners, or we vote against it, but my views are on the record.

[Stephen Timms]

I am grateful to the hon. Gentleman for clarifying that he opposes what the Government are doing in this order.

I was talking about the impact on child poverty. We are expecting the revised projections from the Institute for Fiscal Studies ahead of the Budget. On the basis of the numbers that Ministers have reluctantly given us for the impact of this measure on child poverty, we will see a projected increase in child poverty of more than 500,000 by the expected date of the next election and 1 million by 2010. That is a shameful record indeed, undoing so many years of progress made in reducing child poverty by the previous Government, as my hon. Friend the Member for Walsall North (Mr Winnick) pointed out.

[Mr Reid]

I have put my views on the record, but the right hon. Gentleman has not answered the question I asked in my second intervention. What percentage increase does he think should be in the order this evening?

[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.

[Ian Murray]

I think what the hon. Member for Eastbourne (Stephen Lloyd) is trying to say is that the 50p tax rate created £7 billion of tax avoidance, so rather than going after the tax avoidance the Government have reduced the rate.

[Stephen Timms]

My hon. Friend is right: if it is an avoidance problem, the Treasury should address that.

Strivers will pay the price for the Government’s economic failure. The most vulnerable are being hammered and the rich are getting a tax cut. The solution is to get Britain back to work. That is why we have argued for our compulsory jobs guarantee. It will cost about £1 billion a year. We will pay for it by restricting the tax relief on pensions saving for those earning over £150,000 per year. We will guarantee anyone over 25 who has been in receipt of jobseeker’s allowance for two years the offer of a choice of jobs or a training position, and after that the payment of jobseeker’s allowance will cease.

The case for our compulsory jobs guarantee received a welcome boost from the Minister’s Department when it published an evaluation of the last Government’s future jobs fund. I am grateful to both Ministers who are in their places on the Front Bench for the publication of this helpful and informative evaluation. The evaluation pointed out just how successful the future jobs fund was in getting young people back to work. It estimated that the net benefit to society as a whole was £7,500 for every participant in the future jobs fund, and that is after taking account of all the costs of the initiative. Of the gross cost of some £750 million for the future jobs fund, over half was recouped by the Treasury in additional tax payments and reduced benefit payments. Our compulsory jobs guarantee will repeat that success for the over-25s. We will get Britain back to work; we will end this punishing spiral of increasing struggle for strivers and for the most vulnerable in order to fund, as the Government find they have to do, the price of ever-increasing unemployment.

The proposals in this order for working-age benefits are a disgrace, although the Minister made a perfectly fair point in his speech earlier—that an increase is better than no increase at all. The proposals for pensions uprating are worth having—I put it no more strongly than that—but the proposals for working-age benefits are shameful and quite contrary to everything the Minister’s party argued for when in opposition. I hope that in the course of this evening’s debate we will be able fully to expose that.