Compulsory Jobs Guarantee

Debate between Stephen Timms and Steve Webb

Wednesday 11th February 2015 Commons Chamber

[Stephen Timms]

We will be delivering a guarantee, exactly as we did with the future jobs fund. Anyone can look back at the record of the future jobs fund, where a guarantee was delivered. It will be again.

I shall say a little more about how the guarantee would work. Participants would be required, if their employer did not plan to keep them on when the subsidy ended, to pursue intensive job search for a permanent opportunity at the end of the six months. Any jobseeker who refused to take up a job offered under the guarantee would, in the normal way and in line with the long-standing conditions for benefit claims, lose their benefits. That is always the case.

[The Minister for Pensions (Steve Webb)]

The right hon. Gentleman is very careful with his figures, so he will know the answer to this question. He points to the future jobs fund as evidence of how his new scheme would work, and he says he hopes those new jobs would be in the private sector. What percentage of future jobs fund jobs were in the private sector? What is the figure?

[Stephen Timms]

Very few. There is the good example of Jaguar Land Rover taking on a group of young people under the future jobs fund, and my understanding is that every single one of those young people was kept on in their job when the wage subsidy ended. The future jobs fund was largely about the charity and public sectors; the guarantee is largely about the private sector, exactly as Jobs Growth Wales has been.

Social Security and Pensions (Statutory Instruments)

Debate between Stephen Timms and Steve Webb

Monday 9th February 2015 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

Will the Minister also confirm the straightforward fact that if the previous arrangement of uprating by RPI had remained in place throughout this Parliament, the state pension would be higher now than the figure in this order before us?

[Steve Webb]

I will come on to the issue of the use of the RPI, because the right hon. Gentleman knows the RPI has fallen into disrepute and no credible Government would have continued with the RPI, so the question does not arise.

The new rate of the state pension will be £115.95 a week for a single person, an increase of £2.85 from last year. We estimate this means the basic state pension will be around 18% of average earnings, and my hon. Friends might be interested to know that, as a share of the national average wage, that is the highest rate of state pension for over two decades. Thanks to the coalition Government’s commitment to the triple lock, a person on a full basic state pension will, as my hon. Friend the Member for Worcester (Mr Walker) said, receive around £560 more in 2015-16 than if the basic state pension had been uprated only by earnings during this Parliament. That commitment means that, since coming into office, this coalition has increased the basic state pension by about £950 a year.

The triple lock applies to the basic state pension, and the question is: what should we do for the poorest pensioners on pension credit? Under the law left to us by the previous Government, we are required to uprate pension credit only in line with earnings. We could therefore have done the legal minimum and put the pension credit up by about 0.6%. However, we thought that that was too little for the poorest pensioners. We wanted to ensure that the very poorest pensioners, those who are dependent exclusively on the guaranteed credit, would benefit in full from the triple lock.

Each year, the standard minimum guarantee must be increased only in line with earnings, which would have equated to 0.6%, but to ensure that the poorest pensioners benefited from the full cash value of the increase in the basic state pension, we decided to increase the value of the standard minimum guarantee by 1.9%, so that single people would receive an increase of £2.85 a week and couples would receive an increase of £4.35 a week. Consistent with our approach last year, the resources needed to pay for this 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 may see less of an increase.

This year, the state earnings-related pension scheme—SERPS—and the other second pensions will rise by 1.2%. Labour froze SERPS pensions in 2010, but this will be the fifth year in a row that the coalition has uprated SERPS by the full value of the consumer prices index.

This year, the coalition will continue to ensure that those people who face additional costs because of their disability, and who may have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of the CPI. So disability living allowance, attendance allowance, carers allowance, incapacity benefit and personal independence payment will all rise by 1.2 % from April 2015. In addition, those disability-related and carer premiums paid with pension credit and working-age benefits will also rise by 1.2%, as will the employment and support allowance support group rate and the limited capability for work and work-related activity element of universal credit. Pensioner premiums paid with working-age benefits will increase in line with pension credit.

We have been debating the use of the CPI on a more or less annual basis for the past four years. When we first switched to using the CPI, the right hon. Member for East Ham (Stephen Timms) responded to the debate. He rather inventively accused us of being “ideologically driven” in our switch to the consumer prices index from the retail prices index. The choice of a price index for the uprating of benefits is not quite up there alongside the great battle between communism and capitalism, is it? At the time, however, he said:

“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.”—[Official Report, 17 February 2011; Vol. 523, c. 1182.]

Since then, there has been a great deal of analysis of the suitability of different price indices, and his view that we should somehow clear the deficit—I do not know when, under his plan—and then go back to the good old RPI is no longer credible. I hope that he will set out his position on uprating when he responds.

The right hon. Gentleman is sceptical of my views on these matters—he hides it well, but he probably is—so I want to bring forward two witnesses. My first witness is Tim Harford, who presents the BBC’s statistics programme “More or Less”.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

I thank the Minister for his explanation and confirm that I do not plan to express concerns about the Guaranteed Minimum Pensions Increase Order 2015. I do, however, wish to comment on the Social Security Benefits Up-rating Order 2015, on which he spent most of his time.

As we noted last year, this is a rather thinner debate than the corresponding ones prior to 2014. Much of what we used to consider in these debates is now covered by the Welfare Benefits Up-rating Act 2013, which imposed a 1% uprating for this year, and so is outside the scope of these orders. Uprating this year is notable for one element at least: for the first time since its introduction, the so-called “triple lock”, which the Minister referred to on a number of occasions, has delivered a higher rise in the state pension than the formula in use up to 2010 would have done.

The term “triple lock” was intended to convey the impression of great generosity towards pensioners, but it is worth just reflecting again on the history of its use. In its first year it was announced but not actually used, because it would have delivered a pension rise that was too small and so the Minister overrode it and adopted RPI. He told us a few minutes ago that he did not think much of RPI, but he used it in the first year in place of the triple lock, because the triple lock would have delivered a small rise. He was sensible to override the triple lock, because clearly it would have been unwise to use it in that first year. In the following three years, the triple lock was applied and in each year it delivered a pension increase that was lower than the increase that would have been delivered under the formula in use previously—uprating in line with the increase in RPI.

This year, for the first time, the increase will be slightly greater than would have been delivered under the previous formula. The increase in this order is 2.5%—the minimum allowed under the current arrangements—whereas the increase in RPI is slightly lower at 2.3%. It remains the case that the basic state pension for 2015-16 would be higher than the figure in the order, under paragraph 4(3)(b), if the formula in use before the general election had been applied each year since then, instead of the triple lock. Contrary to the impression that is frequently given, the triple lock has in fact delivered a lower state pension in each year that it has been applied than the previous arrangement would have done. We are often told that the triple lock is this extraordinarily generous arrangement, when, in fact, it is less generous and delivers less to pensioners than the previous arrangement would have done.

[Steve Webb]

Just for the avoidance of doubt, let me say that we are paying a pension increase this April that is four times the rate of earnings growth and double the rate of headline inflation. Is the right hon. Gentleman saying that that is not enough?

[Stephen Timms]

I am merely pointing out to the Minister that the increase is 0.2 percentage points higher than the increase in the RPI. Before the last election, the state pension was raised in line with the RPI. If that arrangement had continued each year since 2010, the state pension would be higher for the coming year than the figure in the order in front of us. I simply think that, in listening to his frequent protestations about how generous the Government have been to pensioners, the House should be aware that in every single year since 2010 the level of the state pension is lower than it would have been if the previous arrangement had stayed in place—except for the first year when they matched what the arrangement would have been before the election. That is surprising, especially in the light of the fact that Ministers keep on telling us about their generosity towards pensioners.

As well as the state pension, the order contains uprating details for universal credit. Those are currently largely of academic interest, because so few people are in receipt of universal credit. The Government announced in November 2011 that a million people would be claiming universal credit by April 2014. That was an absurd boast, as we pointed out at the time. The Government have consistently failed to grasp the scale of what would be required to implement universal credit. The latest figure for universal credit claimants is 27,000. At the present glacial rate of progress, it will be 1,571 years before the transition to universal credit is complete.

In 2011, Ministers said that transition to universal credit would be complete by 2017, a date that was then six years ahead. Now we are told that the transition to universal credit will be complete by 2021 at the earliest, which is six years away. Expected completion has slipped by four years in four years. The National Audit Office reports that £344 million had been invested in universal credit IT up to 31 October 2014, but that the value of the assets created by that date was £125 million—little more than a third of the sum invested. Waste on such a large scale reflects just how much trouble this project is now in, and the problems continue. Last October, the Department predicted that there would be 100,000 people claiming universal credit by May of this year. I recently tabled a written question to inquire whether Ministers still thought that that would be achieved. The Minister for Disabled People, whom I am delighted to see in his place, answered the question on 26 January. He said:

“The latest forecast agreed with OBR still rounds to 0.1 million cases”.

So the figure has clearly already slipped again, and that is only since October.

This debate is the last of its kind before the election, so it gives us an opportunity to reflect on the cumulative impact of the Government's changes to benefits in this order and the previous ones. That task has been greatly assisted by the publication last month of the report from the Institute for Fiscal Studies—the former employer of the Minister for Pensions—on “The effect of the coalition's tax and benefit changes on household incomes and work incentives.” It is a very revealing analysis. Let me quote the opening couple of sentences, which say:

“Tax and benefit changes introduced by the coalition have reduced household incomes by £1,127 a year or 3.3% on average...These involve an average loss to households of £489 per year, comprising an average gain of £321 a year from cuts to direct taxes, an average loss of £333 a year from increases in indirect taxes and a £477 a year average loss from benefit cuts.”

Even the gain through direct taxes is outweighed by the loss through indirect taxes, never mind the bigger loss from benefit cuts as a result of this order and its predecessors.

The report goes on to state:

“Low-income working-age households have lost the most as a percentage of their income from tax and benefit changes introduced by the coalition…Middle-income working-age households without children have gained the most”.

That is what the Government have achieved. Low-income households have lost and middle-income households have gained. That is not what the Minister and his hon. Friends used to argue for when they were in opposition, but it is what they have delivered in office.

The IFS found that households with children have been hit hardest by tax and benefit changes. The poorest households with children have lost more than 6% of their incomes and those without children in the middle of the income distribution have seen their incomes rise as a result of tax and benefit changes, as they have benefited from personal allowance increases and have not been affected by social security changes such as those to tax credits. Families out of work or with only one parent in work lost almost £2,000 a year as a result of the changes, while families with both parents in work lost between £1,000 and £1,500 a year.

The shadow Secretary of State, my hon. Friend the Member for Leeds West (Rachel Reeves), published new analysis from the House of Commons Library last week that shows that five more years of failure to make work pay of the kind we have seen in the past five years, with wages today on average £1,600 less in real terms than at the general election, and wages falling short of expectations to the same extent in the next Parliament as they have in this, would mean another £10 billion in social security spending on top of the figure already projected.

The Government’s own Social Mobility and Child Poverty Commission, in its second annual assessment of progress towards the 2020 child poverty targets, was scathing. It states:

“The impact of welfare cuts and entrenched low pay will bite between now and 2020. Poverty is set to rise, not fall. We share the view of those experts who predict that 2020 will mark not the eradication of child poverty but the end of the first decade in recent history in which absolute child poverty increased…We have come to the reluctant conclusion that, without radical changes to the tax and benefit system to boost the incomes of poor families, there is no realistic hope of the statutory child poverty targets being met in 2020.”

The Minister served, as I did, on the Public Bill Committee on the Child Poverty Act 2010. He argued then that the targets should be more demanding, but his legacy, and that of his colleagues, will be that there is no realistic hope of achieving those targets by 2020.

Should we be elected in May, our approach will be different. We will balance the books and get the national debt falling in a fair way. We also want the Office for Budget Responsibility to monitor and report on the Government’s progress in reducing child poverty. That is something that the OBR should do. We plan to restrict the growth of benefit spending through stronger, more balanced economic growth and more good jobs paying decent wages. We will tackle low pay and insecurity, raise the minimum wage and improve its enforcement, tackle the abuse of zero-hours contracts and expand free child care for working parents. We will incentivise payment of the living wage by employers by offering a 12-month tax break employers who raise their employees’ wages to that level. We will introduce our compulsory jobs guarantee to get more young and long-term unemployed people off benefits and into work.

We will reform the banks and end the dither on big decisions, such as airport expansion, with an independent infrastructure commission, and we will back British firms by cutting business rates for small firms and unashamedly arguing for Britain to stay in a reformed European Union. We have a radical plan for spreading power and prosperity across the country, including giving England’s city and county regions more power over their public transport networks and devolving £30 billion-worth of funding over five years to the English regions. We will tackle the housing crisis with a commitment to build 200,000 homes a year by 2020.

We could have recognised the case for a temporary use of CPI for benefit uprating as an element of a balanced programme of deficit reduction. We do not, though, support the Government’s decision to adopt CPI permanently. We do support the increase in the state pension in line with the triple lock, and as voting against this measure would have the effect of delivering no increase at all, I will not be asking my hon. Friends to vote against the orders.

When we look at the impact on poverty and on middle income households of the policies that have been adopted over the past five years, it is clear that it is urgently time for a change.

[Steve Webb]

With the leave of the House, I shall respond briefly. The right hon. Member for East Ham (Stephen Timms) will not be asking his hon. Friends to vote against the orders because he has sent them all home, as far as I can tell.

Let me try to deal with a few of the points that were raised. There were lots of comparisons between the rate we are paying and what would otherwise have happened, so to be clear about the £560 statistic, the comparison is as follows: the basic state pension—the £520 comparison—is the triple lock against earnings. That is what would have happened, compared with uprating in line with earnings, but there are several different benchmarks.

On the state pension, we cannot have these debates without refreshing our memory. One of the reasons that we have the triple lock and that 2.5% floor is that the Opposition, when in government, once raised the pension by a paltry 75p. They were so embarrassed by that that they had to have a £5 increase the next year. We do not think that is good policy, so we say that there should be a worthwhile increase each year, which is where the triple lock comes in.

The right hon. Gentleman says that the benchmark is lower than it would have been if we had linked the pension to an index of inflation which the Office for National Statistics report says is discredited, so why is that an interesting comparison? He says that the Labour party rejects the move to CPI, but presumably he is not committing to RPI as he is not allowed to make any spending commitments because the shadow Chancellor will not let him. “Vacuous posturing” is a rude phrase and I would not use it. The Opposition do not like what we are doing, but to imply that in a year when we are increasing the benefit by four times the average wage and twice the rate of inflation that that is still not enough is extraordinary.

If the right hon. Gentleman wants to stand up and say, “We’d pay a higher pension,” fine. He is entitled to say that, but he has not said that Labour would pay a higher pension. He wants us to think that, but there is no money to pay a higher pension. He simply wants to imply that Labour would do so. He says that the Opposition reject CPI as the main measure, but he has not told us what it would be. How can people vote for the Labour party in anticipation of what it would do on the pension when it has not said what it would do on the pension? I hope that before the election Labour say what it would do. There was an opportunity to do so this afternoon and the right hon. Gentleman failed to take it.

The right hon. Gentleman raised the issue of universal credit, a matter which is regularly debated in the House. He referred to the current rate of progress and said that it will go on for ever. He understands the importance of an accelerating process—the need to get a benefit right and to start with a limited group before applying it to a broader group, and that is exactly what has been happening with universal credit. It is worth saying that our projections for the numbers on universal credit are affected to some extent by the jobs revolution that is going on. As fewer people are unemployed, fewer people will be within the scope of universal credit. Every time we look at the numbers, falling unemployment is one of the factors that reduce the number of people on universal credit.

The right hon. Gentleman asked about the IFS report. It was quite candid about a number of limitations. For example, it acknowledged that the figures it uses assume that everybody takes up their benefits, which we know is not the case, so that is an unrealistic assumption. Crucially, the report does not include spending on public services. We know that the poorest 20% of households get five times as much value in kind from public spending as they contribute in tax, so the fact that we have ring-fenced the key public services, such as health and schools, is of huge benefit to those at the bottom of the pile, but that is not something that the report takes into account.

The right hon. Gentleman also mentioned work incentives. The IFS report states:

“By cutting benefits for non-working families and increasing the personal allowance, the coalition has significantly strengthened average financial incentives to work for most groups.”

He says that there is a challenge, and of course there has been over the past four or five years. On one hand the Opposition say that we have not cut the deficit enough, but on the other hand they have voted against practically every measure we have brought forward to tackle it.

[Stephen Timms]

indicated dissent.

[Steve Webb]

The Opposition voted against the Welfare Reform Act 2012, which made the principal changes necessary for reducing the deficit. They recognise that, had they been in office, there would have been substantial cuts in public spending, and no doubt that would have included social security, which is one of the biggest single areas of public spending, but they have had the luxury of never having to say where the cuts would have been made. The right hon. Gentleman knows in his heart of hearts that, had his party been in office, there would have been significant reductions in spending on social security, so he cannot compare the situation with some blank sheet of paper against some benign economic backdrop. In the last year of the previous Labour Government we saw record borrowing—£150 billion, which is an extraordinary amount of money—so the idea that they could somehow have closed the deficit without having any impact on people’s living standards is extraordinary and unrealistic.

Let us be absolutely clear about the comparison figures. On the issue of the level of the pension, compared with what it might have been, £560 is the key figure we should be using. What we have done through the triple lock, and through each successive measure, means that the pension is higher than it would have been under the policy that the Labour party told us it would implement—RPI to 2012 on earnings, which was in its manifesto—and higher than it would have been had we gone for earnings throughout. Obviously, the figures depend on which baseline one assumes. The idea that the Labour party, had it been in office, would have carried on with RPI, ignoring the statisticians telling them that it should not be used and ignoring the fiscal position, is simply implausible, because it is not a relevant benchmark.

These regulations are important because they pave the way for the next step in our efforts to restore the state pension to where it should have been—a decent amount that provides security and dignity for people in old age. What matters is what people get in retirement, relative to what they used to earn, and on that measure the state pension as a share of the national average wage, and the pension as a result of these regulations, will be at their highest level for more than two decades. That is something of which this Government can be proud. I commend the regulations to the House.

Question put and agreed to.

Pensions

Resolved,

That the draft Guaranteed Minimum Pensions Increase Order 2015, which was laid before this House on 19 January, be approved.—(Steve Webb.)

Pension Schemes Bill

Debate between Stephen Timms and Steve Webb

Tuesday 25th November 2014 Commons Chamber

[Stephen Timms]

As the hon. Gentleman is well aware, we have not tabled amendments on Report. Of course, we debated in Committee three Opposition amendments, but we were sadly unsuccessful. I am delighted that the hon. Gentleman has tabled an amendment, which will provide us with a little relief when we get to the second group; at least it will not be entirely Government material on the amendment paper. I commend the hon. Gentleman for his amendment, and he is right that the Opposition have not tabled amendments today.

[Steve Webb]

I shall not detain the House for long, but the right hon. Member for East Ham (Stephen Timms) asked a couple of specific questions. The impact of regulations brought in under the primary Bill in front of us would depend on what they can contain. We cannot do an impact assessment because we have not yet written the regulations. Generally when we produce regulations and they have a cost on business, there is an impact assessment to go with them. I hope that explains why we have not published an assessment at this stage.

On the timing, our broad goal is to have all this in place by April 2016. The right hon. Gentleman will know that a very significant change in April 2016 will be the end of contracting out, so defined benefit pension schemes will be considering what they do in response to that. In particular, if a shared risk scheme or something of that sort is envisaged, there clearly needs to be a legislative framework by around that time—not right on the day, but about that time. That is our goal and the rough timetable that applies.

The right hon. Gentleman asked about the negative and affirmative resolutions. The collective and shared risk regulations are generally subject to the negative procedure. He will see that clause 41 deals more generally with regulation-making powers and considers when they should be negative and when affirmative. In general, as I say, most of these are relatively technical regulations, so the negative procedure applies. I hope that is helpful. I commend the new clause to the House.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

New Clause 2

Power to impose requirements about factors used to determine each benefit

Regulations may make provision as to the factors to be used to determine what proportion of the amount available for the provision of any collective benefits by a pension scheme is to be available for the provision of a particular collective benefit.—(Steve Webb.)

This amendment allows regulations to set out the factors that must be used to calculate members’ benefits.

Brought up, read the First and Second time, and added to the Bill.

New Clause 3

Power to impose requirements about dealing with a deficit or surplus

(1) Regulations may specify circumstances in which a deficit or surplus in respect of any collective benefits that may be provided by a pension scheme must be dealt with in a particular way.

(2) The regulations may, in particular, specify steps that must be taken by the trustees or managers and the period or periods within which any steps must be taken.—(Steve Webb.)

The amendment allows regulations to set out how a deficit or surplus must be dealt with in specific circumstances, the steps trustees or managers may be required to take and the time period within which those steps must be taken.

Brought up, read the First and Second time, and added to the Bill.

New Clause 4

Requirement to wind up scheme in specified circumstances

(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the whole or part of the scheme in specified circumstances.

(2) The regulations may, in particular—

(a) provide for the winding up of the scheme or part to be as effective in law as if it had been made under powers conferred by or under the scheme;

(b) require the scheme or part to be wound up in spite of any legislative provision or rule of law, or any scheme rule, which would otherwise operate to prevent the winding up;

(c) require the scheme or part to be wound up without regard to any legislative provision, rule of law or scheme rule that would otherwise require, or might otherwise be taken to require, the implementation of any procedure or the obtaining of any consent with a view to the winding up.”—(Steve Webb.)

This allows regulations to require the trustees or managers of a pension scheme under which collective benefits may be provided to wind up the scheme or part of it in circumstances specified in the regulations.

Brought up, read the First and Second time, and added to the Bill.

New Clause 5

Policies about winding up

(1) Regulations may require the trustees or managers of a pension scheme under which collective benefits may be provided—

(a) to have a policy about the winding up of the scheme or part of it;

(b) to follow that policy.

(2) The regulations may, in particular—

(a) require the trustees or managers to consult about the policy;

(b) make provision about the content of the policy;

(c) set out matters that the trustees or managers must take into account, or principles they must follow, in formulating the policy;

(d) make provision about reviewing and revising the policy.

(3) The regulations may, in particular, require the policy—

(a) to contain an explanation of the circumstances in which the trustees or managers are permitted or required to wind up the scheme or part and any requirements about the distribution of assets (including any order of priority);

(b) to contain an explanation of how the trustees or managers intend to use any powers to wind up the scheme or part and how they intend to use any powers in relation to the distribution of assets (including any order of priority);

(c) to contain an explanation of how the costs of winding up are required to be met or how the trustees or managers will use any powers to decide how those costs are to be met.—(Steve Webb.)

This allows regulations to be made requiring the trustees or managers of a pension scheme under which collective benefits may be provided to have a policy about winding up.

Brought up, read the First and Second time, and added to the Bill.

New Clause 6

Working out which assets are available for the provision of which benefits

Regulations may make provision, in relation to a scheme under which any of the benefits that may be provided are collective benefits, about how to work out—

(a) which assets held by the scheme are held for the purposes of providing collective benefits;

(b) which assets held by the scheme are held for the purposes of providing which collective benefits;

(c) which assets held by the scheme are held for the purposes of providing any benefits other than collective benefits.—(Steve Webb.)

This regulation making power will allow provision to be made about how to work out which assets are held for the purposes of providing which benefits.

Brought up, read the First and Second time, and added to the Bill.

New Clause 7

Independent advice in respect of conversions and transfers: Great Britain

(1) Where a member of a pension scheme has subsisting rights in respect of any safeguarded benefits, or a survivor of a member has subsisting rights in respect of any safeguarded benefits, the trustees or managers must check that the member or survivor has received appropriate independent advice before—

(a) converting any of the benefits into different benefits that are flexible benefits under the scheme;

(b) making a transfer payment in respect of any of the benefits with a view to acquiring

flexible benefits for the member or survivor under another pension scheme.

(2) The Secretary of State may by regulations make provision about—

(a) what the trustees or managers must do to check that a member or survivor has received

appropriate independent advice for the purposes of subsection (1), and

(b) when the check must be carried out for the purposes of that subsection.

(3) The Secretary of State may by regulations create exceptions to subsection (1).

(4) In subsection (1)(b) the reference to another pension scheme includes a scheme established in a country or territory outside Great Britain.

(5) Where the trustees or managers fail to carry out a check required by this section, section 10 of the Pensions Act 1995 (civil penalties) applies to any trustee or manager who failed to take reasonable steps to ensure that the check was carried out.

(6) Failure to carry out a check required by this section does not affect the validity of any transaction.

(7) In this section—

“appropriate independent advice” has the meaning given by regulations made by the Secretary of State;

“safeguarded benefits” means any benefits other than—

(a) money purchase benefits, and

(b) cash balance benefits.”—(Steve Webb.)

This provides that before trustees or managers of a pension scheme (in Great Britain) in which a person has safeguarded benefits convert them into flexible benefits, or make a transfer to another scheme to acquire flexible benefits, they must check that the person has received appropriate independent advice.

Brought up, and read the First time.

--- Later in debate ---

[Steve Webb]

Obviously, that issue is not spelled out in the Bill, but it is important none the less. What we envisage is that people will contact the guidance service, which by then will have a brand, an identity, a phone number and all the rest of it, and will make an appointment if they want face-to-face or telephone-based guidance. Obviously, they can access the website as many times as they like, but if they wish to have face-to-face or telephone-based guidance, it will be at a set time on a set date. There will be a period between the initial contact and the guidance appointment for the gathering of information to make the session more useful. Coming out of that session will be documentation and signposting for further sources of information, guidance and, if they wish, regulated financial advice.

Clearly, we want everybody to be able to access the guidance, so the core model is that a person does that once. But the Pensions Advisory Service has a business as usual role anyway and it is inconceivable that, even if a person has had their formal guidance session with the service and then rang it up the next day with a question, it would put the phone down on them; of course it would not, so there would be flexibility. Clearly, we need to think further on that. We need to reflect on the fact that if someone has a guidance session and then has additional needs, is a formal second guidance session appropriate or necessary or are there other ways of dealing with those needs? The core model is one session, but other resources, such as signposting, are available on tap. We are considering whether further flexibility could be introduced.

I hope that I am near to conclusion. I ran through the relatively minor and consequential amendments that come towards the back of the Bill and that are relatively uncontentious. On the title of the Bill, amendment 1 amends the title of the Bill to include

“provision designed to give people greater flexibility in accessing benefits and to help them make informed decisions about what to do with benefits.”

That change is to reflect more accurately the content of the Bill in the light of the new amendments on the pension flexibilities.

In sum, these new provisions are designed to ensure that the guidance guarantee works as effectively as possible; that the various rules on transfers do not act to the detriment of people who are left behind in the schemes; and that the process is properly overseen with the provision of independent financial advice. They also spell out who pays for the help, and whether or not it is taxed. The provisions help to flesh out some of the detail of this important policy, and I commend new clause 7 to the House.

[Stephen Timms]

We are now embarking on a debate on 27 Government new clauses, 40 new Government amendments and—providing welcome relief—an amendment from the hon. Member for Reigate (Crispin Blunt) and the right hon. Member for Sutton and Cheam (Paul Burstow).

The changes the Government have announced will introduce much-increased flexibility for savers, which is welcome. They will also make the pensions market more diverse and complicated and lead to a whole new range of products about which consumers have not had to make decisions in the past. Of course it is right that safeguards need to be in place to protect savers adequately from the danger of being taken advantage of, as we have seen happen in this market in the past.

We are dealing with an area full of technicalities, some of which we have just been hearing about, and fraught with difficulty. I appreciate that the Minister had no choice but to introduce these measures at the same time as the implementation of the Budget changes, but he will recognise, as the House certainly will, that there is a danger, in providing so little opportunity for the House to conduct proper scrutiny, of creating serious problems and a future mis-selling scandal.

We have set out three tests for the new flexibility. First, is there reliable advice for people saving for their retirement? Secondly, is the system fair to those on middle and lower incomes who want to secure retirement income? Thirdly, are the Government confident that the changes will not result in extra costs to the state, either through social care costs or by increasing the cost of housing benefit? I would welcome the Minister’s comments on the extent to which he believes the changes before the House will meet those tests.

The annual workplace pension survey carried out by the National Association of Pension Funds this year showed that only 19% of savers feel very capable of knowing what to do with their savings. That is ahead of the very major changes about to take effect, and we can be certain that consumer bewilderment will rocket from next April. The new arrangements are supposed to be in place from that date—in less than six months—but we do not yet know how they will work.

In previous discussion about the form that the guidance will take, the Minister said that

“it is not formal, detailed or product-specific”.

That is rather different from what was said by the Financial Conduct Authority when it launched its consultation on guidance. It seemed to envisage something rather more substantial than the Minister suggested in his remarks, but the FCA will produce only the standards; Her Majesty’s Treasury will oversee the drafting of the guidance. Nobody can yet feel confident about what will emerge from that process. A number of questions must be asked, such as the one posed by my hon. Friend the Member for Edmonton (Mr Love) earlier. It is not clear even who exactly will pay for the advice or through what mechanism it will be paid for. I would welcome the Minister’s comments on how he envisages that process working.

The challenges were helpfully illuminated by the article on the front page of The Daily Telegraph on Saturday which said, “Pension mis-selling: scandal hits 100,000 retired savers a year”. The article explained that

“one in four pensioners who retired with a private pension in the past seven years is entitled to a larger annual pension income.

Savers with medical conditions including diabetes, high blood pressure and even smokers should have been offered an increased annuity based on their lower life expectancy.”

It went on to say that

“just seven per cent of those who are entitled to the increased pay outs have automatically received them. Studies indicate the true figure should be closer to 60 per cent.

Now Aviva, Britain’s largest insurer, is paying compensation and increasing the annual payouts of hundreds of customers after discovering staff sold inappropriate deals.”

--- Later in debate ---

[Steve Webb]

This is in response to a consultation. During the consultation, one of the issues raised was about people who had not accessed the guidance. This is the response to that.

Reference was made to a story in The Daily Telegraph about people buying annuities that were not as good as they should have been, given their health condition. The FCA is undertaking a thematic review of the annuity market and looking at at-retirement choices. A lot of reporting and recommendations from the FCA will come out over the next couple of months. The Government have investigated some of the failures of the annuities market. We are tackling them by giving people new choices and it is about time that that was done.

The right hon. Member for East Ham asked about DB to DC transfers and what trustees have to do. They have to make sure that, before a DB to DC transfer happens, the member has accessed independent financial advice by a regulated IFA or similar. They do not have to look at what the IFA has said and see whether it is any good or appropriate; that is not what we mean. But before they say yes to the transfer, each trustee will have to say to the scheme member, “Have you accessed independent financial advice?” That is only right and proper because, in general, we still think that most DB scheme members should remain in DB. That will be the right thing for most. That is why we think the advice test is the right thing to do.

The right hon. Gentleman asked about forbidding draw-down in schemes that provide cash-balance benefits. To be clear: our intention is to ensure that members are appropriately protected by ring-fencing their pots from those of other members. That means that assets must always meet the liabilities in relation to those benefits. Keeping conversion to money purchase is the simplest way of achieving that. This is about ring-fencing cash-balance benefits.

The right hon. Gentleman asked how people would calculate their overall level of pension wealth from the point of view of the £30,000 threshold. Obviously, the details of that will be set out in regulations. We are consulting the NAPF on that. It is interesting that the NAPF thinks that nobody is talking to it; we talk to the NAPF all the time. We are also consulting the ABI and other interested parties.

The nitty-gritty of how we set the £30,000, what it includes and whether it is all of someone’s assets will be subject to detailed discussions and regulation. But the principle has to be right: if we are to require people to have advice, we do not want people to be forced to pay, say, £1,000 for advice if they only have a pension pot of £5,000 or £12,000. There has to be some sort of cut-off. Clearly, we need a sensible operational definition of what that is, but I do not think the principle is at issue.

[Stephen Timms]

I am grateful to the Minister for giving way and for the thorough way in which he is responding. May I take him back to his response to my question on the duties of trustees in an instance where a member wants to switch from DB to DC? The proposition from the NAPF was that the sole responsibility of trustees should be to require adequate proof from the member that they have received independent financial advice from a person authorised by the FCA to give such advice. It sounds to me that the Minister is saying that that is what he intends. Is he happy with that form of wording proposed by the NAPF?

[Steve Webb]

I am aware that our conversations are occasionally listened into by lawyers, so I am reluctant on the hoof to say that the wording from the NAPF is better than the wording that my lawyers have come up with, which is in the Bill. Clearly the point is not that the trustees have to second-guess an independent financial adviser—that is absolutely not what we are saying—but we are concerned to make sure that trustees do not simply nod through DB to DC transfers without ensuring that the scheme member has accessed suitable financial advice.

The right hon. Gentleman asked whether regulations will be under the negative procedure or affirmative procedure. In general they will be under the negative procedure, but the regulations under new section 97A(11) in new clause 26 are affirmative. Given the speed at which we are working and the importance of getting all this in place, it is not realistic to think that we will have draft regulations for their lordships’ consideration in a few weeks’ time. But their lordships obviously will want to probe the likely content of the regulations and we will continue to try to be as helpful as we can in that regard.

[Stephen Timms]

Will the Minister accept that it is pretty unsatisfactory for the Bill to go through both Houses with the Members of neither of them having a draft of the regulations to consider so that they can see what exactly the Government have in mind?

[Steve Webb]

No, I would not accept that. The right hon. Gentleman will know, from having taken quite a few Bills through the House, that there is a balance to be struck among primary powers, giving the House a general sense of direction, our stating on the record what the regulations seek to do and separate scrutiny for the regulations themselves. We will always try to make clear our intentions and what the regulations will try to achieve and we will continue to talk to the experts outside and inside Government about the fine detail. It is perfectly normal to pass primary legislation without every last regulation being produced in draft form. The right hon. Gentleman was responsible for welfare reform legislation in which large swathes of regulations were not produced in draft form when Royal Assent was given.

[Stephen Timms]

The right hon. Gentleman is pressing my memory with that, but my understanding of what has generally been regarded as good practice is that there should at least be draft regulations in front of Members. We do not necessarily need every last detail and he is quite right to make the point that there will be further discussions before things are finalised, but for Members of neither House to be able to see even a draft of the regulations is unusual and pretty unsatisfactory.

[Steve Webb]

I do not agree that it is either unusual or unsatisfactory. It is clearly important that the House accepts and is familiarised with the basic principles of approach and that we set out what will be in the regulations and what we are going to try to achieve through them, but often the regulations will be subject to separate consultation exercises. There is an awful lot of scrutiny; I can assure the right hon. Gentleman that these things are never knowingly unscrutinised.

The right hon. Gentleman asked about the timetable. Let us put it this way: our lawyers are not taking Christmas holidays. We are working as fast as we can.

--- Later in debate ---

[Stephen Timms]

The cost of living crisis underlines the need for people in work who are struggling to set money aside for the future to be able to access pension schemes they can trust to give them good value for money and a decent income in retirement. Therefore, we welcome the proposed establishment of collective defined contribution pension schemes, which my hon. Friends called for earlier this year. Those schemes have the potential to provide a more reliable retirement income than individual defined contribution schemes. For that reason, they are to be welcomed. They operate in other countries: the Netherlands, for example. They are potentially better for individuals than individual defined contribution schemes because they can pool risk across and between generations. Research by the Institute for Public Policy Research at the end of last year concluded that there was “strong public support” for a collective pension, that it was the most popular of the options it tested and that it appealed across different income levels, life stages and ages.

We also support the establishment of shared risk schemes and the rule preventing transfers out of most public service schemes—with some exceptions that the Minister talked about earlier. We support the power to redefine the pension regulator’s powers to appoint or replace trustees and the power that will allow the Secretary of State to make payments into the Remploy pension scheme.

We have not opposed the Bill, and we will not do so this afternoon, although there are parts that, in our view, should have been strengthened. We are also disappointed that the Government have not been willing to make the changes for which we argued in Committee. We welcome the new pension flexibilities that were announced in the Budget, but we are concerned that Ministers are not yet providing adequate safeguards in the Bill to protect the savings of people who have worked hard all their lives from the risk of excessively high charges.

The changes will introduce increased flexibility for savers, and we agree that that is welcome. They will also make the pensions market much more complicated, however, and safeguards need to be put in place to protect savers from being taken advantage of, given the confusion that could arise as the changes bed down. We simply cannot afford to have another pensions mis-selling scandal like the one that was presided over by the last Conservative Government, which did a great deal of damage.

The Bill contains 55 clauses, which were substantially rewritten in Committee, and the fact that the Government have today added 33 new clauses—over half as many as we started out with at the beginning of the afternoon—and made 77 additional new amendments does not inspire confidence that these complex changes in an area of such immense importance have been properly thought through. This looks rather like a case of legislate in haste, repent at leisure. We can only hope that Members in the other place, among whom there is substantial expertise in this area, can make significant improvements. Trying to make these important changes at the same time as enacting the Budget changes is of course making the task more difficult and more risky.

A few minutes ago, towards the end of the last debate, the Minister gave a full answer to my question about regulations, for which I was grateful. His answer was a full one, but it was not particularly satisfactory. He pressed me about my experience of taking Bills through the House. My recollection is that if such a Bill had referred to regulations that were going to be introduced, I would at least have expected to put a note in front of members of the Committee explaining what those regulations were going to do. Ideally, there would be draft regulations to put in front of the Committee. In this case, as far as I can establish, there is no information at all about any of the regulations referred to in the new clauses and amendments. I was disappointed when the Minister said that no such information would be put in front of Members in the other place either.

[Steve Webb]

I think there is a danger of the right hon. Gentleman overdoing this a bit. A lot of the regulatory framework for the budgetary freedoms involves the Financial Conduct Authority, so we are not talking about statutory instruments or any other stuff that goes through this House. The FCA has consulted and published its principles, and it will be publishing its final statutory guidance. All of that will be entirely available to Members in the other place. So a lot of this stuff is out there already; it has been consulted on and will be published. A lot of the regulations that the right hon. Gentleman is talking about relate to defined ambition and risk-sharing, for which the timetable is much slower.

[Stephen Timms]

That is helpful, and I am grateful to the right hon. Gentleman, but I was making the point that, in my experience as a Minister, I would normally have expected to be able to provide some documentation about each set of regulations referred to in a clause that I was advocating to the House. There is no such information relating to the significant number of the new clauses and amendments that refer to regulations and that now form part of this Bill. The right hon. Gentleman suggested that that was normal, but I do not think it is. I was recalling my experience from the Welfare Reform Bill, on which I led for the Opposition. There was a problem there, because at the outset no information was provided about regulations being referred to in the Bill. However, by the time we got to the end of the Committee we were reliably getting, before we debated each clause, some information about the regulations being referred to in it. So I urge him, if he can take even more holiday time away from the lawyers, to look at whether he might be able at least to give their lordships some information about each set of regulations being referred to.

In the earlier debate, I mentioned the three tests we have set for the new flexibility, and I am grateful to the Minister for his response to each. My party has commissioned Professor David Blake of the pensions institute at Cass business school to lead a review of how to support a pensions market that works for all, retaining flexibility and choice on how savings are accessed and drawn down, while ensuring that all savers, including those on low and modest incomes, are protected and are able to secure a decent and reliable retirement income. One question he will consider is whether income draw-down products should be subject to a new charge cap, which could offer some safeguards that are not envisaged at the moment.

Widespread concern has been expressed about the crucial guidance provisions. We do not know a great deal yet about how this is all going to work, and it is supposed to be up and running by next April. There is serious worry, which we have debated earlier, that the guidance on offer will not be taken up in practice. We will certainly be looking with great interest at what the FCA says—the Minister has assured us that it will be referring to this—about the second line of defence.

The TUC has made the point that

“half an hour of the best possible advice will not equip people for what could be thirty years of managing their pension pot”.

It has argued for the kind of careful consideration of evidence undertaken by the last Government, which has underpinned the success of auto-enrolment—that successful measure was developed over a period, decided on by the previous Government and taken forward by the current Government and, in particular, the Minister on the Bench today. Everybody would agree that the proper deliberation that underpinned it has been an important element in its success, but we are not seeing the same thing with these changes. I fear that nobody can, as yet, feel confident about what is going to emerge.

The Minister also knows that we have concerns about the governance of collective defined contribution schemes and about the so called “independent governance committees” proposed for defined contribution schemes; and about the restrictions on the National Employment Savings Trust—NEST—which my colleague who normally speaks on these matters has long argued should be removed and which the Minister said in July last year would be removed “as soon as possible “. In fact, they remain in place, and the opportunity to remove them in this Bill has not been taken.

The Bill is worth while, but a worryingly large amount more still needs to be done. Working people must not become the victims of yet another mis-selling scandal—that has happened too often already. The dangers of ill-thought-out and rushed legislation are all too clear, and doing all this at the same time as the Treasury changes makes the risks much worse. We can only hope that Members in the other place will have the information they need and will be able to deliver some of the scrutiny which Members in this House have not, sadly, been able to provide.

Question put and agreed to.

Bill accordingly read the Third time and passed.

Self-Build and Custom Housebuilding bill (Money)

Queen’s recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Brandon Lewis.)

Self-Build and Custom Housebuilding bill (Ways and Means)

Resolved,

That, for the purposes of any Act resulting from the Self-build and Custom Housebuilding Bill, it is expedient to authorise the charging of fees under the Act.—(Brandon Lewis.)



Local government (Review of Decisions) Bill: Money

Queen’s Recommendation signified.

Resolved,

That, for the purposes of any Act resulting from the Local Government (Review of Decisions) Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Kris Hopkins.)

Housing Benefit (Wales)

Debate between Stephen Timms and Steve Webb

Thursday 1st May 2014 Westminster Hall

[Steve Webb]

No, I will not. Labour cannot explain why it is right to say that private tenants have to pay for the size of the house that they live in, but that social tenants should not have to. Some suggestions were made about our views on excluding pensioners from the measure. They are generally excluded because, for example, expecting them to take work would be unrealistic. We have excluded pensioners for that reason, but it is pretty obvious why the Labour party wants to exclude social tenants, but not private tenants.

Someone said during the debate that we cannot both save money and make better use of the housing stock, but we are doing both of those things. The original estimated savings from the measure for the whole country of some £0.5 billion remains our expected order of magnitude. In addition, some people are moving to more suitable accommodation and freeing up accommodation for the people whose voice never gets heard—as has been said in the debate.

[Stephen Timms]

Will the Minister give way?

[Steve Webb]

No—I have only one and a quarter minutes left. Why did we not hear about the 13,000 people in Wales living in overcrowded social sector accommodation? Where was their voice in the debate? What about the people living in overcrowded private sector accommodation, or the 90,000 people on housing waiting lists?

There is a whole set of unmet housing need while we have people under-occupying social rented accommodation —through no fault of their own, so it is not a criticism of them, but it is a fact. The hon. Member for Swansea West (Geraint Davies) said that when people’s kids grow up, they should go on being able to live in a big family house, but what about the people who would love a big family house, but cannot get it because it is under-occupied? We have to help people with the transition, but that is why substantial additional DHPs have been found.

Finally, on the specific issue of adapted accommodation. We would have loved it had we been able to write a law in Whitehall that said, “This is adapted; this isn’t. Here is how we define it in an Act of Parliament or a statutory instrument. We will have a blanket exemption.” That would have been great. We looked hard, but we could not think of a national and consistent way of defining what it was. We therefore found the money instead—£25 million across Great Britain, which was our estimate of the cost of buying out the impact on substantially adapted properties. No one in the country living in a substantially adapted property who goes to a local authority should be turned away because there is not the money for DHP. We have given the local authorities the money, and that should not need to happen.

There is lots more that I would love to say, but I am constrained by time. I hope that I have been able to give some responses to the questions asked by the Chairman of the Committee.

Sanctioning of Benefit Recipients

Debate between Stephen Timms and Steve Webb

Thursday 3rd April 2014 Commons Chamber

[Stephen Timms]

Will the Minister give way?

[Steve Webb]

Perhaps the right hon. Gentleman will allow me to continue.

A further point missed by a lot of hon. Members is that two thirds of sanctions are not disallowances. Someone’s JSA might be reduced because of a sanction, but they do not come off JSA and still count in the claimant count numbers. Of all the sanction numbers, only a third are disallowances. On the unemployment figures, the JSA numbers have been coming down because of reduced inflows, not because we have been sanctioning people off benefit.

[Stephen Timms]

rose—

[Steve Webb]

I wonder if the right hon. Gentleman will allow me to continue. I have not given way to anybody else, and I hope he will forgive me if I am consistent. [Interruption.] If the House would like me to take the intervention, I will happily do so.

[Stephen Timms]

I am very grateful to the Minister. Will he confirm, as my right hon. Friend the Member for Oldham West and Royton said, that sanctions contribute to the benefit off-flow figures, which are the key to incentivising jobcentres and advisers?

[Steve Webb]

As I say, in two thirds of cases where people are sanctioned, they do not actually flow off JSA. Their JSA claim is regarded as continuing, so only a fraction of those numbers count as coming off benefit. Most people are still on JSA, even though they are sanctioned. It is clearly not the case that this is anything to do with the claim—it patently is not.

I have sought to be as consensual as I can. The right hon. Member for Oldham West and Royton made extraordinary remarks about the Chancellor’s approach to the macro-economy. Given that we have record numbers of people in work and record rates of employment, the idea that that is somehow mishandling the economy is extraordinary.

The key point is that we recognise that the sanctions regime needs to be kept under constant review. An independent review is under way. We will publish that and respond to it positively. If right hon. and hon. Members have individual cases they wish to draw to our attention, we are very happy to look at them. I think the House is united in saying: yes people have responsibilities, and yes there are consequences when they do not meet those responsibilities, but we all want to see a sanctions regime that is fair and proportionate. That remains the position of the Government.

Pensions and Benefits Uprating

Debate between Stephen Timms and Steve Webb

Tuesday 25th February 2014 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

I thank the Minister for his explanation and confirm that I do not intend to express concerns about the draft Guaranteed Minimum Pensions Increase Order 2014. However, I do wish to make some comments about the draft Social Security Benefits Up-rating Order 2014. As he has said, this is a rather thinner debate than the corresponding ones he and I have enjoyed in previous years, because a big chunk of what we have debated previously is now covered by the Welfare Benefits Up-rating Act 2013, which imposed a 1% uprating this year and next, and so is outside the scope of these orders.

One thing I have not entirely understood—the Minister touched on this and I would be grateful if he explained it—is how the corresponding order for tax credits will be dealt with. Some elements of tax credits uprating are not covered by the 1% constraint. Clearly, with so few people in receipt of universal credit, he is not the Minister responsible for in-work benefits—that responsibility remains with the Treasury—but I wonder whether he could explain how the parliamentary process dealing with those tax credits is to be handled.

This is the fourth year since the announcement of the triple lock for the basic state pension. In rhetorical terms the triple lock has, no doubt, been successful, but, unfortunately, 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 RPI terms, this is a real-terms cut for the third year in a row in the value of the basic state pension. The RPI last September was 3.2%, whereas the pension uprating delivered by this order is 2.7%. So in RPI terms, this is quite a big cut of 0.5%—a full half percentage point—in the value of the state pension, which is a bigger real-terms cut than last year. If the basic state pension had been uprated in line with RPI since 2010, the weekly rate for a single person would be more than a pound higher than the figure we are debating today, at £114.21.

[Steve Webb]

Clearly RPI is bigger than CPI—that is a statement of fact—but does the right hon. Gentleman think that RPI is a good measure of inflation?

[Stephen Timms]

I will come on to deal with that. The point I wish to make is that the triple lock is frequently presented to us, as the Minister did again today, as being extraordinarily generous to pensioners. It is presented as some great superlative, whereas in fact it has delivered a lower uprating than the previous formula—the one in place before the last election—in every one of the three years when it has been used, and in the first year it was due to be used it would have delivered such a low uprating that the Minister chose to override it. He was sensible to do so, but if he had used the triple lock in that first year, the gap between his uprating and the value of the basic state pension under the old method would now be almost £3 per week. So it is important in this debate to put on the record the extent to which the triple lock has delivered less than the long-established formula that was in place until the general election.

It is worth examining the history of the triple lock. In its first year, it was announced but not actually implemented, because it would have delivered a very small increase. So at its first outing, it failed.

--- Later in debate ---

[Stephen Timms]

The hon. Lady makes an important point. I hope she will support Labour’s energy price freeze, which will have an important benefit for people on low incomes. She is also right to draw attention to the particular difficulties of pensioners on low incomes. It is for that reason that pension credit is so important. Pension credit, which is in the order in front of us—I believe that my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) will say more about that when he responds to the debate later—is being uprated at a significantly lower rate in percentage terms than the basic state pension.

I was talking about the history of the triple lock. In the first year, it was overridden, so it failed. In its second year, it was implemented and delivered an increase in line with CPI, along with working age benefits. Last year, it was applied again and, for the first time, it delivered something better than CPI, but that was only by 0.3 percentage points. This year, the Government propose to uprate the basic state pension by CPI, which, as of September last year, was 2.7%. That is only a 0.2 percentage point increase on the absolute bare minimum that would be possible under the triple lock. Had the previous uprating RPI mechanism been in place, there would have been a larger pension increase this year, and in the last two years, than has been delivered.

It was in 2011 that the Government first uprated pensions by CPI rather than RPI. In the debate then I pointed out that this was a direct hit on the income of pensioners, and it still is. In 2011, a contributory deal, understood and signed up to by pensioners, was broken. That was compounded last year, and the Government want to do it again this year. On the other side of the coin, it is worth noting that RPI will continue to be used for the uprating of a great many other things. The Minister has correctly quoted my comments on that in the past. There could well have been a case to uprate by CPI as a deficit reducing measure for a period. However, we do not accept that Ministers should have tied themselves to CPI indefinitely, and that remains our view.

As announced in 2010, the Government have also made a permanent switch to CPI uprating. Thanks to the Welfare Benefits Up-rating Act 2013, most working age benefits were capped at 1%, with provisions for them also to be capped at 1% for the following two years, and so are outside the scope of this order. As we have said in previous years, there would have been a reasonable case for the Government to make a temporary change to the methodology, but unfortunately they went further.

[Steve Webb]

Sometimes we ask for a one-word answer. I want a three or possibly four-letter answer. Were the right hon. Gentleman introducing these motions today, which index would he use?

[Stephen Timms]

Sadly, I am not in the happy position that the Minister describes. I hope that I will be before very long, in which case I will gladly give him the answer that he seeks. However, I am not in that position today.

--- Later in debate ---

[Steve Webb]

It is interesting to look at what has happened to benefit rates over the long run. In the seven years since the 2008 crash, the rate of jobseeker’s allowance has increased by more than the growth in earnings. While people with jobs—people would obviously far rather have jobs than not—have seen their wages grow over that period, the rate of JSA, which I still quaintly think of as unemployment benefit, has risen by more than that growth.

The hon. Member for North Ayrshire and Arran (Katy Clark) talked about pitiful increases and slashing benefits, but I can tell her that the Labour Government spent £181 billion on tax credits, benefits and pensions in their final year in office, yet in the first year of the next Parliament, we envisage spending not £181 billion, but £211 billion. Spending £30 billion more than six years previously is an odd definition of “slashing”, so we need to keep a bit of perspective in the debate. I respect the hon. Lady’s sincerity and clearly she wishes that the increases were greater but, as she well knows, her Front-Bench colleagues will not vote against the orders, and that is not because of a technicality, but because they would not allocate money for larger increases. I know that she disagrees with her Front Benchers. If she ruled the world, she would put in place greater increases—she would tax people more and spend more—but that is not her party’s position.

[Stephen Timms]

What is the Minister’s response to last week’s comments by the Cardinal Archbishop of Westminster about the significant number of people who find themselves in destitution as a result of the changes that have been made?

[Steve Webb]

I have great respect for the Cardinal Archbishop, whom I met some years ago, and I do not doubt his compassion for those in need, which is shared by Members on both sides of the House. However, I do not think that anyone believes that people were not in severe and urgent financial crisis before we saw the current network of food banks; they simply went somewhere else. The idea of urgent financial need has not suddenly arisen. As the right hon. Gentleman will know, people turned to charitable sources and churches. It was not uncommon for people to knock on a vicarage door to ask for a sandwich, and that is not very different from a food bank—it is a precursor to that. There were always people in urgent financial need, and we can debate the impact of a global economic downturn on the level of need. Church leaders who comment on such matters are sometimes briefed with partial information. It is sometimes suggested to them that there is a mad slash and burn on the welfare state, but I think that they would be surprised to learn that, at the start of the next Parliament, we will be spending £30 billion a year more on benefits, pensions and tax credits than in the final year of the previous Labour Government.

[Stephen Timms]

Surely the Minister accepts that comments such as those made by the Cardinal Archbishop of Westminster and in last week’s letter signed by 27 bishops are based on actual experience of what is happening in communities. Surely he cannot maintain, as he appeared to do, that nothing has changed and that things are carrying on as they were before—clearly that is not true.

[Steve Webb]

No one is suggesting that nothing has changed. The global economic downturn was far deeper than was originally thought, and we have had to recover from that. We had to make changes to the benefits system to try to balance the books, which the previous Government failed to do.

The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) said that he felt uncomfortable when I talked about over-indexation. Let me make it clear that under the pensions legislation that the Labour Government put in force, there is a legal duty to uprate pension credit by earnings, but we are doing more than that. The hon. Gentleman implied that we were doing less and that we were somehow putting in place a worse increase, but we are paying a £2.95 increase on the basic state pension, and we do not want to follow Labour’s approach of making an earnings increase to the guarantee credit because that would give the poorest pensioners less than £2.95. In our jargon, we are passing through the full £2.95. Far from paying less than the law requires, we are paying more, because we put the biggest priority on the poorest pensioners.

Pensions and Social Security

Debate between Stephen Timms and Steve Webb

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.

--- Later in debate ---

[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%.

--- Later in debate ---

[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.

--- Later in debate ---

[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?

Welfare Benefits Up-rating Bill

Debate between Stephen Timms and Steve Webb

Monday 21st January 2013 Commons Chamber

[Stephen Timms]

The right hon. Gentleman should ask the Institute for Fiscal Studies, where the Minister served with considerable distinction in the 1980s. It has been a reliable guide in the past and will be in the future. The assumption is that the existing policies will continue.

This is a terrible Bill that is being rushed through in a disgraceful manner. It will hit very hard those people who are already struggling to make ends meet. It will hit women disproportionately hard. It will hit disabled people, including everyone in the support group for employment and support allowance. It will hit children, pushing 200,000 below the poverty line.

At a time when the coalition Government are—

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

What the right hon. Gentleman is saying sounds like a peroration, so I think that he might have accidentally dropped the page on which he was going to say where, if not from these measures, he would find the £3.5 billion. Where would he find the money?

--- Later in debate ---

[Steve Webb]

The hon. Lady will know perfectly well that the Labour Government never forecast poverty rates. She was a Work and Pensions Minister with—if I remember rightly—responsibility for child poverty, and never once forecast poverty rates, but in opposition she suddenly believes that this Government should do so. We will publish the annual figures that show the effects of all our policies and the state of the economy. That is what the public want to see.

Another question that resonates with my hon. Friends in the Liberal Democrats is why we are taking money off poor people and giving it to rich people. That is a summary of what was said. I worked for the IFS for nine years and have the highest regard for it, but, to be clear, when the IFS does its numbers, it does not count almost all the taxes on the rich we have introduced—it cannot, because it uses household surveys, to which the rich do not, on the whole, reply at all, partly because they are too busy salting their money away in Swiss bank accounts. [Interruption.] Not any more—we have tackled Swiss bank accounts to the tune of several billion pounds. We have increased the main rate of capital gains tax to 28%, which is a substantial increase.

The Labour party focuses on the wages of millionaires as if millionaires are those who earn a £1 million wage. However, millionaires on the whole are folk who have capital gains and properties. They pay stamp duty. They try to avoid paying tax, but we have been cracking down on that, and there is a further clampdown on pension tax relief. The vast majority of those gains for the Government are not counted in the IFS figures. The overall impact is that we are taking far more from the rich than Labour ever would have done. I can therefore assure my right hon. and hon. Friends that this is not a question of taking money from the poor when we could take it from the rich. Even the Budget that reduced the higher rate of tax from 50% to 45% raised many times more in other measures. As we have heard during the course of the debate, the 45p rate, which Opposition Members tell us they find morally repugnant, is 5% more than the Labour Government levied in 13 years.

Amendment 12 would create a vacuum instead of a policy. It would give us no credibility in the financial markets and drive up interest rates when we want to keep them low. Amendment 7 would reinstate the RPI, which even the official statistician says is not up to international standards, and cost £2.5 billion a year compared with the Government’s plans. I have no doubt that amendment 10, in the name of my hon. Friend the Member for St Ives, is well-intended, but unfortunately it would tie the Government in to an above-inflation increase in 2015-16. The Liberal Democrats would not choose that as a priority, but I can assure him that the Bill, on top of the decisions the Government have made to prioritise the poor, will mean that benefits will rise in line with earnings over the period since the financial crisis. My hon. Friend wants that through his amendment, and that is what we will deliver through the Bill.

I therefore urge the Committee to reject the amendments and support the Bill.

[Stephen Timms]

We have had an interesting debate. The right hon. Member for Ross, Skye and Lochaber (Mr Kennedy), the former leader of the Minister’s party—the Liberal Democrats—described the Bill as a device dreamed up by the Chancellor, which was recognised on both sides of the Committee during the debate. The Government are bearing down on the incomes of the least well-off people because of the failure of their policies. I urge the Committee to support amendment 12 and to reject clause 1.

Question put, That the amendment be made.

The Committee proceeded to a Division.

Universal Credit and Welfare Reform

Debate between Stephen Timms and Steve Webb

Tuesday 11th September 2012 Commons Chamber

[Steve Webb]

Let me deal with that point directly. Under the current system, people who are below the tax and national insurance threshold and get tax credits and housing benefit lose 79p in the pound—that will fall to 65p. Under the current system, people who are above the tax and NI threshold and get tax credits and housing benefit lose 91p in the pound—that will fall to 76p. Under the new system, there will be almost no one who loses more than 80p in the pound, compared with 500,000 people who do so now. What is not to like about that? This is good news for work incentives.

[Stephen Timms]

What is the Department’s assessment of the effect of the introduction of universal credit on the number of hours worked in the UK economy?

[Steve Webb]

As the right hon. Gentleman well understands, the impact on every individual will be different, so we have not used a specific figure for the number of hours worked. However, what I have demonstrated is that the people who face the biggest barriers to working more hours will see cuts in their marginal rates and the people who face the biggest barriers to working at all will get more return for working. So this is good news for work incentives. The right hon. Member for Birkenhead referred to the people facing an increase in their marginal rate, but that increase is by four percentage points, from a median of 41 to 45. That is the trade-off. We give people an incentive to take work and we tackle the most severe marginal rates, while some people face a four percentage point increase. That seems to me to be a good trade-off.

Quite properly, a lot of hon. Members raised the issue of internet access. We want to make it absolutely clear that the proposition is digital by default, so if we can get people in on the internet and online, we will do so. However, as the Secretary of State said at the start, we fully recognise that not everybody is online and not everybody will be, so the core planning for the universal credit contains provision for people who will not be online.

Some of the figures we have heard grossly distort the extent to which people of working age in the benefit population are online these days. The evidence suggests that 74% of claimants—not of the whole population, but of claimants—have home broadband and that 41% of claimants do internet banking. To hear the speeches we have heard in this debate, one would not think that these people even knew what a computer looked like. It has been suggested in this debate that we have to avoid patronising people on benefits, and that is absolutely right. We want to support people who are not online—jobcentres will play a part in that and we are talking to local authorities about it—but let us see this as an opportunity to get more people to be internet savvy, online and more employable. Let us not condemn people; let us give them opportunities and training.

The impact of this measure is very important, and the hon. Member for Stretford and Urmston (Kate Green) asked about the equalities impact. We will publish an updated equalities impact assessment with the final regulations after the autumn statement.

The hon. Member for Glasgow North East (Mr Bain) gave some bizarre figures about the impact of this reform on lone parents, and I do not know where he got them from. Lone parents gain from universal credit: 400,000 lone parents who rent will gain, as opposed to 200,000 who will have lower entitlement; there will be twice as many gainers as losers in that category. This reform will reduce child poverty, because we are spending huge sums of additional money at a time when money is tight. We are doing so because of our priority of making work pay.

We have heard discussion of the real-time information system, the fact that people’s benefit will be based on their current situation and the impact on business. This approach has been assessed as saving businesses £300 million a year. Those figures are signed off not by us, but by the Regulatory Policy Committee, which is a business-led organisation; they have been validated by business. Businesses are doing a lot of these calculations anyway, with the software doing it for them in most cases, but the streamlining of the system will save businesses cost overall. We are working closely with our colleagues at Her Majesty’s Revenue and Customs; there has been close working between the two Departments. The Department for Work and Pensions is represented in the governance of HMRC’s real-time information programme at every level, and the DWP and HMRC have jointly presented to Parliament.

The right hon. Member for Birkenhead, in another bizarre, overstated allegation, said that there has been a mass exodus of senior civil servants on the programme. That is completely untrue. The senior responsible officer, Terry Moran, whom he will know from years gone by, has held that role since November 2010. The programme director has been in place since August 2011. At HMRC, the senior responsible officer for the real-time information service has retired—we still allow people to retire, even under our policies—but has been replaced by someone from the DWP. So the suggestion that people are just walking out the door is nonsense and is scaremongering.

Pensions and Social Security

Debate between Stephen Timms and Steve Webb

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?

--- Later in debate ---

[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.

--- Later in debate ---

[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.

--- Later in debate ---

[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.)

Welfare Reform Bill

Debate between Stephen Timms and Steve Webb

Wednesday 1st February 2012 Commons Chamber

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

The right hon. Gentleman has accepted the principle of time-limiting. He says that a year is too short a time, and he is against arbitrary time limits. Will he tell the House the basis on which he alighted on two years, rather than three, four of five?

[Stephen Timms]

If the hon. Gentleman looks at the amendment, he will see that it refers to a period of “at least 730” days. That was proposed precisely because there is as yet no evidence—certainly not from the Department—about what the right period should be. We can be absolutely sure, however, that it should not be less than two years, for all the reasons that I have just outlined.

Pensions Bill [Lords]

Debate between Stephen Timms and Steve Webb

Tuesday 18th October 2011 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

May I ask the Minister a wider question on auto-enrolment? As he will know because it has been widely reported in the past few days, a report from Mr Adrian Beecroft recommends that the Government postpone the implementation of auto-enrolment altogether. Has the Minister seen that report? If so, what is his response to it?

[Steve Webb]

The right hon. Gentleman is right that a draft report has been produced and reported in the press, but I can assure him that—as we once famously pointed out—2012 will definitely happen next year. In other words, we do not believe that this important programme should be delayed. Interestingly, the CBI does not believe in a delay, either. It recognises that the biggest firms, which will come in next year, are already planning. In many cases they have already chosen their providers. They are getting on with it, and the last thing we need is new uncertainty about the start of auto-enrolment. We will, therefore, be pressing ahead.

Waiting periods are clearly a trade-off, but today more than ever, we need to realise the impact of what we are doing on smaller firms and businesses more generally.

--- Later in debate ---

[Steve Webb]

This is obviously a balancing act, but one reason for going beyond one month is seasonal workers. Given that the summer lasts longer than four weeks—perhaps not in Britain, but in general—the right hon. Gentleman’s proposals would bring fruit pickers into auto-enrolment. Does that not bother him?

[Stephen Timms]

No, it does not bother me. The people in that kind of employment might well fall into the category that the Minister mentioned earlier—people who progress later in their working lives, and the earlier that they start their pension saving the better. If they are in a job for more than one month, I would welcome giving them the ability to start saving for their retirement.

Social Security

Debate between Stephen Timms and Steve Webb

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.

--- Later in debate ---

[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.

--- 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.