Oral Answers to Questions

Steve Webb Excerpts

Monday 23rd April 2012 Commons Chamber

[George Hollingbery (Meon Valley) (Con)]

1. When he plans to bring forward his proposals for a single-tier state pension.

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

With permission, Mr Speaker, I will answer this question together with Questions 6 and 20.

I can confirm that, as was announced by the Chancellor in his Budget, we will present further details about the single-tier state pension in a White Paper later in the spring. Final decisions on the detailed implementation of the policy will be made in the next spending review.

[George Hollingbery]

A number of my constituents have contacted me expressing concern about the transition between the old and new systems—in particular, a Mr Theo Stellakis, whose questions the Minister has answered on a number of occasions. Can the Minister tell us how the transition will affect two people, one reaching the age of 65—or reaching pensionable age—on the day before the changes are implemented, and the other doing so the day after?

[Steve Webb]

I recall corresponding with Mr Stellakis on a number of occasions. What concerns him is the idea of a cliff edge before and after 2016. Let me clarify the position. When people receive state pensions of less than the full amount because they were contracted out, as I believe the hon. Gentleman’s constituent was, we will continue to take account of that after 2016, so there will not be the cliff edge that he envisages. We will have to phase out the arrangement over time, but in 2016 we will continue to take account of past contracting out.

[Mr Speaker]

Mr Simon Hughes? Not here. Jo Swinson? Not here.

The Department kindly informed me of the intended grouping at approximately 9.10 this morning. I hope, and say with some confidence that I trust, that it also informed the hon. Members in question. Neither of them is present, however, so I call Mr Julian Brazier.

[Mr Julian Brazier (Canterbury) (Con)]

Does my hon. Friend agree that the great advantage of his proposal is that it will help to restore incentives to save? Many people feel today that there are few such incentives in the benefits system.

[Steve Webb]

My hon. Friend is right. At present, the level of the basic state pension is so far below that of the means test that the first slice of savings is largely offset by means-tested benefits. My right hon. Friend the Chancellor has confirmed that whatever detailed proposition we present, the level of the single-tier pension will be clear of basic means-testing, and will therefore reward those who have saved rather than penalising them.

[Mr Frank Field (Birkenhead) (Lab)]

How long does the Minister think he will get away with these proposals? If a private company decided to do what he proposes to do—take contributions away from people who have paid over the years and give additional pensions to people who have not paid anything—the House would be jumping around with anger. Why does he think he can do that to people who have paid for a second state pension?

[Steve Webb]

If we were doing what the right hon. Gentleman says we are doing, I should be as outraged as he is. However, we are not doing that. Part of our proposition is that all contributions paid to date will be recognised in the new system. At the point of transition, if someone was heading for a pension of £150, £160 or £170 a week, that is what we would pay that person. [Interruption.] The right hon. Gentleman asks, from a sedentary position, where the money is coming from. We will present our costings in the White Paper, and he will see then that we will find it through less means-testing, among other things.

As for bringing people into the system, successive Governments have, for example, credited women who have spent a period at home with children. Although they have not paid cash, they have contributed, and that should be recognised. I think that that is right, and we are doing the same.

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

In his Budget statement, the Chancellor told the House that moving to a single state pension would not cost more in any year than the current pension system. Further to the question from my right hon. Friend the Member for Birkenhead (Mr Field), may I ask whether the costs of the move will be borne partly by the more than 7 million workers in the private and public sectors who contribute to defined-benefit schemes and are currently contracted out?

[Steve Webb]

As the hon. Gentleman knows, when we introduce a single state pension there will be no more contracting out, so clearly those who were in contracted-out schemes will be contracted back in. However, the annually managed expenditure costs of the scheme are being met by the reduction in means-testing and paying of savings credit to new claimants only, and by an increase in de minimis provision, so that people who have spent only a few years in the country do not build up a state pension as they would currently do. Those are the two main ways of meeting the costs, but they will also be met through the non-accrual of additional second state pensions after 2016.

[Julie Elliott (Sunderland Central) (Lab)]

2. What assessment he has made of the effect of changes in funding for childcare support on unemployment among women.

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[Dr Julian Huppert (Cambridge) (LD)]

15. What steps he is taking to ensure that pension funds adopt ethical and infrastructure investments.

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

If I may refer briefly to the grouping of earlier questions, Mr Speaker, I understand that we failed to notify my right hon. Friend the Member for Bermondsey and Old Southwark (Simon Hughes) and my hon. Friend the Member for East Dunbartonshire (Jo Swinson) of the grouping and so apologise to them and to you.

Pension scheme trustees can consider companies’ environmental, social and governance practices. I am clear that trustees’ duties do not require them simply to maximise short-term investment returns. On infrastructure, the autumn statement set out details of a memorandum of understanding signed by the Government with two groups of UK pension funds to support additional investment in UK infrastructure.

[Dr Huppert]

I thank the Minister for his comments. He will be aware of the whole range of investments that give more than just short-term financial returns. For example, the Cambridge Retrofit programme, which was launched last week, will try to retrofit every building in Cambridge by 2050. However, how will he communicate with trustees and ensure that they are aware that their fiduciary duties do not prevent them from doing this, because many of them seem to be unaware of it?

[Steve Webb]

The Pensions Regulator communicates regularly with trustees and provides a trustee toolkit on its website that sets out their duties, but I think that auto-enrolment provides an opportunity for ethical investment. For example, the National Employment Savings Trust will specifically have an ethical fund for those who wish to invest in that way, and I hope that the schemes my hon. Friend refers to will seek to find investment through that sort of route.

[Kerry McCarthy (Bristol East) (Lab)]

16. What recent estimate he has made of the level of unemployment in Bristol.

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[Jo Swinson (East Dunbartonshire) (LD)]

20. When he plans to bring forward his proposals for a single-tier state pension.

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

I apologise to my hon. Friend for not giving her a chance to ask her question earlier on.

We will shortly bring forward a White Paper on the single-tier pension, as my right hon. Friend the Chancellor of the Exchequer announced.

[Jo Swinson]

I thank my hon. Friend for that reply. He and I have long campaigned for a citizen’s pension, to be paid at a decent level to all pensioners, without the need for bureaucratic means-testing and, of course, the problems that that creates, with many pensioners losing out. I welcome the plans for a single-tier pension from 2016. Will my hon. Friend confirm that, although the current proposals apply only to new pensions, there is nothing to stop a future extension to all pensioners if the money can be found?

[Steve Webb]

Obviously, we will not write the law in a way that prevents all pensioners from being brought within its scope, and I am sure my hon. Friend will press for that. We are aware that, under our proposals, getting on for more than 80%, and eventually 90%, of pensioners will qualify for the pension, so it will have many of the features of a citizen’s pension but be based on 30 years of contributions or credits.

[Mr Speaker]

Well, that exchange was worth waiting for, I am sure the House will agree. I thank both Members.

Topical Questions

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[Simon Hughes (Bermondsey and Old Southwark) (LD)]

Following earlier questions on pensions, will the Minister put on record the fact that the Budget and the Government’s decisions are the best news ever for pensioners now, as well as for pensioners in the future? The press and the Opposition appear to have somewhat missed the point.

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

My right hon. Friend is aware that, as Pensions Minister, I am responsible for people who are currently pensioners and for everyone who will be a pensioner, which is everybody, and we have good news for today’s pensioners: not only the highest-ever cash increase but, more than that, year-on-year above-inflation increases whenever earnings grow more rapidly—and, incidentally, an increase in the age-related personal allowance this April of more than £500.

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

May I associate myself with the words of tribute to Lord Ashley, who was a formidable champion of the people whom we came into politics to serve? He will be sorely missed in both Houses, but his inspiration will live on.

Two years before the election, the Prime Minister gave the pensioners’ pledge:

“The Government I lead will make sure that older and retired people are treated with dignity and given the quality of life they deserve.”

Will the Secretary of State therefore confirm, as the Institute for Fiscal Studies has said, that pensioners will be £315 a year worse off, thanks to the granny tax?

[Steve Webb]

The changes announced by the Chancellor in the Budget will increase the age-related personal allowance this April by more than £500 and leave it at £10,500 for 65 to 74-year-olds while the allowance for those of working age is levelled up to that figure, at which point all people will have a substantial tax-free allowance that will be increased thereafter.

[Mr Byrne]

This is why pensioners on the doorstep are so cross—they know that they have been hoodwinked by the Government. This measure was dressed up in the Budget as a simplification. I think the Secretary of State detains his barbers for about as long as I do. Does he go along and ask for his hair to be “simplified”? I do not think so. A cut is a cut. On top of granny tax 1, we now learn of granny tax 2. Will the Minister admit that from 2014 pensioners will face a further cut of £900, and apologise for trying to keep it secret?

[Steve Webb]

I do not recognise the figures that the right hon. Gentleman quotes, but I assure him that what matters most to the pensioners to whom I speak is a decent state pension. After 30 years of the pension declining in value relative to earnings, from now on it will rise every year by whatever is the highest of earnings, prices or 2.5%. There will be a guaranteed increase every year that matches inflation or is above inflation. That is something that pensioners value.

[Mr Mark Spencer (Sherwood) (Con)]

T4. Does the Minister recognise that traditionally the Child Support Agency has targeted fathers who contribute willingly, rather than chase the more challenging maintenance evaders?

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[Jessica Lee (Erewash) (Con)]

Will my hon. Friend join me in congratulating Erewash credit union on its participation in the back to work scheme? A young person I met on Friday who is participating in the scheme is extremely enthusiastic about their prospects and future and now feels ready for the next step back to work.

[Steve Webb]

I pay tribute to the credit union in my hon. Friend’s constituency. As she knows, the Department has given credit unions significant financial support. We have recently received a report on their future development and expansion, and we hope to bring forward proposals shortly to give them a greater role and an extended way of helping people on low incomes, through both finance and initiatives such as she describes.

Social Fund Allocations (2012-13)

Steve Webb Excerpts

Monday 26th March 2012 Written Statements

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

I am pleased to announce that the gross discretionary social fund budget for 2012-13 will be £703.4 million.

With the net funding available, I have been able to allocate a gross national social fund loans budget of £561.4 million and a national community care grants budget of £141 million from 1 April 2012.

To provide help to area budgets facing unexpected and unplanned expenditure I will retain centrally £1 million as a contingency reserve.

I will allocate a gross national social fund loans budget in line with the provisions in the Welfare Reform Act 2007. The aim is to control and manage the national allocation while providing consistency of outcomes for budgeting loan applicants wherever they live. All loans budget expenditure will be made from the gross national loans budget of £561.4 million.

Community Care Grants

Following a review in 2011 into the funding allocations methodology, allocations to social fund budget areas have been adjusted to achieve a fairer distribution of the £141 million national budget between areas and to move to the optimal funding position for the new locally based service from 2013.

Details of individual community care grant allocations are contained within an explanatory note that I will place in the House Library today.

Background Note about the Discretionary Social Fund Budget

The discretionary social fund budget is cash-limited. Funding for community care grants is allocated to each budget area for management by social fund benefit delivery centres on 1 April each year. The gross discretionary social fund budget allocated for 2012-13 is £703.4 million. This is made up of:

State Pension Age Changes (Bridging Pensions)

Steve Webb Excerpts

Monday 26th March 2012 Written Statements

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

Some defined benefit occupational pension schemes pay members who retire before state pension age a higher pension at the outset, which is then reduced at state pension age to take account of the payment of state pension. This allows a member’s total retirement income to be smoothed over the period of retirement, alleviating possible financial hardship between the date of retirement and the payment of state pension.

These arrangements are often described as bridging pensions, but they are also referred to by other terms, including, integrated pensions, step-up pensions, claw-back pensions and state pension offsets. They can either be part of a scheme’s basic design, or an option offered to members at retirement of either a bridging pension, or a level pension from the outset. Where there is an option the amount payable after age 65 will be lower if a member has opted for a bridging pension, so that the overall cost to the scheme will generally be calculated to be the same whichever option is chosen.

The Government are aware that the changes being introduced to state pension age may have implications for some pension schemes which provide bridging pensions, and individuals who are receiving them. And we recognise that some changes to legislation will be necessary in order to take account of the changes to state pension age. In particular, the Finance Act 2004 places an upper age limit of 65 on the payment of bridging pensions.

At Budget 2012 the Government announced that changes would be made to the Finance Act 2004 to align the bridging pension rules with the state pension age changes.

We recognise that the rules of some schemes providing bridging pensions may specifically refer to the current 65 upper age limit and that in some cases the rules may not provide for their terms to be amended easily, or even at all. They could then be in a position where they are unable to adapt the terms on which their scheme provides bridging pensions in order to take account of changes to state pension age.

I therefore propose to introduce a limited power for the trustees of schemes which currently provide bridging pensions within the terms of the Finance Act to amend their scheme’s rules (if they wish to do so) to take account of later state pension ages. This will allow trustees to adapt the terms of any bridging or integrated pension arrangement offered, but only to the extent that they consider this to be necessary or desirable in order to take account of the changes to state pension age and to the Finance Act. It will not allow them to make wider or more general changes.

Workplace Pension Reform

Steve Webb Excerpts

Monday 26th March 2012 Written Statements

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

I am pleased to announce that today I will be laying one of the final building blocks to enable the start of automatic enrolment from later this year—the draft Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012.

Alongside this draft order I will be placing a copy of the Government’s response to the consultation on the 2012-2013 review and revision of earning thresholds for automatic enrolment in the House Library. Following the commitment made to the House by my noble Friend Lord Freud, the Minister with responsibility for welfare reform, during the passage of the Pensions Act 2011 this response includes an analysis of the impact of the revised thresholds.

I would like to thank the pensions community for their input to this work. This collaboration needs to continue if we are to make automatic enrolment a success.

These papers will be available later today on the Department’s website:

http://dwp.gov.uk/consultations/2011/auto-enrolment-revaluation.shtml.

Automatic Enrolment Timetable

Steve Webb Excerpts

Friday 23rd March 2012 Written Statements

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

On 25 January we issued details of the revised implementation timetable, reaffirming our commitment that automatic enrolment will start on time, from October 2012, and will apply to all employers.

We also said that we would publish a consultation document setting out the full detail of these changes, along with draft regulations and an impact assessment.

These documents will be published later today. The consultation will close on 4 May.

Discretionary Social Fund Scheme

Steve Webb Excerpts

Friday 23rd March 2012 Written Statements

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

Last year I announced measures to manage crisis loan demand back towards pre-2006 levels, prior to reform of the discretionary elements of the Social Fund.

From April 2013 the existing crisis loans scheme will be abolished and replaced in part by new local provision by local authorities in England and the devolved Administrations in Scotland and Wales.

While the April 2011 measures have made a considerable contribution towards managing demand, further measures are required prior to the transfer of funding for the new local provision. I am therefore announcing two further changes to the crisis loan system.

From 9 April 2012:

For non-householders facing an emergency or disaster situation, the maximum crisis loan award in relation to living expenses will be based upon 30% of the appropriate benefit personal allowance rate, rather than the current rate of 60%. Householders and people without accommodation will continue to receive maximum awards based upon 60% of the appropriate benefit personal allowance rate.

Crisis loans awarded to alleviate hardship because child tax credits have not been received will be treated as alignment payments. This means that they will be exempt from the cap that restricts crisis loan living expense awards to 3 in a 12-month rolling period. (Alignment payments will be replaced by short-term advances from April 2013 and will continue to be administered by DWP).

Crisis loans for living expenses are awarded for two main reasons. To help:

A benefit claimant to bridge an income gap before their first full benefit or wages are paid; or

A person who faces other situations in which their normal income has been lost, stolen or is otherwise not available.

A person who does not have to maintain their own dwelling because they are living in the dwelling of someone else (who is liable for costs such as housing costs, council tax and mains fuel) does not need the same level of crisis loan award to mitigate a serious risk to their health or safety.

The maximum living expenses award in an emergency or disaster for a person who is without any type of accommodation will continue to be based upon 60% of the appropriate benefit personal allowance rate to take account of their special needs.

These changes do not alter the requirement of the Department to consider an applicant’s need for an award, whether or not they are a householder.

Copies of the amended Secretary of State “Directions and the Equality Impact Assessment” will be placed in the House Library later today.

Oral Answers to Questions

Steve Webb Excerpts

Monday 5th March 2012 Commons Chamber

[Andrew Bingham (High Peak) (Con)]

9. What assistance his Department has provided to vulnerable people to protect them from cold weather.

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

This winter, we have made more than 5 million cold weather payments at a cost of more than £129 million and over 12 million winter fuel payments at a cost of over £2 billion.

[Andrew Bingham]

I would like to make a plea on behalf of the pensioners in my High Peak constituency, which, as the Minister’s colleagues on the Front Bench will know from previous visits, is one of the coldest in the country. Will the Minister concede that winters in High Peak are cold, bringing increased heating costs for all our residents, but more particularly for old-age pensioners?

[Steve Webb]

I am grateful to my hon. Friend. Although I have not visited his constituency, I suspect there is a clue in the name. He will be pleased to know that three weather stations are linked to his constituency—Bingley, Woodford and Leek—and each has been triggered twice this winter, so low-income pensioners and disabled people will all have received £50 this winter to help them with their fuel bills.

[Mr David Winnick (Walsall North) (Lab)]

Does the Minister accept that, despite the allowances, energy bills remain simply a nightmare for so many elderly and vulnerable people on low incomes, so would it not be appropriate for his Department to have a word with the Department of Energy and Climate Change, and particularly with the Secretary of State, about the very substantial increases in energy prices, which, as I say, are the cause of so much misery for our elderly people?

[Steve Webb]

I am sure the whole House would agree with the hon. Gentleman that high energy prices, poor home insulation and a lack of competition in the market are all issues for pensioners—and my right hon. Friend the Secretary of State is very much aware of them. I can tell the hon. Gentleman that 600,000 of the poorest pensioners received £120 off their electricity bills this winter through the warm home discount scheme—something that will be expanded in future winters.

[Tracey Crouch (Chatham and Aylesford) (Con)]

10. What steps his Department is taking to support people with mesothelioma.

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

The Department provides support for sufferers of mesothelioma by way of compensation paid through the industrial injuries scheme. The main benefit is a weekly industrial injuries disablement benefit, while lump sum compensation payments are also available through the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and the diffuse mesothelioma scheme 2008.

[Tracey Crouch]

I thank the Minister for that reply. He will be aware that, because of its shipbuilding and industrial heritage, Medway has the second highest rate of mesothelioma deaths in the UK. His Department has been in active discussions with various stakeholders regarding a compensation fund of last resort for some time now. Given that we are expecting a spike in mesothelioma deaths in the next few years, will he advise us when the discussions will conclude and the outcomes will ensue?

[Steve Webb]

My hon. Friend is a powerful advocate on behalf of her constituents on this terrible condition. We accept that this process is taking longer to conclude than we had hoped. I can assure her, however, that my noble Friend Lord Freud is continuing in active discussion with the insurance industry and others, and that we are determined to bring forward our proposals as soon as possible.

[Nic Dakin (Scunthorpe) (Lab)]

Is “as soon as possible” within the next six months or the next year?

[Steve Webb]

Rather than set an arbitrary deadline, we are keen to conclude as rapidly as possible. One important step forward has been the setting up of the employers’ liability tracing organisation. Often, people worked for firms many years ago, making employer liability insurance difficult to come by. This tracing service is helping people to get the insurance payouts to which they have every entitlement.

[Alex Cunningham (Stockton North) (Lab)]

11. What steps he is taking to tackle youth unemployment.

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[Paul Maynard (Blackpool North and Cleveleys) (Con)]

20. What steps he is taking to reform bereavement benefit.

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

A public consultation was launched in December 2011, seeking views on options for reforming bereavement benefits to ensure that they provide effective support to those who lose a husband, wife or civil partner. The consultation closes today and we will publish an official response to it in due course. That will summarise the comments received and outline the Government’s plans for reform.

[Paul Maynard]

I thank the Minister for that reply. Bereavements clearly cause a period of great stress for the families involved, and I welcome the Government’s review to ensure that we have a suite of payments that are fit for purpose and easy to understand. Will he bear in mind the problem that a number of my constituents have encountered, which they are struggling to understand? Benefits allowances are payable based on either the national insurance contributions of the deceased person or the widow’s or widower’s status, whereas the bereavement payment is based only on the NI status of the deceased person, and in the depth of their grief many people struggle to understand what seems to them to be an anomaly.

[Steve Webb]

My hon. Friend is right to point out that different bereavement benefits, allowances and payments have different contribution rules. One of the issues on which we are consulting is whether they should be aligned in a more accessible way and although the consultation closes today, I shall take my hon. Friend’s question as a submission to it.

[Helen Goodman (Bishop Auckland) (Lab)]

Not for the first time, I had a constituent in tears in my surgery last week as she had to pawn all her possessions to pay for her husband’s funeral. When the Minister simplifies the bereavement benefits, will he undertake not to use it as an opportunity to save money, too?

[Steve Webb]

I am pleased to give the hon. Lady that assurance. She will, I am sure, have read the consultation document we produced before Christmas, which confirms that this is about spending the support we give to people who have been bereaved in a better way, not about reducing the spend.

[Mr Rob Wilson (Reading East) (Con)]

T1. If he will make a statement on his departmental responsibilities.

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[Tristram Hunt (Stoke-on-Trent Central) (Lab)]

T3. As you know, Mr Speaker, the Wedgwood museum in Stoke-on-Trent is one of the greatest museums in the world and is facing the liquidation of its collection due to faulty pension legislation. The problem lies with the 2008 occupational pension schemes regulation and the last man standing principle, which leaves a solvent employer liable for the whole of the deficit in a multi-employer scheme. That was never meant to apply to charitable collections. Will the Minister review that legislation before we sacrifice more of our national heritage to the lawyers?

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

When any charity or other organisation joins a last man standing pension scheme, it is important that it take proper advice about the liabilities it is taking on. Obviously, that is a general observation. On this specific case, the Under-Secretary of State for Culture, Olympics, Media and Sport, the hon. Member for Wantage (Mr Vaizey), has spoken to the chairman of the Pension Protection Fund about the Wedgwood museum, has explained the importance of the collection for the nation and has asked her whether she can find a way of preventing the collection from being broken up. That is something we all want to see.

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

T4. My constituent Vicki Gilbert relies on the disability living allowance mobility component, which gets her the blue parking badge she needs to go about her daily life. Despite the fact that she is an amputee with no possibility of recovery, she has been forced to go through periodic reassessment, and because of the backlog she has had to wait five weeks without a blue parking badge. Does the Minister agree that the process is superfluous in such situations, and will she look at this issue so that others in similar circumstances do not have to wait for their badge?

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[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

T6. Further to the question asked by my hon. Friend the Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) from the Front Bench, do Ministers agree that the current restrictions on the National Employment Savings Trust that restrict transfers and limit the amount that can be saved each year diminish the pressure on other established providers to bring down their excess costs and charges? While the Government are reflecting on this, surely they are missing an opportunity to make pensions more affordable for everyone.

[Steve Webb]

The previous Government put those restrictions in place for a good reason—to try to make sure that NEST focused on the bottom end of the market. NEST has had a positive effect and new entrants have come into the market, but we are continuing to look at that issue because we are determined to make sure that people have a choice of good-value, low-cost pension providers.

[Tessa Munt (Wells) (LD)]

T5. My constituent Gillian Reeves is actively looking for work and is expanding her skills, knowledge and experience by volunteering for local voluntary organisations and charities in Somerset. Will the Secretary of State give some clarity to those who are keen to be out of the house and busy doing something useful but are advised by their jobcentre that they must limit their volunteering to 16 hours a week or lose their jobseeker’s allowance?

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[Pauline Latham (Mid Derbyshire) (Con)]

T9. What progress is being made to encourage people to get the best value for money when buying an annuity?

[Steve Webb]

My hon. Friend raises an important issue. When people have saved for a pension, it is vital that they get the best possible pension out of it, and that may not be from the company they have saved with. That is why I very much welcome today’s Association of British Insurers code, which will be mandatory for members of the ABI and will make it much more natural that shopping around becomes the default, rather than something that one has actively to seek out.

[Mark Lazarowicz (Edinburgh North and Leith) (Lab/Co-op)]

What are the Government’s plans for the future, if any, of the Department’s contract with Atos?

CPI/RPI Pensions Uprating

Steve Webb Excerpts

Thursday 1st March 2012 Commons Chamber

[Mr Crausby]

I have always believed that this is principally a matter of trust between employees and employers, be they private employers or the Government, and so I agree with my hon. Friend.

I have represented poorly paid working people all my life, and my sympathy lies with those who come to my surgery to tell me, “I’ve worked hard all my life and saved what I could, but now I am retired I wonder why I bothered because I am no better off than those who didn’t work and saved nothing.” I rarely agree with that argument, because the truth is that they are nearly always better off than they think they are as a result of their prudence, and their neighbours who live on benefits are usually worse off than they are perceived to be, although I must say that sometimes it is very close to the margin. The Government’s decision to cut pensions arbitrarily by linking them to the inferior CPI encourages that prejudice, and it will persuade poorly paid people to save their money in a different and less sensible way.

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

The hon. Gentleman makes an important point about pension promises being kept. Will he confirm that he is aware that all his constituents who worked for a company whose pension rules entitled them, in writing, to RPI increases still have that right and have not been affected by anything we have done?

[Mr Crausby]

I accept that that is the situation on their pension fund, as long as those individuals can trust those private pension schemes to continue to pay; I have to say that during my working lifetime that has not always been a very happy experience when it comes to private pension schemes.

My principal argument is against the Government’s decision to make savings at the expense of our pensioners by using CPI rather than RPI. Of course this is not the first time a Government have behaved in this way, as the Conservatives have a track record of not treating pensioners properly. Margaret Thatcher’s decision to make a change on the link with earnings has cost pensioners across the country many thousands of pounds. The harsh truth is that the public just cannot trust the Government any more than they can trust their employers, and I find that very sad. It is not in the best interests of our country.

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[Grahame M. Morris]

That is an excellent point. It is a double whammy.

Research that I have seen shows that between 1989 and 2011, RPI was on average about 0.7% higher than CPI inflation.

[Steve Webb]

I would not usually interrupt the hon. Gentleman but, to set the record straight, he is grossly misrepresenting what the judges in the court case said. I have a copy of the judgment with me. He said that the judges found that the CPI shift was about forcing through budget cuts. Can he point to where in the judgment they said that?

[Grahame M. Morris]

I was alluding to the FBU’s response to the judgment. I apologise if I have misled the Minister in that regard.

It is worth noting that significant changes to public sector pensions were negotiated with the trade union side by the previous Labour Government. Those changes recognised some of the issues that have been highlighted about people living longer, which is genuinely a good thing, and about affordability. The trade unions demonstrated a genuine desire to reach an accommodation that was fair and just. The response to the switch to CPI that I am hearing says that it is an enforced settlement that is not fair or just.

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

I join hon. Members in congratulating the hon. Member for Hayes and Harlington (John McDonnell) and the Backbench Business Committee on bringing this important issue before the House. It affects a large number of our constituents, which is why I am more than happy to debate it for the seventh time in this House, both in Committee and in the Chamber. I also join the hon. Gentleman in sending our good wishes to the Chair of the Work and Pensions Committee, who co-sponsored the motion, but is unfortunately unable to be with us today following a fall. We wish her well with her recovery.

There are two sets of issues for us to consider today: the right measure of inflation for uprating pensions, and the impact of the changes that have been made. They are two separate issues. The first concerns the fact that each year we have systems in place to recognise that the cost of living goes up and that we need to measure that increase so that we can keep people’s living standards from falling owing to inflation. The measure of inflation historically used has been the retail prices index. As for what has happened, in the summer of 2010 the Chancellor of the Exchequer indicated that the Government would use the consumer prices index for uprating benefits, tax credits and additional state pensions—and, through the statutory link therefore, public sector pensions. The Department for Work and Pensions had to make a judgment on whether we would impose the consumer prices index on private sector pensions.

To return to the point that I made in an intervention on the hon. Member for Bolton North East (Mr Crausby), I want to make it clear to the House that if somebody was saving in a pension with the retail prices index in their scheme rules, they have lost nothing. We had to judge whether to use a statutory override to allow those schemes to rewrite their scheme rules. We decided not to do that, because we believe in pension promises. In other words, people who saved in a private pension in the expectation and belief that their scheme rules did indeed say “retail prices index” will get a pension revalued where they said “revaluation”—and indexed where they said “indexation”—by RPI. The question of whether the changes are retrospective is an important one. For example, a public sector worker did indeed have a right to an indexed pension, and they still do. The right to that indexed pension is crystallised when they retire and is indexed every year by the measure of inflation that the Secretary of State of the day believes prices increased by in the previous year.

I entirely accept the point that some of the scheme literature did not always say that. However, let me quote the High Court judges who looked into what the scheme rules said:

“No reasonable reader of this material could have thought that this index”—

that is, RPI—

“would be used for up-rating purposes whatever the changes to it that might develop or whatever schemes for measuring price inflation might emerge in the future.”

Therefore, the High Court judges, who have been referred to in this debate, did not find that to be a criticism, and the trade unions that have appealed against the High Court judges have not appealed on that point. Although we absolutely want scheme literature to be as accurate as possible, the scheme rules are what give people the right. The scheme rules in the public sector gave people a statutory right to a link with whatever we were doing with additional pensions, and we have kept that right—we have kept that promise. My right hon. Friend the Member for Runnymede and Weybridge (Mr Hammond) was quoted—I think by the shadow Pensions Minister—as saying that pensions indexation should be honoured, and indeed it should, in line with the rules of the scheme. That is what people signed up to, and that is what we have honoured.

[Mr Crausby]

Regardless of the legal judgment, does the Minister not accept that any reduction in pension—clearly the move from RPI to CPI creates a reduction, and it is backdated—is simply a clear breach of trust?

[Steve Webb]

Let me deal with the issue of backdating, as the hon. Gentleman has used that term. People’s pensions are revalued from the point at which they cease to work for the company until they retire and then indexed once the pension is drawn. The revaluation has not been backdated. In other words, all the revaluation up to the date of the change which used RPI will still use RPI, so there was no backdating of any of that. It is future revaluations that will use CPI. Furthermore, the right to indexation cannot exist until a person draws their pension. They build up a pension, and when they draw it they have a right to have it indexed. We have defined indexation according to what we think is a better measure of indexation. The right to indexation existed all the way through, and continues. The law has always been that the Secretary of State of the day has to measure inflation in an appropriate manner, and that is what we have done.

[Mr Crausby]

Is the Minister saying that at any point in the future he can decide what the measure of inflation is and then refer it back to the whole of an individual’s pension? Is he not seeing this just as a matter of his judgment at any point in time, in effect producing an index very much lower than the expected one?

[Steve Webb]

No. What I am saying is that the law of the land requires the Secretary of State to make an assessment of the increase in the general price level each year. If the Secretary of State were to make such an assessment in a flippant way, by coming up with the first low number that he thought of because it suited him to do so, he would soon find himself in the High Court, and rightly so. That is not what is being done.

The Secretary of State has chosen a measure of inflation that is internationally standardised and used by the Bank of England for macro-economic targeting, and that better reflects the spending patterns of pensioners. One of the big differences between CPI and RPI in regard to the basket of goods is that the CPI does not include mortgage interest. It is worth pointing out that only 8% of pensioners have a mortgage. Why would we insist on using a basket that gives huge weight to mortgages for a population that hardly ever has a mortgage?

My hon. Friend the Member for West Worcestershire (Harriett Baldwin) mentioned in her excellent speech that in the year to September 2009 the RPI was negative, not because pensioners’ living costs had fallen but because something that most pensioners did not have— mortgages—had got a lot cheaper. Does the hon. Member for Hayes and Harlington really think that in the year to September 2009 the RPI was giving an accurate measure of the cost of living of pensioners? I am sure he does not. It was negative, but I am sure he would not say that that was because pensioners’ living costs were falling; they were not, but the index suggested that they were, because it was using the wrong basket of goods.

There is a second difference between CPI and RPI. As my hon. Friend the Member for Gloucester (Richard Graham) said, in addition to the basket of goods being different, the way in which people are deemed to respond to price changes is different. That is called the formula effect, and in general it is the bigger difference between the two. On that point, the Institute for Fiscal Studies has said that this was a sound basis for the change that we made because it better captures the way in which people on lower incomes respond to price changes. It has been suggested during the debate that pensioners do not shop around, but my experience tells me that they do. In the shops, for example, they will choose between a branded product and an own-brand product. I think that most pensioners are pretty canny. They are the most likely to shop around, and that is the way in which the CPI is constructed.

It has been suggested that the switch to CPI was purely a cost-saving measure that was dreamt up post-election. I have been reading through the evidence given to the court, and the judgment, and I found out something quite startling about what was happening in the Treasury before the last general election. In 2009, the Treasury was considering whether CPI was the best measure to use. The court judgment refers to a senior Treasury official, Dr Richardson. It states:

“Dr Richardson confirmed that the Treasury also considered that CPI was superior for…all benefits, tax credits and public service pensions. The Treasury had reached the same conclusion that ‘CPI provides a fairer reflection of inflation experience than RPI over the longer term…’ Dr Richardson also stated in 2009—that is, even before the 2010 election—once it had become widely anticipated that RPI inflation to September 2009 would be negative, the Treasury had formed the view that a move to CPI would ‘better reflect the experience of those affected by up-rating measures’”.

Now, the Treasury had decided before the last election that CPI was a better measure, so why did it not implement it? Because in that year, CPI was higher. In other words, on methodological grounds the Treasury had decided before the last election—I think the right hon. Member for East Ham (Stephen Timms) was a Treasury Minister around that time—that CPI was a better measure, but it held off from implementing it because it would have cost money. We think the CPI is a better measure, and we implemented it after the election, following a period when the RPI was clearly misrepresenting pensioner living costs—and I believe that to have been the right thing to do.

There was some discussion about whether the judges said that the change was just about cuts—I think it was the hon. Member for Easington (Grahame M. Morris) who suggested that it was. Let me quote him paragraph 63 of the court judgment:

“In our judgment, the evidence from Mr Cunniffe and Dr Richardson”—

the civil servants—

“set out above makes it plain that both the Secretary of State and the Chancellor independently came to the view that the CPI scheme better reflected the effect of inflation on the spending power of benefits and pensions, for a variety of reasons quite independently of cost.”

That was the majority view of the judges. Even if the hon. Gentleman does not want to take my word for it, the High Court looked at it independently, with no locus to defend the Government, and judged that a range of factors was in play. Clearly, the fiscal context was important to the decision—no one is pretending it was not—but the most appropriate index, CPI, was chosen by the Government, which is the one we went ahead with.

The position of the official Opposition and the Labour party pension scheme have been discussed, and the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont), said that the Labour party could not support the move to CPI. What is not clear to me is whether it can oppose it. A week ago, we talked about CPI and RPI in relation to an uprating order. Shadow Ministers made their trenchant criticisms of our policy, but when the vote came they walked away. After the contribution of the shadow Minister today, I am a little hazy about whether he is going to walk away again today. I think the trade unions would want Labour MPs to back the motion, but my impression is that whereas Labour Back Benchers will back it, Labour Front Benchers will be busy when the Division comes. I am of course happy to give way if I am misrepresenting the position of the official Labour party.

Important issues were raised in the debate. One of the key ones was the impact on individuals. In a sincere and well-informed contribution, the hon. Member for North Ayrshire and Arran (Katy Clark) listed particular groups of people she was worried about: women, low-paid workers who retire on low occupational pensions, NHS pensioners, and the average occupational pensioner. We have estimated the impact of the CPI change along with the impact of our triple lock. The hon. Lady accepts that the triple lock helps people and the CPI change reduces people’s incomes on average. She gave three examples: people on pensions of about £2,000, £3,000 and £4,000. We estimate that in all three of those examples, people will gain more from the triple lock than they lose from CPI. The very people she is most concerned about will, on average, benefit from what the Government have done on indexation.

My hon. Friend the Member for Eastbourne (Stephen Lloyd) asked about the £13,000. To be absolutely clear, what we are saying is that if people retire this year on a full pension, the change to the triple lock compared with RPI will provide a cumulative £13,000 extra on average over the course of their retirement. Even if we strip out the CPI effect, people will, on average, be £6,000 better off because of the combined changes we have made. I should say—I thought the House would want to know—what would have happened if the triple lock had been applied by the last Government back to 1997. If that had been the case, we would now have a pension nearly £10 a week higher than the current one. We heard in the debate that the last Labour Government kept meaning to restore the earnings link but they just never quite got round to it. If our policy had been in place, we would now have a pension £10 higher to start with, on which to build subsequently.

It is clear that there are gainers and losers from these changes. The gainers are average pensioners with average occupational pensions. It is true that the highest earners with the very largest occupational pensions will lose more from CPI than they gain, but I thought the Labour party was a progressive party that would welcome our protection of the most vulnerable. That is what we have done.

I welcome the fact that 100,000 people wanted this debate. It is a debate that we are willing to have. We accept that these changes have a big impact, but they should be seen in the context of, for example, the triple lock, which will mean that the average pensioner benefits from our policies. These are significant and important changes. We believe that we are measuring inflation properly and appropriately, and we believe that we have protected people through the triple lock. That is a combination that I urge the House to support.

Pensions and Social Security

Steve Webb Excerpts

Thursday 23rd February 2012 Commons Chamber

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

I beg to move,

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.

[Madam Deputy Speaker]

With this we shall take the following motions, on pensions and on social security:

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

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

[Steve Webb]

The draft Guaranteed Minimum Pensions Increase Order 2012 provides for contracted-out defined-benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3%. Increases are capped at that level when price inflation exceeds 3%. That, of course, is an entirely technical matter that we attend to on an annual basis, and not something that I imagine we shall need to dwell on today.

The second, smaller draft order comes about for a sequence of reasons. The Pensions Acts 2007 and 2008 gave the Government the power to abolish contracting out on a defined-contribution basis. A written ministerial statement set the point of abolition as 6 April 2012. In June 2011, the House debated and approved the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011, which makes consequential amendments to primary legislation, consistent with the abolition of defined-contribution contracting out. At the time of that debate, a minor defect in the operation of article 3 of the 2011 draft order came to light. I therefore made it clear to the House that I would return with a further amending order before the 2011 order came into force.

Accordingly, the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 will remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under section 310 of the Insolvency Act 1986, and from the scope of section 159 of the Pension Schemes Act 1993, which provides that guaranteed minimum pensions and protected rights payments cannot be assigned or charged. The draft order will bring consistency with our original policy intention, namely that the tracking of protected rights should cease after the abolition of defined-contribution contracting out.

[Oliver Heald (North East Hertfordshire) (Con)]

Does my hon. Friend not think that it is really rather a tribute to his work that the orders are so non-controversial that there is not a single Opposition Back Bencher in the Chamber to discuss the uprating of all the benefits that this country has? I pay tribute to him and congratulate him on that stunning achievement, which I do not think has ever been replicated.

--- Later in debate ---

[Steve Webb]

I am most grateful, although my initial oratory has already drawn one hon. Member into the Chamber. If I keep going for long enough, who knows? My hon. Friend is right to pay tribute to the coalition for finding the money to protect the most vulnerable households at a time of economic stringency. He can share in that credit.

On the principal order—the draft Social Security Benefits Up-rating Order 2012—despite that challenging economic landscape, the coalition is committed to protecting people who have worked hard all their lives, poorer pensioners, people who are not able to work through their disabilities, and people who, through no fault of their own, have lost their jobs and are trying to find work. Those are important aims for uprating 2012, which my right hon. Friend the Chancellor of the Exchequer made clear in his autumn statement on 29 November, Official Report, column 802.

[Mr David Ruffley (Bury St Edmunds) (Con)]

Has the Minister had any representations regarding the apparent iniquity of uprating by CPI on the basis of one month’s figures—those for September?

[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 right hon. Gentleman rightly says that the consumer prices advisory committee is looking at how owner-occupiers’ housing costs can be included in CPI—as he will appreciate, rent is already included in CPI. The committee has rejected the retail prices index approach in respect of mortgage interest and is looking at a range of alternatives. I understand that it is due to report in early 2013. I have said consistently that we will look at what it comes up with. Each year, as he knows, the Secretary of State must take a view on the general increase in prices, and will certainly have regard to the work of the committee in doing so.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

I am grateful to the Minister for addressing one issue that I wanted to raise with him, but I am also concerned that pensioners’ and disabled people’s experience of inflation is dependent on their heating costs, which was one of the main drivers of inflation last year. My concern is that CPI is not a good measure of people’s experience of inflation, because those people experience higher inflation than the rest of us, who go out during the day.

[Steve Webb]

The hon. Lady is right that any single inflation measure will not capture the full diversity of circumstances. One of the main differences between RPI and CPI is that RPI includes mortgage interest, which is largely irrelevant to most pensioners. By excluding mortgage interest from its basket of goods, the CPI gives more weight to the things on which pensioners spend their money. Other things being equal, CPI will therefore tend to be a better fit with the spending patterns of pensioners.

The hon. Lady is right that rising fuel prices are an important issue. That is one reason why instead of simply doing our legal duty by the poorest pensioners, which was to uprate the pension credit by earnings only, which was 2.8%, we chose to do a full pass-through of the £5.30 basic state pension rise to the poorest pensioner on pension credit precisely because they have faced the pressures she describes. We are aware of that point and have sought to do something in this uprating measure to address it.

[Oliver Heald]

I am grateful to the Minister for being so generous with his time. Does he agree that some quite significant changes are taking place in the hierarchy of indexes that can be used for uprating? For example, earnings, which was always thought to be by far the highest measure, is at the moment the lowest measure. In addition, changes in the housing market have affected the CPI and RPI differential. It is therefore a moving picture. It is not as straightforward as saying, “History tells the whole story.”

[Steve Webb]

My hon. Friend is right. I noticed in the most recent figures that the gap between CPI and RPI was just 0.3%. That is historically low, but the numbers and relative values change a great deal. That is why our triple lock says of the basic state pension, “If it’s prices that give you the highest number, we’ll pay that; if it’s earnings, we’ll pay that; and if it’s 2.5%, we’ll pay that.” We were determined to ensure that pensioners got the best deal for the basic state pension whatever was happening to the relative value of those numbers.

As I made clear in my statement to the House at the end of last year, this Government will use the full value of the September CPI to uprate pensions and social security benefits from April 2012. At a time when the prevailing headline figure for CPI has already fallen to 3.6% and is forecast to fall further during this year, we shall be uprating the overwhelming majority of pensions and benefits by 5.2%.

[Glyn Davies (Montgomeryshire) (Con)]

Perhaps I should declare an interest, having reached an age at which I benefit personally from this uprating. Normally, a lot of constituents who are concerned about the increase will contact their MP. This year, none has contacted me, which demonstrates a general acceptance among the population that the Government’s decision is fair.

[Steve Webb]

The volume of my ministerial correspondence on this issue has been very light. Almost all of it was with people who were afraid because they had seen speculation that we might water down our promises. I have been able to write reassuring letters to them to say that we will honour our promises in full.

[Katy Clark (North Ayrshire and Arran) (Lab)]

I apologise for missing the beginning of the Minister’s opening remarks. Will not the change mean a reduction from 5.6%, which would have been the uprating had we used RPI? Is the Minister aware that we have a Back-Bench debate on the matter because more than 100,000 people have signed a petition against the changes, particularly as they affect pensions? It therefore surely cannot be the case that people are happy about the changes.

[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.

[Stephen Lloyd (Eastbourne) (LD)]

Does my hon. Friend agree that the Government came under considerable pressure not to opt for 5.2% because informed opinion thought that inflation was falling, but with strong urging from the Liberal Democrats in the coalition, the Minister determinedly stuck to the 5.2%, which has made it a real-terms increase?

[Steve Webb]

Indeed. My hon. Friend is right 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.

[Oliver Heald]

Does the Minister agree that the Government have also gone further than they needed to on the pension credit? The requirement is to uprate by earnings but he has gone one better by increasing it by 3.9%. So not only were the siren calls resisted, but more generosity was shown to the poorest pensioners.

[Steve Webb]

There was indeed. My carefully structured speech is falling to ribbons. I was about to come to that achievement.

[Ian Paisley (North Antrim) (DUP)]

Although I understand the point about the real increase in the state pension from £102.15 to £107.45, I do not consider it something to be doing cartwheels about. In reality, it will not have a major impact on the lives of the elderly across this nation, especially given that just a few weeks ago, the House removed £100 from the winter fuel allowance. Effectively, the oldest pensioners are £50 a year worse off, not better off. I think that we have to get real. This is not enough.

[Steve Webb]

Let me address that issue directly. Any pensioner will say that the basic state pension is the most important thing to them: they like the winter fuel payment and they like the means-tested benefit—well, they do not always like it but it is valued by those who receive it—but a decent state pension has been the clarion cry of pensioners for decades. For 30 years, pensions have fallen, year on year, relative to earnings, and consequently the ability of the basic state pension to do its job of replacing earnings has been falling for 30 years. We have reversed that.

The pension will now rise at least in line with earnings, but in years such as this, when price rises are higher than earnings increases, it will rise by more. So the position of pensioners relative to people in work has been improved by this uprating statement. Can we go further? Yes. And we will, because under the triple lock, over a typical retirement, someone retiring this year will gain £13,000 of retirement pension over and above RPI. Can we fix 30 years of decline in a single year? No, of course not, but we can focus the money on the thing that pensioners value the most—the basic state pension.

As I have mentioned, with the triple guarantee protecting the value of the basic state pension in the longer term, the average pensioner retiring this year on a full—I should have said that—pension will gain about £13,000 compared to the old price link.

I shall turn to the additional state pensions, which are commonly referred to as SERPS—state earnings-related pension scheme. In April 2010, just before the start of this Parliament, the uprating was based on the year to September 2009, when RPI was negative. That means that in April 2010 the previous Government froze SERPS—I assume they thought that pensioners had not experienced inflation the preceding year. In April 2011, however, we increased SERPS by 3.1%, and this year SERPS, as well as the basic state pension, will rise by the full 5.2%. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £6.70 a week, or £348 a year.

When it comes to the standard minimum guarantee in pension credit, the legislation requires only that an increase be at least in line with the growth in average earnings, so that over the long term the poorest pensioners see their incomes rise in line with the income of the working-age population. As my hon. Friend the Member for North East Hertfordshire (Oliver Heald) said, however, this year the relevant earnings index stood at just 2.8%. We judged it unacceptable for the poorest pensioners on the guarantee credit to receive the smallest cash increase of all. Our aim was to ensure that the poorest pensioners received an increase in line with the cash increase to the basic state pension.

As a result, the order increases the single person’s rate of the standard minimum guarantee by £5.35, taking it to £142.70 per week from April 2012. To help manage expenditure, we have funded the above-earnings increase to the standard minimum guarantee by increasing the savings credit threshold, which means that those with higher levels of income could see less of an increase. However, given the increase to the basic state pension, no one should have a lower weekly income as a result of uprating. This approach enables us to target resources for the poorest pensioners on the guarantee credit.

I shall turn briefly to working-age benefits. The coalition will ensure that the value of other social security benefits is maintained, through a 5.2% rise, even in these tough economic times. That means, for disabled people above and below pension age, through disability living allowance and attendance allowance, an increase of 5.2%; for people of working age who are not fit for work, through employment and support allowance, an increase of 5.2%; and for people who have lost their job through no fault of their own, through jobseeker’s allowance, an increase of 5.2%. 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.

The order gives real support to protect people against price increases. At a time when the nation’s finances are under severe pressure, the Government will spend an extra £6.6 billion in 2012-13 to protect people against cost of living increases. I cannot help observing that, if someone spends too much time in the DWP, lots of zeros tend to make them glaze over, but this is £6.6 billion of help for some of the most vulnerable people in the country: £4.5 billion more on pensioners; over £1 billion more on disabled people and their carers; and over £1 billion more on people unable to work through sickness or unemployment.

We have protected the triple lock, thereby securing the largest ever cash rise in the basic state pension; we have uprated the pension credit so that the poorest pensioners benefit from the triple lock; and we have uprated working age benefits by 5.2%, thereby protecting the real incomes of the poorest. I have outlined the coalition Government’s firm commitment to ensuring that even in these difficult times no one is left behind, and I commend these orders to the House.

--- 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]

I am grateful to all hon. Members who have taken part in this debate. The hon. Member for Banff and Buchan (Dr Whiteford) deserves particular credit for being here throughout and not making a speech, but we are grateful to her for her interventions. I shall respond to the key points that have been made. I was going to respond first to the right hon. Member for East Ham (Stephen Timms), but I shall do so at the end if he has time to come back and join us.

My hon. Friend the Member for Truro and Falmouth (Sarah Newton) has also been surprised by the timing of the winding-up speeches. I am grateful for her contribution and her important point about the significance of the take-up of these benefits. It is all very well our sitting here debating the rates, but if people do not claim the benefits, it is a slightly academic exercise. My hon. Friend was right to highlight the importance of our making sure that the benefits are taken up— [Interruption.] I am delighted that she is rejoining us. I was welcoming her comments about benefit take-up, and today we have published the latest take-up figures for income-related benefits in the final year of the previous Government. They demonstrate that in the benefits under discussion many billions of pounds go unclaimed, so she is absolutely right that we should do all we can to encourage people to claim them.

My hon. Friend will have seen in these uprating orders that we are trying to shift the balance towards the benefits that people really do claim, such as the state pension, and even within pension credit we have loaded the balance towards the guarantee credit, which is more likely than the savings credit to be taken up. On today’s figures, for those who are entitled to savings credit only, the take-up rate is less than 50%, so it is vital that when we set benefit rates we ensure that people claim them. I was grateful to her for her insight on that point, on the certainty that the triple lock gives pensioners and on the fact that we have stuck to it despite difficult economic times, and I can assure her that we will continue to do so.

The hon. Member for North Ayrshire and Arran (Katy Clark) was entirely straight with the House, saying that she does not agree with the CPI measure or with her Front Benchers. On the issue of whether that is controversial, of course it is, but all I was saying is that I last joined the National Pensioners Convention at a time when no decision had been made, so it is worth winding the House back to that point.

In the press there was speculation that we might introduce a freeze—I shall return in a second to the points made by the hon. Member for Bury St Edmunds (Mr Ruffley)—or use a forecast, a moving average or anything to get the number down. At that point, I was staggered to go to an NPC event and be—“harangued” would be uncharitable—forcefully encouraged to deliver 5.2%. Having seen that delivered, I would, if I were the NPC, then demand 5.6%. I understand that, but it is worth reminding ourselves of the pressure that the Government were under to do less, so 5.2% was an entirely decent settlement in the current economic climate.

The hon. Member for North Ayrshire and Arran made an important point about the cumulative effect, which was her key theme. She made an important point also about working age, but to focus on pensioners I note that there are two cumulative effects going on at the same time: one is the triple lock and the other is CPI, which applies to additional pensions. The question is, which is the greater?

The hon. Lady mentioned someone with an occupational pension of £10,000 a year, but from memory—this is only from memory—the average occupational pension in payment is about £4,000 a year, so her example is more than double the typical sum, and our estimate, looking just at the cumulative impact over a retirement of the basic pension, is where the £13,000 figure comes from. Looking purely and cumulatively at the triple lock, because the earnings figure is normally more than RPI, we find that people will get more through that. CPI is on average less than RPI, so on the additional pension they will get less.

The cumulative effect of the two is beneficial to those with lower occupational pensions, but less beneficial—indeed, there are net losses—to those with higher occupational pensions. So the hon. Lady is probably right: someone on a £10,000 occupational pension will get smaller net increases and someone on a £3,000 occupational pension will get bigger net increases overall. That is taking account of the two policies. She is right that these policies have a cumulative effect. For example, on the CPI link for local housing allowance, the Government have said that they will continue with that for two years and review the position having done so. I am grateful to the hon. Lady for drawing the House’s attention to the Chair of the Select Committee’s unfortunate accident. I am sure that we all wish her our very best for a speedy recovery.

My hon. Friend the Member for Bury St Edmunds observed that the September 2011 figure was a peak. He said that by the time we get to April 2012 it will already be a bit out of date and that by the end of 2012-13 it will be 18 months out of date. This involves two separate questions: first, whether we should use forecasts or historical figures; and, secondly, what we should have done this year. The VAT increase in January 2011 was a significant driver of the 5.2% figure. Had we, for example, chosen to look at inflation only over certain months, or chosen to switch to the future just at the precise point when something quite big happened historically, people might have queried our sincerity. At times in the late 1970s and ’80s, some Governments switched to and fro between forecasts and historical figures, and there was a sense that that had nothing to do with compensating for inflation but was merely trying to find a low number. It is important that we have a system for compensating for inflation that we stick to and a separate system of judgments on what the country can afford, whereby if we cannot afford 5.2%, we should say so. We should not try to think of a period that will give us a lower number. My hon. Friend is right that if we had used a lower inflation measure we could have saved a lot of money, but that is the answer to a different question.

[Mr Ruffley]

The burden of my argument did not relate especially to last autumn’s figure but to the principle of whether, for a 12-month period in which one is seeking by an uprating to compensate benefit recipients for the cost of living, one should use a figure, whatever it is, that is six months prior—that is, the September figure.

--- 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.)

Workplace Pension Reform

Steve Webb Excerpts

Monday 20th February 2012 Written Statements

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

Later today the Government will publish the consultation document “Automatic enrolment and European employers”. This addresses an issue that could place an unnecessary burden on employers to find a pension scheme into which they can automatically enrol dual-status workers—those who are simultaneously jobholders and qualifying persons.

A jobholder is a worker who is working or ordinarily works in Great Britain under the worker’s contract. A qualifying person is an individual whose place of work under contract is sufficiently located in an EEA state other than the UK so that the relationship with the employer is subject to the social and labour law relevant to the field of occupational pension schemes of the other EEA state.

The consultation proposes an exemption for employers from having to automatically enrol dual-status workers. The period of formal consultation will begin today and last for six weeks, ending on 2 April.

I would like to thank all those people and organisations who have offered their views and advice in response to our recent informal consultation, and hope that they will continue to do so now that consultation has moved on to a formal footing.

Draft regulations and an impact assessment will be published alongside the consultation document.

A copy of the consultation will be placed in the Library of both Houses and will be available later today on the Department’s website:

http://www.dwp.gov.uk/consultations/2012/.