Unemployment

Steve Webb Excerpts

Wednesday 14th December 2011 Commons Chamber

[Mr Barron]

Long-term youth unemployment has increased. In Yorkshire and Humberside, it increased from 7,160 in January 2011 to 13,895 in November 2011. That is an increase of 94% in long-term youth unemployment. In my constituency it has increased by 68.8%, while in the two neighbouring constituencies in the Rotherham borough it has increased by 125% and 80% respectively. We are talking about the life chances of young people in our constituencies being taken away from them. I have not seen such increases in youth unemployment since the 1980s, when my constituency and neighbouring constituencies suffered from the Government’s run-down of the coal industry, which not only put thousands of people on the dole, but struck off the life chances of people in education trying to get into work, as one of the major employers for young men in my constituency was systematically closed down. The consequences of that have run on not just for a few years, but for generations.

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

I do not doubt either the right hon. Gentleman’s sincerity or the fact that he believes the figures that he has been given, but let me tell him that they are simply misleading. What used to happen is that after a young person on jobseeker’s allowance had gone on a scheme, the clock would start ticking as though it were day one, which meant that they had disappeared from the long-term youth unemployment figures. The right hon. Gentleman is comparing figures that exclude those young people with those that include them, so the rise that he describes has not happened in the way that he believes.

[Mr Barron]

The idea that we should come here and dance around about whether all the figures are accurate, when there are 2.6 million unemployed people in this country, is not sensible. [Interruption.] I do not know: I am not a Minister, and I do not study the briefs that the Minister studies. What I do, and what I have done for over 28 years, is represent a constituency that is largely poor, with far too much deprivation in all sorts of areas, whether in terms of ill health, high unemployment or anything else. I saw that change in my lifetime, over a decade, which affected the lifestyles of many people in my constituency. I see from today’s statistics and what has been happening over the past 12 months that things are returning to how they were decades ago. It is wrong and it is unfair, and I am not going to come to this place and listen to a debate about “the national economy” this or “the national economy” that. We need to look at the crucial issues of how to help the young generation.

--- Later in debate ---

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

It is important in the few minutes remaining to put on the record some of the facts about the current situation, because there is a danger that the tenor of what we have heard from the Labour party might talk down the British economy and lead to an unnecessary depressing of confidence at a time when we need realism, not talking down the hard-working people in our economy.

Let me give an example. One would hardly believe from today’s debate that since the general election, the number of people in work in this country has risen by a quarter of a million. In fact, the number of people in private sector jobs has risen by more than half a million.

[Sheila Gilmore]

Will the Minister give way?

[Steve Webb]

In a second. So when it is said that the private sector is not expanding, that is simply not right. People say that there are no jobs, but there are half a million additional private sector jobs. The hon. Lady made the point that that is looking over the whole period, so I will take her at her word. Let us look at the last month. In it, the number of people in work has risen by 38,000. Of course, we can all choose different time periods—Labour Members used the last quarter, for example—but my point is that selective use of statistics, such as that made by the right hon. Member for Birmingham, Hodge Hill (Mr Byrne), creates a highly misleading impression and talks down the British economy in a way that is in nobody’s interests.

[Mr Byrne]

The Minister is characteristically generous in giving way. Surely he cannot celebrate the fact that employment over the last quarter has fallen by some 63,000, and that 13 times more jobs are being lost in the public sector than jobs are being created in the private sector. He cannot tell the House today that everything is going well, surely.

[Steve Webb]

Of course, I did not say that everything is going well, but the right hon. Gentleman cannot deny that in the last month, an extra 38,000 jobs, net, have been created. We can choose different time periods. As my right hon. Friend the Minister of State said, the claimant count rose by 3,000 in the last month, but that is more than offset by the fact that people who were previously on incapacity benefit have been reassessed on to JSA, and lone parents have been required to look for work and moved on to JSA. In fact, without those policy changes, JSA numbers would have fallen in the last month. That is why my right hon. Friend was absolutely right to talk about signs of stabilisation in the job market.

As a number of Members on both sides of the House said—my hon. Friend the Member for Salisbury (John Glen), the right hon. Member for Rother Valley (Mr Barron) and others—every single person on the unemployment roll is a person too many, but if we overstate the doom and gloom, we talk down confidence in the economy, which is to the detriment of all our constituents.

Let me respond to the claim made by the right hon. Member for Rother Valley and others that long-term youth unemployment is up—and I quote—“93%”. Labour Front Benchers have clearly supplied all their Back Benchers with figures for their constituencies. The only problem is that all of them are wrong. Labour Members might be interested to learn that what used to happen is that under measures such as the new deal, people had to move off JSA after a certain period and were paid something else—a training allowance—or they got a temporary job; then, when they went back on to JSA, as so many did, the clock started again. Hey presto—a long-term unemployed person had been converted into a short-term unemployed person. They had not got a job; they had just been taken out of the figures. We have stopped doing that. As a result, if all the factors are taken into account—the people who were excluded from the statistics because they were on training allowances or in temporary jobs—the number of long-term claimants aged 18 to 24 is about the same now as it was in 2010.

To hear Labour Members, one would think that the numbers had doubled. The right hon. Gentleman was very angry about that, and had they doubled he would be right to be so, but they have not doubled—in fact, they are roughly the same.

[Mr MacShane]

Yet.

[Steve Webb]

The right hon. Member for Rotherham (Mr MacShane) said that it was “absurd” to blame all the problems on this Government. That was gracious of him, although I take great offence at his attack on Oxford PPE graduates, but to hear Labour Members today, one would have thought there would have been no public sector job losses at all had they stayed in power. They were planning tens of billions of pounds of cuts. How many public sector jobs would have gone had they gone ahead with their tens of billions of pounds of cuts? They have no idea—no idea at all.

Several hon. Members mentioned interest rates. We were told that we inherited low interest rates, and the Bank of England base rate was indeed low. The question was what decisions did we, as a new Government, have to make to get the fiscal position under control. Because we took the difficult decisions early—pretty much every one of which has been opposed, item by item, in the course of this debate—the interest rates at which the British Government are borrowing have stayed low while other countries’ debt rates have soared. As a result, in this Parliament we have saved £22 billion in debt interest—money we can spend on services and on helping the unemployed which would not have been available had we listened to Labour.

Early in the debate, my hon. Friend the Member for Monmouth (David T. C. Davies) said that we need to tackle red tape. He is right, and we have the red tape challenge, which has already resulted in substantial deregulation in, for example, retail and hospitality, with much more to come. I am grateful to him for making that point.

My hon. Friend the Member for Cardiff Central (Jenny Willott) highlighted the fact that pension funds will now be asked to invest more in the long-term infrastructure of this country—and rightly so. It is shocking that, for so many years, the money in our pension funds was not invested in our long-term infrastructure. This coalition Government are taking action to tackle that.

The hon. Member for Stockton North (Alex Cunningham) referred to the regional growth fund money in his constituency, and I am grateful to him for acknowledging the good that it can do. He asked about incentives to take on the long-term unemployed and the young unemployed. The youth contract is being introduced so that when people take on 18 to 24-year-olds from the Work programme—so they are long-term unemployed—they will get an incentive worth £2,275. That is more than a year’s free national insurance, so it is a valuable incentive. Unlike point five of this fantastic five-point plan we have heard about, which would reward small firms that take on anybody—including someone they were going to take on anyway and who would have got a job—our incentive is targeted on the long-term unemployed. That is the crucial point. Only one person in this debate has mentioned cost-effectiveness—my hon. Friend the Member for Salisbury. The right hon. Member for East Ham (Stephen Timms) said that it was a scandal, or something, to have finished up the future jobs fund, but he should know that that fund was costing more than £6,500 per place, whereas our work experience programme costs a twentieth of that and delivers the same sort of outcomes. Cost-effectiveness simply is not on the Labour party’s radar.

In the few seconds available to me I shall not have the chance to go through all hon. Members’ contributions. My hon. Friend the Member for North East Hertfordshire (Oliver Heald) flagged up the record national debt that we were left and my hon. Friend the Member for St Albans (Mrs Main) talked about the collective amnesia of Labour Members and asked why they did not tackle bankers’ bonuses. Just before the election, they introduced a temporary bankers’ bonus tax—

[Mr Alan Campbell (Tynemouth) (Lab)]

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Main Question accordingly put.

Bereavement Benefit (Public Consultation)

Steve Webb Excerpts

Monday 12th December 2011 Written Statements

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

One of the key tasks that the Government have faced over the past year and a half has been to fundamentally reassess the role the welfare system should play in the 21st century.

We recognise that spousal bereavement is a life-changing event. Emotionally, socially, economically, bereaved people face the task of re-establishing themselves and adjusting to their new circumstances. We know that this journey varies considerably according to personal circumstance, with people drawing on a wide range of support mechanisms to get them through. Bereavement benefits form an important part of the state safety net at this time.

But these benefits have fallen outside the recent reviews of the wider welfare system. Indeed, they have rarely undergone any kind of critical scrutiny to establish whether they provide effective support after the loss of a spouse or civil partner.

To address this we are today publishing a consultation paper on the future of bereavement benefits. We are seeking views on how in the future these payments should support those of working age who suffer the loss of a husband, wife or civil partner. We are aware we need to strike a balance between providing appropriate support at a critical time, while encouraging those of working age to support themselves and their families through employment when they feel able to do so.

Payments made under the war pensions scheme or armed forces compensation scheme will not be affected by this review. The review will not impact those already in receipt of bereavement benefits at the point at which a new scheme is introduced.

A copy of the document will be available in the Vote Office later today.

Further details will be available on the Department for Work and Pensions website at http://www.dwp.gov.uk/consultations/2011/bereavement-benefit.shtml.

Social Security Benefits Uprating

Steve Webb Excerpts

Monday 12th December 2011 Written Statements

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

I am pleased to announce the proposed social security benefits rates for 2012, which are set out in the table below. The annual up-rating of benefits will take place for state pensions and most other benefits in the first full week of the tax year. In 2012, this will be the week beginning 9 April. A corresponding provision will be made in Northern Ireland.

Pension Plan Charges

Steve Webb Excerpts

Wednesday 7th December 2011 Westminster Hall

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

There is a risk of an outbreak of violent agreement in this debate, but I will do my best to sow some dissent, if I can. I congratulate my hon. Friend the Member for Great Yarmouth (Brandon Lewis) on securing the debate. It is good to see a number of hon. Members present and happy to spend 90 minutes discussing transparency in pension fund charges. Although it may be thought of as a dry subject, it is, as we have heard from a number of contributors, fundamentally important to the pensions outcomes of so many of our constituents. I am, therefore, grateful not only to my hon. Friend for securing the debate, but to all hon. Members who have participated in thoughtful ways.

I was struck by my hon. Friend’s examples of baffling language. On the first pension I ever had, I remember having to choose whether I wanted it to be “with profits” or not. I thought, “Profits must be a good thing, so I’ll have one of them,” but I did not have a clue. I worked for the Institute for Fiscal Studies at the time, so I may have been thought to have a clue, but I had no idea what it was. In fact, I am still a little bit hazy about it, but I do not have it any more.

It is absolutely clear that. although people get information, it does not inform. As my hon. Friend the Member for Cardiff Central (Jenny Willott) said, although one can get a wodge of stuff that complies with all the necessary regulations, it might not actually communicate anything at all. I agree with her that financial literacy is an important part of the jigsaw. She may have been encouraged to hear the Prime Minister say at Prime Minister’s questions that he will look at the research the all-party group on financial education for young people is doing. There is clearly some momentum behind that campaign in the House, which I certainly welcome. However, I think she would be the first to admit that financial literacy is only part of the jigsaw.

One of the crucial things about pensions is that we need to make them work for people who do not engage. In other words, most people will find the subject boring or off-putting and we need to ensure that their interests are protected. A phrase in the behavioural economics and pensions lexicon is, “You can’t beat a good default.” That is significant in the context of auto-enrolment because, by the end of the process, we will take firms that are not interested and give them a legal duty to choose a pension. It will not be the employer’s pension; it will be the employee’s pension. Therefore, the firm may have a limited incentive. It may care about its workers, but there may be a limit to how far it wants to go.

As we have heard, there may be employers coming into auto-enrol that are less educated, less interested and less well informed. When we discussed these issues in the Committee that considered the Pensions Bill earlier this year, one hon. Member—I think it was the hon. Member for Islwyn (Chris Evans)—asked what happens when a man in a shiny suit turns up. For example, he might turn up at a small engineering firm in the west midlands that employs three people and that probably did not even know it had a legal duty to auto-enrol—we have done our best, but it may not have heard—and say, “You’ve got to do this thing. I can do a scheme. Here are the terms. Sign here.”

There might be a tendency for such a firm to go for that. The question then is: who is looking after the welfare of the employee, because the employee will almost certainly end up auto-enrolled into a default fund? We need to make sure that the employee, who may not be engaged with pensions either, is protected. Transparency is a part of that. Individuals must get the relevant material, so that they know what they are paying. However, the employer has chosen the scheme. Happily, we are still on the eve of auto-enrolment, so we need to make sure that, first and foremost, employers have transparency. When employers are establishing auto-enrolment schemes or choosing schemes that are already running, they will therefore know what they are choosing between in a simple and consistent way.

I very much welcome the work of the National Association of Pension Funds that has been cited by a number of hon. Members. I am delighted that it is bringing together industry players, such as the Association of British Insurers, many of whose members offer contract-based pensions. We are therefore getting a spread across the breadth of pension provision. If that group and that work can produce an effective industry code of practice on transparency on charges, so much the better. I entirely agree with my hon. Friend the Member for Great Yarmouth that, if the industry can sort its own house out—it has not done so yet and there is some recognition of that—it is far better than the Government trying to be over-prescriptive. We need to ensure that we can get to that point quickly. I am pretty sure that, if the ABI, the NAPF and others get their act together and sort it out, they can move a lot faster than the Government. If an industry code of practice is in place before auto-enrolment starts, that will be very positive.

A number of hon. Members referred to the important issues of active member discounts, deferred member charges and deferred member penalties. That is a good example of transparency, or the lack of it. Someone might have left a firm years ago and still have some money with it. As my hon. Friend said, they might receive a statement, but they probably do not understand it. It is not apparent what is happening on charges and it perhaps did not even occur to the person concerned that, now they have left the firm, the charges are higher than they were when they were with the firm. Again, transparency gets us only so far.

One of the things we as a Government need to do, particularly post auto-enrolment, is to look at the whole issue of transfers. As the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont)—I discovered the other day that that is the longest constituency name in Parliament—said, people might typically have 11 different jobs and acquire multiple small pots during their lifetime.

We could just do transparency. We could make sure that people know what pots they have got and what charges they are paying. However, a better strategy in my view—or certainly a better first step—would be to consolidate all those small pots, so that people are not left with stranded pots that they might never access at all because the firm has lost touch with them. We know that that happens because we hear from pension fund trustees who cannot find their members anymore. I do not know, Mr Gale, whether when you have moved house, you have told all your pension providers of your new address, but many people fail to do so. Therefore, many people end up with stranded pension pots because the providers have lost contact with them or because the pots are so small one could not buy an annuity with them and the charges for transferring them out are so large as to not make it worth while.

One can start to see how individuals who are just the sort of people who might be under-pensioned will get a bad deal. Therefore, transparency takes us so far, but much more action on transfers could take us a lot further. Hon. Members will be encouraged to know that, very shortly, I hope that we will be publishing a document setting out some options on how we might make transfers work. It is code-named “project big fat pot.” The idea is that we bring together all the small pension pots people have. In an auto-enrolment world, that really matters because we estimate that hundreds of thousands of small pots could be created every year. Such pots belong to people who are auto-enrolled, leave the firm and move on. We need to ensure that that process of accumulation of pots is as systematic and automatic as possible.

We will set out options. I say to the shadow spokesman that we are very much in listening mode on this and that, if he has insights and thoughts on our consultation, we will be pleased to hear what they are and to meet him to discuss them. One option is that the pot should follow the person. So if someone changes jobs, by default, the new firm says, “Right, we’ve auto-enrolled you. You have just come from another scheme. Unless you tell us not to, we will take the money into the new scheme, so you consolidate into the new scheme.” That is quite attractive but, on the other hand, such an approach raises issues around member protection if someone goes from “a good scheme” to a “not so good scheme.”

An alternative option would be that, by default, small pots go to a third-party aggregator—a third-party pot. That could be the NEST, another provider, a multiple set of providers or a super-trust. There is a variety of options. Again, that will mean someone does not end up with stranded pots and deferred member charges; they will just end up with a big fat pension pot, as far as they can.

That brings me to the point made by my hon. Friend the Member for Warrington South (David Mowat) about value for money. My rule of thumb on people buying annuities is that a third of people shop around and switch, a third of people shop around and stay with their provider, and a third of people do not shop around. If we can accumulate small pots into big ones, that will ensure people are getting better value for money and better annuity returns. However, he is absolutely right: transparency and information for people when they are making their annuity choices is vital and getting as close as we can to turning defaulting into shopping around has got to be the direction of travel.

The Association of British Insurers has taken some important steps in that direction recently. For example, if someone has saved with company A and, six months before they are due to draw their annuity, it contacts them, the ABI is making it a condition of membership of the ABI that the provider does not send the application form that is easy for someone to fill in and send back, meaning they end up with company A. Someone has to actively seek that out. That is a small step, but it is a step in the right direction.

We can do more and the Financial Secretary to the Treasury will be announcing further measures on that shortly. We need to ensure that people see what the charges are but, better yet, we need to try to ensure that people are not in a position where they face these charges. Instead, they should have the money somewhere they are connected to, rather than somewhere they left a long time ago. That would be an appropriate response.

There has been talk during the debate about NEST. It is encouraging that NEST has already driven up standards in the industry. In focusing on its target market, which includes people on lower incomes and people who have not been pensioned before, NEST has had to think very hard about language and communication. It has come up with a lexicon of phrases and the use of words such as “vesting” has been ruled out. That word cannot be used because nobody knows what it means. Unfortunately, the word “pension” is also a bit tricky as nobody knows what that means either. I think NEST calls a pension a retirement wage or something. I have a branding problem with my own job. I have asked the Prime Minister if I can be called the Minister for retirement solutions or something like that.

There is a serious issue surrounding the communication of pensions. NEST has led the field. Others are working with it and we, as a Department, have a working group on communications that involves a lot of the industry in trying to ensure that all of us are speaking human rather than pensions. That is vital in the context of auto-enrolment.

I do not know whether the shadow spokesman has had a chance to visit NEST yet, but we extend an invitation for him to do so. [Interruption.] Next week—there we go. My hon. Friends on the Select Committee visited and came back pretty impressed with what NEST is doing to drive up standards of communication, which is really important, and standards of transparency on charges, and to bring charges down.

I will say a word about the NEST charging structure in a second, but perhaps slightly contrary to what my hon. Friend the Member for Warrington South said, the evidence in the auto-enrolment space is that charges are coming down. He raised the issue of entrance to the market. We see growing competition—auto-enrolment is a big market; 10 million people will be auto-enrolled—new people coming in and charges coming down. For example, the B&CE organisation has branded itself as the “people’s pension”—I will not comment—with an annual management charge of 0.5%. NOW: Pensions, which is linked to the Danish providers, has a different structure at £1.50 a month, I believe, and a 0.3% charge. My hon. Friend the Member for Great Yarmouth mentioned the Federation of Small Businesses, which I believe is coming in with charges below 1%. There is NEST. We have heard about Legal & General, obviously an existing provider, but one that is working proactively in the market. I am encouraged that, in the early phases of auto-enrolment, I do not think that we have a problem with charges. I stress that—in the early phases I do not think that we have a problem. On the whole, we are dealing with the huge employers—the big supermarkets and some of the public sector. They have people spending time and effort shopping around. They can drive a hard bargain. They are engaged with pensions—I do not think that we have a problem there.

The challenge for Government is further down the track, as we get towards the medium and smaller firms that are clearly less profitable for the providers. We hope that many will go to NEST. When the pensions regulator writes to them a year out, we will flag up NEST. We will say that we have created NEST and that it is designed specifically with them in mind, and that they should have a look at it. There is a risk, however, that people will go to other providers and end up with high-cost providers. That is why we are looking at the issue of charge caps. In the debate, we heard two competing views on that: the call for charge caps, and the view that we should go for light-touch regulation and charge caps as a last resort. That is the dilemma we face.

It is only fair to say that charges are paying for something. In a transparent world, there may be a case for what looks like a high pension charge if people get something for it. I use the analogy that if all someone wants is vanilla then that is fine. We might say that vanilla ought to be cheap. If someone wants raspberry ripple, we might let them pay a little bit extra for it. We do not necessarily want to say that it is evil to charge more than a certain amount for a pension, but people should certainly know what it is they are paying and know what they get for it. For example, if someone is offering a sophisticated or niche investment, they should be able to charge for it, as long as we know what it is. The focus of our attention on charges is particularly on the area of default funds, because those will be the ones where people have made no active choice, where they have just been lumped in, and we need to ensure that people are protected.

[David Mowat]

I hear the Minister’s analogy of vanilla versus raspberry ripple. Raspberry ripple is analogous to actively managed funds. Remembering that those funds are heavily subsidised and paid for by a lot of Government money, is it his assessment that actively managed funds give value for money in the industry, and have demonstrated that they have been clearly better than tracker funds in the past decade or so?

[Steve Webb]

I suspect that the arguments over the merits of active management against passive trackers and so on are food for longer than a seven-minute debate, and are the source of much contention. The point that I am making is not so much that one or other is good or bad, but that we want individuals who make active choices. They can have a knickerbocker glory if they like. They ought to be able to choose as long as they know what they are getting, and can make an assessment on whether they are getting value for money. The worry we have is that, if people end up defaulted into something, they do not know what has been done to them, do not make any choices and potentially find that a big chunk of their money is going in charges. In such circumstances, the case for action is stronger.

That is not straightforward, however. What is a charge? My hon. Friend the Member for Great Yarmouth listed a whole raft of different things that can be mentioned in the course of setting out charges. Do we just cap an annual management charge? If so, what about transactions charges and sales charges? The danger is that, if we cap a bit of the charge, we squeeze the balloon and it just comes out somewhere else. It is easy to say, and I have said it, “Oh, we just cap charges.” Actually doing it and defining charges is less straightforward than one might imagine.

In the few minutes available to me—I believe that a Division in the House is imminent—I would like to pick up on the scale of the deferred member charges. For group personal pensions and stakeholder pensions, where one of those deferred member premiums is charged, our survey evidence from 2010 is that for active members we are typically talking about 0.6% as an AMC, but for deferred members an average of approximately 1%. These numbers vary a lot, but even that, as we have heard, cumulatively is a big chunk out of people’s pensions and something that we want to do something about.

To clarify the NEST charging structure, it has a contribution charge of 1.8% and an AMC of 0.3%. It is structured like that because NEST was started from scratch and so has to borrow money to start at business. It has to set up and be all in place before the first pound comes through the door some years later. The Government lent NEST that money on favourable terms because of its public service obligation. The 1.8% contribution charge reflects the Government loan. When that Government loan is paid off, the 1.8% charge will go. Having said that, it will be quite a number of years before it does: it is not permanent, but it is not short-term. It will be with us for some years, but that is why the structure is as it is. The 1.8% contribution charge and 0.3% AMC average out at approximately 0.5%. We are finding that the market is now coming down to about that level.

On charge caps, people sometimes say that, if there is a charge cap, the danger is that everybody goes up—the maximum becomes the minimum. I do not think that that will happen in this case, because we have NEST in the market. We are making sure that NEST is at a certain level, so charging could not be sustained at a much higher level. Therefore, I do not think that the argument against charge caps actually holds.

We heard a number of other points during the debate. My hon. Friend the Member for Warrington South referred to a £40 billion subsidy. That depends on how we look at it. Tax relief, fundamentally, is avoiding double taxation. If I earn some money, pay tax on it and then invest in a pension out of my post-tax income and am then taxed on my pension, that will be double taxation. We give tax relief on the pension contribution. Leaving aside the issue of higher rate relief, which is a different issue, someone who is on a standard rate of tax when they earn the money and a standard rate of tax when they draw the pension is being taxed once. I do not count that as a subsidy of the pension industry; I just count that as not double taxing people. There is a bit of an issue about higher rate relief, particularly when people retire on a standard rate, but I do not think we subsidise the pensions industry—that is not the way I would view it.

My hon. Friend raised an important point about comparability. We know that swapping energy tariffs, as he says, is a real challenge. As soon as someone has changed energy supplier, they can often jack the charges up. It is less straightforward at least with pension providers, because if someone signs on to a contract there are terms and conditions on whether they can subsequently be changed. It would be a good thing to get that transparency in place.

Drawing some of these threads together in this very important debate, I welcome the Select Committee’s inquiry, and the work it did recently in questioning witnesses. I welcome the lead that the NAPF is taking on this issue and the fact that it is bringing industry players together. A new industry code of practice would be an important step in the right direction. The Government may well have a role. We will certainly work closely with the NAPF and the industry to support that work. At the same time, we are looking at the role of charge caps and whether they have a part to play in auto-enrolment. We do not anticipate the issue of charges being a big problem in the short term. The scale of the market early on is a small number of big buyers who are relatively well informed and relatively well resourced, so we think that that will work well, but we are actively considering whether we need to go further. We all want to protect individuals and ensure that, of the money that goes into their pension, far more goes out in the form of pensions. That, I think, is a goal we all share.

Benefits Uprating

Steve Webb Excerpts

Tuesday 6th December 2011 Commons Chamber

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

Mr Speaker, with permission I should like to make a statement about the uprating of social security pensions and benefits for 2012-13. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 9 April 2012 for each pension and benefit, and arrange for the figures to be published in the Official Report.

As part of his autumn statement last week, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2012-13, and today I am announcing the uprating of those social security pensions and benefits for which my Department is responsible. As my right hon. Friend Chancellor pointed out in his statement, uprating in 2012-13 would protect

“those who have worked hard all their lives…poorer pensioners…those who are not able to work because of their disabilities…those who, through no fault of their own have lost their jobs and are trying to find work.”—[Official Report, 29 November 2011; Vol. 536, c. 802.]

Starting with those who have worked hard all their lives, I should like to turn to one of the early actions of the coalition Government: the restoration of the earnings link for the basic state pension. This Government not only made good on the pre-election promises to restore the link with earnings, we went one step further by protecting the future value of the basic state pension with a triple guarantee—that the basic state pension will rise each year by the highest of growth in earnings, prices or 2.5%. The triple guarantee means that even in times of slow earnings growth, we will not see a repeat of small rises such as, for example, 75p in 2000.

The new rate for the basic state pension will be £107.45 for a single person, an increase of £5.30 a week. I can announce, therefore, that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, a higher share of average earnings than in any year of the Labour Government since 1997.

I turn now to additional state pensions, commonly referred to as SERPS—the state earnings-related pensions scheme. In April 2010, one of the last acts of the previous Government was to freeze SERPS pensions. This was in the apparent belief that pensioners had not experienced any inflation in the preceding year. That was solely because the retail prices index was negative in the year to September 2009, with the rising cost of goods and services swamped by falling mortgage rates. However, in April 2011 we increased SERPS pensions by 3.1% and I am pleased to confirm that this year SERPS pensions will also rise by 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.

The standard minimum guarantee in pension credit must be increased each year at least in line with earnings. However, this would have implied an increase of just 2.8%; in other words, the poorest pensioners would have got the smallest increase. We judged that unacceptable, so instead, from April next year, the single person rate of the guarantee credit will rise by £5.35, taking their weekly income to £142.70. For couples, the increase will be £8.20, taking their new total to £217.90 a week.

To help manage expenditure, we shall be funding that above-earnings increase to the standard minimum guarantee by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase. In his autumn statement, the Chancellor told the House that we will uprate the standard minimum guarantee by £5.35 and that we would meet the cost of the over-indexation by increasing the threshold for the savings credit. That plan was correctly reflected in line 30 of table 2.1 on page 46 of the autumn statement, and it is indeed our plan. Unfortunately, the precise thresholds, which were calculated by our Department and appear at paragraphs 1.143 and 2.24, were incorrect. I apologise to the House for this error, which I am now in a position to correct. The correct thresholds for savings credit from April 2012 will be £111.80 for single pensioners and £178.35 for couples.

As many hon. Members will know, an important component of our plans for uprating pensions and benefits last year was the move to the consumer prices index— CPI. We believe that the CPI is a superior measure of inflation for benefits and pensions uprating. That is because the basket of goods on which it is based is a better match for the spending patterns of pensioners and others on a low income, and because it takes better account of the way in which lower income households respond to price changes. It is also the headline measure of inflation in the UK, the target measure of inflation used by the Bank of England, and internationally recognised. I am pleased to say that last week the High Court upheld the Government’s position that the CPI can be used for pensions and benefits uprating.

The coalition will ensure that the value of other social security benefits is maintained through a rise of 5.2%, even in these tough economic times. This 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 jobs, through no fault of their own, through jobseeker’s allowance, an increase of 5.2%.

On local housing allowance, at the emergency Budget in June 2010, the Government announced that from 2013, local housing allowance rates will be calculated annually by using the lower of the rent at the 30th percentile of local rents or the previous year’s rate uprated by reference to CPI. This will end the monthly uprating of LHA rates and bring the system into line with the uprating of other pensions and benefits.

As part of the preparation for this change, we need to fix LHA rates, to establish a baseline from which they will be uprated in future. 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. This approach means that there will be no reductions in ongoing awards as a result of this change.

So at a time when the nation’s finances are under severe pressure, this Government will be spending an extra £6.6 billion in 2012-13 to ensure that people are protected against cost of living increases: no less than £4.5 billion extra on state pensions; over £1 billion extra on disabled people and their carers; and over £1 billion extra on people who are unable to work through sickness or unemployment.

We protected the triple lock, securing the largest ever cash rise in the basic state pension. We have uprated the pension credit as well, so that the poorest pensioners benefit in full from the triple lock. We have uprated working age benefits by 5.2%, protecting the real incomes of the poorest. Through this statement, I have outlined our firm commitment to ensure that even in these difficult times, no one is left behind. I commend this statement to the House.

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

I thank the Minister for advance sight of his statement, and welcome some of his announcements about the uprating of pensions. I am delighted that on the issue of increasing the state pension age further, the Government have learned from some of their mistakes on the previous round and will at least give adequate notice to those affected. That is a positive move. I welcome the U-turn on the mobility component of disability living allowance. The change should never have been proposed. We, along with disability campaigners, have argued hard for a U-turn and we are pleased that the Government have taken that action.

Last year, in the wake of the autumn statement, the Minister told my predecessor that his Government had embarked on decisive action to take Britain out of the danger zone. What a difference a year makes. The Government’s economic policy has failed and is failing, and working families are paying the price. It is when a Government’s back is against the wall that their true character is revealed, because that is when the difficult choices have to be made. The failure is writ large in the Government’s revised borrowing forecasts.

We know that the Chancellor told the House that he is going to borrow £150 billion more than he planned—£150 billion more. The Government are fond of the credit card analogy, and £150 billion is an astonishing extra debt to add to the nation’s credit card bill. It is the price of failure, and this failure is nowhere more apparent than in the extra £29 billion, largely the price of rising unemployment, which the Government project they will spend on benefits. What the Minister failed to say in his statement today is that to pay for the Government’s own failure, they propose to take twice as much money from children and families as they do from bankers.

Let us look at the impact on families and women. We are left with a benefits policy that hits the poorer hardest. The Institute for Fiscal Studies, which used to employ the Minister, has said that measures in the autumn statement would

“take away from lower-income families with children.”

Even the Secretary of State had to admit to the House last week that the bottom 30% do quite badly. The Government’s benefits policy will hit women harder than men. The House of Commons Library estimates that of the £2.37 billion raised from tax credits and public sector pay changes introduced in the autumn statement, 73%—£1.73 billion—will come from women and 27% will come from men. Taking together all the changes to direct tax, benefits, pay and pensions announced by the Chancellor since the general election, of the £18.9 billion the Government are raising each year, £13.2 billion comes from women. Women are being hit twice as hard as men.

In addition, the Government’s benefits policy will increase child poverty. In its distributional analysis of the autumn statement, the Treasury has admitted that as a result of Government decisions the number of children living in households with incomes below 60% of the median will increase by 100,000 in 2012-13, which means more children living in poverty. The IFS now estimates that the number of children living in poverty will rise by 600,000 over the next period. Surely the Government and the Minister cannot be proud of that.

Let me ask the Minister some straightforward questions. Minister, you signed up to the Child Poverty Act 2010. Do you believe that under the terms and definitions of that Act child poverty is set to rise under your Government? You will have studied the IFS—

[Gregg McClymont]

Thank you, Mr Speaker.

The Minister will have studied the IFS presentation. Will he confirm that its conclusion is that the people who will pay most will be those in the bottom 30%? Does he agree with the Secretary of State that work incentives will be diminished by the Government’s actions in the autumn statement and that the changes to tax credits and public sector pay announced in the autumn statement will hit women disproportionately?

[Steve Webb]

I am grateful for the bits of the hon. Gentleman’s speech that actually responded to my statement, because he appeared to agree with us entirely. I am grateful for his support for our increase in the basic state pension, our announcement on the state pension age and our changes on the mobility component of DLA. I also agree that we see the true colour of a Government when their back is against the wall. Notwithstanding the huge pressure on the public finances, for reasons he might understand, we took the view that protecting the most vulnerable was a priority. That is the true colour of this Government.

The hon. Gentleman asked about the distributional impact of the measures we have taken. I refer him to Chart 1.C of the distribution analysis published by the Treasury last week to accompany the autumn statement, which takes account of not only the measure set out in that statement, but the cumulative impact of all that we are doing. I am sure that he will not want to be selective and will look at the whole picture. Page 4 of the analysis includes a chart ranking people by what they spend, which shows that the proportion lost rises with income. In other words, the smallest amounts lost are for the lowest households and the largest cash amounts lost are for the highest households [Interruption.] Yes, cash is what matters to people.

The hon. Gentleman asked about work incentives, and I am pleased to say that with his support the universal credit that my right hon. Friend the Secretary of State wants to introduce will be the biggest boost to work incentives for many generations. Starting in 2013, we will be rewarding work instead of penalising it, and the best thing that we can do for low-income households is to enable them to work and to support them in that.

The hon. Gentleman did not mention the many things that we are doing for low-paid working households, such as the personal income tax allowance increases, the council tax freeze, the cuts in fuel duty and, above all, the low-interest-rate environment, which for households with mortgages is crucial to their living standards. I am grateful to him for the measures that he did welcome, but there was a lot more that he should have welcomed.

[Mrs Anne Main (St Albans) (Con)]

I am sure that the £6.6 billion that the Minister has announced today will be welcome to many families in the UK, but I am extremely concerned that the European Commission is seeking to open that benefit pot to European benefit tourists who seek to avail themselves of it. That £6.6 billion will be in no way enough if we are to encompass benefits for European benefit tourists.

[Steve Webb]

I can assure my hon. Friend that my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), the employment Minister, has quite categorically stated that Britain does not believe in benefit tourism, and that we will do all we can to prevent it.

[Mr Frank Field (Birkenhead) (Lab)]

Is it not true that the Minister’s partial statement today will in the next couple of years result in decreasing the incentive to work? If the Treasury believed in localism and had given the £6.6 billion to the Department to spend on uprating as it wished to, would not the Minister have made a statement today that increased work incentives rather than decreased them?

[Steve Webb]

The right hon. Gentleman, for whom I have a great deal of respect, will be aware that the reward for working comes from a combination of factors, one of which is the tax burden on the low-paid, and that this Government have twice increased the personal tax allowance by about £1,500. That is worth more than £300 a year for a standard rate taxpayer and, for two members of a couple in low-paid work, is a £600 gain with more to come. That is a real reward for working which all too often they have not had in the past.

[Jenny Willott (Cardiff Central) (LD)]

I welcome the fact that the state pension and the state earnings-related pension scheme will rise by 5.2%, and that pension credit will do so above earnings, but different levels of uprating and a complex system can make it difficult for pensioners to understand exactly what they should expect. Will the Minister do all that he can to simplify the system and bring in a flat-rate pension as soon as possible, so that pensioners are able to see clearly and easily what pension they should expect?

[Steve Webb]

My hon. Friend is characteristically persuasive. It is absolutely clear that a system in which we pay a wholly inadequate basic pension—we pay a pension that, even after the uprating to £107 a week, is not enough to live on, so we will top it up—cannot be a sustainable basis for the future. We therefore continue to develop our proposals for state pension reform, precisely so that we get more money to people automatically, with less reliance on complicated means tests that mean too many people do not get what they should.

[Gloria De Piero (Ashfield) (Lab)]

Children’s well-being does not just depend on benefits; it is often about child maintenance, too. So what is fair about charging single parents to use the Child Support Agency?

[Steve Webb]

The Under-Secretary of State for Work and Pensions, my hon. Friend the Member for Basingstoke (Maria Miller) brought forward proposals only this week to make child maintenance more effective, because, as the hon. Lady rightly says, getting child maintenance paid is crucial. We believe that far too little is paid and the cost of collecting it is disproportionate to what we receive, so we need an efficient child maintenance system, and that is what we propose to bring forward.

[Nigel Mills (Amber Valley) (Con)]

Does the Minister agree that rather than trapping more low-paid families in the complicated web of means-tested benefits, which has done so much damage already, taking them out of tax altogether is by far the better approach?

[Steve Webb]

My hon. Friend is quite right that we have already taken, I think, just over 1 million families or individuals out of tax. We have a long-term goal of a £10,000 tax-free allowance, which would take out millions more, but what is often not understood is that couples in which both members go out to work to make ends meet get twice as much benefit. Each benefits from the personal tax allowance increase, so it helps precisely those most hard-pressed families in which both parents work all hours to keep their family going.

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

People can get the uprating only if they get the benefit in the first place, and, despite what the Minister said about protecting those who have worked hard all their lives, there is a measure in the Welfare Reform Bill which time-limits contributory employment support allowance to one year, so a large number of people who work all their lives but drop out of work because of ill health will get nothing after that.

[Steve Webb]

As the hon. Lady, the Chair of the Work and Pensions Committee, knows, that is a measure in the Welfare Reform Bill being considered in another place, but we have put in place two safeguards—that the most sick and the most poor are protected. In other words, those in the support group will continue on an un-time-limited basis to get ESA, and those with no other household income will continue, through income-related ESA, to be helped. So, at a time when we have to find savings, protecting the most vulnerable and the poorest seems to us to be a priority.

[Mr Philip Hollobone (Kettering) (Con)]

Pensioners in the Kettering constituency will warmly welcome the £5.30 a week increase in the basic state pension to £107.45. Can the Minister also confirm that for periods of extreme cold he is announcing a permanent increase in the cold weather payment from £8.50 to £25?

[Steve Webb]

My hon. Friend is absolutely right; it was remiss of me not to trumpet that fact. Last year, we announced that we were reversing Labour’s planned cut in the cold weather payment, which was due to fall to £8.50 and will now be £25 in each year of this Parliament. Last year, we spent over £400 million to help the most vulnerable when it is freezing cold, and that is a priority for this coalition Government.

--- Later in debate ---

[John McDonnell]

Many of my constituents would have welcomed the increase but they cannot because they are no longer receiving their benefit, particularly as a result of the Atos assessments of disability living allowance. In addition to that, having lost, or not gained, their benefit, they are waiting long periods for their appeals. Will the Minister look at the length of time that people are waiting for their appeals and the number of appeals that have been postponed as a result of lack of staff?

[Steve Webb]

The hon. Gentleman is bringing together several different issues. It is entirely the case that at the time of the election the previous Government had given Atos a contract for the work capability assessment for ESA—not DLA—and we have gone through with the Harrington process, independent reviews and recommendations for change, all implemented by the Government. Good progress is being made on making the system fit for purpose, but getting the decision right first time is better than speeding up the appeals process, and we are doing that more and more because we are reforming the system.

[Philip Davies (Shipley) (Con)]

Further to the point made by the right hon. Member for Birkenhead (Mr Field), how on earth can the Minister justify increasing benefits by over 5% when people who are in work are facing a pay freeze or, at best, very modest increases in their salary? Is not that another kick in the teeth to hard-working taxpayers, and does it not go against the Government’s priority to try to make work pay?

[Steve Webb]

My right hon. Friend the Secretary of State is absolutely committed to making work pay through a combination of benefit reform, with the universal credit, with which we are pressing ahead, taking people out of tax, as well as the council tax freeze and the petrol duty cut. There is a whole range of factors about whether work pays. I believe that we have done a great deal for people in low-paid work, and there is much more to come.

[Helen Goodman (Bishop Auckland) (Lab)]

The Minister made much of his belief that CPI protects the standard of living of pensioners, but on Friday an old-age pensioner came to see me and pointed out that the Department for Communities and Local Government target for rents in the social sector is linked to RPI. Does not that display the fact that the problem Ministers have is that they assume that everyone is like them and is an owner-occupier?

--- Later in debate ---

[Steve Webb]

I know that the hon. Lady was a Minister in our Department, and she will understand that the way the housing benefit system works is that people in the social rented sector, provided that they are not over-occupying, get their full rent, whether it is increased by CPI or RPI. The fact remains that including mortgage interest in a measure of inflation for pensioners when, as she rightly says, most pensioners do not have an outstanding mortgage, is the wrong thing to do.

[Mr Marcus Jones (Nuneaton) (Con)]

How much better off will the average pensioner in Nuneaton be following the introduction of the triple lock guarantee and the restoration of the link between earnings and pensions?

[Steve Webb]

For someone retiring this year on a full basic state pension, the triple lock, we estimate, will benefit them to the tune of about £13,000 over the course of their retirement. That is a very significant change whose effects we are not yet seeing in full because earnings growth is depressed, but as it returns to more normal times, pensioners in Nuneaton and elsewhere will see real increases year after year.

[Simon Danczuk (Rochdale) (Lab)]

As we approach Christmas, does the Minister not think it extremely sad that his latest cuts to tax credits will put a further 100,000 children into poverty?

[Steve Webb]

I am glad that the hon. Gentleman has raised that point, because it is a selective quotation from the autumn statement. As well as making the changes to tax credits, we are over-indexing benefits relative to average incomes. As poverty is measured in relation to average income and we are putting up benefits according to CPI, which is about twice the rise in average income, child poverty will be reduced compared with the figure that he gave. There is more to this than meets the eye.

[Harriett Baldwin (West Worcestershire) (Con)]

The Minister will be aware that many more women than men are on pension credit and that about 60% of pensioners are women. Does this increase not therefore disproportionately help women?

[Steve Webb]

My hon. Friend is quite right. Not only does the pensions boost help women, but the pension credit boost helps women. Reflecting on the Opposition’s question about the combined effect of our measures, it is worth saying that the one measure excluded from that question was the VAT rise. They excluded that because men, on average, have higher incomes and higher spending. In particular, they have higher spending on VATables, so the impact of the VAT rise hits men more than women. For some reason, the Opposition did not count that measure.

[Hywel Williams (Arfon) (PC)]

May I welcome the Government’s decision on the mobility component? That is vindication of the wide campaign on this issue, which included my early-day motion and the 88-odd Members who signed it. On a slightly more incredulous note, would the Minister claim that the move to CPI and the large savings to Government expenditure are entirely coincidental?

--- Later in debate ---

[Steve Webb]

I am grateful to the hon. Gentleman for welcoming our decisions on the DLA mobility component. Clearly, the decision on CPI was taken in a fiscal context. However, it came after RPI was negative and CPI was positive, so the immediate context was a year in which state earnings-related pension schemes and public sector pensions had all been frozen. I certainly could not believe that there had not been any inflation, and I am yet to meet a pensioner who could.

[Nia Griffith (Llanelli) (Lab)]

As we all understand, with rocketing fuel and food prices these rises are not as generous as they look. Has the Department assessed the impact of the £100 cut in the winter fuel allowance, combined with the fact that those on low incomes spend a lot of money on food and fuel? People will actually be worse off, particularly those with an income that puts them just above the bracket for claiming the cold weather payment.

[Steve Webb]

It was entirely right that we went ahead with Labour’s planned cut to the winter fuel payment. We reversed the cold weather payment cut to prioritise the most vulnerable when it is most cold. I make no apology for that. It was important to put the full 5.2% through for people with no wage because of the pressures on household fuel bills and other costs. That is why it was vital that we stood by the most vulnerable even though money was tight.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Will the Minister take this opportunity to admit that the policies of the coalition have led to a diminution of work incentives? If we are to believe press reports, that appears to be the opinion of the Secretary of State. Was there any consultation with the Chancellor about his autumn statement? Does this not show that the Government are in disarray over this issue?

[Steve Webb]

People are still better off in work. When we have the Secretary of State’s universal credit, that will be even more the case. The hon. Gentleman is focusing on a narrow aspect of the measures that we have taken. Personal income tax allowance increases, the cuts in fuel duty compared with Labour’s escalator plan and the cuts in council tax in real terms will all help people in work and make it pay to work. We have plans to take that further.

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

The hon. Member for Shipley (Philip Davies), who is yet to reach the 19th century, attacked the unemployed. I point out to the Minister that a store in my constituency had 20 vacancies when it opened and 250 people applied. Is that not an illustration of people out of work and desperate to find employment? They should not be attacked by hon. Members in the way that I have mentioned.

[Steve Webb]

I have no doubt that the vast majority of people who are unemployed are actively looking for jobs. Indeed, that is a condition of payment of jobseeker’s allowance. We would not pay people if they were not actively seeking work. The very fact that there are many unemployed people in the hon. Gentleman’s constituency—I grew up near Walsall, so I know the area well—is why we have to get the nation’s public finances on an even keel. We have seen what happens to countries that do not do so.

[Jonathan Ashworth (Leicester South) (Lab)]

Further to his answers to my hon. Friend the Member for Edmonton (Mr Love) and my right hon. Friend the Member for Birkenhead (Mr Field), who is no longer in his place, does the Minister accept that the changes to working tax credits act as a disincentive to work? Does that explain why, according to newspaper reports, the Secretary of State is so angry about that change and baffled that the Liberal Democrats pushed for it?

[Steve Webb]

There is a danger of missing the central points here, which are that people are better off in work, and we want to go further; that the tax credits are part of a package of measures, and I have listed repeatedly the many things that make work pay; and that our increases in personal tax allowances, for example, will make work pay far more than in the past. The coalition is united on that.

[Sheila Gilmore (Edinburgh East) (Lab)]

The Minister is trumpeting the highest ever increase for pensioners, which I am sure they welcome, but is not the truth that it is so high only because inflation is so high? This is not some generous gift from the Government; it merely allows pensioners to keep up with prices. Further to that, many pensioner groups would point out that the real types of inflation faced by pensioners are actually higher than CPI.

[Steve Webb]

I do not recall the previous Government ever using something other than inflation or using a different rate for pensioners because of factors such as those the hon. Lady mentions. Sometimes the pensioner rate will be higher and sometimes it will be lower, but on average it will be broadly the same. There was a lot of speculation—she may even have read some of it—that we would not provide a 5.2% increase, that we would break the triple lock, that we would average out the figures or do all sorts of things, but we stuck by our promise and provided a 5.2% increase. The real value of the pension as a share of average earnings—that is what pensions are for: to replace the earnings that people used to have—is higher than in any year under Labour, and I am proud to put my name to that.

Living Standards

Steve Webb Excerpts

Wednesday 30th November 2011 Commons Chamber

[Mr Byrne]

No, because what comes with that is the biggest raid ever on the benefits of children and families. Let us consider the bill that will be paid by families under yesterday’s announcements. An average family on the minimum wage with two kids will lose £320 a year as a result of the changes made yesterday. They would only ever gain £120 a year through the increases in tax thresholds to which the hon. Gentleman referred. Overwhelmingly, poorer families and children in this country are now getting poorer as a result of his Government’s Budget.

No wonder Save the Children said yesterday:

“For many families the scrapped £110 increase in Child Tax Credit could mean the difference between putting food on the table for their children or having them go hungry.”

The Child Poverty Action Group said:

“Britain’s poorest families have been abandoned today and left to face the worst…the government has actively decided to let child poverty rise.”

Those on the Treasury Bench should be ashamed of themselves; they should be ashamed of what they have done to children in this country. Labour will be the party that stands up for a fair deal for working parents.

The scale of the cuts to children’s benefits is not the only story. There is more. Let us consider the cuts to working tax credits for working families. Working families are already in line for seven big cuts to their tax credits next year. That was going to lose them more than £1.7 billion, but that was not enough for the Chancellor, so yesterday they got an eighth cut to their working tax credits. They will now lose almost £2 billion next year. That is almost double the cuts they received last year.

Some 2 million families in our country now face a double hit, with the cuts to child tax credits and the freezing of the working tax credit. There is therefore a great deal of extra squeeze that will hit working families, but I want to flag up one cut in particular. It is the subject of a Westminster Hall debate secured by my hon. Friend the Member for Stalybridge and Hyde (Jonathan Reynolds), and I want the Secretary of State to reflect on it further, as I think it will have consequences that he would not intend. One of the changes he will make next year is to increase the number of hours a working couple must work in order to get tax credits. At present, they can qualify for tax credits if they work 16 hours a week. From next April, they will need to work 24 hours a week. At present, however, companies are not handing out extra shifts. Many families that will be affected work in the retail sector. If anything, big retailers are cutting back on their employees’ hours, not increasing them. A family that is on the minimum wage for 16 hours a week might bring in just over £5,000. Working tax credits and child tax credit might increase their take-home pay to about £11,000. If they cannot get an extra shift, all of that working tax credit will be gone. Those families may well find themselves better off on jobseeker’s allowance.

We must not create a situation in which cuts to tax credits mean families are better off on benefits than in work. I am sure that is not the Secretary of State’s intention, and I urge him to look at this matter in more detail before those cuts bite in April next year.

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

I am trying to follow the right hon. Gentleman’s reasoning. I think he has argued so far that people out of work should not face cuts and that people in work should not face cuts, so who should?

[Mr Byrne]

The Pensions Minister—[Interruption.] Government Front-Bench Members might think cuts to working families are funny, but I can tell them that families in their constituencies do not.

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[Stephen Williams]

I recommend that the hon. Gentleman looks at the High Pay Commission report, which is an excellent document containing many recommendations for controlling executive pay. I urge the Government seriously to consider many of those recommendations, including on the revolving door of non-executives on boards of companies effectively determining each other’s pay, where some of the most serious breaches occur.

On hard-working families, to which the motion refers, the Liberal Democrats’ No. 1 policy commitment at the last general election was that, in order to make work pay, we would raise out of income tax those on low earnings and those working part time by increasing the income tax threshold to £10,000 over the lifetime of the Parliament. Progress towards giving effect to that aspiration is being made throughout this Parliament. Let us contrast that with the last Budget of the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown) in 2007, when, just before becoming Prime Minister, he financed an income tax cut through a tax rise for the poorest in society. I remember watching Labour Members waving their Order Papers and cheering that income tax cut—

[Steve Webb]

They did not understand.

[Stephen Williams]

As my hon. Friend the Pensions Minister says, they did not understand that their own Chancellor was financing election populism on the backs of the poorest workers in society. Let us have fewer lectures from Labour Members on how to treat people on low pay in work.

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[Robert Flello (Stoke-on-Trent South) (Lab)]

The hon. Member for Poole (Mr Syms) almost had me agreeing with some of his speech, certainly in its early moments, but I am afraid that he blew it at the end when he talked about the Chancellor being sensible and then praised the Liberal Democrats—neither of the main parties in this House should stoop to such a level.

We have heard the phrase, “We’re all in this together”, many times over the past 18 months. I wonder how the 11,600 families in my constituency who will see their tax credits cut by an average of £680 per annum—on top of the three-year child benefit freeze and all the other cuts that they have seen—will feel about our all being in this together. I think they will be sitting there thinking that we are certainly not all in it together. Around the country, 100,000 more children will be in poverty as a result of this Government’s plans, proposals and policies. Will they think that we are all in it together? I somehow do not think they will. The number of young people in my constituency who are aged between 18 and 24 and have been claiming jobseeker’s allowance for six months or more has increased by 154%. That is a huge increase in the number of young people who find themselves in the position of not having any work. They will not think that we are all in this together, and rightly so, because we are not.

The Minister sneered a few times when the issue of bankers came up. The Government are keen, with their coalition pals, to talk about how hard they have been on the bankers with their levy. They always seem to forget that they offset the hit of the levy with the corporation tax cut and other giveaways to the bankers. The bankers are not sitting there saying “We’ve been really hard hit by this; we’re all in this together”—of course they are not. They are quite happy because on the face of it, they have had this big levy, but the reality is that that is diminished by the corporation tax changes and other benefits.

The pay of FTSE 100 directors has risen by 49% but my constituents can only dream of a 4.9% increase in income. Are we all in this together? I do not think that we are. A pattern is developing. The wealthiest, the bankers and the FTSE 100 all seem to do nicely as against the children and the poorest. The three poorest deciles are being hit three times as hard as the top decile.

[Steve Webb]

indicated dissent.

[Robert Flello]

The Minister shakes his head, but I am afraid that the figures do not support his position.

The Opposition are wrong to say that the Government’s policies are hurting, not working, because they are not hurting but murdering our communities. They are so punitive that they are destroying our communities. We are not all in this together by any stretch of the imagination. We heard earlier about a list of areas that were among the most vulnerable to the impact of the cuts. Stoke-on-Trent was high up on that list but the Government’s policies actively take money away from places like Stoke-on-Trent to help all-in-it-together places like Kensington and Chelsea or Westminster, which obviously need the money far more than do the people of Stoke-on-Trent.

Then there is this nonsense, this con––let us get it out on the table––of the freeze on council tax. I am sorry but this 2.5% increase in council tax, which is what this nonsense would amount to––

--- Later in debate ---

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

I agree with the right hon. Member for Normanton, Pontefract and Castleford (Yvette Cooper) on one thing: this has been a worthwhile and important debate. We have had 31 contributions from across the House on the important issue of living standards. However, there is an omission in the motion. It refers to the impact of policies on living standards and to hard-working families, women and parents, but it does not mention pensioners at all. I wonder why. It is probably because the Labour party assumed that we were not going to keep our promise, but we did. We uprated the basic state pension by 5.2%—the biggest increase ever, at £5.30—and passed that money through to the poorest pensioners. We have done the right thing by pensioners; it is not surprising that Labour Members do not want to talk about it.

What are the key things that matter to our constituents about living standards? The first and most important is their mortgages. One in three households has a mortgage. We have the lowest mortgage rates on record and we have kept them that way.

The right hon. Member for South Shields (David Miliband) made a thoughtful contribution in which he reminded us why most of his colleagues wanted him as party leader and not his brother. He explained that he did not think the Government’s stance on the fiscal position had anything to do with interest rates, but does he accept that Britain’s credit rating has improved, almost uniquely, because we are taken seriously on tackling the debt? That is the crucial difference between this side and the Opposition.

The hon. Member for York Central (Hugh Bayley), if I can distract him from his BlackBerry, referred to the national debt and to Labour’s golden economic legacy. He forgot to point out, however, that the national debt—£750 billion in total the year before the election—was slated under his plans to double to £1.5 trillion. I may be old-fashioned, but with a trillion here and a trillion there, we are soon talking about serious money. That was the burden.

We have talked about our children, with some almost dismissing the idea that we as a society have lived beyond our means. For every £3 we raised in tax, we were spending £4. That simply could not go on.

[Several hon. Members]

rose—

[Steve Webb]

I am not giving way.

That could not go on, and it meant that our children will have to pick up the tab. Similarly, several hon. Members, including the hon. Member for Erith and Thamesmead (Teresa Pearce), have referred to public sector pensions. This is a classic case of asking our children to pick up the tab. For example, the right hon. Member for Holborn and St Pancras (Frank Dobson) asked why we did not value the teachers’ pension scheme, as we might find that it was in credit. I have news for him: there is no scheme; there is no money. Today’s teachers pay for today’s retired teachers. There could not be a credit, because there is no fund. That is one of the problems with this whole debate. [Interruption.] There is no fund and no money; there is nothing invested. [Interruption.] If the right hon. Member for Holborn and St Pancras wants to intervene, I am happy for him to put on record what he is saying from a sedentary position. As a former Secretary of State for a major spending Department, if he does not understand that there is no cash in the teachers’ pension fund, I will be very pleased to take an intervention from him.

[Frank Dobson]

The Minister and the Secretary of State refer to creating jobs in the private sector to compensate for the ones that have been lost in the public sector. Can he confirm that neither his Department nor any other is checking on how many of the so-called new jobs in the private sector are simply ones transferred from the public sector?

[Steve Webb]

I can understand why the right hon. Gentleman did not want to deal with the issue that I raised. I can point out to him, however, that the total number of people in employment will rise from 29 million last year to 30 million in 2016 under the projections. There will be more people in employment, and a rebalancing towards a vibrant private sector, which we want to see.

As well as mortgages, Members on the Government side have talked about the council tax. Labour Members did not seem to want to talk about the council tax, as though it did not matter. The council tax is one of the most regressive taxes that we have. This Government froze it and will freeze it again. That is real help for hard-working families.

A number of hon. Members talked about fuel prices and petrol. It is this Government who cancelled the 3p rise in January. It is Labour that had the escalator, year after year, with above-inflation increases in petrol prices. Under our plans for duty, petrol prices will be 10p a litre less than under Labour’s plans.

[Mr Byrne]

I am following the Pensions Minister’s argument closely. The Budget also set out about £30 billion of cuts in the next Parliament. Will he confirm whether it is the Liberal position to support those cuts?

[Steve Webb]

I am grateful to the right hon. Gentleman for intervening, because I asked him the question when he was speaking, and he said that he opposed cuts for people who are out of work and that he opposed cuts for people who are in work. When I asked him whom that left, he said nothing—he never answers the question—and his Back Benchers said, “The bankers”. He was in the Treasury when, before the general election, the Labour Government introduced a “temporary” bankers’ bonus tax. If Labour thought they were going to win the election, why did they not make the bankers’ bonus tax permanent? It was a one-off, pre-election gimmick, whereas this Government have introduced a banking levy that, every year, will raise more than his temporary banking tax raised in any year.

[Sheila Gilmore]

Will the Minister give way?

[Nic Dakin (Scunthorpe) (Lab)]

Will the Minister give way?

[Steve Webb]

I have four minutes to respond to more than 30 speeches. Out of deference to Labour Members, I will do so.

The shadow Home Secretary talked about the position of women, and it is important that we deal with that point. The difference between this Government and the Labour Government is that we are taking 1 million people out of tax, the majority of whom are women, whereas her Government abolished the 10p tax rate, from which the majority of the losers were women.

There has been much discussion of the gainers and losers from the Government’s policies. I refer the House to the chart on page 4 of the Treasury document, “Distributional analysis to accompany the Autumn Statement 2011”, which ranks households by expenditure and shows the smallest cash losses at the bottom and the biggest cash losses at the top—progressive changes in difficult times.

[Several hon. Members]

rose—

[Steve Webb]

My hon. Friend the Member for Bristol West (Stephen Williams) made a characteristically thoughtful contribution pointing out the contrast between the two parties’ records—the 75p pension rise and the abolition of the 10p tax rate under the previous Government, and the personal tax allowance increases that this party is bringing in.

[Hon. Members]

Give way!

[Mr Speaker]

Order. The House must come to order. It seems clear on observation that the Minister is not giving way.

[Steve Webb]

I am grateful, Mr Speaker.

The hon. Member for Dover (Charlie Elphicke) spoke about how low interest rates benefit growth, which is crucial to the economy. The hon. Member for Broxtowe (Anna Soubry) raised the crucial issue of us having to pay our own way.

In opposition, one must do two things: yes, one must oppose the things that one is against, but one must also propose the things that one is in favour of. The Labour party failed to tell us where the £46 billion of spending cuts identified by the shadow Secretary of State for Work and Pensions would come from. We heard speech after speech from Labour Members who were opposed to every single cut, but I heard no Labour Member say what they would cut. We heard that there should not be cuts for people out of work, or for people in work, that there should not be cuts to the public sector, or to the private sector. Where does all the money come from? Answer came there none.

[Ms Rosie Winterton (Doncaster Central) (Lab)]

claimed to move the closure (Standing Order No. 36).

Question put forthwith, That the Question be now put.

Question agreed to.

Main Question put accordingly.

Oral Answers to Questions

Steve Webb Excerpts

Monday 28th November 2011 Commons Chamber

[Harriett Baldwin (West Worcestershire) (Con)]

10. What steps he is taking to ensure that individuals are able to build up pension pots under automatic enrolment.

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

I am pleased to confirm that we will go ahead with the introduction of auto-enrolment next year as planned, and I can confirm further that all businesses remain in scope. We have, however, decided to extend the reform’s current five-year implementation, so that small businesses will not have to start enrolling their workers until the start of the next Parliament. The revised plans will, nevertheless, still result in more than half of all workers being enrolled before the end of this Parliament. This is a positive programme, and there will be no exemptions.

[Sajid Javid]

This Government are doing a huge amount to help people deal with the challenges of old age. In that context, does my hon. Friend have any plans to change the rules governing short-service pension refunds?

[Steve Webb]

As my hon. Friend points out, certain pension schemes but not others currently allow people to take money out within the first two years, and that is an anomaly. We need to ensure that money put into pension savings stays there, and that is why short-service refunds for defined contribution schemes will not be part of the long-term landscape under automatic enrolment.

[Harriett Baldwin]

Does the Minister agree that auto-enrolment will bring into pension savings for the first time millions of low-paid workers in the private sector, both men and women, and that they can begin to look forward to the same kind of retirement income that we rightly offer our public sector employees?

[Steve Webb]

As my hon. Friend points out, at the moment not only do literally millions of people in the private sector not have a moderate pension; they have no pension at all. Auto-enrolment remains key to our policy goals, and as I just observed, more than half the work force will have been auto-enrolled by the next election.

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

I am disappointed to hear that there will be a delay in the roll-out of auto-enrolment, but I appreciate that the Minister was under a lot of pressure from noises off to bring in some exemptions, so I am pleased that that is not to be. What guarantee can he give to businesses, however? They need an absolute guarantee that the scheme will go ahead on time and to a new timetable, and that there will be no stepping back by the Government.

[Steve Webb]

I am grateful to the Chair of the Work and Pensions Committee for welcoming our decision to keep everybody in. In terms of certainty, everybody who was due to be enrolled this side of July 2013 will see no change in their dates, and we will publish early in the new year the revised schedule. I entirely agree that certainty is needed, and I can confirm that there will be no further changes to the timetable.

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

Auto-enrolment is—or should I say, was?—central to the Pensions Minister’s strategy, so his resorting to bureaucratic language, saying that “all businesses remain in scope,” is not going to reassure anyone. The fact is, as I hope he will confirm, that the schedule has been moved back and millions upon millions of the employees whom he was keen to get saving in a pension scheme will not be auto-enrolled until after 2015. Is that correct?

[Steve Webb]

I am not sure whether the hon. Gentleman is aware of this, but under his party’s plans the roll-out of employers with one to 50 employees was already scheduled to go into 2016. I can confirm that the majority of the work force will be auto-enrolled during this Parliament. There was already a five-year roll-out for auto-enrolment, so it was already a phased process. Yes, we have changed the schedule, but, as he may be aware, his party changed it twice in a three-month period.

[Mr Julian Brazier (Canterbury) (Con)]

Does my hon. Friend agree that the difficulties and dilemmas involved in deciding what to do about the pension pot, particularly with regard to small businesses, should send a message out there to all those who can look forward to index-linked public sector pensions that they should be grateful?

[Steve Webb]

My hon. Friend is right that we do not want to see a levelling down in pension provision. We want quality pensions for our public servants, but we want to make sure that many more people in the private sector get quality pension provision as well, and auto-enrolment will help to achieve that.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

11. If he will amend his proposed welfare reforms to minimise the risk of children entering poverty.

--- Later in debate ---

[John Robertson (Glasgow North West) (Lab)]

18. How much his Department paid in winter fuel allowance in (a) Glasgow North West constituency and (b) Scotland in 2010; and how much it will pay in 2011.

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

Winter fuel payment expenditure in 2010-11 was £3.6 million for Glasgow North West and just under £240 million for Scotland. If those shares of total Great Britain expenditure in 2010-11 were maintained in 2011-12, the projected figures would be approximately £2.8 million for the hon. Gentleman’s constituency and £185 million for Scotland.

[John Robertson]

This year, 440 fewer households will receive winter fuel payments in my constituency, and 3,560 fewer in Glasgow as a whole. With the elderly population and housing numbers growing, how can that happen?

[Steve Webb]

As the hon. Gentleman knows, it was the policy of the previous Government to link the age of eligibility for the winter fuel payment to the women’s state pension age. As that increases, the number of pensioners within its scope will fall.

[Mr Philip Hollobone (Kettering) (Con)]

20. What estimate he has made of the potential cost to the public purse of the removal of the habitual residency test.

--- Later in debate ---

[Chris Kelly (Dudley South) (Con)]

T2. What assessment has the Minister made of the potential effect on UK defined benefit pension schemes of the European Union proposal to review the institutions for occupational retirement directive and align it with the solvency II directive? Is not that just a further EU assault on the hard-pressed UK occupational pension sector, and the last thing we need? Will the Minister stand firm against that?

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

We are gravely concerned about these proposals. The UK Government do not accept the need for new solvency arrangements for defined benefit schemes based on solvency II, which would have potentially serious effects for UK defined-benefit pension schemes. We are especially concerned about any proposals that would increase costs for employers at a time when we are looking to keep costs down, or that might affect the vital role pension funds play as investors in the UK. We will oppose these proposals.

[Karl Turner (Kingston upon Hull East) (Lab)]

T4. Has the Minister revised his previous estimate that, by 2012, 25,000 single parents will be in work when their income support ends when their youngest child is five years old? Does he not accept that unemployment in my area, Hull, is at a record high, thanks to his Government’s policies?

Pensioners and Winter Fuel Payments

Steve Webb Excerpts

Tuesday 22nd November 2011 Commons Chamber

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

May I first thank the Democratic Unionists for bringing this subject for debate before the House? It is an important and significant issue. As we have heard from the contribution of the right hon. Member for Belfast North (Mr Dodds), particular aspects of the issue have particular resonance in Northern Ireland. I shall make some reference to the specific circumstances of Northern Ireland, but it is worth setting the UK-wide context for the decisions taken about the level of the winter fuel payment and the cold weather payment. The right hon. Gentleman is correct that the Government had choices to make, and they made a choice about the cold weather payment, but I do not know whether he is aware that that choice was a significant one—one that I believe has proved to be correct.

The backdrop was as my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) described it a few moments ago. Initially, the winter fuel payment was only for people on means-tested benefits, or a higher rate went to those eligible for means-tested benefits, but eventually, some years ago, it got up to its full universal rate of £200 and it stayed at that level year after year; it was not indexed. Then we reached two years before a general election when the public finances were looking good and the then Chancellor decided to make a one-off increase to £250 and £400. As I say, when it was announced, it was announced as a one-off. Then we reached the year before the general election and the Government of the day thought that cutting the winter fuel payment would look bad so near to the election, so they announced a further one-off increase to £250 and £400. They stressed again that it was a one-off.

Then we reach the March Budget of 2010, and it became apparent in March that the Government would have to announce the rate for winter 2010. Funnily enough, six weeks before a general election did not seem like the right time to reverse a one-off increase, so a further one-off increase was announced again for the winter of 2010. We know it was a one-off increase because the public spending plans of the previous Government were published into the new Parliament. We thus know that the plans we inherited were to cut the winter fuel payment back to its core level of £200 for the winter we are now going into and for succeeding winters. That was the baseline against which we made our decisions.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The Minister is outlining what happened under the previous Government and stressing that the single or “one-off” payment as he has described it on several occasions was maintained just before an election. Given that my right hon. Friend the Member for Belfast North (Mr Dodds) alluded to the Government’s statement that they would keep faith with the previous Government and in conjunction with what the Minister has just said, does it mean that in three years’ time he will reinstate the cold weather payment?

[Steve Webb]

Well, obviously, cynicism would be well beyond this Government. The rates of public spending are published through a comprehensive spending review period and for the rest of this period the figure we inherited was £200. That, as I say, was our baseline.

Another strange thing that went on was to do with the cold weather payment. That is the money paid when it is freezing cold to the poorest and most vulnerable people—the poorest pensioners and the poorest disabled people. Temporarily, pre-election, that was increased from the regular £8.50 to £25 a week. Temporarily, too, for the year after the election, as announced before the election, it was to be maintained at £25 a week. You will not be surprised to learn, Mr Speaker, that beyond that, it was planned to be slashed back to the £8.50 a week level. In other words, had we done nothing and taken no action, the winter fuel payment would have reverted to its £200 level and the cold weather payment paid to the most vulnerable when it is most cold would have reverted to £8.50 a week.

Let me remind Members that that was the baseline from which we were trying to find something in the order of £70 billion to £80 billion-worth of savings, so the question was not whether we should cut the winter fuel payment or the cold weather payment, but whether we could find the money to reverse the planned cuts, and thus have to find still further cuts from across the budget.

I agree with the right hon. Member for Belfast North on one point—that Governments have to make choices about priorities. He listed some of the priorities of this Government: ring-fencing the NHS, for example, about which I suspect the pensioners of Northern Ireland will be glad. He also mentioned the penny on petrol duty. I was not aware that it was his policy that we should not have reversed that, but I am happy to be corrected.

[Mr Dodds]

I am sure that the Minister was listening when I said that I supported those priorities. My point was that the Government had decided to increase or maintain spending in certain areas but to target cuts on other areas, and I wanted to know why they had targeted our senior citizens.

[Steve Webb]

I am grateful to the right hon. Gentleman for confirming that the measures that he listed were measures that he supports. I had assumed that, having begun by telling the House that we should spend an extra £600 million on something, he would in the course of his speech identify something on which we should spend £600 million less. Given that he spoke for 30-odd minutes, I may have missed it.

[Mr Dodds]

I could have taken much more time—indeed, I had a page devoted to areas that we could cut—but I considered it to be in the interests of the debate to leave time for others to speak. I am sure that my colleagues will make similar points, but may I begin by suggesting that the Minister reverse his attachment to Europe and save the £400 million that is going to the External Action Service, along with all the other money that is being wasted? And what about the £80 million that he wasted on the alternative vote referendum, which could have gone towards helping older people rather than being wasted on a trivial political exercise?

[Steve Webb]

It is intriguing that, in presenting a 30-minute explanation of why we should spend a further £600 million, the right hon. Gentleman should remove the bit about where the money should come from, which seems to me to be fairly central to the debate.

Faced with that baseline of a proposed reversion to a £200 winter fuel payment and an £8.50 cold weather payment, we could simply have gone ahead with the previous plans, and found our £70 billion to £80 billion on top of that. However, we took the view—as does the right hon. Gentleman—that fuel poverty matters, and we therefore found the money that would enable us to reverse the planned cut in the cold weather payment. I believe that ours was the right priority. If we are concerned about the most vulnerable when it is most cold in the coldest of winters, we should bear in mind that an increase from £8.50 to £25 gives people the confidence to turn up their heating when it is bitterly cold. The system even allows cold weather payments to be triggered by a forecast. It need not actually have been freezing cold; we merely have to expect it to be freezing cold.

Last winter in Northern Ireland, we made 672,000 cold weather payments at a cost of £16.8 million. Had we not reversed the earlier decision, the value of those payments would have fallen by about two thirds. Our decision put about £10 million into the hands of the poorest pensioners and disabled people in Northern Ireland during a bitterly cold winter, and I am proud that we made it.

[Mr McCann]

Many constituents throughout the country, including mine, will not be able to gain access to cold weather payments because the necessary monitoring equipment is not there.

[Steve Webb]

I am grateful to the hon. Gentleman for raising that point. A number of Members in all parts of the House contact me about cold weather payments for which I am responsible. My hon. Friend the Member for Argyll and Bute (Mr Reid), for example, wrote to me saying that he did not think that the cold weather stations in his constituency matched the actual pattern of cold weather.

I have been very impressed by the work of my officials, who take seriously every representation received about cold weather stations. We change them every year in response to such representations. There will be stations in the hon. Gentleman’s constituency, but if he thinks that they are in the wrong place or measuring the wrong data, I can tell him that we work very closely with the Met Office, and respond thoroughly and carefully to all submissions. As far as I am aware, I have not received a submission from the hon. Gentleman, but I apologise if he has already contacted me. If he has not, I encourage him to do so.

[Mr McCann]

The issue has been raised both by me and by my predecessor. My nearest cold weather station is Bishopton. As anyone from Scotland will know, East Kilbride is one of the coldest places in the country during the winter. However, there is no monitoring equipment, although South Lanarkshire council has monitoring equipment in the constituency to ensure that gritting takes place. I should be grateful if the matter could be looked into.

[Steve Webb]

I am happy to do that. It would be helpful if the hon. Gentleman would be kind enough to give me as much detail as possible in writing. In general, as I have said, I have been impressed by how responsive the system is.

[Sir Robert Smith]

rose—

[Steve Webb]

I will give way in a moment. There is a recognition that, wherever we put the cold weather stations to try to capture some of the variation in climate, such as the seven stations that serve Northern Ireland—

[Mr Gregory Campbell]

rose—

[Steve Webb]

I will give way to my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) first and then to the hon. Gentleman. No matter where we put the cold weather stations, somebody, somewhere says, “Hang on a minute, it is in the wrong side of the postcode” and so on. We keep these things under constant review because we want the system to work.

[Sir Robert Smith]

I wish to reinforce the point that the Minister has made. A submission was made that there should be a measuring station at Aboyne in my constituency and the Minister decided that there will be, which means that people living in the colder inland part of the constituency no longer have to rely on measurements taken in a coastal community.

[Steve Webb]

Indeed. I feel that I am acquiring an encyclopaedic knowledge of the remoter parts of Scotland through this role, but I am grateful to my hon. Friend for reminding the House that we listen to representations that are made and take them seriously.

[Mr Gregory Campbell]

Just two weeks ago, the Northern Ireland Assembly was informed of a change in my constituency, whereby the existing station in Ballykelly, which is a few miles inland, is to be replaced by a new station in Magilligan, which is right on the coast. The Minister will be aware that it is inevitable that coastal stations will be a degree or two warmer than those inland, so 3,500 people might or might not get a cold weather payment on the basis of a reading from a slightly warmer cold weather station.

[Steve Webb]

As I said a moment ago, we work closely with the Met Office on these matters. I do not claim expertise on meteorological matters, but the Met Office does. Where changes are made to metering stations it is always with a view to being more accurate, rather than less. There is certainly no attempt made to move them to where the sun shines. We will examine that issue this winter. If the hon. Gentleman’s impression from this winter is that that change is causing problems, I will be happy to hear from him.

[Mark Durkan (Foyle) (SDLP)]

The Minister told us that by maintaining the cold weather payment of the previous year this Government had given an additional £10 million to pensioners in Northern Ireland. Will he tell us how much money he is denying to pensioners in Northern Ireland by refusing to maintain the level of the winter fuel allowance? Has he done the same calculation?

[Steve Webb]

What we have done is preserve the amount that was scheduled to be spent in Northern Ireland exactly as planned. Clearly, £50 a head in Northern Ireland is probably slightly more than the figure for the cold weather payment. I did some mental arithmetic while the right hon. Member for Belfast North was speaking and I suspect that that figure is slightly larger. The key choice was between doing nothing—taking our baseline and taking £70 billion or £80 billion out—and trying to reverse at least one of the cuts. I think that the right thing to do was address the cold weather payment.

Let me give a slightly cheeky example of why that was our priority. I checked the dates of birth of the hon. Members from Northern Ireland and found that at least one of them would, in principle, qualify for a winter fuel payment—I am not going to name names. [Hon. Members: “Go on.”] I am not even going to look in the direction of the person I am talking about.

[Dr William McCrea (South Antrim) (DUP)]

I hoped to catch your eye, Mr Speaker, and at the commencement of my speech I was going to make it very clear that I qualify for the winter fuel payment. When I have received it, I have always given it to a disabled family who do not get that allowance. I am happy even to give the names of the people who receive it.

[Steve Webb]

That is entirely the response that I expected. The point is that not everyone would perhaps respond in quite that way. Given the choice between spending the money on at least some folk gracious and generous enough to give it away, or on people who self-evidently desperately need it because they are on a low income or are disabled and it is freezing cold, the priority at a time when money is tight is obvious. This is one decision that I would defend.

[Mr Weir]

Will the Minister address the point? Whether he is saving money on one or the other, he has just admitted that the figure spent in Northern Ireland is lower than it would have been overall. However, the cost of energy has rocketed in the past year or two, so every pensioner in Northern Ireland or in any other place in the United Kingdom is paying more for their energy and is suffering through this system. Would it not be better to put some money in to ease that suffering?

[Steve Webb]

Absolutely, and I shall come on to the whole subject of the fuel poverty strategy that we have adopted. I suspect, as my hon. Friend the Member for Meon Valley (George Hollingbery) suggested in an intervention, that the correlation between the rate of the winter fuel payment and the depth and impact of fuel poverty is incredibly weak, if it is there at all. In other words, we have seen the winter fuel payment go up and go down, yet if that was plotted against the terrible problem of excess winter deaths or fuel poverty, I suspect there would be no correlation at all. When money is tight, we should be prioritising how we spend it so that it will do the most good.

As the hon. Member for Angus (Mr Weir) rightly says, fuel bills have shot up. Surely the priority should be stopping people paying a fortune for their fuel when half the heat goes out through poorly insulted walls, windows and lofts. Every year, it is tempting to say that this winter we should put cash into people’s hands because it is cold. Of course that is true, but if we always put off the hard work of insulation, energy efficiency and so on, the situation will be the same the next winter and the one after that. Money spent on energy efficiency will save pensioners and others money every winter, rather than our giving them cash one year, only for the heat to go out through poorly insulated roofs and windows.

[Mr Jim Cunningham (Coventry South) (Lab)]

The Minister has outlined one facet of the problem, but one of the major facets has not been touched on today, although it has been mentioned in Adjournment debates in Westminster Hall. We really need to look at the cartels among the oil companies and to ask what discussions the Government have had with the oil companies. Equally, the increase in VAT is having an impact.

[Steve Webb]

Obviously, the VAT increase does not affect fuel prices directly as they are on a reduced rate, but the hon. Gentleman is right that competition in the energy sector is a key concern of the Government, whether that is in gas, electricity or oil. Our colleagues at the Department of Energy and Climate Change are in regular and close contact with the competition authorities, but one thing the Government are doing is ensuring that people are aware of their ability to switch and get much better tariffs—that is particularly the case with electricity and gas. Clearly, we can do things for the long term, such as sort out the housing stock, but we can also do things for the short term, such as ensure that people get the best price available. There is huge potential to do a lot more that does not necessarily involve hundreds of millions of pounds of Government spending but would benefit people substantially.

[Sarah Newton]

Does my hon. Friend agree that the recently commissioned and reported Office of Fair Trading document that specifically, at the Minister’s request, investigated off-grid energy competition was able to recommend a series of actions to improve the market for heating oil this winter, avoiding the terrible problems we experienced last winter? The OFT has now gone on to look at liquefied petroleum gas. The Ministers in DECC are doing everything they can to ensure that the off-grid energy markets are fully functioning.

[Steve Webb]

My hon. Friend is quite right. In Northern Ireland, dependence on heating oil is substantially greater than it is on the mainland and even in a semi-rural constituency such as my own, oil prices, oil supply and so on are big issues. I am grateful for her kind words about our ministerial colleagues as these are important matters.

Let me go back to the issue of fuel poverty. Clearly, it has a number of components and one is income. We focused on a change from last year’s rate to this year’s of less than £1 a week in the winter fuel payment and that is what we are talking about today. Instead, we have taken the basic state pension, which for 30 years has been declining relative to wages, and put a triple lock on it so that every year from now on, pensioners in Great Britain and Northern Ireland will see their pensions rise by the highest number of inflation measured by the consumer prices index, earnings and 2.5%. We are in a strange period in which inflation is greater than earnings, but in most years, earnings have grown faster. That will mean that as we return to more normal times, pensioners will enjoy above inflation standard of living increases year after year.

The cost of that commitment—I hope that the Chancellor is not listening at this point—will add a total of £45 billion to the amount we spend on pensions by the mid-2020s, which gives a sense of the magnitude of what we have announced. That is rather invisible at the moment, because prices are higher than earnings. When I signed the legislation into law last year, I expected bells to peal and for there to be confetti on the floor and so on. That has not quite happened yet, because people have not seen the impact. In the longer term, it will give a sustained boost to the real incomes of pensioners in Northern Ireland and Great Britain.

[Mr Dodds]

The Minister raises the issue of the triple lock. Previously, in the autumn statement the Chancellor has always announced the increase in line with the September rate of inflation, which would mean a 5.2% increase. Does the Minister expect the Chancellor to do the same this year, and would he rebuke the Chancellor if he were to take an annual inflation figure? Given what he has said, I take it that he is very much in favour of the former.

[Steve Webb]

The Chancellor was asked this very question at Treasury questions recently, and he confirmed, as is entirely in line with my view, that the triple lock is something of which we are proud. I am sure that we will be just as proud next Tuesday when he announces his verdict.

This is not just about the basic state pension: it is also about pension credit. As has rightly been pointed out, we need to make sure that pension credit take-up is maximised and we already do many things in that regard. Some people may not know that they can ring an 0800 number—a freephone number—to claim pension credit. They might think there is a long and complicated form to fill out, but in fact they can claim it over the phone and can also claim housing benefit and council tax benefit at the same time. We also undertake a lot of activity to engage with people who might be eligible. For example, we mention pension credit to people when they claim the state pension or when they report a change in their circumstances such as a bereavement. We also have a visiting service so that if people are not online or perhaps are not able to get out, DWP and local authority staff go out to their home and fill in forms with them in their front room.

As a Department, we are doing quite a lot to encourage take-up, but I am aware that the Democratic Unionist party manifesto mentioned trying to pay pension credit automatically. We have been piloting that in Great Britain and I can update the House on that exercise. We took a random sample of about 2,000 customers who were not receiving pension credit but whom we thought, based on what we knew about them, appeared to be entitled to it. For 12 weeks, we paid them the money anyway without their having to make a claim and then we contacted them and said, “By the way, we’ve just given you some free money. This is what we think you would get on pension credit—would you like to make a claim for it?”

The delivery phase of that study ran from November 2010 to March 2011 and an evaluation is now under way, but I can update the House on the early findings from that research. We found that by August, after the process had finished, a percentage of those involved in the study had successfully claimed pension credit. I am going to ask Members to think to themselves what percentage I am about to say, assuming that no one has read what we published. So, of the 2,000 people to whom we gave pension credit because we thought they were entitled to it, what percentage do hon. Members think then successfully claimed it? I shall not do a straw poll at this point. The answer is just 9%, which is a very low figure. Given that 3% of those in the control sample claimed, if we had done nothing we would have had 3% claiming anyway, whereas we had 9%.

We found that those who did go on to claim pension credit did so because the study had raised their awareness of the benefit and their potential eligibility for it, as one might expect. We talked to some of those who did not claim and found that some of them retained the view that they were not entitled to it even though we had contacted them and given them the money. Some felt that they did not need it, which is fair enough, some did not claim because of health issues, others forgot and some did not quite understand what was going on. It was a complex process, and we will publish a rigorous evaluation of it. It would be great if we could spot all the folk who are not taking pension credit and get the money to them automatically, but the early indications are that that will not be the case and that this approach is not a silver bullet that will enable us to deliver the money automatically. However, we will see what lessons we can learn from the pilot and I shall be happy to update the House on that a bit nearer the time.

[Lady Hermon]

May I establish when the Minister last visited Northern Ireland? The right hon. Member for Belfast North (Mr Dodds) gave the statistic in his opening remarks that 75,000 homes in Northern Ireland are in extreme—that is the word he used—fuel poverty. With the greatest respect to the Minister—and I do have the greatest respect for him—I would like him to visit Northern Ireland and come to some of those homes. It is absolutely degrading for an elderly person to have to eliminate their television because they cannot afford a television licence, or to have to choose between food and fuel. This is a really serious problem in Northern Ireland.

[Steve Webb]

I do not doubt for a second the point that the hon. Lady, for whom I have a great deal of respect, makes. Obviously, as a GB Minister, I am responsible for these matters in Great Britain. Fuel poverty is a devolved matter, although my hon. Friend the Under-Secretary, who will respond to the debate, was in Northern Ireland last week. Yesterday I spoke to the Northern Ireland Minister for Social Development to discuss with him these issues as they affect Northern Ireland. He was keen to stress some of the measures that the Executive are taking—for example, the double glazing of social housing.

That comes back to the point I was making, which was that this is partly about 98p a week on the winter fuel payment, which is what we are discussing, but far more about stopping people having highly energy-inefficient homes and giving them a decent, dignified standard of living. If hon. Members think about the difference that we are going to make through the triple lock on the basic pension, it swamps the 98p that we are talking about today and will make a real impact on the living standard of pensioners over decades to come.

[Nicola Blackwood]

On energy efficiency and insulation, proposals have come from the Government, including the green deal. My concern relates to my hon. Friend’s comments about pension credit and uptake by the most vulnerable groups. Have any discussions taken place with the Department of Energy and Climate Change about how to improve uptake by those groups, who would benefit most from the proposals?

[Steve Webb]

My hon. Friend raises the important issue of take-up. Clearly, benefits such as cold weather payments and the warm home discount, which is the £120 off fuel bills in Great Britain, as I mentioned in the letter that I sent, are contingent on receiving an income-related benefit. That is a challenge that we always face. We want to target those who are most vulnerable, but if some of those who are vulnerable miss out on the passported benefits, how do we get that money through without spending it on everyone, resulting in it being spread much more thinly? That is a permanent trade-off and why we are looking at ways of improving the take-up of these benefits and having a mixed strategy—a mix of a universal winter fuel payment that goes to everyone regardless of whether they claim, and targeted help for those most in need.

As a Department we are working with organisations such as Age UK to try to make sure that pension credit materials are provided to them. Those organisations have responded positively to make sure that the literature we provide is easy to understand and reaches the people who need it. I entirely take my hon. Friend’s point that there will always be gaps, and we need to address that. My view in the long run is that if we can have state pension reform that guarantees a state pension above the basic means test, that will go a long way to addressing some of these issues, but perhaps that is for another day.

I do not want to go on too long but I will mention, briefly, the warm home discount. This is important because it is the subject of negotiation between the Government and the big six energy companies in Great Britain that will give £120 off the electricity bills of 600,000 of the poorest pensioners. That will make a real contribution. We do it through electricity bills because pretty much everybody has an electricity bill, not because we think the price of electricity has necessarily gone up more, but it does not apply in Northern Ireland.

There is an interesting question about the negotiations or discussions between the Northern Ireland Executive and Power NI, for example, about whether the Northern Ireland providers could be asked to do the same sort of thing. If the big six are doing it in Great Britain, I cannot immediately see why the same should not benefit pensioners in Northern Ireland. Perhaps right hon. and hon. Members could take that back and challenge their own power suppliers to do more.

Clearly, we need to make people aware not just of the means-tested benefits they can get, but of the help with insulation, cavity walls and so on. Further in response to my hon. Friend the Member for Oxford West and Abingdon (Nicola Blackwood), we as a Government are sending letters to about 4 million of the most vulnerable energy customers, letting them know that they have access to heavily discounted insulation for their lofts and cavity walls. Even when we write directly to people, we do not always get the results that we want, but we are aiming to target people directly.

[Jim Shannon (Strangford) (DUP)]

Is the Minister aware that 43% of those over 75 years of age live in unfit houses? Is that not a group that he should target specifically?

[Steve Webb]

Perhaps I was not explaining myself clearly. There is a whole raft of things that we are doing precisely because low-income households cannot afford the large capital costs of insulation. There is the green deal, the letters that we are sending about subsidised insulation, cavity wall insulation and so on, and the measures that we require the energy companies to take under the carbon emissions reduction target, the CERT scheme. There is a whole raft of things that we are doing, precisely because of the point that the hon. Gentleman makes, which subsidises insulation. It is perhaps a misnomer to talk about that as being long term. Someone’s house can be insulated tomorrow, which will mean savings on their heating bills. It will take a long time to work through the whole housing stock, but that has an immediate and beneficial impact on people today. Perhaps “long term” was not quite the right phrase.

[Ian Paisley (North Antrim) (DUP)]

rose—

[Steve Webb]

Will the hon. Gentleman forgive me? I know that he is responding to the debate, so he will have the chance to make the points that he wants to make shortly.

I entirely accept that the decision about whether to carry on with Labour’s planned cuts in the winter fuel payment and cold weather payment was a difficult one. We could have gone ahead with both those cuts, which would still have left us having to find £70 billion to £80 billion of deficit reduction, but we took the view that we should target those most in need through the cold weather payment scheme. I am proud that we reversed that cut; that we found the money to pay the large number of cold weather payments that we did in Northern Ireland last year. But the long-term solution to this has not got to be £1 a week either way on the winter fuel payment; it has got to be home energy efficiency and decent incomes for pensioners, both today and in the long term. It has got to be making sure that people are not wasting their money paying high energy bills, but that their homes are kept warm. One of the striking things about the issue of excess winter deaths is that in many Scandinavian countries, which have much colder climates than we do, they do not have such a thing as excess winter deaths, simply because the homes are built to a decent standard to begin with.

There is a broad agenda here well beyond the rate of one particular social security benefit, but I can say to the House that we are absolutely committed to tackling fuel poverty. The reverse of the planned cut in the cold weather payment is one of the things that we have done, but I hope that I have given the House a feel for many of the other measures that we are taking that will tackle the issue not just for this winter but for the long term as well.

--- Later in debate ---

[Cathy Jamieson]

On one or two things, and on this point the Government do seem to have moved on from the days when some people who are now in prominent Government positions thought that winter fuel payments were “gimmicks”. To be fair again to the Pensions Minister, back in May he answered a written parliamentary question by stating:

“The winter fuel payment provides a significant contribution to an older person’s winter fuel costs and provides vital reassurance that people can afford to turn up their heating.”—[Official Report, 23 May 2011; Vol. 528, c. 493W.]

Today, he seemed to suggest that he still agrees with that in principle, and I am glad to hear it, although I disagree with him on whether the amount of money going into pensioners’ pockets has been cut.

The coalition agreement, which has been referred to, states:

“We will protect key benefits for older people such as the winter fuel allowance”.

Most reasonable people reading that statement or hearing those words coming from the mouths of Ministers might reasonably have expected the coalition to have protected all winter fuel payments. They were certainly the words that people heard in the run-up to the election, but as we know the winter fuel payment will be £50 lower this year than it was in each of the last three years for eligible households aged 60 or over, and £100 lower for those aged 80 or over. The Department for Work and Pensions estimates that 9 million households benefit from the winter fuel payment, so 9 million households will be worse off this winter.

People will no doubt seek to make the usual criticisms of the former Labour Government at this point, but when Labour left office no decision had been taken, and it was absolutely in the Chancellor’s power to continue with the extra payment, as Labour Chancellors had in previous years. It is therefore absolutely wrong for any Government Member to say that the decision was taken by the previous Government; the decision to axe the additional payment was taken by this coalition Government —no one else.

[Steve Webb]

Leaving aside the fact that the shadow Work and Pensions Secretary was the man who left the note saying, “There’s no money left,” I must ask, if the previous Government planned to keep the winter fuel payment at £250, why did they not set the money aside in their Budget plans?

[Cathy Jamieson]

The decision was taken year on year, and it would have been entirely open to a new Government —indeed, if a Labour Government had been elected, there would have been the option—to look at the measure year on year, so no matter how many times Ministers raise the issue, they cannot get away from the fact that the very people who decided not to go ahead with the payment are the coalition Government.

I am astonished to hear the Minister seemingly suggest that this Government had to follow everything that the previous, Labour Government did. If that had been the case, we would still have had a future jobs fund, and perhaps youth unemployment would not be rocketing. No one wants to intervene on that point, so perhaps we will hear more from the Under-Secretary in her winding-up speech. Rather than harking back to the past, it is time that this out-of-touch Government came back to reality and dealt with the real-life issues facing today’s pensioners.

Let me give the last word on this to the voice of pensioners. Speaking about the Chancellor’s decision to axe the additional payments, Dot Gibson from the National Pensioners Convention has said:

“It’s a shabby way to treat Britain’s older generation. If we really are all in this together, why is he going to take £100 off the winter fuel allowance for the oldest members of society at a time when fuel bills are rising and winter deaths amongst older people are a national scandal? He should be ashamed of his behaviour”.

Pension Protection Fund

Steve Webb Excerpts

Tuesday 22nd November 2011 Westminster Hall

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

I congratulate my hon. Friend the Member for Cardiff North (Jonathan Evans) on securing the debate and welcome the fact that a number of hon. Members have come to the Chamber to register their support for their constituents who have been affected in the way that he describes. He is right to pay tribute to those who have campaigned on the issue for a long time; I recall many such debates in previous Parliaments. The hon. Member for Cardiff West (Kevin Brennan) was certainly one of the principal campaigners on the issue, on behalf of his constituents. Indeed, Derek Wyatt, predecessor of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson), campaigned on the issue during his time as a Member of the House, particularly with respect to the link with ASW Sheerness.

As my hon. Friend the Member for Cardiff North rightly said, my involvement goes back a long way. I recall going with Mr Andrew Parr, from ASW Sheerness, and Dr Ros Altmann, to whom my hon. Friend was absolutely right to pay tribute for her role in all this, to see the parliamentary ombudsman way back when. We sat down with the ombudsman and went through all the literature that people were provided with at the time, as well as the concerns about the way successive Governments had said, “No questions asked, company pensions are a good deal.” Essentially, they had said, “Go for it.” As my hon. Friend rightly says, some people lost out very badly. That is, in a sense, how the financial assistance scheme came about.

It is worth reflecting on the sequence of events and the creation of the Pension Protection Fund, and how the financial assistance scheme fits into that universe. The existence of the PPF is germane to my response to my hon. Friend. Rightly, people sometimes ask about what previous pensions Ministers got wrong. One thing that previous pensions Ministers got right was the creation of the PPF. Going forward, people in defined benefit pensions can know that the scheme is paying a levy, that there is a sort of collective insurance and that, essentially, those who see their company become insolvent can expect to receive 100% as pensioners, and 90% as active or deferred members of the scheme.

We can all take some reassurance from the fact that for the sort of scandals my hon. Friend describes—where Governments have encouraged people to save through workplace pensions and then they find that there is an insolvency event and they have lost not only their job, but their pension—there is now pretty good protection in place, although it is not total protection. Insurance schemes tend not to be total, but they are very significant.

One criterion for what we may or may not do with the financial assistance scheme is that I believe it would be wrong to take its principles beyond what the PPF provides. The PPF is a levy-based insurance scheme. It would seem to me to be wrong to say to people whose employers are paying an insurance premium that they will get less insurance cover than those who did not. It is not their fault that they did not, but it would seem to me that that is a logical and coherent position. If we create an insurance scheme and people pay for it, that is what we think is fair provision. Therefore, the financial assistance scheme should not be more generous than the PPF. That, therefore, is part of my initial response to my hon. Friend’s first point about the 2.5% inflation cap. I take his point that we live in times of high inflation, with the consumer prices index at 5.2%, or 5% as the most recent figure. However, if we were to lift the cap on the financial assistance scheme indexation, by corollary we would have to do so on the PPF indexation. If we did not, that would be odd, and we would probably be in court by the end of the day, I suspect. The PPF indexation is funded by the levy payers, so there could be a significant additional cost from removing that cap, which would have to be met by the firms in British industry today that are continuing to run quality pension schemes, or that continue to have liabilities under them. A challenge that we face is the balance between wanting good-quality pension protection and good-quality pension provision. Every time we put a new burden on those who provide final-salary and salary-related pensions, the danger is that another will say, “Forget this, that is just another cost and we will close it.” That is one of the trade-offs.

My hon. Friend mentioned the indexation provisions specific to the ASW scheme, which were relatively generous compared with some, but, to give a feel for the scale of what we might be talking about, if we were to provide indexation along the lines of the schemes that people were in previously, rather than at a general level, it is estimated that we would add about 30% to the cost. Just one of the things on his list would add significantly to the cost.

[Kevin Brennan (Cardiff West) (Lab)]

I did not intend to intervene, but as the Minister rightly says, in the past he and I were allies at times in working on the issue. We all accept that the deal that eventually happened was not what we would have liked to see, nor was it as adequate as we would have liked—he accepted that at the time—but does he not feel some responsibility at least not to make matters worse, which is what he is doing?

[Steve Webb]

Let me come on to the CPI point, which is what I assume the hon. Gentleman is referring to. Clearly, the Government took a view in summer 2010 as to the measure of inflation that they would use to uprate benefits and tax credits. There is no perfect measure of inflation; clearly, each has its strengths and weaknesses. However, as a new Pensions Minister in 2010, I received angry letters from people asking why their state earnings-related pension scheme had been frozen. Obviously, “It wasn’t me, guv”, as it were, but their SERPS pension had been frozen because “inflation” in the year to September 2009, as measured by the retail prices index, was negative.

We had a bizarre situation. I have yet to meet a pensioner who felt that inflation was negative in the year to September 2009, but, because mortgage rates were falling dramatically, headline RPI inflation was negative and, therefore, people’s pensions were frozen in 2010. CPI would have given them an increase then.

The further paradox was that, at a time of falling interest rates when savings returns were falling—low interest rates are, on the whole, bad news for pensioners, who tend to be savers rather than borrowers—we were using a negative or a low measure of inflation. That did not seem a good fit to us, particularly for pensioners, so the Government took the view that they would measure inflation using the CPI for benefits, tax credits, state earnings-related pensions, the underpin for occupational pensions and, thereby, via SERPS, public-sector pensions, and the PPF. Having decided that that was what inflation was across whole swathes of the what the Government do, it would be odd to have an island where we measured inflation differently.

I fully accept that that reduces the value of the financial assistance scheme pensions—I cannot dispute that—but that was not the purpose of the exercise, and the effect was well down the track from the decision on the CPI. It would, however, have been incoherent to have said that inflation was something different for the financial assistance scheme.

I have met Pensions Action Group campaigners on a number of occasions over many years, as my hon. Friend the Member for Cardiff North said, and I have great respect for what he described as their dignity and for their perseverance in campaigning, which has got the financial assistance scheme to where it is. The switch to using the CPI has reduced the cost of the financial assistance scheme in the longer term—it has had no impact in the first couple of years because we are above the cap on either measure of inflation—but other factors have led us to spend more on the financial assistance scheme than we were budgeting for. Rather than looking at a budget line that allows me some slack, I am having to explain why I am overspending relative to the budget that I inherited. The reason for that is that new schemes come into the financial assistance scheme, or we get data for schemes that we knew were coming in but for which we did not know the details, and we tend to find out that we have greater liabilities, in particular in the short term, than we had thought.

Working out what we will spend on the financial assistance scheme is not a precise science, although it is getting more so. However, it would be wrong to think that somehow the budget line has some slack in it and that we can decide what to spend it on. On the contrary, I am having to make the case in Government that we have made promises to the financial assistance scheme that we need to keep. Therefore, we have to find extra money compared with what we budgeted for.

[Alun Cairns (Vale of Glamorgan) (Con)]

Will the Minister give way?

[Steve Webb]

If my hon. Friend will forgive me, I will not, out of respect for my hon. Friend the Member for Cardiff North, who secured the debate, but only because I want to respond to his comments.

To be clear, it is not the case, therefore, that some financial slack is available for the financial assistance scheme.

My hon. Friend also mentioned deemed buy-back, which is complex, so I will not say, “Here is one I prepared earlier.” Essentially, deemed buy-back is treating the scheme as if it had not contracted out of SERPS. On the face of it, we would assume that that is better, but it turns out that the situation is rather more complicated than that. At the moment, people in the financial assistance scheme have a level of certainty: they know what the rules are and they know what 90% is and is not. I entirely accept my own point from a few years ago that we have to be careful when we say, “It’s 90%,” because clearly the matter is much more sophisticated than that and there are limits, as he rightly said. However, those people have the certainty of knowing what the scheme rules are. Under deemed buy-back, they would not have that certainty while some people would get more than 100% of their scheme pension and some people less.

[Jonathan Evans]

Would there not be a responsibility on the trustees to form a view as to whether they wished to action that? My hon. Friend the Minister is indicating that some circumstances could be advantageous and others not, but that would be a judgment made in each case. Currently, no one can exercise such judgment.

[Steve Webb]

The answer might be different for each individual rather than for each scheme. How would a trustee judge? If the trustees chose deemed buy-back for the scheme and we agreed with that, might they put some members in a worse position and others in a better? How would a trustee balance the different interests of the different members? This is complex.

The other thing about deemed buy-back is that under the financial assistance scheme there is some flexibility as to when the payments are made. My hon. Friend the Member for Cardiff North thinks that the ill-health provision is too rigid, but there is no ill-health early access to SERPS, so, again, the current system has a measure of flexibility that deemed buy-back would not have. Deemed buy-back, therefore, is complex and technical, and not a silver bullet. We have looked at it—in fact, we have looked at just about everything imaginable to try to find ways to provide better value to those individuals.

My hon. Friend mentioned annuities. All the way through, Dr Ros Altmann has argued that one reason that we did not get good value in the first place was that many of the schemes were annuitising, and if we had got in there quicker, we could have done better. That is absolutely right and why the so-called FAS 2 schemes, in which the Government have taken over the assets, have enabled us to improve to a baseline of 90% compared with what was previously on offer.

To try to take that further, I had a personal meeting with the chief executive of Legal & General—no reason why I should not mention it—which is far and away the company with the most of those books still going. He was content to transfer the schemes across to us on the basis of the book value in his annual accounts. His comment was, “I don’t want to profit from this, but I can’t show a loss, so it goes across at the book value.” I am not sure we have said this before, but Andy Young, who was involved in the Government Actuary’s Department and has been instrumental in all this, helped us considerably, of his own free will, to analyse all the facts and figures and so on. We have had discussions with the Government Actuary and with the Treasury. The short answer is that the book value of those contracts has already got the profit in it. Therefore, we take across something from which the profit has already been made, and the view of the Treasury, which I understand, is that there simply was not the confidence that we would get extra value—that the Government doing this would provide added value. In fact, there was a risk that we would be net losers.

I was keen to pursue that avenue and I hoped that it would provide a way for us to squeeze some extra money into the financial assistance scheme, but, unfortunately, it has proved fruitless. I am disappointed about that, which I told the Pensions Action Group members when I met them a few weeks ago. I was keen not to string them along. The very least that they are owed is a firm statement of the Government’s position. It was suggested that we might have a review, perhaps when the Government have more money, but I was keen not to create a false hope or an expectation, because those group members have been through so many stages. However, considering the state of the public finances, it would have been dishonest and dishonourable of me to suggest that we might find a little pot of money to address their concern.

As I hope is apparent from all that I have said today and through the months that I have dealt with the group, I have huge sympathy for the situation in which they find themselves, but I do not believe that I can offer any realistic prospect of improvements beyond the current financial assistance scheme.

Incapacity Benefit (North-East)

Steve Webb Excerpts

Tuesday 22nd November 2011 Westminster Hall

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

I congratulate the hon. Member for Easington (Grahame M. Morris) on securing an important debate. It is good to see other hon. Members from his region present for the debate today. I will speak primarily about incapacity benefit and the changes made by the Government—indeed, primarily by the previous Government. It is worth spending at least a moment on the context. Every night on the television news, we see stories of what happens in countries that did not get their deficits under control. We see fiascos, shambles, rioting in the streets and Governments being overturned.

It strikes me that two political parties working together in the national interest after the 2010 general election has meant that Britain is not seeing the extraordinary bond rates that Italy or Spain have faced. We are able to borrow at modest rates because of the fiscal credibility that we have. In the context of the north-east, low interest rates are one of the critical things in giving householders money to spend. If someone has a mortgage and the bank base rate is 0.5%, that gives them money in their pocket to spend in the regional economy.

[Grahame M. Morris]

Will the Minister give way?

[Steve Webb]

I will give way in a second. There are direct consequences of the difficult choices that we have made on the deficit that are specifically to the benefit of local economies such as the hon. Gentleman’s. I will give way to him, but he has not left me long to respond. If he wants to add additional points, I will have even less time.

[Grahame M. Morris]

I am grateful to the Minister, but it is important to challenge the point that is raised again and again that everything has to be sacrificed on the altar of deficit reduction. Is it not true that the Government’s plan is hurting but not working, and that the deficit is growing because there is no growth in the economy? The last figures I saw showed that we are borrowing an additional £46 billion.

[Steve Webb]

The hon. Gentleman mixes the structural deficit with the cyclical deficit. We have said that we will eliminate the country’s structural deficit. Although when the economy grows faster we get additional revenues and save money on benefit spending, we also have to tackle the structural deficit—something the previous Government failed to do. He referred to a five-point plan that simply adds more debt, and it is hard to see how the solution to a problem caused by excessive borrowing is more borrowing.

The hon. Gentleman referred to incapacity benefit, and his constituency has the highest concentration of people of working age on incapacity benefit in England. I have seen the Sheffield Hallam report to which he refers. It lists four changes that have been made, three of which—although he did not want to admit it—were introduced by the previous Government. My hon. Friend the Member for Redcar (Ian Swales) made that point. The replacement of the personal capability assessment by the work capability assessment was introduced by the previous Government; I am not sure whether the hon. Member for Easington supports that, or indeed the process of re-testing the stock of people on incapacity benefit, or the requirement to undertake work-related activities—all measures initiated by the previous Government. Those are three of the four measures in the Sheffield Hallam report, and it seems that each was a move in the right direction.

My hon. Friend the Member for Redcar was right to say that the system of work capability assessment that we inherited was broken, and a work capability assessment that focuses on whether people can work or not is a positive measure. We have proceeded with the Harrington review, and Professor Harrington’s second report will be published imminently. Significant changes have been made to the WCA process. For example, we will ensure that we garner more medical information initially rather than wait for it to emerge on appeal, and we will allow Department for Work and Pensions decision makers to more readily override the Atos assessment. A lot of positive changes to the WCA process have been recognised by those who campaign on such issues, and we have refined and improved the process to the benefit of the hon. Gentleman’s constituents, and others.

My hon. Friend the Member for Stockton South (James Wharton) asked the key question: what does the hon. Member for Easington want for his constituents who are on incapacity benefit? Even when private sector jobs are created, they do not go to those on incapacity benefit. There is a gap: folk on IB are stuck on IB and nothing gets them off it. We need to bridge that gap, which is where the reassessment process and, crucially, the Work programme come in, involving serious money that gets spent only when real jobs are created.

Let me give the hon. Gentleman a feel of how seriously the Government approach this issue. He referred to the ring-fencing of money, but suppose one of his constituents is on incapacity benefit but expected to be ready for work in about three months under the employment and support allowance process. If they find a job through the Work programme and that job is sustained, we will pay about £13,700 to the provider—double the £6,500 that we pay when someone comes off jobseeker’s allowance. That is a serious amount of public money going into the hon. Gentleman’s constituency, although only if those people about whom he is rightly worried get lasting jobs. The money does not get paid—via a small up-front fee—if the folk do not get a job. In many previous Government programmes and new deals, people got sent on schemes and the providers were paid whether those schemes were useless or not. Under this scheme, the providers will be paid only if they get people into lasting jobs. That will benefit the local area and is an entirely positive measure.

Time limiting of ESA was an important part of the deficit reduction strategy, and the hon. Gentleman referred to people being left “in penury.” It is, therefore, important to put on record two key features of that time limiting, which are that the sickest and poorest people will not be affected. The sickest people will be in the support group, which is not time limited, and they will continue to receive contributory ESA.

[Grahame M. Morris]

Will the Minister give way?

[Steve Webb]

Perhaps the hon. Gentleman will bear with me; I have six minutes left to respond to everything that he said. The people in the support group are not on time-limited ESA, and if they are regarded as inappropriate for work-related activity, they will continue to receive benefits indefinitely. The second category of people who are not affected by the time limiting are those on income-related ESA—in other words, even if someone else in the household has an income or substantial capital, they will not be affected. That means that 60% of those coming to the end of a period of time-limited contributory ESA will move to the income-related version. Those in the support group are not on time-limited ESA, and nor are those who move on to the income-related version. People not in those groups will be those who have other household income or substantial amounts of capital in the bank.

People may ask about the impact of such measures on the local economy, but we must also look at the impact of thousands of people who are stuck on incapacity benefit for years with nobody talking to them. Sometimes, people are stuck on IB for three, four or five years, with no contact at all. Nobody asks them, “What would it take? What are the barriers to work? What would help and support you?”, which shows the difference in approach taken by the new Government. We are not writing people off and leaving them on IB; we want to talk to them, identify those who could be active participants in the labour market with the right support, and have a Work programme that supports them into a job.

The hon. Gentleman mentioned regional policy, but my personal view is that having a regional Minister would feel a little tokenistic. We can have a Minister for this or for that, but will they be in the room when key decisions are made in the way that departmental Ministers will be? I am sceptical that a Minister for one region would get special treatment compared with a Minister for another region. We do, however, have a substantial regional growth fund that is worth £1.4 billion and has been popular and successful. We have now had two rounds of bidding—I could go through a long list of projects in the north-east that have been awarded funding. We recognise that additional support needs to be provided to areas that have experienced difficult economic times, and the regional growth fund is an important part of our response to that.

Many of the changes to incapacity benefit were rightly introduced by the previous Government, whether that is the work capability assessment, which, as my hon. Friend the Member for Redcar said, needed to be refined to ensure that we get decisions right, or the attempt to take an incredible number of people—1.5 million nationwide—off incapacity benefit. As the hon. Member for Easington noted, some of those people will be former miners who have claimed IB for a decade or more. Is it humane or economically rational to say, “Well, you’ve been on IB for a decade, you are seven years away from the state pension age so we will leave you alone, you can have IB until pension age, and then you will get a pretty lousy pension because your miner’s pension will have stopped years ago”? That is not good enough.

The hon. Gentleman asks why we cannot wait until there are more jobs, but even if we waited for a big increase in private sector jobs, those on IB would not be active participants in that labour market. Ex-miners who have received IB for seven years are far from that labour market and not competing in it. When jobs are available, who will the employer choose between someone who has received no contact with the system, and no encouragement, work-related activity or training, and someone who has just come from another job? Both I and the hon. Gentleman know who that employer will choose, and it will not be his constituent on IB. We must talk to people on IB and look at who could work with the right support and who needs to be in the support group. We must enable and support those who are able to work for when jobs become available. I accept that there is currently pressure on jobs, but there is churn every day and week as people leave old jobs and start new ones. When recruiting someone new, perhaps not net additional employment but as a replacement for someone who has left, the crucial question will be whether the person on IB is a credible participant in that labour market. We believe that our policies support the north-east by helping those on IB, supporting them and paying by results when people get lasting jobs. That is the long-term answer to the pressures faced by the hon. Gentleman’s constituents.