Amendment of the Law

Debate between Steve Webb and Rachel Reeves

Monday 23rd March 2015 Commons Chamber

[Rachel Reeves]

When the Chancellor spoke in the 2014 Budget he said that people would be given “advice”, which was then watered down to “guidance”. Now, with two weeks to go, we know that nobody has received this guidance, yet people will be making irreversible decisions about their retirement income.

This Budget has been more of the same from the same old Tories: more overspends, delays and missed targets on social security; and more big promises for savers and pensioners that are not backed up with the support and the protections we need to make these reforms work.

[The Minister for Pensions (Steve Webb)]

The hon. Lady is concerned, as we are, to make sure that consumers get good value. She has proposed a cap on charges for these new pension products. Presumably, she thinks the cap should come in straight away. What should it be?

[Rachel Reeves]

We have said that there should be a cap on fees and charges—not just for the annuities products, but for the new drawdown products. We think it should be at the same level as the Government have set out, but then reduced over time. In that way, we will ensure that savers get value for money. Unless we do that, more people will be ripped off. Unfortunately, despite all the Government’s rhetoric, they have not taken action to protect people’s retirement incomes.

What we have heard from the Secretary of State today is the same complacency and self-congratulation. Yes, of course we welcome any fall in unemployment, but it was this Government who allowed unemployment to soar to record levels in the first place, peaking three years ago in February 2012 at 1.7 million. Under this Government, the number of long-term unemployed, abandoned to a life on the dole, has risen by 49%. That is why Labour will have a compulsory jobs guarantee.

DWP: Performance

Debate between Steve Webb and Rachel Reeves

Monday 30th June 2014 Commons Chamber

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

We have heard 41 speeches in a very worthwhile debate, including some particularly thoughtful contributions. We have heard from many members of the Select Committee, including its Chair, the hon. Member for Aberdeen South (Dame Anne Begg), and I will respond to her comments in a moment. Let me start, however, by discussing the clue in the title—it is the Department for Work and Pensions. From listening to the debate people would think that nobody is getting jobs these days and that pensions had been left alone in the state in which we inherited them. They would not realise that we have record levels of employment and they would not know that we have had falls in youth unemployment, female unemployment and long-term unemployment month after month after month, Even in the hardest-to-help groups, such as young people not in education, employment or training, the numbers are coming down. The Opposition motion had nothing to say about getting people back to work, yet that is the centre of our welfare reform and our strategy is working.

This is not all just about making work pay, although my hon. Friend the Member for Fareham (Mr Hoban), a former ministerial colleague, made a powerful contribution in which he mentioned sitting in a jobcentre and trying to work out whether or not someone would be better off in work. We are dealing with that situation through the universal credit reform, which will make work pay. As my hon. Friend the Member for Gloucester (Richard Graham) said, not only are we making work pay, but we are making saving pay. In the pensions space, we have seen state pension reform; effective automatic enrolment, with 3.6 million people auto-enrolled; charge caps, which are new to reform; and new models of workplace pension. Whether we are talking about work or pensions, this Department is working.

Before I move on to deal with the substance of some of the operational issues that have been rightly raised, I want to address the allegation the shadow Secretary of State made and to give her the chance to retract it. She said—I quote from the transcript—that “when we write to the Department with our constituents’ problems we only ever get replies from the correspondence unit.” She made the even more outrageous comment, “Well, maybe there is one rule for Tory Back Benchers and another rule for Labour party MPs”. So we checked our records and we found that she obviously does not read her own correspondence, as since 2010 DWP Ministers—[Interruption.] I hope I do not get in the way of her tweeting—it is #Igotitwrong. Since 2010 DWP Ministers have sent 46 letters directly to her, 33 to the hon. Member for Rhondda (Chris Bryant), 86 to the hon. Member for Stretford and Urmston (Kate Green), 93 to the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and 98 to the right hon. Member for East Ham (Stephen Timms). So much for not replying to their letters!

[Rachel Reeves]

rose—

[Steve Webb]

I am happy to give way if the hon. Lady wants to apologise.

[Rachel Reeves]

I thank the Minister for giving me a chance to reply, as I have checked the letters I have written to the Secretary of State. I have had a reply from him to a letter regarding a constituent of mine called Latimer Saunders and the reply came from Gabriella Monk. I wrote a letter to the Secretary of State regarding a constituent called Mark Norris and I have received no response at all, despite the fact that my letter was sent last year. I have never received a letter from the Secretary of State for Work and Pensions in response to any of the letters I have sent to him.

[Steve Webb]

It is a good job I have the transcript of what the hon. Lady said, which was “when we write to the Department…we only ever get replies from the correspondence unit.” When the Minister of State, Department for Work and Pensions, my right hon. Friend the Member for Hemel Hempstead (Mike Penning), who has responsibility for disabled people, rose to intervene, she said “I will give way; I haven’t had any letters from this one either.” We waved a letter that she had received, so I hope she will withdraw that remark.

Moving on to the substance of reform, we talked about the record of the two Governments on reform. Let us take the case of child maintenance. I want to read out what was said about child maintenance reform by the National Audit Office, which was quoted by the hon. Member for Stretford and Urmston. It said:

“So far, the reforms had cost £539 million for a scheme that had performed no better than its predecessor”.

Unfortunately, that is not our reform; that is Labour’s reform in 2006. That is what happened when Labour reformed child maintenance. The NAO said the scheme was no better than the one that went before, despite costing half a billion pounds. That is why we have to replace it with a new scheme. The hon. Member for Oldham East and Saddleworth (Debbie Abrahams) said that no doubt this one will go wrong. Actually, we have been running it quietly since 2012, phasing it in, learning the lessons from the other party and, as a result, the scheme is being highly effective. We already have record numbers of people being paid directly under the new scheme. Alongside major reform, we are getting more maintenance paid to more children than ever before. In other words, we are reforming, but not taking our eyes off the day job.

A number of Members mentioned the performance of Atos. As several of my hon. Friends pointed out, there is a bit of collective amnesia regarding who, in 2005, gave Atos a seven-year contract with a three-year option to renew. By last autumn, Labour was saying, “Let’s get rid of Atos; let’s sack it”, but that would have cost the taxpayer millions of pounds. Instead, we have terminated Atos’s contract in a managed way. My right hon. Friend the Minister with responsibility for disabled people has done that, as a result of which the taxpayer gets money and Atos begins to clear the backlog of the work that it has been doing.

As well as the changes that we are making to bring down the backlog on employment and support allowance—it has been said that it has come down significantly in the past couple of months—it is worth remembering that every one of the people in that backlog is getting benefit. It is sometimes made out that they are waiting for money, but they are currently receiving the assessment rate of ESA and incapacity benefit. Those figures relate to people who are getting benefit and are awaiting assessment.

Let me give the House some further examples of how we have been improving the service we deliver to the people who depend on our help. A year ago, the number of jobseeker’s allowance new claims dealt with in 10 days was 66%; now it is 90%. The number of ESA new claims dealt with in 10 days was 66%; now it is 80%. The number of appeals outstanding a year ago was 150,000; now it is 4,000. As my right hon. Friend the Secretary of State said, this is at a time when we are taking running costs out to make central Government more efficient.

A number of Members referred to the PIP. We are ensuring that the contractors, Atos and Capital, recruit more health care professionals to deal with the backlog. The number of appeals we are facing has fallen precipitously. It is an extraordinary fall in the number of people appealing against ESA decisions. Back in the first quarter of last year, we received 109,000 appeals against ESA decisions. In the first quarter of this year, it was 11,000. That is an 89% fall in the number of people claiming ESA who are appealing. The reason for that is that we, unlike Labour, are finding far more people eligible for benefit. Let me give the House the evidence for that claim. In late 2008, when Labour was undertaking work capability assessments, it was finding 64% of people fit for work. In the most recent quarter, we found not 64% but 27% fit for work. Far from it being this Government who are using the work capability assessment to throw sick people off benefit, it was the Labour party that used the WCA for that purpose.

During the debate, a number of Members said that we needed to make changes to the WCA, and that is what we have been doing as part of the Harrington review process. We have accepted about 50 recommendations. One reason why we are getting the number of people we are on to ESA and why we have a bigger proportion of people in the support group than ever before is that we have taken Labour’s failed WCA and reformed it to make it fairer. That is what a good Government does. We want to ensure that the right money goes to the right people.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 13th January 2014 Commons Chamber

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

I indeed agree with my hon. Friend that the Post Office card account has played an important part in supporting the post office network and enabling pensioners and benefit recipients to receive their money at a local post office. All of the options under consideration conclude that access to pensions and benefits via the post office will continue beyond March 2015.

[Rachel Reeves (Leeds West) (Lab)]

We already know that 600,000 people are affected by the bedroom tax, two thirds of them are disabled and 60,000 are carers. Will the Secretary of State now tell the House exactly how many long-term residents have been wrongly paying the bedroom tax since April because the Government failed to spot a loophole in the legislation?

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 18th July 2011 Commons Chamber

[Steve Webb]

As my hon. Friend will be aware, if we were to delay the whole transition for 10 years we would need to find an extra £10 billion of savings out of the £30 billion in the Pensions Bill. We believe that many of the people who are affected by the transition are affected by a lot less than the two years that the hon. Member for Livingston (Graeme Morrice) mentioned. We are therefore trying to tackle those who are most adversely affected, and I am confident that we will be able to do so.

[Rachel Reeves (Leeds West) (Lab)]

May I take this chance to wish the Pensions Minister a happy birthday?

The House knows that changes to the state pension age mean that 500,000 women in their mid-50s will have their pension delayed by more than a year, and 33,000 will have to wait an extra two years. We all welcomed what the Secretary of State and the Minister said about transition on 20 June, yet in Committee the Government tabled no amendments to their legislation, and we have heard not a word from the Minister or the Secretary of State on what those transition arrangements will look like. With the recess starting this week, what hope can the Minister give to those 500,000 women that the Government will put in place some transitional arrangements for a fairer timetable that gives people the chance to prepare, and gives them some certainty as they look forward—they hope—to their retirement?

[Steve Webb]

I thank the hon. Lady for her good wishes for my birthday, and reciprocate by offering her good wishes for her wedding later this summer.

On the specific issue that the hon. Lady raises, she and I have spent the best part of 20 hours debating such things in Committee over the last couple of weeks. The Government wanted to give the Opposition the chance to bring forward some fresh thinking, and we were therefore rather disappointed when they simply retabled the amendments that they had tabled in the House of Lords. We were looking for some fresh thinking—but as it has not come from the Labour party, we will have to do it ourselves.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 13th June 2011 Commons Chamber

[Steve Webb]

My hon. Friend raised this important issue, I think, in last Wednesday’s debate when we were startled when she declared an interest in the question. Were we to address the concerns of that group of 33,000 women, we would find that women born one month before or after—who might be affected by a few months less, but still significantly—would ask for a change as well. The short answer is that to delay the whole thing till 2020, as some have suggested, would require an additional £10 billion to be found. She will understand why that is not possible.

[Rachel Reeves (Leeds West) (Lab)]

The early-day motion calling on the Government to rethink these unfair changes to the pension system has been signed by 180 hon. Members, including 23 Liberal Democrats and three Conservatives. More than 10,000 people have presented a petition to Downing street asking the Government to think again, and the campaign is backed by Age UK and Saga. If the Government can U-turn on forests and, just last week, announce a U-turn on sentencing, surely they can listen and act upon the concerns of women now approaching retirement with fear and trepidation.

[Steve Webb]

To the extent that we know what the hon. Lady’s policy is, it appears to be: to put it off for a decade. Unfortunately, one of the problems with the previous Government’s approach on so many difficult issues was to put them off and assume that somebody else would pay. On pensions, that would require another £10 billion to be paid by tomorrow’s national insurance payers. Does she think that that is a fair burden, given that the people retiring shortly will benefit from the greater longevity?

Post Office Card Account

Debate between Steve Webb and Rachel Reeves

Tuesday 24th May 2011 Westminster Hall

[Rachel Reeves (Leeds West) (Lab)]

I congratulate the hon. Member for Truro and Falmouth (Sarah Newton) on securing this debate, which I know will be welcomed by people up and down the country who rely on post office services in their local community and value the Post Office card account. As she said, this debate is a chance for the Minister to alleviate some of the concerns felt by sub-postmasters and postmistresses and their customers. Consensus is building on the importance of guaranteeing Royal Mail business for the Post Office. I hope that the Government will take note.

Two key issues are at stake. The first is ensuring access to pensions and benefits, especially for vulnerable people and those in rural communities. The second is ensuring that the post office network as a business is viable and vibrant in the long term. The importance of both those issues rings true in my constituency, where temporary closures include the Hawksworth Wood post office, which has been closed for nearly a year, despite Government promises that there would be no more post office closures. Since the closure, local residents have had to travel to other areas for the post office services that they value, either tackling a long, steep hill or paying for a bus to another part of the city. The closure has been devastating to the community served by the post office. It has been particularly hard on older people and more vulnerable people, as many hon. Members have said, because the face-to-face service that they are used to is extremely valuable.

I am sure that many hon. Members have experienced similar closures in their constituencies and know at first hand the difficulties that they create. Currently, 424 post offices are temporarily closed, 417 of which have been closed for a prolonged period. It is vital that we strive to keep post offices open and help them adapt to changing demands from their customers and, particularly, to protect the vulnerable. Post offices are at the heart of many of our communities, and we need to make it easier for them to survive. The business generated by the Post Office card account can help them to do so.

Labour did not get everything right on post offices, but POCA in the post office network was a proud achievement. POCA was introduced by the Labour Government to improve financial inclusion, as my hon. Friend the Member for Llanelli (Nia Griffith) said. That is particularly important in deprived and remote areas. I am proud of Labour’s decision to introduce POCA and the decision in 2008 not to allow it to leave the post office network, which would have diverted business away from the Post Office and jeopardised the viability of many of our local post offices.

About 4 million Department for Work and Pensions benefit and account payments were made through POCA in 2010, to a group of customers who rely on a simple service to receive their pensions and benefits. Many of them are elderly: 55% are pensioners. POCA is a core aspect of Post Office business and a key driver of footfall, but it is also designed to promote basic financial inclusion. Unlike most financial products—I say this as someone who used to work in financial services—POCA has huge support among the people who use it. When the POCA contract was on the agenda in 2006, as has been said, it generated 4 million signatures in support of keeping it in the post office network. I believe that that is the largest ever peacetime petition.

A Help the Aged survey of its members also found that they were overwhelmingly in favour of the service. Help the Aged’s report highlighted the importance of post offices, particularly to older people who rely on POCA, and POCA’s popularity in rural areas where no local bank is easily accessible. That is also an issue in some of the most deprived urban areas.

The Post Office card account has several key advantages for its customers. Some 71% of people without access to a bank account depend on POCA to receive payments. POCA customers are often people who cannot or do not want to access bank accounts; 30% have no other bank account. According to Age UK, someone from an unbanked household is 23 times more likely to use a POCA than someone from a household with access to bank accounts. POCA is also the only facility for receiving benefits or pensions open to people who have been declared bankrupt. Another good feature is that the facility offers no risk of getting into debt. POCA also offers a crucial facility for people with mobility problems. Almost 10% of Post Office card account holders have a second card that can be given to a carer to draw cash on their behalf, a facility not available through high-street banks.

POCA was introduced as part of a wide-ranging approach to financial inclusion as a simple facility for people who could not or did not wish to use a bank account. However, POCA alone is not enough to ensure that older, vulnerable and hard-to-reach customers are financially included. To do so, the Government could work to identify links with credit unions and consider carefully what steps are needed to increase the accounts’ functionality in the interests of post offices and their customers. Like other hon. Members, I urge the Government to increase POCA’s functionality and consider whether direct debits could be introduced. Even now, people with a Post Office card account but no bank account do not get the direct debit service that helps save money and time on utility bills and other payments, a service that most of us take for granted.

There are, of course, risks involved in introducing direct debit functionality. The Treasury financial inclusion taskforce has documented the excess charges often incurred by new users of bank accounts, and they must be taken into account, as average losses are £140 a year and charges are focused on the poorest households. Consumer Focus also has concerns, but none the less supports a more flexible POCA account, and its research indicates that POCA users do too.

The coalition agreement said:

“We will give Post Office card account holders the chance to benefit from direct debit discounts and ensure that social tariffs offer access to the best prices available.”

In answers to parliamentary questions, the DWP has also said that research is being conducted on the subject. What steps have been taken to ensure that that promise is delivered?

Members are keen to ensure that POCA lasts beyond 2015 and that we have some certainty about the future, as my hon. Friend the Member for Llanelli said. The year 2015 may seem like a long way off, but POCA customers and sub-postmasters—like many Liberal Democrat MPs, if I may say so—look to 2015 with some trepidation.

When exploring options for increased functionality, it is important to consider that the Post Office has unprecedented access to the consumers whom credit unions are best able to support. Credit unions do an immense amount of good in our communities. The Leeds and Bramley credit unions have a tangible impact on the lives of my constituents, too many of whom, lacking access to the services that credit unions offer, are driven into the arms of loan sharks. However, credit unions in my constituency lack a shop front and a high-street presence. The post office network could help change that.

Despite sending a mixed message with the financial inclusion fund, the Government have supported credit unions and could take a serious step to support them by linking them with the Post Office when considering the Post Office card accounts. Will the Minister update us on what practical measures the Government are taking to support that aim? Hon. Members support credit unions as an important source of affordable finance within our communities and welcome the opportunity to increase footfall in our post offices.

We must make it easier for post offices to survive. POCA is one of the services that ensures the viability of post offices. About 20% of total visits to post offices, or 6.5 million visits a week, are made to access POCA payments. POCA brings in a significant portion of income for sub-postmasters up and down the country. The National Federation of SubPostmasters has estimated that it provides 10% of sub-postmasters’ net pay. In rural and deprived areas such as Truro and Falmouth, Argyll and Leeds West, that proportion jumps significantly: it is about 12% in deprived urban areas, for example. Indeed, 15% of sub-postmasters earn £400 or more a month from POCA transactions. Nationally, POCA brings in about £195 million a year.

POCA customers ensure vital footfall and additional income to ensure that post offices remain at the heart of our communities, but a Government supposedly committed to preserving the footfall have already failed one test by handing the green giro contract to PayPoint. Now 250,000 people who would previously have gone to post offices to collect their green giros will no longer do so. That is a negative step that could damage our post offices and reduce the services available to customers.

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

The hon. Lady will be aware, as has been said, that the previous Government initiated a competitive tender and set criteria for bidding. All of it was undertaken according to strict European Union competition rules. If one of the two bidders was substantially cheaper than the other, does she think that the Government should have gone with the higher bidder?

[Rachel Reeves]

As the Minister knows, that decision would have been outside my domain, but we should consider the Labour Government’s decision in 2008 to award the Post Office card account to the Post Office rather than continuing with the tender. That is an example of what this Government could have done if they had chosen to do so, but they did not.

In evidence to the Select Committee on Scottish Affairs for its report on postal services, the general secretary of the Communication Workers Union, Billy Hayes, described the decision to remove green giros from the Post Office, at a time when the Government were committed to increasing the use of the post office network, as being

“about as joined-up as spaghetti”.

This is a hit to the footfall in post offices, and I urge the Government to ensure that POCA remains a Post Office account.

With the POCA contract subject to competition tendering requirements, and considering the fact that only 4,000 of approximately 12,000 post offices are viable independent of the shops in which they operate, the stakes for the future POCA contract could not be higher. Moreover, with Government commitments to the post bank seemingly in the long grass, as my hon. Friend the Member for Llanelli has said, and with little tangible progress towards making the Post Office the front office for government, what assurances can the Minister give us that POCA will be part of securing the commitment to maintaining post office services?

State Pension Age (Women)

Debate between Steve Webb and Rachel Reeves

Wednesday 11th May 2011 Westminster Hall

[Rachel Reeves]

I could not agree more. That is a big issue and one that I will address later. For a number of reasons, this group of women are particularly ill-equipped to deal with the changes that the Government are trying to force upon them.

I want to pick up on a couple of points raised by the hon. Members for Argyll and Bute (Mr Reid) and for Mid Dorset and North Poole (Annette Brooke). The proposals go against the coalition agreement, which states:

“The parties agree to…hold a review to set the date at which the state pension age starts to rise to 66, although it will not be sooner than 2016 for men and 2020 for women.”

These changes bring forward the equalisation of the state pension age to 2018, which is not mentioned in the coalition agreement, and they raise the state pension age for women to 66 in 2018—two years earlier than promised in the agreement.

Although there is increasing pressure on the Liberal Democrats to stick with the coalition agreement, there is no obligation on the Minister to support this breach or for coalition MPs to vote for it. No one in the country voted for this at the general election a year ago, and it is not what coalition MPs signed up to when they made their promises in the rose garden. We have heard a great deal from Liberal Democrat Members today. I hope that that means that people who are approaching retirement can feel that their MPs will not support these proposals.

To reiterate points that have already been made, 2.6 million women and 2.3 million men will have to wait longer for their state pension than they previously had been told. Some 500,000 women will have a delay of a year before they get their pensions and about 300,000 women will have a delay of 18 months or more. Unfortunately, 33,000 women who were born between early March and early April 1954 will have to wait another two years before they receive their state pension. I have been lobbied by a huge number of women on these issues, not least by my own mother who was born on 30 March 1954. She very much hopes that the Minister will be listening to every word that I say today.

There is fewer than five years’ notice before these changes take effect. The Turner report says that people should be given at least 15 years’ notice, and the Pensions Policy Institute believes that these changes do not give enough notice. Women need longer to prepare for changes in the state pension age because they tend to become part-time workers sooner than men of the same age.

As of April 2011, the basic state pension is worth £102.15 a week. Pension credit is worth £137.35 a week. Those women who are seeing a delay in their state pension age of two years face a loss of pension income of more than £10,000. For those in receipt of pension credit, that loss is closer to £15,000. That does not take into account the passported benefits that come along with a pension.

Longevity is increasing and Members from all parts of the House welcome that, but we cannot move the goalposts every time an actuary changes his forecast. Six months before the election, the Minister himself said:

“Pension policy needs to be stable and predictable years ahead, not made up on the back of a cigarette packet.”

I agree with the Minister. Although his words are still on his website, he is now making policy up on the back of that cigarette packet and it is hitting women particularly hard. Indeed, the recently published Green Paper on the flat rate pension consults on reasoned mechanisms for increasing the state pension age, which is a recognition of the unfairness that is being imposed on women by the Pensions Bill, which is just about to come to the House. That Green Paper does not include consultation on arbitrary changes with five years’ notice. The reason that it does not consult on those types of changes is because the Minister, his Department and the Government know that they are unfair. So why is he forcing them upon women who are 56 or 57 years old?

My hon. Friend the Member for Sunderland Central talked about the savings of women who are 56 or 57. There is something particularly perverse about targeting that specific group, because those women who are 56 or 57 now have average pension savings of £9,100, compared to the average pension savings of men of the same age of £52,800. At retirement, pension savings of £9,100 work out at £564 a year or £11 a week. The reasons for the difference in the average pension savings of men and women are varied, but the key point is that these women I am talking about are not in a financial position to absorb the changes being proposed at such short notice.

These women have earned far less during their lives than men of the same age. In 1980, the gender pay gap was 28.5%. When these women were in their 20s, they were earning on average almost 30% less than men of the same age. The gender pay gap has been closing since 1980 and it is now about 16%, but the point is that these women have suffered inequality throughout their working lives. They now face a double whammy and are paying the price for getting us there too quickly.

In addition, a lot of these women have worked part-time at some point in their life, particularly when they were bringing up children. In fact, many of them are also working part-time now, to help to care for elderly parents or grandchildren. As other Members have said already, these women are the big society. They are doing the caring work that we value as much as their work in the workplace. Of course, many of them have also had interrupted careers and have not paid full national insurance contributions. The Minister’s own Department estimates that women are entitled to receive £30 less in their basic state pension than men. All those points show that these women are more reliant on the state pension than their male equivalents, first because they have much lower private occupational pension savings and secondly because they are in not such a good position as men to increase their savings in the next five years.

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

The hon. Lady quite properly raises the issue of the big society by talking about volunteering, caring and so on. Under our proposals, the equalisation at the age of 66 will be in 2020. Under Labour proposals, it would be in 2026. In 2026, every single point that she has just made would also be true, would it not?

[Rachel Reeves]

The point is that these women will have time to prepare for changes if they happen in 2026. Changes in 2026 were legislated for in 2008, which meant that the people we are talking about today had 18 years’ notice of any changes. That is very different from the changes that the Government are introducing because they will start in 2016, giving people just five years’ notice. That is the point that Members are making today. We are not saying that we do not think that there should be any changes to the state pension age, because with increasing longevity it is right that people should work longer, but it is not right to move the goalposts and leave people so little time to prepare for changes.

As I said earlier, the loss of pension income for someone who has to wait two more years for their state pension is about £10,000, or it can be up to £15,000 if they are on pension credit. It is not feasible that that group of people can make up that difference in a five-year period, yet that is what the Minister is asking them to do.

--- Later in debate ---

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

I congratulate the hon. Member for Erith and Thamesmead (Teresa Pearce) on securing this debate, and I very much welcome the fact that so many Members from both sides of the House have attended. I agree that the matters we are debating are important, and the hon. Lady has made her points in a measured and thoughtful way. I will try to respond to each of those points in turn, and also to some of the other contributions that have been made.

I shall start with what appears to be an element of consensus, although the more one looks at it the less of a consensus it seems. It has been welcomed that people are living longer, and there is an acceptance that state pension ages need to rise, and as far as I can see that is about the limit of the consensus. The current schedule for raising the state pension age, which is to 66 in the mid-2020s, 67 in the mid-2030s and 68 in the mid 2040s, is incredibly slow relative to the improvements in life expectancy that we are seeing. The Turner commission, which has been mentioned, said that one could look at a principle for raising the state pension age, for example fixing the proportion of life spent in retirement, but the schedule that we have inherited does not deliver on that. We need, therefore, to look at more rapid increases in the state pension age to 66, 67 and 68.

It has been implied that what we are doing is somehow extreme, but if we think back to 1990, for example—before the Pensions Act 1995, which increased the state pension age from 60 to 65—the typical woman retiring at the age of 60 would get a pension for 24 years. Even with our plans, in 2020 the typical 66-year-old woman will get a pension for 24 years. That context is important, because the improvement in life expectancy to which we are responding is astonishing. It is not just that we are all living a bit longer and life will carry on as before. Life will not carry on as before, not for the Government, society, the health service or the pension system. We are moving into a totally different world, to which very gradual incremental change will not respond sufficiently. The previous Government did not grasp that fact, and simply pushed it off into the middle distance.

[Rachel Reeves]

Is there any evidence that 56 and 57-year-old women’s longevity is going up particularly fast compared with everyone else’s? If not, why is the Minister disproportionately affecting that group of women?

[Steve Webb]

We had to take a judgment about not affecting people who were within a few years of retirement, those who were 58, 59 or so and were set to get their pensions in their early 60s. We took the view that change for them would be too soon, which is why nothing at all changes before 2016. However, having gone past that initial point, the crucial group—the one-month cohort, which a number of Members have mentioned—will, assuming that the Bill gets Royal Assent this summer, get six years and eight months’ notice of the change. I accept that notice, which has been mentioned by several Members, is the key issue.

--- Later in debate ---

[Steve Webb]

In a moment. The pace of improvement in longevity is breathtaking. Between 2004 and 2008—the longevity projections of 2004 are, I think, what the previous Government’s legislation was based on, and those of 2008 are what we have now—life expectancy at pension age increased by well over a year in just four years. It is almost like a runaway train. We can always say, “Let’s wait another decade,” but one of the problems is that there is a trade-off, because, as I have said, what has been missing from this debate is the people who have to pay.

Delaying for 10 years, which is what I think the hon. Member for Leeds West is suggesting, does not mean a free lunch. It would mean a £10 billion national insurance hit on today’s workers and today’s firms. If she were wearing another hat, the hon. Lady would be saying, “The recovery is fragile and we need to do more for jobs and to boost the economy,” but what she is saying is that we should levy another £10 billion of national insurance on today’s workers, including low-paid women who do not have much pension, and today’s firms, which may have to lay off people who will not then be able to build up decent pensions. There will be no free lunch if we delay.

[Rachel Reeves]

Will the Minister give way?

[Steve Webb]

There is a queue. I shall give way to the hon. Member for Wirral South first.

--- Later in debate ---

[Steve Webb]

I hope that the hon. Lady will respond to our consultation on the right process. She raises the important issue of how we strike a balance. The fact is that one in six of us alive today will live to be not 88, but 100, and that figure is increasing all the time. How do we strike a balance between that and giving people notice? We could have a principle of always giving people x years’ notice, which would mean that it would not matter if longevity improved dramatically after that point. That is part of what we are consulting on and there are trade-offs. I hope that the hon. Lady will respond to that.

We are moving into a world in which pension ages will not be the rock-solid certainty that they have been in the past, because they cannot be. The hon. Member for Bolton South East (Yasmin Qureshi), who has left the Chamber, said that this is like someone starting a job but having their contract changed halfway through. On that basis, people start paying national insurance at 16, have a guaranteed pension age for the next 50-odd years, and have another 20-odd years after they start drawing a pension. Therefore, the second that they are in the system at 16, nothing can change until 70. That is economic madness. There has to be some adjustment, but I accept that it has to be done in a measured way, which is why we are consulting on an appropriate mechanism.

[Rachel Reeves]

I fear that, at this rate, the Minister will start sending pensioners back to work if they live too long. Returning to the review, would it not have been better to have done it and find out what the right trade-off is before increasing the state pension age for 57-year-old women with such little notice?

The Minister says that Labour is saying that we have to find another £10 billion or £30 billion for these changes. This is about cutting spending—the Government are cutting £30 billion of spending. I do not want additional spending. First, Labour wants to halve the budget deficit in this Parliament. Secondly, our proposals would cut £20 billion-worth of spending, so we are not asking for additional spending. I would like that put on the record.

[Steve Webb]

Unless there is some free money to be had somewhere, delaying for 10 years must cost somebody something. It is fantasy economics to think that we can get 10 billion quid from somewhere. The hon. Lady must agree that that £10 billion would have to be paid by today’s workers and today’s firms. It has to come from somewhere—perhaps the hon. Lady thinks that it could be magicked from the air—and there is a trade-off between today’s workers and today’s pensioners.

Time is short, so I will conclude my response to the debate. I welcome and recognise the point that, ideally, we would give people more notice than we have. I fully accept that. The difficulty is that delay, which is always the easy option, has a huge impact on the state of the nation’s finances and on our response to a world in which people are living substantially longer. Our goal is to strike a fair balance. I will certainly reflect further on the contributions of my hon. Friends and other Members. As has been said, throughout my career I have campaigned for a fairer pensions system for women. I believe that some of the proposals that we are talking about for the next generation of retiring women will make a huge difference to their quality of life. Some of the points that have been put on the record today have been made forcefully and effectively.

State Pension Reform

Debate between Steve Webb and Rachel Reeves

Monday 4th April 2011 Commons Chamber

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

With your permission, Mr Deputy Speaker, I would like to make a short statement about state pensions. The coalition has already taken steps to support current pensioners by reintroducing the earnings link for the basic state pension. Indeed, we went one step further with our triple guarantee, which will mean that a pensioner retiring today can expect to receive about £15,000 more in basic pension over the life of their retirement. However, the pensioners of tomorrow face a new landscape. With longevity continuing to increase, future pensioners can expect to work for longer and they may not have the same levels of housing equity. They are less likely to have the certainty of a final salary pension and from 2012 we will introduce a new system of automatic enrolment into workplace pensions.

Today, the Government are publishing a consultation document, which looks at whether the existing pensions system is suitable for meeting the challenges of the future. This Green Paper marks the next step in the coalition’s plan to create a system that is fair and simple for pensioners and that rewards those people who do the right thing and take responsibility for their future. It is right that we ask people to take responsibility for their retirement by saving over the course of their working lives, but it is also right that the Government should play their part by ensuring that we support those who make the right choices for their future and those of their families.

If we want to encourage pension saving, the key is getting the state pension system right. The current system has been in a sort of permanent evolution for decades, which means that planning for retirement is fiendishly complex. The Green Paper sets out two options for reform, neither of which involves spending more money on future pensioners than has already been forecast through the existing system. The key is to spend the money we have better. The objective is clear: to move to a simple, contributory state pension system that provides flat-rate support above the level of the means-tested guarantee credit, which would be easy to understand, efficient to deliver and provide a firm foundation for further saving.

The first option involves bringing forward existing reforms so that the state pension would evolve into a two-tier, flat rate system more quickly. The second, more radical, option is to move to a single-tier state pension. Both options are for future pensioners; pensioners who have already reached state pension age by the date of reform would not be affected, so no existing recipient of state pension would see their income reduced. For future pensioners, we would also continue to honour the contributions that people have built up to the date of reform. The option of a single-tier state pension would be a marked improvement on the current system, which is dogged by complexity and confusion. During the transition, many would receive their single-tier pension from a combination of their state and contracted-out scheme, as happens now, which means that they would receive less than the currently estimated £140 directly from their state pension.

Let me give hon. Members an idea of just how confusing the present UK pension system is for the average person. The Pensions Commission has described it as one of the most complex in the world and a departmental survey on attitudes to pensions found that barely one in four people agreed that

“they knew enough about pensions to decide with confidence about how to save for retirement.”

Worse still, few people have a clear idea of what their state pension will be worth when they retire. Critically, the current system actually discourages some people from putting anything aside; the mass reliance on means-tested benefits leaves people unsure whether they will benefit from the savings they make. Automatic enrolment into workplace pensions with employer contributions are due to start from next year, so we need to give people more clarity and certainty about what they will get from the state, thereby giving them a firm foundation for decisions about saving to fund their retirement.

For women, the low-paid and the self-employed, the state pension system can produce unfair outcomes. As a result, people in those broad groups are far more likely to have poorer state pensions, which we will address. Under a single-tier state pension, for example, the self-employed would be able to build up as good a state pension as anyone else. They stand to gain around £1.40 a week of state pension for every year of national insurance contributions that they make, up to a maximum of 30 years. That could provide them with a state pension of around £140 a week, instead of the current rate of £97. Currently, less than 50% of women in their late 40s or early 50s are expected to get £140 a week from state pension income in retirement. Our proposals would address that. We are clear that reform on this scale could take many years to deliver, but the prize—providing clarity to savers and all those planning for their retirement —is a real one.

There are two other, related issues. The Government recognise that means-tested benefits play an important role in targeting support where it is needed most and provide an essential safety net for the most vulnerable. However, means-tested benefits add to complexity and can be a real disincentive to saving for many people. Therefore, in addition to consulting on the two state pension options that I have briefly mentioned, the Green Paper seeks views on whether the current system of means-tested support would best meet the needs of future pensioners. On the state pension age, as life expectancy projections continue to be revised upwards, we also have a responsibility to ensure that the pensions system is sustainable and that the costs of increasing longevity are shared fairly between the generations. Therefore, as well as reforms to the state pension, we are consulting on the most appropriate mechanism for determining future changes to the state pension age.

As the coalition addresses those issues, I shall be seeking as many views and contributions to the debate as possible. We shall be asking all interested parties—hon. Members, employers, pension providers, members of the public and specialists—to work with us to ensure that we deliver the state pension system that the people of this country deserve. If we want future generations to take responsibility for their retirement, we need to deliver a simpler and fairer state pension system that acts as a foundation for people to build up to a decent income in retirement. Fairer, simpler systems that reward people who do the right thing and take personal responsibility for themselves and their families—these are precisely the same themes that run through the welfare reforms being implemented by my right hon. Friend the Secretary of State, from the universal credit to the Work programme.

With the Welfare Reform Bill we have set out how the coalition will transform working-age benefits to make work pay and tackle the root causes of poverty and welfare dependency, but we also need people to save for their retirement. We need automatic enrolment and employer contributions to work. With today’s Green Paper we are setting out how we plan to transform the pensions system and create a simple, decent state pension that is easy to understand and efficient to administer. We need to ensure that saving for the future pays. I am proud to be part of this bold, reforming agenda. Today’s Green Paper is a step on the road to a radical reform of the state pension system, and I commend this paper to the House.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Minister for advance sight of his statement—half an hour before he got to his feet. Given that the pensions Minister and the Secretary of State chose to announce the most positive elements of the Green Paper to the media over the weekend, I cannot help feeling that I am the only person who still has not seen it. Today we have heard proposals that include a universal flat-rate pension and further increases in the state pension age. Although in principle the move to a more simplified system is welcome, it raises a number of important questions.

The Labour Government recognised the importance of pension reform. Labour made great inroads, particularly in lifting more than 1 million pensioners out of poverty and in recognising the vital role that people—mainly women—play as carers. The Labour Government reduced the number of years needed to qualify for a basic state pension to 30, helping women, while more generous credits for carers have ensured that more people are now entitled to a higher level of the state second pension. Labour also introduced automatic enrolment, helping the up to 8 million people who previously did not put money aside for their pensions to save. Although we welcome the fact that the Government are continuing with automatic enrolment, we disagree with the watering down of some of those proposals.

Previous changes to the state pension mean that, based on new accrual rates and assuming 30 years of national insurance contributions or caring credits, a low-paid woman or someone in a caring role would be entitled to a basic state pension of £102.15 a week, plus £43.50 in the state second pension, totalling £145.65 a week, or more if she had 40 years of contributions. The figure of £140 a week that the Minister set out must be seen in that context. Pensioners and families must assess the proposals carefully to ensure that they are not worse off than they would have been under Labour’s plans. Can the Minister give some reassurances about the other benefits that pensioners receive, including free TV licences, prescriptions, eye tests, support with council tax, bus passes, the winter fuel allowance and cold weather payments? In the Budget we saw a cut in the winter fuel allowance, despite rising energy prices and two successive cold winters. Will the Minister explain how he will account for those benefits in the new system, or say whether we will see further cuts, by stealth or otherwise?

I have a few brief questions about affordability and fairness. The Chancellor announced in his Budget that the reforms would cost no more than the current system, yet the Pensions Policy Institute estimates that a flat-rate pension at a guaranteed credit level will cost almost 1% of GDP after 13 years. That must imply that although some will be better off under the Government’s plans, some will also be worse off. The Minister has spoken eloquently about the potential winners, but the distributional impacts are critical, so will he confirm who will be worse off under the new proposed system?

On fairness, the Minister has said that accrued rights will be protected. Forgive me for being a bit sceptical, but he said the same about the switch in uprating from the retail prices index to the consumer prices index. However, in this instance I will give him the benefit of the doubt. Can he guarantee that someone in their 50s who has worked all their life on average earnings and has never contracted out of the state second pension will still be entitled to a more generous state pension than someone who has not paid in? If not, does he think it fair that those contracting out and getting defined benefit pensions in retirement could receive the same state pension as their counterparts who have paid full national insurance contributions throughout their careers? If those who have paid in get more than £140, will the change really be cost-neutral? If some will get less than £140 based on lower contributions, will the Minister ensure that no one falls below the guaranteed credit level? In what way can that be called a flat-rate pension?

The Government’s proposals could have serious implications for the future of defined benefit schemes, because they will end the rebate for those on DB schemes. Given the importance of occupational savings for retirement income, as the Minister said, what are his estimates of the generosity of DB schemes—and, indeed, their overall survival—given the changes? The changes in contracting-out touch on a wider point. The post-world war welfare state is based on the contributory principle. We welcome the news that any new flat-rate system will keep contributions at their core, and that anyone with 30 years’ national insurance contributions will be entitled to the newly formulated pension. However, given the Chancellor’s announcement that the Government intend to merge tax and national insurance, will the Minister explain how the contributory principle will work in practice if that merger takes place? Will he also give a reassurance that taxes will not go up for pensioners, who of course do not pay national insurance?

The other, less briefed elements of today’s Green Paper include the automatic mechanism for increasing the state pension age to make future increases fair and smooth, with time for people to plan. The move comes too late for the 500,000 women who will have to wait a year longer before they receive their state pension and the 33,000 women who will have to wait exactly two years before receiving their state pension. Does the Minister now recognise that the accelerated timetable for the state pension age for women in their 50s does not spread the cost fairly or, with just five years’ notice, leave enough time to prepare?

To conclude, the Green Paper does nothing for today’s pensioners, because a flat-rate pension will be for only new pensioners. Today’s pensioners are suffering at the hands of this Government, with an increase in VAT to 20%, which sees pensioners worse off by £200 a year, low savings rates and a £100 cut in the winter fuel allowance. Although a flat-rate pension of £140 sounds good in theory, the Chancellor says that there is no new money, so who will lose out? It is quite likely to be families on average earnings, or just a bit more, who have worked hard and brought up a family, paying their full national insurance contributions. Some people will be worse off under the reforms, yet the Government want to talk about only the winners. In the final chapter of the review, the Government suggested that a crude formula could be used for uprating the state pension age. They have already hit women in their late 50s with a two-year increase in their state pension age; now they want to use a formula that pays no attention to health in later life, so we will all be waiting longer and longer to get our pensions.

We welcome the intent behind today’s Green Paper. We want a more progressive and less complicated system, but I am yet to be convinced that today’s Green Paper will achieve that.

[Steve Webb]

I did write the hon. Lady’s words down—in principle, she welcomed the Green Paper, so I am grateful for her warm comments about our proposals. She asked a number of specific questions, and I shall try to respond to them.

The hon. Lady seemed to imply that women would get £145 anyway, so wondered why we needed to do anything. That, however, is decades away. Equality between men and women in the state pension system is decades away, and we think that is too slow. Many women who did their child rearing in the ’80s and ’90s got no state second pension protection because it did not exist at that time. They will be retiring over the coming years and we are now bringing forward that protection for them. We do not want to wait 20 years for equality.

The hon. Lady asked an important question about passported benefits and we will need to consider the implications of these changes for those benefits. She had the cheek to suggest that the winter fuel payment had been cut in comparison with what she would have provided if she were in office. She will be well aware that we are sticking precisely to the budgets that her right hon. Friend the Member for East Ham (Stephen Timms), the former Chief Secretary to the Treasury, wrote. He will know perfectly well how much he put aside for the winter fuel payments, and we are doing exactly what he planned.

The hon. Lady asked about the Pensions Policy Institute and its estimate that a £140 flat-rate pension would cost 1% of gross domestic product. What she may have misunderstood from the report is that the question it asked was what it would cost if that amount were paid to everybody. That is where its figure came from. We are saying that we will create this for new pensioners, because new pensioners face a new world in which they will work longer, retire later and have fewer final salary pension schemes, so we need a system that is fit for them.

The hon. Lady sought reassurance on two points and the answer is yes to both of them. We will honour past service and we will make an adjustment, as I said in my statement, for contracted-out periods.

The hon. Lady asked about the future of final salary pension schemes after 13 years of decline under Labour. She will be pleased to know that the National Association of Pension Funds—the trade body for company pensions —welcomes these reforms and supports them, but we are in dialogue with those operating large final salary pension schemes to discuss how these changes will impact on them and how we can work with them to move towards the sort of simpler scheme that they and we want to see.

The hon. Lady asked about merging what the Chancellor referred to as the operation of the tax and national insurance system, which is certainly at an exploratory stage, but he has made it clear that pensions will be protected under these changes and that the contributory principle will remain.

Finally, the hon. Lady asked about the mechanism for raising the state pension age. She referred to a crude formula, but there are options in the Green Paper. One is to have an automatic mechanism for raising the pension age as longevity increases; the other is to adopt a more nuanced approach to take account of a range of factors. We would welcome feedback on that.

Overall, I think the hon. Lady welcomed our proposals, particularly the fact that they will benefit women and self-employed people and will lead to a fairer system. She said that she wanted to see a fairer system; in office, the Labour Government never delivered one, but through this Green Paper, we will.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 28th March 2011 Commons Chamber

[Steve Webb]

Tempted though I am, we do not propose to abolish retirement. What my right hon. Friend the Chancellor said was that we need to take account in a more automatic way. I do not recognise the improvement of one year per year, although it is rising very rapidly. The key is that we need to do things with proper notice and make sure people have successful longer working lives and therefore build up bigger pensions when they come to draw them.

[Rachel Reeves (Leeds West) (Lab)]

I could not agree more with the points made by the hon. Member for Torbay (Mr Sanders), because the Government’s proposals mean 500,000 women will have to wait for more than a year longer before they receive their state pension, while 33,000 women will have to wait for exactly two years longer. With 10,000 signatures now on a petition calling for a rethink, and full-page letters in today’s Times and Telegraph asking the Government to think again, will the Minister now accept that the strength of opposition both in this House and outside is too great for the Government not to think again?

[Steve Webb]

I am surprised the shadow pensions Minister chose not to raise the issue of the state pension reform announced by the Chancellor in the Budget statement, which will be of particular benefit to this group of women. Many of the women who are aged about 57 spent considerable amounts of time out of work bringing up children, and we will reform the state pension system so that they get a proper pension for the first time.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 14th February 2011 Commons Chamber

[Steve Webb]

I am grateful to my hon. Friend. Jobseeker’s allowance and employment and support allowance are available as safety nets, but I appreciate that that is not what many people will want. The vast majority of the women in this birth cohort are still working. In the world that we are going into, we anticipate that more people will work into their 60s—that is part of the change. Many of them will be able to support themselves, perhaps through a part-time job, to cover the gap in years.

[Rachel Reeves (Leeds West) (Lab)]

The Minister’s response is inadequate. The Government’s coalition agreement is clear. Under the Government’s plans, the state pension age will start to rise to 66 in 2018, not in 2020 as promised in the coalition agreement. Some 33,000 women, currently aged 56, will have to wait exactly two years longer to get their pension, with little time to prepare. The average retirement savings of those women will provide them with just £11 a week in retirement. They simply do not have the savings to draw on to accommodate these moving goalposts. Does the Minister honestly believe that these changes for women are fair and proportionate?

[Steve Webb]

I have common ground with the hon. Lady on two points. First, I deplore the fact that the pensions policies of the previous Government have left women in this group with so little pensions savings to draw on. Secondly, she is right that we could go more slowly. We could, as she has proposed, delay until 2020 before doing anything, but we would then have to find an additional £10 billion that the present schedule provides for us. I have not yet had the letter or parliamentary question from her suggesting where that £10 billion might come from.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 10th January 2011 Commons Chamber

[Steve Webb]

I am grateful to the hon. Gentleman for referring to the previous Government’s plans. In his constituency, vulnerable pensioners, vulnerable disabled people and vulnerable families with young children received four or five cold weather payments this winter to help them with their fuel bills in January 2011. His policy, and the plans that we inherited, would have reduced those payments to £8.50 a week. We have paid £25 a week four or five times to vulnerable pensioners in his constituency.

[Rachel Reeves (Leeds West) (Lab)]

I will give the Minister another try: will he accept that with pensioners set to pay an extra £217 in 2011 because of the VAT rise, the basic state pension rising by only the same amount as planned by the previous Government and now news that the Department for Work and Pensions and the Treasury cannot agree the £140 flat-rate pension that he has extolled, pensioners have very little to look forward to in 2011 but a lot to fear?

[Steve Webb]

The hon. Lady used to be an economist, so I would not dream of suggesting that any of the figures that she has quoted are in the slightest bit dodgy. She will be aware that colleagues at Her Majesty’s Treasury have calculated that the impact of the VAT rise for each percentage point increase is just less than £1 a week for single pensioners. The 2.5% increase will cost pensioners £2.50 a week, which compares with our £4.50 pension increase this April, and there will be additional increases in 2012 because of the VAT rise, so I dispute her figures.

Benefits Uprating

Debate between Steve Webb and Rachel Reeves

Wednesday 8th December 2010 Commons Chamber

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

With permission, Mr. Speaker, I should like to make a statement about the uprating of pensions and benefits for 2011-12. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 11 April 2011 for each pension and benefit, and arrange for the figures to be published in the Official Report.

As the Chancellor said in his autumn statement, we have taken

“decisive action to take Britain out of the financial danger zone.”—[Official Report, 29 November 2010; Vol. 519, c. 530.]

Our decisions today about uprating are part of the plan to ensure we both get on track and stay on track, now and in future.

The Department for Work and Pensions is continuing its comprehensive review of social security policy, including pensions and benefits uprating. As many hon. Members will know, an important component of the future plans for uprating pensions and benefits is the move to the consumer prices index—the CPI. For 2010, additional pensions and benefits were held at their 2009 levels because the retail prices index—the RPI—was negative, at minus 1.4%. In those circumstances, many people saw no increase in their pensions or benefit. Why did the RPI fall? It was mainly because of falling mortgage interest payments, but only 7% of pensioners have a mortgage. People with earnings-related pensions lost out because of a fall in costs that did not benefit them. Had the CPI been used to measure the change in prices last year, benefits such as additional state pension would have been increased.

The CPI is the headline measure of inflation in the UK as well as the target measure used by the Bank of England, and it is internationally recognised. The CPI uses a methodology that takes better account of consumer behaviour in response to price increases. The Government believe that it is right to use one appropriate index for uprating additional state pensions, public and private pensions and social security benefits, and that CPI is a more appropriate measure of changes in the cost of living of pensioners and benefit recipients than RPI. In addition, the House may be surprised to learn that the RPI excludes the spending patterns of the poorest pensioners.

For all those reasons, the Government have decided to move to the CPI. I acknowledge that over the long term the CPI tends to rise more slowly than the RPI. However, the question is not which is the higher or lower number but which is the most appropriate way to track and measure the changes in average prices. The coalition will ensure that the value of many important pensions and benefits is maintained through a rise of 3.1% even in these tough economic times. In addition, steps have been taken to protect low-income families with children through above-indexation increases to child tax credits. Such measures are better targeted on low-income families and will ensure that the measures in the Budget and spending review, of which the move to CPI was a part, will have no measurable impact on child poverty in the next two years.

For consistency, we also announced on 8 July that we would move to CPI as the basis for calculating the statutory minimum increases for revaluation and indexation of occupational pension schemes. Hon. Members will wish to note that the annual revaluation order, which implements the decision, is being laid before Parliament today, together with our consultation document which sets out proposals and seeks views on the impact of using CPI for private sector occupational pension schemes.

The consultation document includes three main proposals. First, we propose legislation to ensure that schemes that choose to stay with RPI do not have to pay CPI in those years when CPI is greater than RPI. We do not intend to put an additional burden on schemes. Secondly, we plan to include indexation and revaluation on the list of changes where employers are required to consult with their employees. I was surprised to learn that schemes had been able to change indexation and revaluation without any duty to consult employees. We will change that. Thirdly, we need to consider what to do when schemes specifically state that RPI should be used and when they do not have the power to amend scheme rules.

I know that many people will have been alarmed by press speculation that we were planning to override scheme rules. We were tempted to respond to the inaccurate reports in this morning’s press, but we were keen that this announcement should come out in a formal, structured way and to the House first of all. However, I am pleased to announce to the House that, contrary to press speculation, we do not plan to grant schemes a modification power to make it easier to use CPI when they do not already have the power to amend scheme rules. We believe that members’ trust in schemes and the scheme rules could be severely damaged if we intervened to give schemes the power to change their rules when the scheme does not already have such a power. Trust in pensions is important and I believe that intervention demands strong justification.

Finally, I should like to turn to one of the early actions of this coalition Government: the restoration of the earnings link for the basic state pension. Unlike the Opposition, who had 13 years to make that important change but failed to do so, the Government made good on the pre-election promises to restore the link with earnings and delivered that promise within months of coming into power. In fact, we have gone further. We have protected the future value of the basic state pension with a triple guarantee that it will rise by the highest of the growth in earnings, the growth in prices or 2.5%. The triple guarantee means that even in times of slow earnings growth, we will never again see a repeat of small rises such as the 75p rise in 2000.

The new rate for the basic state pension will be £102.15 a week for a single person—an increase of £4.50 a week. From April next year, single people on pension credit will receive an above-earnings increase to their minimum guarantee of £4.75, taking their weekly income to £137.35. For couples, the increase will be £7.30, taking their new total to £209.70 a week. Separately, to help manage expenditure, the Chancellor used his spending review statement to announce that we will freeze the savings credit maximum. Over time, the savings credit has resulted in more and more pensioners being caught up in the means-tested system. Freezing the savings credit maximum helps us to focus resources on the poorest pensioners.

At a time when the nation’s finances are under severe pressure, the Government will be spending an extra £4.3 billion in 2011-12 to ensure that people are protected against cost-of-living increases. We have protected the basic state pension with our triple guarantee and we have confirmed that most people on pension credit will benefit in full from the cash increase enjoyed by those on the basic state pension. Our move to CPI for the uprating of the majority of other pensions and benefits will result in an uplift of 3.1 per cent from next April and will set the future of uprating on a more appropriate, consistent and stable basis that is fair to individuals and the taxpayer. Throughout this statement, I have outlined our firm commitment to ensure that no one is left behind, and I commend the statement to the House.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Minister for giving me advance sight of the statement today. Both sides of the House agree that we need to cut the Budget deficit, even if we differ in our approaches, but let us be clear from the outset that what is set out today is not about deficit reduction. Making this permanent change from the use of the retail prices index to the consumer prices index, the impact of which will be felt long after the deficit is long gone, is an ideologically driven move that Labour opposes. If it were a time-limited change, we would consider whether it was a fairer alternative to deep cuts in departmental expenditure and would be willing to work with the Government on it. We would have supported a time-limited change to uprating, but why would the Government change the uprating of benefits in a way that will have an impact after the deficit has been reduced if not for ideological reasons? I agree that we need to get the economy back on track, but why will we be punishing the poorest in society and our pensioners even when the economy is growing again? Can the Minister confirm just how much worse off people will be over the next 10 years as a result of the switch and, correspondingly, how much money it will save the Government?

The Minister has conceded today that CPI will rise more slowly than RPI, but he says that the question is not about which index is higher or lower. That might not be the question that he wants to focus on, but for millions of pensioners and low-income families up and down the country, that is exactly the question to focus on. They will be asking how they will make ends meet following these changes. What advice would the Minister give to people who will be worse off year in and year out as a result of his decisions today?

Let us look at the detail. The Minister has outlined the Government’s commitment to continue Labour’s policy of restoring the earnings link for the basic state pension with a triple-lock guarantee. [Interruption.] The Government Front-Bench team may laugh, but they know that we committed to doing that and they are doing nothing more than continuing with our policy. Given that the Government are usually so intent on regressive cuts, the announcement in the Budget sounded too good to be true. The Minister’s statement has confirmed that when something seems too good to be true, it usually is. His statement means that millions of pensioners will see the value of their pension fall every year, and that will be compounded by the increase in VAT, which will leave couple pensioners worse off by £275 a year and single pensioners worse off by £125 a year. To what extent will the Government’s combined measures on the change in uprating of the state second pension, the state earnings-related pension scheme, public sector pensions and the VAT increase wipe out any benefit to pensioners from the triple-lock guarantee?

What of the Government’s previous promises? Before the election, the Minister said:

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

That is quite clear, I think, but today the Minister has confirmed that people who have paid into the state second pension, the state earnings-related pension scheme or a public sector pension throughout their working life will see their pension in retirement uprated by CPI, not RPI, as they had thought, which changes the rules of the game for pensioners and those coming up to retirement.

In just one week, we have seen the Lib Dems break their promises to students and to pensioners. The Minister will know, but for the benefit of others I shall remind him, that I have written to him to ask him to set out why he believes that CPI is a better measure of inflation for pensioners. I have copied that letter to the UK Statistics Authority, which on 6 October said:

“We believe that the CPI should become the primary measure of consumer price inflation but only when the inclusion in the index of owner occupiers’ housing costs has been achieved.”

I have not had a response to that letter, and given his attempt at explaining today, it is clear why.

The Minister has not produced any evidence to justify the change in indexation. Indeed, for pensioners and low-income families, average inflation is more than RPI and CPI, because of fuel and food costs. It is entirely disingenuous for him to claim that CPI is a better measure of inflation for pensioners when, in reality, pensioner incomes will be lower as a result. It is disingenuous as well to argue that CPI is a better measure of inflation than RPI for those on benefits. Those in that group spend more on food and fuel, so the average inflation is higher, not lower, than either RPI or CPI. Age UK says that CPI is not better, and that evidence is backed up by the Institute for Fiscal Studies. It adds that older people tend to spend more on essentials such as food and fuel, and still spend on housing costs such as council tax. I ask the Minister now, what evidence—not assertion, but evidence—is there that CPI better reflects inflation for pensioners and low-income families?

It is not just pensioners for whom this uprating makes no sense. The Government have said that, from 2013-14, they will uprate local housing allowance by CPI, rather than local rents, meaning a total disconnection between local housing markets and the housing allowance. The long-term consequences are likely to be dire, so will the Minister confirm whether that will be a permanent shift and whether he is comfortable that pensioners and low-income families risk losing their homes because of changes in rents over which they have no control?

The Government enthusiastically talk about making work pay—we would all support that—but we also hear today that they have said that they will freeze working tax credit but uprate jobseeker’s allowance. Does that not mean that the gains from moving into work will shrink every year? Will the Minister explain how that is compatible with the drive to get people back to work?

Finally, does the Minister agree with the Child Poverty Action Group, which says that the

“effective inflation rate for the poorest households was higher than RPI in recent years when the cost of basic essentials like food and domestic fuel rose much faster than other prices”?

It adds that CPI uprating will make inequality and poverty worse.

[Steve Webb]

I am grateful to the hon. Lady for her questions. The CPI

“is more reliable because, taking account of spending by all consumers, this consumer prices index gives a better measure than the old RPIX measure of spending patterns. It is more precise because… it takes better account of consumers substituting cheaper for more expensive goods.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

How right the previous Prime Minister was when he said those words.

There is a sensible debate to be had about the most appropriate price index. The hon. Lady said that pensioner inflation is always higher. I did not notice the previous Government using a higher inflation measure for pensioners in the 13 years during which they decided these things. In fact, over the past 20 years—not the past five, which Age UK used—the average pensioner inflation and the average non-pensioner inflation were the same. In other words, there are times when it is higher and times when it is lower, as we would expect, but in the long run they are the same. Previous Governments never used pensioner-specific inflation rates; nor do we propose to.

It was good of the hon. Lady to say that she would consider the CPI for this Parliament. Obviously, we are announcing today the benefit rates for next April, so I am assuming that, in the event that the House comes to vote on these matters, she will support the benefit rates that we are proposing. It was not entirely clear to me whether she was for them or against, but I hope that, in due course, it will be clear.

The hon. Lady asked about the use of the RPI and felt, I presume, that it is a better measure of inflation. Does she believe that in the year to September 2009 pensioner inflation was negative? I have never met a pensioner who thought that their inflation was negative. The goal is to use an index that matches inflation experiences, and that is what we have done.

The hon. Lady mentions the IFS and its views on the issue. The main difference between the CPI and the RPI is not the basket of goods but how the two indexes respond to price increases. The IFS found that the substitution effect used in the CPI is a better measure for lower-income households, so its judgment is that, on that key difference, the measure that we are using better fits the inflation experience of lower-income households. I am glad she cited the IFS, because it was right on that point.

The hon. Lady raises the issue of people meeting their fuel bills, and, as my right hon. Friend the Prime Minister said, the cold weather payment is one of Labour’s ticking time bombs. This winter, it was due to fall to £8.50 a week. That was in the spending plans, but my right hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Secretary of State for Work and Pensions agreed that it was not fair—that paying people £8.50 a week this year would not be acceptable. So, we found the money to set it at £25 a week not just this winter, but for the whole Parliament, and pensioners on low incomes are better off as a result.

The hon. Lady asks about the net effect of the changes, glossing over the earnings link, which, mysteriously, was Labour policy but never implemented in 13 years. It is funny how things become implementable in opposition but not when one controls the levers of power. The earnings link on average gives about 2% a year above prices; the CPI change on average gives about 1% a year less than the RPI. So for those with low and modest occupational pensions, the net effect on pensioners of the two taken together will be positive.

We have a package of measures to protect the interests of pensioners. The earnings link over the long run will give a newly retired pensioner an extra £15,000 in state pension over their retirement, compared with the prices indexing that Labour, when it had the levers of power, applied for 13 years. That is what it applied in office for 13 years: the prices link. Within months, we have gone to the earnings link, and pensioners will appreciate what we have done for them.

Oral Answers to Questions

Debate between Steve Webb and Rachel Reeves

Monday 18th October 2010 Commons Chamber

[Steve Webb]

We have asked our review group to look at the age limits for auto-enrolment, but my hon. Friend is right to say that getting young people interested in pensions is a challenge. We think that automatic enrolment will be part of the answer to that because, for the first time, they will have to decide whether to stay in a workplace pension. We also have to ensure that it always pays to save.

[Rachel Reeves (Leeds West) (Lab)]

The beauty of auto-enrolment, as set out by the Labour Government, was that it would benefit all workers. Will this Government honour that commitment, which will support those on low incomes most of all, as well as temporary and agency workers, who often have the worst pension provision? Or will the Government water down those plans, storing up problems of pensioner poverty for the future?

[Steve Webb]

I welcome the hon. Lady to the Dispatch Box for the first time, and I look forward to working with her to establish cross-party consensus on pension reform wherever possible. She mentioned the actions of the last Labour Government, which I think she will recall were taken on an all-party basis. Our review was not meant to undermine automatic enrolment but simply to make it work, and work effectively—and that we will do.