Skip to main content

Retail Prices Index (Error)

Volume 124: debated on Friday 18 December 1987

The text on this page has been created from Hansard archive content, it may contain typographical errors.

11 am

With permission, Mr. Speaker, I should like to make a statement about the Government's proposals to make extra payments to social security claimants following the recent discovery of the error in the retail prices index.

The House will know that the effect of the error has been to understate the annual inflation rate on average by about one tenth of 1 per cent. in most months since February 1986. As a result, the rates of retirement pension and other long-term benefits should, in general, have been 5p higher than they are this year and lop higher than the rates that will come into effect next April. Several benefits, including child benefit, are unaffected.

The House will know that we have already made it clear that the Exchequer will not benefit from the effects of the error on social security expenditure. In line with this principle, we intend to make special payments to the following social security recipients: retirement pensioners, supplementary pensioners, those receiving widows benefits, industrial injuries benefits, war pensions, invalid care allowance, invalidity benefit, mobility allowance, attendance allowance and severe disablement allowance. This will be followed by action to correct benefit rates for all recipients at the April 1989 uprating.

The payments will be at a flat rate of £8— slightly more than the standard £7·85 loss — to retirement pensioners, and, in line with their actual loss, £5 for mobility allowance recipients. We have arranged with the Post Office that payments will be made from the first week of February for those paid by order book. Action will be taken by the Department's local and central offices to ensure that those paid by other means — for example, through credit transfer—will also receive their money at that time.

There are a few severely disabled war and industrially injured pensioners who will lose significantly more than £8. Because this affects a comparatively small group it will be possible to make special arrangements to ensure that they are given extra compensation. Inevitably, this will take more time, but payments will be made as soon as is practicable. I also propose to pay an additional amount to those who retire or become widowed between the time the special payments are made and April 1989. These special payments will be made on an ex gratia basis, and parliamentary approval will be sought in a Supplementary Estimate. Pending that approval, urgent expenditure will be met by repayable advances from the Contingencies Fund.

Overall we estimate that, as a result of the error, £109 million will have been underspent. The arrangements that I have described will cost rather more than £100 million. To fulfil our commitment that there should be no gain to the Exchequer, the remainder will be allocated to suitable charities.

My hon. Friend the Paymaster General is making it known today by written answer that no extra statutory payments will be made to pensioners of public service occupational schemes administered by central Government. The savings to the Exchequer arising from this decision will be added to the sum available for disbursement to charities as a result of the underspend on social security benefits and will bring it to between £10 and £15 million. We shall ensure that charities and benevolent associations active in support of retired public servants will be among those with an opportunity to benefit from this arrangement.

The House will recognise that, with nearly a billion social security payments a year, it would be a disproportionately complex and time-consuming operation to seek to calculate and pay exactly what each individual has lost. I feel confident that the House would wish to see this mistake corrected in a way that combined as far as possible speed of payment and fairness. I believe that our plans provide a sensible and effective way of doing this.

As I have just purchased my first computer, may I begin by saying that I find it encouraging to learn that the Civil Service also makes errors with its programming.

Although the House may accept in a season of good will that such errors occur, it is extraordinary that it required a year and a half before such an error was uncovered, and remarkable that in such an important indicator as the RPI an error could remain unchecked and undetected for a year and a half, which included two uprating statements by the Department. I press the Minister for an assurance that there will be regular checks of the RPI in future, especially before uprating statements are made to the House on the basis of that indicator.

I turn to those who are being compensated as a result of the error and begin with the Minister's reference to public service pensioners. He said that the Government will compensate long-term claimants of benefit, but not short-term claimants. I presume that that is because long-term claimants are stable and can be identified and are the same people. By definition, public service pensioners are also long-term claimants of pensions and are the same people. There can be no justification for the distinction that the Minister has made between state pensioners and public service pensioners, other than the Government's distaste for civil servants.

Arrangements are being made for short-term benefit claimants. I remind the Minister that those claimants also have a benefit, which is also operated by reference to the RPI under statutory arrangements. Claimants of unemployment benefit face the same costs in purchasing bread and paying for heat as do claimants of state pensions. In October, 1·6 million unemployed claimants had been unemployed since last April. Were they to benefit from the same arrangement for compensation as pensioners, at least half that payment would go to people who have suffered because of the miscalculation, and at least half those receiving it would be people who had been unemployed for a year.

I press the Minister for a statement about the Government's future intentions. The statement tells us what the Minister intends to do to make good the past effect of the error. What does he intend to do to make good its future effect? I press the hon. Gentleman in particular for an assurance that next year's uprating statement will be calculated as though the correct level of benefit had been paid on the basis of the correct level of the RPI. I put it to him that any other assumption that uprates the current level of benefit that has been reduced by the error will leave the Treasury permanently better off and the claimants permanently worse off.

I turn to those claimants who are not covered by the statutory undertaking to increase their benefit by reference to the RPI, especially the 4·9 million claimants of supplementary benefit who are not pensioners. I remind the Minister that this group contains many who are long-term claimants, including single parents and carers for the disabled, who will have been in receipt of benefit throughout the period affected by the error. Their benefit is uprated by reference to the Rossi index, under informal arrangements. Will the hon. Gentleman confirm that the effect of the error in the computer programme has an even greater impact on the Rossi index than on the RPI index, and that these are the people who are frequently taken through the courts and prosecuted on any occasion on which they themselves succeed in obtaining £8 extra in payment by error? A Government who are as punctilious as this Government in reclawing the benefit that people have been overpaid, owe it to those claimants to be just as punctilious in compensating them when they have been underpaid.

My right hon. Friend the Secretary of State for Employment made a statement which clearly set out the background to how the error occurred. He gave an undertaking that the retail prices index computer programme was being reviewed by the head of the Government's statistical service to ensure that the error could not happen in the future.

As I said in my statement, my hon. Friend the Paymaster General is making known in a written answer this morning the position of public service pensioners, pointing out in particular:
"The rates of pension received by retired public servants vary very widely according to their length of service and final salary when in employment. Flat rate compensation for the index error would be inappropriate. Precise compensation would have administrative costs out of proportion to the sums concerned."
I believe that that is right. I want to reflect that point in what I shall say about the number of detailed points put to me by the hon. Gentleman.

The Government have no legal obligation to come to the House today to announce our intention to make these payments. I believe, however, that we have a moral obligation in this matter. That is why we are announcing that £109 million will be available. If we were to compensate every individual who has lost any amount, however trivial, as a result of this error, the administrative costs would be out of all proportion to the benefit gained.

The Rossi index will be affected in the same way as the RPI. It will be corrected in April 1989. Of course, from April 1989 the uprating will be made on precisely the basis that the hon. Gentleman suggested.

Order. The House knows that this is a private Member's day and I hope that, in the next 20 minutes, I shall be able to call those hon. Members who have been rising in their places. I propose to give precedence to those who did not catch my eye last Monday.

May I say to my hon. Friend that I believe that in all parts of the House the speed and candour with which he has dealt with this embarrassing problem will be very well appreciated? May I also say that I believe that the settlement that he has made is the best that he can do in the circumstances and will be appreciated by the recipients? On public sector pensions, may I also remind my hon. Friend that, in 1974, I made the point that we were creating a privileged elite of public sector pensioners in giving them full uprating with the cost of living? Under 5 per cent. of private sector occupational schemes are able to do the same.

I am grateful to my hon. Friend for his opening remarks. I believe that it was right to deal with this matter quickly, clearly and as fairly as we could, consistent with the speed of the operation. The House will have noted my hon. Friend's second point.

Will the Minister accept that the only warm reception that will be forthcoming for the statement is bound to be from the charities for the needy and aged, which will welcome £10 million to £15 million unexpectedly coming their way because of the Minister's argument about the administrative cost of paying out money to public service pensioners? Will he be frank with the House and tell us what has been the cost to public expenditure of rectifying this error? What steps have been taken in the Department to ensure that it does not recur? Does he accept that many of us continue to believe that the RPI is not the right yardstick by which to judge payments to pensioners, bearing in mind their cost of living requirements?

That is a more general point. The Government are pledged to protect pensioners from inflation, and the RPI seems to be an entirely appropriate index to use in those circumstances. The administrative cost of making these payments will be somewhat in excess of £5 million. That is what even this broad brush approach will cost. The more precisely we target repayments to actual loss, the greater are the administrative costs. I hope that charities will not be alone in benefiting from the social security money and the money for public service pensioners. I hope that those who receive payments will benefit. The Government have no legal obligation, but I accept that they have a moral obligation.

I also congratulate my hon. Friend on the speed of the operation. Many pensioners have been to see me to tell me that they remember not getting the Christmas bonus from the Labour party when it was in government. Will bereaved pensioners be able to claim what would have been due to their deceased spouses? Could such payments be arranged?

I am grateful to my hon. Friend for that question. I suppose that I was naive enough, bearing in mind my Christian name and the time of year, to think, on my way here, that the House would welcome the fact that the Government had come forward with these proposals. If Opposition Members want to get into an argument on party political matters and how they treated retirement pensioners and others, I must ask them to cast their minds back to 1976, when they took £1 billion out of pensions by changing the basis for forecasting. As we have come to the House with these proposals as quickly as possible, there are some details that must be incorporated, and I shall bear my hon. Friend's question in mind.

I declare an interest as the son of a war widow and as a war pensioner myself, although I am not one of the severely wounded people to whom the Minister referred. What are the special arrangements that the Minister has in mind for them? Most of that group are likely to be very old, so how will they be informed of what the Minister has in mind?

Records are kept in the Department or in local offices, so it will be possible to analyse each case individually, as they are a comparatively small group. It is inevitable that that will take longer, but they will be entitled to a payment of £8 in any case. We shall try to establish their losses by the summer and send out individual Giro payments to those concerned.

Is my hon. Friend aware that, although the error was regrettable, the fact that it has been detected and rectified in this manner will do much to restore the confidence in the system, which was lost during the incumbency of the previous Administration? In a year when we have experienced so many disasters, such as King's Cross and Zeebrugge, does my hon. Friend agree that the lump sum is an ideal opportunity to set up a national disaster fund?

That raises wider questions. My judgment is that, as the benefit that would otherwise flow to the Exchequer arises from the underpayment of social security benefits or public service pensions, it would be more appropriate to see, as far as possible, that the charities that benefit from the money serve the needs of those groups.

As my hon. Friend's Department spends approximately £47 billion, it is quite remarkable, and to the great credit of civil servants, that they discovered their error at all. I welcome my hon. Friend's statement. It is sensitive and welcome. Does he agree that what the leader of the Liberal party said was quite remarkable? If he successfully proposed a pensioners' index, pensioners would lose.

I am grateful to my hon. Friend. I hope that hon. Members will play a part in alerting beneficiaries to the payments. We shall publicise the payments by advertising them in the press and publicity material in local offices and elsewhere, but we should all play our part.

I thank the Minister for his statement. How many claimants will not get the increase although they suffer the same increase in prices as other claimants? I am sure that the House would be happy to have the figures to the nearest million. As the unemployed do not gain from the statement, would it be right for them to conclude that the payment of their benefit is not safe in the Government's hands?

I do not think that that is a fair point. I admit that this is a broad brush attempt to ensure that money that has fallen to the Government is redistributed quickly to those who have suffered. Trying to identify unemployment beneficiaries, many of whom go on and off benefit, and many of whom will have lost quite trivial amounts, would incur a disproportionate administrative cost. If the hon. Gentleman wants more detailed statistical information after the recess, I shall do my best to answer a question that he tables.

I am grateful to the Minister for making his statement. He referred to payments being made at a flat rate. May we assume that people who have multiple benefits, such as mobility, attendance and invalid care allowances, will get a payment for each, not just one payment? In those circumstances, the sums are not trivial. What the hon. Member for Ealing, North (Mr. Greenway) said is pertinent. If a husband or wife has died, the loss could be significant.

Anybody who is entitled to a payment in the first week in February will receive this flat rate sum. Payment will be paid in respect of any deceased spouse if there is entitlement for that week. If beneficiaries have a number of books of entitlement, they will be entitled to a flat rate payment for each book.

My hon. Friend and his Department deserve every congratulation on making this statement on the last day before the Christmas recess. Does not the fact that the Government, without any legal duty, but with a moral duty, have made the statement vindicate the point that we have made time and again—that we shall honour our pledge to keep the old-age pension in line with inflation?

That is exactly right. We are honouring what is a clear moral obligation in a way that combines speed with fairness. I hope that the whole House will recognise that.

Given that the error caused unnecessary hardship and will cost an additional £5 million in administrative costs which would otherwise be available to alleviate poverty, will the Minister tell the House whether the error was made by a civil servant, a private consultant or a private contractor, and what disciplinary or other action will be taken as a result?

I refer the hon. Gentleman to the detailed statement made by my right hon. Friend the Secretary of State for Employment, who explained the background to this. The administrative costs will be taken from the contingency reserve.

Can the Minister explain to the House how the money will be allocated through charities? We already have the haemophiliacs and the EEC surplus working. Will Mrs. Thatcher—

Will the Prime Minister dress up as Mother Christmas? How will the Government decide which charities will receive how much?

As I said in reply to an earlier question, I hope that it will be possible to develop a scheme to ensure that charities will help to direct this money to meet the needs of those who have either social security or public service pension connections. We are taking advice from the Charities Aid Foundation, which has considerable expertise about appropriate charities. Again, it may be possible when the House returns to answer a more detailed question on that point.

The trust that pensioners and others have in the state and its agencies will have been somewhat shaken by the news of this error. If the sums to be paid are so small, why must it take so long to make the payments? Of the £100 million, what proportion will go to citizens so deprived in Scotland?

The money will be distributed in exactly the same way to those receiving retirement pensions and the other benefits to which I referred. Individuals will be treated on a flat rate, and pensioners will be compensated for rather more than the actual loss that they have suffered. That will be broadly true of other beneficiaries, too. We shall tackle the smaller group in particular. Whereas I can well understand a certain shaking of confidence as a result of the original error being discovered, I hope that the steps announced by my right hon. Friend the Secretary of State for Employment to ensure that this cannot happen again will have done something to restore confidence. Above all, I hope that what I have said today and the way in which we have come to the House and announced the arrangements will restore confidence completely.

It is just not true to say that the other day a statement was made covering the question asked by my hon. Friend the Member for Birmingham, Hodge Hill (Mr. Davis) about the circumstances in which the error was found. Nowhere in the statement of last Monday is that explanation to be found, and I have the statement in my hand. Will the Minister tell us on what day the error was found, in what circumstances, and by whom?

The error was made within the Civil Service. If the House would appreciate some background, I shall provide it as briefly as I can. In 1983 it was decided to computerise the Department's compilation of the RPI to avoid a great deal of manual and clerical effort and to improve and make the process more accurate. In June 1985 it was decided to modify part of the software system to speed up the process. It was undertaken in-house, and the new procedures began to be used in February 1986. In writing the modified programme a mistake was made. Insufficient computer space was made available for calculating the price changes for certain items. As a result, the price changes were recorded as whole numbers only and the decimal places were not carried forward. Without going into inordinate length—

If the hon. Gentleman will be patient for a moment, I can tell him. It will be easy for the House to understand how the cumulative effect of that built up until we reached the annual inflation rate for this year, which continued to be underestimated by 0·1 per cent. I understand that the error was discovered and reported to my right hon. Friend the Secretary of State for Employment, who is responsible for this matter, late in the week prior to his coming to the House to make his statement.

How many unemployed people are being denied what would have been theirs by right had there not been a computer error? Will this be a convention for the future should there be further errors in the Ministry's computer? In handing out other people's money to charities, are the Government not salving their conscience for short-changing teachers, hospital workers and other public servants? Outside the House, would that not be described as crooked?

I am surprised at the hon. Gentleman's lack of generosity of spirit. I have sought to explain clearly and, I hope, patiently, why the administrative costs of seeking to reimburse everybody for any sum that they had lost, however trivial, would have led to wholly disproportionate administrative expenditure. We have come forward to make quick, generous, flat-rate payments to long-term beneficiaries, to make other arrangements for those who suffered disproportionately large losses and to ensure that no benefit flows to the Exchequer as a result of this mistake, by making money available to charities to meet the needs of those involved.

I should like to congratulate the Minister on discovering this error, but I cannot do so because I have pointed this out to Ministers in correspondence on behalf of some of my constituents since I have been elected. I understand that even before that, mistakes in the RPI were being pointed out by civil servant pensioners and that no notice was taken. Is the Minister saying that those who have campaigned for many months, and perhaps years, will receive nothing? Is this not ideally a matter that should be subject to an investigation by the PAC?

Mr. Scott: That is certainly not a question for me to decide. There are two points here. The first is whether the RPI is being calculated accurately. An error has been discovered and, as my right hon. Friend said, the head of the Government's statistical service will review this to seek to ensure that it cannot happen again. I understand that some people complain about the basis of calculating the RPI. That is a second and entirely separate matter from whether the RPI has been calculated accurately at a particular time.

Will the Minister confirm that the Government do not take into account the costs of administration and of the detailed work necessary for prosecutions against people who make false claims for supplementary benefits? Will he confirm that this is the last possible day on which he could make this statement, so the Government have left it to the last possible moment? Will he confirm also that this matter has been outstanding for 21 months, yet the Government have failed to make remedial payments in time for Christmas? Many people on low incomes will face a miserable Christmas because of the Scrooge-like attitude of the Government. Instead of handing the money over to Lady Bountiful charities, why did the Minister not think of using the extra £9 million to extend television concessionary licences to more pensioners, many of whom will not be able to watch television this Christmas because they cannot afford the licence fee?

I was surprised at the attitude of the hon. Member for Liverpool, West Derby (Mr. Wareing), but I am not in the slightest surprised at the hon. Gentleman's attitude to the timing of the statement, and I suggest that he consults his side of the usual channels.

As the matter of the technical base of the mistake has arisen, will the Minister confirm that the affect of the error would have been precisely balanced out if the programme had been arranged to round up the first decimal point, rather than round it down? Might that not be a lesson for the Government in future, so that the advantage might be given to the claimant instead of being claimed by the Treasury?

It was not a rounding error. It was a mistake in the original programming. My hon. Friend will have heard the hon. Gentleman's point.