The law relating to social security benefits currently requires the Secretary of State to review pension levels each year to see if they have retained their value in relation to the general level of prices. If they have not, the Secretary of State is required to increase them.
We gave a guarantee that the basic state pension would increase by 2.5 per cent. or the retail prices index, whichever is higher, during the life of this Parliament.
Between 1997-98 and 2006-07 pensioners have benefited from above-inflation increases in the basic state pension, with pensioners better off by 9 per cent. in real terms than if the basic state pension had been increased only by prices over the same period. Under reform the basic state pension will be uprated in line with average earnings. Our objective, subject to affordability and the fiscal position, is to do this in 2012 but in any event at the latest by the end of the next Parliament. We have said that we will make a statement on the precise date at the beginning of the next Parliament.
Different groups and individuals will face different inflation rates because of their different spending patterns. There is, however, little evidence to suggest the rates of inflation pensioners face are substantially different from, or higher than, the rates of the population as a whole over the long term. If anything, published ONS statistics show that over the last 18 years all pensioners have—on average—faced slightly lower inflation than working age people.
Fuel prices have risen since 2003, but this follows a period of no change between 1997 and 2003. Across this period pensioners have seen improvements in their incomes; between 1996-97 and 2004-05 pensioners' net incomes increased by 25 per cent. in real terms, compared with a 15 per cent. real terms increase in utility bills between 1996-97 and 2006. It is important to note that whilst pensioner incomes tend to increase on a linear basis, utility prices tend to fluctuate.
At the time the earnings link is restored, the proportion the basic state pension represents in terms of earnings will remain constant and it will continue to hold its value over time, relative to earnings.