Motion made, and Question proposed, That the sitting be now adjourned.—[Barbara Keeley.]
For the benefit of some Members, I have been asked to clarify the pronunciation of my constituency, as it seems to cause some difficulty. It is “Teignbridge”, with the first syllable pronounced “teen” as in “teenager”, not “tyne” as in somewhere in the north-east close to where my wife comes from.
This is a very important debate. We are talking about the basics for elderly people—about their income and how, often, they get by in the latter part of their lives. As Members of Parliament, we all have a lot of people who come to see us at our surgeries. Coming from Teignbridge, I certainly have a large number of people who come to see me about a wide variety of issues, particularly elderly people who are concerned about the cost of living, the rises in heating bills and so on.
In fact, Teignbridge is one of the constituencies that has a high percentage of elderly people. It is a beautiful constituency in the south-west. It has both seaside resorts and moorland, so there is quite a lot to attract people who, when they finish working, want to move somewhere to settle. When people retire, they expect to do so in some reasonable comfort. However, the tragedy for many who retire is that that expectation is often betrayed.
We can go back to the origins of the state pension system to examine its foundations and how it was funded, and we can blame people in the 1930s and 1940s for not having enough foresight to see that there would be a growth in the number of elderly people, that our longevity would increase and that we would have a greater percentage of people surviving into the latter stages of life.
Elderly people come to my surgery to discuss a wide range of issues with me, as I am sure they do with every other Member here. They talk about the council tax; in the south-west in particular, they talk about the rises in water charges. They are concerned about fuel and transport costs, although there has been some progress on transport with the concessionary bus fares scheme for the elderly. The funding of that scheme still gives rise to certain issues, which I have discussed with the Minister in the past in other guises.
Elderly people are also worried about heating costs, and some may be concerned about private pensions. The Government still have questions to answer about Equitable Life, the ombudsman’s review and what needs to be done about that issue. Elderly people are also concerned about post offices and their pension books, which they can no longer use. They may also be concerned about the pension credit, especially the difficulties in getting it. As MPs, we all write appropriate letters saying that a particular person has not been paid the pension credit, or asking if we can sort out it out for them.
The hon. Gentleman is aware—I am sure that he will be coming to this issue—of the fact that about a third of pensioners who are entitled to the pension credit do not actually claim it. Will he press the Minister to find ways to reach those people and to encourage more of them to claim their benefits, so that they can afford the high council tax bills, fuel bills and food costs that form a greater proportion of elderly people’s outgoings than those of ordinary families, which means that elderly people are hurt more by the current situation?
The hon. Gentleman makes a very good point, and I will touch on precisely that towards the end of my speech.
There may be other issues for elderly people in respect of annuities. I must say that I am slightly puzzled by certain policies on this issue. Perhaps the Conservative spokesman will explain later why the Conservatives are looking at only a suspension with regard to annuities. I thought that one was either in favour of something or opposed to it, and would either pledge to get rid of it or not.
I would like to take this opportunity to congratulate the hon. Gentleman on securing this debate. I can reassure him that it is Conservative policy to remove the annuitisation rule altogether. However, while I am on my feet, may I ask him to reassure the Chamber that the leader of his party, the right hon. Member for Sheffield, Hallam (Mr. Clegg), is aware of the true level of the state pension now?
I came here to debate an important issue about pensions; if Members just wish to make flippant points, that is fine. I asked a valid question of the Conservative party concerning the contribution of Lord Fowler, who talked about suspension; I was seeking clarity on a specific point. I am not here just to try to score cheap points off other Members—I do not believe that any of us should be here to do that—because that is an insult to the pensioners whose case we are here to argue in terms of increasing their pension and benefits.
The key to all these issues, and others such as TV licence benefits and the various benefits that pensioners have been given to help them, is having a decent pension. For most pensioners, that means having a decent state pension. This year, it is 100 years since the introduction of the state pension. I would like to quote from a speech that my hon. Friend the Member for North Southwark and Bermondsey (Simon Hughes) gave at our party conference. I apologise for the references to “Liberals” in it; I hope that they do not cause too much offence. However, they are important in the context of what my hon. Friend said:
“In 1889 the Rev F H Stead, warden of the Browning Settlement, organised a meeting in Browning Hall off the Walworth Road in my constituency to start a campaign for a state pension. This led to the national campaign spearheaded by the National Committee of Organised Labour for a free state pension of 5 shillings a week. Within 20 years the campaign had succeeded. A state pension was piloted by Lloyd George when he succeeded Asquith as Chancellor in 1908. The first pensions were paid, through the post office, in January 1909. In 1908 when our Liberal forefathers passed the landmark Pensions Act, only a quarter of people lived to draw their pensions and on average lived only a further 9 years. A hundred years on, four out of five people live to retirement age - and on average 24 years more.”
Reverend Stead was formerly a minister in Leicester and most of the work on pensions was done not by the Liberal Government of the day but by Charles Booth, a philanthropist ship owner who lived in Thringstone in north-west Leicestershire, an area that I used to represent. The hon. Gentleman should therefore give credit to the movement that produced the old age pension, and not try to claim credit on behalf of the passing politicians of that era.
The hon. Gentleman has put on the record what he wishes to put on the record, but it is still the case that it was Lloyd George who responded to that campaign. It was not just the Reverend Stead who was involved; other people, including Booth, campaigned for the pension. I am not trying to take any credit away from any of those people. Indeed, I mentioned the National Committee of Organised Labour, which I understand was one of the key bodies involved in that campaign.
The centenary of the first state pension has been marked by a number of Government initiatives. The Government are looking at how to address some of the issues that I have referred to. We have had announcements in the last week about a boost for women—I think that it was described as an amendment to the Pensions Bill—and those changes are welcome. However, my basic contention is that they are simply not enough. The rises in the cost of living, heating bills and food bills are far outstripping what pensioners are receiving.
The September retail prices index inflation figure was 5 per cent., and the question is: will the Government honour their commitment whereby, by convention, the inflation increase for pensioners from April next year will be 2.5 per cent. or the RPI figure, whichever is the higher? I hope that the Minister will make it clear in this debate, rather than our having to wait until later, whether the increase will be at least 5 per cent. She needs to say, “Yes, at least 5 per cent.”, and she should then say, “I’m going to go back to the Chancellor of the Exchequer and argue for a bit more, because I have seen the research from the Institute for Fiscal Studies, which says that pensioner inflation is actually 7.3 per cent.” She should say, “I will go back and argue for more because I have read Age Concern’s briefing, which actually puts pensioner inflation at 9 per cent.” Whether one believes the 7.3 per cent. or 9 per cent. figure, what is clear from the simple mathematics I learned when I was at school is that both figures are greater than 5 per cent. If pensioners are not to be worse off in the coming year, we must ensure that their income rises according to the increase in their cost of living.
According to Department for Work and Pensions figures, there are 9,327,800 state pensioners. Of those, some 2,360,900 claim state pension credit, and some 2,693,300 million are more than 80 years old and claiming the over-80s allowance. What do they receive? For clarity, it is £90.70 for a single pensioner and £145.05 for a couple. I shall come to the issue of the take-up rate, but if a couple apply for pension credit, they receive respectively £124.05 and £189.35. The question is, why is it estimated that 2.5 million pensioners live in poverty? That is 19 per cent.—one in five—of pensioners living in poverty. In one subsection of those people, the Pakistani and Bangladeshi community, the figure for those living in poverty rises to 43 per cent. There is an issue about how we calculate who is in poverty, but we will return to that in a minute.
Some 2.7 million people claim pension credit, but 41 per cent. of those who are entitled to it do not claim it. That is a saving to the Government of £2.81 billion a year. On council tax benefit, 45 per cent. do not claim, which is a saving of £1.51 billion to the Government every year. On housing benefit, the figures are better, as only 18 per cent. do not claim, but that is still a saving of £770 million a year.
I congratulate the hon. Gentleman on the way in which he has started the debate and on his very incisive remarks. On the question of benefits that are not being paid, Help the Aged has produced research that states:
“Older people are missing out on £5 billion in income related benefits each year. Taking just Pension Credit alone”,
which the hon. Gentleman mentioned,
“those missing out would be on average £1,477”—
“a year better off, were they to take up their entitlement.”
The hon. Gentleman takes a line from later in my speech and saves me having to repeat it. He is, of course, entirely right. He mentions a briefing from Help the Aged, and Age Concern and others have also provided Members with very good briefings for the debate. We ought to thank them not just for their contribution to the debate, but for their work, along with the National Pensioners Convention, in raising the pensions issue and other issues regarding elderly people all the time.
Poverty is defined as income that is 60 per cent. below the median national income. There is a difficulty: we can argue that, if it is always set at 60 per cent. below the median national income, we may not be able to achieve our target of abolishing it. It is fair to say that the Government should look at that point, but there must always be a proportionate factor; otherwise we would just argue that there was no poverty in the west and the only poor people were elsewhere. So poverty is relative. The question is how we measure it, and I cite those earlier figures with that caveat. It is very hard to come up with figures for the absolute poverty of some people.
If we define poverty as income that is 60 per cent. below the median national income, however, the definition of severe poverty has slightly more bite. That occurs when someone’s income is below 50 per cent. of the median national income, and I believe that 1.4 million people live in severe poverty. UK pensioner poverty is the second worst in the European Union. We can recognise that figure, because it is a matter not of relativity to income, but of absolute failure. We hear time and again, from politicians and from people who criticise the EU, that the pension systems in Germany, France and all Europe are not sustainable, but although we may have a sustainable system, in reality, our pensioners live in poverty and are worse off than all those in the EU, bar those in Spain.
Pensioner poverty, whether absolute or relative, is getting worse. Some 300,000 new pensioners were forced into poverty last year—822 pensioners a day—and the result is that more people are worried about money. I am told that, statistically, 16 per cent. admit that they are worried about money, but when I listen to the pensioners who come to my surgery, I suspect that that is a conservative estimate. They worry about their heating bills and many turn their heating down, but if they do so during a cold snap, there will be more cases of hypothermia. They also worry about their eating bills, and they will cut back. The Help the Aged briefing mentions how they will talk about a treat of a tin of soup for the husband, and how it is made to last a couple of days. Is that the sort of joy that we expect people to experience in the latter years of their lives—a tin of soup as a treat? If I were to ask Members here, or most people walking through the doors of the Palace, what they considered to be a treat, the answer would be rather more than a tin of soup.
On the issue of joy, one former Minister talked about pensioners needing to wear woolly hats in winter, so I admire the hon. Gentleman’s self-denying ordinance in not mentioning the meanest act of the Thatcher Government, which was to break in 1980 the link between pensions and pay in the economy, thus producing real poverty. In that light, does he believe that this Government, through the very able Minister present, ought to look at early re-linking, which is promised for 2012 or later, as one means of heading off some of the poverty that he so vividly describes?
I certainly believe that we should re-establish the link, and the hon. Gentleman is entirely right that the break of that link was a disgrace—it left many pensioners in severe difficulty during the 1980s and 1990s. The problem that we have now is how to address pensioners today. As I started by saying, we can blame the politicians of the ’40s for not having foresight, and we can certainly blame the politicians of the ’70s, ’80s and other periods for the policy mistakes that they made, but I am trying to concentrate on what the Minister can do today to try to address the issues.
The Joseph Rowntree Foundation, which does excellent work, has estimated that a couple needs £265.92 a week, but on the state pension, they get £145. On the link to earnings that the hon. Member for North-West Leicestershire (David Taylor) mentioned, the White Paper has promised that the link will be re-established by 2012. The Institute for Fiscal Studies has calculated that, if we were to effect that measure now, rather than in 2012, it would cost £1.5 billion, and we could take 2 per cent. of pensioners out of poverty by 2017-18. The Institute for Fiscal Studies also estimates that, if all pensioners were paid the pension credit guarantee, it would cost £8.3 billion, and we could take 5 per cent. of pensioners out of poverty by 2017-18. Of course, even if we did that and even if the changes that the Government are about to introduce were in place, not all pensioners would receive a full pension.
The Institute for Fiscal Studies has calculated the cost of a universal pension paid on the basis of residency rather than contribution. The Liberal Democrats have advocated that policy for some time, and former Secretaries of State have discussed it in the Chamber and have indicated that they thought it a good idea, although it has never come to fruition. I suspect that the idea ran into trouble when it reached No. 11 Downing street. If we had a universal system and it were applied for everyone at the pension credit guarantee level, it would cost £20 billion. That sounds like an awful lot of money, but in the context of banks being saved and the international debt estimated at £2.8 trillion—the figures are almost too large—it is a drop in the ocean.
I accept that the Minister might say that we cannot afford £20 billion, but I would argue that, if we cannot afford that, we must look at what can be done. Perhaps the parties need to debate the retirement age and consider shifting it up a year or two, so that we can afford to pay people pensions. Perhaps we should scale the introduction of such a system. It is known that people who are over 80 years old have greater difficulties than those who have just retired. If we introduced a universal pension for those over 65, the cost would be £20 billion; for those over 70, it would be £15.9 billion; for those over 75, it would be £11.7 billion; and for those over 80, the cost would come down to £6.8 billion. If we brought in such a system for the over-65s, we would take 12.5 per cent. of them out of poverty by 2017.
The Minister will tell me that it cannot be done, but there is £5 billion of unclaimed benefit that could offset the cost. If we cannot increase pensions, we need to do more to ensure that those entitled to benefits claim them, as was mentioned earlier by the hon. Member for Castle Point (Bob Spink). The Government have been missing their targets. The gap between the total number entitled to a pension and those who are actually in receipt of it was declining, but it is now increasing again. The question for the Minister is why can such benefits not be automatically paid.
I shall conclude by referring directly to the Help the Aged briefing paper on the issue. It suggests that the following options should be implemented:
“The Government should automatically give Council Tax Benefit to anyone in receipt of Guarantee Credit. The Department for Work and Pensions (DWP) already holds all necessary data to implement this measure.
The Government should in addition automatically award Guarantee Credit to all pensioners for a month upon bereavement, asking them to put in a claim if they wish keep on receiving this benefit. This measure would cost the government an estimated £50 million a year, and would be highly beneficial to the many older women who suffer a substantial drop in income when their partner dies. Many pensioners in this position are unaware that this change in life circumstances makes them eligible for Pension Credit.
Finally, the DWP should match its data on people’s state pensions with HM Revenue and Customs data to identify those pensioners who are very likely to be eligible for means-tested benefits but who are not yet claiming, then deliver the benefits to them automatically. With the introduction of new data systems in HMRC in 2009, such an approach could be highly effective, especially for those pensioners aged over 75, whose incomes tend to remain stable or go down over time. Estimates have shown that full take-up of means-tested benefits by pensioners aged over 65 would reduce pension poverty among people in this group by 5 per cent, and would cost the Government an estimated £3.9 billion a year.”
Before the hon. Gentleman concludes, may I reiterate the point about council tax benefit, which has the lowest take-up of all the benefits? Help the Aged made the sensible suggestion that council tax benefit should be renamed council tax rebate and paid automatically—a cause that has received strong backing from Sir Michael Lyons in his report on local government funding and, more recently, from the Communities and Local Government Committee report on council tax benefit.
There are those who have argued for a suspension of the payment levels for council tax. I do not agree with them; I do not think that we need to suspend it—we just need to get rid of it. In my view, the local income tax mentioned by the hon. Gentleman would be the best way of doing so. That would certainly take the majority of pensioners out of the need to claim council tax benefit and help them effectively. It would also have the advantage of taking other people who are on low incomes and those claiming benefits out of the need to claim council tax benefit in an efficient way.
The remarkable thing is that, when the Inland Revenue set up its new computer system, it was thinking ahead, and believe it or not, the design of the computer allowed for local income tax to be phased in. The hardware is there, but the software is not yet there and, sadly, neither is the commitment from the Government or the Opposition—who actually gave us the council tax in the first place—to change the system.
In conclusion, I am asking the House to consider giving a large sum of money to elderly people, but is it any more than they deserve? Do we really wish to have a system that involves benefit claims here and there, a little gift of a TV licence or whatever and a bit of a heating allowance for the winter? Would it not be better to give all pensioners a decent state pension, and to do so until such time as we can correct the errors unfortunately made by those who established the system and get to a system in which people have their own pensions and are able to make provision for themselves?
It is a pleasure to serve under your chairmanship this morning, Mr. Bercow. I pay tribute to my hon. Friend the Member for Teignbridge (Richard Younger-Ross) for securing this timely debate. I do not have the incisive figures that he provided, but I shall set the scene in respect of some of the hardship that pensioners in this country face and then discuss a specific group of pensioners.
My hon. Friend alluded to the Institute for Fiscal Studies survey and the figures that it produced, which show that pensioners are particularly hard hit in these difficult times as they spend more on food and fuel. The particularly high inflation on those items hits them all the harder. If we delve into the figures a little more deeply than even my hon. Friend did, we find that the real inflation increase is 9.2 per cent. for single male pensioners, 9.1 per cent. for single women pensioners, and 7.7 per cent. for pensioner couples. The average is 6.7 per cent., which is a high figure. Put in the context of this debate, pensioners will be among the worst affected by the economic difficulties that we are facing, at least when it comes to inflation.
My hon. Friend implored the Minister in her negotiations with the Treasury to bid for more than the 5 per cent. base rate that we are dealing with now. I reiterate that plea from the Liberal Democrat Benches and hope that the Minister will consider using the higher figure for future increases in the state pension.
As the IFS report pointed out, the inflation rate will not always be higher for pensioners—indeed, it has not always been the case—but the circumstances of high food and fuel inflation have put pensioners in a particularly difficult position this winter, and the differential needs to be considered.
Does the hon. Gentleman agree that this is not a matter of philanthropy for pensioners? They built this country and helped to give Europe the freedoms that it now enjoys. They deserve a greater share of our national income, yet, year on year through Conservative Governments and now a Labour Government, pensioners have received a diminishing share of the national wealth. That is a downright shame for this country.
I do not believe that any of us would disagree with that. The hon. Gentleman, who speaks for the UK Independence party, mentioned Europe. Notwithstanding that, I cite just one example from my constituency. I met a couple in the south of Ceredigion who have to grapple with whether it is worth while putting £5 of petrol in their car or paying £5 for a local supermarket to deliver their groceries. That illustrates some of the dilemmas that pensioners in this country face.
Pensioners on fixed incomes also face particular difficulty in paying council tax bills. I resist the temptation to discuss a local income tax—yawns were noticeable around the Chamber when it was touched on earlier—but it has been discussed by my party for many years. I do not expect the Minister to respond to the need for a fairer form of local taxation as that is not within her responsibilities, but I am sure that she will acknowledge that pensioners face proportionally higher council tax bills. I impress on her the need to reiterate the case in respect of council tax benefit. We heard from the hon. Members for Kettering (Mr. Hollobone) and for Castle Point (Bob Spink) about low take-up.
Does my hon. Friend agree that one of the reasons for the low take-up of council tax benefit is that a change in people’s circumstances means a change in the benefit payable? Pensioners are worried about the prospect, if their circumstances change, of suddenly being given an additional bill that they were not expecting to receive.
My hon. Friend clearly makes a point about the practicalities that many pensioners face. Many people become frustrated as they try to navigate their way through potentially complex forms, and there are also the practical difficulties that he outlined.
I shall reserve most of my remarks for a special group of people: ex-servicemen. It is not a small group—it represents a significant proportion of the pensioner population in this country. I pay tribute to the Royal British Legion, which is working with Age Concern on the Return to Rationing campaign. The campaign points out that 38 per cent. of ex-service pensioners report an income below the minimum required for healthy living, which is £7,072 per annum or £136 per week for a single person, and £11,200 or £216 for a couple.
The Government have a particular duty of care to ex-servicemen. As the hon. Member for Castle Point said, they made extraordinary sacrifices for their country. The campaign argues, with some justification, that the present tough economic conditions represent a return to rationing. The title of the campaign may well be emotive, but it illustrates some of the frustrations that many pensioners feel. They assert, and I agree with them, that the support given to those who served their country is simply not good enough. I am sure that we will all support the poppy appeal in the next two weeks and beyond, but we should strive to ensure that help for veterans is not confined to two or three weeks each autumn.
The situation is a matter of extreme concern, and I wonder what assessment the Minister has made of the Royal British Legion’s proposals. Among other things, it proposes making the 100 per cent. disregard of war pensions for council tax and housing benefit a statutory requirement. I know that local authorities have some discretionary powers, but there is a feeling that the disregard should be a statutory requirement. The proposals also include developing automated payment of council tax benefit to older people, and exempting recipients of war pensions who have a service-related injury or disablement from means-testing for the disabled facilities grant.
Veterans often find themselves in particular difficulties, and the package that has been proposed by the Royal British Legion goes some way to recognising that fact. The legion carried out a survey of ex-servicemen, and a picture emerged of difficult financial circumstances combined with, as we have already heard, a failure to claim all the benefits to which they are entitled. Some 71 per cent. of respondents said that they did not claim council tax benefit, and, of those, nearly one half said they found paying their council tax bill difficult.
Problems that are apparent elsewhere are all too often magnified for ex-service personnel. A survey carried out by the legion in June found that 15 per cent. of the veterans whom they contacted went without full central heating. Rising energy bills are a concern for many pensioners, but the legion’s figures are particularly eye-catching. They suggest that more needs to be done to help veterans pay their fuel bills.
The increase in the winter fuel payment is, of course, welcome, and I thank the Government for making that decision, but we must recognise the limited nature of the benefit. Fifty pounds is a welcome contribution, but, for many, it will make only a small dent in fuel bills this winter. Put crudely, energy prices have risen by 40 per cent. this year but the winter fuel payment has gone up by only 25 per cent. That is without considering the steady increases in fuel bills over the past few years: the winter fuel payment was frozen at £200 from 2000, when it accounted for one half of the average pensioner’s fuel bill, until 2007, when it accounted for just one fifth.
The Minister will be aware that many people, particularly those in rural areas such as the one in Wales that I represent, use heating oil or liquefied petroleum gas to heat their homes. They have faced even starker price rises, and although the price of heating oil has started to go down recently, the maximum price remains very high. I have to say that many people in the constituency that I represent do not have the alternative of different fuel suppliers. That is a real problem in rural Wales.
My hon. Friend makes a good point about heating oil and the difficulties in rural areas. Returning to his point on ex-servicemen and pensions, does he agree that there is a problem with spouses, particularly wives—or second wives—of ex- servicemen who have married post-1978 and who are not entitled to a pension? The sums provided to enable these people to get by when their husband or wife has died are small. It is seen as mean-minded that the Government are denying them that provision. That also applies to the police.
My hon. Friend has, with characteristic incision, made a detailed and valid point.
I want to end by mentioning the practicalities of the Royal British Legion’s campaign. My hon. Friend has set the scene clearly. I share his concerns about the fundamental priorities of the state pension. I do not deviate from his message in any way at all. The Royal British Legion and Age Concern campaign is modest but necessary. I look forward to hearing what the Minister has to say in response.
At a time when the banking system is in crisis and the future of many jobs, pensions and incomes is under threat, it is right that, in this debate, we are looking at the state pension and benefits for elderly people. Never before have so many people questioned those who are the guardians of their old-age pension, whether it is a private pension or a pension in the hands of the state. Yesterday’s newspapers revealed that workers’ pension pots have had £157 billion wiped off their total value in the last year. In 2007, the value of defined contribution pension assets stood at £552 billion. By October this year, that figure had dropped by nearly a third to £395 billion. That is happening now. What the future holds is anyone’s guess. In the midst of all this, people are still saving for their pension, but are fearful about whether their money is safe. Many of the elderly will continue to rely on benefits for the rest of their lives if they have little or no pension provision.
This debate has already raised a number of key issues. I congratulate my hon. Friend the Member for Teignbridge (Richard Younger-Ross) on triggering this debate and raising a large number of points, for example, on pension credits, unclaimed benefits and the Age Concern briefing. I also congratulate my hon. Friend the Member for Ceredigion (Mark Williams) on his contribution, in which he mentioned ex-servicemen. I welcome the hon. Member for Glasgow, East (John Mason), who raised the important point about the need to scrap the council tax, which has been worked towards north of the border, but in respect of which the potential holding back of council tax benefits by the Government at Westminster causes a major problem.
In summing up for the Liberal Democrats, I am glad to say that my party has a proud tradition in this field—from Lloyd George to my hon. Friend the Member for Twickenham (Dr. Cable). With the state pension being 100 years old this year, it is right that we consider a new pensions Bill fit for the 21st century. For all the talk, the commissions and all the many other people involved it took a Liberal Government to finally deliver the Old Age Pensions Act 1908.
I need a bucket, Mr. Bercow! The fact is that that pension was only paid to those over 70, was means-tested and was dependent on acceptable social behaviour and, certainly, a lack of fondness for alcohol. Is that the framework for a future Liberal Government’s improvement of the pensions system?
I thank the hon. Gentleman for his intervention. However, my next sentence was going to be, “But life has moved on.” Today, our Treasury spokesman, my hon. Friend the Member for Twickenham, continues to be ahead of the field, in his analysis of the current financial issues, the future for pensions and the way forward. This is in stark contrast to the Conservative shadow Chancellor, who has become the Sarah Palin of the Tory party, doing his best but convincing nobody that he has either a grasp of the problem or proposals for a solution.
The majority of today’s older generation now struggle to make ends meet as the gap between pensioners’ costs of living and the basic state pension continues to grow, with pensioners often disproportionately hit by increases in costs. The oldest, poorest pensioner households now face an average inflation rate of approaching 10 per cent., compared with around 5 per cent. for non-pensioners. The number of pensioners living below the poverty line in the UK has risen by 300,000, taking the figure to 2.5 million. Official figures show that first-time pensioner poverty has increased since 1998.
The anniversary of the state pension is rightly celebrated, but from its noble beginnings it has subsequently failed to reflect the growth in our national wealth. The rot set in in 1980, when Margaret Thatcher’s Conservative Government broke the link between earnings and pensions, diminishing the value of pensions in relation to earnings. No hon. Member in this Chamber today could reasonably claim that £90.70 a week is enough for a single person to survive on.
As we have heard, the fact that the basic state pension is uprated only in line with prices means that, as pensioners get older, many also become poorer in relation to the rest of the population. The basic state pension is now worth 15 per cent. of average earnings, compared with 26 per cent. in 1979. We welcome the commitment to reinstating the earnings link, but clarification on the date—2012 or 2015—would be welcome. It goes without saying that, for us as Liberal Democrats, it cannot come soon enough. I hope that the Minister will throw some light on this issue.
Sadly, the most striking similarity with 100 years ago is the presence of means-testing. More pensioners are means-tested now than at any other time. It remains unpopular, demeaning and ineffective at getting help to those who need it most. I was not in Parliament in 1993 when the now right hon. Member for Kirkcaldy and Cowdenbeath (Mr. Brown) declared that he wanted to end means-testing for the elderly, but I cannot help feeling that he was right then and it is right now.
Does the hon. Gentleman agree that one of the most straightforward ways of reducing the means-testing of pensioners would be to make the basic state pension payable at the guaranteed credit level of £124 a week? Of course, there are cost implications of doing that and it would need to be phased in, but it could be funded readily by two sources: first, through access to the national insurance fund and the surpluses in it and, secondly, and more substantially, by tackling more effectively the tax evasion and tax avoidance that is so prominent in the commercial sector in this country.
As the hon. Gentleman rightly mentions, there are a number of ways to get our pensions up to a decent basic level. I have no doubt that there is a substantial amount of money in the Government’s Budget that has not been used—it has been set aside for pension credit, and so on, and is earmarked for pensioners—but which the pensioners do not receive. So any way forward is a good idea.
The Government have admitted that their public service agreement target set in 2004 to increase pension credit take-up to 3.2 million pensioner households is unachievable and they have quietly abandoned that target. The latest figures show that the take-up of pension credit was about 65 per cent., or 2.6 million. In total an estimated 1.7 million people eligible for help are missing out. Often, the Government say that pension credit goes to those who are most in need, but those most in need are those who are entitled to pension credit but who are not receiving it.
We can argue about whether the low take-up rate is down to the complexity of the forms, the perceived degrading nature of having to apply for benefits or to people not knowing that help is available. However, make no mistake: whatever the reasons why individuals do not claim, it is not because they do not need the help.
As a result of over-reliance on means-testing, people are not only falling through the net in respect of pension credit. The take-up rate of housing benefit among pensioners, according to the latest figures, was 87 per cent., leaving up to 310,000 eligible people not claiming. Similarly, the take-up of council tax benefit among pensioners is languishing at 58 per cent., or 2.5 million, leaving up to 2.1 million eligible people not claiming. To put those two figures into perspective, this is even worse than under the previous Conservative Government.
Constituents have often told me that the Government are good at collecting taxes, but much less efficient at delivering help when people need it most. The pension credit is a case in point. It is difficult for me as a constituency MP to assure pensioners of the need to apply for pension credit when one in three awards is incorrect. All hon. Members will have had first-hand experience of the impact of that. The credibility of the whole pension system is called into question when fraud and error rates are so high.
Another concern about means-testing in the light of the Government’s proposals for personal accounts and the emphasis on encouraging saving is that there is no escaping the fact that extensive means-testing will erode the returns from savings, and reduce the incentives to save.
Does my hon. Friend accept that with the current reforms, pensioners are receiving advice on whether to buy extra years, but if they are entitled to pension credit, they are, perversely, better off if they do not buy extra years and, instead, rely on that benefit? The way to get people to save is to simplify the system and to provide a basic pension without the complications of credits so that there is an incentive to save, and that they keep their savings when they retire.
We must have a system in which it makes sense to make provision for years ahead, instead of the alternative of making no provision and hoping that the benefits system will pick up the slack. We cannot afford any more reasons for people not investing in pensions. The list is already long enough.
Among the many victims of the 10p tax fiasco were elderly people on low incomes, and hot on the heels of that was the news that pensioners now stand to miss out on hundreds of millions of pounds in benefits because the eligible backdating periods for pensioners claiming pension credit, housing benefit and council tax benefit have been cut from 12 months to three months, and for working-age claimants the period is being cut from 12 months to six months. Clearly, both are unjustifiable, given the additional lengths that people must go to to justify a backdated claim, but pensioners seem to be particularly harshly treated.
The group most failed by the current system is undoubtedly women. Like those a century ago, the poorest of today's pensioners are women, the vast majority of whom receive less than a full state pension. Many were badly advised about paying the small stamp or were unable to pay national insurance contributions, perhaps because they were caring for their families, or were in low-paid or part-time employment. We have had some welcome concessions from the Government this week, but there is still no help for women who have already retired and who are not receiving a full state pension, or those who have made less than a quarter of the full contributions and who currently receive no basic state pension at all.
As we see the failure of means-testing, I am confident that conventional wisdom will swing behind the idea of a citizen's pension at a rate that can genuinely deliver security and dignity in retirement for every citizen, and yet which is simple enough for everyone to understand. Such a pension system would be equitable and would not discriminate between men and women.
Of course, many of the issues raised today will be picked up as the Pensions Bill makes its way through the other place. It is vital that it is correct, because we cannot afford to get it wrong. At a time when hundreds of billions of pounds have been found to protect banks and bankers, it is time that the Government provided the same level of concern for our pensioners.
I congratulate the hon. Member for Teignbridge (Richard Younger-Ross) on securing this debate. As he pointed out, it is timely that we are debating the matter again—we recently had a debate on pensioner poverty in the House during Opposition time—and are discussing pensioner poverty in the anniversary year of the start of the state pension. I do not want to detract from the plaudits given to Lloyd George, but I remember that a member of the House of Lords at the time criticised the proposals on the grounds that they would sap the moral fibre of the nation. However, life has moved on.
I am a little concerned that the Liberal Democrats are now less in touch with the real issues affecting pensions. In my constituency, they rapidly went off the idea of a local income tax when it was pointed out that most families in Eastbourne would end up paying more than under the current system. Apart from the cost aspect, there is still a huge unanswered question about the residency test in the so-called universal or citizens pension and how that will be established. When it comes to being out of touch, the leader of their party is apparently massively ignorant about the true level of the state pension, but I am sure that that is now engraved on his forehead.
Sadly, we are debating this important issue against the background of the turmoil in economic and financial markets, and the downturn—perhaps “Brown-turn” would be a better expression—in our economy as the recession takes a grip. It is interesting to remember what the Labour party said in its manifesto back in 1997:
“We believe that all pensioners should share fairly in the increasing prosperity of the nation.”
Who could disagree with that sentiment, but is that what has happened under this Government? The other side of the coin is that as the recession takes a grip on the whole economy, we should be careful to safeguard older people, because they are likely to be hit disproportionately badly by economic problems compared with other groups in society.
It is worth repeating the point about pensioner inflation, which is a fact, because such a high proportion of pensioners’ disposable income is spent on council tax, utility bills, food, fuel and so on, so their real inflation rate is much higher. A figure of 9 per cent. was mentioned this morning, but an article the other day suggested that the true inflation rate might be 13 or 14 per cent. for pensioners. Age Concern in its excellent brief for this debate makes that very point. It says:
“In most years since 1987, the increase in the Basic State Pension has been broadly similar to pensioner inflation. However, since 2006 the real value of the Basic State Pension has been falling. In 2007 and 2008, even the guarantee element of the Pension Credit, up-rated each year in line with average earnings has not been sufficient to compensate pensioners for the real inflation they experience.”
That is a worry.
We have heard about means-tested benefits, and the Government have tested to destruction the ability of such benefits to get help to those who need it most. We have heard about the 1.8 million pensioners who do not claim the pension credit to which they are entitled, and we have also heard about backdating. It seems peculiar at this precise moment in the economic cycle to make it harder for older people, who, despite the best efforts of the Pension Service, often find it difficult to navigate through the process to obtain pension credit or other means-tested benefits.
One of the most important reasons for leaving in place backdating in excess of three months is that when a pensioner’s circumstances change—perhaps because of a bereavement in the family—changing a claim is not the No. 1 priority. It may be some months after a family bereavement before they get round to claiming an additional entitlement.
The hon. Gentleman is absolutely right, but the Government have form. Shortly after they first came to power, they sharply reduced the backdating for some benefits. I believe that bereavement allowance was included, which seemed particularly harsh.
Another issue that came up is the link with average earnings. The Government are committed to that at some point, but are coy about saying when. They said that it might be 2012 or 2015, but that it must be affordable. As we head into choppy economic waters, the word “affordable” may become more significant. We joined some Labour rebels on 22 April in voting for an amendment to the Pensions Bill merely requiring the Government to say precisely when they would restore the link. However, Labour MPs were, of course, whipped to vote the amendment down. It may be that the Minister, whom I welcome to her new role, can enlighten us on that matter today and make a commitment in this debate, before she is too much in the grip of the Treasury.
As we head into these difficult times, my main point is that older people need reassurance. The briefings from Help the Aged and Age Concern make it clear that we are not only talking about the direct economic affects on pensioners, but their sense of isolation and depression, which we know is much more likely to affect older than younger people. Indeed, that also results in costs to the NHS and so on.
Before we take into account housing costs, we know that 2.5 million pensioners live in poverty, of whom about two thirds are women. That is happening in the 21st century and in the fifth richest country on the planet. The Government have form for trying to define away a problem. Recently, Ministers—although I hope this Minister will resist the temptation—have been prone to say that, as a result of their marvellous policies and a successful 11 years in government, pensioners are now less likely than other members of society to fall into poverty. Of course, that depends on what measurement is used. The House of Commons Library has kindly supplied information for me that shows that if one uses the before-housing-costs income measure, the equivalent figures for falling into poverty would be 23 per cent. for pensioners and 18 per cent. for the population as a whole—in others words, pensioners are more likely to fall into poverty than other members of society. As if that were not bad enough, recent Eurostat figures show that only pensioners in Latvia, Spain and Cyprus are more likely to fall into poverty than pensioners in this country.
As the hon. Member for Edinburgh, West (John Barrett) said, much of this issue depends on take-up. It is interesting that when pension credit was originally unveiled, the Treasury assumption was that 1.5 million people would never get around to claiming pension credit. As we have heard, some £5 billion a year of benefit that should be going to older people remains unclaimed. That is a huge amount, which, as the Institute for Fiscal Studies has said, could take 500,000 pensioners out of poverty at a stroke. That is a very arresting figure.
The Minister certainly has the time, but I wonder whether she has the inclination to talk about what is called automaticity—or something like that—which is the process of making benefit payments automatic. We all know that there is a huge failure to claim some benefits. I forget which hon. Member made this point, but the worst offending benefit is that for the council tax. In my constituency in Eastbourne, a lot of elderly people, particularly widows, own their flat or house. They are very cash poor, but because they are owner-occupiers they are totally convinced that they have no right to claim council tax help. That is precisely why, even among older people where the claim rate is low, owner-occupiers are the lowest category of claimants of council tax benefit. I know that the Government have been trying to look at how to bring in an automatic way to claim and pay benefits. It would be helpful to know what progress they have made so far and what other proposals they have in mind. I suspect that the Treasury is quite smug about the situation because it means that it can carry forward £5 billion from one year to the next.
Finally, I shall touch on what Age Concern has been doing. A while ago, it launched a campaign—I helped to launch it in my constituency, where we have an active Age Concern branch—on the subject of advice. One of the first things that local authorities up and down the country tend to do when times are hard and Government money is not available is cut back on advice services. It is painfully obvious to me that, despite our best efforts in advice surgeries, what older people need more than anything is good, reliable, trustworthy advice about what they are entitled to and so on. Coupled with the concerns about budget cuts in the Pension Service expressed in the Help the Aged brief, which was prepared for this debate, that is particularly worrying. The brief states:
“We believe this is a serious omission and sends out the wrong signal about the importance of local action on the ground to improve pensioner incomes.”
By that, it means that the Government are failing to include a local measure of pensioner poverty. None of the 198 indicators set out for local authorities relate to pensioner poverty.
We have talked about the huge problem of fuel poverty. It is estimated that there are 2.5 million pensioner households in fuel poverty already. According to any measurement, that figure must be increasing. We still have a disgraceful record in this country for excess winter deaths: there were some 22,300 last winter. As the recession takes a grip, one can only imagine how bad that situation will be this winter.
On annuities, I was pleased that yesterday during the debate on the Pensions Bill my colleagues in the Lords proposed that there should be a temporary relaxation of the compulsory annuitisation rule. At the moment, those coming up to 75 are facing huge turmoil in the markets and will be required to set their income for the rest of their lives. I am therefore very annoyed and upset that the Government have set their face against a temporary relaxation of the compulsory annuitisation rule. I am surprised that the Liberal Democrats apparently did not support us in the Lobby in the Lords last night. That is a great shame because, at this stage, we should be doing everything we possibly can to help those who are retired or coming up to retirement.
The Government’s priority should not be to help bankers or financiers; our older citizens deserve not to be lost sight of among the present turmoil. Frankly, we need to ensure that we do not have the situation that we have had in my constituency where retired constituents have had to choose between spending their winter fuel allowance on fuel, council tax or grocery bills.
I congratulate the hon. Member for Teignbridge (Richard Younger-Ross), first, on the lesson on how to pronounce the name of his constituency, which I am sure none of us will never forget, and secondly, on securing the debate, which, as he said, is very important. Hon. Members have made some interesting contributions. The hon. Gentleman pointed out that this subject is not only important because many older people, some of whom are pensioners, come to our surgeries, but because we are all aware of the enormous changes that are taking place in our society.
Demographic changes are, in many ways, hugely welcome because, of course, people are living longer, are leading more active lives and are enjoying fruitful later years. However, that also presents certain challenges. I think that half the population will be over 50 by 2050, so it is important that we look to the future as well as consider some of the points made about the immediate issues facing pensioners. At the moment, there are about 12 million pensioners in this country and we spend about £80 billion of public funds supporting them. That means that some £12 billion a year more has been spent on pensioners than would have been the case if 1997 policies were still being pursued.
We have heard a lot today about means-testing and form-filling, but I start by saying that I make no apology for the fact that the Government’s strategy since 1997 has been to target help on the poorest pensioners, while providing a solid foundation of support for all. I say that because when I was elected in 1997, we faced a crisis nearly every winter as a result of the meagre cold weather payments that were made available. There was no winter fuel allowance as it exists today. People, particularly women, were living on the very lowest incomes. It was a commitment of the Government I supported to do something about that and to help the poorest people. In 1997, it was almost as if age was a proxy for poverty. The Government were determined to tackle that.
The targeted measures that we talk about, such as pension credit, have helped to lift 900,000 pensioners out of relative poverty. We spend £12 billion more on pensioners each year than we would have done if 1997 policies had been continued, and about half of that— £6 billion—goes to support the poorest third of pensioners. In 1997, the poorest pensioners lived on £69 a week. Today, pension credit means that no one must live on less than £124 a week; the figure is £189 for couples. That is a rise of more than one third in real terms.
Points were raised about increasing the basic state pension. When we talk about the figure of £124 a week, we must not forget that 1 million pensioners on pension credit also receive help with housing benefit—on average, £61 a week. Some 1.6 million pension credit recipients are also in receipt of council tax benefit. That is about £14 a week. When we consider the overall help that reaches the poorest people, we have to be wary of saying that a blanket approach of £151 a week will solve all the problems, because it will not solve the problems of those on the lowest incomes. In fact, it would reduce the assistance that they receive. It is important that those who advocate a blanket approach recognise the effect that that would have on the poorest pensioners. To forget that is to do an injustice to the help that we are giving at the moment.
Today, the poorest pensioner households are £2,100 a year better off. Age is no longer a proxy for poverty. That is real progress and a record of which the Government can be proud. We have been comprehensive in our approach. Winter fuel payments were £20 in 1997; now, they are £400 for over-80 households.
I thank my right hon. Friend for giving way on what is an important point. The winter fuel allowance has had a dramatic effect on poorer pensioners in my constituency. The Minister will know that on a number of occasions over the past 18 months I have raised on the Floor of the House the 25p age addition for pensioners over 80. That has remained static at 25p since 1972, when it was introduced by the Heath Government. In 1972, people could buy 2 lb of cheddar cheese with 25p; now, they cannot even buy a second class stamp. Of course, more than one third of all pensioners over 80 now pay income tax. That is a credit to the Government as well, but by having the weekly allowance, that third of pensioners over 80 are paying income tax on the 25p, so they are receiving 20p a week. The Government should consider scrapping the 25p age addition and, say, putting £50 on the winter fuel allowance. Will the Minister take up that suggestion with her Treasury colleagues for future consideration?
My hon. Friend has campaigned vigorously on that matter and I suggest that he meets me to discuss some of the proposals that he has advocated. At present, we have no plans to change the system, but I would be most interested to hear his wise, as always, counsel on the matter.
I note the Minister’s point about what the Government inherited in 1997. I also note that we heard nothing from Conservative Members on policy and on what they would do in terms of commitments. However, Department for Work and Pensions research shows that, in 2006, 50 per cent. of pensioners on low incomes relied on handouts from family and friends. That suggests that although the Government might have done something, they have not yet done enough.
I want to come to the take-up of benefits. We have to be careful with the language that we use in this area. The term “handouts” might be a little derogatory when applied to the support that people might be giving to their own family members. It is important to emphasise that people are perfectly entitled to the assistance in the form of pension credit and help with council tax. We have to be careful when using the word “handouts” and others as though implying that somehow people are not deserving of the help. Some families may support their elderly relatives. That should not always be regarded as charity; it is something that families may wish to do. We have to be careful about the language that we use.
I was referring to winter fuel payments. In 1997, £252 million was being spent to support pensioners in cold weather; now, we spend £2.1 billion. There is free off-peak bus travel, to which the hon. Member for Teignbridge referred. There are free eye tests, free TV licences and free swimming. We have tried to provide all those things on a comprehensive, universal basis because we think it important to recognise that the discussion about older people is about quality of life as well. This is not only about benefits and payments. Other things, such as free bus passes, are about recognising the importance of quality of life.
There are huge challenges as a result of demographic changes in society. That is why, in the last two pension Bills, we have made a huge change in how we will be helping people to save for their retirement in the future. There has been welcome cross-party agreement on the changes that we wish to bring in. They will make a big difference to women saving for their retirement as well. I join the hon. Member for Teignbridge in paying tribute to Baroness Hollis with regard to the recent changes that she made and pressed for, which the Government have accepted. I am referring to the change in the conditions for voluntary national insurance contributions. We will see a radical shift in how we approach saving for retirement in the future. The changes that we are making constitute recognition of the demographic changes that are coming, but they are also about fairness, equality and justice.
While on the subject of future changes—a subject raised by a number of hon. Members—we have legislated to reintroduce the earnings link for the basic state pension. We are committed to restoring the link with earnings by 2012, or at the latest by the end of the next Parliament. As a result, the basic state pension should double in value by 2050, more than if the current uprating policy is continued. As I say, that is legislated for.
I have spoken about raising the basic state pension to £151 a week—a sum called for by a number of organisations. The first problem is that many pensioners would be worse off as a result, as it would reduce our ability to target help on those with the lowest incomes. There is no doubt that it would also cost an additional £30 billion a year in the first couple of years. That would be a huge commitment. I do not know whether the Liberal Democrats are making such a commitment today, and I doubt whether the Conservative party has made such a commitment.
We have invested much more money in pensions. We have allocated much more money to support pensioners, but we cannot ignore the fact that the call to raise the basic state pension to £151 a week would carry additional financial burdens. Nowadays, in many ways the pensioner population reflects the wider population. As I have said, pensioners will not necessarily be on relatively lower incomes than those in other parts of society.
One important subject that was raised in the debate was how to encourage the take-up of benefits. It is true to say that people dislike complexity. They crave simplicity, which is why we have made it much easier to calculate pension credit awards. We have also made the system more automatic. With one phone call, people can claim pension credit, housing benefit and council tax benefit without the need for a signed claim form.
The hon. Members for Eastbourne (Mr. Waterson) and for Ceredigion (Mark Williams)—I may need another lesson on pronunciation—and the hon. Member for Edinburgh, West (John Barrett) spoke of automaticity. We want to work closely with organisations like Age Concern and Help the Aged to maximise the take-up of benefits. I was in Macduff two weeks ago with Age Concern, considering what more could be done to encourage people to take up pension credit and council tax and benefits.
I asked about automaticity when first being briefed on these issues. Some people feel it to be a slight invasion of privacy if their details are seen to be handed over, particularly when they are told that they may be entitled to a benefit. However, we need to balance that against what we do now, which we will continue, with one phone call giving people access to all the benefits.
We make direct contact with people if we feel that they may be entitled to extra help, sometimes just sending letters. However, some people feel that that it is up to them to make a claim, and they do not necessarily want interference. All the time, we are considering what else can be done to ensure that people take up their benefits. All ideas are welcome. Members of Parliament, too, have a role to play in helping people. It is good to see some of the schemes that people have adopted. However, we sometimes need to be careful.
The hon. Member for Ceredigion spoke of veterans. It is absolutely right to say that, for them, we need to take a cross-Government approach, as I know from my work at the Department of Health and the Department for Transport, particularly to ensure that veterans are able to take up their entitlement. We are supporting them in doing that.
Several hon. Members referred to the Institute for Fiscal Studies report. I recognise what they said about inflation, but the report suggests that, over the long term, average inflation for both pensioners and non-pensioners is almost identical. It shows that pension credit is worth about £430 more a year than if it had been uprated by the inflation index used in the report since 2001, and that the basic state pension is worth about £340 more a year than if it had been uprated since 1987 by the report’s inflation figure. We need to look carefully at the statistics to ensure that we target help where it is most needed, as I have suggested, yet at the same time we are investing more in our pensioners, with the £12 billion extra that we are providing.
A number of hon. Members, particularly the hon. Member for Eastbourne, mentioned the current economic climate. It is important to say that pension funds are long-term investment vehicles. Fluctuations in financial markets will affect the value of assets in the short term, but it is the long term that is important. We would certainly encourage people to realise the importance of saving for their pension. It is one of the most effective ways of saving for security in retirement, and I hope that all hon. Members endorse that view.
The hon. Member for Eastbourne also raised the matter of annuities. We have considered the points that he made, but I have to say that the vast majority of people buy annuities well before the age of 75. Only 5 per cent. of people delay until after the age of 70, but it tends to be the wealthier pensioner. We did look at the matter, but the industry indicated that temporary suspension would be particularly unworkable.
It has been an interesting and wide-ranging debate. I hope that I have been able to illustrate that we always do everything that we can to support our pensioners. The Government have a proud record in that respect—one that I believe is appreciated by pensioners. The changes made since 1997 pay due respect to the important contribution that pensioners make to society. However, we will continue to work with pensioners and pensioner groups to ensure that we are doing all that we can to support them.