I beg to move,
That the draft Social Security Benefits Up-rating Order 2010, which was laid before this House on 27 January, be approved.
The Social Security Benefits Up-rating Order 2010 supports the action the Government have taken to help people through the unprecedented economic challenges that we are facing. It increases support for people on pensions and benefits by more than £2 billion, at a time when it is important that we protect the most vulnerable.
The latest official data show that the UK economy returned to growth in the last quarter of 2009. While cautious, the Government remain confident about the future prospects for the economy. We shall therefore continue to support long-term sustainable growth and provide targeted economic support, as to withdraw this now could put the recovery at risk before it is properly established. By responding positively and proactively during the downturn, the Government have helped more people to keep their jobs than many commentators expected and helped others to return to work quickly. Unemployment is 450,000 lower than forecast at the last Budget, which shows that active Government support works.
Prospects for the UK and global economy are better than 12 months ago, as Governments across the world have stepped in to support their economies. As forecast in the pre-Budget report, UK GDP growth returned at the end of 2009 and, supported by measures to stabilise the financial system, growth is expected to pick up through 2010 and 2011.
The latest Office for National Statistics employment figures show that falls in employment continue to slow and that unemployment looks to be levelling out. While it was disappointing to see the claimant count rise last month, after having fallen in the previous two months, the number of new claims for jobseeker’s allowance has fallen again, and more than 50 per cent. of people move off claims in less than three months.
This order provides real help for people entering or returning to the job market, and will help to support the recovery. People of working age who claim income-related benefits will have their benefits uprated in line with the Rossi index—the retail prices index less housing costs. So those who receive benefits such as jobseeker’s allowance, employment and support allowance, and incapacity benefit will see the support that they receive increase by 1.8 per cent. from April 2010. It is usual to increase state pension and some other social security benefits in line with the September inflation figures.
As a consequence of the credit crunch, which began in the US sub-prime mortgage market, we have been experiencing extraordinary global conditions. The retail prices index moved into negative territory for the first time in around 50 years, and in September 2009 it stood at minus 1.4 per cent. That means that those who rely on benefits being uprated by the retail prices index could have expected their benefits to be frozen in cash terms, with no increase at all from April. However, as the Government remain committed to helping the most vulnerable in society, my right hon. Friend the Chancellor used his pre-Budget report last year to announce an increase for key carers and disability benefits by 1.5 per cent. this April to help people now, when they need it the most. As a result, we shall be uprating benefits for disabled people and carers, along with statutory payments for parents and others who receive national insurance-linked benefits, by 1.5 per cent. from April. We shall uprate attendance allowance, carer’s allowance, disability living allowance and maternity allowance, to ensure that they do not fall behind.
As Members in all parts of the House will no doubt be aware, since September inflation has increased. The retail prices index for the year to January 2010 stood at 3.7 per cent. The main drivers behind that increase are the return from 15 to 17.5 per cent. for value added tax, the continued increase in oil prices and an increase in housing costs. Although inflation is now positive again, it is important to keep in mind the cyclical nature of the uprating process and the fact that inflation between October last year and March this year will be taken into account when benefits are uprated next year. In particular, when it comes to uprating in 2011, annual inflation to September 2010 will include the return to positive RPI inflation from November last year.
But is it not the case that that is not quite accurate? The order that we are debating this evening includes an increase in child benefit, which will not be included in the figure that will subsequently be uprated by the following year’s inflation. Although that is being added on a once-only basis now, next year’s inflation rate will be applied to the underlying figure, not the figure in the order before us.
The uprating process applies in most cases to most benefits. However, the hon. Gentleman is well versed in the intricacies of the benefits system, and he can always find an example to show that what I have said is not exactly true. It is a bit like talking about what one ought to do in chess: it is almost always the case that one should protect one’s king, except in the end game, when one’s king can be the most aggressive piece on the board. The hon. Gentleman is well versed in finding out the kinks in the basic approach, which I have just set out, and as usual I congratulate him on that.
Queen’s side or king’s side?
Traditionally, the basic state pension is uprated in line with the retail prices index. However, my right hon. Friend the Chancellor also used his pre-Budget report to reconfirm that the basic state pension will be uprated by 2.5 per cent. from April 2010, which amounts to an above-earnings increase. That means that from April the basic state pension for a single person will increase by £2.40, to £97.65 a week. It also means that the standard rate based on a spouse or civil partner’s contribution will increase to £58.50, giving a pensioner couple a total of £156.15.
The Government believe that the most effective way of helping pensioners is to increase the basic state pension. That increase, which is delivered as a result of a commitment first given by this Government in 2001, will ensure that more than 11 million pensioners receive an increase in the value of their basic state pension, over and above the level of earnings. That will mean that pensioners will have benefited from a long-term real increase to their basic state pension of 12 per cent. since 1997 worth more than £10 a week. Increasing the basic state pension means that help is provided to more pensioners, with a more even distribution of that help.
When it comes to additional pensions, the uprating of which has always been linked to prices, we faced a number of challenges this year. The retail prices index was negative for the first time in around 50 years. Also, one cannot look at additional pensions in isolation, as any increase in additional pensions feeds directly through to public sector pensions. Nevertheless, we looked at whether it would be possible to uprate additional pensions by the 2.5 per cent. underpin used for the basic state pension, but that would have cost the taxpayer an additional £1.2 billion this year. We also considered whether it would be possible to uprate additional pensions by the 1.5 per cent. used this year to uprate key disability and carer’s benefits, but, as I have said, the uprating of additional pensions feeds directly through to public service pensions and to some aspects of occupational pension schemes. As a result, we are unable to uprate such benefits without creating unintended consequences for occupational pension schemes, and significant extra cost.
Does the Minister accept that the intended consequence of these measures is that hundreds of thousands, if not millions, of pensioners will be worse off as a result of the freezing of the additional payments attached to many pensioners’ state pensions? Will she tell us how many people she estimates will lose out? Does she also accept that the measures will save the Treasury—or rather, cost the pensioners—more than £500 million?
I do not believe the figures that the hon. Gentleman has come up with. The retail prices index for September, which is the index that we have used to uprate by prices, was minus 1.4 per cent., so zero is still an increase—although it does not feel like it—in terms of buying power. It is also important to remember that the 2.5 per cent. increase in the basic state pension goes to all pensioners. In the circumstances, we decided, because of the complications surrounding public sector pensions and the extra amount of money that uprating would have cost—some £1.2 billion—that it was right to hold additional pensions at a zero increase this year. However, the 2.5 per cent. increase in the basic state pension will mean that, on average, recipients in Great Britain will see an overall increase of 2 per cent. in their state pension, taking into account additional and basic state pension, which is 3.4 per cent. above the prices indicated in the RPI.
The problem with the additional pension is that people always feel that the Government manipulate it to their advantage. Psychologically, this does immense damage to those people who stuck with the state earnings-related pension scheme and have seen the supposed benefit erode over time. That is why some of us, and some of our constituents, are very unhappy about this. They think that these measures will always be manipulated by the Government.
At a time of very great difficulty, we have put £1 billion extra into pensioners’ pockets with the increases that I am setting out in this uprating statement. The connections to prices indicated that no increase at all would have been appropriate, but my right hon. Friend the Chancellor has stuck to the pledge that we made in 2001 that an increase in the basic state pension of RPI or 2.5 per cent.—whichever was the higher—would be fulfilled. I wonder whether Conservative Members will confirm tonight that their policy is to stick with the 2.5 per cent. underpinning for the basic state pension, which has been in place under this Government since 2001.
For the poorest pensioners, my right hon. Friend the Chancellor has also confirmed that the standard minimum guarantee on pension credit will increase by more than earnings from April, by £2.60 a week for single pensioners and by £3.95 for couples.
It is understandable that hon. Members should speak out on behalf of pensioners, but may I highlight the plight of people on unemployment benefit? The level of jobseeker’s allowance is absolutely derisory. It will go up from £64.30 to £65.45 for those over the age of 25, which is half the minimum amount that a pensioner is expected to live on. For those under 25, it will go up to £51.85. How are people expected to live on those amounts?
It is true that our benefits systems do not replace a high percentage of earnings once one gets off the contributory level. Part of that is about work incentives and encouraging people to move off benefit into work. My hon. Friend knows that in many cases jobseeker’s allowance is not the only benefit to which individuals are entitled in the circumstances of looking for work. I have sympathy with what she is saying, but these things have to be balanced by the overall cost of the benefit system and the effect on work incentives of high replacement earnings rates for benefits.
The Minister says that JSA is not the only benefit. Has she any idea what proportion of people on JSA get additional benefits, apart from housing allowances? The figures that I read out a few moments ago are the basic amount that the majority of single people on JSA have to live on.
I am happy to write to my hon. Friend to answer her question, as I confess I do not have the exact figures in my head at the moment.
I was about to say that the increases in the standard minimum guarantee and pension credit, which are higher than earnings, will mean that from April no single pensioner will be living on less than £132.60 a week and no couple on less than £202.40 a week. That demonstrates a real-terms increase of more than a third for the poorest pensioners since 1997.
The above-earnings increase in the pension credit guarantee underlines the continuing commitment to tackling pensioner poverty by a Government who have already taken 900,000 pensioners out of relative poverty and 1.9 million out of absolute poverty since 1998-99. In fact, the Government have spent around £100 billion more on pensioners since 1997 than we would have if we had simply allowed the policies of the previous Government to continue unchanged. While there is always more to do, we have finally broken the link between older age and poverty.
The action that we have taken shows that returning to growth and pre-recession levels of employment will be the Government’s first priority. That is why the recent employment White Paper, “Building Britain’s Recovery: Achieving Full Employment” outlined the increasing support we will give to help those who have lost their jobs in the downturn to get back to work as soon as possible. It includes the young person’s guarantee, which provides that all 18 to 24-year-olds still unemployed after six months are guaranteed access to a job, training or work experience, supported by more time with their personal adviser. It also shows our commitment to supporting older workers by providing more training to Jobcentre Plus advisers and access to specialist support from external providers to address older workers’ specific needs. Our long-term vision for transforming Jobcentre Plus services will benefit all our users. As part of this, we will improve online services and set up new pilots to give jobcentres the freedom to deliver more personalised services.
The package of uprating proposals we are debating this evening is worth around £2 billion for 2010-11. It represents significant and worthwhile help to those among the poorest and most vulnerable in society. It provides real help in a challenging year and more help where it is needed most. I commend the order to the House.
Conservative Members naturally welcome any benefits’ uprating so far as it goes and no matter how unfairly distributed. We want to see extra help going to our hard-pressed constituents at this difficult time. As a nation, we are barely beginning to climb out of the recession made in Downing street. The latest gross domestic product figures per head show that practically every family in this country is worse off in real terms than they were in 2005. What a dismal record. Many are much worse off, as the figures for pensioner and child poverty grimly demonstrate.
The details of the uprating regulations show just how complex the benefit system has become, with different rates for various upratings, the retail prices index, the Rossi index and so on. No wonder so few people really understand the benefits system in all its complexity.
All this must be seen against a background of more than 5 million people on out-of-work benefits, many of whom would very much like to be in work. The Minister mentioned unemployment, which is high. About 2.5 million people are unemployed, and, according to the Secretary of State, the figure is set to rise again by the summer. There is also the stain of rising youth unemployment. It currently stands at about three quarters of a million; and there are more than 1 million NEETs—young people who are not in education, employment or training. We face the prospect of a whole generation of young people who may never be able to find productive employment.
We, of course, have our own plans to get Britain working again. We plan to provide support for the 2.6 million claiming incapacity benefit, to abolish the Treasury rule that prevents the Government from paying welfare-to-work providers using the benefits saved once someone has a job, to offer more support to the young unemployed by referring them to work programmes after six months of unemployment rather than a year—the period specified in the Government’s flexible new deal—and to pay providers according to results, with a focus on truly sustainable outcomes.
One of the features of this uprating is that it is shot through with some deeply cynical decisions. For example, the Minister referred to a 1.5 per cent. increase in child benefit, disability living allowance, carers allowance and incapacity benefit. However, as no funds will be provided next year, that amounts to a crude pre-election bribe for one year only, followed by a real-terms cut. If the Minister disagrees with that, I shall be happy to give way to her so that she can deny it in toto.
It constitutes a cut because, according to the Government’s own figures in the pre-Budget report, the money will not be available next year. If the Minister does not believe me, perhaps she will listen to the Institute for Fiscal Studies, which has said
“the 1.5 per cent. rise… is set to be only temporary, as the Chancellor committed himself—or rather, his successor—to increase these same benefits by 1.5 per cent. less than inflation this time next year.”
I fail to understand why the Opposition think that bringing an increase—or half of it, say—forward for a year, and paying it for a year, can turn out to be a cut. It means that people will receive an increase that they would have received anyway—or part of that increase—a year in advance, when they need it most. How, according to any lexicon, can that be portrayed as a cut?
I have to tell the Minister that, in the real world out there, people will see it as a cut. Having received 1.5 per cent. this year, they will not receive it next year; in fact, they will receive 1.5 per cent. less. We think that that was a deeply cynical move by a discredited Government on their last legs.
It gets worse. Let us consider the Government’s treatment of pensioners. With a great fanfare, the Chancellor announced in the pre-Budget report that despite the RPI figures then applying, there would be a 2.5 per cent. rise in the state pension. As always with this Government, however, it pays to read the small print. Following the PBR, it was revealed—by the Minister herself, I believe—that the rise would not actually apply to many pensioners’ real incomes. As Age Concern and Help the Aged—or Age UK, as we must get used to calling them—said in their briefing for the debate,
“While we are pleased that the basic pension will increase by 2.5 per cent., most people see their state pension as a single entitlement and do not distinguish between the different parts.”
The hon. Member for Stroud (Mr. Drew) made that point a moment ago. The briefing continues:
“Since the pre-Budget report we have been receiving complaints from people who will be affected by this decision and the numbers are increasing as more people become aware that the commitment to uprate the state pension only applies to the basic pension.”
In respect of the 2009 pre-Budget report, it was stated:
“The 2009 Pre-Budget Report announces further Government action to provide support for households during the early stages of economic recovery, including increasing the basic State Pension by 2.5 per cent.”.
The hon. Lady obviously missed her vocation; she should have been a lawyer. [Interruption.] I am sorry, that is her sister—the Minister of State, Ministry of Justice, the hon. Member for Liverpool, Garston (Maria Eagle)—so it is obviously in the genes. However, as the hon. Member for Stroud said, people do not make the distinction that has been alluded to. Instead, they look at their total state pension income, and many of them have been taken by surprise. All the Minister need do is take into account what Age Concern and Help the Aged have to say, or listen to programmes such as “Money Box Live”, in order to know the depth of the anger, frustration and disappointment felt by many pensioners on learning that they have been cynically cheated of part of the increase they had expected to receive.
While I am reading quotes from Age Concern and Help the Aged, may I make another point, which is of relevance to the intervention from the hon. Member for Northavon (Steve Webb)? Those organisations go on to say that
“although the RPI was negative in September 2009 older people who contact us say they have not noticed any reductions in their everyday bills. This is unsurprising given a major contributing factor to the fall in the RPI was a reduction in mortgage interest payments which has no impact on the spending of most retired people.”
I endorse that pertinent comment on the application of different inflation rates to pensions increases. Yet again, this year, like every other year, this Government ducked a decision on linking the state pension with earnings. As Mr. Andrew Harrop, head of policy at Age Concern and Help the Aged, said:
“The Government has missed a golden opportunity to promise to restore the link between Basic State Pension and earnings by 2012. Sliding beyond this date will plunge an additional 70,000 pensioners into poverty, saving relatively little for the Government—an estimated £250 million a year after 2012.”
The Leader of the Opposition said in his speech at the weekend that the Conservatives would pay for the earnings link by raising the pension age for men in 2016. One might have read that to mean that the Government-in-waiting—the Conservative party—will not restore the earnings link until 2016. Is that a correct understanding of what he said?
Will the hon. Gentleman at least admit that we have actually increased the basic state pension and pensions overall by above the increase in earnings this year, as the rise in earnings is lower than 2.5 per cent., so the earnings link this year would have been less generous than the increase we are debating tonight?
Well, that is an interesting intervention on two levels, is it not? First, it is an Alice in Wonderland intervention because the Minister seems to be trying to take credit for the fact that, as a result of Government policies, the bombed-out economy has meant that earnings have contracted not increased, thus, somehow the Government are being more generous to pensioners. She will not be allowed to get away with that. Secondly, is it not part of Labour party mythology that the wicked Tories broke the earnings link in 1980? Surely she would recognise that there have been any number of years between then and now when precisely what she said just now applied. She really cannot have it both ways.
I am nervous about carrying on with my speech because I am afraid that the Under-Secretary of State for Work and Pensions, the hon. Member for Bishop Auckland (Helen Goodman), will have a coronary if I do, given that she is laughing so hard at all this. Perhaps I can provide her with some sobering thoughts and statistics in a moment, but I return now to the matter of restoring the link. When do the Government propose to redeem that pledge? When will they give a straight answer to that question? I am sure that this debate will contain any number of worthy speeches by Government Back Benchers saying, “The wicked Tories broke the link in 1980.” This Government have had 13 years to do something about it, but they have done absolutely nothing; all they have done is pass legislation that gives them the power to restore the link, but since then they have done nothing, So I am not going to take any lectures from Labour Members about restoring the link.
As the hon. Member for Northavon mentioned my right hon. Friend the Member for Witney (Mr. Cameron), may I remind him of what our leader said at our party conference? On restoring the link, he said:
“let’s be the party that finally makes it happen.”
Amen to that. May I also ask why there was no extra Christmas bonus this year? Perhaps someone could deal with that.
The Minister for Pensions and the Ageing Society will recall, as she participated in the debate, that only last week we discussed pensioner poverty. Even on the Government’s figures, some 2.5 million pensioners are living in official poverty. Some 64 per cent. of pensioner households are dependent on state benefits for at least one half of their income—that is a staggering statistic. This Government’s stewardship has been marked by, among other things, failed attempts to tackle the low take-up of means-tested benefits. Some 1.8 million people do not claim the pension credit to which they are entitled. Some £5.4 billion in benefits goes unclaimed by pensioners each year; the money just stays in the Chancellor’s pocket, and that is tragic. Fuel poverty is bad and getting worse. Help the Aged estimates that up to 50,000 pensioners die needlessly because of the cold every year.
Something else that was mentioned in last week’s debate and is deserving of repetition is council tax benefit. Of all the means-tested benefits it has the worst record for claims by pensioners. A well-run campaign by the Royal British Legion, supported by my right hon. Friend the Member for Witney—I believe that in the end it had cross-party support—aimed simply to change the name from “council tax benefit” to “council tax rebate”. It did so because the evidence shows that only 55 to 61 per cent. of all pensioners who qualify for the benefit get round to making a claim. That means that about £1.5 billion of the benefit is left unclaimed every year. Research carried out by ComRes on behalf of the Royal British Legion has found that more than two thirds of the public believe that
“some people are ashamed to claim Council Tax Benefit, even if they are entitled to it”.
An Ipsos MORI survey conducted on behalf of the Legion found that 56 per cent. of respondents believed that eligible veterans would be more likely to claim council tax benefit if it were known as a rebate rather than a benefit. Eventually, a deafening chorus of calls for that change to be made came from organisations including the House of Lords and, I think, the Select Committee. As I say, it is a very small change that could put a great deal of extra cash into the pockets of needy pensioners—cash to which they are already entitled.
Amendments for that purpose were tabled when the Welfare Reform Bill was considered in another place, but an amendment requiring the change to be made within a set time frame was withdrawn on the basis of assurances from the Minister that the Government would definitely make the change. In language that is unusually strong for the Royal British Legion, it states:
“The Legion is extremely disappointed that, three months on, its good faith seems to have been taken for granted.”
The Government are saying—the Minister said it last week and she will no doubt say it this week—that they are consulting local councils about the proposal because there are 381 of them, or something like it, and making this one-word change requires a huge IT effort on their part. I do not think that that is good enough.
Let me come on to another issue: the delays in implementing personal accounts, or NEST—the National Employment Savings Trust—as we have to get used to calling them. A series of substantial delays have been announced in recent weeks and months, meaning that some of the Turner report’s target audience—medium and low-income workers who do not have any provision from their workplace for their retirement—might have to wait until 2017 until they are fully enrolled and receiving all the contributions under that scheme.
Lest anyone thinks that this is simply a matter of the time that it takes to implement the scheme, the Government eventually produced the figure that they were “saving” £2.4 billion as a result of the delays. That is £2.4 billion stripped out of pension savings in the future for low and middle-income earners in this country. Of course, that comes on top of the £100 billion-plus raid on pension funds—one of the first acts of this Government back in 1997—and the 100,000 defined benefit schemes that have been wound up since 1997.
To coin a phrase, we simply cannot go on like this. Despite our criticisms and misgivings, I shall not be inviting my right hon. and hon. Friends to vote against this order tonight. To do so would only deprive millions of vulnerable people—pensioners, people with disabilities, struggling families—of the extra help that they need and deserve. What sort of people would deny such help?
Got it in one. Apparently, the Liberal Democrats intend to do just that. They issued a press release, which presumably means that at least for one day their policy will remain the same. At best, it is absurd posturing by a minority party. At worst, it is a cynical denial of help to the most vulnerable in our society.
I am most grateful to the hon. Gentleman. Does he recognise the fact that the last time we voted against an uprating—when we had the scandalous 75p increase—it resulted in the underpinning that the Minister has been boasting about this evening? Sometimes, when we make these points we can do a great deal of good for pensioners—his abstention will not do that.
So, we are clear—the hon. Gentleman is making a point. The Liberal Democrats, knowing that they are never going to win these votes, are simply trying to make a point. I am sure that the hon. Gentleman has caught up with the fact that his party has, in recent weeks, abandoned its policies to introduce a universal citizens pension, free care for the elderly and free tuition fees. I wonder how much longer the queue of policies being replaced with mere aspirations will become.
We take an altogether more responsible approach. So, although we are far from happy with some aspects of the order, as I have explained, we will not seek to defeat or delay it.
It is good to have the opportunity to debate these important matters, albeit just for 90 minutes. It sometimes amazes me that we spend a couple of billion here or there, but that the form is that such things go through on the nod without anyone even considering voting against them. It is absurd that Parliament simply has to take or leave the whole order on occasions such as this. The part of the regulations to which we object most strongly is the freezing of the state earnings-related pension scheme and state second pensions, but current parliamentary procedures do not allow us to select the bits that we do not like and try to change them, so we are faced with the unenviable choice of either taking or opposing the whole lot.
As my hon. Friend the Member for Somerton and Frome (Mr. Heath) has pointed out, the last time we chose to register our disquiet on behalf of Britain’s pensioners by voting against the entire order was when the Government had increased the pension by just 75p. It is, perhaps, no surprise that the pension went up by £5 the following year, and that, as my hon. Friend also said, legislation went through shortly thereafter to ensure that a rise of 75p would never happen again. So, although we were mocked by those who knew perfectly well what we were doing at that time, history will show that we did the right thing then, and that we are doing the right thing now by voting as I encourage my hon. Friends to vote tonight. More than 50 of them have already signed early-day motion 957, which sets out our reasons for doing so.
Why do we propose to vote in that way? First, if we look at the additional state pension, SERPS and the state second pension, we see that this is not about a minority interest, although it might be a technical issue and something that people do not understand terribly well. Ministerial answers that I have received indicate that 6.5 million pensioners receive just SERPS pensions, 1.8 million receive both SERPS and state second pensions, and another 150,000 receive only the state second pension, so well over 8 million pensioners will not receive a 2.5 per cent. increase.
The Minister gave an average figure of 2 per cent., which I am sure is right, but the increase will vary a lot between pensioners who have very little SERPS pension, for whom this will not make a lot of difference, and those who have never contracted out, have never had a company or private sector pension and have been in SERPS all their lives. They will tend to have been lower-paid workers who did not have the opportunity of joining a good company scheme, and a big proportion of their total pension income will come from SERPS. They will therefore get less than the 2 per cent. figure that the Minister has quoted.
My hon. Friend is perfectly right. Let me give an example. This morning I received a letter from a pensioner in my constituency who will get an increase of £2.40 in her state pension, but who would have got an increase of more than £5 if the additional elements had gone up in line with inflation. That shows the significant impact that this Government proposal will have on real people.
Absolutely. My hon. Friend highlights one of the strongest examples of this issue—the case of someone whose SERPS or state second pension is, by the sound of it, pretty much equivalent to their basic state pension. The Government might say, “Well, it’s only a pound or so a week, on average,” but that becomes half a billion pounds that would have been given to pensioners if the other elements had been increased by 2.5 per cent., as the basic pension was. On hearing the 2.5 per cent. figure, many people will have thought that that is how much their pension would go up by.
Like many hon. Members I do a lot of work on behalf of pensioners, and I often ask them to tell me what their basic pension is, because of particular schemes by which people can improve their basic pension, and almost without fail the figure that they give me is not their basic pension but their total pension. People simply do not make that mental distinction. The Minister—I hope that she will correct me if I am wrong—read something out from the pre-Budget report, which the public do not read, but she did not quote from the pre-Budget statement to the House, which was at least on the telly. If she can tell me that the Chancellor of the Exchequer made it quite clear in his statement that the additional parts of the pension would not rise in line with 2.5 per cent., I will happily give way to her—but she cannot. I think that we can only conclude that the Chancellor did not want the great British public to understand what he was doing—scooping half a billion pounds by not indexing the additional pension elements.
The Minister gave a slightly geeky answer on this point—I do not use that word as a term of abuse—when she said that there would be implications for people who are contracted out. She will know, however, that for part of the state pension, the graduated retirement benefit—she nods knowingly—which many older pensioners, especially women, often receive, there is no contracting out issue. When she responds to the debate, as I hope she will, rather than letting it peter out, will she explain why that element was not indexed? It would not cost a significant amount and there would be no “unintended consequences,” as she described them. I asked her that question in response to the statement before Christmas. She did not deal with it then; I hope she will do so now.
There are strong arguments that people are being misled and that we should have had consistent indexation between the basic pension and additional pensions—[Interruption.] I am delighted to say that my hon. Friend the Member for Twickenham (Dr. Cable) signed our early-day motion in support of the position I am advancing.
I am only just warming up.
One of the key things the voting public will want to know is where we go from here on pension uprating. We heard a staggeringly evasive contribution—even by Tory standards—from the hon. Member for Eastbourne (Mr. Waterson), who protested that the Government had been uncertain about when they would restore the earnings link, yet when he was challenged directly to say when the Conservatives would do so, answer came there none. All we know is that the Conservatives have said they will find the money for the earnings link by increasing the male state pension age to 66. They said that they would do that in 2016, which on my reckoning is beyond the end of the next Parliament, so where will they find the money? If they propose to restore the link earlier, when will they do it? Pensioners are simply being told that that will happen at some point in the next Parliament.
The hon. Gentleman rightly derided the failure of the Labour Government to restore the earnings link for the past 13 years. His party failed to do so for 17 years, so we are up to 30 already. Does he seriously think that pensioners should be made to wait for up to another five years, on a “Vote for us: we won’t tell you when we’ll do it, but we might get round to it some time in the next five years” ticket?
Let us consider someone who has just reached pension age, say a woman at 60, or a man at 65, or—this has just occurred to me; this is live—a man who turned 65 in 1980, when Mrs. Thatcher—now Baroness Thatcher—broke the earnings link. Such a man will be 100 by the end of the next Parliament. Only then could he be confident that a new Conservative Government would have restored the earnings link. Should somebody who retired the year Mrs. Thatcher broke the earnings link have to wait until they are 100 to see it restored? Even in the world of pensions, that might be regarded as glacial progress.
My hon. Friend the Member for Twickenham has had his thumbscrews out. He has tested our sums and has concurred that the Liberal Democrat commitment for the pension should be to restore the earnings link not at some vague time in the next Parliament but with immediate effect—a link to the higher of prices or earnings, or the 2.5 per cent. underpinning. We have identified, as our costed manifesto always does, a list of things that we would not do, but this is the pension priority that we will introduce. That is why we were so disappointed when the regulations failed to meet that priority.
The point about pensions has been well made. To be fair, the hon. Member for Eastbourne was right to say that the headline rate of inflation really does not do it for pensioners. The retail prices index, in particular, is massively deflated by falling interest rates. Those are great news for people who have a mortgage and are borrowing money, but for pensioners falling interest rates are not merely not good news, but actually depress their incomes through falling savings rates. It is the infamous double whammy. The headline RPI is negative, which does not benefit pensioners, but their incomes are falling because of low interest rates—a double hit. Pensioners will not perceive themselves as having experienced no inflation.
We know that inflation is 3.5 per cent. or more, so to give pensioners an average of 2 per cent. in April, as the uprating does, will be a real cut. It is saying to pensioners, “You’re first against the wall. You’re first to take the pain of the recession.” That is what the order does, which is why we shall oppose it tonight.
There are two issues relating to the order to which I want to draw the House’s attention. The first is pensions. The second is the temporary child benefit and disability benefit increase. The Minister said that the Government were bringing forward a rise that would have happened next year. She asked in what sense there would be a real cut, and I will tell her. This year those benefits will increase by 1.5 per cent., when inflation is notionally nil or negative. Next year they will go up by whatever inflation is, less 1.5 per cent. Any graph of the real value of benefits would show an increase the year before the election and a fall the year after the election. That fits my definition of cynicism. The Government say, “Well, we’ll bring some money forward just before you are about to vote for us, and then we’ll claw it back the year after the election.”
Indeed, it gets worse: the temporary bringing forward of the money is not consolidated into the rate of benefit that must be increased. In other words, the 1.5 per cent. does not go into the base level that is then indexed; it is taken away again and the indexation applies to the pre-increase rate. That is a curious notion of indexation. So this is purely about timing, and the idea that the electoral cycle might have some bearing on it is very hard to resist.
I want to raise a final issue, which is always the elephant in the room during such debates. I want to tell my hon. Friend the Member for Twickenham that I have found some money. In fact, I can tell him that I have found £50 billion—I do not want much of it—sitting in the national insurance fund. As hon. Members will know, along with the order, the Government Actuary’s Department produces a report on the national insurance fund, and it tells us that the estimates for 2009-10 are payments of £75.7 billion and receipts of £78.1 billion. The recession may have done a bit to that, but the fund is more than £2 billion in surplus in 2009-10. Of course, that adds to the accumulated surplus in the fund, so that the balance at 31 March 2011, according to the Government Actuary, will be £50 billion—not a bad day’s work, really.
The law only requires the balance in the fund to be one sixth of annual expenditure on benefits. The actual balance in the fund is about two thirds of annual estimated benefit payments. So pensioners’ groups always ask us where the money has gone. When we find out where it has gone, it is a bit of surprise. A little of the money goes to the national health service, but the law says that most of it must go towards national insurance benefits, pensions and so on. But at the rates in the order, it cannot all be spent on national insurance benefits and pensions. They are not big enough to spend all the cash on, so the balance keeps rising year after year.
Where does the money go? My understanding is that the fund is a bit like a soft bank that lends money to the rest of public sector, so that the Government need not borrow it from elsewhere. Of course, when the Chancellor said in a recent Budget that he would increase national insurance contributions to help fill the hole in the Budget, he was doing so to spend that money not on national insurance benefits and pensions, but on others things, presumably. How can the fund be used as a label and a soft way to raise tax, when the money is not spent on national insurance benefits and pensions?
I wonder whether the Minister can tell us where the £50 billion is. Is it held by the national insurance fund? This is a serious question. Is that £50 billion, or is everything beyond the 16 per cent. that must be kept lent out? If so, to whom? Who is borrowing the national insurance fund? Where is it? Where is our cash? Who is borrowing it? What interest rate are they paying? Or is the national insurance fund being used as a sort of low-interest loan—a kind of Carol Vorderman approach to Government finances? I apologise to the Conservatives for using that example. Is this a way of getting in soft money at low interest rates to lend to the rest of the Government? Is that really what Beveridge had in mind? Did he think that the national insurance fund would essentially become a kind of easy credit option for the Government? We have come an awful long way since the start of the contributory principle.
It is deemed bad form to ask such questions. Clever people do not ask where the national insurance fund money is, because we all know that the fund is a work of fiction, but then why does the Government Actuary produce glossy reports telling us how much is in it? How much does it cost to produce the reports telling us that there is £50 billion in the fund, although when I ask Ministers about it they say, “But there isn’t. Don’t be silly, Steve. We know that the £50 billion isn’t really there. There isn’t really any money there at all, and you certainly couldn’t spend it.” Well, where is it? Why do we go through this charade every year? Either this is a charade or it is real money. If it is real money, where is it, and what is being done with it?
We would like to amend the regulations and take out the elements that freeze additional pensions, graduated pensions and state second pensions, but parliamentary procedure does not allow that. It would be nice to think that our votes in the House on Thursday on so-called modernisation would allow us, among other things, more scope to amend statutory instruments rather than simply voting for or against them, but we are not allowed that subtlety. We must vote for or against.
We have set out our reasoning on the Order Paper, in early-day motion 957. We will vote against the order tonight. If the Government were to say that that might deprive people of their benefit increases, as has been gently indicated, I have had a word with my hon. Friend the Member for Somerton and Frome, the shadow Leader of the House for the Liberal Democrats, and he has nobly said that he will be prepared to make time in the business of the House for a debate on a revised set of regulations as early as tomorrow. We would be happy to give extra time to debate a revised version of the uprating regulations tomorrow, with the offending elements amended so that everyone gets their benefit increase and the £500 million that has been taken away from pensioners can be restored. There need be no loss or administrative delay to anyone, simply a more rational set of regulations.
We cannot conclude without referring to the feckless position of the so-called official Opposition, who apparently cannot oppose such motions because it is beyond their wit to realise that it is proper to oppose a motion that does the wrong thing in the hope that a motion will be tabled that will do the right thing. Is that not a rather disingenuous argument, when they find no difficulty in voting against the Budget? If they were to succeed, there would be no Budget, no uprating and no expenditure.
My hon. Friend puts it admirably. I apologise for going too soft on the official Opposition, but he reminds me to have a go. I have long since given up expecting consistency from the Conservatives on such matters. In a few months they hope to be pulling the levers of power, so they do not want to rock the boat too much. We heard from the Conservatives that they would abstain, which is their default position on so many key issues—[Interruption]—indeed, for the second time tonight on key issues. When pensioners in our constituencies ask us, “Where were you on 1 March?”, I will say, with my hon. Friends, “We were voting against the freezing of your pension.” I suspect that the Conservatives will have to say, “We were at home in bed.”
I thank the hon. Member for Northavon (Steve Webb) for leaving me time to make a few comments. I think highly of him and agree with a number of his points, including the suggestion that we should be able to amend such an order. The public would find it bizarre that we have to take it or leave it. I also agree that those at the bottom seem to be suffering the greatest pain from the recession. That is the basis for my remarks. I have some reservations, however, about the Liberal Democrat tactic of voting against the increase in order to get a bigger one.
The Minister made some interesting comments. For example, she claimed that the Government are protecting the most vulnerable. That sounds a reasonable statement, but when we look at what is happening in the wider economy and the amount of money that has gone into the banks and elsewhere, it sounds a little hollow. It is easy to speak about percentages. I noticed that the official Opposition and the Government are keen to talk about the percentages, be it 2, 2.5 or 1.5 per cent., but let us remember that in real terms in 1979 those at the top were earning about three times as much as those at the bottom. That has widened to four times as much.
In wealth terms, according to the recent report on inequality, those in the 10th percentile now have 96 times the wealth of those in the 90th percentile. That is the kind of sick society that we are living in. Some in this society, as we have been reading, continue to get huge bonuses. We are arguing about a pension going up £2.40 a week. That will not buy a pint of beer in London and will barely pay for a decent coffee. We need to look at the actual figures, not just the percentages. Jobseeker’s allowance is going up from £64.30 to £65.45, which is an increase of £1.15. I wonder how many of us could live on that, given that our salaries are about 19 times that amount. The Minister said that we need to be balanced about the costs. She said that the cost is about £2 billion, yet Trident submarines cost about £100 billion, so where is the balance in that? She also said that there needs to be an incentive to work, but perhaps that just shows that the minimum wage is far too low and needs to be part of the equation, instead of being lost somewhere else.
The hon. Member for Eastbourne (Mr. Waterson) talked about bribes and, presumably, referred to those same increases of £2.40 a week and £1.15 a week, but I just wonder what he would do for a bribe of £2.40 or £1.15—not very much, I suspect. We are disappointed that the deferred pensions are not being increased. The increases before us are not satisfactory, but anything is better than nothing.
My hon. Friend mentions the deferred pensions, but there is an issue of fairness, because a constituent came to see me about that very issue and made the point very clearly that, when she agreed to defer her pension, she was promised—in documentation that she was given and which she showed me—that it would be increased annually, along with the basic pension. The Government have broken that promise. Does my hon. Friend not agree that that is unacceptable?
Before the hon. Gentleman gets himself too worked up, will he at least admit that the legal underpinning is that the benefits should be uprated by the retail prices index? For the first time in 50 years we had a negative RPI, so the default issuance would have been zero. Given that we have been able to do better by spending £2 billion extra in tough economic times, will he at least acknowledge that we have done what we can to protect the vulnerable in very difficult circumstances?
I should have answered the first intervention before I took the second one, but the point remains that the deferral was promised but not provided by a Government who have a large majority and can push through such measures if they really want to. I accept the Minister’s point that the Government have done more than they are legally required to do, but the whole point about my brief comments is that we should not get lost in the small percentages; we need to look at the bigger picture and the pitiful amount on which many pensioners in this country have to live when others are fabulously wealthy.
I am very grateful. The hon. Gentleman is such good value that I want him to keep going. The hon. Member for Angus (Mr. Weir) put his finger on a very important point, because people have deferred the basic state pension. If I chose to defer my basic state pension, I would expect indexed increments on it, but, if the basic state pension is indexed and the deferral is not, surely that is inconsistent, if not challengeable.
Yes, I completely agree that it is inconsistent, and, as my hon. Friend says to me from a sedentary position, the Government, as others have said, are saving money with this measure. However, I think that I have made my point, and I am happy to leave it at that.
I had not planned to contribute to the debate, but, having listened to contributions from both sides of the House, I want to make a few remarks in a brief contribution of my own.
Whatever the misgivings of some hon. Members, voting against the motion at some point would be excessively short-termist in outlook. There is a 1.5 per cent. rise this year, but, as my hon. Friend the Member for Eastbourne (Mr. Waterson) said, there is also a cynical attempt to withdraw it after the general election.
Speaking of cynicism, I wonder whether my hon. Friend can help me on this point: does she understand the tactics of the Liberal Democrats in apparently intending to go into the Lobby to vote against the uprating of all these benefits while hoping against hope that they will lose?
My hon. Friend makes a good point. It would be deeply irresponsible for the Lib Dems to play politics with payments that matter so much to millions of people across Britain, and to divide the House so as to vote against rises that will be very welcome, purely in order to campaign in their constituencies.
I am pleased that the hon. Lady has had the opportunity to come into the Chamber to contribute to the debate at this stage. She may not have been here when my hon. Friend the Member for Somerton and Frome (Mr. Heath) drew a parallel with the Budget. Her party often votes against the Budget, which might well contain important measures of which it is in favour, to make a more substantial point. Does she see a parallel there?
There is a time to debate the reduction in pensions that might happen in the next financial year, and it is then. It is simply wrong to stand against rises that will be welcomed by millions of pensioners across Britain this year when we do not know what the outcome of the election will be and what will happen next year. I urge the Liberal Democrats to play a responsible role in this House instead of the irresponsible role that I suspect they desire to play.
With the leave of the House, Mr. Speaker, I am happy to reply to the debate.
We have had an interesting debate. The issue that we all have to consider is how, in difficult and tough economic times, with unusual measures of price rises—in fact, real price cuts, with the retail prices index being negative—we deal with protecting the most vulnerable in society. Through this uprating statement, we have tried to put first the protection of the most vulnerable in society. That is why we set aside an extra £5 billion to expand and increase the active labour market policies that will help people back into jobs as swiftly as possible. It is also why we have tried particularly to protect the benefits that are traditionally uprated by the retail prices index by at least 1.5 per cent., or, in the case of the basic state pension, by 2.5 per cent.
However, as the hon. Member for Northavon (Steve Webb) was quick to point out, these increases do not apply to additional pensions. In fact, the underpinning to which he referred, which has been put into place by this Government since 2001, has only ever applied to the basic state pension. Amid all the bluster that we have heard tonight, nobody has claimed that the underpinning of 2.5 per cent. to the increases in basic state pension applied elsewhere. Nobody has tried to prove that point or to claim that we have somehow pulled the wool over people’s eyes. In fact, my right hon. Friend the Chancellor has done exactly as was promised in 2001 by having an underpinning of 2.5 per cent. for the basic state pension.
I understand the Minister’s point, but my constituent’s point was that when she deferred her pension, she was given documentation stating clearly that the additional pension grant as a result of the deferral would go up with the basic state pension in every year. That is not happening this year. By deferring the pension, she did not get payments for a couple of years, which obviously saved the Government some money along the way. Does the Minister agree that it is unfair not to adhere to that promise?
I am happy to have a look at the documentation that the hon. Gentleman has, but it is important to remember that a negative figure on the retail prices index does not happen very often. It has happened only once in the past 50 years, so these are very unusual circumstances.
Members of both the main Opposition parties have gone around the country whipping up worries about the size of the deficit and saying that we have to cut it immediately—we should have started last year, according to the Conservative party, and the Liberal Democrats have been making similar noises. For them to come to the House and say that we should be spending another £1.2 billion on this uprating alone—in other words, giving the impression that they would like increased expenditure on this but less expenditure in total—is almost as incoherent as the view that a 1.5 per cent. increase somehow amounts to a cut.
We will increase working-age benefits by 1.8 per cent., in line with the growth in the Rossi index, and during these difficult global economic conditions, when we have seen negative RPI for the first time in 50 years and people might have expected a freeze, the Government have been able to deliver an above-earnings increase in the basic state pension of 2.5 per cent., an above-earnings increase of 2 per cent. in the standard minimum guarantee for pension credit for the poorest, and a 1.5 per cent. increase in key disability and carers’ benefits.
I will not take lessons on pensioner poverty or anything else from members of the Conservative party, considering that when we came into government in 1997 the poorest pensioners lived on £69 a week, which is £98 in today’s prices, and that no one now needs to live on less than £132.50 a week. There has been a real-terms increase of almost one third for the poorest pensioners. We have spent £100 billion more on pensioners since 1997 than would have been the case had we continued with the system that we inherited. We have provided for a real-terms increase above RPI in the basic state pension, and this is the fourth time in 13 years under the Labour Government that we have had a real-terms increase above prices. The Conservatives increased it only twice, once in their first year in government in 1979 and once to compensate for introducing VAT on fuel. It is clear that pensioners have had a much better deal from this Government. We are spending £13 billion a year more on pensioners than would have been the case had we kept the old system in place.
The Government believe in giving help to the most vulnerable in society at the time when they need it most, and we have focused that help on the basic state pension as the correct mechanism by which to do so. Carers, disabled people and those receiving statutory payments for parents will also receive an above-index increase in their benefits, ensuring that they do not fall behind. The order provides a package of uprating proposals that will put £2 billion in the pockets of the poorest and most vulnerable in our society, and I commend it to the House.
The Speaker’s opinion as to the decision of the Question being challenged, the Division was deferred until Wednesday 3 March (Standing Order No. 41A).
We come now to motion 7—[Interruption.] Order. I recognise that the deferral of the Division will come as a surprise to many right hon. and hon. Members, but equally they will know that I operate on the basis of the advice that is given to me by procedural—
They are procedural experts. I am grateful to the hon. and gallant Member for Blaby (Mr. Robathan) for his sedentary endorsement of the value of the Clerks’ advice. I am operating on the basis of that advice, and it would not be proper to have a Division now. That is why it is deferred. I hope that explanation is helpful.