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Benefits Uprating (2013-14)

Volume 554: debated on Thursday 6 December 2012

With permission, Mr Speaker, I should like to make a statement about the uprating of social security benefits and pensions for 2013-14. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 8 April 2013 for each pension and benefit, and arrange for copies of a schedule of the new rates to be placed in the Libraries of both Houses. As part of his statement yesterday, my right hon. Friend the Chancellor announced the rates of tax credits for 2013-14. Today, I will announce the uprating of the social security benefits and pensions for which my Department is responsible.

Even in these difficult times, the coalition Government have stood by their promise for those who have worked hard all their lives. Specifically, we will honour our triple guarantee commitment to increase the basic state pension by the greater of earnings, prices or 2.5%. As prices and average earnings for September 2012 were below 2.5%, the floor of our triple guarantee is activated. Therefore, even while earnings growth remains slow, we will not repeat a small rise like the 75p rise in 2000.

From April 2013, the new rate of the basic state pension will be £110.15 a week for a single person, which is up £2.70 a week on last year. The House may be interested to hear that that means that the basic state pension is forecast to be almost 18% of average earnings—a higher share than at any time in the past 20 years.

Let me turn to additional state pensions, which are often referred to as state earnings-related pension schemes or SERPS. Unlike the Labour party, which froze SERPS in 2010, the coalition uprated SERPS by the full value of the consumer prices index in 2011 and 2012. I am pleased to announce that this year SERPS pensions will rise by 2.2%, which means that the total state pension increase for someone with a full basic state pension and an average additional pension will be £3.35 a week or around £175 a year.

On pension credit, each year the standard minimum guarantee must be increased at least in line with earnings. That would imply an increase of 1.6% for 2013, which would mean our poorest pensioners receiving a smaller increase than the one we are paying for the basic state pension. We think that would be unfair, so I am pleased to announce that we will make equivalent arrangements to those that we put in place last year, which will increase the standard minimum guarantee by the increase in the cash value of the basic state pension. From next year, the single person rate of the guarantee credit will rise by £2.70, taking the weekly income from this safety-net benefit to £145.40. For couples, the increase will be £4.15, taking their new total to £222.05 a week.

Also consistent with our approach last year, the resources needed to pay the above-earnings increase to the standard minimum guarantee will be found by increasing the savings credit threshold, which means that those with higher levels of income may see less of an increase.

This year, the coalition will ensure that those who face additional costs because of their disability and who have less opportunity to increase their income through paid employment will see their benefits increase by the full value of CPI. Therefore, disability living allowance, attendance allowance, carer’s allowance and the main rate of incapacity benefit will all rise by the statutory minimum of 2.2% from April 2013, as will the employment and support allowance support group component and those disability-related premiums that are paid with pension credit and working-age benefits.

In the face of the ongoing challenge to our national economy, we have faced a tough decision on working-age benefits. In exercise of his discretion in the uprating of certain benefits, the Secretary of State for Work and Pensions has decided that the national economic situation is such that the country simply cannot afford to be as generous as we have been in the past.

There has been speculation about a benefit freeze. However, the Government have found sufficient money to pay a 1% increase for people of working age who claim the main rate of jobseeker’s allowance or income support, as well as for those on the main rate plus the work-related activity component of employment and support allowance and housing benefit.

This has been a difficult choice. Where possible, and particularly for those with disabilities, we have sought to protect benefits against inflation. Indeed, we have gone further in the case of the triple guarantee for the basic state pension. Nevertheless, the fiscal position means it has simply not been possible fully to protect every benefit. As my right hon. Friend the Chancellor said yesterday, we need to

“ensure that we have a welfare system that Britain can afford.”—[Official Report, 5 December 2012; Vol. 554, c. 879.]

Uprating for 2014 and 2015 will be affected by the welfare uprating Bill that was announced by my right hon. Friend yesterday, and right hon. and hon. Members will be able to debate these matters further during the passage of that Bill.

At the June 2010 emergency Budget the Government announced that from 2013, rates of local housing allowance would be calculated annually by using the lower of the 30th percentile of local rents, or the previous year’s rate uprated by reference to the consumer prices index. That will end the monthly uprating of LHA and bring the system into line with the uprating of other pensions and benefits. In preparation for that change, the Government fixed LHA rates from April 2012 so as to establish a baseline from which they could be uprated in future. Therefore, from April 2013, LHA rates will be set at the lower of the 30th percentile of local rents or the April 2012 rate increased by 2.2%.

Uprating of LHA for 2014 and 2015 will be in line with the 1% increase for the majority of working-age benefits. LHA rates for 2014 will be set at the lower of the 30th percentile of local rents, or the April 2013 rate increased by 1%, and an equivalent approach will follow for 2015. The Government will set aside £140 million over two years to help those people in areas where rent increases are highest or there is a shortage of affordable housing. It is worth noting—I was surprised by this—that 44% of LHA rates will not increase next year because local market rents have been stable since those rates were last set, and in a further 13% of cases they have actually fallen.

At a time when the nation’s finances remain under severe pressure, the Government will spend an extra £2.8 billion in 2013-14 to ensure that people are protected against cost of living increases. Around £2.1 billion—three quarters of the money—will be spent on state pensions, nearly half a billion pounds will be spent on disabled people and their carers, and nearly £300 million will be spent on people who are unable to work because of sickness or unemployment.

We have protected the triple lock, taking the basic state pension to its highest level as a percentage of average earnings for two decades. We have protected our poorest pensioners with an over-indexation of the standard minimum guarantee so that they too may benefit from the triple guarantee. We have protected disabled people through increases to disability living allowance and attendance allowance, carer’s allowance and the main rate of incapacity benefit, in line with CPI, and disability premiums for those on working-age benefits.

Even in the face of a challenging national economic situation and the need to find savings to rebalance our economy, we have managed to provide a 1% increase to help support those not in work. In this statement I have outlined the Government’s ongoing commitment to ensuring that even in these difficult times no one is left behind, and I commend this statement to the House.

I thank the Minister for advance sight of his statement, although from yesterday we had a pretty good idea what he was going to say. Today brings welcome news for Britain’s pensioners. When Labour was in office we lifted 1 million pensioners out of poverty and increased pensioner incomes by 40%. Today the Minister has confirmed that pensions are set to rise, which we welcome, and we look forward to his pensions White Paper, which is now acquiring mythical status—we hope he will soon be able to prove it is a reality and not a myth.

Although the news for pensioners is welcome, news for working people is a disaster. Buried in the small print of yesterday’s Budget is the brutal truth that it was a Budget for unemployment. We already knew that the Chancellor had throttled the recovery, that the Secretary of State for Communities and Local Government had cut hardest those councils where jobs were fewest, and that the Work programme was worse than doing nothing, but yesterday we saw what that means for the nation’s finances.

The Office for Budget Responsibility has revised up the claimant count by 340,000 by 2016. This Budget puts up unemployment, and the bill for that failure is enormous. The dole bill in 2015-16 will now be nearly £1 billion higher—£1.6 billion more over the next three years. The bill for failure is not going down but up, and yesterday we learned that working people will pay the price.

This country already has more than 6 million working people in poverty. The Resolution Foundation stated yesterday that 60% of the welfare uprating bill will be paid by working people. It is a strivers’ tax. Her Majesty’s Treasury policy costings state that the 1% squeeze will save £6.7 billion. Provisional analysis this morning by the Library shows that just 23% of that will come from JSA, ESA and income support. The rest of the balance will come from tax credits, maternity allowance, maternity pay, sick pay and housing benefits, which are all claimed by working people. The strivers and battlers whom the Prime Minister promised to defend at his party conference will pay the price for the Government’s failure.

I hope we will not have any nonsense from the Minister about how all that will be offset by the rise in the personal allowance. Already, £14 billion has been taken out of tax credits, and yesterday’s Budget steals another £5 billion from tax credits by 2016-17. The universal credit we have heard so much about—if it ever happens—has been hacked into before it has even started. The price will be paid by 6,000 families in the Minister’s constituency—no doubt they are delighted with him.

In the welfare uprating Bill, what is the value of the squeeze on working people’s maternity allowance, statutory sick pay, maternity pay, paternity pay, statutory adoption pay, working tax credit and child tax credit? During Second Reading of the Child Poverty Bill, the Minister said that he had given up being an even-handed academic, because he was

“appalled at what was happening in our country to the most vulnerable people”—[Official Report, 20 July 2009; Vol. 496, c. 625.]

Indeed, he attacked his hon. Friends for standing “idly by” and watching child poverty reach record levels.

Before the autumn statement, the Institute for Fiscal Studies said that 400,000 children will be plunged back into poverty by 2015 because of measures already taken. How many more children will fall into poverty as a result of this strivers’ tax? Will the Minister please justify to the House how the Chancellor can press ahead with a £3 billion tax cut for the better-off—a tax cut of £107,000 for the 8,000 people earning over £1 million—when 6,000 families in his own constituency will see their tax credits frozen or cut? This Budget has increased the claimant count, put up the cost of failure and now working people will pay the price.

It is not often that Shakespeare springs to mind when I respond to these statements, but the phrase

“full of sound and fury, signifying nothing”

springs to mind—I missed out the earlier bit of the quote about a tale told by an idiot, out of respect for the right hon. Gentleman. We get a lot of fury and sound, but when it comes to the crunch, he abstains. He described the measures as a disaster, but it was not clear whether that means he will vote against them—answer came there none. If the measures are a disaster, surely he can say he will vote against them, but of course he does not. He sounds sympathetic and angry, but when it comes to the crunch and there is a vote, he disappears and is not to be seen.

The right hon. Gentleman asked about the crucial issue of employment, but he does not seem to realise that the number of people in work is at a record level and will rise every year of this Parliament. That is the record of the coalition. He asked about strivers and somehow wanted to waft away the large increase in personal tax allowances. I am afraid, however, that I will not let him waft away a large commitment to Britain’s strivers. This April, the personal tax alliance will rise by a record amount—£1,300. That is worth £5 a week to the hard-working families he claims to support—far more than any indexation impact.

The right hon. Gentleman referred to universal credit and used the phrase “if it happens”. He may not have noticed that yesterday we published the rates of disregard for universal credit, and on Monday my right hon. Friend the Work and Pensions Secretary will publish further details. This bold welfare reform is on track, on time and under budget, and it will be delivered as we have promised.

The right hon. Gentleman asked about three specific areas. When the welfare uprating Bill is published it will be accompanied by a full impact assessment that will deal with the figures he has requested. On child poverty, the Government remain committed to our statutory obligations, and when taken as a whole, our policies will deliver real reductions in child poverty. He will have seen the chart published yesterday on the impact of universal credit, which shows overwhelmingly that those in the poorest deciles benefit most. Universal credit will help us to eat into child poverty. He did not mention the Chancellor’s announcement yesterday of a multi-billion pound tax relief for investment by British business which will create jobs and reduce child poverty.

Finally, the right hon. Gentleman mentioned taxes on the highest paid. I seem to remember that he was a Treasury Minister. In 13 years of the Labour Government —if I remember rightly—the top rate of income tax was never above 40%. He seems to be objecting to the fact that we have a 45% top rate of income tax. If 45% is too low, why was he satisfied with 40% for 13 years?

Will the Minister confirm that the Government have protected the basic state pension? Will he also confirm that, as a result of the triple lock, pensioners in Weaver Vale can look forward to £15,000 over the course of their retirement? Does he agree that the Conservative party is the party that makes work pay and that makes it pay to save?

My hon. Friend is right that the coalition is making it pay to work. We are paying an increase in the state pension that is above inflation and above earnings growth. The figure he gives is right: someone retiring this year on a full state pension will get around £15,000 more over their retirement than they would get under the policies adopted by the previous Government.

To paraphrase Shakespeare, the Minister doth protest too much, methinks. He knows that the majority of our children who live in poverty do so in low-paid, working, not shirking, families. Those families are already experiencing serious difficulties in adequately feeding, clothing and, in some instances, even housing their children. In the light of the freeze on benefits, how many more families and children does he expect to be pushed into that—surely, in the 21st century—totally unacceptable situation?

I hesitate to trade Shakespearian quotes with the hon. Lady, but to be clear, benefits are not being frozen, they are being increased. She is right on child poverty. The Government have not just stumbled across working poverty, because it was widespread under the previous Government, but it will be substantially improved by universal credit, which will make work pay in a way that it did not under the previous Government.

Will the Minister confirm that average pay has increased by only 10% and out-of-work benefits have increased by 20% in the past five years, and therefore that holding down the rate of increase will help to make the situation fairer for those who go out to work to pay for those benefits?

My hon. Friend is right that we have substantially increased out-of-work benefits. He will recall the 5.2% increase last year in line with inflation. We judged that that was the right thing to do when inflation was running very high. This year, my right hon. Friend the Chancellor has had regard to inflation and the wider economic situation, which have informed his judgments.

Yes, in Alfreton. The BBC interviewed people—strivers—who work for a living at the factory about the effect of the Budget. Surprisingly, all three of those interviewed understood that the cut would affect them and not just people out of work. What answer has the Minister got for those people about how the Budget was presented? The Government tried to pull the wool over their eyes, but they were smart enough to spot that they would be the casualties.

Those who travel to work using their cars will have been delighted by the cancellation of the 3p increase in petrol tax. By the time the rates are reviewed next autumn, petrol duties will have been frozen for two and a half years, and petrol prices will be lower by 10p a litre. The hon. Gentleman may wave his hands, but that is what matters to people who work. On the low paid, is he aware that those on the minimum wage have had their tax bill halved as a result of the increases to personal tax allowances? That is welcomed by strivers.

I commend my hon. Friend and his colleagues for how they have conducted making this difficult decision. Will he assure the House that people who are vulnerable, including disabled people, those who are sick and carers, will continue to get the same benefits?

I am grateful to my hon. Friend for his support. He is right. As well as the undertakings we gave in our election manifestos on the state pension, my right hon. Friend the Chancellor focused specifically on the most vulnerable. DLA will go up in line with inflation, as will attendance allowance, carers allowance and the support component of ESA. We recognise that money is tight—I recall that someone once said that all the money had gone—but we want to protect the most vulnerable.

It might be a bit more sensible if we had an opportunity to vote on all parts of the package. We could then include some of the things that the Minister’s Liberal Democrat colleagues did not manage to include—I am thinking, for example, of higher rates of tax on property. For working people, and particularly those who are working part time and are dependent on housing benefit, the changes to housing benefit uprating are yet another cut in their standard of living. They lost out in the last round of uprating because of the differential tax credits, which were not uprated in line with inflation. The latest changes are another hit on working families.

The hon. Lady’s constituents will want to look closely at how she votes. We hear the sound and fury, but then there is abstention. The Labour party has no alternative. There is a shortfall, and the Government have found a measured and reasonable way to fill it. I have heard nothing from Labour Members about an alternative strategy. Until we hear that, we will not take them seriously.

Will the Minister confirm that next year’s 2.5% increase in the state pension exceeds both the growth in average earnings and the growth in prices? That stands in stark contrast to the miserly and insulting 75p annual increase given by the previous Labour Government to pensioners in 2000.

My hon. Friend is right. Some have suggested that £2.70 is not that great a figure, but when we compare it with the figure he quotes, we can see that it is an improvement. It is higher than inflation and higher than average earnings. As I have said, it takes the pension’s real value relative to what people in work get to its highest level for 20 years. The coalition can be proud of that.

Many people in my constituency come to see me absolutely distraught at the prospect of losing their private rented flat because of the imposition of a housing benefit cut. Social cleansing is going on in all of central London because of the benefit cap. That is a disgraceful situation. It destroys communities and damages schools—need I go on? The Minister is proposing a £140 million transitional payment. That is not enough, and transition is not enough. We need rent controls in the private sector. If there is to be a benefit cap, it needs to reflect the reality of the costs of life in inner-city Britain.

I am grateful for the opportunity to clarify where the £140 million that we have identified will be spent. The additional help will go to areas where there are local housing market pressures—areas where rents have risen rapidly or where there is a shortage of affordable housing. It is targeted support for local areas in addition to the discretionary housing money we have made available to local authorities so that the hardest cases can be properly protected.

As co-chair of the all-party group on carers, I welcome the fact that carer’s allowance, and other benefits relating to sickness, such as DLA and attendance allowance, will be uprated in line with CPI. Will my hon. Friend explain what will happen to the value of those benefits under the welfare uprating Bill? Will he guarantee and give the House an undertaking that benefits such as carer’s allowance will continue to be uprated in future years along the lines of CPI increases?

The focus of the uprating Bill will be on those benefits over which the Secretary of State has discretionary powers, particularly working-age benefits, JSA and ESA. We will also look at tax credits and child benefit. It is our policy to ensure that carer’s allowance is protected against inflation.

Does the Minister accept that many of those on working-age benefits spend much of their money on food and, in particular, energy, for which the rate of inflation is much higher than CPI? A 1% increase is not the difference between CPI and 1% for these people but is in fact a much greater cut in their living standards.

This issue is raised every year, and every year it is argued that the rate of inflation for people on benefits is always above the prevailing rate of inflation, but in the long term there is no reason to think that that would be the case. We have made provision for the most vulnerable groups to be protected—those receiving disability benefits and pensioners—but unless the hon. Gentleman can suggest serious ways of saving money elsewhere in the Budget, for which the Scottish National party has not been famous, I am not sure that his opposition to our plans is credible.

I remember the outrage in my constituency a few years ago when pensioners discovered that the increase in their pension did not cover even the increase in council tax. May I commend the Government for increasing the state pension by 2.5%? It is clear that this Government care about pensioners and that the previous Government did not.

I am grateful to my hon. Friend for mentioning council tax. Many pensioners, particularly those who are just clear of the means-tested benefit system, whom I often think of as the not rich, not poor group, felt those increases in council tax keenly. They will benefit substantially from our repeated freezing of council tax, which those on a fixed income in retirement value greatly.

The Minister spoke about the number of people in employment, but does he not accept that the number includes at least 3 million people who are now working part time—not because they want to work part time, but because they cannot work full time? Is that not precisely the group who will be particularly badly hit by his measures?

There is a danger that the Opposition will denigrate part-time work, which is a choice for many. There are clearly some who want to move up from part-time work to full-time work, and our reforms of the in-work benefits system, through universal credit, will assist them in that process.

I welcome the extra support for pensioners. The Minister mentioned council tax. Does he share my shock and surprise that while Conservative councillors in my constituency have fought to keep council tax down by cutting councillors’ salaries and senior management, the few remaining and ever-decreasing number of Labour councillors insist on continuing to oppose those changes and fight for bigger increases in council tax year on year?

All councillors have to have regard to the impact of council tax increases on those, such as pensioners, on a fixed income. It is incumbent on local government as much as it is on central Government to ensure that any unnecessary costs are stripped out so that council tax rises can be kept to a minimum.

Will the Minister confirm, despite the Chancellor’s rhetoric yesterday about those who go to work and those who stay in bed, that of those affected by the 1% uprating, 60% are in working households? The increase in personal allowance will be outweighed by the losses to their tax credits and benefits. Is that correct? Yes or no.

No, it is not correct. The personal tax allowance will rise by just more than £1,300 in April. At a standard rate of 20%, that is approximately £260 a year, or £5 a week, which is more than the impact for the vast majority of households. The hon. Gentleman makes the mistake of taking measures in isolation. It is crucial to look at our measures as a whole, including tax allowance rises and cuts in petrol duty compared with previous plans, which benefit the working households he is most concerned about.

I wonder what the Government have got against women. Does the Minister agree with the House of Commons Library figures that show that women will bear the brunt of these changes—80% of those affected will be women?

I do not recognise the hon. Lady’s description. A wide range of the policies we have introduced—for example, in my area on state pension reform—are focused particularly on assisting women. Many beneficiaries of universal credit will be in lower-paid work, which includes many women. She referred to very low-paid women, who, for example, receive statutory maternity pay. They will almost all benefit from the personal tax allowance increase.

The Prime Minister used to talk about broken Britain, but is not the truth that this Government are breaking and dividing our country? How can the Minister justify the £3 billion tax give-away to millionaires while thousands of people in his constituency will lose out as a result of these announcements?

We inherited a situation in which approximately £80 billion a year of spending reductions and tax increases were needed simply to balance the books. I have not heard anything this morning from the Opposition—not a single word—on where, now there is no money left, that should come from. If the hon. Gentleman voted against our proposals he would have some credibility, but of course when the crunch comes he will not—he will sit on the fence. He wants his constituents to think he cares, but when it comes to casting his vote in this place he will be somewhere else.

The Treasury’s own analysis shows that the measures announced yesterday and today are regressive towards people in the seven lowest income deciles. Given that three-quarters of the cuts in tax credits will affect people in work and that the Government have made no steps to deal with the looming work disincentives that will be faced by second earners in couple households with children, are the Government not making a mockery of their pledge to make work pay for everyone?

If the hon. Gentleman looks at the distribution impact that was published yesterday, he will realise that he has mysteriously forgotten about the large amounts of additional tax that will be paid by the top decile through the restriction of pension tax relief, who will, by far, lose out the most, and that seems a very progressive thing to do.