rose to move, That the Grand Committee do report to the House that it has considered the Guaranteed Minimum Pensions Increase Order 2007. 7th Report from the Statutory Instruments Committee.

The noble Lord said: I will speak also to the Social Security Benefits Up-rating Order 2007. I am satisfied that the orders are compatible with the European Convention on Human Rights. The Social Security Benefits Up-rating Order will, as usual, increase most national insurance benefits by the retail prices index, which is 3.6 per cent, and will increase most income-related benefits by Rossi, an index that excludes rent, mortgage interest, council tax and depreciation, which is 3 per cent.

The Guaranteed Minimum Pensions Increase Order sets out the amount by which contracted-out occupational pension schemes must increase members’ guaranteed minimum pensions which accrued between 1988 and 1997. Where the annual increase in the retail prices index exceeds 3 per cent, the guaranteed minimum pensions indexation requirement is capped at that level under the primary legislation. This year’s order therefore provides for an increase of 3 per cent.

This year’s uprating adds over £3.5 billion to government spending and reinforces our commitment to tackle poverty by helping those most in need and to build an active welfare state. The order provides for an extra £2.48 billion for pensioners, of which £300 million is above inflation, and an extra £560 million for disabled people and carers. We now spend over £10 billion a year more on pensioners than if we had simply continued the policies that we inherited in 1997, and pensioner incomes have risen across the board, with the poorest benefiting the most. We have lifted more than 2 million pensioners out of absolute poverty, and 1 million out of relative poverty. Indeed, we have now reached a position in which pensioners are less likely to be poor than the population as a whole, breaking the historic correlation between poverty and old age. We now need to maintain that achievement, and in the Pensions Bill, which has now completed its Committee stage in another place, we will legislate to ensure that the progress we have made for today’s pensioners is locked in for tomorrow’s pensioners.

We will only truly eliminate inequality in retirement when we eliminate inequality in working life. That is why our welfare reforms and our aspiration for an 80 per cent employment rate are so important and why we are so committed to tackling entrenched poverty and disadvantage. Ten years ago, nearly 6 million adults in this country were dependent on benefits, and with that benefit dependency came poverty. The number of children living in poverty doubled. Today, child poverty is falling faster than anywhere in the EU. Since 1997, 800,000 children have been lifted out of relative poverty, and 2 million out of absolute poverty.

Tax credits are now benefiting around 6 million families and 10 million children. From April this year, families with children will be, on average, £1,550 a year better off in real terms than in 1997, while those in the poorest fifth will be on average £3,450 a year better off. That support goes hand in hand with the other measures that are designed to give working families the support that they need. In 1997, paid maternity leave lasted for 16 weeks. From April, it will rise from six to nine months, and by the end of this Parliament we intend to extend statutory maternity pay and maternity allowance to a full year.

Of course, there is more to do if we are to eradicate child poverty, and we will continue to look at what more the Government can do to help those most in need, but ultimately it is the opportunity to work that provides the only long-term, sustainable anti-poverty strategy. That is why this Government’s approach to tackling poverty has been about maximising opportunities to work. It is why we created the national minimum wage and tax credits to make work pay, why we have invested in Jobcentre Plus and the New Deal to help people find work, and have maintained a strong economy that sees everyone sharing in the benefits of record economic growth. Today more people are in work than ever before. Employment is up by more than 2.5 million since 1997 and is up in every region of the UK.

Our Pathways to Work initiative now covers 40 per cent of the country.

I regret to have to tell Members of the Committee that there is a Division. I must therefore adjourn the Committee for 10 minutes while the Division takes place.

[The Sitting was suspended for a Division in the House from 5.30 to 5.40 pm.]

In conclusion, our Pathways to Work initiative now covers 40 per cent of the country and we will roll it out nationwide by April 2008, in time for the new employment and support allowance. Our Welfare Reform Bill will build upon that success. It will deliver on our commitment to reform incapacity benefits while ensuring security for those who cannot work. Together with our city strategy, it will offer a new approach to delivering employment services to some of our most disadvantaged communities.

Our disability rights legislation, which is the most comprehensive of any European country to date, and our age discrimination legislation are breaking down the cultural and discriminatory barriers facing disabled people and older workers. Our future success in tackling poverty and worklessness will depend on our ability now to build on a decade of progress, towards our aspiration of a fair and inclusive society that offers opportunity and independence for all. This year’s uprating measures move us further towards that aspiration. They reinforce our commitments to tackle poverty and exclusion, and to ensure security in retirement. I commend the orders to the Committee.

Moved, That the Grand Committee do report to the House that it has considered the Guaranteed Minimum Pensions Increase Order 2007. 7th Report from the Statutory Instruments Committee.— (Lord McKenzie of Luton.)

I am again grateful to the Government for introducing these orders and I note the change of voice and tone in that introduction. I should apologise to the Committee. If we go on—I suspect that we will—beyond 6.05 pm, I am afraid that I have an unavoidable commitment which I cannot break. Therefore, I will not be here at the end of the debate. My noble friend will of course remain.

The uprating order is, as usual, predictable and follows precisely the autumn uprating statement. So we have known since September by how much the various national insurance benefits would rise—that is, 3.6 per cent—and most income-related benefits will rise by 3 per cent, which, as the Minister has said, is inflation stripped of rent, mortgage interest, council tax and depreciation—the so-called Rossi index. The guaranteed minimum pensions order rates the contracted-out final salary schemes by the same amount.

On reading the Minister’s colleague’s speech in another place, it surprised me just what was going on. Where the annual increase in the retail price index exceeds 3 per cent, uprating of the guaranteed pensions indexation is limited to 3 per cent, even though last year’s RPI was 3.6 per cent. The latter figure is made up by comparing prices of a standard shopping basket with mortgage interest added in.

I suspect that few people will recognise the figure of 3.6 per cent. Certainly, my son's employers do not. He works in London as a back-room boy for a bank and is paid a basic salary, with no extra payment based on his own efforts. He cannot be compared with, say, some of your Lordships in the financial world. His pay rise was 6 per cent, which, interestingly, is what pensioners believe is on average their extra cost of living over the past year. This is hardly surprising when the cost of heating fuel, council tax and petrol is considered.

Given the Office for National Statistics’s new website, where people can work out their own inflation rate using a questionnaire of 23 items, I wonder whether the official basket of prices could be altered. Can I issue a plea that all the information given by those who use the website should be added together and averaged out, so that we can see the true position? I of course accept that this would be rough and ready, but it would be no more rough and ready than the RPI. However, it would be much more representative of what is actually happening, even though it would depend on who actually uses the website. It would be skewed for example if it was mostly used by pensioners or young working people.

I am very pleased to follow the noble Lord. I concur with much of what he has said. The orders, particularly the Social Security Benefits Up-rating Order 2007, are standing features of the annual parliamentary calendar. The good news for the Grand Committee is that we can ask the same questions every year. The bad news for the Minister is that he has to try to answer them.

I shall concentrate for a moment on process. It is a shame—and my experience over time, although it is not the Government’s fault—that the uprating process has become an annual ritual. That means simply that people assume that the customers or claimants, or whatever you like to call them, are being looked after merely by the implementation of the annual uprating for the cost of living. Although that is obviously true so far as it goes, the difference between the average earnings index and the retail price index has some quite dramatic effects over time. It is easy to forget those because the uprating order is annual. Annually, the slippage by itself is minimal. Over years, however, it can be substantial.

The really important process question, which I have posed before and which has perplexed me for a long time, is just exactly what corporate knowledge the department applies each year to this process. I suspect that it is an Excel spreadsheet on someone’s desktop computer. A Rossi index, an RPI index or an average earnings index is put in and an answer comes out, which is the uprating statement. I hope that that is not true. I understand that a piece of business-like work needs to be done, and that one cannot think about it all or calculate it all afresh from first principles every year. However, Section 150 of the Social Security Administration Act 1992 imposes a duty on the Secretary of State to review the level of benefits annually to determine whether they have retained their value relative to the general level of prices. If one considers that question in the context of today—as the noble Lord, Lord Skelmersdale, has rightly pointed out—customers or claimants this year face council tax rises, fuel costs and other such matters.

It would cause me some concern if the process applied by the department to reach the figures in the orders is nothing more than the uprating formula being applied and that that is all that is involved. That would be a shame. It would also be a dereliction of duty—not according to the letter of the law, because one could argue that Section 150 of the Social Security Administration Act 1992 was being fulfilled, but in spirit. As I say, if that approach is taken by virtue of neglect, inequality will become entrenched over the years and financial disadvantage will grow. Over 25 or 30 years, unintended consequences are bound to emerge for whatever Government are in power. I would like to think that some of the pointy heads in the department who think about these things carefully—I know they are high quality people; “pointy heads” is a term of endearment, not abuse—are looking carefully at some of the underlying factors so that we can deal with the longer-term consequences of some of these things.

The figure that overhangs this debate is the 4.4 per cent increase in the July average earnings index. That is what is happening to sons who are bankers, although perhaps bankers are paid better than other people. We all hope that there has been a general increase in the country’s wealth. Indeed, the Government arguably have an economic story to tell, and I acknowledge the progress that has been made. Many of the benefits of that have been put in the direction of alleviating child and pensioner poverty, which is all very good so far as it goes. However, it is self-evident that if the wealth of the nation is increasing and floats everyone up, the tax take increases as a result. The default position should therefore almost be the average earnings index and not the RPI.

The other thing that perplexes me, which is built into the formula in Section 150 of the Social Security Administration Act 1992 and has been built up piecemeal over the years, is the differential between the list of benefits with a statutory requirement to be uprated and those without such a requirement. Benefits with the statutory requirement, as I am sure the Committee will know, embrace such things as the attendance allowance and the disability living allowance. Benefits without a statutory requirement include child benefit, housing benefit and jobseeker’s allowance. There is no longer any rationale for that difference. There were good reasons at the time why these benefits all came into these categories individually, but we should seriously consider the whole situation and say that every benefit should be statutorily uprated. There is a prima facie case for saying that the default uprating level should be the average earnings index. I do not say that as a spokesman for my party, because I am not; I am simply interested in the subject.

The rationale is that the Government’s own ambitious targets will never be reached unless we embrace some elements of both these things over the distance. The child poverty target for 2010 is certainly on course to be missed. It will certainly not be met for 2020 unless serious attention is given in Budgets, uprating statements and Pre-Budget Statements in forthcoming years. These are the kinds of things that policy makers in the department will have to wrestle with if the Government’s own targets are to be met. Government spokesmen may throw this back in the faces of opposition spokesmen—that happens more in the other place, which is the best place for it; it is handled much more elegantly here in my experience, which is not yet that great—but the argument that you are just spending money and cannot account for it is not the way to look at it. The way to look at it is to ask what ambitious targets the Government are setting and whether the current plans meet, or are likely to meet, those targets. I do not think that they are. That is a matter of concern in our uprating debate this afternoon.

I want to know what the department is planning. The Social Security Advisory Committee has a body of expertise that could help us to understand some of these things, and it could be invited to review these matters. Sir David Freud is helping the department with some implementation issues. I am not sure whether one of the tasks that he has been given is to look at the built-in inequality in the current uprating statement and process, but it is certainly a question that could be considered. Another question that really needs to be considered is what is not in the order. Ministers can easily make a good case, as the Minister has done, for the progress that has been made, but someone—it was not me; I am not that much of an anorak—counted 464 benefits, tapers, premiums and allowances in the order. I just want to make it clear that I did not count them myself; I simply pass it on for what it is worth. A hundred and thirty of those have not been uprated at all: 130 thresholds, disregards and other levels that are set have been frozen. They have been frozen over the years, as I have said earlier. If benefits, premiums and thresholds are frozen, particularly the capital thresholds and allowances, there is a loss over time, which people really begin to feel, particularly in our more disadvantaged families. We need to look at that very carefully.

The Minister did not mention—I am not surprised—the healthy nature of the National Insurance Fund. Noble Lords might like to look at the back of page 28 of the Government Actuary’s most recent report, which shows that we have a surplus of £4.2 billion in the current annual year, going up to £10 billion in 2011-12. There is no pressure, particularly on contributory benefits and the flexibility available to the Government. Although the Minister parades his generosity, there is a lot more flexibility behind the Government’s position, should he choose to use it.

I cannot resist responding to the comments of the noble Lord, Lord Kirkwood, about RPI and so on. There is clearly a fairly automated process, because Parliament thought it the most appropriate balance between incentives into work and the rest.

I am sure that the noble Lord is right that unless one intervenes, as with pensioners and disabled people, then the gap between RPI and earnings widens each year. On any relative, as opposed to absolute, measure of poverty, this means that you increase the number of poor by definition, even though their benefits are increasing. Unlike the noble Lord, I think the answer is not to raise benefits but encourage more people into work: the welfare to work agenda. You could increase benefits by £10 or £20 per head per week and people would still be poor, bumping along and unable to manage their finances.

My noble friend made much of the welfare to work agenda in his introduction, and I throw in a comment or two about the thing he left out, as others have said, which is the earnings disregard. We all know that people who work are better off than people who do not work. We know that the best predictor of people coming into the labour market and getting a substantial job is that they have done a mini-job, possibly under 16 hours, the year before. Let us think about the social security system we have constructed. It is man-made—it was made not by God but by men. If you are a lone parent, for whom there is a £20 earnings disregard, you keep every penny for the first three hours you work. From three to 16 hours you have 100 per cent deductions, and after 16 hours—Nirvana!—you switch to tax credits and your income is suddenly doubled. That is crazy. We should be saying that you are better off for each and every hour you work; not dichotomies—out of work, in work, with a little tinkering of earnings disregard—but a dial. So, if you work six hours you get more income than if you work two; if you work 10 hours, you get more than if you work six. At 16 hours, instead of benefit being the core onto which you have income banded, you would have income being the core from which benefit then gets taken away. That is the right way to go, so that every hour of work encourages you to work another because you have an incentive to do so.

That is the bigger point. In that context, earnings disregards play their part. Lone parents get at least a £20 earnings disregard, but we should not be talking about disregards. We should be allowing people to keep a portion of each hour they work until, at 16 hours, they keep the lot and are topped up by tax credits. If Sir David does anything, I hope that he gets away from this very Beveridge concept of being out of work or in work, whereas most partners in a couple relationship with kids and caring responsibilities are both in work and not in work and are also on benefit. Our social security system simply cannot reflect the untidiness of most people’s lives, because we have this artificial, manmade construction of hours of work.

Lone parents and disabled people at least have a 20-hour disregard. Let us take a couple; they may not be married, but cohabiting. He is on IS and JSA with a health restriction. He may be sixty and drawing pension credit. If she goes into work, as soon as she has worked for more than one hour at minimum wage, every penny she earns comes off his benefit. What do your Lordships think they are going to do? Do noble Lords think she is going to work? Of course she is not. Particularly if they are not married and not necessarily used to collective joint accounts, he will say, “You’re taking away money from my pension credit; don’t work”. What message are we sending with new deals for partners? What message are we sending to women in their late 50s or early 60s? We want them to stay in the labour market building their pension and an income so that they do not go into their retirement poor.

If we mean it when we say that the answer to poverty is getting into work, which I wholeheartedly believe, and I know my noble friend believes, then we must build ladders into full-time work. They do not currently exist because of our crazy rules about 100 per cent deductions between either an earnings disregard of £5 a week, at most £20, and what you get when you work 16 hours a week. If we want to make it possible for lone parents to re-enter the labour market, if we want disabled people to come back into the labour market—although they at least have the access to work rules—and if, above all, we want cohabiting couples—where there may not be the same bonds of financial trust as long-established married couples—particularly the woman, to re-enter the labour market without penalty or pressure from the man not to do so, we must reconstruct our rules. We currently talk the language of welfare to work, but construct a social security system that, I am afraid, too often undermines it.

I thank each noble Lord who has contributed to what has been a short but passionate debate about an order that could be seen as quite turgid. I am grateful to the noble Lord, Lord Skelmersdale, for having given me advance notice of the fact that he would not be able to stay throughout the debate and that his colleague would deal with the questions.

I shall start with the question that the noble Lord, Lord Skelmersdale, raised about where the £3.56 billion is going—about it not adding up. Some £2.48 billion goes to pensioners, which is £300 million above inflation; £560 million goes to disabled people and carers; £520 million goes to working-age people; and £16 million goes to children. Somewhat tongue in cheek, he teased us about replacing RPI with an aggregate of what comes from the website. I am sure that he accepts that that would not be a fair way to proceed. The RPI and the other indices are constructed on the basis of a significant process by statisticians and have served Governments of all persuasions well.

I thought that the noble Lord, Lord Skelmersdale, was going to stray into the issue of rates of inflation related to pensioners but he did not do so specifically, so I shall not answer on that but I would be happy to if it were a point that his colleague—the noble Lord, Lord Taylor—particularly wants to pursue. The noble Lord, Lord Skelmersdale, raised an interesting point on Article 6 about whether the date was 4 April or 11 April. I shall have to write to him on that, which underlines the point that the noble Lord, Lord Kirkwood, made.

Split the difference.

There was a small question about why we do not uprate the 25p age addition for the over-80s. Perhaps that emphasises a bit some of the complexity in the system. I am advised that no Government have increased it since it was introduced in 1971, but this Government have obviously done much to help older pensioners in particular: free television licences for those aged over 75, winter fuel payments worth £200 per household and £300 per household with someone over 80, and so on.

Pension credit take-up was raised by the noble Lord, Lord Skelmersdale. It is an important point; we need to make sure that people claim and receive the benefits to which they are entitled. We are writing to everyone whom we believe may have an entitlement to pension credit, encouraging them to apply and advising how the Pension Service can help them to do so. Over 2 million mailings are planned through 2006-07. We offer face-to-face visits and a full benefit entitlement check to the most highly eligible and vulnerable pensioners, with plans to undertake up to 1 million successful home visits during 2006-07. That underlines the Government’s commitment to addressing the issues.

The noble Lord, Lord Kirkwood, talked about the process and the thinking behind the upratings, and asked whether someone just pressed a button and the figures spewed out. If you look at the data, you realise that that is not true. I think that he touched on the point about the number of potential rates, tapers and so on in the system. Some are uprated, some are not. Some are uprated by RPI, some by Rossi, some by the earnings index. In particular, the standard minimum guarantee for pension credit was uprated by 4.4 per cent, fulfilling a commitment that the Government made to protect the poorest pensioners. Some benefits since 1996-97 have been uprated significantly above RPI. Let us look at income support. The child allowance for those aged up to 11 has increased in real terms by something like 120 per cent over that period. The carer’s premium has increased in real terms by 59 per cent over that period. There is a range of other such benefits, such as the disabled child premium, which has increased in real terms by 75 per cent since 1996-97.

Through pension credit, we dealt in part with protecting people and making sure that the working population and retired people share in the wealth that the country is creating, but the pension reform that is going through another place at the moment will relink the basic state pension to earnings. That will be welcomed by all. The commitment is to do it when it is affordable and by the end of the next Parliament, which is a very clear commitment. If you look at outcomes for child poverty, which was moving inexorably upwards when this Government came into being, there have been some genuine improvements. On the position of pensioners, which I outlined when I moved the order, you are now less likely to be poor as a pensioner than as a member of the population as a whole. That is quite a significant change.

1988!

That is indeed quite a long time. There would obviously be an issue of balance in the impact on work incentives if they were uprated, if they are not in-work benefits. That must be addressed. On why the benefits system is so complex and what has happened with simplification, the benefits system has evolved over a long period and complexity has developed for a wide range of reasons, not all of which are bad or unintentional. The department has a wide range of clients, who live multi-faceted lives; my noble friend Lady Hollis mentioned just how convoluted some of those lives can be. Jobcentre Plus alone receives 234 million contacts a year, which is an extraordinary number. There is obviously a need to balance people’s needs, limit costs and target scarce resources.

The benefit simplification unit was created to act as a catalyst in driving simplification forward across the benefits system, challenging existing complexity and ensuring that the benefits system operates in ways that customers and staff can understand. On progress to date, as a first step it produced Simplification: Guide to Best Practice in May 2006. In addition, all DWP projects must show in their strategic outline business cases how they have maximised the opportunities for simplification. The BSU has set up a dedicated intranet site with additional guidance and help for staff and an email address for staff to forward ideas for change. Road shows for all staff across the department were completed this year to raise awareness of the simplification agenda. It worked closely with the Social Security Advisory Committee, which agreed that, from July 2006, its scrutiny proposals for regulations would include consideration of the complexity impact of the new measures. That is just some of the stuff going on; there is movement. The noble Lord raised an important point, however, as did my noble friend Lady Hollis.

What are the Minister’s views on council tax increases and their impact on the cost of living for pensioners? One is already reading of people threatening not to pay. That council taxes are rising faster than pensions is undoubtedly a sore point. I am in the company of people who know far more about the subject than I. However, does the Minister not agree that we would not start from this point if we were starting again? We must live within the building that we have. To change is dangerous for two reasons; first, the impact on customers who quite properly rely on the benefits system; secondly, the need for fiscal responsibility, in government and in opposition, means that one has finite sums available for the benefits system. That traps the whole process in the sort of routine that we have been going through today. I have been impressed by the contributions made by the noble Baroness, Lady Hollis, the noble Lord, Lord Kirkwood, and my noble friend Lord Skelmersdale and by the way in which they have indicated that a more comprehensive review by the Government might lead to a better use of the resources available. I would like to know what the Minister thinks of that.

The issue of where we start from is hypothetical because we have to start from where we are, but it is probably right that if we sat down with a blank sheet of paper and designed a system it would not end up as the system is at the moment. The noble Lord is right that we have to have due regard to resources, which is why the strategic approach that the Government have adopted is right because it has helped people into work as a means of helping them out of poverty and on a targeted basis it supports those people who are unable to work. That has to be a proper and effective use of resources.

So far as council tax is concerned, I have a piece of paper somewhere that shows the increases in recent years, but I cannot put my hands on it. It has been in excess of the RPI, but council tax levels are an issue for local government. Since 1997, this Government have made a 39 per cent increase in real terms in funding from central government to local government, so dealing with these issues is a big responsibility for local government. We believe that there is no excuse for excessive council tax increases. Indeed, the approach that the Government have taken in bearing down on councils has borne fruit because people on the lowest incomes are able to access council tax benefit and as part of promoting that we need to make sure that people who are eligible access that benefit.

On Question, Motion agreed to.