That the Grand Committee do report to the House that it has considered the Christmas Bonus (Specified Sum) Order 2008.

Relevant document: First report from the Joint Committee on Statutory Instruments.

This order is made under Sections 148 and 175 of the Social Security Contributions and Benefits Act 1992. Its purpose is to award a one-off payment of £60 to provide direct and swift financial support to vulnerable people in our society: real help, when and where it is needed most. We recognise that older people are concerned during the current economic downturn, and that is why this year we are spending approximately £900 million on additional Christmas bonus payments. This will put an extra £60 in pensioners’ pockets in addition to the regular £10 Christmas bonus received annually in December. This is equivalent to the largest possible amount someone could have gained if we had brought forward the uprating of the basic state pension from April to January 2009.

Eligible recipients are those on various pensions, disability, care, industrial injury, war and bereavement benefits. This year’s Christmas bonus will be received by 15 million people, 12.5 million of whom are pensioners. We are determined to give pensioners more cash to help them through the winter and ease their worries about bills. This payment will go to all pensioners in receipt of state pension and pension credit, many of whom are on fixed incomes. Some 2.5 million others will also benefit from this one-off payment. The money will go to around 2 million disabled people, including 300,000 children, around 350,000 people who are carers and around 150,000 people in receipt of bereavement benefits.

The Christmas bonus will be paid in two instalments. Recipients will still get £10 this month, as in previous years, with the additional £60 to be paid between January and March in the new year. The majority of state pensioners should receive the £60 payment in January 2009, in addition to their pension. The remaining 3 million customers will get their £60 in February or March 2009. In practice, that is the earliest we can make these payments, after seeking and obtaining the approval of the Committee and of the other place. The need to obtain both Houses’ approval also explains why the qualifying week for this year’s Christmas bonus has been moved, by an order subject to the negative procedure, from the first week in December to the week commencing 22 December 2008.

Not only is this much-needed cash for those that need it most during challenging times; it is done via automatic payment, so that no one need worry about how and where to claim. Importantly, this stand-alone payment is a tax-free lump sum that will not affect the recipient’s entitlement to income-related benefits that they may already receive. Those who argue that we should do nothing are wrong; I am sure the many people receiving this payment will agree.

In these tough economic times, this one-off payment will provide genuine help to the UK’s most vulnerable people. As a valuable means of support for many who need it most during a time of increased financial pressure, it builds on a variety of other measures in the Chancellor’s Pre-Budget Report that were targeted to help the most vulnerable—including an increase in the full basic state pension from £90 to £95 a week, and the biggest increase in pension credit since it was introduced, so that no pensioner need live on less than £130 a week from April 2009.

Those increases add to the significant measures already in place to help pensioners, such as an increase in the winter fuel payment and an extra £50 for households with those aged 60 or over, or £100 for households with people aged 80 or over. It makes the claims process for these measures simpler and easier, as through one phone call you can now claim pension credit, housing benefit, council tax benefit and state pension. There is also free off-peak bus travel, free eye tests, free TV licences and, from April 2009, free swimming. The Government have recognised a need to help those on the lowest incomes now and, as I have outlined, we are introducing this one-off payment to help address that issue. I commend it to the Committee.

The Committee will be grateful, although doubtless not as grateful as pensioners and those on the specified social security benefits, for the noble Lord’s explanation of this beneficent order which, for one year only, raises the annual Christmas bonus from £10 to £70, but in two chunks. There is £10 before Christmas, which has almost entirely gone out—the Minister would be able to confirm that— and £60 some time between January and March, without, importantly, affecting such benefits as pension credit.

One of your Lordships told me a story about the first year of the Christmas bonus. It seems that a retired miner in Scotland went into the post office to get it. In those days, it was the norm to get social security benefits in cash from the post office—alas, no longer. Once he had it in his hot hands, he announced loudly, “I’m damned if any bugger is getting any of this”, marched straight over the road to the pub and spent the lot. I assume it was on drink, as history does not relate whether some was spent on cigarettes, which, according to James Bond, as I remember, double the hangover. Being a habitué of both vices, I could not possibly comment. Needless to say, he was carried back home completely paralytic.

That is exactly what the Government are hoping will happen now—not paralytic pensioners, but for pensioners to do their bit toward what the German Finance Minister calls “crass Keynesianism”, spending our way out of recession. Indeed, paragraph 7.5 of the Explanatory Memorandum says as much. Pensioners will, of course, be most grateful for the extra money, the second £60 of which they may not receive until March. The problem is that spending is likely to be the last thing they will do.

Officials, if not the Minister, will remember research that was carried out either by the DWP or the Department for Social Security—I cannot remember the exact date—on what pensioners do with any small amounts of extra money that they receive. I mention pensioners in particular as they are to receive 85 per cent of the £900 million that this order will cost the taxpayer. The research revealed that most pensioners saved it for a rainy day, perhaps for the boiler breaking down or for their funeral. What the other recipients will do with it is totally unknown. I am very much afraid that the pre-Christmas £10 will be spent and that the post-Christmas £60 will be saved or used to pay off debt. This hardly helps the economy in the way the Government hope. It will have exactly the effect that the reduction in VAT is having—and I agree with the noble Lord, Lord Oakeshott, on that point. We will await the results of spending over Christmas, which will be revealed in the new year. I doubt that it will be very different from last year’s Christmas spend.

Spending billions of pounds on preserving the banking system in this country is something of which we all approve, but, as my noble friend Lady Noakes almost said, putting small amounts of money temporarily into the economy simply will not have the effect the Government hope it will. It is quite possible in this recession, as my right honourable friend David Cameron said the other day, to help pensioners and others on benefits who pay tax by giving them a short tax holiday; the trick for the Government is to get help to those who do not pay tax. I am afraid that the prognosis for this order is not nearly as good.

I start by sharing with the Committee an acute observation that my noble friend Lady Walmsley has just made. She is sitting here patiently waiting until the Committee comes to her order, and I am sorry that our proceedings have rather dragged on today. She points out that the fact the payment is being made after Christmas probably means that pensioners have more chance of having some money to spend on themselves rather than on their grandchildren.

We welcome this payment on a rather grudging and limited basis, not because we do not think that pensioners need £70 but because they need an awful lot more. So long as the Government persist in their mean and means-tested policy on basic state pensions, pensioners will need every bit of extra help they can get, so we support it. But we do not like the policy that Gordon Brown has constantly promoted in his Budgets, which is a series of one-off stunts, wheezes and individual payments to pensioners. They are entitled to a decent basic state pension on which they can live without means-testing and the problems of destroying incentives that our heavily means-tested pension system involves. Pensioners should not be put in the position of cottagers waiting for the squire or his lady to come round and hand out a turkey at Christmas; they should be paid a pension on which they can live every week of the year.

In the Commons, Tony McNulty proudly said that the increase in the state pension—up, from April 2009, to the magnificent sum of £95.25 a week—would represent a real-terms rise in the state pension of 7 per cent since 1997. Pensioners are better off by 7p in the pound on the basic state pension after 11 years of Labour government. What has been the rise in average real incomes generally over that period? I imagine that the figure is about 30 per cent; perhaps the Minister could confirm that. Pensioners’ basic state pension has risen only one-quarter as fast as real incomes generally for other people.

On the means-tested state pension, I challenge the Minister to say how it can continue to be fair that pensioners who have saved a modest amount of money in their life—over £6,000—have their savings credit deducted on the assumption that they are able to earn 10 per cent on their savings, so that for every £500 they can earn £1 a week. In fact, it is slightly more than 10 per cent. Where can pensioners possibly get any rate like that? They could not get it even from a dodgy Icelandic bank a few months ago, and now pensioners, like other savers, are seeing their returns cut to ribbons. Will the Minister and his department urgently reconsider this grossly unfair limit and reset it at a level that more fairly reflects the returns that pensioners can get from their savings?

I thank both noble Lords for their welcome and support for the order. Each reflected on the fact that it will be paid in two chunks and that the £60 will not be paid until between January and March. That is a logistical issue; obviously if it had been possible to pay it earlier it would have happened. However, this is a good mechanism with which to create the same effect as with the accelerated payment of the basic state pension on its uprated basis until January.

The noble Lord, Lord Skelmersdale, challenged whether it would be spent. We believe that it will. It is more likely to be spent than if the resources were directed to other groups. Why do I say that? Generally pensioners are less indebted than other members of the community and generally, of course, pensioners are less concerned about the prospect of loss of employment. They therefore make savings to provide for this kind of rainy day. We believe it is as likely to be spent by this group as by any other. The noble Lord suggested that these are small amounts which would not make much difference. They are not insignificant to the recipients of them and, again, are part of the package.

The noble Lord, Lord Oakeshott, referred to the basic state pension and the adequacy or otherwise of that. He will be aware that the reforms we debated and dealt with in the Act last year will provide in 2012 or by the end of the next Parliament, depending on resources, that the basic state pension will be uprated in line with earnings. He is aware of the changes and improvements that have been made to the state second pension as well. When considering incomes for pensioners, you need to take account of occupational pension provision and, again, the noble Lord will be aware of the significant changes in the Act that we passed a few weeks ago.

On the rate of the basic state pension, I have in mind the statistic on which we had some exchange during the passage of the Bill—that is, if you double the basic state pension in 2012, in 2050 you would still have 25 per cent of the population on some kind of means-tested benefit. To assume that jacking up the basic state pension on an affordable basis would eliminate means testing is not right.

As to the impact of the £5 increase on the basic state pension, you need also to consider what has happened to the minimum income guarantee in pension credit. On the basis of the upratings, a single person will receive a minimum of £130 a week and a couple £198 a week. These are significant improvements from where we started. The Government were right, and continue to be right, to target resources on those pensioners who most need it.

Is that not a slightly different point? The point about the order and the benefits that flow from it is that they are universal benefits—in other words, they go to taxpayers and non-taxpayers.

The noble Lord is right; I was dealing with the broader point that the noble Lord was pressing about the adequacy of the basic state pension. I was seeking to address the issue of where the Government direct their resources.

I thank the noble Lord for giving way. While we are on that point, can he give us the latest estimate of the number of pensioners who are not claiming the pension credit to which they would be entitled? I believe that the latest figure I saw was 1.8 million. Can he update us on that?

I think that the number is somewhere in the briefing and I hope that by the time I finish this response it will appear from the Box.

I want to deal with the assumed rate of interest on savings, which can sometimes be taken out of context. As the noble Lord is aware, there is a disregard for the first £6,000 of savings—£10,000 for those in a care home—and the tariff applies only to savings above that level. Therefore, if you had £7,000 of capital, you would have £2 a week deemed income. That is a quite different exchange rate from the 10 per cent that the noble Lord asserted. It is also right to say that quite a high percentage of people in receipt of pension credit do not have savings above the £6,000 threshold. In fact, the majority—around 80 per cent—of pensioners who get pension credit have savings of £6,000 or less. I believe that the tariff that applies for pensioners is also about half the rate assumed for working age benefits.

With regard to take-up, 3.3 million are currently claiming pension credit. We believe that between 59 per cent and 67 per cent of pensioners entitled are receiving pension credit, but take-up of the guaranteed credit, which is paid to the poorest pensioners, is between 68 per cent and 78 per cent. The noble Lord will be aware that there is a lot of activity to try to ensure that that rate is increased. When I moved the order, I referred in particular to the opportunity to claim state pension, pension credit, housing benefit and council tax benefit in one phone call. However, there is no doubt that we need to continue to drive take-up forward, because these are sums to which pensioners are entitled. They are targeted on pensioners and poorer pensioners, and we need to do everything that we can to ensure that the benefit is available to them.

I thank the noble Lord for that figure. Of course, those estimates really mean that between one-third and two-fifths of pensioners do not receive the pension credit to which they are entitled. Perhaps I may ask him for a specific figure. The point that he made related to the disregard and the assumption of a 10 per cent interest rate, but what was the rate of interest that pensioners could achieve when that rate was fixed? If it was fair then, it can hardly be fair now when they can receive only 2 per cent or 3 per cent.

Clearly, with interest rates at a lower level, the rate will have gone down. However, the key point is that most people do not have £6,000-worth of savings and do not come within the tariff, and therefore the interest that they receive is effectively ignored in this calculation. I do not have the data regarding when the threshold was first fixed and what the interest rates were then, but I shall be perfectly happy to have that checked and shall write to the noble Lord. Since the tariff has been introduced, interest rates have gone up and down—and who knows what their future passage will be? However, I stress again that 80 per cent of pensioners do not have savings above that level and are therefore not affected at all by the tariff.

I hope that that has dealt with each of the points raised, although, if not, I shall be perfectly happy to try again. Otherwise, I ask that the order be accepted.