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Guaranteed Minimum Pensions Increase Order 2009

Volume 708: debated on Thursday 26 February 2009

Motion to Approve

Moved By

That the draft order laid before the House on 28 January be approved.

Relevant Document: 5th Report from the Joint Committee on Statutory Instruments.

My Lords, I am satisfied that the orders are compatible with the European Convention on Human Rights.

The uprating order will increase most national insurance benefits by the retail prices index for last September, which was 5 per cent, and most income-related benefits will increase by the Rossi index, which is the retail prices index excluding rent, mortgage interest, council tax and depreciation and was 6.3 per cent on the same date.

The Guaranteed Minimum Pensions Increase Order provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3 per cent. Increases are capped at this level when the retail prices index exceeds 3 per cent.

This year, the uprating order that will come into effect from April will add almost £6.2 billion to government spending. Of this, almost £4 billion will go to support pensioners, £1.2 billion to working-age people, £890 million to disabled people and carers and a further £70 million to children. The basic state pension will increase by £4.55 for a single pensioner to £95.25 a week. A pensioner couple will see an increase of £7.25 a week to £152.30. These increases are, against a backdrop of falling inflation, in line with the highest increase in inflation last year.

For pensioners on the lowest incomes, the order will increase the standard minimum guarantee in pension credit by £5.95 to £130 a week for a single pensioner. Couples will see an increase of £7.25 to £198.45 a week. These increases are the highest since pension credit was introduced in 2003.

This year, we will be spending more than £13 billion more on pensioners than if we had continued with the policies that were in place in 1997. Pensioner households are on average £1,600 a year, or £31 a week, better off and the poorest pensioner households are on average £2,200 a year, or £42 a week, better off than they would have been under the 1997 system.

We have taken further action this year to help pensioners. For example, this winter we have increased the winter fuel payments by £50 for households with someone aged 60 to 79 and by £100 for households with someone aged 80 and over. We are helping further by making an additional Christmas bonus payment of £60 this year. This takes the total value of the Christmas bonus for 2008-09 to £70. This additional support will not just help pensioners; it will help all of the 15 million people who receive the Christmas bonus, including those people receiving disability or bereavement benefits.

Noble Lords may have seen a Written Statement tabled by my honourable friend in the other place that relates to issues concerning payments of invalidity allowance to pensioners from April 2009. The Statement highlighted a technical error that means that some pensioners might not receive correct state pension payments from April. Around 45,000 people may be overpaid and around 25,000 underpaid, depending on their circumstances. The weekly overpayments will range from 5p to a maximum of £3. The maximum underpayment will be £1.80 a week. Any customer who has been underpaid will receive the arrears owed to them. We will not seek to recover any overpayments. Customers need not take any action.

As people become pensioners from April 2009, they should automatically move on to the higher rate of invalidity allowance paid to pensioners. Because the uprating order for this year does not provide the statutory basis ordinarily needed to make these higher payments, we shall be making them on an extra-statutory basis in the coming tax year. Around 7,000 customers are affected with payments worth in total around £350,000. I can assure noble Lords that the Pension, Disability and Carers Service will identify and correct cases as soon as possible and contact all of those concerned to explain their position.

The uprating order before us today also increases working-age benefits. Most working-age income-related benefits will increase in line with the Rossi index of 6.3 per cent. We use the Rossi index to increase most income-related benefits because housing costs are usually met separately by those benefits. This year’s increase means that, for example, the personal allowance for a single person over the age of 25 will increase from £60.50 a week to £64.30. The amount for a couple will increase from £94.95 to £100.95.

Families who receive income support or jobseeker’s allowance will continue to see the full value of any increase in their child tax credit because their child-related allowance will increase in parallel with child tax credit rates by almost 7 per cent from £52.59 to £56.11.

From April, incapacity benefit will be increased by the same measure as employment and support allowance, the Rossi index, so that, over time, all customers in similar circumstances will receive the same level of support. Incapacity benefit customers with an age addition will not, as originally suggested last summer, have their benefit rates frozen. Instead, such customers with an age addition will see their overall benefit increase by at least half of Rossi; that is, 3.15 per cent. This means that they will not receive less than £95.15 a week, which is the same amount of incapacity benefit as received by someone in the support group getting contributory employment and support allowance.

I hope that noble Lords will welcome these increases at a time of economic downturn. The cost of uprating benefits for next year is almost £6.2 billion and will take total benefit expenditure for the next financial year to an estimated £142 billion. I commend the orders to the House.

My Lords, these are important orders and this is an important debate. A lot of the upratings are done on the basis of formulas. I am absolutely content that the Government are doing what they are required to do under the provisions of 1992 uprating legislation.

I shall try to concentrate on two points. First, I am very nervous about the extent to which childless, in-work family incomes are not being looked after as much as have been those of other categories of households in the past five or so years. It is obvious that one cannot give priority to everything but, looking at some of the figures for the support levels available under the new upratings, which take effect for rest of the year from April 2009, I fear untoward effects on people in that category simply because they are not among the target groups, such as families with children and pensioner and/or low-income households, on which the Government have rightly concentrated and where a lot of progress has been made. Will the Minister say a word about the future plans for that?

We have seen organisations such as the Joseph Rowntree Foundation quantify what levels of regular and ongoing annual uplifts in the benefits system are necessary to reach the Government’s own targets of 2010 and 2020 for child poverty. I hope that the upcoming Budget will give us some sight of the Government’s programme for meeting their target. The figures that the Rowntree foundation has produced are robust and a large sum of money, in the region of £4 billion, is involved, but its work indicates quite clearly that, where the Government have specifically targeted sums of money of that order through the benefit uprating system, the result is directly consequential and child poverty reduces as night follows day. The mechanism works, but we need the consistent, year-on-year commitment to try to deal with the problem if we are to get where the Government want to be in 2010 and 2020. A lot of work needs to be done to ensure that.

Another increasing problem is emerging in these rather strange financial times. I have no idea what is going on in the long term and wonder whether anybody else has; it is really quite dire. The Minister will of course know that when people are tested for eligibility for means-tested benefits, there is under the established rules an imputed level of income from capital sums. The imputed level of interest is much higher than anything that my bank manager is likely to give me any time soon in these new, maybe temporary circumstances. It must be unfair that low-income pension householders, when applying for means-tested assistance to which they would be otherwise entitled, find that the department says, “Well, the interest from that £1,500 you’ve got, multiplied by 5 per cent”—or whatever the going rate is for the imputed level of interest—“takes you over the limit and therefore you are denied access to the means-tested benefit”. That is perverse and unjust in these financial circumstances. If we are in these uncertain times for as long as we might be, the Government will need to revisit the capital imputation rules for eligibility to means-tested benefits.

I hope that the Minister will put pressure on his departmental colleagues, particularly in the Treasury, to address some of these longer-term—2010 and 2020—problems in the upcoming Budget. If they do not, the targets will not be met, which will be in no one’s interest.

My Lords, it is for the convenience of the House that, traditionally, we debate the Social Security Benefits Up-rating Order for 2009, or indeed for any year, with the Guaranteed Minimum Pensions Increase Order. To take the second one first, as Ministers tend to do, I must admit to surprise. The reason for the uprating is clear enough. It sets out the amount by which contracted-out defined benefit schemes must increase members’ guaranteed pensions that accrue between 1988 and 1997, in order to make up the amount that was contracted out of the state scheme—in other words, broadly equivalent to SERPS. My confusion is that Ministers have always told us that, where inflation is more than 3 per cent, primary legislation says that 3 per cent is the amount of the uprating. Indeed, this order imposes that cap.

However, in the legislative frenzy that the Government have unleashed on us in the past 11 years, no thought, not even the whisper of one, seems to have been given to whether the cap is valid any longer. I understand that, in a period of low inflation—which thanks to the golden legacy of the national accounts bequeathed to the Government by my right honourable friend Kenneth Clarke, and to an extent continued by their policies, although not obviously recently—there has been little need to think about this. However, the relevant inflation figure under the 2007 order was 3.6 per cent. Last year, it was 3.9 per cent. This year, it is 5 per cent. All of us are delighted that it is falling again and we have reports that we may be having zero or even negative inflation next year. However, in the longer term, the prognosis is not anything like as rosy.

It is an economic truism that inflation is caused by too much money chasing too few goods. I like to put that another way: it is caused by increasing the money supply when goods are not available to be bought. That is exactly what is about to happen. Billions have been given in support to banks and loans to businesses, as was announced last year; they are starting to be available but only with guarantees from businesses that were not made clear at the time of the announcement—I refer to money to support the car industry and the building of more social housing units. It seems that more and more money is being thrown around by this frenetic Government. So, in future, as I say, inflation is bound to rise. Indeed, it is only falling now due to external factors such as the price of oil. In these circumstances, is it not wise to at least look at the validity of the cap?

The subject of inflation brings me to the general uprating order, whereby most national insurance benefits are increased by 5 per cent. These include basic state pension, carer’s allowance, attendance allowance, disability living allowance and industrial injuries benefits. Income-related benefits are increased, surprisingly, by even more, by the Rossi index, which the Explanatory Memorandum informs us is in use. Housing costs are typically met by specific provision within these benefits, whereas there is no specific provision within the benefits I have mentioned. Normally, the Rossi index is lower than inflation —I refer, for example, to the order of 2007 or 2008. The fact that it is higher now shows us that over the past year non-housing costs have increased substantially. I hope that I got that right; sometimes when I think about things I get them upside-down. Given the current state of the economy and the fact that the Government have announced a new social house-building initiative, will the expectation of the RPI and Rossi coming closer today live up to reality and help to keep the Rossi index down without increasing inflation?

Housing costs bring me straight to pensioners, who may well not be helped by any state benefits at all, with the exception of the state pension. Following the comments of the noble Lord, Lord Kirkwood, yes, indeed, they may be eligible for that much-vaunted government scheme of pension credit. The Government state proudly that with pension credit no single pensioner need live on less than £130 a week, nor a pensioner couple on less than £194.45. Is that invariably correct? Some of them, as the noble Lord, Lord Kirkwood, has just pointed out, will have small savings—perhaps many. Neither I nor the Minister knows. The problem for them is that the bank rate is so low that they are getting almost no gross return on their savings and, due to inflation, a negative real return.

As I understand it, although I am not an expert like my noble friend Lady Noakes, the pension credit rules say that savings are deemed to have a 10 per cent return, so for every £100 saved pension credit is reduced by £10. If I am right, for pensioners with small savings, it is no longer true to say that no single pensioner should need to live on less than £130 a week. If my theory is correct, as I believe it is, what are the Government going to do about it? It cannot be the policy intention that pensioners should be in receipt of less than the maximum allowable under pension credit from all sources.

It is noteworthy that the Prime Minister in the Times on 28 September 1993—this is going back quite a long time—said:

“I want the next Labour Government to achieve what in 50 years of the welfare state has never yet been achieved—the end of the means test for our elderly people”.

What do we see today? Not only do we have the pension credit scheme, which tops up poor pensioners’ incomes, as I have mentioned, but it is means tested and pensioner poverty has risen by 300,000 more than in 1997. The much respected Institute of Fiscal Studies predicts that the proportion of over-65s below the poverty threshold will remain around one in five for at least the next decade. Currently, some 20 per cent of retirees live on less than 60 per cent of the average income.

As we discussed on Tuesday, one benefit that the Government give to pensioners is the winter fuel payment. What we did not discuss is whether all pensioners have now received the full amount. Have they? That question also applies to the extra £60 announced in the PBR, to which the Minister referred in his introduction, which is to be given to the 15 million or so people who receive the £10 Christmas bonus and which has the effect of bringing forward the uprating of the state pension from January to April—in theory, anyway.

What, too, about the working population, or rather the non-working population? Ministers like to wax lyrical over the 1 million new jobs created since 1997; what they are rather shy about is who fills those jobs and where they are. Despite the Prime Minister’s phrase, “British jobs for British workers”, is it not true that two-thirds, some 660,000, have gone to foreign nationals? How many of those jobs have gone into the real economy rather than the public sector? How many, too, will remain? I heard over the weekend of a council intending to slim down its planning department; there are reports this week of reductions in the police force. I have yet to hear of planned redundancies in the National Health Service or, indeed, Whitehall. I did, of course, hear of such in job centres. Given the almost 2 million unemployed—soon, the general belief is, to reach 3 million—the redundancies have rightly been halted. Does the Minister expect more frontline staff to be needed to cope with the increasing number of claimants? What has been the total number of extra claimants of jobseeker’s allowance since we last debated this order—or, if the Minister prefers, in the past calendar year?

I know, of course, that almost 5 million people are on out-of-work benefits of all sorts, and that youth unemployment is at its highest total since 1995. In spite of some activity in this area, these stark facts remain after 11 years. I cannot believe that the Government are proud of that. Indeed, one of my honourable friends called it a “did nothing Government” when referring to this area of policy. That might be a little harsh; they tried to do something but have not been terribly successful. As I have said, this figure is rising fast. What, then, is the light at the end of the tunnel that the Employment Minister talked of the other day? Where are the “green shoots” of the noble Baroness, Lady Vadera?

I have in the past been critical of the drafting of this order, especially in regard to payment dates. I find this year’s order much clearer, though the thorny problem of Wednesdays recurs. For some arcane reason, Wednesday seems to be the day on which many payments for carer’s allowance are made. However, in Article 6, carer’s allowance is paid either on 8 April—in other words, on the first Monday of the financial year—or, where the Secretary of State so determines, on the first Wednesday, which, as Article 6 correctly states, falls on 8 April this year. Why has the department not streamlined payments so that they all start from the same day, as, indeed, happens with other benefits?

I also note Article 14, which tells us that the rates of age addition to long-term incapacity benefit have actually gone down. I was rather surprised by what the Minister had to say on that. Perhaps he can give further explanation when he winds up. This and the traditional invalidity allowance are the only benefits where this appears to have happened. I have always understood that such rates are increased by half of the Rossi index. Indeed, I have never experienced a decrease before. As I said just now, it would be helpful if the Minister could explain this a little more fully because I, for one, did not take it in.

All that said, no one can deny that the order represents a right and proper use of taxpayers’ money and we on this side of the House give it our blessing.

My Lords, I thank both noble Lords for their contributions and understand that, despite some of their challenges, they support the order. I shall try to deal with the points that were raised. The noble Lord, Lord Skelmersdale, asked about the age addition to long-term incapacity benefit. He may remember that when we debated the employment and support allowance, we recognised that the age addition had no part in that because that benefit was structured to help people get back into work. The age addition was associated with incapacity benefit where basically we paid people and did not engage with them. He may recall that a year ago we thought that to eventually align incapacity benefit with employment and support allowance we would not uprate incapacity benefit claimants who had the age addition at all until they met with the same rate as the employment and support allowance. We have changed that this time round and are uprating by half Rossi. We are not uprating by the full Rossi, which is what incapacity benefit claimants without the age addition or employment and support allowance will be uprated by. Therefore, the path to aligning those rates will be longer but I hope that the noble Lord sees that as a helpful change.

The noble Lords, Lord Kirkwood and Lord Skelmersdale, referred to the “tariff” income and the rate of interest that is applied to that. Those arrangements were introduced under the previous Conservative Government back in 1988 on a less generous basis than is currently the case. The tariff was never constructed as an interest rate: it just recognised that people who have a certain level of capital should progressively contribute, the more capital they have, towards the benefits that would otherwise be due to them. That was the basis of the measure. But somehow a campaign has emerged that this constitutes a 10 per cent interest rate without recognising how it is calculated. The first £6,000 of a person’s capital is ignored completely. Once you go above £6,000 for pensioners there is a deemed income of £1 per week for every £500 in excess of £6,000. You could say that £1 a week on £500 equates to 10 per cent on that marginal amount, but that would not be a fair assessment of the picture.

The other thing relating to pension credit is that about 80 per cent of people who access it are not affected by the tariff. They simply do not have that level of capital. Sometimes we can look through this issue through the wrong end of the telescope.

Picking up on the issue of savings, and to put it in context, 42 per cent of pensioners receive less than £1 a week from investment income. Indeed, 70 per cent of pensioner benefit units receive less than £10 a week. Although some of those households have lost income as interest rates have declined, the extra money that the Government have put in, particularly through the Christmas bonus, has helped to compensate for that.

The noble Lord asked specifically whether all winter fuel payments now have been received. I cannot confirm that without checking specifically. Most of the payments are made automatically. Some people who may be newly entitled, who have not previously been in the benefits system or received council tax or housing benefit—this might affect men particularly between the ages of 60 and 65—are not necessarily known to the department and therefore need to make a claim. If they have not made the claim yet—they have, I think, until March of this year to do so—the payment will not have been made. However, it is right to say that overwhelmingly those winter fuel payments have been paid. I do not have a precise update. The whole purpose of linking the payments to assessment in the third week in September is so that the payments can be made before Christmas.

I cannot be precise on the Christmas bonus. We said that it would become payable between January and March, and I understand that we are still on track to meet that. The Christmas bonus route was taken because it was generally the quickest and most effective way, given the systems that we have, to get money to the most vulnerable people.

The noble Lord also asked about the capacity of Jobcentre Plus and whether it is coping. Clearly it faces significant challenges; there was a programme on Saturday morning on the telly about people presenting to Jobcentre Plus from professions that have not previously used it. There are emerging challenges from the current environment, but £1.3 billion extra has been put in and Jobcentre Plus is recruiting staff to make sure that we meet the challenges. I believe that we are still meeting our target times for dealing with claimants.

Figures for the current claimant count are published monthly; I am not sure when the next figures are due—probably in a couple of weeks.

Any minute, my Lords. There we are. That will provide the most up-to-date figure. I should say also in relation to Jobcentre Plus that the claimant count may be rising, but people are still finding work. People are coming off jobseeker’s allowance, although, sadly more are going on.

The noble Lord—I was going to say, waxed lyrical, but I am not sure that that is fair, because I do not agree with him—gave an economic analysis about where inflation was heading. I would not accept that inflation is bound to rise. We know that it looks as if in the short term it is going in very much the reverse direction. It is not predicted, but we have made clear that should inflation go to zero or even lower, there is no question of reducing benefits. Obviously, what happens will have to be assessed at the time, but we are also committed to uprate the state pension by 2.5 per cent whatever as a minimum. I give the noble Lord that reassurance, but I would not accept the assertion that inflation is bound to rise. I would not accept the description of quantitative easing as printing money. That is too simplistic an analysis of what is happening.

The noble Lord, Lord Kirkwood, asked about child poverty. I confirm that our declared aim is to eradicate child poverty by 2020. Our goal is a society where no child’s life is scarred by poverty and every child has the chance to realise their potential to achieve extraordinary things. Our record demonstrates that we are seeking to tackle that, reversing two decades of a rising trend. Our policies have already lifted 600,000 children out of poverty, and halved absolute poverty.

In September last year, the Prime Minister demonstrated the Government’s renewed impetus to tackle child poverty by signalling his intention to legislate to end it. We will have that legislation before the House some time soon. When this Government came to power, there were 3.4 million children living in poverty. There are currently 2.9 million, a fall of 600,000, so we are addressing that issue.

The noble Lord, Lord Kirkwood, slightly conflated the issues of child poverty and couples without children. He rightly identified that we have to prioritise in these situations, and we have prioritised the importance of supporting families and children. We need to break that cycle of deprivation if we are to have a long-term impact on our country and everyone’s life chances. I hope that I have responded to all of the points that were raised, although the noble Lord, Lord Skelmersdale, looks as though he is going to challenge me on something.

My Lords, is the Minister aware that I am absolutely amazed that he finds time to watch television on a Saturday morning?

My Lords, perhaps I should explain that that was in between breakfast and opening the Red Box. I get some rather good viewing on Saturday morning—but I digress. I ask noble Lords to support the order.

Motion agreed.