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Guaranteed Minimum Pensions Increase Order 2013

Volume 743: debated on Thursday 28 February 2013

Considered in Grand Committee

Moved by

That the Grand Committee do report to the House that it has considered the Guaranteed Minimum Pensions Increase Order 2013.

Relevant document: 18th Report from the Joint Committee on Statutory Instruments.

I shall also speak to the Social Security Benefits Up-rating Order 2013. These orders were laid before the House on 28 January 2013, and I am satisfied that they are compatible with the European Convention on Human Rights.

I will start by touching briefly on the Guaranteed Minimum Pensions Increase Order 2013. This order provides for contracted-out defined benefits schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 2.2%, in line with inflation as at September 2012.

On the Social Security Benefits Up-rating Order 2013, I shall start with the increase in the basic state pension. One of this Government’s first acts was to restore the earnings link to the basic state pension. Indeed, we went a step further and secured a triple lock for pensioners: a commitment from the Government to increase the basic state pension each year by earnings, prices or 2.5%, whichever is the highest. This year, that third element of the triple lock will have an effect for the first time. The basic state pension will be uprated by 2.5%, a level above both earnings and prices. This means that millions of pensioners will see an above-inflation cash increase of £2.70 a week, taking the new level of the basic state pension to £110.15 a week; and that from April 2013 the basic state pension is forecast to be around 18% of average earnings, a higher share of average earnings than at any time in the past 20 years. I can confirm that additional state pensions will rise in line with inflation at 2.2% in 2013-14, which means that the total state pension increase for someone with a full basic pension and an average additional pension will be around £175 a year.

On pension credit, we have taken an important decision to ensure that the poorest pensioners are able to benefit from the effects of our triple lock. That means that rather than rising in line with earnings at 1.6%, the minimum required by legislation, the standard minimum guarantee credit in pension credit will be increased by 1.9% to ensure that the poorest pensioners benefit from the full £2.70 cash increase in the basic state pension.

Consistent with our approach last year, the resources needed to pay for that above-earnings increase to the standard minimum guarantee have been found by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase. The decisions that we have taken on pensioners reflect the Government’s belief that even in exceptional economic times it is important to protect those who are less able to increase their spending power.

However, noble Lords will also be aware that this order takes forward a number of decisions that are a lot harder to make. Some tough choices are necessary if we are to restore our public finances. The working-age welfare budget, which accounts for about £1 in every £8 that government spends, cannot be immune from these tough choices. That is why, having regard to the national economic situation, we have decided that the working-age personal allowances in jobseeker’s allowance, income support, housing benefit and employment and support allowance, along with the work-related activity component of employment and support allowance, will be uprated by 1% next year. On the same basis, this 1% uprating will also apply to statutory maternity pay, statutory paternity pay, statutory adoption pay and statutory sick pay. This will save around £200 million in 2013-14, savings that are crucial as we continue to pay down the deficit.

We do not take such decisions lightly. Wherever we have been able to do so, we have sought to protect those who have the greatest difficulty increasing their spending power. The benefits that reflect the additional costs that disabled people face will be uprated in line with inflation. These include disability living allowance, attendance allowance, the disability premiums in working-age benefits, and the support component of the employment and support allowance. This is true of the carer’s allowance and the carer premium as well, both of which will be uprated in line with inflation.

In previous debates this week I have spoken of the need to strike a balance. At a time of great economic difficulty we have had to find savings, but we have sought to balance these with key protections wherever we can. This order is also about balancing our commitment to the here and now with our commitment to the long term. We have a responsibility to the next generation to secure a stable and growing economy, and I do not believe we can achieve that without taking these difficult decisions. Of course, we have a responsibility to those who will be affected by this order today, and we take that responsibility seriously.

It is worth noting that at a time when the nation’s finances remain under real pressure, through this order the Government will be spending an extra £2.8 billion in 2013-14 as part of our drive to ensure that the people who are least able to change their incomes are protected against increases in the cost of living. Of that £2.8 billion, about £2.1 billion is for the state pension, including an above-inflation increase for the basic pension. Nearly £500 million will go to disabled people and their carers, and nearly £300 million will go to people of working age. I believe that this is the right decision for families now and in the long term, and it is on that basis that I commend these orders to the House. I beg to move.

My Lords, I start by saying that I hope we will not have a reprise of the Second Reading debate of the Welfare Benefits Up-rating Bill, because there would be many arguments to espouse.

I add my welcome to the triple-lock pensions increase that has been put into this measure again, and as the Minister has indicated, using 2.5% as the third trigger—the third lock that is being used for the first time—means once again that pensioners are benefiting from an increase that is above inflation.

What is interesting from the information that has been presented to us, and from my noble friend’s introductory comments, is that from April 2013 the basic state pension will be about 18% of average earnings. I have two points to make about that. First, it is a higher percentage than at any time in the past 20 years; and, secondly, it is only 18%. Recent research conducted by the pensions industry indicates that many people approaching retirement say that they need 50% of their average earnings—that is the rough figure they say they need—and they believe that they will get 50%, which in the nature of these things is obviously not true at present. It demonstrates the importance of the new flat-rate pension and that auto-enrolment will be decisive in helping people to meet their own aspirations for retirement. However, in the interim, the pension credit increase in line with the triple lock, as opposed to average earnings, goes a little way to helping Britain’s poorest pensioners.

I turn now to the uprating by 1% of all benefits apart from those protected because of disability or age. I still find that the issue of personal allowances indicates that there is an underpinning rationale, which has not yet been fully demonstrated to me, in having the personal allowance element of the employment support allowance being the same personal allowance that applies for housing benefit and anything else. Can my noble friend the Minister first outline why those personal allowances have to be the same for each allowance? It interests me to know what the rationale is behind that.

Finally, and perhaps slightly facetiously, because I have read the information provided for us in the Explanatory Memorandum, paragraph 9 on guidance indicates that:

“Leaflets will be up-dated to reflect the new rates in due course and guidance bulletins have been issued to operational staff to advise them of the new rates”.

Other Lordships here today may be in receipt of the basic state pension. I received a letter a month ago from the DWP informing me of my new basic state pension rate from April this year, which somewhat indicates that the Government are ahead of the order before us. I wonder whether we could be a little more honest about this, in that we have published, updated and reflected the new rates in consultation with people who are going to be recipients. I would hope that we can be clear on that matter. In other terms, with a somewhat heavy heart, because it is never easy to hold back on expenditure for people who are in need of these benefits, I am happy to support the orders before us.

My Lords, I am pleased to follow my noble friend and concur with everything that he said. I have been doing uprating statements since 1984, I think, and I am here this afternoon really because I did not want to miss one. I have the boxed set, so I would feel that I was in the wrong place if I was not here. However, and this is me in my moaning mood, in the old days when men were men and women were women these debates were really big parliamentary occasions. These are huge sums of public money that we are considering this afternoon. This is no reflection on the Government at all, because while it is a question for the whole House I do not think that if we held this debate on the Floor of the Chamber there would be many more people here. I cannot help but say that it is a shame that we do not have more concern or attention from other colleagues albeit on what I accept is a ritual.

This is a very important annual debate, but this year it is different. My noble friend explained some of the differences, and I want to explore them a little more deeply, because, both qualitatively and quantitatively, these orders are different from any I have seen before. I make it clear that the Government are absolutely entitled, under the rules of the game as I understand them, to make these reductions against an economic background that we can all see. I am obviously not going to move against these orders, particularly in the context of the uprating Bill, which is in front of the House, but we are in exceptional circumstances. There is therefore a case for the Government to say, “For the next 12 months, Britain is a poorer nation and we all have to make a contribution towards getting back on to a steady state”. My point is that I am not confident that we will get back to a steady state for a number of years. I am not an economist and I do not know, but I really believe that the paradigm has changed and that we will all be forced to face up to the circumstances. That may be supporting the Government’s case more than I am accustomed to do, as the Minister might say.

The point I want to make on the back of that is that if we are in different circumstances if I can use the analogy of discretionary housing payments and if the Government are saying that the housing benefit changes are so profound that there have to be mitigating short-term, time-limited emergency procedures to take the sting out of them for low-income families, we may be forced to think about an equivalent emergency package for low-income households if year after year we find that we do not get back to trend levels of growth. I think that in future uprating debates we are going to be forced to look very carefully not only at adjusting the levels down but in addition at ways of getting behind people who are really at the end of the financial road. They have no scope.

The Government have recognised the plight of pensioners, and the rationale for that is understandable. My noble friend mentioned it: they have limited ways of increasing their earnings. The Government’s suggestion is that working-age households always have the option of work, but I wonder how realistic that is. If we are seeing food banks develop to the extent to which I fear they may develop in future in local communities, I think as legislators we will have to reflect that rather than just assuming that we are in a steady state and that the Government can take those savings out year after year. We might all need to think about how we tackle this. Part of that might be exceptional measures for low-income households.

The evidence comes at me every day from every source. This morning, I picked up a very interesting piece of evidence from the Money Advice Trust, which is a very important institution that I watch because I am interested in the development of payday loans. There are problems about some of the administration and regulation of payday loans. The statement from the Money Advice Trust demonstrates the changes that are happening underneath us and that are affected by this uprating statement. It reports that:

“its National Debtline service took over 20,000 calls for help with payday loans in 2012 … The figure represents a 94 per cent year on year increase, and an increase of 4,200 per cent since the onset of the financial crisis in 2007”.

I know a little about payday loans. Working families take advantage of them. I am not against payday loans. Short-term unsecured credit has a role to play. I do not think it is regulated properly, but that is a different argument. These are working-age families. In my estimation, these levels of increase are not going to get any less any time soon. I recognise that something has to be done with the deficit reduction, but we may need to have a grown-up discussion about this across the parties and across Parliament to make sure that we are not ignoring what is happening in a lot of our challenged communities, particularly in the old social-rented council estates of my native Glasgow, for example, where I know that some these changes that we are introducing on top of everything else that is happening will produce levels of financial challenge for particular groups. Lone-parent families are one group that I particularly care about, and I know that colleagues know even more about that than I do.

I am concurring with this order on the basis that we need to think about other ways of providing some sort of emergency relief—hopefully only short-term—as well as what we are doing in these orders. If we do not start thinking about that now, we will suddenly find that we will be hit by levels of malnutrition and child poverty that will be found completely unacceptable by the population at large. We have to avoid that at all costs.

Finally, I apologise for this because I should have checked before I came, but I do not know what the Government Actuary has to say about the National Insurance Fund, which is appearing in not the means-tested but the contributory dimensions of these orders. Presumably, no Treasury grant is being requested, although I would be surprised if that was the case. Can we have a statement from the Minister to the effect that the department and ministerial team are comfortable with the Government Actuary’s view of the orders as they stand? That is important for the Grand Committee in its consideration of these important orders this afternoon.

My Lords, I thank the Minister for her introduction to these two orders. We do not have much to raise on the first order. The GMP is a promised income for those who contracted out before 1997, so the order is a routine process, which we support.

I have just one question. The Explanatory Note refers to there being no new costs on the private or public sector as a result of these orders, but an uprating cost clearly has to be borne by someone: the pensions providers. Is that not the case?

We have covered much of the ground on the Social Security Benefits Up-rating Order, as the noble Lords, Lord German and Lord Kirkwood, have said. I do not mind having a rerun of this, although much has already been said and we still have more Committee proceedings to go, let alone Report, so I shall resist the wholesale revisiting of our debates, although if provoked I might withdraw that assurance.

The noble Lord, Lord Kirkwood, as ever, made an incredibly valuable contribution on where all this is heading. We all know that the deficit has to be dealt with, although we might argue with how that is being done. But we have not seen as part of an impact assessment—and it is something I would ask about—the impact of this uprating order on child poverty. What assessment, if any, have the Government made of this uprating order’s impact on things such as personal debt and poverty more generally? What do they think about the food banks, which are growing up in our country at the moment? One opened in Lewisham, but unfortunately it was on the day of the universal credit regulation, so I could not go. It is just one of just hundreds that are growing up in a country that we know could by any standards be classified as rich.

We have heard about the basic state pension and the much lauded triple lock—the highest of earnings, prices or 2.5%, in this case. We have no difficulty with the basic state pension having been a higher share of average earnings for some time, although is that not largely because average earnings are so depressed because of the state of the economy? My right honourable friend Stephen Timms in the other place dug away at the triple lock, saying that it is certainly a success in terms of rhetoric but that its practical implications have been much more limited. He knew of one that was not operated because RPI gave a better result, and in year 2 inflation was used. It was only in year 3 that the 2.5% kicked in, in excess of inflation. On the old basis of uprating by RPI in those latter two years, the award would have been higher. Perhaps the Minister can confirm that 1.5 million pensioner households are missing out compared with what would have been the position had the standard minimum guarantee been uprated by earnings and the savings credit threshold frozen.

We heard again from the Minister the repeated assertion that those who face additional costs because of their disability, and who perhaps have less opportunity to increase their income through paid employment, will see their benefits increase by the full value of CPI. As the noble Lord, Lord German, alighted on, this is not entirely true. It is true to a limited extent only for people in the support group who have the support component uprated by inflation, but it is not true of the personal allowance. The noble Lord raised an important question: what is the rationale for having that personal allowance standard throughout the system? It might be arithmetically comforting, but in its impact on people there seems to be no great rationale for it.

When we were debating this issue on the uprating Bill, the Minister said that people who were in the WRAG were essentially seen as having a short-term benefit that they would come out of and get into work. I do not think that is the basis on which it was introduced. It was certainly seen as a benefit for people who were not deemed currently fit for work but who could engage in work-related activity and could be moved closer to the labour market. I do not believe that the concept that it was essentially a short-term benefit featured in its introduction in Parliament, in which the noble Lord, Lord Kirkwood, and I participated. In fact, I was the Minister responsible for dealing with the original legislation at this end. If that is the assertion and the Government’s current view, can the Minister tell us the total numbers in the WRAG currently? What average length of time do people remain on that benefit, if it is a short-term benefit? What do the data actually show?

On the scope of the order, I believe I am right in thinking that the benefits that we are uprating by just 1% in this order are identical to those that are restricted to 1% in the uprating Bill, other than the universal credit component, which is not covered. So the tax credits, which are restricted in that Bill, are not covered in this order. We are presumably due an uprating order on tax credits at some stage soon.

Can the Minister identify any benefits or components of benefits that are not being uprated next year, either by 1% or CPI, or on any other basis? That would include some of the capital limits and earnings rules, but it would helpful to have a full analysis of those. In addition, can we have some detail on costings? Comparing 1% with what would have been CPI, can we hear from the Government what savings they are anticipating next year from restricting uprating separately to SMP, paternity pay, adoption pay and SSP? What are the figures for the subsequent two years, taking account of inflation at OBR forecast levels? Also, can we have the costings in respect of the personal allowances in ESA, including the work-related activity component of ESA, and of child benefit?

This order represents just part of a collection of changes to benefits and tax credits, together with real cuts to tax credits, the additional two years of restrictions to both benefits and tax credits in the uprating Bill. We have a collection of really nasty features. Of course, the policies already announced, such as the bedroom tax and council tax support restrictions, are about to be introduced. These measures have to be seen together and the order is just a part of that.

I conclude by reiterating our opposition to these measures that will largely hit poor people in work, disproportionately affect women, push many more children into poverty and fail adequately to protect disabled people. We would be very happy to engage in the sort of process suggested by the noble Lord, Lord Kirkwood, to try to look at these issues for the longer term. I am bound to say that I am not innately attracted by the concept that we have lower levels of benefit because the very poor and disadvantaged can have some supplementary cash to help. In a sense that has been the Government’s approach when they have hacked away at things such as the benefit cap or housing benefit, and with the underoccupation provision and putting aside a bit of money or discretionary housing payments to placate and help a few who were disadvantaged. As a process or a basis for a sensible system of support, that is not the route that we should adopt. There is a danger of straying into the debates that we will return to in our consideration of the Welfare Benefits Up-rating Bill, when we will debate the issue of poverty time and again in the upcoming months.

My Lords, I am grateful to all noble Lords who have contributed to today’s debate. I shall get straight into responding to some of the important points raised. I note that there was broad support in the Committee for the first order. I am grateful for that, but there was one small question from the noble Lord, Lord McKenzie, which I will dispense with straight away so that I can get rid of one piece of paper that I am grappling with. He asked about the costs of the Guaranteed Minimum Pensions Increase Order 2013 and whether they would fall on the private or public sector. No new costs will be incurred; the costs will be the ones that would usually be incurred as there is no policy change.

I move to some of the points raised in the wider debate. My noble friend Lord German talked at some length about pensions and welcomed the triple lock and its effect this year. He noted that it would now be 18% of average earnings—the highest for 20 years—but that there was evidence to suggest that some people would need more as they neared retirement age, and worryingly thought they would get it. I do not have an immediate response to that, but as he acknowledged, it is one of the reasons why it is important that we are taking steps towards the single tier and auto-enrolment. While these measures will not benefit people who are already at or about to enter pension age, we are seized of this issue and are tackling it as a longer-term issue.

While we are on the pensions issue, the noble Lord, Lord McKenzie, referred to the triple lock. He was trying to question whether it was really as beneficial as we believe. I am surprised that he raised that question. It has delivered this year. As I said, it has come into effect for the first time and is above inflation and earnings. As he knows, it has been the policy of successive Governments to use the inflation figures of the previous September to determine the rates for the following year. We have done nothing other than what all Governments do, which is to use the September figures. The September figures were 2.2% inflation, and that is why we introduced the triple lock this year: so pensioners have benefited. That is a good thing and we are pleased about it.

My noble friend Lord German asked a question that he said he had asked earlier this week, when we were debating the Bill, about the consistency of personal allowances across the various benefits. That was echoed by the noble Lord, Lord McKenzie. I can do no more than restate what I said when were debating this then. Personal allowances across income-related benefits for working-age people create the basis for the way our current benefits form a consistent means test across the income-related benefits. If we were to treat different benefits differently in terms of their personal allowances, there would be no clear level of income at which state support via income-related benefits is set and at which access to other help, such as prescription charges or free school meals, would be available across a wide range of services. At a time when we are trying to simplify the welfare system, it would seem strange to introduce an additional layer of complexity for those who are seeking to use the benefit system and for the way we operate it because that would attract additional costs.

My noble friend Lord German also asked about guidance and leaflets that are issued to pensioners. Benefit recipients and pensioners are notified of their new provisional rates following the announcement of those rates by the Minister for Pensions in his Oral Statement. That needs to happen over a number of months because of the volume of notifications and because we need to make an advance claim to basic state pension. It is useful for recipients to have early notification of provisional rates, and it has been the practice for some time.

The noble Lord, Lord Kirkwood, raised a few points that were echoed in slightly different terms by the noble Lord, Lord McKenzie. My noble friend Lord Kirkwood said that he came today because he does not like to miss uprating statements and has been to every one for the past however many years. I hope I do not disappoint him. This is my first, so I have a lot of catching up to do. He made the point that these orders are different from anything that he had seen before, but he acknowledged the economic conditions that we are in and that they are an important reason why we are in a different situation from that of previous uprating statements that he has contributed to. He asked what might happen for people who are exceptionally poor or who might over time be affected in ways that at this stage we may not be able to anticipate. The noble Lord, Lord McKenzie, echoed some of that in his remarks.

I shall make a number of points on this. It is important for me to restate that some of the measures that we are taking today will have an immediate impact on people in a way that we would not want them to have, but we think that all the measures that we are taking both here in the order today and in the Bill contribute to the longer-term plan and strategy to make sure that we deliver a better economy for everyone.

Alongside that, we are also making significant reforms to the welfare system. The introduction of the universal credit this year and the various initiatives as part of that will ensure that work always pays and that lower-income families receive the support that they need. By making these different decisions, we will strengthen the economy and increase the number of job opportunities —1 million jobs have been created in the private sector over the past couple of years—and there are things that we are doing in addition to these measures to make sure that there is a positive future for people.

My noble friend Lord Kirkwood raised the issue of child poverty, as did the noble Lord, Lord McKenzie, and I shall make a couple of points in response. My noble friend asked how we are keeping these issues under review in the context of the long-term effects of some of these changes. In addition to the measures within the Child Poverty Act, Alan Milburn and his Social Mobility and Child Poverty Commission will carry out an annual review of the Government’s activities in regard to the requirements set out in that Act. The first review will happen this year and will ensure that we are subject to proper scrutiny. We want to ensure that we protect people, and if anything we are doing puts anyone at risk we need to know about it. Those are the kind of arrangements that we are putting in place.

What is the Government’s assessment of the effect that the measures in this order, let alone those in the uprating Bill, will have on vulnerable people? Have the Government concluded that it will have no effect or an adverse effect? If it is as the Minister has said and the Government are mindful, as I am sure the noble Baroness is, of not pushing people into poverty, what will be the effect of this order?

I was about to remind noble Lords that we have carried out an impact assessment of both the order and the Bill on child poverty. That is in the public domain. However, we cannot consider only the impact of these welfare changes; other dynamic changes are being made that will have an effect on child poverty. For example, the introduction of universal credit is expected to lift up to 250,000 children out of poverty. There are varying ways of looking at its impact on child poverty. We want to make sure that it is done in the round and that it is not considered in a one-dimensional way. We are very much seized of this issue and take it seriously.

My noble friend Lord Kirkwood asked about the GAD report. GAD has said that the balance of the national insurance fund at 31 March 2014 is expected to be greater than one-sixth of the amount of benefit payments in 2013-14 and that there is no immediate need to address the fund balance. We welcome this statement. GAD has also said that there is no immediate need to do anything to address the risk of the fund falling below the one-sixth threshold. It will review the situation again in a year’s time.

There were other points that the noble Lord, Lord McKenzie, made which I have not covered already. He asked about various costings. I think that he asked about statutory maternity pay and the WRAG component. I will have to write to the noble Lord with the details of that. He also asked for information on the average time that people are on ESA—the work-related activity group. Fewer than half of new ESA claimants are on the benefit for a year, but perhaps that is something else on which I could write to the noble Lord with a little more background.

The noble Lord, Lord McKenzie, also asked me—I may not have had an answer through on this; sorry, I have it here—which benefits are not covered by this order but are in the Bill. I think he was asking whether there was any inconsistency. He is right that this does not include tax credits; there will be a separate order on them, which should be coming soon. I think the only other significant difference between the order and the Bill is on child benefit.

I also asked the related question of whether there is anything that is not uprated by only 1% for a CPI amount.

That would include child dependency increases and capital limits, but I think I will have to write with a full list on that one.

The noble Lord, Lord McKenzie, asked about the 1.5 million pensioners who will see a loss from the savings credit measures. The pass through to the triple lock is a cost-neutral measure: 1 million people gain an average of 50 pence. They are the poorest pensioners, but as this is cost neutral some will obviously see a smaller cash increase. One-and-a-half million pension credit claimants will see this smaller cash increase, which is on average about 35 pence. We have done this to provide protection for the poorest pensioners and ensure that they see the cash increase from the triple lock. As I said at the beginning, my main point here is that this order ensures that the poorest pensioners receive the proper entitlement to that triple lock and get its full benefit. As I have said, I will respond to any outstanding questions that I have not covered in writing.

In conclusion, my main point is that this uprating order is one for the long term, but it is critical to have regard to those who will be affected by the order today, and we have done that. I have already explained that we are spending an extra £2.8 billion on uprating pensions and benefits in 2013-14, enabling us to protect key benefits and vulnerable groups, but we are also taking decisions that will matter to all families in the years to come. Those decisions will help us to secure a better economy and a better future for everyone. That is something which I hope all noble Lords can support and it is on that basis that I commend these orders to the Committee.

Motion Agreed.