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Social Security Benefits Up-rating Order 2017

Volume 779: debated on Tuesday 21 February 2017

Motion to Consider

Moved by

I beg to move that the Grand Committee do report to the House that it has considered the draft Social Security Benefits Up-rating Order 2017. In my view, the provisions in this order are compatible with the European Convention on Human Rights.

Today we are debating the Social Security Benefits Up-rating Order 2017. This statutory instrument reflects the Government’s continuing commitment to: increase the basic and new state pension with the triple lock at 2.5%; increase the pension credit standard minimum guarantee in line with earnings at 2.4%; and increase benefits to meet additional disability needs and carer benefits in line with prices at 1%.

The Chancellor reaffirmed this Government’s commitment to the triple lock for the length of this Parliament in his Autumn Statement on 23 November 2016. This ensures that the basic state pension will continue to be uprated by the highest of earnings, prices or 2.5%. This year, the increase in average earnings and the increase in prices were less than the baseline of 2.5%. As such, the basic state pension will increase by 2.5%. This means that from April 2017 the rate of the basic state pension for a single person will increase by £3.00 to £122.30 a week. As a result, from April 2017 the basic state pension will be more than £1,200 a year higher compared to April 2010. We estimate that the basic state pension will be around 18.5% of average earnings, one of its highest levels relative to earnings for more than two decades.

Last year, the Government introduced the new state pension for people reaching their state pension age from 6 April 2016 onwards. This made the system clearer, providing a sustainable foundation for private saving. The Government have previously announced that the triple lock will apply to the full rate of the new state pension for the length of this Parliament. This is the first year that the new state pension will be uprated. As such, this year the full rate of the new state pension will increase by 2.5%. This means that from April 2017 the full rate of the new state pension will increase by £3.90 to £159.55 a week. This will be around 24.2% of average earnings.

We are continuing to take steps to protect the poorest pensioners. This includes through the pension credit standard minimum guarantee, the means-tested threshold below which pensioner income need not fall. The pension credit standard minimum guarantee will rise in line with average earnings at 2.4%. This means that from April 2017 the single person threshold for safety-net benefit will rise by £3.75 to £159.35. Pensioner poverty continues to stand at one of the lowest rates since comparable records began.

I turn to the additional state pension. This year state earnings-related pension—SERPS—and the other state second pensions, together with protected payments in the new state pension, will rise, in line with prices, by 1%. On disability benefits, this year the Government will continue to ensure that carers and people who face additional costs because of their disability will see their benefits uprated in the usual way. Disability living allowance, attendance allowance, carer’s allowance, incapacity benefit and personal independence payment will all rise in line with prices—by 1%—from April 2017. In addition, disability-related and carer premiums paid with pension credit, and working-age benefits, will increase by 1%, as will the employment and support allowance support group component, and the limited capability for work and work-related activity element of universal credit.

The Government will be spending an extra £2.5 billion per year in 2017-18 on uprating benefit and pension rates. In this order we continue to maintain our commitment to the triple lock for both the basic and the new state pension for the length of this Parliament. We also commit to increase the pension credit standard minimum guarantee by earnings and to increase benefits that reflect the additional costs that disabled people face as a result of their disability, and carer benefits, in line with prices. This includes increases to the disability living allowance, attendance allowance, carer’s allowance, incapacity benefit, personal independence payment, and disability and carer premiums.

On that basis, I beg to move.

My Lords, I am grateful to the Minister for that helpful opening statement. I will make one or two comments on what he has said.

However, I will also spend a moment—if I do not impose too much on the Committee—talking about the process available to us as parliamentarians more generally to observe, be confident of, and have assurances about, how the annual social security spend is surviving some of the impositions arising from the Government’s more general fiscal rule—to save £12 billion during this Parliament. That is a significant sum. I absolutely acknowledge—and the Minister was right to explain this, under the terms of the order—that sensible provision has been made for our retired population. The pension rates, the triple lock—everything that he has explained—make perfect sense and sit well with the requirements of that part of our population that is past retirement age.

However, we must have some concerns whether proper provision that, arguably, is being made for those over retirement age, is also being made for those of working age. I want to focus on paragraph 4.3 of the Explanatory Memorandum. In the final sentence—this will come as no surprise to any of us—it is accepted that the main rates of benefit are frozen at their 2015-16 rates, under the 2016 Act. They were not part of the Secretary of State’s review. My opening question derives from the fact that I have been doing uprating statements for as long as anybody—since I first entered Parliament in 1983. They used to be very big occasions, because they were responsible for disbursing huge amounts of public money, and that is still the case. We are, however, getting to the position where I am no longer confident that the protection provided by Section 150 of the Social Security Administration Act is the assurance that it used to be.

As a policymaker, legislator and parliamentarian, I always had confidence that Secretaries of State for Social Security or Work and Pensions sat down once a year and thought carefully, on advice from the detailed research that Secretaries of State have available to them, about whether what was being proposed to Parliament was adequate for the purpose. I do not think we can say that any more, and if that is even halfway true, we as policymakers and the Opposition need to be looking at other ways, if we cannot get assurance from Section 150 of the 1992 Act, to discover what the Government are doing in the department and in their discussions with the Treasury to make proper provision for the rest of this Parliament. This is the only occasion that I can think of when we can do that, although I understand that under the strict terms of the order, I might be on the cusp of what is technically in order.

The plea I make to the Minister—he may not have an answer for this more general question—is that in his new role and as part of a new and very capable ministerial team within what is effectively a new Government taking a fresh look at responsibilities for social protection, he should reflect carefully on how he and his colleagues will be able for the rest of this Parliament to give me the assurance that is absent now that we have restricted consideration for annual review.

My second question relates to the change that we made some years ago, moving to the CPI from the RPI measure. It is significant, historical and very easy to miss. I notice that in its April 2015 data review, the Office for Budget Responsibility calculated that as a result of that single change there was reduction in spend of £5.2 billion a year by 2019-20. I do not expect the Minister to have this figure at his fingertips, but it is very important that for the rest of this Parliament we track the estimates made by the Office for Budget Responsibility and the Department for Work and Pensions of the cumulative results of that single change, which is so significant for all benefits. Monitoring that is part of the work we should be doing.

In the uprating statements for the rest of this Parliament, will the Minister be good enough to monitor exactly how the £12,000 million social security spending reduction is being effected in practice? Where is that money being saved? I know that it is an estimate. That has been made clear by the OBR, the IFS and others. We need to know the relative savings achieved from the freeze, the new two-child limit, the cuts to universal credit, the cuts to ESA and the reduced household benefit cap. If we do not have that information in debates of this kind for the rest of this Parliament, we will be at a significant disadvantage in trying to work out what lower-income households are facing.

I have one further point before I finish, but I shall be brief because I think I am pushing my luck slightly. The order does not contain any reference to working-age benefits. There is a real risk in using cash limits to set benefit upratings in future, but we are getting into a habit of doing that. We froze benefits on a cash basis in 2013-14, and we are doing so now. Two things happen with that. First, the Government are transferring the risk of inflation to benefit recipients, and I do not think that is fair because no one can truly judge what is going to happen to inflation. Colleagues may have more to say about that. Secondly, there is no way of knowing exactly where the saving will be if you rely on inflation. The Government are in a much safer position if they take decisions that can lead to calculations and assessments of what is expected in future.

I am no economist, but I do not think you need to be one to understand that inflation is increasing. The impact of that will bear down on working-age families, particularly those with children. The IFS and the Resolution Foundation have done some excellent work trying to point out the risks that we as a country will be running for the next three or four years. The Child Poverty Action Group reminded us in a recent leaflet that child benefit has risen since the 2010s to where we are now by something like 2%, whereas costs will have risen for the client group that CPAG seeks to represent by about 35% between 2010 and 2020. These are forecasts, and of course forecasts can be wrong, but they are frightening in what we may be facing, particularly for families with children in the lower income brackets.

My plea is that we look at this more carefully and that, if these uprating statements are less useful technically in looking at the totality of the benefit spend, the Minister in his new position goes back and discusses this with his departmental colleagues. He has vast resources, he has some very experienced, talented and clever research people in the department, and I am sure he can help them to ensure that we avoid some of the really regressive scenarios painted by some pressure groups, which know what they are talking about. If we do not, Parliament will find it more difficult in future to be confident that we know exactly what is happening and the disposition of what is an essential policy area for the safety-net provision for low-income families in the UK.

My Lords, I hesitate to intervene after the powerful speech from my noble friend Lord Kirkwood, but the DWP bus does not come along very often, so I fear I must take this very small chance to jump on it. The Explanatory Memorandum was actually very helpful, which has not always been the case with DWP statutory instruments. Often the DWP has not had many accolades for its Explanatory Memorandums being helpful, so I would like to say that this one was. At the very end of the memorandum, paragraph 11.2 says:

“Small businesses, like all employers, meet the costs of Statutory Sick Pay without reimbursement but are able to access the services of the Fit for Work Service, a free occupational health service funded by Government for employees absent from work through ill health for four weeks or more”.

Can the Minister tell the Committee whether that service is being taken up? Small businesses are not always good at knowing what the law is, and I know that many of them have never heard of the access to work service for the employment of disabled people. That is very important if the Government want to halve the disability unemployment rate. I would like an update on the fit for work service, which I know was designed by Dame Carol Black, and I would be happy for the Minister to write to me.

My Lords, I thank the Minister for his introduction of this order and the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Thomas of Winchester, for their contributions. The noble Lord, Lord Kirkwood, and I gather around this time every year—sometimes to decreasing effect, it feels—and we miss my noble friend Lady Lister, who is usually with us on these occasions. In the absence of her enormous knowledge, I will do my best to fight the good fight for these Benches.

I reassure the noble Lord, Lord Kirkwood, that he is not out of order because the order increases the disability premium and some elements of working-age benefits. Therefore his area of comment is wholly in order for addressing these questions today. It was a comment in which I have an interest because I am about to do the same thing.

While obviously not objecting to the 1% uprating of the benefits that are covered, the triple lock or in-line-with-earnings increases as described by the Minister, we have serious concern about the increasing impact of the Government’s approach to benefit uprating on the millions of people who rely on benefits to look after themselves and their families. The real action here, as the noble Lord, Lord Kirkwood, pointed out, is happening offstage. It applies to the many benefits that should be on this list and are not.

The summer Budget 2015 listed a series of working-age benefits that would be frozen for four years from 2016-17 to 2019-20. We should remember that they had had only 1% uprating from 2013 and that there was the massive effect, described by the noble Lord, Lord Kirkwood, of the shift from RPI to CPI as the measure for increasing benefits. That list includes child benefit, JSA, ESA, income support, housing benefit under women’s state pension age, LHA rates, child tax credit, working tax credit, universal credit and bereavement support payment. Many of these benefits affect working people and working families, but they all affect people who are dependent on benefits to survive. It is good that the disability and other premiums paid with these benefits are being increased by 1%, and I am glad to see that.

The freeze to the other levels of social security payments are having a detrimental impact on those who depend upon them. Between 2008 and 2014, the prices of essentials rose three times faster than wages. Combined with the period of 1% uprating and then the freeze, low-income households have seen a significant deterioration in their income. Now that inflation is starting to pick up, we need to be reassured by the Government about how they are going to ensure that Parliament can understand the degree to which households are protected from the consequences of those changes in ways that we could reasonably expect them to do.

The 1% uprating is based on the rate of CPI prevailing in the year to September 2016, which was reported at 1%. However, since then, inflation is clearly on the rise. Last week, we saw the release of the latest figures which showed that the consumer prices index rose by 1.8% in the year to January 2017. Last week we also saw the Bank of England inflation report which said:

“In the central projection, conditioned on market yields that are somewhat higher than in November, inflation is expected to increase to 2.8% in the first half of 2018, before falling back gradually to 2.4% in three years’ time”.

As the Resolution Foundation pointed out in a report entitled Under New Management in November 2016, the effect of rising inflation is that this policy is saving the Treasury rather more money than it expected. The report estimates that rather than the £3.6 billion the policy was due to save the Exchequer by 2020-21, the savings would rise to £4.6 billion. Can the Minister tell the Committee whether that £4.6 billion figure is accurate and, if not, what is the value of the savings now estimated to be according to his department or the Treasury?

On the other hand, the effect of these changes on households in receipt of benefits is also far greater than Parliament expected at the time when the decision was made to freeze benefits, and people on the lowest incomes are least able to withstand the effects of inflation because they have the least disposable income and in most cases they have little or no savings to depend on as a cushion. That is why Parliament has traditionally protected them from these risks by inflation-proofing benefits. As the IFS puts it:

“This policy represented a significant takeaway from a large number of working age households. But it also represented a shifting of risk from the Government to benefit recipients. Previously, higher inflation was a risk to the public finances, increasing cash spending on benefits. Now the risk is borne by low-income households: unless policy changes higher inflation will reduce their real incomes”.

That point was also made by the noble Lord, Lord Kirkwood. The IFS also points out that, as of last March,

“the freeze represented a 4% cut in the value of those benefits … relative to previous plans”.

Last October, the IFS, based on its inflation forecasts at that point, produced some other observations on the impact on claimants, saying:

“As a result, 11.5 million families were expected to lose an average of £260 a year, saving the government £3.0 billion in 2019-20. Given the latest inflation forecasts from the IMF, the policy now represents a 6% cut to affected benefits. The same 11.5 million families are now expected to lose an average of £360 a year (£100 a year more than expected in March), saving the government £4.2 billion in 2019-20 (i.e. an additional £1.2 billion on top of what was expected back in March). Greater losses are found among families—typically those on lower incomes—who receive more in benefits”,

so,

“8.3 million families affected now expected to lose an average of £470 a year”.

The Minister might claim, truthfully, that his party had a manifesto commitment that the working-age benefit system should be made less generous over this Parliament, but as the IFS pointed out,

“it is hard to see why the appropriate size of cut should be arbitrarily determined by the impact of movements in sterling on prices”.

Quite, but if the Minister does not want to listen to the Resolution Foundation or the IFS, or the noble Lord, Lord Kirkwood, or the noble Baroness, Lady Thomas, or, unaccountably, even me, perhaps he might be persuaded by the following comments, reported in the Independent from another parliamentarian:

“When the original benefit freeze was set it was set against an estimate of a much lower rise in inflation … Therefore I’m sure the Treasury will want to look at to keep that under review because the purpose was not to have such a dramatic effect on incomes against a forecast of rising inflation … I’m sure the Treasury will want to look at that and keep that under review so that doesn’t actually happen and make it adverse in a way that it was not completely intended”.

That was Iain Duncan Smith, speaking to an event in Westminster, reported in the Independent on 8 November last, and that was before inflation hit the heights that we saw last week.

My questions for the Minister are simple. First, can he tell the Committee the latest estimate of the savings to the Exchequer of this four-year benefit freeze, as against CPI uprating, over and above the amount originally scored? Secondly, how big would the gap have to be between projected and actual impact on claimants of this freeze before the Government would revisit it? Finally, to echo the noble Lord, Lord Kirkwood, whom I commend for his determination to come back to this matter on behalf of all parliamentarians every time we discuss it, what is the mechanism for Parliament to revisit the issue and be assured of the adequacy of social security benefits in the absence of any appropriate annual mechanism?

My Lords, again, I thank all noble Lords who have spoken in this debate. The noble Lord, Lord Kirkwood, spoke about his experience of uprating statements going back to, I think he said, 1983. I feel a mere child in these matters going back only to the 1989 uprating statement. I did a few after that, but I do not think that I have quite the assiduous record that the noble Lord has in these matters.

The noble Lord also talked about the process by which we go through these matters, and asked whether it is still the case that my right honourable friend the Secretary of State sits down and considers what uprating is necessary. I assure him that, within the confines of current legislation, he does and that he takes note of comments received in both Houses. I assure the noble Lord that I shall report back to my right honourable friend and others about the course of this debate.

Obviously, we have to make very difficult decisions on welfare spending. The noble Lord, Lord Kirkwood, is aware of that, as is the noble Baroness, Lady Sherlock. We also know very well that work, not welfare, is the best route out of poverty and that anything that can encourage people into work will be good for them in all possible ways. That is why our welfare reforms are designed to incentivise work for those who can and go wider than just the benefit system. They include such things as the national living wage, which will be up to £9 an hour by 2020, cutting income tax for more than 30 million people and the rollout of universal credit. At the same time, we remain committed to protecting all those who need support. That is why we made the reforms we did. As someone coming back to this world after some years out of it and having had some experience of seeing benefit offices, it is gratifying to see the rollout as it begins and to hear the comments of those making use of it. I am sure it is going to be a success. Anyway, I can give an assurance that my right honourable friend sits down and considers these matters.

The noble Lord, Lord Kirkwood, talked about the change from using CPI as opposed to RPI, an issue also touched on by the noble Baroness, Lady Sherlock. I appreciate that there is no ideal measure of inflation, and there never will be, but we certainly think that CPI is a better measure than the old RPI. I understand that the ONS is making changes to RPI, and it may be that some improvements can come forward in due course. However, at the moment, we are committed to CPI, which we think is a better measure and is the target rate used by the Bank of England. It also takes better account of how behaviour changes in response to price changes, using a methodology in line with international standards, and better reflects benefit recipients’ and pensioners’ experience of inflation by excluding mortgage payments. Again, we have to recognise that all the measures of inflation affect different people in different ways. I think all would agree that there is no ideal measure that we can use. CPI is the best and using the September-to-September measure is the only practical way in which to introduce the change in April the following year. I am sure that the noble Baroness would accept the difficulties of having to use a figure some months ahead, but any subsequent inflation will be taken into account in following years, so there is a catch-up designed into the system for future years.

The noble Baroness, Lady Sherlock, is not happy about the whole subject of freezing benefits, which goes wider than the uprating statement we are debating today. As she is aware, we have by statute frozen working-age benefits for a number of years—until the end of this Parliament, if I remember the dates correctly. It is not a matter for discussion today, but I repeat what I have said: we are dealing not merely with benefits but with work, which is the best route to get people out of poverty. As I said in response to the questions from the noble Lord, Lord Kirkwood, we want to incentivise work for those who can work, while supporting those who cannot. The noble Baroness then asked a number of detailed questions about our estimate of the savings and cited estimates made by this or that group and ending up with the comments made by my right honourable friend Mr Duncan Smith. I shall not comment on any of those estimates at the moment; this is not necessarily the right and proper place to have that debate. If we have some appropriate figures that I think the noble Baroness will find useful, I am more than happy to make them available to her.

Lastly, I turn to the questions raised by the noble Baroness, Lady Thomas. First, I thank her for her praise for the Explanatory Memorandum. It is a rare experience to have one praised. I will not take the credit for myself but will certainly pass it back to those in the department who are responsible for drafting it. In my naive way, very many years ago when I first came here, I always thought that Explanatory Memorandums were what they said and made life simpler in understanding an order. I have come to realise that that is not necessarily the case, but it is nice to have that praise on this occasion. Secondly, she asked me a detailed question on statutory sick pay. She may remember—I certainly do; it is ingrained on my heart—the Statutory Sick Pay Act 1991, or it may have been 1992, I forget which. To that extent, I once had great knowledge about SSP. I tried to find the paragraph she was referring to in either the Explanatory Memorandum or the order, but I am not sure I found it.

I will have to write to the noble Baroness to assure her on that point.

I appreciate that the noble Baroness, Lady Sherlock, would prefer a greater and longer debate on freezing benefits. As I said, I do not think that this is either the time or the place.

I confess to being disappointed by both the content and the tone of the Minister’s response to the questions put not just by me but by the noble Lord, Lord Kirkwood. I wonder whether he could tell me two things. First, does he accept that a number of the benefits being frozen are in-work benefits? Secondly, if this is not the occasion on which Parliament can expect to hold the Government to account to find out what in fact will be the impact of a measure which now looks to be much more expensive to benefit- claiming families than they were assured in the first place, what is?

My Lords, this is the occasion to deal with the uprating of those benefits which are being uprated. Parliament debated on another occasion, during the passage of the 2014 Bill, the freezing of benefits. The noble Baroness will not find it hard to find other occasions to raise the subject. When we are debating those benefits which we are uprating, it is not the time to pursue the question of the freezing of benefits.

Motion agreed.