Guaranteed Minimum Pensions Increase Order 2018
Considered in Grand Committee
My Lords, these orders were laid before the House on 15 January. In my view, the provisions in both orders are compatible with the European Convention on Human Rights.
I will start by touching briefly on the Guaranteed Minimum Pensions Increase Order. This order provides for contracted-out defined benefit occupational pension schemes to increase members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3%, in line with inflation as measured by CPI.
Moving on to the Social Security Benefits Up-rating Order 2018, this Government are once again making good on our guarantee to the country’s pensioners that we will continue to apply the triple lock to the basic state pension and the full rate of the new state pension for the duration of this Parliament. For 2018-19, this means an increase of 3%, in line with inflation. The rate of the basic state pension for a single person will thus rise by £3.65 to £125.95 a week from April 2018. Pensioners who receive this rate will from April 2018 be £1,450 a year better off than they were in April 2010. The basic state pension will be worth around 18.5% of average earnings, which is one of the highest levels relative to earnings for over two decades. The full rate of the new state pension for people reaching their state pension age from 6 April 2016 onwards will rise by £4.80 to £164.35 a week, which is around 24.2% of average earnings.
With regard to pension credit, we are making sure that the poorest pensioners in the UK will see the full benefit of the triple lock by increasing the standard minimum guarantee in pension credit by £3.65 to match the cash rise in the basic state pension. This is a year-on-year increase of 2.29%, marginally exceeding annual growth in earnings of 2.2%, which we will fund by raising the savings credit threshold. From April 2018 the standard minimum guarantee for single people will be worth £163 a week, while the equivalent rate for couples will rise by £5.55 to £248.80 a week. With regard to the additional state pension, state earnings-related pension schemes will rise by 3%, in line with inflation, as will protected payments in the new state pension.
With regard to disability benefits, we continue to support carers and those with additional needs as a result of disability and will increase the benefits they receive by 3%, in line with inflation. These include: disability living allowance; attendance allowance; carer’s allowance; incapacity benefit; the personal independence payment; disability-related and carer premiums paid with pension credit and working-age benefits; the employment and support allowance support group component; and the limited capability for work and work-related activity element of universal credit.
In conclusion, total government spending on uprating benefit and pension rates in 2018-19 comes to an extra £4.2 billion. This is £4.2 billion that we are using to support pensioners, disabled people and carers. On this basis, I commend the orders to the Committee and I beg to move.
My Lords, I had not planned to speak this afternoon, since I was supposed to be in two different places. But then I had this horrible memory of reading Hansard from our most recent debate on the uprating order, and of my noble friend Lady Sherlock naming and shaming me, in the nicest possible way, for not being there. I thought that I could not let this happen two years running, so here I am.
The Minister rightly said that the orders are compatible with the European Convention on Human Rights. However, there are other international obligations with which I do not think they are compatible. I would like to talk about the elephant in the room—those benefits that are not being uprated. This happened last year and the Minister very fairly accepted that it was a reasonable thing for us to do, because we cannot talk about uprating the benefits without thinking about benefits in the round.
As the Minister is aware, the European Committee of Social Rights recently issued a report, saying that levels of contributory benefits to the sick and unemployed are inadequate and therefore do not conform with Article 12 of the European charter. That was based on 2015 levels on benefits, so they would be even more inadequate now because of the benefits freeze in most working-age benefits.
In a report published last week the Resolution Foundation said that,
“in every year from 2016-17 to 2022-23 the UK is projected to miss its international commitment—through the 2030 Sustainable Development Goals”.
Those goals apply to us, as well as to poorer countries. The report said that it will fail,
“to deliver higher growth for the poorest 40 per cent of the population than for the population as a whole”.
Inequality is projected to rise to record highs by 2022-23. The Resolution Foundation says that this is,
“a story of the poorest working-age households being left behind”.
A key driver is the freeze in most working-age benefits. This is a policy choice. The Minister will talk about the living wage and personal tax allowances at some point but all this is taken into account. The fact is that the poorest people are falling behind, largely because of the benefits freeze.
According to the Resolution Foundation report, by 2020 jobseeker’s allowance and child benefit beyond the first child will be worth less than 32 years ago and child benefit for the first child will be at its lowest real-terms level in 20 years. I am sure that the noble Lord, Lord Kirkwood, will feel the same as me: as someone who has been working in this area for so long I find it very depressing to see how seriously we are going backwards.
The Minister gave us the welcome news about how pensions are improving relative to average earnings, but child benefit for a two-child family is less generous that at any previous point in the almost 40 years since it was fully introduced. It is set to fall even further over the next five years. Jobseeker’s allowance—unemployment benefit as was—was around a fifth of average full-time pay in the 1970s. It is now around 11% and is on track to fall to 10% by 2022, which will be a new low.
Does the Minister have the figures for what these key benefits, for people of working age and their children, would have been had they been uprated in line with prices since 2010? If she does not have them here—I would not expect her to read them all out anyway—would she be able to send them to Members of the Committee? It is important that we know what effect this freeze is having.
Given the way benefits are falling behind, it is hardly surprising that more people are turning to food banks and that poverty, especially child poverty, has started to rise again and is projected to increase by more than 1 million by the next decade. It is quite shocking. We are happy to allow the poorest to pay the price of increased inflation while the better off continue to enjoy cuts in taxation which do nothing for those whose income is too low even to pay income tax. I was very struck by reading in the paper yesterday that the Archbishop of Canterbury has said:
“Austerity is a theory for the rich and a reality of suffering for the poor”.
As the Resolution Foundation and others have said, these are choices. How we have responded to the financial crisis has been a matter of choices. I believe they are the wrong choices and that those with the narrowest shoulders are being asked to carry the burden. With inflation continuing to be significantly higher than it was projected to be at the point when the benefit freeze was first announced, is it not time that the Government think again about that policy and come back at the next available opportunity to say that they will now lift the benefit freeze?
My Lords, I shall briefly follow the points that my honourable friend made and developed to ask the honourable Lady—I beg their pardon; I am not in the other place and should say my noble friend and the Minister—some specific questions about the Social Security Benefits Up-rating Order with regard to child benefit and child tax credit, which are not in the order, and in particular how it fits with previous decisions by this Government to cap uprating at 1% between 2013 and 2015 and subsequently to put a freeze on the vast majority of social security payments.
I want to address rising child poverty and, in particular, the rise of absolute child poverty. I am sure that the Minister will be aware that the evidence shows that money paid through child benefit and tax credits directly to the parent, mainly the mother, is spent directly on children, yet in this period we have seen a shocking increase in child poverty in a country which has the sixth largest economy in the world, notwithstanding the points that my noble friend made. While the price of food and energy is rising at 4% and more, the poorest families will see their income drop as they struggle to balance feeding their children and heating their home, and many of them will fall prey to loan sharks.
Does the Minister accept that, as CPAG has said, as a result of the cumulative cuts to social security, which are pushing more people into poverty, the failure to uprate benefits in line with inflation is the single biggest driver of child poverty? What is her assessment of the impact of the decisions contained in this uprating order on poverty levels and, in particular, child poverty? Does she accept the CPAG’s analysis that 1 million more children will be pushed into poverty? One million! I mean, one child would be awful; I cannot think of a word to describe adequately the prospect in our society of 1 million more children in poverty as a direct result of this Government’s policies and the cuts to universal benefit.
By continuing the freeze on social security payments that are not included in this area, 10.5 million households will see their average yearly income cut. That simply is not sustainable. So the obvious question is: why target children? Why allow the Treasury to benefit by something like £4.7 billion in savings by cutting these benefits while seeing the appalling prospect of more children being pushed into poverty? What are the Government seeking to achieve here with regard to child poverty targets? Do they have a target or a strategy and, if they do, how will they reduce child poverty? It is a test of our society not only how we treat our pensioners and those vulnerable in our community but how we treat our children, who are the potential for the future.
I would be very grateful if the Minister could touch on those points and, if she cannot because of time constraints today, I will be more than happy for her to write to me explaining exactly what the Government’s strategy is here.
It is a pleasure to follow the noble Baroness, Lady Primarolo, who did some excellent work on child poverty when she was a Treasury Minister, and I agree with everything she has said. I am pleased to join with the noble Baroness, Lady Lister, in that my reason for being here is that my public last year discovered that I was not here either. So here I am—but I am escaping the hour and a half of the consideration of the Secondary Legislation Scrutiny Committee by being here, and I have more friends in this Committee than I have upstairs.
I have not had a chance to say this, but I am very pleased to welcome the Minister to the Dispatch Box; I was dismayed by the wholesale shift of the ministerial team at the DWP recently—the only bright spot was that she survived. But I make a serious as well as a flippant point. With a change of that scale at a stage like this, in the middle of all sorts of huge policy changes, and—I am going to mention it once, because every meeting is allowed to mention it only once—the EU withdrawal process, it is very difficult to be confident that any Minister, no matter how engaged and diligent, can really grasp the full complexities of this subject area. It makes my heart sink when I think about exactly what the chances are facing the department, but I am pleased that the Minister is here. I know that she will make a contribution and listen carefully to today’s debate.
I award the DWP employee of the month prize to Mr Ben Pugh who at paragraph 7.7 of the draft Explanatory Memorandum to the statutory instrument came up with this marvellous sentence, which I shall keep as a special uprating debate moment:
“These amounts will therefore be increased by 3.0085%—the difference between £159.55 and £164.35 as a percentage of £159.55, taking account of the rounding of the new full rate to the nearest 5p”.
I think the paperwork we are presented with in consideration of these orders is becoming less useful. The noble Baroness, Lady Lister, asked a couple of really pertinent questions which would be much more relevant to understanding where we have been and where we are going, in terms not just of the spend that we have seen in the past but the affordability of what is going on, and a comparison. Anybody who has a Twitter account can see that the Resolution Foundation is drop-dead marvellous at putting these things in graphs—it makes them so much clearer and so much starker. Admittedly, the Government’s opening statement concentrated on the welcome additions to the pensions, the disability premium and all the rest, at 3%. I think they are right to do that and it is very welcome, but when you look at some of the disparities in the other spendings and you factor in the cuts, caps and freezes, some of these situations are much easier to understand if seen visually.
This is not making the Government’s job any easier but I make a plea that in future, we have an intelligent discussion about affordability, even if it is one of the little round tables that we often have and the Minister is kind enough to arrange. That is what I am driving at, because I am very nervous. In terms of the demographic change, I do not think we can afford the triple lock. I am not saying that it is my party’s policy to abolish it but if I have my way, it will be, because after 2020 the thing becomes impossible to sustain if you look at the economic picture over 20 years.
The Office for Budget Responsibility Welfare Trends Report was very instructive about the fragility, if I can put it that way, of the basis of universal credit. At the end of the day this will be a £60,000 million spend, covering 7.7 million households across the country. If the OBR cannot say one way or the other whether this is going to work properly—it is a very interesting report if that is what it is saying—that has to be taken into account in considering these orders, because we are setting the policy for the next few years. It is something we need to think more carefully about. We need to try to get better value for the spend we are making in these orders.
One of my most recent visits to universal credit—it is something I am thinking more clearly about and organising some extra visits, with the Minister’s help—led me to think about our ability to support families, not just with money but with signposting and warm handovers. There is a big difference between the two, but that can and should develop so that we are not just offering people a guarantee of 3% or whatever it is. We need to get better value for money by, for example, liberating the ability of people who are recently retired and are still relatively healthy: the longevity bonus, if you like. We need to take a community approach and offer them some incentives, to operate alongside families with chaotic lifestyles.
We need a long-term plan. Before the end of 2020, I would like us to structure a social protection system that is open about what percentage of the national wealth should be devoted to it. Then, if the economy goes up, we all enjoy the benefits; if it goes down, I think people would be prepared to accept that that is the way the world works. That is much fairer than imposing cuts, caps and freezes between now and 2019-20. The evidence indicates that low-income households will be assessed in a much harsher context than I have seen in my time in public life. I am older than I look and I have been round the block, but, seriously, come 2020, that will be the result if the benefit freeze is allowed to continue. The evidence is clear. My two colleagues earlier referred to their takes on this issue. We have the IFS, the Joseph Rowntree Foundation and the End Child Poverty coalition. The United Kingdom is blessed with an experienced and trusted research community that can be relied upon to carry out this work.
Of course, no one has the ability to foretell the future but all the indicators suggest that this situation will get a whole lot worse before it gets better. I do not think that it is sensible merely to tackle this from year to year and stick with policies crafted when inflation was 1%. It is now 3% and we are told that local authorities are contemplating putting up council tax by 6%. That just will not work. The End Child Poverty campaign has said that the poverty premium is now £1,700 a year for some households in some parts of the United Kingdom. That is a much higher figure than I have ever seen, so this is all pointing in the wrong direction. It is not safe to leave this freeze in place without thinking very carefully about where it is going and what we are going to do at the end of it. My honest opinion is that public opinion will not put up with the consequences of the current policy if it continues to 2020 and 2022.
I know that the Minister will think about this issue sensitively and carefully and will use her influence as one of the most senior Ministers in the DWP to twist people’s arms. I hope that she will kick down the door of the Treasury to try to inject a bit more realism with regard to what the department is facing. If she does not, the consequences will be picked up by low-income households and children living in poverty, as we heard earlier. They do not deserve that. We as legislators should pay more attention to putting these things right before they get too out of hand.
My Lords, I thank the Minister for her exposition, which was, as ever, very precise, and welcome my noble friend on the Opposition Front Bench. I also welcome both these orders. The triple lock is welcomed by millions of people. Looking at the complexity of these two orders and at the long list of the Committee’s business today, I might be forgiven for expressing the personal view that perhaps they should have been taken on the Floor of the House. We have discussed a huge range of benefits in a short period of time. We have had a short debate, yet the issues are huge, the moneys are mighty and they all relate to the citizenry—our people. All of us want better things for the people of our nation.
In Part 2, the DLA is increased by £2.50 a week. That is surely welcome, but will the Minister say why the increase could not have been bigger, given the difficult times that are experienced by so many people, who are just getting by or not even getting by? Part 2 also refers to bereavement benefits and the bereavement support payment. The latter is not to be increased. Will the Minister, in the fullness of time, say why not? Surely that is worthy of an increase.
Schedule 5, on page 29, refers to the carer premium, the total of which is £36. Will the Minister comment on this? Is it more? Is it new? Perhaps she can say a few words about it. We would all agree that carers in society save the state billions of pounds and, in many cases, make sacrifices to be a good carer. It might be reasonable to ask the Minister to make some observations on that.
Lastly, in this Siberian winter spell, as the beast from the east makes itself known most forcefully, particularly in the north of my homeland, will the Minister say whether any component of these generally welcome upratings is a response to these terribly icy conditions? People on benefits have no spare money and, this week, tens of thousands of our fellow citizens on benefits are facing difficulties in heating their houses, which may well be old and not necessarily draft-proof. The choice may be to pay either the rent or the heating bill or to pay either for meat or for heat. These are troubling days for many people and the Minister might have a view on that when she gives her summation.
My Lords, I thank the Minister for introducing the orders and all noble Lords who have spoken today. It is a delight to be reunited with my noble friend Lady Lister and the noble Lord, Lord Kirkwood. I assure my noble friend that I was far from intending to name and shame her; I was in fact paying tribute to her years of service and those of the noble Lord, Lord Kirkwood, in coming back year after year to address these issues in defence of the poor in our society. I commend her for that.
It is also a delight to see my noble friend Lady Primarolo here. It is great to be reunited with her, in a different way. I had the privilege of being able to support her and other Ministers when she was doing such good work as Paymaster-General in developing tax credits, which have been so important in supporting working families and children in this country.
It is a delight also to hear my noble friend Lord Jones battling from the Back Benches. We are glad that he is here. He made a good point. I understand that, in the Commons, this order is always taken on the Floor of the House and not in a Delegated Legislation Committee. The order is of such importance to so many of our citizens that I commend that suggestion to the Government for next year.
I will deal first with the benefits uprating order. As we have heard, its purpose is to uprate those social security payments that are fortunate enough to have escaped the clutches of the Government’s damaging benefit freeze, of which we have heard so much. We will see them uprated by 3%, as that is the level of the CPI. That also applies to the new state pension, in accordance with the triple lock, and the pension credit. But the main means-tested working age benefits are not covered so, although I welcome the uprating of those elements that are being uprated, I am deeply concerned to see the value of the main means-tested working age benefits being cut yet again.
By way of background, the principle should be that all social security benefits should be uprated by the rate of inflation so that they retain the value that Parliament voted to set them at, unless Parliament decides to do something different. Anything other than that is undemocratic, as well as being unfair in its consequences to recipients. Of course, before 2011 they were tied to the RPI—or in fact to Rossi, a variant on RPI that excludes housing and council tax—then in 2011 it shifted to the CPI. That saved the Treasury a lot of money. Although that was contested, at least it retained the concept that benefits should retain their value year on year.
In 2013-14, the coalition limited most working-age benefits to a 1% annual increase. This Government then went further and froze them in cash terms at 2015-16 levels for four years, so they will not rise again in cash terms until 2020. That includes some of the benefits on which the poorest of our society depend, including JSA, ESA, income support, housing benefit for those under women’s state pension age, and LHA, as well as the benefits for children, a point made clearly by my noble friends Lady Lister and Lady Primarolo. While I welcome the uprating of disability premiums, the support group component of ESA and the limited capability for work and work-related activity element of UC, I express deep concern that nothing else has been included.
As we have heard, the freeze of payments and support is having a damaging impact on millions of people on low incomes across the UK. Inflation is now far higher than when the Welfare Reform and Work Bill was passed. I went back again to the impact assessment for that Bill, which cited the OBR’s forecasts for CPI inflation for each year of the freeze period. At the time, they varied between 0% and 1.9%. The forecast when Parliament passed the Bill was 1.7% for this year. In fact, the CPI 12-month rate was 3% last month. That difference is good news for the Exchequer, which is saving a lot of money, but that money is coming directly out of the pockets of those who would have got and depend on these benefits. David Finch of the Resolution Foundation points out that his team’s estimate is that by 2020 the freeze will save the Exchequer £4.7 billion. That is £1.2 billion more than previously forecast.
Of course, inflation for the poor is always higher. Food prices are up 4.1% and transport costs up 4.5%. The Joseph Rowntree Foundation has shown that the price of essentials has risen three times faster than wages over the last 10 years. Of course, the context for this freeze has been a whole range of other cuts to social security benefits and tax credits. We have already seen the cuts in the work allowance for universal credit: the Government scrapped the severe disability premium in UC, cut help for the self-employed, limited benefits and tax credits for the first two children—I could go on. As a result, UC is already failing to make work pay. Instead of reducing poverty, as we were promised, it is exacerbating it. The final straw is the Government’s plans to change the way free school meals are provided to those on universal credit, which will introduce the mother of all cliff edges, but I will come back to that another day.
By continuing the freeze on social security payments not in this order, as my noble friend Lady Primarolo said, the Government are subjecting 10.5 million households to an average cut of £450 a year up to 2020. The order underscores the fact that, because the Government are choosing to uprate some discretionary payments, they recognise that some benefits need to increase because inflation is increasing. Yet we have not seen any such increase for the ones that are most needed by many people in our country. When the Minister replies, could she give us a reason why some of those need increasing and some do not? These are choices, as my noble friend Lady Lister clearly expressed. The point was well made because austerity, as she pointed out, as experienced by the poor is a choice made by the Government.
The noble Lord, Lord Kirkwood, raised the question of affordability. He is right. The best indicator of the affordability of our social security system is the spend we have on social security as a proportion of GDP. That has been broadly similar for decades now, but I have no doubt that the Minister will be aware of the work done by Ruth Lupton et al, who looked at the coalition’s social policy record. She found that overall on the decisions made the welfare cuts and more generous tax allowances balanced each other out, contributing nothing to deficit reduction.
The Welfare Trends Report from the OBI states that by 2021 social security support for children will be at the lowest share of GDP since 1990-91. I do not think that the affordability arguments work. These are choices and I suggest to the Minister that they are bad choices, so I would like to ask her some questions. I am very much with my noble friend Lady Primarolo in wanting to know what assessment the Government have made of the impact of the social security freeze on poverty levels. I would also like to know the Government’s latest estimate of the savings to the Exchequer of this four-year benefit freeze, over and above the amount originally scored and showed to Parliament in the impact assessment when we were asked to vote through these measures in the Welfare Reform and Work Bill. Do the Government have a view about how big that gap would have to get before they felt obliged to revisit the question?
In my final point on the Social Security Benefits Up-Rating Order, I am very much with the noble Lord, Lord Kirkwood, on the nature of the information that we now get. I have been doing this work for quite a long time, but we are now at a level of such complexity, where some benefits have to be uprated, some are discretionary and some are not being uprated, that just by reading the order and the Explanatory Memorandum it is not easy to find out what falls into what category, let alone its impact. Will the Minister be willing to go back and have a think about how that information is presented and about ways in which it will be more accessible? There are a fair few geeks on social security in this Room and, if we are struggling, I suspect that others may be finding it even less appealing. Perhaps she can dwell further on that.
Moving on to the pensions element, we welcome the uprating of the state pension by the triple lock, but I want to put on record concerns about levels of public understanding about the new single-tier pension. We know that there are winners and losers as a result of the Government’s changes and we also know that most new pensioners will not receive the full single-tier pension. Before its introduction, it was estimated that only around 22% of women and half of men reaching state pension age would be entitled to the full single-tier pension. Can the Minister update the Committee with any figures on this point?
I also note that, in addition to the various social security payments that are subject to the freezes and are not uprated in this order, there are other omissions in this area. While the state pension is being uprated, people with frozen pensions are excluded from the uprating and will not see an increase in their state pension in line with inflation. Also, the Government have still failed to address the injustice faced by many millions of women born in the 1950s. At the very least, they should bring forward retirement for women born in the 1950s and enable an early draw-down of their pension. If that were possible alongside our proposals to extend pension credit, they would at least have the option to retire early with some much needed financial support.
Turning to the specifics of the Guaranteed Minimum Pensions Increase Order 2018, we support the uprating of the guaranteed minimum pension in line with inflation as set out in this order, but I have some questions for the Minister. They were raised by my honourable friend Debbie Abrahams when this order was considered in another place but they received no reply. I am sure that the Minister can do better than that, not just because, obviously, the Lords is a marvellous place, but because, one hopes, she will have had an opportunity to read the exchanges in another place and so will know the questions that are coming.
Under the old state pension, there were two main components: the basic state pension and SERPS. People who paid national insurance contributions at the full rate built up a basic state pension, but an option was created in 1978 in which somebody could contract out into another pension scheme if the scheme met certain criteria. Schemes taking on such new members were required to provide a guaranteed minimum pension, but the scheme was discontinued by the Government in 1997. In 2016, the Government’s introduction of the new state pension ended contracting out by replacing the additional state pension with a single pension. Working-age people now have their existing state pension entitlement adjusted for previous periods of contracting out and transferred to the new state pension scheme. For people who have guaranteed minimum pension rights under an old scheme but who reach retirement age after April 2016, when the new system kicked in, the Government no longer take account of inflation increases to guaranteed minimum pensions when uprating their new state pension. That means that any guaranteed minimum pensions accrued between 1978 and 1988 will not be uprated and the scheme provider will uprate guaranteed minimum pensions built up between 1988 and 1997 only, up to a maximum of 3% each year.
The National Audit Office investigated the impact of the changes in a report in 2016 and concluded that there would be winners and losers under the new arrangements depending on the amount of time that people were contracted into a scheme. Those whose state pension has been pushed back because of the rise in state pension age will lose out on the guaranteed minimum pensions inflation-linked increases that they would have received under the old rules. But it noted that those who lose out under the new rules might be able to build up additional entitlement to the state pension. The issue was one about lack of information. The NAO said in its report:
“Some people are likely to lose out and they have not been able to find the information they need”.
How did that come about? The NAO concluded:
“We are concerned that the Department has limited information about who is affected by the impact of pension reforms on Guaranteed Minimum Pensions … It … will need to help people identify how they are affected and provide them with accurate and more complete information so that they can make informed decisions about their future pension arrangements”.
In the light of that, I ask the Government two questions. Can the Minister provide an update on the numbers of people affected since the new legislation came into effect? Secondly, what help is currently available to support people in their understanding of the changes? I hope that the Minister will take the opportunity to address those issues and I look forward to her reply.
This has been a really lively and interesting debate. It is right that I emphasise that these orders are not about the benefit freeze and a fair number of other issues raised by noble Lords. However, having said that, I shall attempt to do my best to reply to noble Lords.
I have some news, also, for the noble Lord, Lord Kirkwood. He was here last year. Indeed, there are some similarities in his speech. I have to say that some aspects of it I have enormous sympathy with, so I shall come to that, and I welcome his contribution to this debate.
I shall cut straight to the issues of benefit freeze. It is not a cut—it is a freeze—and it is part of a package of welfare reforms designed to incentivise work, which we know is the best route out of poverty. I want to talk about the things that we have done that are really positive, because I fear that if one listened just to noble Lords opposite one would have a sense that somehow everything is going completely wrong—but that simply is not the case. However—and I shall come to this again in a few minutes—the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Sherlock, touched on the issue of affordability, which is a really tough and prescient one. Indeed, it has exercised my mind and thoughts since I arrived at the Department for Work and Pensions, given the huge sums of money that we are spending on welfare. We are spending more on pensions alone than we are spending on education and defence put together—£100 billion a year out of a total government budget of £750 billion. That is a huge proportion. Yes, there are some really difficult choices; it is all about choices—so are we making the right ones? We believe that we are, but we will have disagreements, of course. Indeed, there will be disagreements not only across the House but in another place as well, which is entirely laudable. But as the noble Lord, Lord Kirkwood, said, all of us need to keep thinking in terms of the future sustainability of the welfare system which really looks after those who are most in need.
The benefit freeze is part of a package of welfare reforms that are designed to incentivise work, which is the best route out of poverty. We have brought in 30 hours a week of free childcare for working families in England, cut income tax for 30 million people and provided the lowest earners with their fastest pay rise in 20 years through the national living wage. So yes, that is one choice that that we have made, but we have to support those who are earning and those on low wages to the best of our ability. We see that welfare reform is working. The employment rate is at a near record high and there are fewer households where no one is in work than at any time since comparable records began. However, I will say, 14.5% of all households in the UK are still workless, which is far too many.
The noble Baroness, Lady Lister, referenced the Resolution Foundation saying that inequality is projected to rise to record levels in the coming years. We simply do not believe that that is the case. There are choices. We have to make difficult choices and believe that we should focus our spending on those who need it most.
On the question raised by the noble Baroness, Lady Lister, of the burden falling on the poorest, Her Majesty’s Treasury published a cumulative distributional analysis alongside the Budget in November 2017, showing the impacts on household income of tax, welfare and public expenditure changes implemented or planned to be implemented since the 2010 general election. This analysis shows that the state is highly redistributive. On average, the 10% of households with the lowest incomes receive more than four times as much support in spending as they contribute in tax, while the 10% of households with the highest incomes contribute more than five times as much in tax as they receive in spending.
The noble Baroness, Lady Primarolo, asked whether we will lift the freeze on working tax credits, child tax credits and child benefit. I respond by simply saying that the Treasury is responsible for these benefits and it announced the 2018-19 rates at the same time as the Budget in November 2017. The noble Baroness talked a lot about children and families. We are committed to supporting families and tackling the root causes of child poverty and disadvantage. If you are a child growing up in a household where no one is in work you are almost twice as likely to fail at all stages of your education than if you lived in a working family. Children in households where no one is in employment are five times more likely to be in poverty than those in households where all the adults work. Nearly three-quarters of children from families where no one has been in employment moved out of poverty when their parents entered full-time work. That is why we are supporting parents to find and stay in work.
We have made the childcare element of universal credit more generous. Parents on universal credit can now claim back up to 85% of eligible childcare costs, compared with 70% in working tax credit, a change that is benefiting 500,000 working families. This Government are investing record amounts in childcare. By 2019-20 we will be spending more than £6 billion per year to support working families in this way. For families who face additional, complex barriers to finding work, we set out our framework for action when we published our strategy, Improving Lives: Helping Workless Families in April. I can tell noble Lords that we are doing a huge amount of work on this in the department. As I said earlier, the number of households where no one is working is actually at a record low: it is 954,000 households lower than it was in 2010, which means 608,000 fewer children in such households than seven years ago. We believe we are on the right trajectory. On a before-housing-costs basis, there are now 200,000 fewer children living in absolute poverty than in 2010.
I want to confirm for the noble Baroness, Lady Primarolo, that inflation is not at 4%; it is actually at 3%. Indeed, that is something that I double-checked with our researchers at the department. The noble Baroness, Lady Lister, asked for figures on the poverty rate since 2010 and the impact of the benefit freeze. We do not actually have those figures but the benefit freeze is part of a package of welfare reforms designed to incentivise work and support working families, including, as I have said, increasing the national living wage, reducing income tax and, of course, the rollout of UC. I will write to the noble Baroness with those figures.
Is there any programme to evaluate the work-incentive point? Of course it is a perfectly obvious point and it may be working, but the only place where the data can be found is in the department. Is the department doing any work that will evaluate whether the powerful work incentive point that she has just made is actually making a positive difference?
Yes. Work is being done and I am very conscious of the fact that we should be talking more about that. We have been saying that work pays— I prefer to say that work transforms lives. The noble Lord is right. We need to do more to articulate our belief and the reasons why we are confident that we are right and that work transforms lives. It relates hugely to outcomes. It is not a simple, overnight back of the envelope matter, but we are working on it.
The noble Baroness, Lady Primarolo, asked about targets for child poverty. The income-related targets set out in the Child Poverty Act 2010 have been replaced by two new statutory measures of parental worklessness and children’s educational attainment. This will drive continued action on the areas that can make the biggest difference to children’s outcomes now and in the future. The noble Baroness also asked whether the Government would lift the freeze on working tax credits. The answer is that the Treasury is responsible for working tax credits.
The noble Lord, Lord Kirkwood, made his point with feeling, and I can only say that we are working hard and thinking about our policies going forward. The huge question is affordability. We are spending £95 billion—that is, ninety-five thousand million pounds—a year on benefits for people of working age. For how long is that sustainable? Our department accounts for 25% of the whole of the Government’s budget, which in terms of expenditure is now the size of Chile or similar, I understand. The noble Baroness, Lady Lister, referred to some overseas organisation, saying that we are behind the curve in terms of our expenditure. I simply do not recognise that, in terms of how much other countries are spending or of the choices that they have made. For example, are they paying the similar amount of 0.7% of their national income, which is what we are paying, on overseas aid?
I am sorry to interrupt. I may not have made myself clear. I was not referring to some international organisation. The Resolution Foundation pointed out that we will not be meeting our obligations under sustainable development goals not because of overall expenditure levels but because the lowest 40% are going to do worse than the population as a whole. That goes against what we have signed up for under the sustainable development goals. We think of the SDGs as being for the poorer countries, but they are for us as well.
I accept that, but it has to be comparative in terms of the goals that we have set. In the back of my mind I have the response to that particular figure that was quoted and we do not recognise that as being correct. I think that I have said that on the Floor of the House in another debate.
The noble Baroness, Lady Sherlock, raised a number of questions, the first of which was about contracting out. If a person was previously contracted out for a long period they may have a lower starting amount for a new state pension than someone who had built up some additional state pension. This is because they paid lower national insurance when they were contracted out and have built up an occupational pension as a result of these arrangements. Part of their occupational pension replaces the part of the state pension they were contracted out of. People who were previously contracted out are therefore not missing out. Although some people will get a lower starting amount from the state, many will have more than the new full rate in total if they add their state pension and their contracted-out private pension together. If no adjustment was made, people who had been contracted out would be paid twice for the same national insurance contributions. The transitional arrangements ensure that everyone who qualifies for the new state pension will get at least as much as they would have done under the old system, based on their own national insurance contributions to 6 April 2016.
With regard to the GMP indexation, the transitional arrangements in the new state pension are particularly beneficial to people who have been contracted out. People with pre-2016 national insurance records have a starting amount calculated for them based on their national insurance position at 6 April 2016, which includes a reduction to account for the GMP. People can build on this starting amount either until they reach the full rate of the new state pension, which is £164.35 from April 2018, or until they reach state pension age. For some, this can be up to an additional £38 a week. People with a new state pension starting amount will also have benefited from the triple lock of the basic state pension. People with 30 pre-2016 qualifying years will from April 2018 be just under £13 a week better off than if the basic state pension had been uprated by earnings since 2010, when the triple lock was announced.
With regard to communications, the Government have run a comprehensive advertising campaign on the new state pension, including advertisements in the press and on radio and social media. Something called the Check your State Pension forecast service has had more than 7 million visits since it was launched.
The noble Baroness, Lady Sherlock, asked about state pension uprating for people living overseas. The policy on uprating the UK state pension overseas is a long-standing policy of successive Governments. It has been in place for around 70 years. The Government uprate the UK state pension where there is a legal requirement to do so, such as for state pension recipients living in the European Economic Area, Switzerland, Gibraltar and countries with which there is a reciprocal agreement that provides for uprating. Restoring the pension to UK levels for all overseas pensioners, where we do not currently uprate, would cost more than £500 million extra a year. Here we come to affordability: my note says categorically that there is no money available for this.
The noble Baroness also referenced what we colloquially refer to as WASPI, which is the proposal allowing early draw-down of state pensions for women affected by changes to the state pension age. Evidence submitted by the Government Actuary to the Work and Pensions Select Committee in April 2016 showed that it would be extremely complex to accurately predict the costs of such a policy. At the very least it would involve bringing forward significant amounts of expenditure, with the associated burdens on the taxpayer, and would risk leaving pensioners with an inadequate income in later life. Even if it were actuarially neutral, the option of allowing people to retire early and receive a reduced state pension would result in additional costs to the state from the loss of taxes. There would be further costs from the wider impact on the economy, as adding one year to working lives would result in sustained increases to annual GDP of over 1%, which is worth around £20 billion at current levels of GDP. We also understand that these proposals do not have the support of the WASPI campaigners.
Those are a number of questions that I hope I have managed to respond to. In addition, I thank the noble Lord, Lord Jones, for welcoming these upratings. I think that he was alone in doing that.
My Lords, I would love to concur with the noble Lord. The following point is certainly not in my brief but is something that I think about a lot. The children we have referenced today will sooner or later become the working young. I think of my three children, who are all working now but do not earn very much. The issue is how the working young will afford pensions in the future. In probably about an hour’s time we will debate the order on auto-enrolment, which shifts the culture in terms of people contributing to their future pensions. There is very much a cross-party consensus on working out how we can make pensions sustainable in the long term. However, in the short term, I hope that the noble Lord will accept that, notwithstanding the fact that we would like to be ever more generous, it simply is not possible.
I thank the noble Lord. I have just found the answers in my array of papers. He asked about different benefits, particularly disability and carer benefits. We now spend over £50 billion a year on benefits to support disabled people and people with health conditions, which is over £7 billion more than in 2010. The noble Lord asked about disability living allowance and benefits for carers. We are increasing benefits for the additional costs of disability and for carers in line with inflation. Recipients of carer’s allowance will now get £550 more per year than in 2010, while the monthly rate of disability living allowance paid to the most disabled children will have risen by more than £104. On a before-housing-cost basis, the absolute poverty rate among people living in a family where someone is disabled has fallen to a record low.
I am sorry that I have not been able to respond to noble Lords’ questions, particularly those of the noble Lord, Lord Jones, in relation to cold weather payments. That was discussed in the department yesterday, but I will write to the noble Lord.
I am grateful to the Minister for giving me quite a lot of information about the way the GMP system will work. The specific questions that I raised were raised by the NAO—whether the department had enough information about who would be affected in terms of the GMP and what it was doing to tell people about that. I am happy for the noble Baroness to write to me, but perhaps she could have a look at the specific questions in the record and write to me on those. I do not know whether I missed it, but will she confirm that she told the Committee what the latest estimate is of the savings to the Exchequer of the four-year benefit freeze over and above the amount originally scored? I apologise if I missed that.
I apologise to the noble Baroness; I had hoped that I would be able to reply to those questions today but, given the time as well, it is much better that I write to her and copy in others.
To conclude my closing remarks, the Government are maintaining their commitment to the triple lock for both the basic state pension and full rate of the new state pension, increasing the pension credit standard minimum guarantee so that the poorest pensioners see the full benefit of the increase in their basic state pension and increasing benefits to meet additional disability needs and carer benefits in line with inflation. I commend these orders to the Committee.