My Lords, each year the Secretary of State is required by the Social Security Administration Act 1992 to undertake a review of social security and state pension rates to consider whether benefits have kept pace with inflation or, in some cases, the increase in earnings. This review is due to begin shortly, and the Secretary of State will report to Parliament in November.
The Bill before us suspends for one year the requirement to undertake a review of trends in earnings and to increase certain rates in line with those trends. This is because the effects of the Covid-19 pandemic have caused distortions in the labour market, which have been reflected over two years in highly atypical trends in earnings growth. Last year, they slumped by 1%; this year, we expect them to increase by over 8%.
The Bill therefore replaces the link with earnings, for one year only, with a requirement to increase these rates at least in line with the increase in prices, or by 2.5%, whichever is higher. The relevant rates are: the basic state pension; the full rate of the new state pension; the standard minimum guarantee in pension credit; and survivors’ benefits in industrial death benefit. Normally, the Secretary of State considers a specific reference period to measure earnings growth as part of her review. That same earnings reference period has been used for the past decade.
In preparing for the review last year, we saw an unprecedented fall in average earnings as a result of the Covid-19 restrictions we introduced to protect lives and the NHS. That is why we changed the law for one year to set aside the earnings link; otherwise, these state pensions would have remained frozen. The Secretary of State then decided to increase most of the relevant rates by 2.5%, once she had completed her assessment of the increase in prices, which was 0.5%, as measured by the consumer prices index.
As we prepare for this year’s review, the economic context is very different now that our economy and businesses have reopened. Figures published by the Office for National Statistics yesterday confirm an increase in earnings of 8.3%, which is over two percentage points higher than at any time over the last two decades. These growth figures have been distorted due to the slump in wages at the start of the Covid-19 pandemic, along with millions of people having moved off furlough and back into work. The Government do not believe that it would be fair to younger taxpayers to increase these rates by such a high percentage, on top of the 2.5% increase last year, when earnings slumped by 1% and inflation stood at 0.5%.
Therefore, I am seeking the agreement of noble Lords to set aside the earnings link once more in 2022-23. I stress that this is for 2022-23 only; after that, the link with earnings growth will be restored. As I mentioned earlier, in place of the earnings link, the Bill requires the Secretary of State to increase the relevant rates at least in line with inflation, or by 2.5%, whichever is higher. We will know what the relevant CPI figure is on 20 October, prior to Committee.
While we await the actual figure, I can give noble Lords an indication of the increases that will apply to these rates if inflation in the year to September 2021 were 3.3%. This is in the range expected by internal analysis. The full rate of the new state pension would increase by around £309 a year, or around £5.95 a week. The basic state pension and the higher rate of the industrial death benefit would increase by around £237 a year, or around £4.55 a week. The single rate of the standard minimum guarantee in pension credit would increase by around £304 a year, or around £5.85 a week, and the couple rate would increase by around £463 a year, or around £8.90 a week. The additional state pension is not included in the Bill, since the Social Security Administration Act 1992 already provides that it must be increased annually in payment, at least in line with the increases in prices.
I was pleased to meet several of your Lordships between First and Second Readings to discuss the Bill. We covered a number of important matters, including the future of the triple lock, different ways of measuring earnings growth in the economy, the take-up of pension credit, progress on reducing pensioner poverty, and the effects of state pension uprating on the National Insurance Fund. I am sure that these issues will arise in our discussions today, and I look forward to addressing them in more detail in my closing remarks. It is my sincere hope that we can continue to engage in this way as the Bill progresses through the House. Should any noble Lord wish to discuss any part of the Bill between its stages, my door is always open. I propose to hold a further all-Peers briefing in between Second Reading and Committee—details of this will be forthcoming.
In conclusion, the Government believe that it was right to legislate to protect the value of the state pension in 2021-22, despite the decline in earnings by younger taxpayers, who met the cost of doing so. The Government believe that it is right to protect the value of the state pension again in 2022-23, while also protecting the interests of younger taxpayers by suspending, for one year, the link with earnings growth in the unprecedented circumstances brought about by the Covid-19 pandemic. I beg to move.
My Lords, I recognise that while the 8.3% increase in earnings figure will reflect the exceptional pandemic impact on labour markets, it will not account for all of that increase. I have two real concerns flowing from this Bill and the public debate surrounding it: first, the growing assertion that pensioners have been excessively benefiting over recent years; and, secondly, that the removal of the earnings uplift for this year may be a Trojan horse for removing earnings on a permanent basis.
The state pension provides both an income for existing pensioners and a firm foundation on which workers can save and build for their income in retirement. Providing such a foundation was an integral part of pension policy reforms, which included increasing savings through auto-enrolment and raising the state pension age. It was the stated premise for the new state pension introduced in 2016. The Government presented it to Parliament as supporting pension savings so that current generations of workers had a decent foundation on which to build for retirement.
A fall in the value of the state pension against average incomes impacts existing pensioners but makes future pensioners poorer as their private pension savings would go to replacing the fall in the state pension, rather than improving their overall retirement income. Earnings are an essential part of the uprating formula to avoid future generations becoming poorer relative to average or median incomes and because of the spread of means testing.
Figures published by the DWP and the ONS reveal that in 2020 benefit income, including state pension, was the largest component of total gross income for both pensioner couples and single pensioners. It was 57% for single pensioners, and nearly two-thirds of the total income for single female pensioners was benefit income.
Pensioner poverty, when measured against median disposable income, has risen from 13% to 18%. That dominance of the role of state pension income will persist long into the future and may well increase. Although income from occupational pensions was 32% of total gross income for pensioner couples and 27% for single pensioners, those figures are likely to fall as future generations have declining access to more generous occupational pensions.
Looked at from a regional perspective, in the majority of regions in England, pensioner couples have average weekly incomes below the UK pensioner couple average. This includes the north-east, the north-west, the east Midlands, the West Midlands, Yorkshire and Humber, and London.
Pensioner incomes have been stable for 10 years. In 2020
“pensioners had similar average incomes after housing costs … to … 2010”—
a statement I lifted from the DWP’s own figures and statements. Pensioner average income did increase significantly between 1995 and 2010, which also saw the introduction of the pension credit minimum income guarantee for the most impoverished pensioners.
Although it is clearly beneficial, we should be measured about the extent of the impact of the triple lock, particularly given that most current pensioners reached state pension age before the new state pension was introduced in 2016. For them, the triple lock does not apply to all of their state pension. It does not apply to the state second pension element and yet this accounts for 20% of state expenditure.
The triple lock has also operated at a time of significant cuts to health and social care spending, on which older people are so very dependent. These cuts will have contributed to the slowing down of improvements in life expectancy. We have yet to see how the NHS backlog aggravates that trend. A just-published Imperial College report now reveals falling life expectancy in urban areas such as Leeds, Newcastle, Manchester, Liverpool and others.
Pension credit, the means-tested, minimum income guarantee for the poorest pensioners—for which nearly 2.5 million are eligible but only 1.5 million claim—is not covered by the triple lock. The Government mitigated that omission by an underpin of a cash increase, but not by extending the triple lock. Pension credit is also a passport to other benefits such as reduced council tax and a free TV licence, which some 1 million of the poorest pensioners are missing out on. In the other place, the Minister advised that the department was engaged in a publicity campaign to raise awareness, but there are no figures available on any increase in pension credit claims occurring as a result. That underclaiming will be contributing to the rise in pensioner poverty.
Of course, the state pension has to be sustainable, and there are two key levers for controlling expenditure. One is making the state pension less generous over time, the other is increasing the state pension age. We risk losing sight of the significant accelerated rises in the state pension age already introduced, with more to follow. The number of pensioners has seen a fall. The full basic state pension is 10.3% higher than if it had been earnings-linked since 2011, but some of that gain will be clawed back through benefits and not applying an earnings uplift for this year.
We need to see this in total. Successive Governments allowed the value of the basis state pension to decline relative to earnings, from 26% in 1979 to around 16% by 2008. The Labour Government agreed to restore the earnings link, and the triple lock has resulted in the basic state pension rising from 17% of average earnings in 2011 to 19% in 2020. However, the new state pension has now replaced the basic state pension and the second state pension, and it applies to those reaching state pension age from 2016. It was set, as reported by the Government and the DWP, at a value just above the pension credit guaranteed income for the poorest pensioners, indexed by earnings, which the Government stated was sustainable and reduced pensioner benefit expenditure over the long term as a percentage of GDP, even taking into account the triple lock.
There is a cohort of retired people who are clearly better off, with access to generous occupational pensions, but that should not affect the perceptions of the financial position of pensioners as a whole. For the top fifth of pensioners, the largest source of income was their occupational pension, and they received a larger percentage of their income from earnings. Legitimate intergenerational fairness concerns, when looking at the most well-off pensioners, may be better addressed through the tax regime and national insurance rules for those working over the state pension age. Indeed, the Government have taken such a step in applying the 1.25% national insurance levy to the earnings of those over the state pension age. Weakening the state pension would be regressive, hurting those pensioners who most depend on it, and having the least impact on those who have a larger alternative source of income.
Turning to my second concern: the removal of the earnings uplift provision, even for a year, may be a Trojan horse for its permanent removal. When at the meeting that the Minister referred to, I asked whether there was a guarantee that it would be restored. I had the rather ambiguous answer that that will have to be argued next year.
The OECD figures reveal that in the UK, the average earner receives a replacement rate of income of 28.4% at retirement from the state pension, well below the OECD average of 58.6% and the EU average of 63.5%. However, in the UK, when workplace pensions are included, the net replacement rises to 61% compared to OECD and EU averages of 65.4% and 67% respectively. That tells us that the UK pension system relies heavily on private pension saving to fill the gap. Auto-enrolment is intended to maintain such a reliance, but it can do so only if the state pension is maintained as a firm foundation for those savings, at least holding its value over the long term against earnings. Otherwise, the savings of younger workers will be covering the fall in their state pension rather than improving their retirement income, and they cannot fill that gap.
Private pension contributions above the statutory minimum will be impacted by the rise in national insurance contributions. There will be a substitution effect, particularly in the private sector where, prior to the pandemic, some 60% or more of workers were in SMEs and a very significant proportion of them in small and micros. Therefore, it is very important that this combination of the firm foundation and private savings is protected.
Can the Minister tell us—for the record and on the record, unequivocally—whether the Government are committed to maintaining the state pension as a firm foundation, holding its value against average earnings over the long term as a minimum upon which future workers, including young workers, can build for their retirement? Can the Minister also confirm that this Government will not reduce the value of the basic state pension relative to average earnings?
My Lords, it is a great privilege to follow the noble Baroness, Lady Drake, a renowned expert in this field, as indeed are many other noble Lords participating in today’s debate, unlike myself. Some of her points were very interesting. Clearly, she approached this argument from a position of expertise based on wide financial and economic knowledge. My contribution will be very much principle-based, but from listening to her, there is some common ground between us, although what I have to say is rather different.
My noble friend the Minister made a strong case for suspending the pension triple lock for one year only. The key argument for me is one of fairness, something which pensioners will recognise too if they look at this from the perspective of their own experience. However, I share with the noble Baroness, Lady Drake, the view that this should be a suspension for one year only, and I would certainly seek my noble friend’s confirmation that this is not a step towards permanently breaking the triple lock.
I make this point particularly on behalf of the over-75s—the silent generation, as they are described by researchers—and on behalf of older baby-boomers. When people comment on this who are not necessarily as informed and expert as the noble Baroness and many others here today, reference is made to what is seen as recent generosity to pensioners by way of pension payments. What gets overlooked is that older pensioners contributed a lot throughout their working lives.
These pensioners faced and overcame many challenges. I am talking not about the war but about growing up in an era when being poor meant that you went without or, maybe later, having to bring up a family on a three-day week. I am talking about the kind of people who did not enjoy free university education either. Although they may have bought their homes, which have gone up in value during the past few decades, before the 1980s getting a mortgage was probably harder than it is today. My point is that they got through all that without the advantage of the kind of benefits which are available today or were put in place after 1997 and caused among a lot of people a real sense of unfairness.
I agree with others that we need to make sure that our pensions and benefits system keeps pace with the changing world, which should include reviewing pensions policy as today’s younger boomers get older—but on that I would defer very much to the experts who will contribute to today’s debate. However, if we work on the general principle of fairness and that contribution is important to the legitimacy of the welfare system and to people’s willingness to keep paying in even at times in their life when they are not in receipt of benefits, we should also recognise the experience of today’s older pensioners.
As I have said, I am sure that many noble Lords can and will make a better economic case than me to justify the point that I am making, and some noble Lords may want to have an economic argument to claim that I am wrong, but I think that older pensioners, especially at a time when we are suspending the triple lock, need to hear us recognised not just what they have contributed in financial terms but that they have coped in situations without the kind of support that families and younger people receive now. Just to be clear, I am not arguing for a return to the past nor am I calling for us all to get nostalgic; the world is a very different place now and today’s challenges are different. However, it might give older pensioners some confidence in the future that they are not going to see and yet hope for their children and grandchildren if we parliamentarians argue that there are lessons about financial management, getting our priorities right and making choices which they taught us and we must not forget. Indeed, they need and want us to promote those lessons as principles which remain as valid today as they have always been. I say all this because I think these are things which we know and sometimes take for granted, but that does not mean that they are not points that are worth restating and which people need to hear us say.
To pursue the principle of fairness, I want to ask my noble friend the Minister a question about working-age people. I know that she, like me, believes that it must always pay people to get work: work must always pay and it must always be the best option. As we come out of a phase where people have got used to support such as furlough, when people may need to take on extra hours because of the end of the temporary uplift in universal credit and when we face rising energy costs and other cost of living increases, what is the Government’s position on reviewing and changing the universal credit taper rate so that people can enjoy greater returns for more hours at work?
My Lords, the noble Baroness, Lady Drake, talked about a Trojan horse. With the Trojan horse bearing the Greeks, at least those in Troy thought they were getting something that was beneficial. With this Bill, I am wondering what the benefit could possibly be to anybody.
The Minister and the noble Baroness, Lady Stowell, suggested that the Bill is about fairness, but I suggest that there is something rather more insidious here. The Bill is allegedly to make a change for a year. The same has been said about overseas aid. The same person, perhaps, has been drafting memos to Ministers saying that this is all because of Covid and is for just one year. However, for those people who will lose the uplift for this one year, just like for those people overseas who will lose the benefits of overseas aid “for just this one year”, this does not feel fair. It feels incredibly painful.
My real concern is this: how can anybody be sure that this so-called one-off proposal is one-off? As the Minister has already told the House, it is not exactly a one-off because the Government had a one-off change last year, when they said that they wanted to change in order to be more generous. I am not quite sure in what way they were being generous last year. As I understand it, the triple lock has three elements. The earnings component was negative last year and inflation was at 0.5%, but the 2.5% uplift would have been in place anyway, so I am not sure why any change was required. Perhaps the proposals for 2022-23 are indeed a one-off.
All the reasons that the Secretary of State has given for the proposals relate to Covid. They all seem to suggest that the potential rise in wages or earnings of around 8% is because of the return to work from furlough and the end of the Covid arrangements. In that sense, the Secretary of State might be right. She said that the rate of increase in earnings is “unprecedented” and a
“distorted reflection of earnings growth.”—[Official Report, Commons, 7/9/21; col. 185.]
How has she come up with this assertion? Is she sure of it? Can the Minister explain to the House whether the Secretary of State has done this analysis herself or engaged somebody else to analyse how far the increase in earnings in 2021 is associated with Covid? Could it not be that some of the rise in earnings is because of Brexit? After all, many of the EU nationals working in the United Kingdom before Covid, which just about coincided with Brexit and began just before the end of the transition period, have not come back to work here, and employers are now being urged to increase wages, particularly for those who drive heavy goods vehicles, for example. That is not about Covid. It is about the long-term consequences of Brexit. Nobody can claim that that is the impact of a year.
If those consequences are indeed for the medium to long term, can the Minister explain to the House what preparations the Government are making for the scenario in which earnings continue to rise in what the Secretary of State might think of as “unprecedented” or “distorted” ways? What safety and security can she give to pensioners who thought they were supported by the triple lock that they will not be told next year, yet again, “This is another anomaly and we just have to make a change for just another year”? Once a precedent has been set, the danger is that it becomes a tradition and never changes.
Of course, that does not happen the other way round. On the temporary uplift in universal credit, the Government said, “Oh, we’ve got to take that away because it was only temporary”. I believe that the noble Baroness, Lady Stroud, will talk about this in more detail later in the debate, but I add my support to anybody in your Lordships’ House and elsewhere who will make a case for keeping the £20 uplift because taking money away from people—particularly the most vulnerable in society—is far more difficult than if you never gave them that £20 in the first place.
Many of the people who have benefited from the £20 uplift were not on universal credit before the start of the current crisis. They have had to go and seek universal credit only since the start of the pandemic. It is very easy for the Secretary of State to say, “They can work a little bit longer; they can do more hours.” But they might already be working as many hours as are legally possible. They need the support, and we should think about being generous.
I have a few questions for the Minister. There is not an impact assessment on these proposals, because we are told it is just for one year, so an impact assessment is not required. It may not be required, but it would be good practice, and it would help many of us making these decisions to understand what the impact is going to be. Perhaps the impact will not be as great as some of us fear. If pensioners who are concerned about the loss of the triple lock could be reassured, surely that would be in even the Government’s interest. So, could the Minister explain why there is not going to be an impact assessment and whether it would not be a good idea to have one?
The triple lock, a very good policy brought in by the coalition—originally a Liberal Democrat proposal—was so good that the Conservatives put it in their manifesto for 2019. So it is a government pledge. Members of your Lordships’ House, if asked to support the triple lock, would presumably feel honour bound under the Salisbury/Addison convention to support it. How can we then be asked to turn away from it? Why should we? As a Member of the Opposition Benches, I could think it is great that a Government are not delivering on their manifesto pledges; as a Liberal Democrat, I know all too well the difficulties that can face a political party that turns away from its manifesto pledges. But as a Member of your Lordships’ House—somebody who is tasked with legislating on behalf of the most vulnerable—surely it is incumbent on me, and every Member of your Lordships’ House, not to play politics but to think about the implications of turning our back on this pledge.
I understand that 8% might be too much to increase pensions by this year, but perhaps a middle way could be found. Could the Minister please think about that, take it back to her department, talk to the Secretary of State and consider whether a slightly better proposal could be brought back and whether amendments could be brought forward in Committee? If the Government do not bring amendments, the Opposition Benches will and perhaps some Members of her own Benches will as well.
My Lords, I agree with the Government that the state pension triple lock needs reforming—but not, I am afraid, with these proposals. As many Members will know, I have spent much time recently with colleagues in the Intergenerational Fairness Forum, which I am privileged to chair, considering a new system for funding social care, with the aim of fostering intergenerational cohesion and mutual support across the generations—something I think we all agree would be extremely positive. One of the forum’s recommendations was that the pensions triple lock be replaced permanently by a double lock, whereby it rises in line with average earnings or with inflation, whichever is the highest. We propose that any revenue saved by this measure should be ring-fenced and redeployed to fund social care.
We believe that our proposed double lock is justified because since 2010 the brunt of social security and tax credit changes has been borne by people of working age. We also agree with the House of Commons Work and Pensions Select Committee that, provided the state pension is maintained at the current proportion of average earnings, the aim of the Government to ensure a decent minimum income for people in retirement to underpin private savings will have been achieved. A double lock would also continue to protect people depending on the state pension against any periods of high inflation—a risk that, as we know, we may once again be facing.
We have strongly recommended that, alongside the state pension double lock, the Government should undertake a major social marketing campaign to encourage greater take-up of pension credit by those who are entitled to have it. It is dreadful that the estimated rate of pension credit take-up is just 60% and I hope the Minister will be able to give me an assurance that the Government have concrete plans to improve take-up of this vital benefit.
If these two measures were combined, pensioners living in poverty would be better supported, as they are entitled to be under the pension credit rules, while other pensioners would make a fairer contribution to the burden borne by wider society at a time when public expenditure is constrained. They would also share the benefits of economic growth, when it occurs, by retaining the historical link between pensions and average earnings. This combination of measures supports intergenerational fairness and social cohesion.
My Lords, when I read the title of the Bill I thought, “Good: we will have before us a measure that covers the wide issues of the uprating of the wide range of social security benefits we have, most notably pensions, universal credit and perhaps the question of legacy benefits.” So I was very disappointed to discover that, actually, the scope of the content was purely to do with pensions.
In relation to pensions, I have sympathy with the proposals tackling a specific issue that appears to have emerged as something of an anomaly, given our recent experience of the pandemic. I think the triple lock was probably the right move when it was introduced and it has served pensioners well. However, I now have questions as to whether having such a lock in one part of the social security system actually prevents both the Treasury and the Department for Work and Pensions from truly looking at the system and its funding as a rounded whole—although I note with care the comprehensive and careful input of the noble Baroness, Lady Drake, and that of the noble Baroness, Lady Greengross, just now on the double lock. But this is an uprating Bill for the system, it is not about changing the system, so with some reluctance I accept the proposals in the Bill.
However, I now turn to my deep disappointment with the Bill. I join many noble Lords in raising a concern that the Bill does not address the universal credit uplift cut. I recall the debate in this Chamber back in February, in which many Peers expressed their concern that a Bill would not address what is historically one of the most significant cuts to social security benefits. The letter sent by the Minister outlining the content of this Bill began by stating:
“Every year, the Secretary of State for Work and Pensions is required to undertake a review of social security rates to consider whether benefits have kept pace with inflation or earnings increases.”
When we are considering a Bill that is so conscious of inflation and the broad economic environment, my question to the Minister is: why is this argument not being applied across the board? Why, since the Government are so consciously accounting for the economic environment for pensioners, are they not doing the same for benefit claimants, which they have stated in their letter they are obliged to do? The removal of the £20 uplift in universal credit and the quiet 0.5% increase in universal credit are tiptoeing around a serious issue affecting hundreds of thousands of lives and pushing many—including an estimated 290,000 children—back into poverty.
I have to say to the Minister that I have lost count of how many people have thanked me for speaking out on the universal credit cut. I was not going to speak in this debate; it was that public pressure that made me do so. Hence, if this House can legitimately find a way of ensuring that, through this Bill, the other place is given the opportunity to properly debate the £20 cut, I would support that. If there is no such mechanism, we might have highlighted a deficit in our polity. I also support the question asked by the noble Baroness, Lady Stowell, on the earnings taper in universal credit.
I support what is in the Bill—slightly reluctantly, as I have said—but I am deeply concerned at its massive omissions. These mean that hundreds and thousands will not be adequately supported through our social security system this winter and into the year ahead.
My Lords, I declare my interests as in the register. I would also like to put on record my thanks to my noble friend the Minister and her officials for the very helpful and thoughtful engagement that she has had on this topic with interested Peers.
This is the fourth time since 2014 that legislation for uprating of pensions is being changed, yet this time there is no impact assessment or explanation of the impact on pensioner poverty. We are being asked to approve this—the House of Commons already has—before knowing what the CPI figure that may well be used instead of the 2.5% figure will be. I echo concerns about this setting a dangerous precedent.
However, I would like to help my noble friend, her department and all in your Lordships’ House, including the right reverend Prelate the Bishop of Durham, to see that this legislation is based on a false premise and is unnecessary. It is simply not the case that this Bill is needed to avoid an 8%-plus increase in the state pension or the pension credit. Section 150A of the Social Security Administration Act 1992 requires the Secretary of State to consider “earnings”, but the law does not define this term.
The ONS has already very helpfully produced an adjusted figure to take account of the base effects from last year and the exceptional impact of the pandemic on average weekly earnings, which is the traditional measure that has been used for uprating. It has also estimated the composition effect. It has come up with an adjusted earnings figure in the range of 3.2% to 4.4%. My noble friend from the Front Bench has already suggested that the CPI figure that will be released next week could be around 3.3%.
Using the adjusted earnings figure could avoid this—draconian, in my view—legislation, which tears up years of protection for pensioners and breaks a manifesto commitment. I am sure that those of us on these Benches are particularly concerned about that. Using the adjusted earnings figure would still potentially allow significant cost savings of £3 billion or more relative to using the unadjusted earnings figure, which, as I have tried to explain, is not necessary.
We hear that this is for only one year and that there may well be a restoration of the earnings link. However, the triple lock—I agree with noble Lords who have already mentioned this—is not an ideal uprating mechanism in any case, especially since the new state pension. It is the 2.5% figure that is the anomaly; it has no social or economic justification. Yet we are being asked to remove the earnings link, which I am convinced from many years of working on pensions policy is the most important part of pension uprating, because the 2.5% figure was used last year.
The UK state pension is hardly a king’s ransom. It is the lowest in the OECD, as the noble Baroness, Lady Drake, explained, and still below the 1979 levels, relative to average earnings. Millions of pensioners have no or very little income other than the state pension. Indeed, the pension credit designed for the poorest pensioners has always been uprated only by average earnings; it has never been triple-locked. The triple lock was a political construct that did not properly protect the poorest pensioners, yet here we are being asked to remove the earnings protection from the pension credit.
We have been down this road before. In 1979 Mrs Thatcher removed the earnings link from the basic state pension. As others have said, at that time it was worth 26% or so of average earnings. Subsequent to that, in 2010 it was worth 16% of average earnings. At the time there was some justification for removing the earnings link because we introduced a very generous state earnings-related pension, so that could carry the earnings uprating for pensioners.
The state earnings-related pension scheme, subsequently replaced by the state second pension, did provide earnings protection for many pensioners. However, millions—particularly the poorest pensioners, the lowest earners and mostly women—do not have the earnings-related bit of the state pension because they were not credited into it, they were not in the labour force long enough, they were caring for others, and so on.
We are therefore left looking at the basic state pension, the pension credit and the new state pension in this Bill because the additional parts are uprated only by prices, which is appropriate as they are mostly earnings-linked anyway. I argue that we are setting a very dangerous precedent if we fail to recognise the importance of protecting the poorest pensioners against falling behind the rest of society in earnings.
Let me give some figures. Average earnings are £540 per week. The basic state pension, after the triple-lock increases since the 2011 changes, which I supported at the time, is now £137.60 per week. The new state pension, which was brought in to encompass and incorporate the earnings-related bit of the state pension and the basic state pension for future pensioners, is now £179.60 per week. The pension credit, which the poorest and usually oldest pensioners rely on, is £177.10. We are not talking about well-off pensioners here.
We are now debating not increasing the state pension, their pension or the pension credit in line with average earnings, as adjusted by the ONS. This breaks a triple promise to pensioners. Breaking the triple lock, as proposed in the Bill, breaks only one of those promises. From the triple lock it retains the prices commitment and the 2.5% commitment—although I find that figure difficult to justify—but it breaks three promises: first, the triple-lock manifesto commitment, a political promise; secondly, the legal commitment to increase pensions at least in line with earnings; and thirdly, the legal commitment to increase pension credit at least in line with earnings.
We could still honour all these promises without the risks that this legislation entails if we used the adjusted figure. I urge my noble friend on the Front Bench, her department and noble Lords in this House to see what the CPI figure is when it is released next week. If, as expected, it is around the 3.3% level, I urge them to bear it in mind and to recognise that using the adjusted earnings figure would be a better way to amend legislation. It could, perhaps, be explicitly stated in primary legislation that the earnings index used should be at the discretion of the Secretary of State and could be adjusted in exceptional circumstances. I also urge my noble friend to consider the dangers of taking this protection away from pension credit.
Finally, I echo the call for a formal, comprehensive review of pensioner benefits and uprating to assess the triple lock, including the retention of the minimum 2.5%, and for rolling tax-free benefits such as winter fuel payments into a higher state pension which would then be taxable. This would allow us to avoid this constant round of having to amend legislation because previous commitments to uprating had caused problems.
I hope that we will be able to improve this Bill. I am very much looking forward to hearing the words of my noble friends Lady Stroud and Lord Freud on the issue of the uprating to universal credit.
My Lords, I echo the thanks offered to the Minister for the open way in which she has presented these proposals and for the extent to which she has been prepared to talk to us about them. It gives me great pleasure to follow the noble Baroness, Lady Altmann. She made a compelling case; not quite compelling enough for me to agree with it but, for the life of me, I do not understand why the Government do not agree with it. It seems a straightforward way for them to proceed. I hope that there will be further debate on this in Committee.
Other speakers have and will draw attention to the Government’s shameful decision to break their election manifesto promise to retain the triple lock, as my noble friend Lady Drake has made clear. I want to talk about what the triple lock is for, why we have it, why it is important and why it should apply to the increase to the state pension in 2022.
The triple lock was introduced by George Osborne in his Budget speech, following the formation of the coalition Government in 2010. He promised that, from 2011, the basic state pension would be linked to earnings. He went on to say that pensioners would
“be protected by our new triple lock, which will guarantee each and every year a rise in the basic state pension in line with earning or prices or a 2.5% increase, whichever is the greater.”—[Official Report, Commons, 22/6/10; col.180.]
This was the first time the phrase was used in Parliament.
This was not the Chancellor’s idea, as the noble Baroness, Lady Smith of Newnham, pointed out. We have to acknowledge that the structure of the triple lock was included in the coalition’s programme for government as an almost word-for-word lift from the Liberal Democrats’ 2010 manifesto. The link to earnings was in the Tory manifesto but the triple lock was not. Credit where credit is due to the Liberal Democrats, although I think it was probably as much of a surprise to them as it was to the rest of us that they turned out to have the opportunity to make good on their commitment. What is not clear from the manifesto, the coalition Government agreement or the Budget speech is what the triple lock was for, apart from general comments about fairness to pensioners or that pensioners deserved dignity and respect in old age.
The implication is clear: many thought of it in pragmatic terms of keeping pensioners’ income in line with those who are in work, while avoiding the embarrassment of an under-inflation increase or one of 75p. But any triple lock based on the highest of three separate figures is bound to result in what is described as the ratchet effect; in other words, over time, the pension covered by the triple lock is bound to increase by more than the increases determined by each of the individual elements, including earnings. In other words, the job of the triple lock is not just to protect pensioners in terms of earnings or prices: it is, over time, to achieve real increases in their incomes when measured against either of these indices. I argue that this ratchet effect is an inherent part of the triple lock which is enshrined in legislation. It is not an anomaly, a statistical quirk or something to be discarded when it is no longer convenient. It is an inherent feature of the triple lock—a feature, not a bug.
Whether you agree or not depends on whether you think that the state basic pension or the new state pension are currently high enough. If you think that they are, you do not need the triple lock, but if you want to see them increased, as I do, then the triple lock has a proven track record of gaining ground on that objective. It is not pretty but it appeared to work.
Again, some credit has to be given to Governments over the last 11 years, during which, because of the ratchet effect rather than any explicit policy decisions, there has been an increase in the state basic pension from 17% of average full-time earnings to 19% in 2020. That is too little and too slow, but it is real, nevertheless. Perhaps we could have a debate about what level of flat-rate state pension we need and what should be the target when we have a ratchet effect, but it is clear that 19% is not enough; it is well short of the 26% that was reached back in 1979. These benefits are not just inadequate; there is a long way to go before they become adequate. We definitely still need the triple lock. I am prepared to take something better and faster to replace it, but it is what we have got.
It is important to emphasise that the key advantage of the ratchet—of moving towards an adequate level of the flat-rate state pension—is that it is automatic. Until now at least, it has not been affected by short-term political considerations. I am afraid that the record of all Governments between 1979 and 2010 demonstrates that we cannot rely on ad hoc decisions to achieve increases in state flat-rate pensions. We need a mechanism that, like the triple lock, builds in a presumption that, over time, there will be increases in real terms.
This brings us to the increases due in 2022, as determined by this Bill. I believe that we can and should stick to the triple lock, as provided in legislation. Taking the increases to be made in 2021, 2022 and 2023 provides an ideal opportunity to achieve a significant increase in flat-rate pensions towards a more adequate level. This can be only a good thing. No doubt, it will be pointed out that this has to be paid for, but for today’s debate I will dodge that issue, although I understand that my noble friend Lord Sikka will touch on it. I would like to make clear, however, that I support increases in taxation for those with the broadest shoulders to meet clear social need and, in particular, the restoration of the Treasury supplement to the national insurance fund.
I want to direct a few remarks to another feature of the triple lock. Too often in these discussions there is the implication that it applies to the totality of state pensions—people have repeatedly said today that the triple lock applies to state pensions. That is not correct: it applies only to the flat-rate elements. The rest of each individual state pension—whether the additional pension, increases for deferment or the graduated pension—is increased only in line with CPI. In practice, this means that those pensioners with smaller state pensions, for whom the flat-rate pension is a larger proportion of income, get a higher percentage increase. Equally, those with higher state pensions get a smaller percentage increase. This effect is magnified when you take pensioners’ other incomes into account, where the increases that they receive tend to be in line with prices or less.
I have done some calculations of the impact on pensioners’ incomes if we stick with the existing triple lock. Using data on pensioners’ incomes and looking at single pensioners, I estimate that a pensioner at the lower end of the income scale—most of whom, of course, are women—on the first decile of income distribution will see an increase of about 7.5% if we stick with the triple lock. If we net off the expected increase in CPI of around 3.5%, the poorest pensioners get a 4% increase in price terms and less in earnings. Even after that increase, they will still be on only £170 a week total income.
A pensioner at the higher end of the income scale, on the ninth decile, will see an increase of about 4.5% in their overall pension. If we net off the expected increase in CPI of about 3.5%, the poorest pensioners will get a 1% increase in price terms—in earnings terms it probably means a standstill—but the better-off pensioners are, if anything, still falling behind. So the triple lock gives the greatest proportionate help to the poorest pensioners.
I want to draw the attention of the House to a serious defect in the triple lock that needs to be addressed. There is not enough time today to go into the details, but it needs to be understood that the triple lock discriminates between pensioners like myself, who receive the basic state pension, and those who reached their state pension age on or after 6 April 2016 and are entitled to the new state pension. As the rule stands, we older pensioners will receive smaller increases than those who retired more recently, even where our rights are identical. It looks likely in the coming year that this will not be a problem, but in the longer term it is a real issue, and it will not go away.
My Lords, this Bill is designed to control pension spending and I am broadly in agreement with its direction. However, as the right reverend Prelate the Bishop of Durham has just pointed out, there is another pressing issue in social security: the removal of the £20 a week from universal credit at a time when pricing pressures on the poorest are intensifying.
There is a backstory here. Between 2010 and 2016, the Government were running two parallel welfare strategies. The first was from within DWP. The aim of the team was to transform the legacy systems that by then were falling apart, and the centrepiece of the reform was universal credit. The second policy emanated from the Chancellor, who was determined to cut the levels of benefit. With the Treasury acting as his enforcer, he aimed to take out £30 billion of welfare payments each year as part of an austerity strategy. That austerity was selectively targeted, with welfare recipients bearing a disproportionate burden. To summarise, our strategy in the DWP was to streamline and simplify while the Chancellor’s approach was to cut and complicate. So the £20-a-week uplift last year was not simply a response to Covid-19 but a way of dealing with the general erosion of the levels of benefit.
If we take away the Chancellor’s complexities, universal credit is one of the most important reforms, if not the most important, of the coalition Government. In its essence, it gets rid of all the separate benefits that had been trapping people in particular silos. It allows people the flexibility of life in the real world. Talk to any front-line DWP staff and they say the same thing: “At last, a system that works with the grain, not one that we have to struggle around.” That is why I think it is essential to keep it on a proper footing with an adequate basic payment; I say “adequate” because an additional £20 a week is hardly generous. In that regard, I have a single question to ask my noble friend the Minister: could she tell us the department’s central estimate, given the taper and the projections for employment, of how much the £20 uplift would cost to maintain in the next financial year?
I know this House believes in universal credit. It made herculean efforts during the passage of the original Bill and many of its best proposals were incorporated in the ensuing 2012 Act; I know that, because I made sure they were. However, speaking now to my colleagues on these Benches, I say this: universal credit is a major reform that is to the credit of the Conservative Party, and it is the height of foolishness to destroy that legacy in the name of a false austerity from a decade ago inherited by the current Chancellor. Many Conservative MPs feel exactly the same way, and, alongside my noble friend Lady Stroud, I will be endeavouring to ensure during the passage of this social security Bill that those MPs have a chance to vote their support for an adequate provision of universal credit.
My Lords, it is a genuine pleasure to follow the noble Lord, Lord Freud, which is not something I thought I would be saying. Although the Bill is about the triple lock, it would not be right in the present circumstances to ignore the wider questions about the uprating of social security benefits that he mentioned, as did the right reverend Prelate.
First, however, I am on record as calling for a public debate about the triple lock’s future, not least because the risk of poverty is now higher among children than among pensioners. That said, the rise in recent years in relative pensioner poverty, mentioned by my noble friend Lady Drake, reinforces the case made by a number of bodies and noble Lords, including today, for a proper strategy to improve the take-up of pension credit, which research by colleagues at Loughborough University indicates could reduce pensioner poverty significantly. Ministers have responded with a number of welcome measures, but they fall short of the kind of strategy called for. What progress has been made in improving take-up?
Despite the rise in pensioner poverty, I accept that it would be difficult to justify an 8% or so pensions increase, given the artificial nature of that figure. Speaking personally—I stress that this is a personal view—it is time for a review of the triple lock. The triple element of 2.5% is an arbitrary figure, as the noble Baroness, Lady Altmann, implied. The case has been made by a number of bodies for reverting to an earnings/prices double lock, which was abolished by the incoming Conservative Government in 1980, but with a smoothed earnings link that would maintain pensions at an agreed percentage of average earnings while ensuring that they did not lose their value at times when inflation outstripped earnings, a point made by the noble Baroness, Lady Greengross.
One reason why I believe it is time to review the triple lock is the growing gap between pensions and benefits for working-age people and their children, which, as we have heard, have been subject to a decade of cuts and freezes. As the Centre for Social Justice and others have made clear, this is the context in which we have to understand the widespread support for the retention of the £20 uplift to universal credit.
Given the likely effects of such a cut on many people in vulnerable circumstances, is it not extraordinary that Ministers tell us there has been no impact assessment on the grounds that the £20 was temporary and therefore an assessment was not required? If there has been no impact assessment, how was it that a Whitehall official was able to tell the Financial Times that internal modelling showed that the impact will be catastrophic in terms of increased poverty, homelessness and reliance on food banks?
I ask the Minister, who I know is a humane person, to put herself in the shoes of a mother struggling to make ends meet. If she first claimed UC since the start of the pandemic, the uplift, which was very welcome, is all that she will have known. If she is a longer-term claimant, she will remember how much more difficult it was to manage before it was added. Either way, she would really struggle now.
Academic research and evidence from civil society groups shows both the difference that the £20 has made and that life on UC has still been a struggle with it. Most recently, a large, nationally representative survey of claimants undertaken by the Welfare at a (Social) Distance project showed that half of UC claimants were food insecure and a quarter severely so even before the removal of the uplift. Not only will removing the £20 push many more people into poverty, as the Legatum Institute and others have warned, but it is likely to worsen deep poverty as UC recipients are pushed further below the poverty line.
To make matters worse, as debated yesterday, the cut coincides with an increase in inflation, particularly in basics that represent a disproportionate chunk of claimants’ budgets. As the Resolution Foundation has pointed out, much of this increase will probably come too late to be incorporated into the uprating of UC based on the September inflation rate. Will the Minister undertake to look at how this problem might be addressed?
Ministers seek to justify the withdrawal of the £20 on the grounds that the priority must now be to get people back into reasonably paid work. Of course this is important, but nearly two-fifths of UC recipients are already in paid work and increasingly it is not providing an insurance against poverty. Also, as the New Policy Institute has shown, a significant proportion of recipients have caring responsibilities that limit the amount of paid work, if any, they can do. For instance, it is been estimated that more than 300,000 informal carers will be affected by the cut. Telling them to work extra hours to make up the loss is simply not realistic. Moreover, we know that hardship can undermine job-seeking efforts when energies are depleted by the exhausting struggle to get by on an inadequate income. There is evidence that the £20 has helped with job-seeking, so even in terms of the Government’s own priorities the cut is likely to be counterproductive.
The Government have tried to counter the growing pressure to retain the £20 by announcing a new temporary local authority household support fund—a fig leaf waved prominently by the Minister yesterday. A discretionary fund is not an appropriate, efficient or secure way to meet everyday needs that cannot be met because of the cut to benefits, as the former Secretary of State Sir Iain Duncan Smith has pointed out. Although talk of a possible cut in the taper is welcome, it will not target additional help on those in greatest need.
The Government have also tried to argue that the country cannot afford to maintain the £20 without a tax rise—indeed, according to the Prime Minister, “There is no alternative”. But the Centre for Social Justice has argued that the cost, which it suggests is in any case overstated by the Treasury, is not onerous and the consequences of withdrawing the money
“outweigh the benefits from any saving.”
Of course there is an alternative because the decision to withdraw the £20 is a political choice. The cost is but a fraction of the annual £36 billion or more that has been estimated had been cut from social security benefits pre-pandemic. The refusal to go some way towards making good that loss speaks millions about the Government’s priorities.
Not all benefit recipients benefited from the £20 uplift. Some lost out because of the benefit cap and others because they were in receipt of legacy or related benefits. The research on food insecurity, to which I referred earlier, found a sharp rise among the latter group during the pandemic but not among those who received the extra £20, which is significant. Disabled people in particular lost out as a result of the refusal to extend the uplift to legacy and related benefits. In this context, will the Minister say why the research commissioned from NatCen on the usage of health and disability benefits, which I understand was completed last year, has not been published or even referred to in the recent Green Paper Shaping Future Support, consultation on which has just ended? In an extraordinary exchange between the chair of the Work and Pensions Select Committee and the Secretary of State, the latter failed to give a reasoned answer to this question and the former suggested that the department may be in breach of government protocol on the publication of social research. The Government have certainly committed a breach of trust with the 120 disabled people who took part in the research in good faith, having been assured that the findings would be made publicly available.
What are the Government trying to hide? From the bid pack and the draft interview guide, it is clear that a wealth of data would have been generated about the extent to which the needs of those in receipt of health and disability benefits are, or are not, being met. Surely, as the Disability Benefits Consortium has argued, all this evidence should have been published to help inform the consultation on the Green Paper, which totally failed to address the crucial question of the adequacy of disability benefits. Will the Minister undertake to publish it now to inform the next stage of the process?
It is with this more general question of adequacy, which the noble Lord, Lord Freud, mentioned, that I want to conclude. I am very happy to echo the words of another former Work and Pensions Secretary, Stephen Crabb, who suggested in the Commons that the £20 uplift constituted “a recognition that the” UC
“standard allowance … was too low to provide anything like a decent, respectable level of income replacement”,
and he warned:
“It is that question of adequacy to which I think we will return time and again”,
“Anyone who thinks that we have generous benefits in this country is wrong.”—[Official Report, Commons, 15/09/21; col. 1004.]
Indeed, the IFS described their level as,
“unusually thin by international standards”.
Two Lords committees have called for a review of benefit levels. The Economic Affairs Committee concluded that UC is too low and
“should be set at a level that provides claimants with dignity and security.”
The Select Committee on Food, Poverty, Health and Environment called for benefits uprating to take account of official dietary guidance to ensure that claimants can afford to meet it. It cited written evidence from the Government that suggested the current benefit rates:
“derive from a review in the 1980s,”
but that review did not consider the adequacy of benefit rates. Indeed, according to the late Professor John Veit-Wilson there has been no such review of adequacy since the 1960s.
We have had review after review of benefits, yet it appears no Government for more than half a century have asked themselves whether the rates they set each year actually meet claimants’ needs. The one independent benchmark we have, provided by Loughborough University for the Joseph Rowntree Foundation, indicates that UC rates are well below what the general public deem to be an acceptable minimum standard of living.
As Stephen Crabb underlined, the outcry over the withdrawal of the £20 uplift means it is high time that we considered the underlying question of benefit adequacy. A prominent slogan at the Conservative Party conference was “build back better”. Restoring UC to its original meagre level is hardly building back better for our fellow citizens living in some of the most vulnerable circumstances, nor is it consistent with promises of levelling up, as a number of Conservative MPs have pointed out. If the Government continue to refuse to do the right thing, at the very least they could now promise a proper review of benefit adequacy as the first step towards building back better for those struggling to get by.
My Lords, I support the Bill, which reflects a common-sense appraisal of the issues. Covid has caused an artificial boost in wages and potentially an 8% rise in state pensions. While excluding wage increases from the increased formula—now limited to the greater of 2.5% and inflation—the inflation figure is still likely to provide a significant rise in state pensions.
From the Bill, it is not wholly clear what are the relevant years’ figures for calculation. Pension increases will be limited to the greater of inflation and 2.5% per annum, but it is not clear whether the increased pension for 2022-23 will be based on the data for 2021-22 or 2022-23. I would be grateful if the Minister would clarify this. Whichever year it is, either inflation or 2.5% is likely to be lower than the increase in wages, but the rise in inflation in 2022-23 may be larger than anticipated. The impact of Covid is expected to cause an artificial boost in wages and the 8% rise if applied to state pensions is hard to justify in comparison with other groups.
The triple lock has been generous to pensioners. Since 2010, the state pension has increased by 35%, versus 22% for inflation and 27% for earnings. State pensions are now at their highest relative to earnings in 24 years. Relative pensioner poverty has reduced. The state pension bill for 2021-22 was £105 billion, up from £70 billion in 2010, before the triple lock was implemented. Some 60% of UK welfare spending is now on pensions. If the triple-lock formula was not changed, pensioners may have two years of high pension increases. The Government had to act to avoid this and to limit state pension increase costs. I have not encountered much criticism of the decision to cut to only two possible locks.
The point is made that the UK state pension is less generous than EU state pensions, but European pensions do not include most of the additional benefits for UK pensioners: tax-free pension contributions worth £50 billion per annum, free winter fuel allowance, free eye tests, free TV licences, free bus passes, free NHS treatment and no NI if you are working aged 65 or more. Relatively few UK pensioners now remain in absolute poverty.
The triple lock is an expensive and unsustainable policy in the longer term, which ill suits the present economic climate. There is surely a strong case in the future for scrapping pension locks and setting state pension increases in line with inflation. The existence of the three options, under triple lock, tends to deliver higher state pension increases than increases in wages, and those increases are in line inflation or of 2.5%. I hope the Bill will be treated by the House with appropriate inquiry.
My Lords, I rise to make a short point. The Treasury estimate is that the Government will save £5 billion next year by this change. That is to be added to the £6 billion that they save from not renewing the uplift to universal credit. That is £11 billion. Other noble Lords and noble Baronesses, in particular my noble friend Lady Lister, have described the impact that will have on the recipients of universal credit and pensioners.
I want to look at a point on the other side of the account book. This £11 billion is money that is spent by the recipients. It is spent in shops on goods and services. It is spent on food, clothes, heating and rent. It is all spent, every penny of it—or almost every penny of it. The names of the pensioners who are going to lose out on this are not names that you will find in the Pandora papers. This is not money that is stuck away, or invested in shell companies, banks or building societies. It is money that is spent in the local economy. What assessment have the Government made of the loss of these billions of pounds to the local economies in which people actually live?
My Lords, I do not like breaking manifesto commitments, so my support for the Bill is tinged with regret, but I do wholeheartedly support it. I am clear that Covid has created significant complications for the triple lock two years running. Last year, as we have heard, earnings growth was negative, which under the law should have resulted in a zero increase in pensions. My right honourable friend the Secretary of State for Work and Pensions brought legislation to ignore that and awarded a 2.5% increase. This year she has faced artificially high earnings growth and has wisely chosen to ignore that too, so she will make the determination based on the higher of 2.5% and CPI inflation. We should not look at this year in isolation.
I agree with my noble friend Lady Stowell, that the Bill is fair. In particular, it is fair to pensioners, whose income will be protected in real terms. Last year, their income increased above the rate of CPI inflation. This year it will be no worse than CPI inflation. Next year we should be able to return to the normal formula, so that if earnings growth continues, pensioners too will benefit. Noble Lords will know that this Government are committed to a high-wage economy, not a low-wage one. This is good news not only for those in work but also, through the triple lock, for pensioners as well.
While I support what the Government are doing in the Bill, I have never been keen on the triple lock, mainly because I believe that writing formulae into legislation is just a recipe for trouble. The last two years, in relation to pensions, are proof of that. We need to stop virtue signalling in legislation because good intentions often collide with reality and corrective legislation then serves to magnify the problem. So, I would take it out of legislation.
Some have tried to make a case that pensioners are particularly badly treated and that pensioner poverty is increasing, but those who do that tend to use selective measures of relative poverty and are highly selective about segments of the total pensioner population. If we look at absolute measures of poverty, there are 200,000 fewer pensioners living in absolute poverty than there were 10 years ago. We will probably never eliminate relative poverty, but we can and should focus on absolute poverty.
In addition, we should not look only to the basic state pension to ensure that pensioners receive an adequate income. In the long run, access to further pension income, by virtue of automatic enrolment, should be a significant element of pensioner income. In the short term, as other noble Lords have referred to, pension credit is important. As the noble Baroness, Lady Drake, pointed out, it is important not only for the increased income that it gives to some of the poorest old people, but also because it acts as a gateway to further significant benefits. It is therefore a real shame that the latest estimates from DWP show that nearly £2 billion each year is unclaimed and 1 million households are losing out.
I took part in the pension credit legislation when it was introduced in your Lordships’ House almost exactly 20 years ago. Two highly expert and redoubtable Baronesses—both no longer with us, sadly—were on the Labour Benches. On the Front Bench was Baroness Hollis of Heigham and behind her was Baroness Castle of Blackburn. Baroness Castle disliked means-tested benefits and knew that pensioners in particular worried about the stigma attached to claiming benefits. She worried—and she was very worried—that 20% would go unclaimed, a figure in line with other similar benefits at the time. Baroness Hollis refused to give the Government’s estimate for pension credit take-up. Baroness Castle must be turning in her grave at the fact that nearly 40% do not claim.
On our Benches, we pressed Baroness Hollis to say how the Government would ensure that pensioners got what they were entitled to without the Government incurring massive administrative costs. It is fair to say that we got no sensible answer to that question at the time and I believe that it still needs to be answered. The Government have said all the right things but I am not sure that their record on this is one to be proud of. Can my noble friend the Minister say what the Government’s strategy is for pension credit uptake and when we will see real improvements in the rate?
Covid-19—or rather the Government’s response to it—has had a massive negative impact on our economy that cannot be ignored. Support to individuals and businesses has cost over £400 billion and debt has risen to around 100% of GDP. While the economy is now recovering well, there is a lot of work to do to restore economic and fiscal health. In the meantime, the Government are going to have to make some hard decisions. In relation to this Bill, I believe that the Government have got it right with the state pension. It is a fair increase and a fair outcome for taxpayers.
Before concluding, I must say something about the universal credit uplift because several noble Lords have tried to drag the issue of its removal into this Bill. I believe that is a category error. It is quite unrelated to the level of the state pension and I sincerely hope that noble Lords will respect the narrow purpose of this Bill and not try to impede its passage towards Royal Assent.
My Lords, it seems that there is a competition among Ministers to find novel ways of hurting the most vulnerable people in our society. After the cut in universal credit, the hike in income tax through frozen allowances and the new Johnson tax of 1.25%, the Government are clearly gunning for senior citizens. They have already taken away the free TV licence for the over-75s and are raising the age for free prescriptions in England from 60 to 66. The next instalment of the triple blow for seniors is to suspend the triple lock. I cannot support this cruel Bill.
The average UK wage is around £31,461 a year. The full state pension at the moment is £9,350, but only four out of 10 retirees receive it. Some 2.1 million pensioners receive less than £100 a week in state pension, most of whom are women. The actual average state pension, as Age UK has just reminded us, is £8,000 a year or roughly 25% of average earnings. This is the lowest among industrialised nations, with the average being around 60% in OECD countries. The Office for Budget Responsibility said that by 2022-23, the state pension would form around 4.6% of GDP. Germany already allocates 10% of its GDP to the state pension.
A 2019 study noted that despite the triple lock the proportion of elderly people living in severe poverty in the UK is five times what it was in 1986. This is the largest increase among major western European countries. A major reason for this, as has already been pointed out, is the legacy of the Thatcher Government, who broke the link between pensions and earnings by cancelling the 18% supplement provided by the Treasury. We have never really made up that lost ground. Will we ever make up the lost ground from this proposed suspension of the triple lock?
The low state pension condemns millions to a life of poverty, insecurity and early death. According to Age UK, despite the triple lock, 2.1 million pensioners—18%—in the UK live in poverty. Some 1.25 million of these are women. The poverty rate has risen since 2012-13, when only 1.6 million pensioners—13%—lived in poverty. Some 33% of Asian retirees and 30% of black retirees, compared with 16% of white retirees, also struggle to make ends meet.
Malnutrition—or undernutrition, as some people would call it—affects over 3 million people in the UK and 1.3 million of these are over 65. Around 25,000 older people die each year due to cold weather and here we are busily reducing their income.
Rather than lifting retirees out of poverty, the Government are going to suspend the triple lock. They say that they cannot afford whatever the cost is, which may be up to £5 billion. That is certainly less than the £8.5 billion subsidy given to profiteering train companies last year.
Governments have bailed out banks and provided £895 billion of quantitative easing to speculators. However, when it comes to helping senior citizens, the usual call is “We can’t afford it”—as though we can afford misery, squalor and early death. This is how the Government cheated 3.7 million women out of their promised state pension by raising the retirement age. The same slogans are being marshalled again.
Let us be clear. The Government can create any amount of money they wish to shape a society which is good for all of us. If that money creation is inflationary, they can remove some of it from the rich through redistribution—a phrase that all Ministers and the Prime Minister have carefully avoided, even during their party conference.
The extra £5 billion that is needed for the triple lock is already available. The 2020-21 cost of paying the state pension to 12.4 million retirees is £101.2 billion compared with £98.7 billion for 2019-20. If you look at the National Insurance Fund accounts for the year to 31 March 2020—the most recent information—they show a cumulative surplus sitting there of £37 billion. That is more than enough to meet the triple lock obligation of £5 billion. Will the Minister explain why this surplus is not being used to honour the triple lock?
The state pension, as has been pointed out, is a major—and in many cases the only—source of income for many people. It will be even more so in the future. Relentless attacks on workers and trade unions have sapped people’s ability to save for private pension schemes. Today, workers’ share of GDP in the form of wages and salaries is around 49.4%. It was 65.1% in 1976. That is the biggest decline in any industrialised nation over that period. Even before Covid, 14.5 million people were living in poverty. Household debt is currently £1.7 trillion. Young people saddled with student debt and astronomical housing costs are unlikely to accumulate wealth and will be forced to rely upon the state pension for their retirement.
The UK’s six richest people have wealth equivalent to that of 13 million citizens. The richest 1% have 23% of all wealth, the top 10% have 44% and the poorest 50%, who are being condemned to a low state pension, have just 9%; the poorest fifth of society have only 8% of the total income, and the top fifth have 40%.
The ministerial reply to one of my Written Questions on 21 January 2021 was that 18.4 million individuals in this country have an annual income of less than the annual tax-free allowance, which currently stands at £12,570. The Institute for Fiscal Studies states that
“only 58% of the adult population (those aged 16 or over) receive enough income to pay income tax”,
so 42% of adults pay no income tax because their income is already too low. How will they buy into these private pension schemes? Two days ago, during the debate on the Health and Social Care Levy Bill, the Minister said that 6.2 million people have earnings below the primary threshold for national insurance. How are these people going to save for so-called private pension schemes?
Even if impoverished people manage to put a few pennies into a pension scheme, the tax system works against them. At the moment, 1.5 million individuals are enrolled in a private pension scheme and receive zero tax relief because their annual income is less than the annual personal allowance. I hope the Minister will explain why people at the bottom of the ladder are being treated this way and not getting any help whatever.
This is a stark reminder of the inequalities in the UK. Present and future generations will rely upon the state pension more than ever before, and it is vital that it does not condemn them to poverty. I am opposed to suspension of the triple lock.
The state pension is too low. In July this year, we heard the Prime Minister say that he finds it hard to live on his £160,000 salary; last week, Peter Bottomley MP said that he cannot really survive on an MP’s salary of £82,000. My reply is that they should try living on the £8,000 a year state pension and see how they get on—welcome to the real world. Perhaps the Minister would want to take up the offer of living on the state pension—I do not know, but I await a reply. We must lift retirees out of poverty and not only maintain the triple lock but go beyond it. We need to align the state pension with the living wage, and that should be enshrined in a future Bill of Rights. Nobody in a rich country should be living on such a low income.
I have already pointed out that the Government have plenty of resources to achieve these aims. They could utilise the £37 billion surplus in the national insurance fund; they could restore the 18% Treasury supplement which was removed by the Thatcher Government. They could find the money by taxing capital gains in exactly the same way as earned income, which would raise £17 billion a year more and another £8 billion in national insurance contributions—at the moment, unearned income is exempt from national insurance. They could tax dividends in the same way as earned income, which would raise another £5 billion in taxes plus another £1 billion in national insurance. They could extend the current 12% rate of national insurance contributions to earned incomes above £50,300, which would raise another £14 billion a year. The Wealth Tax Commission told us earlier this year that, with an asset threshold of £2 million, a wealth tax could raise up to £80 billion a year. Billions could also be raised by extending the scope of financial transactions tax.
These few examples show that the Government’s claim of not being able to afford the triple lock has no substance. It is a bogus claim which simply falls apart when examined. None of the examples that I have given requires an increase in the basic rate of income tax or the 40% rate of income tax, or an increase in national insurance contributions for the masses. It seems that the Government lack any will. They find it so easy to hurt the most vulnerable people, and that should not be accepted by anybody in the country. I will not support this Bill in any way whatever.
My Lords, I fully support the primary purpose of this Bill, subject to the proviso that these measures are for one year only. The Government’s message to pensioners is clear: we support you and we will take account of your circumstances—for example, if you are on pension credit.
I echo my noble friend Lord Freud and the right reverend Prelate the Bishop of Durham in their implicit suggestion that this Bill also serves another important purpose. For me, as a disabled person, it provides the Government with the perfect opportunity to send a similar message of support to disabled people: namely, that we will support you to live your life independently and to realise your potential. My fear is that, by removing the £20 per week uplift to universal credit, or UC, the Government are sending the opposite message. We risk saying to almost half a million disabled households—according to figures from the Legatum Institute—that we do not actually care if you are plunged into poverty.
I welcome this opportunity to congratulate the Minister for Disabled People, Chloe Smith, on her appointment to her new role, but I do not envy her the task that she has inherited. I am referring, of course, to the aftermath of the publication of the Government’s National Disability Strategy. As missed opportunities go, I am afraid that it does not get much bigger. The strategy was an opportunity to reset completely the Government’s relationship with disabled people. Regrettably, it was squandered. The strategy was little more than yet another list of planned consultations, reviews and half-hearted commitments.
A commission which I chaired, made up of senior businesspeople from the private sector, academics and disability rights campaigners, produced a report specifically to feed into the strategy. Our report contained well over 100 exhaustively researched and oven-ready measures. The title of the report was Now Is the Time. In response, the title of the Government’s strategy might just as well have been “Now Is Not the Time”—not the time for equality of opportunity, not the time for ambition and not the time for the promised transformation of the lives of the UK’s more than 14 million disabled people.
I put it to my noble friend the Minister that now is indeed the time, in this Bill, to, at the very least, offer some reassurance to disabled people that their concerns about the end of the UC uplift have been heard and are being addressed.
Research to which I have referred shows that, of the 840,000 households projected to fall back into poverty by the ending of the UC uplift, 450,000—over half—include a disabled adult or child. Given that disabled people make up only 20% of the population, the impact of the removal of the UC uplift on disabled people is so disproportionate that it practically beggars belief. So I ask my noble friend the Minister if an impact assessment was done specifically on this, and, if so, that she put a copy in the Library. If one was not carried out, I would be very grateful if she could say why not.
The Government need to join the dots and decide what message they want disabled people to hear. I applaud the Prime Minister’s levelling-up vision of giving everyone the chance to realise their potential. Of course he is right, but is that what disabled people are actually hearing in practice when they are hit by the double whammy of the end of the UC uplift and the increase in tax if they are in work? Is that the message that they are getting from a national disability strategy, spun to the media with the headline figure of £1.6 billion—less than 1% of which is actually new money—which lacks a road map towards the measurable outcome of equality of opportunity? For me, as a Conservative, that surely must be our goal, rather than damaging the legacy to which my noble friend Lord Freud referred.
In conclusion, the Government need to seize the opportunity that this Bill presents to reset their relationship with disabled people, starting with a rethink of the impact on them in particular of the end of the UC uplift. I look forward to my noble friend’s response.
My Lords, it is an eternal message: to him who has shall be given more, but from him who does not have will be taken away what little he has.
We have money to give people stamp duty holidays but we do not have money to retain the £20 allowance that people on universal credit were given. We always have money to buy banks that are going bankrupt. Remember that, in 2008, we bought banks that had more or less mismanaged their affairs, such as the Royal Bank of Scotland and Lloyds Bank; money was there to buy those banks—no questions asked, and nothing examined about whether it had been right or not—because they were rich, and the rich can always be saved. We have just had a report that test and trace cost billions, and that a lot of money was wasted. Why? Because the people involved were friends of the Government.
It is only an issue when it comes to the poor. First of all, the Government boast about the triple lock and get a lot of kudos for being very generous. What is wrong with giving 6.6%? If earnings are rising by 6.6%, that is good, so let us give 6.6%. It is not going to break the bank or bankrupt the Government. We already have a 100%-plus debt-to-GDP ratio, so what is a couple of billion more? It will get lost in errors and omissions. It is the will that is lacking. These are not the Government’s votes and these are not the Government’s friends. Their party was not created to help the poor.
Whatever they may pretend, this is a disgraceful Bill, as the noble Lord, Lord Sikka, said. A tax of 1.25% has already been put on national insurance and it will, as I said, be increased to 2.5% in no time whatever.
On the other side, we are not willing to give even 6.6% for one year. When a promise is made, in order to fulfil that promise you have to take the consequences of what you said. You cannot say, “We have a triple lock but will give only the lowest of the three numbers because we really can’t afford to give poor people any more money. We have far too many rich people waiting to claim, and they are our priority.” I see no excuse whatever for making promises that seem generous and then, when push comes to shove, for the flimsiest reasons, not fulfilling the promise: “Oh, no, we didn’t actually mean earnings. We only meant 2.5% or less.” Why do they not say that the triple lock means that the lowest of the three will be given, because that is what was always intended? “We don’t intend to give the poor any more money but, since we have to, we shall give the least that we can afford. We prefer of course to give nothing but, since these people are around, we will give them some money.”
Gas prices are rising. If the rate of inflation goes to 6% or 7%, will the Government fulfil their promise to raise it by the rate of inflation, or will they say, “We didn’t mean that, not 7% inflation; 2.5% is the best we can do”? Why do they not stop pretending and say that zero is what they will give people in need because their friends in the gas companies are going out of business and the Business Secretary has said he will arrange with the Treasury to bail them all out? All the gas companies that face bankruptcy will be bailed out but the poor will not be bailed out. That is the logic. Unfortunately, that is the world we live in.
When election time comes, they will become generous, and then after the election the promises will be broken. That is the way it is, and I think that will continue in this levelling-up business. I do not know who they are levelling up; certainly not those in need.
My Lords, it is interesting that this is the Social Security (Uprating of Benefits) Bill. It could have been a Bill on pensions and the uprating of benefits, but it is not; it is the Social Security (Uprating of Benefits) Bill. While much of the discussion today has been focused on the triple lock, as has been implied, I want to focus on a different element of social security: namely, the universal credit £20 uplift. In a recent poll undertaken by iPolitics, only 3% of the British public said that the cut should come in this year and at this time. This is a staggeringly low number, particularly in the light of the twin instabilities caused by the rising cost of living and the global pandemic from which we are just emerging.
Let us just take a moment to look at each of the arguments put forward for dismantling the uplift and those against. I have heard it said by many that this £20 was for a crisis moment only, but we need to be honest here. The reality is that the pandemic made visible what had been invisible to many: that our safety net is in fact at its lowest value ever since its creation. Having been founded at 20% of the median wage, it is now at a value of 12%. This became visible to people whose lives would normally never have been touched by the welfare state, so the Government stepped in to protect new claimants and the public at large from being shocked by the level of welfare. But it is right to be shocked by the level of welfare, which creates a permanent state of crisis for many. Let us not delude ourselves that the crisis is over, particularly as energy prices and inflation both rise, creating a perfect storm.
We have an opportunity to think again and do something about this in the Bill. All six Conservative former DWP Secretaries of State since 2010 have written to say that this £20 uplift investment should remain. I have heard it said that the £20 uplift has to go to protect work incentives. This is a totally specious argument if you understand anything about universal credit. It may be an argument for increasing the work allowance, or lowering the taper rate, but it cannot be an argument for protecting work incentives. The work allowance always makes it pay to take work, and the taper rate always rewards progression in work. To be honest, if you wanted to strengthen work incentives, you would put the £20 into the work allowance and lower the taper rate from 63% to 60%, or even 55%, as was in the original design.
I have also heard it said that there are no poverty impacts from the removal of the £20 uplift. To be honest, this is the most staggering of all arguments. It can be said in only a technical sense because, in 2016, the Government abolished their official measure of poverty and have yet to replace it. But, by any measure of poverty, relative or absolute, if you take £20 a week away from those on low incomes, a proportion of them will move into poverty. If you use the measure recommended by former Secretary of State for the DWP Amber Rudd, the Work and Pensions Committee chairman, Stephen Timms, and the Office for National Statistics—namely, the Social Metrics Commission measure of poverty, in which I declare an interest—to analyse the removal of the £20 uplift, you will see in the cold light of day the impacts on 840,000 people, 290,000 children and 450,000 people in a family that includes a disabled person, either an adult or a child. Granted, a proportion of these will take the 1 million available jobs, and many will take advantage of any upskilling that is available, building this high-wage, high-skill economy.
But if the Government really believe their own narrative, they know that they would never need to pay the £20 uplift because people would move beyond it. The fact that they say that they cannot afford the £20 uplift reveals that they know that it will take time to get there and, in the meantime, many vulnerable households will experience a cost-of-living storm and very real hardship.
But my real concern is for those to whom we say, “The welfare state is your safety net”: those with disabilities that my noble friend Lord Shinkwin so eloquently referred to and those with children aged two and under, with whom we have a social contract. We say, “You are valued by our society, and we want to support you, even though we do not expect you to work”. Those in this group have just lost £20 per week, are not expected to work and are about to experience rising inflation and higher energy bills in the midst of a pretty dark winter. If we do nothing else, the £20 uplift must be restored for this group. My other concern is that this seems to be news to those in government when I tell them, although not to my noble friend the Minister, who has spent a lifetime seeking to protect those who are vulnerable.
What is to be done? I have, first, a question for the Government and, secondly, a possible way forward. Following my noble friend Lady Altmann’s speech, I have a question: could my noble friend the Minister clarify whether there are any savings from the Bill and, if so, what figure is being scored? My understanding is that there are no or low savings scored against the Bill. It has been laid before this House because of a concern that earnings are at around 8%—but it is also my understanding that the Treasury and OBR earnings are scored at 4.9% and that the ONS adjusted earnings may even be as low as 3.2%. Given that CPI is anticipated to be about 3.2%, apart from the Bill possibly being unnecessary, there appear to be no or low savings connected with it.
However, it is also my understanding that, were the Bill to be delayed, the basic state pension would be uprated by actual earnings, at about 8%, in which case, by the DWP’s own admission, savings would be worth between £4 billion and £5 billion, which could be reinvested into UC, were it to be saved. It would help those of us seeking to lay amendments, and those advising us, to have an accurate understanding of the savings from the Bill.
I now move to a possible way forward. It is no secret that I am seriously concerned about the removal of the £20 uplift, but I am also really concerned about the democratic deficit connected with the removal of this uplift. The removal of it was brought about by the sunset clause on secondary legislation, which means that it just died, without a vote in the other place. If Brexit was about anything, it was about taking back control—about active democratic decision-making. If Members of the other place actively want to make this choice to let the £20 uplift die, then this House would respect that, but it should be an active choice because they are the ones answerable to their constituents.
So it is my understanding that there are two ways of giving the other place this active choice. One is through an amendment to the Bill, and the other is through an amendment to the process Motion of the Bill. Either way, it is likely that there will be much discussion about scope and precedent but, ultimately, scope and precedent are servants of the democratic process, and this is a social security uprating Bill, not just a pensions uprating Bill. This is a self-governing House, and this is a moment for us to work across party divides to uprate our social security in order to protect the most vulnerable of this nation at a time when the cold winds of inflation and high energy bills are swirling around them. If there is a way to bring forward such an amendment—and I believe that there is—it is my intention to do so in Committee.
My Lords, it is always a great pleasure to follow the noble Baroness, Lady Stroud, with all her knowledge and experience in this field. I very much support her arguments and hope that we can, through the Bill, create an opportunity for the Government to think again. I also pay tribute to all other noble Lords who have argued for the reinstatement of the £20 uplift: the noble Lords, Lord Freud, Lord Desai and Lord Shinkwin, the noble Baroness, Lady Lister, and, of course, the right reverend Prelate the Bishop of Durham, who has long campaigned for changes to benefits. All have eloquently stated the case, and we on this side will give our full support to them in seeking to restore this.
I first thank the Minister for her engagement with us all in preparation for the Bill. As others have said, it seeks to amend the triple lock for the second time, albeit temporarily, for another year. As my noble friend Lady Smith said, the triple lock was a key Lib Dem achievement during the coalition. It is an essential tool to protect pensioners from the effects of the devaluation of the state pension, which has occurred since the loss of the link with earnings in 1979. As the noble Baroness, Lady Drake, and the noble Lord, Lord Davies, said, it has improved things, although it has been slow. I would not agree that it needs to be reviewed; it needs to stay because it still has to do its job.
I also welcome the Government’s declared commitment to the triple lock and, like others here today, I would very much welcome an assurance from the Minister that the Bill is no more than a temporary measure. The noble Baroness, Lady Drake, was particularly keen to have that assurance, while the noble Baroness, Lady Stowell, made a strong case for older pensioners, who are usually poorer, and the need for their confidence in messages from the Government when looking to the futures of their children and grandchildren. I would certainly support her request for a review of the taper of universal credit. My noble friend Lady Smith would like an assurance that this is not just another “temporary measure” being brought in under the curtain of the need to do things differently as a result of the pandemic.
In supporting the triple lock, I would say there are usually three main reasons given for abandoning it. The first is the idea that pensioners are now so well off that they do not need it; secondly, that young people are losing out compared with the elderly; and, thirdly, that the country cannot afford it. As others have said, there are 2.1 million pensioners in poverty who depend on the state pension and very many others who are far from being well off. Allowing the state pension to devalue will severely impoverish them further. If many pensioners are rather too well off, surely progressive taxation is the way to ensure that they are not gaining excess advantage at the taxpayer’s expense.
As far as young people are concerned, many will not have the benefit of private pensions and will depend upon a state pension. They will benefit only from a state pension that keeps its value and will suffer enormously if the state pension is allowed to devalue, as it did before 2010.
The UK has one of the lowest pensions in Europe, as the noble Lord, Lord Flight, mentioned. In the UK, spending on it is 5.9% of GDP; the Office for Budget Responsibility suggests that will increase to just under 8% in 2057-58. In many European countries, investment in pensions is much higher. In Germany, for instance, it is 10% of GDP. The noble Lord also made the point that other countries do things slightly differently, but I point out to him that they also make similar benefits available to their pensioners, as we do in this country.
The measures in today’s Bill need a second look by the Government. Since the Bill was debated in the House of Commons, some circumstances have changed. A key development is the surge in price inflation. The new chief economist at the Bank of England has warned of higher inflation being around for longer than previously thought. Current predictions from the Bank of England put inflation at 4% for the last quarter of 2021 and at over 4% for the first two quarters of 2022.
The September inflation figure will not capture any of the following: increases in energy prices which happen between September 2021 and April 2022, when the pension increase is paid; the April 2022 council tax increase, when councils are already talking about extra increases next year because of social care cost pressures and the expectation that local government is unlikely to receive a particularly generous settlement, despite council services having been cut severely over recent years; and other inflationary pressures, perhaps arising directly from the energy price hikes as the supply chain becomes more expensive, which will feed through into food and other prices. Given that food, energy and council tax are likely to account for a lot of the spending of pensioners, and older pensioners in particular, inflation by next April is bound to be higher than this September, as the Bank of England predicts. As a result, if the Bill is not amended it will condemn pensioners to a cut in their real standard of living. They cannot just work an extra two hours, as the Secretary of State famously recommended to people affected by the universal credit cut.
I support the noble Baroness, Lady Altmann, in her request for a comprehensive review of pensions and would examine her suggestion of looking at the adjusted earnings figure. I certainly do not believe that what is contained in the Bill is fair to pensioners, as the noble Baroness, Lady Noakes, does. I will just touch on the point made by the noble Lord, Lord Hendy, about the importance of people having money in their pockets if they are to make any contribution to any economic recovery following the pandemic.
We have heard the reservations of many Members about these measures and, in the changed circumstances we now face, the Government need to take the necessary time to revisit these proposals. I hope that during Committee we will agree amendments that will not impoverish the poorest pensioners, who may be facing unprecedented external financial pressures, and arrive at a realistic increase that will ensure the newly emerging pressures are fully taken into account.
My Lords, I thank the Minister for her introduction to this debate, and for her briefing and access to her officials. What a great debate—the House has come back in fine form. Once again, I have learned a huge amount from so many noble Lords. I will be going back to read the Hansard and do my homework before I reappear; I encourage the Minister to do likewise, as we are in for an interesting Committee stage.
My noble friend Lady Drake got us off to an amazing start with that wonderful look back over the history of pensions. Holding in front of us what the point of pensions policy is incredibly important.
As we heard, this Bill is needed so the Government—just for a year, we hope—can suspend the earnings-related part of the triple lock. But not only does this give today’s pensioners a lower pension next year than they expected; it bakes in a lower value of the state pension for them and for all generations in future. As many noble Lords have said, the state pension in the UK is comparatively low—not surprisingly, given we devote a smaller percentage of GDP to state pensions and pensioner benefits than most advanced economies, a point made by my noble friend Lord Sikka and the noble Baroness, Lady Janke.
The last Labour Government introduced pension credit and then, from 2002, committed to the double lock of raising the state pension by the higher of 2.5% and inflation. The impact on pensioner poverty was clear and I am willing to face down the noble Baroness, Lady Noakes—terrifying though she is—by standing up for relative poverty as the global measure which is widely recognised. Using those official figures, when Labour came to power in 1997, 29% of pensioners in the UK were living in poverty. When we left office in 2010, 14% of pensioners in GB were living in poverty. Sadly, those gains went into reverse pretty quickly. Pensioner poverty started to rise in 2012 and by last year, 18% of pensioners were once again living in poverty. To put it in numbers, that is an estimate of over 2 million poor pensioners, including over 1 million in severe poverty. The context for any change to the state pension is a growing problem of pensioner poverty.
Pension credit is key. I loved hearing the noble Baroness, Lady Noakes, talking about Baroness Castle of blessed memory and my late and much-loved dear friend Baroness Hollis, who would have been here. Your Lordships can only imagine the speech Baroness Hollis would be giving today. The Minister must at least think she has been spared that, but we all miss her and wish we were here to hear it. What a joy it would have been.
However, I have to do my best. On my bad days, I just channel Baroness Hollis and I will try to bring forward what she might have said in this debate. One thing she would have done is to push the Minister, irrespective of history, on what has been done about the take-up of pension credit. Six out of 10 is absolutely disgraceful; 40% of those pensioners are not getting the money, the TV licences or the passported benefits. What are the Government doing about it? Can the Minister bring us up to date?
As my noble friend Lady Drake and others mentioned, the triple lock applies only to the flat-rate state pension, not to the second state pension or pension credit. So far, the Government have passed through the triple lock increases so that the same cash amount in the state pension increase was put on to pension credit. But of course that means even when the state pension keeps up with earnings, pension credit does not. It is a larger amount and therefore a smaller percentage, so the pension is not keeping up with it. Can the Minister explain the rationale for not having pension credit in the pensions lock, and tell us why the Government decided to do that?
As we heard, the Government came to power on the back of a manifesto promise to maintain the triple lock. Let us look at the argument for ditching it now. The Secretary of State said:
“This Bill will ensure that a temporary statistical anomaly in wages does not unfairly track across into pensions”.—[Official Report, Commons, 20/9/21; col. 62.]
The reference period for earnings growth for the triple lock is the year-on-year change in average weekly earnings for the period May to July, which, as we have heard, was 8.3% this year. There seem to be two key drivers for that high rate. The first is the base effect. In May to July last year, many workers were on furlough or had their hours reduced, pushing down weekly wages. This year, with fewer people on furlough and hours getting back to normal, weekly wages are higher. So the increase is higher year on year. The second is “compositional effects”, which are about the make-up of the workforce. During the pandemic, more low-earners lost their jobs, so the average of the weekly wages of those who were left was higher.
The ONS did some modelling on this, stripping out both the base and the compositional effects, a point referred to by the noble Baroness, Lady Altmann, and it came up with a range of 3.6% to 5.1%, representing underlying earnings growth. Presumably the Secretary of State could have chosen to use a figure in that range had she wished. Since it is primary legislation, she can legislate for whatever she wants. It is not as though she could be JR’d on previous legislation; she is creating the legislation. Why did the Government not think about using that? They could also have looked at other ways of modelling earnings growth; for example, over a longer period, which I raised last year when we were discussing the emergency Bill. Why did the Government reject those alternatives?
The Secretary of State for Work and Pensions has been at great pains to assure us that while earnings growth might look enormous, it really is not, because of base effects, compositional effects, Covid and so on—it is barely visible to the naked eye; it is tiny. Unfortunately, at the same time, the Prime Minister was going around television studios saying that earnings growth was enormous. I quote him:
“Never mind life expectancy; never mind cancer outcomes; look at wage growth.”
It cannot simultaneously be racing ahead of inflation or be misleading and in fact tiny. Can the Minister tell us which it is? Is wage growth racing ahead of inflation or is it barely inching up and not really there at all, with nothing to see?
While we are on the subject of working-age incomes, we have to talk about universal credit. I am sure the Minister did not really expect to get through the Bill talking only about pensions; if she did, she will have been disappointed. She will have heard the extraordinary concerns expressed around the House. I know that I have been banging on about the 20 quid for a long time, but it is not just me—this is coming from every Bench in this House. It is coming from the right reverend Prelate the Bishop of Durham. Everywhere I go, people raise it with me and talk about it all the time. That is because nearly 6 million people are losing a lot of money. Everybody has heard about it and people know that they cannot afford to do that.
It was a delight to welcome back the noble Lord, Lord Freud. In a fashion, the band is getting back together again. I have missed disagreeing so dramatically with him over so many years, but now he comes back and I am agreeing with him. It really is not fair. The noble Lord absolutely hit the nail on the head. As I said at the beginning, the welfare state is there to support people, for example, when they lose their jobs, but the only reason why the Government had to stick extra money into it when the pandemic hit was that they knew that it was not enough to live on. If it had been enough to live on, presumably it would have done its job perfectly well—that is what the automatic stabilisers in the economy are for. The point is that the Government knew that so much money had been taken out of the system that it was not enough to live on, and they had to do it. I do hope that George Osborne reads today’s Hansard—I think I might send it to him. Where is he now? Is he at the Standard? I will send him a copy just in case he misses it—I would hate that. But it really is a powerful point.
The Economist says this week:
“The loss of £1,040 a year is the biggest single cut to social security since the foundation of the modern welfare state.”
That is quite a hit. I was glad to hear the noble Lord, Lord Shinkwin, and my noble friend Lady Lister trying to crack this issue that jobs are just the answer. I have a rant which I do, sadly, even at dinner parties as well as in politics. The whole point of the welfare state and of in-work benefits, of universal credit and tax credits before it, is that they are there not just to supplement low hourly rates; they are there because a lot of people, as a result of their circumstances—they may have disabilities, caring responsibilities or young kids—cannot earn enough in the hours they can supply to meet their outgoings, but the state wants them not to starve and to be connected to the labour market and to stay that way if they can. Talking just about jobs is deliberately misleading when so many people are either in work or are not able—I shall stop the rant there; the point has been made well enough by others before me.
All this is happening at a time when Britain is facing a cost of living crisis. Poorer families spend more of their income on food and fuel. As my noble friend Lord Hendy said, the point is that they spend this. Not only has this money been taken away from those families; it has been taken out of economies all around the country. I live in County Durham, where a lot of money has been taken out of the local economy. People who have this much money have to spend every penny; they cannot afford to save it, so it is hitting the economy as well as their pockets. The £20-a-week cut is happening just as food prices are going up and fuel costs are sky-rocketing, and in the run-up to a rise in national insurance, which also hits people of working age. The Economist analysed government forecasts and suggested that real-terms household net incomes are heading for the longest decline since the mid-1970s. Things are getting bad out there. The Government should not have cut this. I hope they are listening very hard to the message around the House.
I come back to the specifics of the Bill. Some people are affected both by the universal credit cut and by this Bill, because they are couples where one person is over state pension age and the other is under. Can the Minister tell us how many people are in that position? What assessment has she made of the impact of the Bill on pensioner poverty and on the number of pensioners heading for fuel poverty this winter?
We on these Benches understand the difficult situation with the anomaly in earnings, but it is surely up to the Government to find a way to deal with that while maintaining the earnings link to which they committed. That means being transparent about what is going on. When the Secretary of State announced the change, she reminded the House that she had had to legislate last year because earnings were negative. I will let the Minister explain the details to the noble Baroness, Lady Smith, but, essentially, if earnings are negative, the Government cannot apply the triple lock at all because there is not the provision in the original legislation, so the Secretary of State was right to do that. She said:
“This year, as restrictions have lifted and we experienced an irregular statistical spike in earnings over the uprating review period, I am clear that another one year adjustment is needed”.—[Official Report, 7/9/21; col. 185.]
Last year’s Bill set aside the earnings link because, otherwise, Ministers could not have increased pensions at all, as earnings growth was negative. The implication is that this is just a similar move this year, but let us be clear: last year, the Government rushed through emergency legislation so they could keep their manifesto commitment to the triple lock. This year, they are rushing through emergency legislation to break their manifesto commitment to the triple lock. They are not the same thing. There is a question of trust here and, I have to say, this is the third time in a few months. It is telling which manifesto commitments get dropped. There is something about priorities going on here. First, we had the overseas aid cut, then we had the national insurance rise, and now we have the triple lock, which Ministers repeatedly said they would protect. This Bill may be for one year, but we will be watching like hawks to see whether the Prime Minister and the Chancellor come back for more. As the noble Lord, Lord Freud, knows to his cost, once Prime Ministers and Chancellors get into the habit of dipping into the welfare budget like it is some sort of piggy bank which they can raid for their favourite projects, they tend to come back again and again, because that is what they have been doing up until now. It will not happen again if this House can do anything about it.
We will drill down into all these issues and more in Committee so that the House can understand the impact of the Bill and its interaction with other government decisions that are being made at the moment and have been made in the recent past. For today, I thank all noble Lords for a brilliant debate. I hope the Minister can answer the questions put to her and give us some assurances. I look forward to her reply.
My Lords, I thank all noble Lords who have spoken today. Their contributions have been eloquent and focused. The House has great knowledge of and experience in pensions and social security, which has truly been demonstrated today.
The debate has been wide-ranging and has covered a number of topics. I want to address some of the key points that were raised. If I do not manage to cover them all, noble Lords have an undertaking that I will write after this Second Reading and we will meet again, when they will have further opportunity to drill down into the detail.
I reiterate that this Bill is not concerned, although noble Lords are, with benefits linked to prices, such as universal credit. Uprating decisions for those benefits will be made under the existing provisions in the Social Security Administration Act 1992 as part of the Secretary of State’s annual uprating review in the autumn. The UC points that noble Lords have made are out of scope of the Bill, but out of respect for those who have raised the issues, I will endeavour to respond to them all. They will then be brought before both Houses through the annual uprating order, which is subject to the affirmative statutory instrument procedure and it would not be right for me to pre-empt that review.
The Bill sets aside the link between earnings growth and the uprating of the basic state pension, the full rate of the new state pension, the standard minimum guarantee in pension credit and survivors’ benefits in industrial death benefit. It does this for 2022-23, and for 2022-23 only. In place of the earnings link, it requires the Secretary of State to increase the relevant pensions at least in line with price inflation, or by 2.5%, whichever is higher. We have discussed the reasons for this approach linked to the unique effects of the Covid-19 pandemic over the last two years of earnings growth.
The noble Baroness, Lady Drake, raised the 1979 pension level. It is difficult to make comparisons back to 1979, when price indexation was introduced—the pensions landscape has changed significantly since then. She also asked whether the state pension was fit for purpose. The new state pension forms a clear foundation for individuals’ private savings to provide for the retirement they want. Together, the new state pension and automatic enrolment to workplace pensions provide a robust system for retirement provision for decades to come. The overall trend in the percentage of pensioners living in poverty is a dramatic fall over recent decades: there are 200,000 fewer pensioners in absolute poverty, both before and after housing costs, than in 2009-10, and we want to maintain that achievement.
The phasing out of the triple lock was raised by the noble Baronesses, Lady Sherlock and Lady Drake, my noble friends Lady Altmann and Lady Stowell, and the noble Lord, Lord Davies. After that, the legislation will revert to the existing requirement to increase these rates at least in line with earnings growth. The noble Baroness, Lady Smith, suggests that this may change because of Brexit. No, the link with earnings will apply.
I pay tribute to the noble Baroness, Lady Greengross, for her commitment to the more mature in our society and her consistent efforts to represent them. The triple lock commitment was raised by the noble Baronesses, Lady Greengross, Lady Drake and Lady Smith, my noble friend Lady Stowell and the noble Lord, Lord Davies. The Bill needs to be seen in the context of the Covid-19 pandemic and the Government’s approach over the two years of the pandemic. After this year, the legislation will revert to the existing requirement to uprate at least by earnings growth, and the Government’s triple lock manifesto commitment remains in place—there is no turning back.
The noble Baronesses, Lady Sherlock, Lady Lister and Lady Smith, raised the possibility of a poverty impact assessment. They asked whether the department had produced an assessment of the effects on pensioner poverty of increasing these rates by 2.5% in 2021-22 and then by 2.5% or in line with inflation, whichever is higher, in 2022-23. The department collects and publishes a wide range of data on income and poverty, which are released annually in the reports on Households Below Average Incomes and a report with estimates of pensioner poverty covering 2021-22 and 2022-23 will be published in 2023 and 2024 respectively. In the absence of actual data, the only way to provide an assessment would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to made about how each individual pensioner’s income will change in the future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as draw-down of income from investments or a change in earnings when faced with different amounts of state pension, which is virtually impossible to do with accuracy. These projected incomes would then need to be compared to projections of the various income thresholds, which are themselves extremely uncertain.
For absolute poverty, the threshold is increased each year by inflation during that particular year. As demonstrated in recent months, inflation is currently extremely volatile and there is a high level of uncertainty about what its level is likely to be over the next year. For relative poverty, the threshold is determined by changes in median income across the whole population. Given the volatility in the economy and labour market, again this is impossible to do accurately. Therefore, there is a very high risk that any analysis seeking to forecast the number of pensioners moving above or below these projected poverty levels is likely to be misleading, due both to uncertainty about the economy and pensioners’ behavioural response to various levels of state pension.
I know that the noble Baroness, Lady Sherlock, has been waiting for this figure: drumroll—I am going to give it to her now. She asked specifically how many couples in receipt of universal credit include a partner in receipt of a state pension. We estimate this number to be around 50,000 mixed-age couples claiming universal credit in 2022-23.
The noble Baronesses, Lady Sherlock, Lady Janke, Lady Drake, Lady Greengross and Lady Lister, and my noble friend Lady Noakes, all raised the issue of pension credit take-up. We have had debates about this in the House and I promised to take action, which we have done. I know how passionate all noble Lords are about increasing pension credit take-up—I am in that club too. The Government are working with partners to raise awareness of pension credit and the department conducted a media day in June with support from Age UK and the BBC, in particular. We continue that engagement with the BBC, and I met the Minister for Pensions and the director-general of the BBC a few weeks ago to discuss how we can do even more to encourage people to claim what they are entitled to. I am no expert in social media, but I will take away the point made by the noble Baroness, Lady Greengross, and raise it. Furthermore, the Minister for Pensions and I held a stakeholder round table in May. Following that, the department established a working group involving organisations such as Age UK, Independent Age and British Telecom, as well as the BBC, to explore innovative ways to reach eligible pensioners. The group will meet again on 19 October.
We are also improving our direct communications. Earlier this year, more than 11 million pensioners in Great Britain received information about pension credit and this highlighted that an award of pension credit, as has already been said, can open the door to a range of other benefits, such as housing benefit, help with council tax and heating bills and help with NHS costs, as well as a free TV licence for the over-75s. We will continue to do this work and will be encouraging people in every way we can to claim their entitlements, building on some promising recent figures. According to the latest data, for the financial year ending in 2019, 77% of the total amount of the guarantee credit—the safety-net element of pension credit—that could have been claimed was claimed, up from 66% two years previously.
My noble friend Lady Altmann and the noble Baroness, Lady Lister, raised the possibility of a review of the triple lock. I must say that the Government have no plans to undertake a review; we are committed to the triple lock for the remainder of this Parliament.
An important issue raised by many noble Lords concerns a different measure of earnings. Several noble Lords asked why the Secretary of State does not use her discretion under the existing legislation to use an adjusted index of earnings growth to exclude the effects of the Covid-19 pandemic, or why the Government did not include such an adjusted index in th Bill. The answer is that there is no robust methodology for establishing such an adjusted index. The existence of such a methodology would be crucial in assessing the degree of legal risk attached to veering from the conventional index, which continues to provide an accurate reflection of growth in earnings.
The Office for National Statistics has not published official statistics for any alternative estimates of earnings growth; it has published just a range of estimates of the potential scale of base and compositional effects caused by the Covid-19 pandemic. However, it has concluded that there is no robust method for producing a single figure for a measure of underlying wage growth that accurately takes account of temporary effects due to the pandemic that all experts could reach agreement on. This lack of an agreed robust analytical basis for an alternative figure means that there is a legal risk in breaking with precedent in the measure of earnings used. I am quite sure that we will wish to discuss this further between the Bill’s stages—and we will.
My noble friend Lady Altmann has been a great advocate on the issue of pensioner poverty among women; in fact, she was referred to by the noble Lord, Lord Sikka. She asked about reforms to the state pension. These reforms have put measures in place to improve state pension outcomes for most women. More than 3 million women stand to receive an average of £550 more per year by 2030 as a result of the recent reforms. Women live longer than men on average and therefore receive pension payments for longer.
The noble Baroness, Lady Sherlock—she is a noble friend—was very animated in her contribution. Indeed, she was racing away; one of the things I have to work hard on is keeping up with her. We might have a chat about that another time. She asked whether wage increases are racing against inflation, am I correct? The response is that wages are increasing at 8.3% while inflation is at 3.3%, so wages are much higher. I am sure the noble Baroness will give me a list.
My noble friend Lady Noakes raised the issue of relative versus absolute poverty. The Government believe that absolute poverty is a better measure of living standards than relative poverty, which can provide counterintuitive results. The absolute poverty line moves with inflation so provides a better measure of how the income of pensioners compares with the actual cost of living.
My noble friends Lady Altmann and Lord Flight, and the noble Baronesses, Lady Drake and Lady Janke, asked about state pension comparisons with EU countries and others. This comparison is misleading due to differences in the pension systems. There are many factors to take into account, including different tax systems, different healthcare systems, different pension ages, the cost of living, access to occupational pensions and the availability of other social security benefits, as well as the provision of services and goods free to pensioners or at concessionary rates. In her contribution, the noble Baroness, Lady Janke, commented that other countries get them, so I suspect that this is another issue on the agenda for further discussion.
The noble Lord, Lord Davies, the noble Baroness, Lady Drake, and my noble friends Lady Altmann and Lady Stowell asked about the state pension versus the basic state pension. The new state pension system has been designed so that no more money is being spent now than under the previous one, and care has been taken to ensure fairness to both groups while delivering a sustainable system for the future.
The noble Baroness, Lady Janke, and my noble friends Lady Stowell and Lady Stroud raised the issue of the UC taper rate. All I can say at the moment is that no decision has been taken on it.
The noble Baroness, Lady Smith, asked why we needed a Bill last year. The Social Security Administration Act 1992 does not refer to 2.5% and, for the benefits in this Bill, refers specifically to earnings growth. Without suspending that link, the state pension would have been frozen.
My noble friend Lady Stowell referred to the state pension for over-75s. We are committed to supporting all pensioners, including those over 75. We spend more than £129 billion—5.7% of GDP—on benefits for pensioners, which includes spending on the state pension. It is also supported by further measures for older people, including the provision of a free bus pass, free prescriptions, winter fuel payments and cold weather payments.
My noble friend Lord Flight asked for clarification on the year. It is the CPI in the year to September 2021, so it will be 2021 data—the most up-to-date data we can use—for our hard IT deadline in November.
Now we come on to the £20 uplift. Virtually all noble Lords made reference to this. To start with, I must confess and confirm again—I know that this will rankle—that this was a temporary measure. People knew when it started that it would end. We extended it for six months, and it was an important measure to help people facing the greatest financial disruption to get the support they needed. In line with other emergency support that we rolled out at pace, the uplift helped protect livelihoods through the worst of the pandemic. The support we put in place did what it was intended to do, despite the biggest recession in 300 years. It is worth noting that unemployment is much lower than feared, at 4.6%, and for some, household savings are £197 billion higher. The poorest working households were supported the most.
I have been asked to make reference to something mentioned by the noble Baroness, Lady Smith. No money is being taken away because we budgeted to spend a certain amount. The increase of 2.5% or the rate of inflation, whichever is higher, will be applied. I just want to give a reminder that the Lib Dem Minister at the time, Steve Webb, supported this in legislation.
I am sorry if I did not make that point clearly. I agree with the noble Baroness. People were told that it would be there for a period of time but was not for ever. We extended it because the pandemic went on; we have therefore paid up what we committed to pay. We did not say that we would give it for ever but then took it away.
I have a question. First, the Minister mentioned Sir Steve Webb, a former Minister. He too has pointed out that, since the Commons discussed this issue, the circumstances have changed and the indicators are that price rises will be much higher—something that the Minister did not address when she replied on that part of the Bill. Secondly, could the Minister write to me and tell me why exactly this Bill must have its Third Reading by November?
I thank the noble Baroness for pointing out the clarification on her previous colleague, Steve Webb. I will certainly write to her and, later, I will come on to the issue of gaining Royal Assent by November.
Let me turn to my noble friends Lord Freud and Lady Stroud. I thank my noble friend Lord Freud for the passion and knowledge with which he speaks. I pay tribute to his achievements as Minister for Welfare Reform. I must, however, reiterate that the Bill does not concern benefits linked to prices, such as universal credit—but thank God we had universal credit when the pandemic came. We will be for ever in the noble Lord’s debt for making that happen. If I may say so, we will also be for ever in the debt of Baroness Hollis for the challenge that she provided in that; we all miss her.
In answer to my noble friend’s question, making the uplift payment permanent would cost £6 billion; this is the equivalent of adding 1p to the basic rate of income tax, in addition to an increase of 3p in fuel duty.
I have been really pleased to engage with my noble friend Lady Stroud. We have worked together on many projects, and I have found our conversations really useful and helpful. I know that she has strong views on the universal credit uplift, and that dialogue will continue. As I said, the Bill is very short and not concerned with benefits—I do not say that to annoy people—so the Government would not encourage her to try to draw a false link between the two separate matters. Again, the universal credit uplift was always intended to be temporary.
Lastly, I remind noble Lords of the need for Royal Assent by 22 November. This will allow the Secretary of State to conduct a statutory review using the new powers in time for the DWP to meet its hard deadline of 26 November for reprogramming its computer systems, to ensure that the new rates of benefit and pensions are payable from April 2022. Any delay to this Royal Assent deadline will result in the review being completed under existing legislation committing the Government to uprate by at least 8.3%, which would not be fair to the current and future generations of taxpayers.
Can my noble friend clarify that the existing legislation permits the use of an alternative measure to 8.3%, and that the Secretary of State has discretion to choose to use a figure from the ONS that reflects the adjustment to earnings that the Bill is trying to ex out?
My noble friend has made this point on a number of occasions; other noble Baronesses and noble Lords have too. Before I bang a nail in, I think it is best that I write to noble Lords about that to make sure it is absolutely clear on that basis. I hope they will accept that.
My noble friends Lord Shinkwin and Lady Stroud raised the issue of a UC uplift impact assessment. The legislation enacting the temporary uplift, including its eventual removal, was approved by both Houses. No impact assessment was conducted when the uplift was introduced, as it was by law a temporary measure, as I have already said. No assessment was conducted on the reversion to the underlying rates of universal credit.
Do I have only 20 minutes for this? No? Okay, I am in charge. We will not be here for another half an hour. I want to pay respect to everybody, but I certainly do not want to abuse the House’s good will.
I hope the noble Lord, Lord Sikka, will take this in the spirit in which it is meant: I thank him for the master class in economics. I hope the Chancellor will read Hansard, and I am sure he will be in touch if he wants to take it further.
I thank the Minister. I do not know what the tuition fee would be or whether it would have gone up by then. Can she please explain why the £37 billion surplus on the National Insurance Fund account is not being used to pay even £8 billion or £10 billion in extra pensions?
This is a pretty challenging question, and I do not know. I will go away and find out, write to the noble Lord and place a copy in the Library.
I will stop soon, but I want to come back to my noble friend Lord Shinkwin and the disability Green Paper. This issue is not in the scope of the Bill, as he will know. I assure him that I will raise his concerns with my ministerial colleagues. We have been blessed with the appointment of Chloe Smith. I have talked to her about my noble friend and I know she will meet him—because there will be trouble if she does not.
Without being disrespectful to anybody else, I would like to hold a further briefing and answer all the unanswered questions. I hugely appreciate the time and intent of all noble Lords, and I commend the Bill to the House.
Bill read a second time and committed to a Committee of the Whole House.