Wednesday 22 February 2023
Arrangement of Business
My Lords, if there is a Division in the Chamber while we are sitting, which is not expected, we will adjourn as soon as the Division Bell rings and resume thereafter.
Postponement of Local Elections (Northern Ireland) Order 2023
Considered in Grand Committee
My Lords, before I begin, for the more historically minded among your Lordships, I was reminded this morning by my noble friend Lord Lexden that today is the 137th anniversary of a famous speech made by the former Member for Paddington South, Lord Randolph Churchill, at the Ulster Hall in 1886, in which he never actually said:
“Ulster will fight, and Ulster will be right”,
but that did appear in a subsequent letter.
I am grateful.
The draft order before us, which was laid before the House on 25 January 2023, will allow for a short postponement of the local elections in Northern Ireland to allow their smooth running, ensuring that they do not clash with the upcoming Coronation of His Majesty the King. As it stands, the local council elections for Northern Ireland are scheduled to take place on Thursday 4 May 2023, with counting and the declaration of results spanning Friday 5 and Saturday 6 May. As noble Lords will know well, the Coronation of His Majesty will take place on 6 May.
Statute requires that local elections in Northern Ireland must be held on the first Thursday in May every four years. All 462 seats across all 11 local authorities are contested. As noble Lords will be well aware, elections are run using the single transferable vote system, which allows electors to state as many preferences as there are candidates on the ballot paper. Each of the 11 councils is broken down into at least five district electoral areas—DEAs—all of which require a separate count, making local elections in Northern Ireland by far the largest electoral event undertaken, with a commensurately complex and time-consuming manual count.
Based on all previous local election counts, the time required for the count and verification means that this would continue well into Coronation Day on 6 May. The Chief Electoral Officer for Northern Ireland has advised that, even if as many as possible of the counts were held concurrently and counting hours were extended into the early hours of the morning, it would still not be possible to conclude the count process in advance of Coronation Day.
It is important that all those who wish to celebrate the Coronation—I imagine most noble Lords from Northern Ireland will be in that category—can do so, as indeed I will, and it is not feasible for local councils in Northern Ireland to run celebratory events concurrently with an STV count over the same weekend. The chief electoral officer and the Electoral Commission have raised concerns that it would not be possible to secure sufficient staff over the Coronation weekend to safely deliver the count if the election took place on 4 May. Concerns have also been raised over the possible cost of casual staff over the bank holiday weekend of the Coronation.
The order therefore allows for a short, two-week delay to avoid these potential issues. It will allow everyone in Northern Ireland who wishes to celebrate the Coronation —I hope that will be the vast majority—the opportunity to do so. It is important that both these events can take place successfully, and this order will safeguard that. As a Government, we informed councils, political parties, the Electoral Commission and the chief electoral officer of our plans, and all were supportive of this short postponement.
Noble Lords may wonder why this postponement is needed in Northern Ireland but not in England, where there are also local elections to be held on 4 May, so I will briefly explain. This is entirely down to the nature of the voting systems in both places. As noble Lords know, local elections in England are conducted under first past the post and there is therefore a much shorter count process. The manual count for the single transferable vote system used in Northern Ireland will, as I have explained, take much longer. This is why a short postponement is essential for these elections but is not required for England. There are no elections planned in Scotland and Wales on 4 May, so there will be no changes required there either.
Finally, I thank the outgoing Chief Electoral Officer for Northern Ireland, Virginia McVea, for her dedication and service to the Electoral Office for Northern Ireland and to the people of Northern Ireland, for ensuring that elections there are undertaken smoothly and providing confidence in the democratic process. I wish her well in her next career and look forward to working with her successor in due course.
I hope your Lordships agree that ensuring the smooth and effective running of local elections is a priority for the democratic process. This order will allow that while allowing, as I have said before, all of those who wish to celebrate the Coronation to do so. Therefore, I hope noble Lords will support this order. I commend it to the Committee and beg to move.
My Lords, the Opposition support the Government in this statutory instrument. When the Minister was explaining the rationale behind it, he also explained how complicated electoral arrangements in Northern Ireland are under the STV system. I had forgotten how long and complicated the process is and, therefore, it is absolutely sensible that this happens and that the elections are postponed to a later date.
I know, from reading the notes on the instrument, that the Government consulted the political parties in Northern Ireland and that no one raised objections to the elections being postponed. In a way, that is quite a good thing, because it means that parties that are not necessarily interested in the Coronation have not opposed the postponement of the elections.
I hope, as the Minister said, that the Coronation will be celebrated in a robust and worthy way in Northern Ireland, as it will be in the rest of the United Kingdom. I too will celebrate it, but it reminds me that when the present King was Prince of Wales, and when I was Secretary of State, he took a huge and very active interest in Northern Ireland matters—not simply going to garden parties and events like that but meeting the main players in civic society in Northern Ireland, in a positive way. I hope that the Coronation, in its new form, and the reign of the King, short as it will be by then, will be fully celebrated in Northern Ireland on that weekend, and that we ensure that there is also an opportunity then to take a break from the politics of Northern Ireland.
This leads me to my last point. I sincerely hope that, by the time the Coronation is held, we have an Assembly and Executive up and running in Northern Ireland.
My Lords, the Liberal Democrat Benches also support this order and regard it as a necessary and common-sense approach to solving this issue. We also welcome this opportunity to debate it briefly—and I think that we will all be brief. As the Minister said, under the single transferable vote system—the proportional representation system used in Northern Ireland for local elections—it just would not have been possible to finish the count before the Coronation celebrations and events began. This would have had an impact on the staff and the valuable job that they do in working so hard to handle the count, because counting an STV election is very complex. It could also have an impact on the candidates and the voters.
I have a very brief point on that. It is very important for voters across the United Kingdom, including in Northern Ireland, to have confidence in the democratic system and to know that, once they have voted, their votes will be counted and that, at the next stage, the elected representatives will get on with serving the community in which they have been elected. In that regard, I also hope that, by the time we celebrate the Coronation, there will be a fully functional and active Northern Ireland Assembly and Executive.
Delaying these local elections in Northern Ireland clearly makes sense so that the count will not be interrupted. I, for one, hope that everybody enjoys the celebrations around the Coronation as much as I hope to do; I am grateful that they will be taking place in May, which is usually a wonderful month across the whole United Kingdom. I hope that we will have good weather in Northern Ireland so that people can celebrate.
I was a small boy. I remember crowding into a small room in the house of a neighbour, who had invested in one of the first television sets in the street. I caught a rather blurred image of the Gold State Coach; much to my delight, my neighbour gave me a small toy replica of it. Those are happy memories.
It is only right to delay the local council elections in Northern Ireland as this will afford the people of Northern Ireland, along with the rest of the United Kingdom, an opportunity to join in the celebrations and events that follow the Coronation of King Charles III without having their TV coverage interrupted by the results of the later stages of the count, which, as we know, can take a considerable number of days.
As the Minister stated, the chief electoral officer, Virginia McVea, is stepping down ahead of the May local elections; I know that the post has been advertised. She has worked extremely well with all the political parties in Northern Ireland. She has been very effective and has helped greatly in improving every aspect of the election process—especially as it is a complicated single transferrable vote system. I am sure that we all wish her well in her new post here in England. I know that the position has been advertised, but will the new chief electoral officer be in post well before the May elections so as to give them a reasonable lead-in time?
A recent report on the May 2022 Assembly elections in Northern Ireland showed that most people were confident that the election was well run. However, there was a concern that the large number of postal and proxy applications rejected due to a missing digital registration number indicates that there may be a barrier to some voters. Does the Minister agree that the Government should undertake a review of the operation of the digital registration number? Have the Government looked at using some form of technology for these votes to try to speed up the counting?
I welcome this order. I am sure that many people in Northern Ireland will partake in the celebrations that follow the Coronation and have lasting memories of the great pageantry of the occasion, as it is unlikely to be seen until the next jubilee or Coronation.
My Lords, like my noble friend Lord Browne, I welcome the draft order before the Committee, which will allow the people of Northern Ireland to celebrate the Coronation of King Charles III. It is something that I very much welcome; I know that people in Northern Ireland do too.
I want to follow up on what my noble friend Lord Browne said about elections in Northern Ireland generally; I indicated this to the Minister before this afternoon. We know that, in the rest of the United Kingdom, the counting of votes starts after the polling stations close that evening. In Northern Ireland, the count starts the next day. I know from history and from fighting elections for over 40 years about the complex issue of proportional representation elections, but I still do not understand the system when I go into a count.
I know the reasoning, some years ago, why we could not have the count on the same evening as the election, because of security reasons and a number of other things. That was understandable. Surely now is the time for us to come into line with the rest of the United Kingdom, where votes start to be counted on the evening of the election, when the polling booths close. I know some Members might say, “Well, because there is proportional representation, it’s a very difficult situation”, but you could certainly have the first count on the evening of an election, and you could probably then finish up very quickly on the Saturday.
I have watched elections in Northern Ireland over many years. There was certainly, as I said earlier, an issue over security. However, there is absolutely no doubt about it: I think the time has now come for the Government to look at this issue and find a way of addressing it. As I said earlier, we could have the first count for a proportional representation election on that evening and then finish it much earlier on the Saturday. That is one issue that the Government should now look at and find a way of dealing with.
As I said at the start, I very much welcome this draft order. I hope that all the people, not only in Northern Ireland but across the United Kingdom, can get involved and enjoy the Coronation of King Charles III.
My Lords, my noble friend Lord Caine at the outset referred to Lord Randolph Churchill. He was not the kind of person to have around at the time of the Coronation. The Royal Family did not much care for him, and many in his own party did not much care for him. He was a trouble-maker; we have a certain number of those in the Conservative Party today. The heritage of Lord Randolph Churchill is not something to be carefully safeguarded.
Of course, it is imperative that nothing impedes the celebration of the Coronation in Northern Ireland. It must be enjoyed exactly the same, to the full extent, as in the rest of the United Kingdom. I agree so much with what the noble Lord, Lord Murphy, said about our monarch’s long-standing interests in so many different aspects of life in Northern Ireland, including buildings, architecture and community arrangements. He has a wide range of interests that will be reflected in his continuing interest there. I hope we can look forward to a Coronation visit to Northern Ireland, and to other parts of the United Kingdom, in conformity with past precedent. God save the King.
My Lords, I am grateful to all those who have participated. I put on record that we have spent three times as long as the House of Commons scrutinising this order—which is testimony, again, to the rigour and diligence with which your Lordships undertake your scrutiny duties.
I am grateful to everybody for their support for this statutory instrument. The noble Lord, Lord Murphy, referred to the complexity of the single transferable vote. We all know why it is used in Northern Ireland. I would not like to see it inflicted on any other part of the United Kingdom at all—I am sorry if that upsets the noble Baroness, Lady Suttie, and the Liberal Democrats. It is a very complicated system, and that is obviously one of the reasons, as I set out in my opening comments, why this order is necessary.
The noble Lord also referred to His Majesty’s interests in Northern Ireland, as my noble friend Lord Lexden echoed. I concur very much with what was said in that regard. Throughout the time I have been involved in Northern Ireland affairs, both when he was Prince of Wales and now as our King, he has had a huge affection for and deep interest in Northern Ireland and its affairs.
I can also assure noble Lords that the Northern Ireland Office is currently in discussions with DCMS and other government departments to ensure that the Coronation will be as accessible to as many people as possible in Northern Ireland who wish to celebrate it—and, of course, I echo the words that I hope that the overwhelming majority of people will enjoy the Coronation in welcoming what will be a hugely important and historic occasion in our history.
I join others in expressing some disbelief that the noble Lord, Lord Browne of Belmont, is old enough to remember the Coronation of Her late Majesty Queen Elizabeth II, but I will take his word for it. On the noble Lord’s point about digital registration, this is a security-related measure but I can assure him that the Northern Ireland Office does keep the matter constantly under review.
The noble Lord also looked for an assurance that the position of Chief Electoral Officer for Northern Ireland will be filled. He is right to say that the post has been advertised, and the process is now well under way, with a number of applications. We are confident that the post will be filled in good time before the election so that there will be continuity within that office.
The noble Lord, Lord Hay of Ballyore, asked about overnight voting. The current position is that the legislation actually prevents the count starting until the following day. As the process is very complex and lengthy, as we have discussed, it has long been felt that it is not ideal to start the count overnight, although verification of unused ballots does take place overnight to ensure that the count can start in good order on the Friday morning. I am not entirely sure that he is right —I will have to check—that all local government election counts in England take place overnight; I think that in my own area, in Leeds, they start on the following morning, but I will check. In the past, security considerations have been paramount when it came to overnight counts in general elections, but in recent general elections in Northern Ireland we have had overnight counting just as in the rest of the United Kingdom. I will check on the point, but as things stand the legislation prevents the counts beginning in Northern Ireland until the following day.
With that, I think I have responded to all the points made; no, I see that my noble friend Lord Lexden is going to contradict me.
I do not have anything that I can confirm at the moment, although I think that Coronation visits are very well-established in history. When I was in Fermanagh a couple of weeks ago, I passed Castle Coole, which my noble friend will be aware is famous for having a bed that was supposed to be occupied by King George IV on his Coronation tour of Ireland—unfortunately, he never turned up and the bed remained unslept in. The point is that Coronation tours of all parts of the United Kingdom are a very well-established tradition, but there is nothing that I can confirm to my noble friend at this time.
On which note, I will concur with my noble friend in his concluding remarks, “God save the King”, and I commend the order to the Committee.
Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023
Considered in Grand Committee
My Lords, I shall speak first to the Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023. These regulations set the national insurance contributions limits and thresholds, as well as the rates of a number of national insurance contributions classes, for the 2023-24 tax year and make provision for a Treasury grant to be paid into the National Insurance Fund if required. While the scope of the regulations under discussion today is limited to the 2023-24 tax year, I will also note where the Chancellor has committed to maintain certain thresholds at their current levels in future years.
National insurance contributions, or NICs, are social security contributions. They allow people to make contributions when they are in work in order to receive contributory benefits when they are not working, for example, when they are retired or if they become unemployed. NICs receipts go towards funding these contributory benefits, as well as the NHS.
I begin with NICs for employed and self-employed people. The primary threshold and lower profits limit indicate the points at which employees and the self-employed start paying class 1 and class 4 NICs, respectively. In the Spring Statement 2022, the Government raised the primary threshold and lower profits limit from £9,880 to £12,570 to align with the income tax personal allowance, fulfilling the Government’s ambition of ensuring that the first £12,500 earned by individuals is tax free. These changes were implemented in July 2022. In the Autumn Statement 2022, to ensure that the tax system supports strong public finances and that those who are able to pay more do so, the Chancellor announced that these thresholds would be fixed until 2028.
At the same time, the Government are fixing the lower earnings limit, which will remain at £6,396 per annum, or £123 per week, in 2023-24; and the small profits threshold, which will remain at £6,725 in 2023-24. Fixing these thresholds will mean that more low-earning working people will still gain entitlement to contributory benefits and build up qualifying years towards their state pensions without paying NICs.
In the Spring Statement 2022, the Government also announced that self-employed individuals with profits between the small profits threshold and the lower profits limit will continue to build up national insurance credits without paying any class 2 NICs. Class 2 NICs will now be paid above the newly introduced lower profits threshold, which is also set at £12,570 to align with the NICs lower profits limit for class 4 NICs—again delivering the pledge that the first £12,500 earned is tax free.
The upper earnings limit, which is the point at which the main rate of employee NICs drops to 2%, and the upper profits limit, which is the point at which the main rate of self-employed individuals’ NICs drops to 2%, are aligned with the higher rate threshold for income tax. That threshold will also be fixed at £50,270 until April 2028.
The flat cash rate of class 2 NICs will increase from £3.15 in 2022-23 to £3.45 in 2023-24, in line with inflation. Self-employed people earning below £6,725 may pay class 2 NICs voluntarily to protect their entitlement to certain contributory benefits.
Class 3 NICs allow people to voluntarily top up their national insurance record. The rate for class 3 will increase in line with inflation from £15.85 a week in 2022-23 to £17.45 a week in 2023-24.
I turn to employer NICs. The secondary threshold is the point at which employers start paying employer NICs on their employees’ salary. In the Autumn Statement 2022, the Chancellor announced that this threshold will remain at £9,100 in 2023-24 and will be fixed at this level until 2028. This supports the public finances, while ensuring the largest businesses pay the most, and the employment allowance, which the Government raised from £4,000 to £5,000 last April, means that the smallest 40% of businesses pay no NICs at all. The thresholds at which employers can claim NICs reliefs for employees who are under 21, apprentices under 25, veterans and new employees in freeports have also been fixed in these regulations.
The regulations also make provision for a Treasury grant of up to 5% of forecasted annual benefit expenditure to be paid into the National Insurance Fund—NIF—if needed during 2023-24. A similar provision will be made in respect of the Northern Ireland National Insurance Fund. The report from the Government Actuary’s Department—GAD—laid alongside the re-rating regulations forecast that a Treasury grant will not be required in 2023-24, but we have included this provision as a precautionary measure. This is consistent with previous years, as the Government consider it prudent to make a provision at this stage for a Treasury grant.
I turn to the Tax Credits, Child Benefit and Guardian’s Allowance Up-rating Regulations 2023. The Government are committed to delivering a welfare system that is fair for claimants and taxpayers, while providing a safety net for those who need it most. These regulations will ensure that tax credits, child benefit and guardian’s allowance increase in line with the consumer prices index, which had inflation at 10.1% in the year to September 2022.
In summary, this proposed legislation makes changes to the rates, limits and thresholds for national insurance contributions, provision for a Treasury grant, and increases to the rates of tax credits, child benefit and guardian’s allowance in line with prices. I hope noble Lords will join me in supporting these regulations, and I beg to move.
My Lords, I wish to speak to the child benefit uprating regulations, which of course I welcome, as there had been fears that the Government would resile from the convention that the benefit should be uprated in line with inflation. Before we get carried away, however, it is important to remember that even after this increase, child benefit will be worth over 16% less than it was in 2010, due to its having been cut and frozen. Do the Government ever intend to make good that cut, the product of austerity policy, which disproportionately hit children in a number of ways?
Earlier this month in the Commons, the Financial Secretary to the Treasury emphasised that
“Child benefit is an incredibly important form of state assistance”.—[Official Report, Commons, 2/2/23; col. 200WH.]
Last year, in your Lordships’ House the noble Viscount, Lord Younger of Leckie, stated
“Child benefit ensures that families receive predictable, consistent support from the Government for the additional costs of raising a child”
and went on to say
“the Government are committed to making the benefit system simple and navigable for claimants. Child benefit is therefore a simple and well-understood benefit, paid at a consistent flat rate to parents”.—[Official Report, 8/7/22; cols. 1213-14.]
That is certainly true in theory, and was so in practice in the past, but try telling that today to those caught by the high-income child benefit charge which passed—I will not say celebrated—its 10th birthday last month. That 10th birthday was marked by highly critical pieces in the Sunday Times and the Telegraph, the latter referring to the charge’s bizarre rules. I resist the temptation to make the case against the charge in principle, other than to remind noble Lords that it is not only a parent’s child benefit that can be at stake but their pension credit, if they do not claim child benefit because of the charge.
Instead, I want to focus on the fact that the £50,000 to £60,000 income band, above which child benefit is withdrawn, is exactly the same in cash terms as it was when introduced 10 years ago. According to the Resolution Foundation, the recent note of which I am drawing on, if uprated in line with CPI the figures today would be £64,000 and £77,000. This total freeze in the threshold has serious, and in some cases bizarre, consequences.
The Resolution Foundation estimates that
“around 2 million families, or 1-in-4 … of those with children, will have some Child Benefit effectively partially or fully withdrawn because one person has an income over £50,000”.
This compares to one in eight when the charge was introduced 10 years ago. In other words, the proportion of those with children affected has doubled. It estimates that one in 13 families—that is 600,000—has someone earning between £50,270 and £60,000, and thus experience high marginal tax rates of 55% for one child, 63% for two children, and 71% for three children, with a further eight percentage points for each additional child.
The Resolution Foundation describes
“a relatively small, but rapidly rising, number of families”
who are in the bizarre position of being entitled to universal credit while also having their child benefit withdrawn. It argues that the result is
“truly punitive marginal deduction rates”
of 80% for those with one child, 83% for those with two children and 87% for those with three. In practice, the rates could be even higher, but I will spare noble Lords the additional complications.
UC recipients affected are likely to have high rents or childcare costs. In the absence of official figures, the foundation estimates that, from April, roughly 50,000 families will fall into the child benefit charge/UC trap, and that there could be 90,000 by the end of the decade. Can the Minister confirm these estimates, and say how the Government justify this state of affairs? Is the Resolution Foundation correct to say that the charge thresholds are currently set to be “frozen forever”, given that there is no statutory obligation even to review them? Will she take back to the Treasury the message that it is high time they were reviewed, even in the absence of such a statutory obligation?
The Resolution Foundation rightly describes this as “a serious design flaw”, and argues that
“no rational policy maker would ever have drawn up the current system”.
“Unless we are to accept that ever-more families will face a £10,000 stretch of income where there is no point in seeking higher earnings, the Government will have to fix this situation”.
Not to do so, it suggests, is “unserious”.
I cannot believe that a Government who care so much about incentives and marginal tax rates are willing to countenance the continuation of a situation that can only get worse at the expense of a growing number of families with children. At the very least, the Chancellor should announce a rise in the thresholds in next month’s Budget.
My Lords, I too thank the Minister for setting out these two instruments. I also thank my noble friend Lady Lister for her attention to the detail of these matters and to the ease with which an apparently rational change can compound itself through the complexity of the rules into extremely unhelpful marginal tax rates. I hope the Minister will give her some comfort that there will be some review in the foreseeable future of the very high marginal tax rates emanating from these complex rules.
The Minister outlined an increase in tax credits, child benefit and guardian’s allowance of 10.1%—that is, CPI inflation between September 2021 and September 2022. While acknowledging that further instruments are to come on other social security benefits, I will make some general points about the current economic context and the Government’s approach.
Families across the country have faced an incredibly difficult time of late, with household bills climbing significantly. Although there has been energy support for low-income households, there has not been equivalent help as they face soaring food, phone and broadband bills. Food inflation has been running at far higher than 10% for many months, leading many households to cut back and to a worrying number of parents skipping meals to provide for their children.
The Government’s reluctance to commit to the usual uprating process when asked has caused a significant amount of anxiety for social security claimants across the country. For months, successive Prime Ministers and Chancellors—we have had many of each—ducked the question and even floated alternatives such as lower percentage increases or lump-sum payments. We are glad that the current Chancellor finally did the right thing, but I hope the Minister will acknowledge that months of indecision were not helpful for household planning or people’s mental health.
The second instrument gives effect to the annual re-rating of national insurance contribution rates, limits and thresholds. Although the Autumn Statement fixed many of those rates limits and thresholds at the 2022-23 level, some of them—class 2 and class 3 contributions—were increased by 10.1%. This will bring tens of thousands of individuals into national insurance by the 2027-28 tax year. However, the Government have not been prepared to specify what the practical impact will be. The statutory instrument’s Explanatory Memorandum refers to a small tax increase in cash terms but, with household budgets as stretched as they are, any increase is likely to cause concern. This was the subject of a debate in another place, but Minister Atkins was unable to provide a figure. Can the Minister do so today?
We do not oppose these measures, so I will not detain the Committee any longer. However, once again, I hope that the Minister will acknowledge that the Government could have provided certainty sooner. Let us hope that they do better later this year.
My Lords, I thank both noble Lords for their contributions to today’s debate.
I am glad that the noble Baroness, Lady Lister, recognised the significant uprating of child benefit brought forward in these regulations. I note her point about the overall value of child benefit if you look at it over a longer time period. Child benefit is one of many ways in which the Government support families with children. Over the same period, we have introduced other significant measures, such as free school meals for infants and 30 hours of free childcare.
On the figures and analysis that the noble Baroness brought forward on the child benefit high-income charge, I am afraid that I cannot confirm them as they go beyond the scope of the regulations we are discussing, but I will take her comments back to the Treasury and ensure that they are considered properly.
I am grateful to the Minister for that. However, can I also point out that there may be other forms of support but, in terms of financial support for children, it is not just child benefit that has been cut in real terms? All financial support for children has been cut in real terms: tax credits, universal credit, whatever. The fact is that families with children have been disproportionately hit by austerity.
In some ways, that takes me on to the comments from the noble Lord, Lord Tunnicliffe, about the broader decision to uprate benefits by 10.1%, which has been welcomed across both Houses, at a time when families face significant pressures. That process followed the normal course for the uprating of benefits.
It is important to recognise that other significant support has been put in place at the same time to help those families to which the noble Lord referred. This includes not just energy support through the £400 energy bills support scheme and the £150 council tax rebate scheme for most households living in a property in council tax bands A to D; it also includes the targeting of support for millions of the most vulnerable households through cost of living payments, which were targeted specifically at those on means-tested benefits, pensioners and those who receive disability benefits, who are less able to meet those cost of living pressures. That has been at the forefront of the Government’s mind. Benefits uprating has been an important part of addressing that, but we took action in advance of the uprating; that support continues into next year.
The noble Lord asked a specific question on the impact of the small tax increase in cash terms from the NICs changes in these statutory instruments. That refers specifically to the increases in class 2 and class 3 NICs, which were the only rates or thresholds of NICs to be uprated by inflation this year. To quantify a little for the noble Lord, the class 2 rate paid by all self-employed people earning more than £12,570 a year, as well as voluntarily paid by self-employed people earning less than £6,725 a year, has been set at £3.45 a week. That is an increase of 30p per person per week in that category. The class 3 rate, paid voluntarily by unemployed and employed people earning less than £6,396 a year who wish to add to their national insurance record, is set at £17.45 per week, which is an increase of £1.60. It is normal practice to uprate those cash rates of NICs by inflation each year. That was not a change to the normal process as announced at either the Spring Budget or the Autumn Statement. The change that took place was the freezing of those thresholds for years to come. It is that change which will, over time, bring in 55,000 additional individuals into paying NICs by 2027-28, the last year of the freeze, as a result of fixing the primary threshold and lower profits limit.
The one thing I would say to the noble Lord is that we increased that threshold earlier this year to £12,570 from 6 July. That was the largest ever increase to personal tax starting thresholds. The primary threshold is £5,100 higher in 2022-23 and will still be £3,700 higher by April 2028 than it would have been had those thresholds simply been uprated by inflation each year since 2010-11. I think that provides some context for the overall changes we have seen in NICs over that period. With that, I beg to move.
Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations 2023
Considered in Grand Committee
Social Security Benefits Up-rating Order 2023
Considered in Grand Committee
My Lords, I shall speak also to the draft Benefit Cap (Annual Limit) (Amendment) Regulations 2023 and the draft Guaranteed Minimum Pensions Increase Order 2023. All three draft instruments relate to the way in which pension and benefit rates are increased, and in my view the provisions of all three are compatible with the European Convention on Human Rights.
The Social Security Benefits Up-rating Order increases state pensions and benefits by 10.1% from April 2023, in line with the increase in the consumer prices index in the year to September 2022. The draft Benefit Cap (Annual Limit) (Amendment) Regulations also increase the four benefit cap levels by 10.1% in April 2023, in line with the increase in benefit rates. The Guaranteed Minimum Pensions Increase Order sets out the annual percentage by which the relevant part of an individual’s contracted-out occupational pension must be increased. The relevant part is the guaranteed minimum pension that was earned between 1988 and 1997. Occupational pension schemes are required to increase these, where they are in payment, by 3% for the tax year 2023-24.
By way of history and context, the Committee will know that inflation in the year to September has been the conventional measure used by Governments since 1987 in reaching a decision on how to increase the rates of state pensions and benefits. This is the latest figure that can be used to allow for the necessary operational and IT changes to be made across the DWP, HMRC and local authorities so that the new rates can come into force the following April.
This year, more than ever, it is imperative that these rates are increased so that we protect pensioners and people on low incomes. Putin’s illegal war in Ukraine and two years of a global pandemic mean that we and our partners across the G7 face levels of price inflation unprecedented in recent times. Strategically, the Prime Minister has made clear his commitment to halve the level of inflation this year, and on 9 February the Governor of the Bank of England told the Treasury Select Committee that he expects inflation to fall rapidly this year to somewhere below 5%.
More immediately, the draft uprating order ensures that state pensions and benefits keep pace with the increase in the cost of goods and services over the longer term. For this year’s uprating, the September CPI figure of 10.1% is forecast to be higher than actual inflation in the following year, but this follows two years where the opposite has been true. Using a consistent index ensures that these fluctuations even out so that state pensions and benefits retain their purchasing power over time.
In the shorter term, the Government acknowledge that further help is needed alongside the twin longer-term strategies of bearing down on inflation and uprating benefits consistently over time. The Government are therefore making provision for further cost of living payments in addition to the annual uprating. I will say more about these payments later, which I am sure the Committee realises are already well-rehearsed in this House.
Let us turn now to the detail of the draft Social Security Benefits Up-rating Order 2023. First, on state pensions, due to the Government’s commitment to the triple lock for 2023-24, the basic and new state pension will be uprated by the highest of earnings, prices or 2.5%. Consequently, as the increase in prices is the highest, state pensions will increase by September’s CPI of 10.1% for 2023-24. As a result, from April 2023 the full basic state pension will increase to £156.20 per week for an individual. The full rate of the new state pension will increase to £203.85 a week.
Other components of people’s state pension awards, such as those previously built under earnings-related state pension schemes, including the additional state pension, will also increase by 10.1%. The safety net for pensioners on low incomes, which is the pension credit standard minimum guarantee, will also increase by 10.1%, rising to £201.05 for a single pensioner and £306.85 a week for a couple.
I know that the take-up of pension credit is a matter of particular interest across the House and to members of this Committee. Noble Lords raised the matter on several occasions with my predecessor and noble friend, Lady Stedman-Scott. I thought I might share the latest position to be helpful to the Committee. Since April 2022, the Government have undertaken a substantial and sustained communications campaign to raise awareness of pension credit and to promote take-up. Since the awareness campaign began, weekly pension credit applications are on average 73% higher compared to the year before. Noble Lords will also be encouraged to learn that the latest statistics show that more households were in receipt of pension credit in August 2022 than in May 2022. This is despite the fact that the eligible population for pension credit is declining, as the new state pension lifts more pensioners above the basic level of the means test.
For those below state pension age, this order increases the personal and standard allowances of benefits, including universal credit. Noble Lords will be aware that there is no statutory requirement for the Secretary of State to increase these rates. However, to protect the most vulnerable in the current economic situation, he has decided to increase them by 10.1%, in line with the consumer prices index in the year to September 2022.
The monthly amounts of universal credit work allowances, which is the amount that a person with children or limited capability for work can earn before their universal credit payment is affected, will also increase in April by 10.1%. This too is a discretionary decision on the part of the Secretary of State. For those eligible for a work allowance who are receiving support with housing costs, the allowance will increase to £379 per month. For those eligible for a work allowance who are not receiving support for housing costs, it will increase to £631 per month.
Additionally, the order increases statutory payments by 10.1%. These include statutory adoption pay, statutory maternity pay, statutory paternity pay, statutory shared parental pay, statutory parental bereavement pay and statutory sick pay.
Turning to another important area, that of disability and carer’s benefits, the Government will continue to ensure that carers and people who face additional costs because of their disability get the support that they need. The Government recognise the vital role that unpaid carers play, and carer’s allowance will increase from April by 10.1% to £76.75 per week. Unpaid carers may also access support through universal credit, pension credit and housing benefit, all of which include additional amounts for carers.
For a single person, the carer element in universal credit will increase to £185.86 a month from April, while the additional amount for carers in pension credit and the carer premium in other income-related benefits will increase to £42.75 a week. Benefits for those who have additional costs as a result of disability or health conditions will also increase by 10.1%. These include disability living allowance, attendance allowance and PIP—the personal independence payment.
I turn to the draft Benefit Cap (Annual Limit) (Amendment) Regulations, which will also increase each of the four benefit cap levels by 10.1%. This will ensure that all households see an increase in their benefit following uprating. The national benefit cap levels will be £22,020 a year for couples and lone parents, and £14,753 for single people. For households living in Greater London the levels will be £25,323 a year for couples and lone parents, and £16,967 for single people. Just to put this in perspective, it means that households will be able to receive benefits up to the equivalent gross earnings value of around £26,500, or £31,300 in London.
Lastly, I turn to the Guaranteed Minimum Pensions Increase Order, which I will refer to as the GMP increase order. GMPs in payment, which were accrued between 1988 and 1997, will increase by 3% in April 2023. This is because, as the Committee will know, there is a cap on the indexation level applied to this part of the GMP. This indexation is paid by occupational pension schemes. The 3% cap strikes a balance between providing members with some level of protection against inflation, while not increasing schemes’ liabilities more than is reasonably sustainable. This is intended to strike a reasonable balance between member protection and employer affordability. Without this cap, we run the risk of putting unreasonable pressure on formerly contracted out defined benefit occupational pension schemes, which could put their future viability at risk.
It must be noted, that when inflation is above 3%, as is currently the case, most people with post-1988 GMPs who reached state pension age before April 2016 will receive a top up of 7.1% through the additional state pension. Therefore, they would receive the same inflation protection as if they had not been contracted out. However, the additional state pension was replaced by the new state pension in April 2016. Therefore, people reaching state pension age from this date do not receive a top-up through the additional state pension. There are, however, transitional rules in the new state pension that can be particularly beneficial to people with GMPs and others who have been contracted out. Such members will still receive the 3% increase from their occupational pension scheme. Those members of occupational pension schemes reaching state pension age in or after April 2016 will still get the benefit of the new state pension, which is protected by the triple lock.
I mentioned earlier the need for further shorter-term help while we bear down on inflation and implement the annual uprating of state pensions and benefits. The Government are therefore providing over £11 billion in 2023-24 through cost of living payments to offer tax-free cash support that does not count towards the benefit cap. They will include: up to £900 in cost of living payments to households in receipt of eligible means-tested benefits, which will be split into three payments of around £300 each across the 2023-24 financial year; a separate £300 winter payment to over 8 million pensioner households paid in addition to the annual winter fuel payment; and a £150 payment to people in receipt of an eligible disability benefit. Further to this, the energy price guarantee will be extended from April 2023 until the end of March 2024. Over this period, the EPG will bring a typical household bill to around £3,000 per year in Great Britain. Equivalent support will of course continue to be provided in Northern Ireland.
Additionally, for those requiring extra support, the Government are providing an additional £1 billion of funding, including the Barnett impact, to enable the extension of the household support fund in England in the next financial year. This is on top of what has already been provided since October 2021, bringing total funding to £2.5 billion. Local authorities can use this to help households with the cost of essentials. I am pleased to announce that the guidance for this next iteration has now been published on GOV.UK and maintains the flexibility of the current scheme. As I said in the Chamber earlier today, it will be for the devolved Administrations to decide how to allocate the additional Barnett funding.
In conclusion, the draft Social Security Benefits Up-rating Order 2023 and draft Benefit Cap (Annual Limit) (Amendment) Regulations 2023 provide vital protection for those who rely on state pensions and benefits at this time of particularly high inflation. In addition, the GMP increase order requires occupational pension schemes to increase post-1988 GMPs in payment by 3%. With that, I commend these instruments to the Committee.
My Lords, I welcome the Minister to this annual outing for us social security geeks and thank him for meeting me earlier this week. Of course I welcome the uprating of benefits and the benefit cap in line with inflation, even though it is no more than convention that leads us to expect it when it comes to the benefits themselves. I realise that the Government were under some pressure from within the Conservative Party to limit the increase to that in average wages, and it is to their credit that they withstood that pressure.
However, there is a real danger that, come April, some of the media will go to town on the 10.1% increase as if it somehow represents a bonus for claimants not enjoyed by those in paid work. It is therefore important that the Government make clear the context of the increase and also that, for two-fifths of universal credit claimants, their UC is topping up earnings. The issue was raised in the Commons debate on the regulations by Conservative MP Jerome Mayhew, who said it had been raised by his constituents on the grounds that they felt it was unfair, but he explained why
“it is fair. That is because it is morally right to protect the purchasing power of those very poorest families at an absolute level, even when other people in employment are suffering as well. I think it is right, because personal inflation is at its highest in the poorest families and food inflation is responsible for a higher percentage of their spending”.—[Official Report, Commons, 6/2/23; col. 706.]
Mr Mayhew made a strong moral case and rightly pointed to how, when energy and food prices are rising faster than overall inflation, those on low incomes suffer most. According to the Child Poverty Action Group, of which I am honorary president, in 2023-24 benefits will be 14% higher in cash terms than in 2021-22, but over the same period prices will be 21% higher for low-income families, so despite the uprating in line with overall inflation, they will be worse off. The Resolution Foundation warns that even as inflation starts to fall, food price inflation, currently running at nearly 17%, will continue to pose a particular problem for low-income families, as will high energy costs.
There are a number of further important points that help put this April’s uprating in context and serve to strengthen Mr Mayhew’s case. First, claimants have had to live on benefits plunging in value over the past year as a result of an increase last April of a mere 3.1%, despite our best efforts in both Houses, when inflation was expected by the OBR to average 10.1% over that period. According to the Joseph Rowntree Foundation, as a result 2022 saw the greatest fall in the value of the basic rate of unemployment benefit since 1972, when annual uprating began. The Minister has, as I expected, pointed to the additional cost of living payments that have been made and to the extension of the discretionary household support fund available from local authorities but, welcome as they are, neither provides the certainty and security that an increase in weekly benefits provides. One Citizens Advice adviser cited in a just published report spoke for many when they described the support fund as
“a very small sticking plaster on a very big wound”,
and because the cost of living payments take no account of family size, couples with two or more children will be worse off despite them, according to the CPAG. I will leave to the forthcoming debate on the additional payments Bill the other problems associated with one-off payments.
Just how difficult this past year has been for families in receipt of benefits was underlined in an open letter to the Prime Minister and the Chancellor yesterday from a group of organisations which called on them not to let this become the “new normal”. Resolution Foundation research highlights the emotional distress suffered by many in receipt of benefits and that one-third of poorer household feel that their health has been negatively affected by the cost of living crisis.
This all underlines the point that we made last year about the shortcomings of an annual uprating based on inflation around half a year earlier, especially at a time of high inflation and given that universal credit can be uprated much more quickly. Nigel Mills, a Conservative member of the Work and Pensions Committee, was one of those who expressed exasperation at this state of affairs in the Commons debate. He said:
“Now that we know that more of the legacy benefits will be continued on late into this decade, surely it is time to try to get a system that means we can do an uprating that reflects the real cost of living at the time that income comes in.”—[Official Report, Commons, 6/2/23; col. 687.]
His plea was echoed by Sir Stephen Timms, the chair of the committee that last year called for reform but to no avail, but it was ignored by the Minister in his closing speech. I know that the Minister addressed that in his opening speech, but I ask him to take this point back to the department and have another look at it.
Another theme of the Commons debate was the extent to which the benefits being uprated meet or do not meet the needs of those who rely on them. I think I have raised this issue in just about every uprating debate I have participated in, but it has taken on a renewed urgency given the growing evidence of hardship. Indeed, the APPG on Poverty, which I co-chair, is currently undertaking an inquiry into benefit adequacy. Bright Blue is one of many organisations that have recently drawn attention to this issue. In a recent article for Conservative Home, its head of research noted that
“the baseline level of support is inadequate in helping people avoid destitution.”
Similarly, the Joseph Rowntree Foundation concluded in its poverty report that
“the basic rates of benefits are inadequate and do not allow recipients to meet their essential needs.”
Have the Government’s considered the recommendation from Bright Blue and others that there should be a Low Pay Commission-type body to advise government on benefit rates?
Although it has been a failing of successive Governments to have uprated benefits without questioning whether the rates are adequate to meet people’s needs, the situation has been made worse by the cuts made over the past decade, which have reduced the value of working-age and children’s benefits and, particularly for families with children, have broken the link between need and entitlement. That is another reason why inflation-proofing is justified now.
However, one key benefit is not being inflation-proofed: the local housing allowance. Despite the Work and Pensions Secretary representing the freezing of the allowance as maintenance in cash terms at the elevated rates agreed for 2021—as if it were a bonus—the fact is that the value of the LHA has been cut for the third year running when average private rents increased by between 8.6% and 10.5% between September 2020 and September 2022, according to a highly critical Secondary Legislation Scrutiny Committee report. Although that freeze is covered by separate regulations, it affects the impact of the regulations that we are debating today because it means that claimants must use more of their basic benefit to cover their housing costs. I argued this earlier in Oral Questions but neither of the questions I asked were replied to by the Minister, and he may well bow his head in shame at that.
Yes, he could. Incidentally, the concern that this freeze is causing was evident from the unprecedented number of unsolicited briefings that I received for my Question.
According to the IFS—these figures are different from the ones I used earlier—just 8% of low-income private renters now have all their rent covered by housing benefits, compared with almost half in the mid-1990s. For 32% of them, the amount of rent not covered by housing benefits eats up at least one-third of their non-housing-benefits income, a situation faced by just 14% of the group in the mid-1990s. I ask the Minister not to say again that those affected can turn to discretionary housing payments because, as they are discretionary and cash-limited, they do not provide the security that is needed. The DHP budget was cut by 29% last year, leaving many authorities struggling to meet demand, according to Shelter.
Another related way in which the link between need and entitlement has been broken is the benefit cap, which, along with the two-child limit, hits larger families particularly hard. Of course, it is very welcome that the cap will for the first time be uprated in line with inflation this year, but that will cover only one year’s inflation. According to calculations done for me by the Library, the rates contained in the regulations will still leave the cap 9.8% less than it would have been had it been uprated in line with inflation since it was set at its current level in 2016. How is that fair? Whatever one thinks of the cap—I agree with the noble Lord, Lord Freud, that it is an excrescence—at the very least, its level should be maintained in real terms annually. I hope that it will be from now on for as long as it exists.
The Minister in the Commons rightly underlined that the inflation proofing of the cap meant that it would not prevent claimants benefiting from the uprating, but I am not sure that he was correct to say that “all households” will
“see an increase in their benefit following uprating”.—[Official Report, Commons, 6/2/23; col. 681.]
What about those who have migrated to universal credit with transitional protection? When we debated the managed migration regulations, we pointed out that those who were migrated before the uprating could lose out as a result of their transitional protection being swallowed up, in total or in part, by the uprating. Does the Minister have an estimate of the number who might not receive any or all of the uprating because of the loss of transitional protection? Surely the advice to claimants now must be not to migrate until after uprating day.
I end by quoting from an open letter from participants in the Changing Realities research project, published in a recent report from the APPG Child of the North. It is all too easy for us to sit or stand here and forget the people whose lives are directly affected by the uprating that we are debating. This gives a glimpse of what the last year has been like for those affected:
“The cost of living has strangled us. Stopped us from living normal, healthy lives … Nothing is affordable. Our children are hungry. Schools report ‘short concentration’ and ‘unmanageable moods’. They have lost their childhood … we are sick with anxiety, drowning in financial doom. And the government has offered nothing but a flimsy life jacket. We need more … Perhaps you don’t see desperation unless you have lived it? Well learn from us. Because we are living it.”
My Lords, I, too, welcome the noble Viscount to our deliberations. He was possibly here as a Whip last year. I took the opportunity to look again at what I said then and, in fact, it would be possible for me to repeat what I said for the benefit of the new Minister, but I have amended it slightly and added some detailed comments on GMPs, which I am sure the Minister will look forward to.
There is no doubt that because of the lag in carrying out a pension increase the poorest in our society lose out. A figure has been calculated, which I was given by the researchers who work for the parliamentary party, that it is of the order of £520. That is the cash loss that they have incurred this year because of last year’s inadequate increase.
The important point is that it is no consolation to those who have lost that money to be told, “Okay, you’ll catch up next year” or, in the Minister’s words, “the fluctuations even out”. We are talking about the poorest people here; they are in no position to even out their income, as they have no savings worth addressing. The year of plenty when they are nudged marginally higher within the range of poverty does not ameliorate in any way at all the loss they incurred in the year that they fell behind. We are talking about pensioners in poverty. Let us not pretend that there are not millions of pensioners still in poverty. For them, this is simply not good enough; they suffer the effects in the current year.
The question is: what can be done about it? Last year, the Minister said that
“it is not possible to undertake the uprating exercise any later than currently timetabled.”
But she gave the game away a bit by also telling the Grand Committee:
“All benefit uprating since April 1987 has been based on the increase in the relevant price inflation index in the 12 months to the previous September.”—[Official Report, 9/3/22; col. GC 484.]
In truth, the seven-month delay goes back even longer. I can recall being in discussions with officials in the relevant department on this topic in the early 1970s, so we are going back on a system that has existed for 50 years. I find that less than impressive. Seven months is too long when inflation can change so rapidly. Given all the changes there have been in handling and processing data in the past 35 or 40 years, it is amazing that we cannot do any better.
I quite understand why officials tell the Minister “It has to be that way” but, really, with modern systems of handling data, it is simply untrue to say that nothing can be done and that we cannot move to a system that more closely aligns increases in prices with increases in benefits. Even if it were not possible—which I do not accept—could we not move to a system where the increase allows some provision for back-payment to make good the shortfall that people have suffered in the seven-month interim? I really do not accept the department’s line that nothing can be done about the delay in the increase.
My second point is about the triple lock. Last year, I asked how much credence we could give the Government’s repeated promises to keep the triple lock for the basic state pension and new state pension. The Secretary of State said last year:
“I am again happy to put on record that the triple lock will be honoured in the future.”—[Official Report, Commons, 21/3/22; col. 99.]
but she said the same thing in 2020 when she went on to break the triple lock. We know that the Government are prepared to break the triple lock—that is a fact—but we do not know what they count as the exceptional circumstances in which they are prepared to break it. The important thing about the Government trying to justify it last year is that they quoted exceptional circumstances, but those are not unique circumstances.
I was very pleased that the Minister, in his introductory remarks, reaffirmed the commitment to the triple lock. It is perhaps unfortunate that the Minister in the Commons, when introducing the same order, failed to refer to the triple lock at all even though it was mentioned several times in the debate. I was going to ask the Minister to give a commitment, but he has already done so.
It is worth stressing again the importance of the triple lock in this current period. Views differ, I know that, but I am totally committed to it so long as and until the state pension reaches an adequate level. When we compare it with the figures quoted by the Joseph Rowntree Foundation about what constitutes an adequate retirement income, we still have some way to go. If and when we reach that sort of level, we can have a debate about the triple lock but, at the moment, it is important that people receive the benefit.
I will just explain the triple lock a bit more. People refer to pensioners’ incomes but it only partly affects those. Pensioners who depend on the state pension, who by definition are on very low incomes, get the full triple lock. The people a bit above that level, who are not on massive incomes but whose additional income is from a personal or an occupational pension, are not getting triple-lock increases on those pensions; their overall increase is somewhat less. So long as we have this unequal and inadequate benefit system, the triple lock retains its justification.
I will make two more points. First, this is about taxation. I am sorry that the noble Baroness, Lady Penn, has left because this is really a Treasury point. It is important for the department to understand the implications of the decision to freeze the personal allowance until 2028. People have not realised how significant that is in terms of running the social security system. The state pension is not subject to PAYE. That works as a system where almost everyone has a state pension below the personal allowance, so they pay the tax on any income they get over the state pension. But we are heading towards the personal allowance being the same as the new state pension in 2028. Any income a person receives from the state over that level—and many do, because of retained rights from the state earnings-related pension scheme—has to be taxed from their other income. They may not have any other income, so in the following year, they will start receiving the brown envelopes saying, “You owe the tax system and HMRC significant sums of money”, which will have to be paid as a lump sum.
This situation needs to be addressed at some stage but I have seen no indication by the Government that they understand this problem coming down the tracks. The most appropriate way would be to include PAYE to cover the state pension. It is a historic anomaly that it does not. I hope that the Minister, who may not accept all my arguments, will agree that this needs to be looked at now, and that we do not need to wait until 2028 before it is resolved.
Finally, I come to my point on the GMP. I think I have said previously in this Room that if I was ever on “Mastermind”, my specialist subject would be the GMP.
Yes, I agree. In the Commons, the Pensions Minister said:
“Under the Guaranteed Minimum Pensions Increase Order 2023, there will be an increase of 3% paid by occupational pension schemes, which means that that part of the GMP will increase by 3% from April 2023.”
The important bit is this:
“The 3% cap strikes a balance, I suggest, between providing members with some protection against inflation and not increasing scheme costs beyond what can be afforded.”—[Official Report, Commons, 6/2/23; col. 681.]
This is rewriting history. That is not in any way, shape or form why that 3% is there. It is to relieve strain not on the pension schemes but on the state pension, because it was the state pension scheme that was meant to be paying for any increases required over that 3%. I listened carefully to what the Minister said in his speech today, and it was a bit more nuanced than what the Minister said in the Commons the week before last.
This fiction is given a bit of support in the Explanatory Memorandum on the GMP increase order which says, in words very similar to those of the Minister:
“Guaranteed Minimum Pensions are increased yearly to help ensure that the value of a member’s pension has some protection against the effects of inflation”.
It is only “some protection” because the state was meant to be paying the excess over the 3%. The issue is complicated because, in some ways, people with GMPs got favourable treatment from the new state pension. That was reflected in some of the Minister’s words, but we need to be clear that we should not let the Government get away with the idea that it is only 3% because we do not want to put the burden on the schemes. It is only 3% because the Government previously promised to pay that excess, so perhaps the Minister could clarify that and tell me that I have got all the points from my “Mastermind” entry.
My Lords, as the two previous speakers said, I am sure it will be a matter of great relief to the poorest citizens and families that this year there is a realistic rise, unlike last year when, despite forecasts from the Bank of England of inflation rising to 7.9%, the rise in benefits and pensions was only 3.1%. Other speakers have referred to the distress suffered by so many citizens who have had to manage with that, despite the crisis in energy costs and the cost of living, and the pressures that have been put on families and individuals in recent months.
Some evidence of the level of distress caused by this policy is the increase in the use of food banks. The number of food bank users increased to over 2 million in 2022, of whom 832,000 are children. A measure that was intended for emergency charitable use has now become a national institution and without it many impoverished families would go hungry.
The increase in short-term government funding is a positive step and it is to be welcomed that it is excluded from the benefit cap. I share the views of the noble Lord, Lord Davies, on the triple lock and agree that we should retain it until the state pension has regained much more of its value, because it is taking quite a time to catch up. Large numbers of the poorest pensioners are dependent on the state pension but that is sometimes not appreciated. We hear quite a lot of speeches from people nowadays saying that the triple lock should be abolished because everybody is jolly too well off; in fact, large numbers of pensioners are completely dependent on the state pension so to those people, it is absolutely crucial that it retains its value.
We would also like to see an extension of auto-enrolment to younger workers and those on lower incomes. They could get started a bit earlier and would welcome that in their older age.
I also recognise the campaign on pension credit and know that the noble Baroness, Lady Stedman-Scott, was keen to pursue it. It has encouraged me greatly to hear the adverts and to hear from the Minister today that the percentage of take-up has increased so much. I would certainly like to have a look at that.
The uprating increase of 10.1% will, we hope, provide more protection to those on limited incomes but the situation for many families does not improve—it only worsens. We have heard from the noble Baroness, Lady Lister, about the benefit cap and although it will be uprated today it has quite a bit to catch up. The benefit cap has been found by many studies to be a major contributor to poverty in families. There are 123,000 households subject to that cap. That is 64% higher than before the pandemic; 85% of them are families with children and 65% are lone parents. The benefit cap takes no account of the size of a home needed to house a family, so the freezing of the local housing allowance at the March 2020 level, despite rapidly increasing rent costs, will mean more capped households falling into poverty.
I have these questions for the Minister. What will the Government do to prevent a new wave of homelessness following the freeze in the LHA? I point out to him that in my city of Bristol, for example, the cost of a one-bedroom home at the 30th percentile is 7% higher this year. But with housing benefit still frozen, there is now a shortfall of £18.41 a week between what can be claimed and what has to be paid.
What plans do the Government have to review the range of evidence about the benefit cap? I am sure the noble Baroness, Lady Lister, can provide plenty. She has certainly made that case very articulately many times. I feel it is time that the Government re-evaluate and look into the circumstances that this is causing. I would also like the Minister to look at the findings of studies of the two-child limit. This seriously disadvantages families. It was championed by the Government as an incentive to people on benefits to work. However, official statistics show that most families affected are in work while a study found that those affected felt strongly that the two-child limit unfairly punished hard-working, low-income families at a time when they needed most support, that is, at the birth of a child. I hope that we may revisit that.
All in all, I am grateful that we are having a much more realistic increase this year. I hope that some of the points made by other noble Lords about the delay and distress caused by the way that the increase is calculated can be looked at. I hope that we will look again at how some of the most vulnerable underprivileged families, and particularly children, are faring under the current benefits scheme.
My Lords, I thank the Minister for his introduction and all noble Lords who have spoken. As my noble friend Lady Lister said, it is nice to have the band back together again. I also find it very moving that people turn out every year to try to make the case and to bear witness to the struggles that so many people around the country have and why it matters.
I will talk briefly on each order in turn. If we come back again, I notice that it has been nice to have had the Minister here previously as a Whip, although if one can be here one year as a Whip and the next year as the Minister, perhaps his noble friend to his right should be thinking very carefully about what might happen next year if he is not very good indeed.
I shall run though each order in turn, although probably not in the order the Minister did. GMP is really interesting. As we have heard, this gives schemes the percentage by which they have to uprate GMP between 1988 and 1997. I have a really simple question: can the Minister remind the Committee why the cap was set at 3%? That makes me Clive Myrie to the contestant behind me, my noble friend Lord Davies, who asked a much better question, so I will simply wait and let the Minister answer that instead. It will be very interesting.
Is there any reason why the Minister thinks we ought to worry when the gap is so big between the cap at 3% and the prevailing inflation rate at 10.1%? Is there any cause for concern there?
The only other point I want to raise on GMP is that some people with a large GMP lost out when the new state pension was introduced in 2016. The Minister will be aware that the Work and Pensions Select Committee called on the Government to identify those who were affected, calculate their losses and get in touch with them. Obviously that did not happen. The Parliamentary and Health Service Ombudsman reported on two cases of people who complained that they had not been given enough information by the DWP about the fact that the reforms could leave them worse off. The ombudsman said that the DWP failed to provide clear and accurate information despite being warned, with the result that some people were not aware that they might need to make alternative provision for their retirement. The ombudsman recommended that the DWP should
“review and report back its learning from our investigations. In particular”,
it should improve its communications on this issue. In response, in August 2021, I think, the DWP finally published a fact sheet on GMP and the effect of the new state pension. I then read with fascination the growing correspondence between the Select Committee and successive Pension Ministers, driven, I think, by correspondence from members of the public who were concerned about the effect. For the record, I commend the Committee for its detailed and tenacious work on this frankly very technical issue.
I shall ask the Minister two brief questions. First, now that there is a fact sheet, what is DWP doing to draw its existence to the attention of those who might need to know about it? Secondly, can the Minister tell the Committee how many people have successfully applied, or indeed applied at all, for any compensation since the PHSO report?
I now turn briefly to the draft Benefit Cap (Annual Limit) (Amendment) Regulations because the case has been made so well by my colleagues that there is not much left for me to say. As we have heard, the Secretary of State is required to review the level every five years. My noble friend Lady Lister and the noble Baroness, Lady Janke, have set out the background to how we got here and the consequences of the failure to uprate it hitherto. I remember the then Secretary of State Iain Duncan Smith saying very clearly that the original rationale for the policy was to ensure that people who were unemployed and on benefits would not receive more than average earnings. We had a debate at the time because, for example, child benefit also goes to those on average earnings. However, even allowing that for the moment, the problem with that argument is that the level of the cap was not in any way tied to average earnings. Having brought it in in 2013, not only was it not increased but it was reduced in 2016 and never increased after that until these regulations. Is the Government’s rationale for the benefit cap still related to average earnings? If not, what is the rationale, so we can assess how effectively the policy is achieving its objective? Has DWP made any assessment of the impact of the benefit cap on child poverty? If not, would it like to?
I turn now to the draft Social Security Benefits Up-rating Order, which we debate every year, except during the years of shame. It is worth reminding ourselves for the record that before 2010 annual uprating of benefits by at least inflation was the norm for both Conservative and Labour Governments. However, between 2013 and 2020 this was abandoned, with most working-age benefits and tax credits being either frozen or uprated by just 1%. The reason I continue to repeat this, even in a year when they are being uprated, is because that means that most benefits and credits have fallen in value even before the latest cost of living crisis. Many noble Lords have expressed relief that, finally, having debated the alternatives and being subject to pressure from around both Houses and outside, the Government decided to raise benefits and tax credits in line with CPI last September.
However, as my noble friend Lady Lister said, this is not an act of unusual generosity. It is simply a decision not to cut the value of benefits in the middle of a cost of living crisis, which should be a pretty obvious decision. To do the alternative would have consequences that we have heard about already. Of course, as noble Lords have pointed out, the reference point is the 12-month CPI rate in the previous September. When inflation is as volatile as it is now, that gap can cause real hardship. If we go back a year to last April, inflation was nearly 10%, but benefits were uprated that month by just 3.1%—the CPI rate from the previous September, and that loss of value is baked in because it is the basis for this year’s increase.
The result of this is that the value of out-of-work benefits is at a historically low level, as my noble friend Lady Lister said. As the noble Baroness, Lady Janke, said, it is no wonder that food bank use is at a new high. Trussell Trust food banks gave out 1.3 million parcels between April and September, which is up by one-third on the year before and includes an estimated 328,000 people using its food banks for the first time, so new people are being drawn into the need to use food banks to survive. The Trussell Trust thinks that this winter will prove to be its busiest ever. I want to put something in particular to the Minister. The Prime Minister told the Liaison Committee in December that he very much hoped that food bank demand would be lower by the end of this Parliament. Is there any plan in DWP to take action to make sure that this will actually come to pass?
Although most working-age benefits will be increased by 10.1%, there will be no change to two crucial benefits: first, the childcare element of universal credit and tax credits and, secondly, the local housing allowance, as mentioned by my noble friend Lady Lister and the noble Baroness, Lady Janke. Why are those two not being uprated? Is the presumption that they are not affected by inflation in the same way? Childcare is in crisis. We know that employers are desperate for staff and parents cannot afford childcare. I notice that we keep seeing media briefings appearing about possible benefit crackdowns and how people need to work more hours. Can the Minister confirm whether it is the case now that the childcare support in universal credit is sufficient to cover part-time hours only because the cap in it has been frozen for so long? Of course, that is not to mention the fact that for parents to get that help, they have to pay the money up front for childcare and then claim it back. That makes it a non-starter for most parents who are poor enough to be entitled to universal credit in the first place in the middle of a cost of living crisis. Can the Minister tell us what the plan is to address this?
I would like to add to my questions to get the Government to explain the decision to freeze the local housing allowance for the third year in a row. I do not think that I realised the full scale of this issue. When these regulations were debated in another place, my honourable friend Karen Buck pointed this out:
“Nearly 1.5 million universal credit households receive the housing allowance. Of those, 844,000, or 58%, have rents above the maximum that local housing allowance will support. On average, they face a shortfall of £100 a month”.—[Official Report, Commons, 6/2/23; col. 684.]
Now, Ministers want to reduce the rates further still.
Now that we have a bit more time than we had in the Chamber, I would be really interested to know whether the Minister can tell us the Government’s thinking on this. When more than half of all those who get housing help and universal credit are unable to get enough to pay their rent, how big would that issue have to be before the Government might conclude that there is a systemic problem rather than one that can be dealt with via an ad hoc system, such as discretionary funds? Is it 100% of people? If nobody could afford their rent, would that be the stage at which there might be some recognition, or is there some point in between?
I do not understand where the Government’s thinking is going on this. It just seems ironic. When the Government created universal credit, the whole point of it was to put everything in one place, with a single taper rate and a simple system, so that everybody could get the help they needed in one place. Now, more than half of them are being told that they have to go somewhere else to top up their rent.
Finally, I have a final word to say on pensions. Again, my noble friend Lord Davies of Brixton gave lots of information so I do not need to dwell on this point for very long. I want to touch briefly on the triple lock. This legislation increases pensions by inflation, restoring the triple lock, but, again, that does not undo the losses caused by the Government breaking their manifesto promise when they decided to suspend the triple lock and uprate only by the previous September’s earnings growth rather than inflation. It is interesting. I will not dwell on this, but it was noticeable how much people lost out there. Again, those losses are baked in for ever, as this uplift and all future uplifts will now use a lower baseline than was pledged.
Two interesting questions were asked. My noble friend Lady Lister asked about transitional protection. Like her, I asked about that in a previous debate on universal credit regulations. I would be interested to hear the Minister’s answer on that. Are people going to be worse off? My noble friend Lord Davies asked about fiscal drag. That is a really serious question as well, so I will be listening out for the Minister’s response to it.
When politicians play fast and loose with benefits uprating, the results are felt in lives that are blighted. There are already 4 million children in poverty. Only a few weeks ago, the Joseph Rowntree Foundation reckoned that one in seven families was going without essentials. We are now coming up towards one-fifth of pensioners living in poverty—that figure is much higher than when Labour left office—with older and disabled pensioners being the most affected. Can the Minister tell us whether the Government have a strategy to deal with growing poverty among the young and the old in our society? I look forward to his reply.
My Lords, I start by thanking the Committee in general for its overall support for these regulations. I also thank various Peers, including the noble Baroness, Lady Lister, and the noble Lord, Lord Davies, who made some very kind remarks about me coming into this particular role; I appreciate it. I was more than prepared for the fact that a good number of questions would arise from these regulations, of which there are three; I will of course do my best to answer them.
Let me start, in what I hope is not too discordant a way, by taking some issue with what the noble Baroness, Lady Sherlock, said. There is no question that there is no way in which we have played fast and loose with this; that is a bit unfair. A huge amount of thought has gone into this. I think the Committee has acknowledged that we have moved in the right direction by raising many of these benefits by 10.1%.
That is fine; I accept that. I think we can leave it at that.
I will start by tackling a couple of issues that were raised by the noble Baroness, Lady Sherlock, towards the end of her speech. She made some good points that completely chime with what the Government think. We totally understand that a number of individuals are suffering as a result of the war in Ukraine, the pandemic and cost of living issues generally. I completely acknowledge that; I hope the Committee understands that.
Let me start on why childcare has not been included; perhaps I can help. Regardless of the number of hours that they work, eligible parents can claim back up to a generous 85% of their childcare costs each month, up to the maximum amount of £646 for one child and £1,108 for two or more children. The vast majority of UC claimants receiving a childcare element do not hit the UC childcare caps. In fact, between August 2020 and July 2021, 92% of universal credit claimants receiving a payment for the UC childcare element were eligible to receive the full 85% of their childcare before the earnings taper.
So we believe that our policy provides fairness in the welfare system between those receiving out-of-work benefits and those in work by putting in place a reasonable cap on the childcare costs that a household can have reimbursed through UC, in each assessment period. We believe that the childcare policy aligns with the wider government free childcare offer in England and our similar funded early learning offers in the devolved nations. We keep childcare under review. We know that childcare costs are extremely high; I am certainly aware of that. I cannot add anything more to that, only that the Committee should be aware that we are aware of these issues. I will stick with that.
Secondly, the noble Baroness, Lady Sherlock, raised a perfectly reasonable point about food back usage. I am aware from a previous Oral Question in the Chamber of various Peers’ strong concerns and the comments that have been made. I chime with those as well. As the noble Baroness knows, food banks are independent, charitable organisations and our department does not have a role in their operation. What she and the Committee should know is that we are looking to give some feedback from a series of questions posed by the Family Resources Survey. We hope that these will be published next month and will give the Government some idea about usage. It is very much our wish that food banks are not needed. We need to continue to work as hard as we can to look at the reasons behind their usage. We can all guess what they are; I have given some flavour of that this afternoon.
On the same theme, I will touch on inflation. This leads to a number of important points raised by noble Lords, in particular the extremely good point from the noble Baroness, Lady Lister, on the increase in food prices. We are all concerned about the price of certain food items rising particularly steeply. Like many countries around the world, and as the noble Baroness knows, the UK faces the challenge of high inflation. We will continue to provide support through cost of living payments, which have been well rehearsed in this Committee and in the Chamber, while increasing state pensions, benefits and the benefit cap levels by 10.1%.
To help the Committee, the CPI stood at 10.1% for the 12 months to January 2023, down from 10.5% in December. This monthly decline was principally driven by lower rises in motor fuel. The Bank of England predicts that the CPI will continue to fall. The OBR states that government action has limited the severity of the recession and protected 70,000 jobs, and that it will take 3.4 percentage points off inflation by the end of March. This will contribute to a fall in inflation, which, as the Prime Minister has said, is expected by mid-year.
This leads quite neatly on to some of the points raised by the noble Baroness, Lady Lister, and the noble Lord, Lord Davies. To paraphrase, the general gist of their question was: why can we not uprate more frequently using a more up-to-date CPI figure? That is a fairly reasonable question. The Secretary of State undertakes an annual review of benefits and pensions. As I mentioned earlier, the CPI in the year to September is the latest figure that the Secretary of State can use. This is crucial to allow sufficient time for the required operational changes before new rates can be introduced at the start of a new financial year.
All benefit uprating since April 1987 has been based on this particular timing. Given the volumes involved, the technical and legislative requirements and the interdependencies across government, we state very firmly that it is not possible to undertake the uprating exercise any later than currently timetabled. I do not say this to be particularly cheeky but I wonder whether the comments might not have been quite so critical of this timing issue for the higher uprated figure had there been real evidence today of a much lower level of inflation, so all those people would be getting more than the level of inflation—perhaps I should not go there.
I turn to the local housing allowance—the LHA—which was raised by the noble Baroness, Lady Lister, and others; yes, we had 10 minutes on this in the Chamber earlier. I am not sure that I can really add to what I have said. I genuinely believe that the £1 billion that we invested in 2020 to provide support for private renters by increasing the rate to the 30th percentile was the right thing to do. It is a fact that it has been frozen but it is also a fact that the discretionary housing payments—DHPs—and homelessness protection grants are helpful. I say again that we believe it is right that we defer to local councils and local authorities to make the right decisions in terms of how to target the funds that we have given them, including to people who are generally suffering and are on the lowest incomes. It is up to them to decide what to do.
Perhaps I can ask again the question that I asked this afternoon but in a slightly different way. Let us take somebody whose local housing allowance is well below the rent that they are paying and they are on benefits. They are probably struggling anyway because, as we have heard, benefits have been cut in real terms in recent years—if benefits had not been cut since 2010, people might have been in a better position that they are to withstand the current cost of living crisis. Let us say that they also live in an authority where the local housing allowance budget is under great strain; according to Shelter, some authorities are really struggling because demand is so high. What is the Minister’s advice to them? What should they do? There is no point saying, “Go to the local authority”, because there may not be any money there.
I take note of that; I am certainly not dismissing what the noble Baroness says. It is a legitimate point that she raises. I hope, though, that she will acknowledge that it is right that the money we give is properly targeted to those who are in genuine need. I would like to hear of issues where they are not particularly targeted. If the money is going to people who do not need it, that is an issue, but the main thing is that the money should go to people who are genuinely in need. However, it does not just rely upon that; it relies upon the other initiatives that I have already mentioned.
To pick up on what the noble Baroness said in her remarks, the local housing allowance rates are not intended to meet all rents in all areas. In areas where rents are more expensive, those in receipt of benefits have to make the same decisions about where to live as those not claiming benefits. May I just leave it that we probably will not agree on this and that I will take away what the noble Baroness has said? It is important, I acknowledge, that local authorities follow through and give support to those who are in genuine need in all areas.
I will move on to the transitional element—that is, the uprating and the link to universal credit and transitional protection, which was raised by the noble Baroness, Lady Lister, and the noble Lord, Lord Davies. As they know, TP provides eligible claimants time to adapt to UC by protecting entitlement at the point of migration to universal credit. TP is neither intended to replicate permanently nor be an indefinite increase in benefits. I therefore acknowledge that it erodes. This ensures that UC entitlement for those managed migrations will gradually align with new claimants in the same circumstances. The noble Lord, Lord Davies, asked how many people will see a less than 10.1% increase due to the interaction with transitional protection; I will need to write to him on that point.
In which case, I apologise. I would normally take note and come back with some answers. Of course I will include the noble Baroness; in fact, I will include any Peer who has taken part in this debate in my letters about anything that I am not able to answer.
The noble Lord, Lord Davies, and the noble Baroness, Lady Sherlock, said that the Government need to be clear about why we are raising the guaranteed minimum pensions by 3%. For the pre-2016 pensioners, the Government meet the difference; for post-2016 pensioners, we do not—however, these people benefit from transitional protection. I hope that gives some form of an answer.
The noble Baroness, Lady Sherlock, raised communication. A fact sheet covering the policy change was published on GOV.UK in August 2021—I see that she is nodding at that—which invited people to write to the department if they wanted an explanation of how they had been affected by the policy change. One request for compensation has been received so far, which is interesting. As of 25 January, we do not yet know the outcome of that claim, but I hope that provides an answer.
The noble Baroness also asked about the benefit cap increase linked to child poverty. As she will know, the Government are fully focused on tackling the root causes of poverty, such as children’s education and parental worklessness, to improve the lives of people in our country. She will know that the best way of doing that is for us to have a strong economy and get people into work. As mentioned earlier, the proposed levels will mean that households will be able to receive benefits up to the value of gross earnings of around £26,500, or £31,300 in London.
The noble Baroness, Lady Lister, asked about low pay and whether the Low Pay Commission—the LPC—would include in its deliberations the adequacy of benefit rates. I thank the noble Baroness and will draw the Treasury’s attention to that.
There are a number of other questions that I need to answer, but we probably need to draw a halt, as time is running short.
Guaranteed Minimum Pensions Increase Order 2023
Considered in Grand Committee
Benefit Cap (Annual Limit) (Amendment) Regulations 2023
Considered in Grand Committee
Nuclear Regulated Asset Base Model (Revenue Collection) Regulations 2023
Considered in Grand Committee
I beg to move that these draft regulations, which were laid before the House on 15 December 2022, be considered. The Government recently took the historic step of investing in the development of Sizewell C—our first investment in a nuclear project for 35 years—and have designated the project as the first to use a RAB model. In approving the instrument, we would be helping to fully establish the model for potential use on all new nuclear projects, which we need to ensure a low-carbon, low-cost and resilient electricity system, so that we can reach our emission reduction target and provide energy security.
The RAB model offers a chance to do this in a way that draws in new sources of finance at a lower cost of capital, thereby reducing the overall cost of a nuclear project for consumers compared to current funding models. A nuclear company that is designated under the Nuclear Energy (Financing) Act is entitled to receive a regulated revenue stream, overseen by the regulatory authority, Ofgem, which of course has a duty to protect the interests of all consumers. This would cover the cost of activities related to the design, construction, commissioning and operation of the relevant nuclear project, as well as activities related to an approved funded decommissioning programme. These regulations provide the framework to implement secure, long-term funding to nuclear projects.
In accordance with Section 18 of the Act, the Secretary of State may direct the designated revenue collection counterparty, the Low Carbon Contracts Company, to offer to contract with a designated nuclear company. Once the revenue collection contract is entered into, the regulations establish a mechanism for all licensed electricity suppliers in Great Britain to make payments to the counterparty so that it can pay the amounts owed to nuclear companies. The revenue collection counterparty may also return money to suppliers, hold sums in reserve and cover up its losses through requiring suppliers to post collateral and undergo a payment mutualisation process in case of supplier default. The regulations also set out the arrangements for a supplier levy to pay for the revenue collection counterparty’s operating costs.
The contracts for difference revenue stream was designed with similar considerations in mind to the nuclear RAB revenue stream, such as incentivising private sector investment in secure low-carbon electricity. The CfD revenue regime has been operating for a number of years and is familiar to suppliers, investors and generating companies. In developing these regulations we have therefore strived, where possible, to replicate the revenue regime set out in the CfD legislation, with differences to account for the specific features of a nuclear RAB model.
Two key features of this are, first, that the revenues which the nuclear company is entitled to receive from suppliers under these regulations would be regulated by Ofgem, whereas CfDs do not have this regulatory oversight. Secondly, these regulations will allow the revenue collection counterparty to collect revenues from suppliers during a project’s construction phase as agreed in its revenue collection contract, not simply during the operations phase, as with the CfD regime.
Throughout the project’s duration, the revenue stream from suppliers under these regulations will work in a similar fashion to the CfD regime. We anticipate that using a recognised and reliable revenue model will minimise the impact of introducing such measures on suppliers and their consumers.
We carried out a full public consultation last year and sought views on the general idea of these regulations replicating those which underpin the CfD revenue mechanics, and the differences needed to account for the specific features of a nuclear RAB. Overall, we received 40 responses from organisations and members of the public, who were mostly in support of the proposals. Accordingly, in our government response, published on 14 December 2022, we set out plans to proceed as proposed.
Following careful consideration, we consider it preferable not to exempt specified groups under these regulations, as costs could be shifted on to other vulnerable groups not included under such an exemption. Instead, we want to pursue measures which support wider protections for vulnerable groups, such as the cost of living payments for pensioners and those on means-tested benefits announced in November’s Autumn Statement. I assure the Committee that, as the Government set out during the Act’s passage, we will ensure that consumers’ interests are protected and steps taken to prevent consumers bearing unacceptable costs. We have estimated that a generic nuclear project approved in this Parliament would add approximately £1 a month to a typical household bill during the project’s construction phase.
In conclusion, this secondary legislation represents an essential step towards implementing the nuclear RAB model by ensuring a secure and consistent revenue stream. This model is a key enabler for the Sizewell C project, and the nuclear projects we need beyond that, to help ensure a secure, low-carbon and low-cost future electricity system. I commend these draft regulations to the Committee.
I will try to be brief in my questions; I am happy to take answers in writing if that is appropriate. I thank the Minister for his very thorough summary of the regulations we have before us today. I agree that this is an interesting way of securing funding for what I think we are all coming to realise is going to be an important contribution to the energy crisis we face at the moment.
The Minister tried to give reassurance about the customer and the role of Ofgem in that. One of our concerns is that this model is complex and long-term. Potentially, if things go well, it could be very successful, but our concern is about if things do not go so well, costs overrun and all those sorts of things. Some reassurance on how customers’ interests will be protected would be very helpful. The other factor in terms of costs is whether we are talking just about Sizewell C or about all the other nuclear projects. Where do we stop? If £1 becomes £10 or £20, perhaps those affected might have more to say about this.
The other concern is that, if things do not go so well, projects get cancelled or other things happen, we are talking potentially about a large sum of money that could be accrued through this model. Could I have a bit more explanation about how the mechanisms could ensure that money not used in the project or any future project would be returned to the customer? There is a concern that the Low Carbon Contracts Company would just sit on customers’ money rather than handing it back. What would the mechanism be to hand that money back?
Moving on, there was a question in the debate in the Commons about whether this will be reviewed or not. There was a suggestion that a review could cause a lack of confidence, and therefore that there should not be one, but the Minister then commented that there will be a review in 2025. It would be good to have some clarification about when a review is a review or not.
I thank the noble Baroness for her questions—and for being the only one to turn up and take an interest in this statutory instrument. Of course, I assure her that we will keep a close eye on the costs. Ensuring that we do not allow the costs to run out of control is probably the most crucial aspect of the project, so both Ofgem and my department will be closely monitoring this.
We can give her the reassurance she is looking for that consumer interests will be protected if there are any cost overruns. Proposals for the RAB model include multiple mechanisms for ensuring that consumers are protected from unacceptable costs. This includes: robust due diligence before a final investment decision to be confident that the project will be effectively managed; requiring a project to move through various staged approvals; and value-for-money tests fully in line with the Treasury’s Green Book. The noble Baroness also asked about how money is returned to consumers through beneficial payments. We will ensure to do that if it is at all possible.
With regard to a review, we have decided not to include a statutory review clause in order to retain stakeholder confidence in the stability of the revenue stream. I think that that is probably in line with the noble Baroness’s thinking. There are plans for the operational costs levy rates to be next reviewed in 2025, and we will then consult on the costs for the next three financial years—that is, from 2025-26 to 2027-28. This is in addition to the other plans that we have in order to monitor and evaluate the effectiveness of the RAB policy, which we will keep under review as necessary or appropriate. As she said, these are long-term schemes, over many years—if not decades—to provide secure funding for the next generation of nuclear reactors in this country.
I thank the noble Baroness for her support. We are grateful for the support the Opposition have provided both for the legislation in the first place and for this statutory instrument. I hope I have resolved her complaints; I am very happy to write to her if there are any additional points.
Committee adjourned at 6.31 pm.