House of Lords
Tuesday 2 November 2021
Prayers—read by the Lord Bishop of London.
Parliamentary Estate: Covid-19
My Lords, as set out in my communication to all Members this morning, the UK Health Security Agency has determined that there is now a greater risk of Covid-19 transmission on the Parliamentary Estate. As a consequence, further action is being taken in both Houses to ensure that case numbers do not continue to rise and that we can continue the delivery of core parliamentary business. Members are expected to wear face coverings. Social distancing should be maintained as far as possible, and the number of guests brought into Parliament should be minimised. Finally, all events not related to parliamentary business will be cancelled for this week and next. I thank noble Lords for their understanding.
Public Health Grant to Local Authorities
Since 2016, the local authority public health grant has decreased by 2% in cash terms, but we increased the grant in 2020-21, and in 2021-22, and it now stands at over £3.3 billion. We are maintaining the grant in real terms over the next three years to enable local authorities to deliver preventive and front-line health services which will improve the health and well-being of their communities.
My Lords, even with the recent cash increases, the public health grant has been cut in money terms since 2016 by £1 billion, curtailing services such as smoking cessation, healthy families, and sexual health clinics. If the Government really are committed to preventing poor health, why did the Chancellor not restore in the Budget the £1 billion to improve public heath, rather than prioritising giving banks a £4 billion tax break?
The public health grant will be maintained in real terms over the spending review period, and we will confirm local authority allocations in due course, but this is not the only money going to public health. In addition to the grant, the Government are investing £300 million over the SR period to tackle obesity and £500 million over the SR period to improve the “best start in life” offer available to families. The NHS is spending over £1.3 billion on national public health services.
My Lords, during my time as the Government’s Chief Nursing Officer for England I witnessed the unique value of public health nurses in the community. The pandemic has further highlighted the importance of such roles and the significance of a whole-system approach. Given this, will Her Majesty’s Government consider increasing funding specifically to build up or rebuild the capacity of public health nurses to tackle localised health inequalities?
Does my noble friend agree that a public health capability in local authorities is very important? I was very impressed by the work the head of the public health office did in my home town of Salisbury during the poisonings of the Skripals. I have heard reports that some of the duties of the office or its funding might be transferred to the NHS, which has enough on its plate. Is there any truth in this report?
It is true that some of the allocation for the National Health Service is being used for public health spending, but we want to make sure that across the health system the NHS not only focuses on prevention and therapeutics but works in partnership with the public health authorities.
My Lords, the good news is that in the Budget last week, it was announced that local councils are to receive £1.6 billion in grants for each of the next three years. The bad news is that that does not take them close to what the councils were receiving and spending in 2010. Will the Minister do all that he can to press for adequate funding, especially for the public health services but also to meet today’s needs and not those of a decade ago?
There are many bodies tackling public health and raising awareness of some of the worst health problems we have—not only the Office for Health Improvement and Disparities and public health officials in local authorities but the NHS, which wants to move more towards prevention because in the long term that saves money.
My Lords, the noble Lords, Lord Laming and Lord Scriven, have pointed out that the loss of £1 billion over the last decade or so from the public health teams’ budgets has impaired their ability to deal with issues, including those related to Covid. Does the Minister recognise that the increase just announced goes nowhere near to closing that gap? Does he also recognise the parallel problem that the limitation on local authorities’ support for care homes is greatly impairing their ability to care for the health of elderly and other disadvantaged people resident in care homes?
As noble Lords will know, the Chancellor has confirmed additional spend for public health, and the public health grant will be maintained in real terms over the spending review period, enabling local authorities to invest in prevention and front-line services such as child health visits. There will also be continued funding of £100 million per year over the period to tackle obesity in adults and children, as well as investment in a new start for life offer for families, with an additional £66 million in 2024-25. We know and recognise the importance of public health. At the same time, the NHS is committed to rebalancing between public health, prevention and therapeutics.
Has my noble friend seen analysis by the University of York showing that expenditure on public health is three to four times more effective in terms of health outcomes than investment in the NHS? Will he take steps to ensure that we now invest in the resilience of the public health network to ensure that we are better placed for any future pandemics?
I thank my noble friend for that very important question. We continually assess our preparedness plans for infectious disease outbreaks and pandemics to ensure that they remain as robust as possible. This assessment includes, as appropriate, incorporating lessons learned from exercises that test the readiness of our plans and from our experience in responding to pandemics, disease outbreaks and other types of incident in the UK. The UK Health Security Agency will be dedicated to ensuring that we are protected from all future threats, including pandemics.
My Lords, areas of greater deprivation have disproportionately borne the brunt of cuts to the public health grant, despite many people in these areas having poorer health. In Blackpool, ranked as the most deprived upper-tier local authority in England, the per capita cut to the grant has been one of the largest, at £43 per person per year. Can the Minister explain to the House how and why these decisions are made, and will he ensure that fairness in funding is restored for those who need it most?
The noble Baroness raises a very important point about needing to tackle disparities across our nations. The ring-fenced grant that we provide to local authorities to spend on public health services comes with a condition that they consider the need to reduce health inequalities in their areas. Also, the grant’s distribution is heavily weighted towards areas facing the greatest population health challenges. Per capita grant funding for the most deprived decile of local authorities is nearly 2.5 times greater than that for the least deprived. In addition, noble Lords will be aware of the new Office for Health Improvement and Disparities. The pin-light focus of that office is on health disparities and how we tackle them.
My Lords, I must say that that is a rather surprising answer. The Minister will know that the Prime Minister has promised to help level up the health expectancy of the poorest areas, but I take the Minister to his answer. The Health Foundation stated in the summer that there is no sign of concerted action to do this and:
“Current plans appear to be partial and fragmented, and many deprived areas where people are likely to have poorest health have not been identified as priorities for investment.”
Will the Minister reconsider his answer to my noble friend?
The noble Lord raises a very important point about how we tackle these disparities. This is one of the reasons. Given that a lot of powers to intervene at local level are in the form of local authority grants and local public health officials, it may well sometimes come across as fragmented. This is why the Office for Health Improvement and Disparities is very important to take an national overview of areas of disparity and target them.
To ask Her Majesty’s Government what recent discussions they have had with the United Nations High Commissioner for Refugees in relation to the Convention Relating to the Status of Refugees, and in particular regarding the principle that asylum seekers must apply for refugee status in the first safe country they have reached.
My Lords, the Nationality and Borders Bill, which is part of our new plan for immigration, seeks to build a fair but firm asylum and legal migration system. Those in need of protection should claim in the first safe country they reach. That is the fastest route to safety. The plan complies with our international obligations and we continue to engage with our partners, including the UNHCR, with whom we have a positive and constructive relationship, as we take the plan forward.
My Lords, the first safe country principle is widely recognised internationally; for example, it is the fundamental feature of the common European asylum system. Without enforcement of this principle, we simply encourage criminal smugglers to continue to exploit very vulnerable migrants.
Does my noble friend agree that it is time to renegotiate the original Geneva convention on refugees, which was passed when there was a finite problem of displaced persons in Europe and was subsequently extended worldwide before anyone realised that cheap mass transport and communications would make mass movement of economic refugees between continents possible? The scale of the mass movement is indicated by the US’s offer of 50,000 visas every year to a handful of countries on a lottery basis. It receives applications from 13% of the population of Albania, 9% of the population of Armenia, 8% of the population of Ghana and 15% of the population of Liberia. It is time to recognise that the scale of this problem exceeds anything the original treaty was designed to deal with.
I certainly concur with my noble friend that not only are migration patterns changing because of the nature of access to travel but that the figures all over the world are massively increasing from what they were. Renegotiation of the 1951 convention is a bit above my pay grade, but I certainly say that this country has always tried to give refuge to those most in need. To that end, we have been extremely generous.
My Lords, given that geography alone means that the UK will rarely be the first safe country an asylum seeker has reached, could we not at least designate especially vulnerable groups of people, such as Yazidis subject to genocide, or Afghan women judges, 60 of whom have been given temporary refuge in Europe, to have their asylum applications processed at our embassies and, in addition, ensure that Afghans with UK evacuation letters, including five women judges who are now in Greece and have been waiting for weeks, are now transferred to the United Kingdom without any further delays?
I will work backwards through that question. The noble Lord mentioned Afghan judges. They are among those who have been granted leave to come to this country The UK Government—the MoD, the Home Office and the Foreign Office—are doing all they can to enable people who need our refuge to come here. The noble Lord also mentioned some very vulnerable groups, including the Yazidis. Of course, our immigration system is based on need. I will certainly take back his point about the embassies. He and I have discussed this in the past.
My Lords, may I remind Members here of the arid desert there will be as climate change takes its effect? In the coming years, there will be a massive movement of peoples who will be looking for somewhere to sustain them. What conversations are taking place to try to obtain some agreement on a humane response to this crisis? Which countries are we discussing this with? Which organisations are we talking to? It is high time that we looked to the future to try somehow to alleviate the worst of any crisis.
The noble Lord makes a very pertinent point about the effects of migration during the last few years. Different climate events in different countries are accelerating this process and the conflicts to which it might lead. Since 2015, we have resettled more than 25,000 men, women and children who have sought refuge from persecution across the world. Some 36,000 visas have been issued under the refugee family reunion rules. We aim to resettle 5,000 people a year under the Afghan citizens resettlement scheme and a further 5,000 a year under the global resettlement scheme. We have been extremely generous. All of us must play our part.
My Lords, we support the view of my noble friend Lord Dubs on this issue. However, if it is the Government’s view that asylum seekers must apply for refugee status in the first safe country they reach, is it therefore also their view that asylum seekers reaching—or trying to reach—this country via France, cannot be sent back there without French agreement, if it was not the first safe country they had reached or through which they had travelled?
My Lords, the noble and learned Baroness makes a really important point about unaccompanied minors. I pay tribute to the work of the noble Lord, Lord Dubs, in this area. We will always try to give unaccompanied asylum-seeking children refuge where it is needed. There will always be scope for an exemption from temporary protection status if it could not have been reasonably expected that they would come directly or claim without delay. All UASCs will be exempt from any no recourse to public funds requirement.
My Lords, the noble Lord, Lord Lilley, was perhaps at risk of confusing the issue somewhat. He appeared to be talking about economic migration, which is not the same as asylum seeking. Does the Minister agree that the two are different, and does she agree that it is the right thing to do to offer asylum to all those who reach our shores claiming asylum if they have a genuine case?
I do not think my noble friend was confused at all. I think he was saying, if I interpret him correctly, that the nature of migration has hugely changed over the last 70 years, and is it time to look again at our obligations under the 1951 refugee convention?
My Lords, the involvement of external powers, whatever their motives, dramatically increases the number of refugees, and this can place an unfair burden on neighbouring safe but poorer countries. Does the Minister agree that external powers involved, directly or through the sale of arms, have a moral obligation to accept refugees that they have helped to create?
I think the noble Lord asks a question that probably requires more than the 20 seconds that I have left to answer it. He makes a pertinent point about conflict and the cause of migration and refugee issues. Certainly, some of the countries that he talks about might not be suitable to send refugees to.
Non-UK Residents: Property Ownership Register
My Lords, in line with our commitment to make the UK a hostile place for illicit finance, the UK remains committed to establishing a new register of beneficial owners of overseas entities that own or buy property in the UK. The register requires primary legislation and the Government will legislate when parliamentary time allows. Her Majesty’s Land Registry does not hold information on the nationality of individuals as property owners and currently has no plans to introduce this.
I thank the Minister for that Answer. We are talking about £170 billion-worth of property. The Government are supposed to support the idea of legislation to deal with what David Cameron called dirty money, and a Home Office and Treasury report last December raised the government assessment of the money-laundering risk for property ownership from medium to high. The report said:
“Corrupt foreign elites continue to be attracted to the UK property market, especially in London, to disguise their corruption proceeds.”
If the Government support legislation, why do they not get on with it?
We do support legislation, as I have told the noble Baroness before in this House. Finding time to legislate in recent years has been challenging. My department has been working on complementary forms for Companies House such that when we implement ROBO, and we will, it will be more effective because of the broader powers that Companies House will have.
My Lords, a public register of property ownership was promised by the noble Lord’s party in 2016 and consulted upon in 2017. A Bill was promised in 2018, again in the Queen’s Speech in 2019 and at the G7 in 2021. There is still no Bill. Can the Minister please be a little more specific than “when parliamentary time allows”?
I apologise to the noble Baroness, but I cannot. The Government’s legislative agenda is not fixed yet. There are a number of different measures that different departments want to put forward and there has to be a weeding-out process, as all noble Lords who have been involved in government will know.
My Lords, does the Minister not recognise the total contradiction between a commitment to take back control and reassert UK sovereignty and encouraging foreign investment, but to be owned anonymously by powerful and dubious men from authoritarian countries, in substantial chunks of London and the countryside around it?
I realise the Liberal Democrats are obsessed with the EU, but this has nothing to do with it. The two events are totally separate. We could implement ROBO whether or not we were members of the EU. We are intending to implement the register of beneficial ownership when parliamentary time allows.
My Lords, the pre-eminence of London rests on having light but effective regulation, a dependable common law system and uncorrupt judges, not on a cult or illicit money. Of course, there are other pressures on the legislative timetable, but will my noble friend the Minister at least undertake to try to find space in this Session as part of the anti-corruption measures to which we are committed internationally?
I totally agree with my noble friend. Just last week in the spending review we committed to new investments of £63 million for Companies House reform and £42 million for tackling money laundering and fraud. This is alongside the economic crime anti-money laundering levy which will provide an additional £100 million funding per year from 2023-24. We are committed to cracking down on money laundering and we will implement this legislation when time allows.
My Lords, the UK published a draft Order in Council under the Sanctions and Anti-Money Laundering Act 2018 that required British Overseas Territories to establish a public register of companies’ beneficial owners by 2021. Can the Minister confirm reports that this will not now be required until 2023? If so, can he explain why it has been postponed?
The UK’s overseas territories and Crown dependencies have all now committed to introduce publicly accessible registers of who ultimately owns companies registered there by 2023, as the noble Baroness has said. They regularly share information with UK law enforcement and tax authorities.
My Lords, the committee looking at the draft Bill recommended that there be improved means for members of the public, journalists and NGOs who have information about beneficial owners who are not properly registered to flag up concerns with the Land Registry and Companies House. What, if any progress, has been made towards that?
When the register is implemented there will be considerable incentives to comply and penalties for not complying. I am sure that Companies House and the Land Registry would be very interested to hear any reports of anybody not abiding by the regulations.
Unless I am mishearing, the Minister and his department are chomping at the bit to bring forward this legislation, so what advice could he give to those of us who would like to help him persuade the Government Whips that this is an important priority?
My Lords, many hard-working UK voters are fed up with the way in which the property market—particularly in London—is used to apparently hide ill-gotten gains, and with the seeming complicity of the UK Government. Do the Government accept that one way of ending this is to add some weight to getting this legislation into this House as soon as possible?
As my noble friend will know, I agree with him. We want to legislate on this as quickly as possible. The UK is one of the world’s largest and most open economies, and the UK and London are among the world’s most attractive destinations for legitimate businesses and overseas investors. That is a good thing, but it exposes the UK to the risk of money laundering. That is why we are being about tackling illicit financial flows through the Economic Crime Plan and why we will proceed with this legislation.
Has the Minister heard of Roberto Saviano? He is the Italian expert on the Mafia who has to live constantly under police protection. His professional view is that the UK is the most corrupt country in the world, mainly due to the so-called neutral city enablers servicing rich criminals. The Minister’s answers go some way to explaining why that view prevails.
I am sorry that the noble Lord takes that view. However, we had some interesting revelations in the recent Pandora papers. There is a certain lady who is the wife of one of the ex-leaders of the Labour Party who chose to buy property through a British Virgin Islands registered company—perfectly legally, but she managed to save a substantial amount of tax. So, if I were a Labour Peer, I would be careful where I went with this.
I assume that the noble Baroness, Lady Donaghy, is referring to the registration of overseas entities Bill, which establishes a framework for the register of companies to establish a register of overseas entities. All overseas entities that own or wish to acquire property in the UK will be required to have registered before they can register their title or dispose of the property. This places a practical bar against dealing with UK property to any company not having complied with the registration requirements. Existing owners have 18 months in which to register.
My noble friend is correct about our intention for the registration of overseas entities, and an 18-month transitional regime is planned once the register has been implemented. This will give overseas entities time to either dispose of their holdings or identify and register their beneficial owners. The regime will disincentivise anyone seeking to do business with a non-compliant overseas entity.
My Lords, Companies House does not make any checks on the authenticity of company directors. Does the Minister know how many persons of significant control have used fake names and addresses, and therefore control property in the UK under the same fake identities? If not, why not?
Of course there are always some people who present fake identities, and Companies House will take action where that is identified. We are reforming Companies House, as the noble Lord knows. I mentioned the amount of money that we are putting into that. We want to try to tighten up the regime and make sure that people are registered legitimately. London and the UK are open to doing business and we take pride in being an open and accessible economy, but there is no place for illicit money flows, and we will take action to prevent it.
The reform of alcohol duties will simplify duty rules and tax drinks in proportion to their alcohol content. This should create a financial incentive for manufacturers to reformulate their products, therefore giving consumers a greater choice of lower-strength products. This would support individuals to drink within the Chief Medical Officer’s guidelines. The Office for Health Improvement and Disparities plans to make an assessment of the potential impact of these proposals on consumption and associated harms.
My Lords, I regret that the Minister has not actually answered the Question. All the evidence indicates that if the price of alcohol goes up, people drink less and are healthier. If the price of alcohol goes down or the duty goes down, people in fact drink more. More people go into hospital and more people die. Instead of relying on the industry to decide whether manufacturers will reformulate their drinks, as the Minister just indicated, the Government should take a firm lead and put the health of the nation first. They should not be handing out a £3 billion cut in this way. Will the Minister please go back to the Chancellor and tell him that we need a policy that will lead to better health, not worse?
Many public health officials, for many years, have criticised the system of alcohol taxation, particularly the EU’s system of taxation. Now that we have left the EU, we are free to set our own law in this area. Given the criticisms from the World Health Organization and many other think tanks, we can now set taxation based on the volume of alcohol.
My Lords, I welcome that the duty will be related to the strength of alcohol. However, the Budget included a dozen references to wine, just as the Government were boasting that the biggest benefit of the New Zealand trade deal was cheaper New Zealand wine. This duty freeze, as we have heard, will cost £3 billion to the Exchequer over five years—money that could have been used for treatment services and for public health, since we know that deaths and illnesses will go up. It seems to me that the Government have an alcohol problem. They are scared to increase prices for the sake of all our health and are uncaring about the problems that this measure brings in its wake. Can this Health Minister go to his colleagues in the Treasury and try to educate them as to what they should be doing?
The noble Baroness is being a little unfair in her comments. These reforms were based on the advice of many public health officials, including the World Health Organization as well as a number of think tanks, which said that it was about time that we linked taxation to the volume of alcohol in drinks in the hope that we can encourage and incentivise manufacturers to lower alcohol content and to produce more low-alcohol and alcohol-free drinks. I am not sure whether noble Lords would accept such reformulated drinks, but it is important that we push this from a public health perspective.
My Lords, real-term cuts in the price of alcohol send the wrong message also about drink-driving. We have one of the highest drink-drive limits in the world, set more than 50 years ago and well out of date. Around 2,000 people are killed and seriously injured on the roads every year, and that figure rose by 8% in 2019 alone. The British attitudes survey reveals that 77% of people support lower limits. Do the Government intend to catch up with the rest of the world and adopt this popular policy, saving lives on the road?
Noble Lords will know that alcohol-related deaths are not due purely to sclerosis of the liver and other direct impacts; we also know that alcohol plays a large role in, for example, drownings, 30% of which have some alcohol connection. We know that a number of murders and cases of domestic abuse are also connected to alcohol. The most important thing is to try to incentivise drinkers to drink low-alcohol or no-alcohol products in the hope that we can do that. This is why we have reformed the taxation system in a way that is linked to the volume of alcohol in drinks.
My Lords, I refer to my interests as set out in the register. While the duty freeze and 5% cut on duty on draft beer was welcomed by the industry, in reality prices that consumers will experience are likely only to increase due to production and distribution costs. I do not think that measures in the Budget will lead to overconsumption since, in the highly unlikely event of the duty cut being passed on, a person would need to drink 183 pints before they got a free one. Does my noble friend the Minister agree that we should encourage people to go out, have a couple a modest drinks if they want to, support our fantastic hospitality industry and enjoy themselves?
The noble Lord makes an important point in looking at the various factors that have to be balanced up. Clearly, we want to encourage consumers or drinkers to move towards low-alcohol and no-alcohol products, while balancing that against the wider economic climate and the hard two years that the hospitality sector has faced, which is why we announced the freeze to some alcohol duties. On encouraging people to go out and drink alcohol, I am afraid I am the wrong person, because I am teetotal.
My Lords, I declare my interest, having chaired the Commission on Alcohol Harm. Our report published last year cited the data, then 10 years old, which showed that the cost from alcohol to the NHS was £3.5 billion a year, while the Home Office’s own estimates were that the cost to society was £21 billion a year. In the decade since then, the number of alcohol-related hospital admissions has risen by 19%, and there has been a rise, too, in alcohol-related hospital admissions and deaths, which increased by 20% last year alone. Given the rising cost to the NHS, what contingency plans have the Government made should this drop in duty fail to decrease alcohol harms, and what other methods do the Government plan to use to decrease alcohol consumption?
The Office for Health Improvement and Disparities, as well as many other bodies, will continue constantly to review the impact of this change in taxation. In addition, the Government remain committed to supporting those who are most vulnerable and most at risk from alcohol misuse. Alcohol is a cross-cutting issue affecting several government departments. A strong programme of work is under way to address alcohol-related harms and their impact on life chances, including an ambitious programme to establish specialist alcohol care teams in hospitals and support for children of alcohol-dependent parents. There are a number of other alcohol harm reduction strategies that are too numerous to list now, but I am happy to write to the noble Baroness.
My Lords, alcohol-misuse experts have warned that the Government’s reforms of alcohol taxes are undermined by their failure to address the issue that alcohol from high-strength beverages may remain cheaper, in many cases, because the price per unit of alcohol is lower in many of those high-strength beverages. What plans do the Government have to introduce minimum alcohol pricing? Does the Minister share my concern that the Chancellor, in the Budget, appeared to be investing more in Prosecco than in the public health budgets that we need to see to cover the cost to society of alcohol harm.
The World Health Organization and a number of other organisations have criticised the current system of taxation of alcohol, and urged the Government—and the EU when we were a member of it—to move toward taxation based upon the volume of alcohol. To answer the noble Baroness’s specific question, there are no current plans to implement minimum unit pricing in England, but the Government continue to monitor the impact of minimum unit pricing as evidence emerges from Scotland and Wales. It has been in place in Scotland for more than three years, and the Scottish Parliament will not consider its extension until April 2024. In all my conversations with various public health experts, one of the things that they make quite clear is that this has to be evidence-led, and we want to look at evidence from elsewhere.
I declare my interest as chairman of the PASS Proof of Age Standards Board. I also chaired the Select Committee on the Licensing Act 2003. Does the Minister agree with the Committee when it said:
“It is in our view unarguable that an increase in the price of alcohol will decrease consumption.”?
Does he further agree that, by increasing the taxation on stronger alcohol as the Budget aims to do, that will have a better chance of reducing alcohol intake and dependency than the minimum unit pricing that we have seen in Scotland?
I thank my noble friend for that very important point. This is why the new system of taxation has been introduced. It will more directly align the volume of alcohol with the taxation on it. That will feed through to higher prices for drinks with higher alcohol content.
Smoking Cessation: Prescription of E-cigarettes
Commons Urgent Question
The following Answer to an Urgent Question was given in the House of Commons on Monday 1 November.
“Covid has been a stark reminder that our underlying health and lifestyle determine how resilient we are to new risks and diseases. Covid did not strike evenly. People who smoked, were overweight, or struggled with chronic conditions fared worse. We are determined to level up health for a society that is not just healthier but fairer.
Smoking rates are down to 13.9%—the lowest on record—but tobacco continues to account for the biggest share of avoidable premature death in this country. It contributes half the difference in life expectancy between richest and poorest. Action against smoking is therefore at the heart of our mission to level up. Our goal is for England to be smoke free by 2030. To support this goal, we have an ambitious tobacco control plan, and will soon publish a new plan with an even sharper focus on tackling health disparities. Our new Office for Health Improvement and Disparities will support this vital mission nationally and locally.
Ministers from my department have long been clear, including in this place, that we support e-cigarettes as part of a gateway process for stopping smoking. Last week, the Medicines and Healthcare products Regulatory Agency updated its guidance on licensing as medicines e-cigarettes and other inhaled nicotine-containing products. The updated guidance sets out the steps needed to license an e-cigarette as a medicinal product, as well as quality, safety and efficacy standards.
Having e-cigarettes as a licensed product will enable them to be available on prescription, which I know will give health professionals greater confidence in their use. I am happy to update the House further when we are closer to having a licensed product. We will continue to consider e-cigarettes, and indeed any other innovative ways of improving the health of our nation, so that we can end disparities and level up to a healthier and fairer country.”
My Lords, the MHRA in 2017 said that it was going to ensure that,
“the route to medicinal regulation for e-cigarette products is fit for purpose, so that a range of safe and effective products can potentially be made available for NHS prescription.”
Over four years later, it has now just updated the guidance; there are still no products for prescription. The new guidance only says that the MHRA will support companies to get medicinal licences, and it could take another two years before we see people able to access e-cigarettes for prescription. That seems a very long time indeed. I hope that the DHSC will chase up the MHRA and facilitate this to happen more quickly than it is at the moment.
My second point concerns other tobacco products, including Snus and heat-not-burn tobacco products. Will the Minister confirm, for the avoidance of doubt, that the MHRA’s guidance refers only to e-cigarettes, and the Government are not considering other options involving tobacco products?
I thank the noble Baroness for her questions. It is really important that we look at how we can reduce smoking in this country. The point about the e-cigarettes and the MHRA’s wish to licence products is that it wants to move smokers on to a pathway away from smoking cigarettes and on to e-cigarettes since they are seen as a safer option. It does not want to encourage people to smoke e-cigarettes, but to move them off cigarettes and on to e-cigarettes. At the moment, the MHRA does not feel comfortable licencing any of the existing products, and therefore wants to have conversations with manufacturers and others to see if there can be a product produced that it feels comfortable licencing so that it can be available for prescription. Moreover, by having that MHRA stamp of approval, it may well encourage others to buy it over the counter.
My Lords, it is three years since the change of rules that allowed medicinal cannabis to be available on NHS prescription, but there have been only three NHS prescriptions in that time. How confident is the Minister that smokers will be able to benefit from regulatory change when children with intractable epilepsy cannot? Do not both of these situations require further training for doctors to ensure their confidence to prescribe?
My Lords, I used to smoke over 50 cigarettes a day but, in 2014, I transferred to using e-cigarettes. I have not had a puff of tobacco since, and I find that my health and breathing are so much better now. This is surely a very good thing; it should be encouraged.
I thank my noble friend. He is indeed looking incredibly healthy and is a living advert for the path away from cigarettes to e-cigarettes. Noble Lords across the House are keen for this to happen. The MHRA has advised that it is 18 to 20 months away from approving a medicinal licence for e-cigarettes in the UK. However, I take the points of many noble Lords; I will push the MHRA, and I hope that they will too.
My Lords, it is correct that only MHRA-approved e-cigarettes should be available on prescription. The reason for that is that many e-cigarettes currently sold on the market contain dangerous products; there have been reports of deaths occurring due to lung complications. So is it not right that the sale of e-cigarettes not approved by the MHRA should be banned?
E-cigarettes are a pathway out of cigarettes; these e-cigarette products exist now, even before we have one approved via the MHRA. It is important not to ban existing products because we need to make sure that people move along that pathway. The hope is that, once there is an MHRA-licensed product, people will be encouraged to buy it, both on prescription and over the counter.
My Lords, the Minister has mentioned the MHRA a considerable number of times, which is a great tribute to the work that it is doing. Can he tell us why it is facing budget cuts at a time when we need our independent regulator in this country to be doing all it can to regulate and encourage new innovative products, including pharmaceutical products, to the market?
As the noble Lord will know, some of the issues are related to leaving the EU, but it is interesting to learn from conversations with the MHRA that it is hugely excited about its ability to be more global in its outlook and to be a centre of expertise that many people across the world will want to learn from. With respect to international engagement, as well as making sure that it updates its guidelines to take account of medical technology there will be ongoing reorganisation and changes, and it hopes to be fit for purpose for many years to come.
It is very important that we get the MHRA to approve these e-cigarette products. The MHRA is seen as a jewel, to which many experts from other countries look. One of my roles is international health diplomacy, and many people I talk to from other countries are very impressed with the work of both NICE and the MHRA. We can use that in our international health diplomacy.
My Lords, does the noble Lord believe that encouraging and giving the green light to e-cigarettes may well send a signal to youngsters who might think it is cool to start inhaling foreign gases into lungs which are not designed for them?
The noble Lord raises a very important concern about e-cigarettes. From conversations I have had with the MHRA and others, I understand that, at the moment, there is no evidence in the UK that young non-smokers are adopting or taking up smoking e-cigarettes. Most users of e-cigarettes use them as a pathway away from cigarettes.
My Lords, to follow up on that point, e-cigarettes are sold using flavours such as dragon berry, bubblegum, gummy bears and unicorn juice, in colourful packaging with cartoon characters—all clearly aimed at children. If we are considering licensing e-cigarettes, could this also be an opportunity to tighten up the packaging and branding rules to ensure that that stops?
There are a number of factors that will be looked at when licensing e-cigarettes, including incentives to customers—flavours, et cetera—to take up these products. I will have a discussion with the MHRA to ask that question in more detail, if the noble Lord would like to write to me.
My Lords, e-cigarettes are undoubtedly part of the way forward to achieving a smoke-free Britain. But why has it taken so long to get to this point and to begin fulfilling what was in the 2017 tobacco control plan and to adopt the recommendations of the 2018 Select Committee, chaired by Sir Norman Lamb, which highlighted the significant benefits of having medicinally licensed e-cigarettes which could be prescribed? How do we know that licensing will now proceed in a timely manner?
The MHRA has been quite clear that it wants to be in a position to license a product as soon as possible—it says 18 to 24 months. Noble Lords may well want to push the MHRA on that, and that is part of your Lordships’ role. But it is important that we make sure that, when we license a product, both consumers and public health experts can have faith in it.
I thank my noble friend for pointing that out, and I will investigate. Not being a user of e-cigarettes or cigarettes, or of any sort of narcotics or alcohol, I am afraid that I am not really an expert myself. I will look into that and write to my noble friend.
Can the Minister confirm that the nicotine levels will be looked at, given that the nicotine level in some e-cigarette products is very high and that nicotine is the addictive substance both in cigarettes and in the continued use of e-cigarettes? The commercial incentive for tobacco producers to produce flavoured, palatable and highly addictive products should not be pandered to.
Health Protection (Coronavirus, Restrictions) (Self-Isolation) (England) (Amendment) (No. 3) Regulations 2021
Motion to Approve
Critical Benchmarks (References and Administrators’ Liability) Bill [HL]
My Lords, I would like to make a few short remarks. The Bill builds on the Financial Services Act 2021, which gave the FCA powers to oversee the orderly wind-down of a critical benchmark, such as Libor. In particular, it allows the FCA to ensure the continued publication of a benchmark, using a synthetic methodology. The Bill plays a vital role in supporting a smooth and orderly wind-down of the Libor benchmark, by providing legal certainty for contracts that rely on Libor beyond the end of this year, and a narrow immunity for the administrator of Libor, where it is publishing synthetic Libor as required by the FCA.
It has been a privilege to have engaged in these discussions. I thank noble Lords for their rigorous examination of this highly technical Bill, both in formal debate and in the various technical briefing sessions that I have held. I am confident that the Bill has been thoroughly examined by the House. All those involved have brought significant experience and insight to this process.
I am particularly grateful to my noble friends Lady Noakes and Lord Blackwell for raising this important issue during the passage of the Financial Services Act earlier this year. Once again I put on record my thanks for their work on this matter.
In our discussions, we have covered the issue of the FCA’s methodology for the synthetic rate. We have considered the importance of legal certainty, which the Bill delivers, and we have highlighted the work that the FCA is doing on the wider Libor transition. This includes its work to ensure that synthetic methodology is fair and aligned with the global consensus.
We have talked about the work that the FCA has been doing alongside the Bank of England and the industry-led risk-free rate working group. This will support and encourage a voluntary transition away from Libor prior to the end of this year wherever possible—an effort which has been successful in significantly reducing the number of contracts that will need to rely on the synthetic rate both here in the UK and globally. Throughout, your Lordships have had a particular interest in protecting consumers and maintaining the integrity of UK financial markets.
As we have discussed, the UK has one of the most open, innovative and dynamic financial services sectors in the world. As the home of Libor, we have a unique and crucial role to play in minimising global financial stability risks and disruption to financial systems from the wind-down of Libor. The Bill forms part of a significant programme of work by the Government and the regulators to support the global market-led transition away from Libor. It supports the integrity of financial markets and consumer protection. In doing so, it underlines our reputation as a custodian of a global financial centre.
I conclude these brief remarks by thanking the Economic Secretary to the Treasury, his officials, and the clerks in the Public Bill Office, who have worked so diligently to support the passage of this Bill. I also thank FCA officials for the technical briefings that they have provided. I beg to move.
My Lords, as I was so kindly namechecked by my noble friend, I will just say that I thank the Government very much for responding to the real concerns expressed by the financial services industry in respect of tough legacy Libor contracts. The Bill does not deliver everything that the industry wanted but it delivers a great deal, and I am very grateful to the Government.
Bill passed and sent to the Commons.
Social Security (Up-rating of Benefits) Bill
Clause 1: Up-rating of state pension and certain other benefits following review in tax year 2021-22
1: Clause 1, page 1, line 4, leave out “(1)” and insert “(1)(za) to (c)”
Member’s explanatory statement
This amendment is intended to limit the application of the Bill so that it does not apply to the uprating of the pension credit standard minimum guarantee, thereby ensuring the poorest pensioners are still protected against rising earnings. It is linked with the new Clause in the name of Baroness Altmann.
My Lords, I rise to speak to Amendments 1 and 7 in my name and those of cross-party Peers—the noble Baronesses, Lady Wheatcroft and Lady Janke, and the noble Lord, Lord Hain—to whom I am extremely grateful for their support, and also to support Amendment 5. I declare my interest as set out in the register, and I am honoured to speak in this debate in your Lordships’ House. This Bill will affect every pensioner in the UK, but in speaking to Amendments 1 and 7, I am focusing on what sometimes seems like an underclass in British society: the poorest pensioners. Amendment 1 seeks to exclude from this Bill the application of its measures to the pension credit minimum income guarantee. This is what the poorest pensioners in our land rely upon. It is a means-tested benefit, and it is not a king’s ransom. We are talking about £177.10 a week.
Pensioner poverty was already rising even before the pandemic. It is a myth that pensioners are all well off. The charity Independent Age, and figures from Age UK, show that pensioner poverty remains a significant social issue, too often skirted over by commentators. Already, more than half of single pensioners, mostly women, live in fuel poverty, while 13% of older households live in extreme fuel poverty. Those numbers will undoubtedly grow if the Bill is passed without amendment, especially as rising energy costs are hitting so many with massive increases in their bills. Official figures show that one-quarter of pensioners were in poverty in 2002, when pension credit was introduced. That proportion fell significantly thereafter, reaching a low of around 13%, but it has been rising in recent years to 16% in 2018 and 18% in 2019, even before the impact of the pandemic and the measures we are debating today.
Pension credit has never been covered by the triple lock. It has always had only earnings uprating in legislation. The Bill removes that as well. Pension credit has helped alleviate pensioner poverty, but the benefits are being unwound. Partly, this is because the take-up of pension credit has been stuck at a very low level. Forty percent of those entitled are generally too proud to claim, and try to make ends meet without having to go through a means-tested claim. But the Bill sweeps away vital earnings protection, replacing it with just a 3.1% figure, which reflects the consumer prices index that was reported for September this year, and which is actually an artificially low figure. The Budget confirmed that inflation is rising, with 4%-plus expected and the Chancellor warning of higher figures. The OBR suggests that inflation is likely to rise to 4.4% and could be significantly higher.
Amendment 1 will exclude the pension credit from the Bill and retain its earnings protection. I am not planning to divide the House on this amendment, but I may return to this issue on Amendment 7 if Amendments 3 and 4 are not accepted. Amendment 7 permits the Government to adjust the measure of earnings used to uprate the pension credit to allow for what I certainly agree, and I think most commentators would as well, are the exceptional factors that distorted the number released for average weekly earnings, which was the traditional figure used of 8.1%.
This measure is the biggest spending reduction or cost saving in the Budget. The Treasury will save £5.4 billion in 2022-23, £5.8 billion the year after, £6.1 billion the year after that, and so on. This is money that is being taken away from pensioners. Too often, Chancellors have eyed state pensions or pensioners as a tempting target to raid when they need to find large sums of money. This is about large numbers of people, but for each person, we are not talking about large sums.
However, this should not be about money. It is about people and the social welfare system. It is about trust in politicians and in our social welfare system as a whole. It is about millions of people who are often out of sight but struggling in 21st century Britain on the lowest state pension in the developed world. The pension credit level, which is lower than the new state pension, has not yet recovered to the level that the basic state pension sat at in 1979, when the earnings link was first removed. That started the whittling away of pensioner incomes and the rise in pensioner poverty.
What does it say about our country if the elderly are used to help fund Budget reductions in alcohol duty and bank taxation? Amendment 1 is about important protections for the poorest pensioners. I will return with more details on a wider level with Amendment 3, which deals with the breaking of a manifesto commitment. I also urge noble Lords to listen to this debate and to think very carefully about what this House is for. The other place dealt with these issues in two and a half hours, with very little debate. It was presented as a fait accompli. In truth, the other place was slightly misled. On 20 September, when this Bill was placed before them, MPs were given this assurance:
“This Bill will ensure that a temporary statistical anomaly in wages does not unfairly track across into pensions, while also preserving the spending power of pensioners and protecting them from increases in the cost of living.”—[Official Report, Commons, 20/9/21; col. 62.]
Perhaps that was almost believable in September, but since then, with the sharp rises in the costs of essentials and the statements in the Budget which confirm that 3.1% CPI is an exceptionally low figure, it is no longer an appropriate basis on which to vote this through.
There is also an argument being used that the Government cannot use the earnings figure of around 8% because it is too high and is distorted by the pandemic. Apparently, there is no robustly agreed methodology to adjust that figure for the pandemic. It strains credulity that, with the legions of statisticians and actuaries at the Government’s disposal, it is not possible to produce a reliable, adjusted figure that accounts for the pandemic. However, if that is indeed the case, the OBR and the ONS helpfully have produced their own statistics which could perhaps be used as the basis of such a re-estimation of average earnings.
Amendment 7 explicitly permits the Government to use an adjusted figure for 2022-23. It is put in place to meet the objections that apparently there was concern that the Government could be legally challenged should they use an adjusted figure. This measure in Amendment 7 would ensure that unless a figure was used that is entirely irrational, such a judicial review is unlikely to proceed.
I hope that we will have a good debate on these measures and can send them back to the other place for reconsideration on the basis of much fuller and more accurate information. I beg to move.
My Lords, I will speak to the other amendment in this group: Amendment 5, in my name and that of the noble Baronesses, Lady Janke, Lady Altmann and Lady Boycott. But first, I want to comment on Amendments 1 and 7 and thank the noble Baroness, Lady Altmann, for her introduction and explanation of them.
Noble Lords will remember that in Committee, the noble Baroness, Lady Altmann, tabled an amendment which simply excluded pension credit entirely from the effects of the Bill. The Minister opposed this on lots of grounds, but probably the main one was that the earnings growth had been distorted as a result of the pandemic, and therefore it would not be an appropriate way to increase pension credit. The noble Baroness has come back with Amendments 1 and 7, which would require the Government to uprate pension credit with reference to earnings but adjusted for the effects of the pandemic.
As the noble Baroness mentioned, I am quite sure the Minister will get up and say that the Government do not believe a figure can be found which will be robust enough to use as a measure of underlying earnings growth. We will come back to the substantial discussion on that point in the third group, but, in short, Labour accepts that there is a distortion in the earnings data, but we think the Government should go back and try harder to find an alternative way to deal with this without ditching the earnings link and the manifesto commitment to the triple lock—and, indeed, losing the trust of the nation while they do so. Our view is that that should be done for the state pension, which we will come back to in the third group.
In the meantime, we need the Government to face into the growing problem of pensioner poverty and to develop a longer-term strategy for tackling it. Amendment 5 would force the Government to start by assessing the impact of the Bill on pensioner poverty within six months of the Bill passing, followed by a Statement to both Houses of Parliament.
We know we have a problem. I will not go over again all the evidence from around the House that we rehearsed in Committee, but let me give a quick summary. Pensioner poverty was doing really well: it fell markedly between 1997, when it was 29% for the UK, and 2010, when 14% of pensioners in Great Britain were living in poverty. That was due primarily to the introduction of pension credit. From 2012, pensioner poverty started to rise again. Last year, 18% of our pensioners were living in poverty—that is more than 2 million pensioners now in poverty, with over a million in severe poverty.
There is a real gender pensions gap. The number of women pensioners living in poverty has increased dramatically at a time when the total number of women pensioners has fallen as a result of the state pension age going up. That is really significant. We also have a particular problem in some regions, especially London, and there is a worry about a growing problem in the north. Older people from black and Asian communities are around twice as likely to be living in poverty as white pensioners.
The context for the Bill is a cost of living crisis, with inflation rising and energy bills skyrocketing. I raised this in Committee, and the Minister responded to my concerns by saying that energy prices were built into CPI. But the prices reference point for uprating is the September CPI rate, and the energy cap was raised on 1 October. It has been raised by £139 for those paying by direct debit and a huge £153 for those on prepayment plans. Yet again, there is huge premium on being poor: the poor pay far more per person for energy than the rich.
Given the worries about pensioner poverty from around the House, and the fact that the state pension is the largest single source of income for most pensioners, it would seem obvious that Ministers should carry out an impact assessment so that they would know what effect suspending the triple lock would have on pensioner poverty. But, astonishingly, there has been no impact assessment for the Bill. When I moved a similar amendment in Committee, the Minister said it was not possible to do what we asked because it would involve modelling. She said:
“Assumptions would need to be made about how each individual pensioner’s income would change in future under each scenario.”—[Official Report, 26/10/21; col. 750.]
I accept that assumptions would have to be made—that is what happens when you model things. Is it really impossible to model the impact of this policy? If so, how does anyone model the impact of any policy on poverty? When I was a spad in the Treasury—which I accept was back when dinosaurs roamed the land—it had a TAXBEN model which it used to assess the impact of any changes in taxes and benefits. Also, in those days, the DWP had some of the best statisticians anywhere in Whitehall. I have no reason to believe that that is not the case now, although I know the department has shrunk. So, I recognise that assumptions would need to be made, but in modelling they just have to be reasonable and stated. I would even be happy with an assessment which ignored behavioural responses, if that would make it easier.
There is a common theme across all the amendments today and there are concerns from all Benches about low pensioner incomes. Our simple amendment reflects that concern. If the Minister is not convinced by all the evidence mentioned here and in Committee, I urge her simply to accept my amendment and do the work to establish the facts. If the Government want to break their manifesto commitment, at least they should be committed to gathering and publishing information about the impact of that decision. I look forward to the Minister’s reply.
My Lords, I had not intended to speak. I can see why there is a logic against the noble Baroness’s amendment in some ways, although if she puts the amendment to a vote, I will support her. There was a time—I am going back some years now—when the Government were committed to a link. The consequence of that was that I had to put forward a 75p pension increase. I remember saying to Alistair Darling, my boss, “Couldn’t we make a quid? It’ll be a lot easier to explain a quid than 75p.”. He said, “No, no. The formula’s there. The Treasury said this is what we do: we stick to the formula.” So we stuck to the formula. I was always able to defend it in a way because the supplementary pension, although people did not always apply for it, was worth three quid rather than 75p, but we know about the uptake. The Treasury factor in that people do not take up benefits.
However, here it looks as though pensioners are being treated unfairly. I do not think they are because, as I shall say tomorrow in the debate on the Budget, there are so many hidden tax increases, particularly for pensioners with a very small occupational pension who are at the moment outside the tax net but who will be sucked into it because of the freezing of the personal allowance over a five-year period. Substantial numbers will be paying tax without anybody announcing a tax increase, and that is unfair. I hope that some time, when he flies in, the noble Lord, Lord Lawson, will come to support me on the basis that he supported me and Audrey Wise in 1977 to make the system workable.
However, the noble Baroness has a point. I do not intend to speak on the other amendments because there is a point where logic says you cannot take account of the pandemic. I understand the long run. For a couple of years, I did the job that the Minister is doing and I understand that Ministers are presented with a 30-year run of the consequences of any change in the figures. That has got to be the case when you are talking about pensions.
If we had the second or third-best pension in Europe, we would not be having this argument, would we? However we have one of the poorest basic pension rates of any modern economic country, but we are, so called, one of the richest. Sometimes we have to say, “Hang on a minute: let’s take a stand,” and I think today is an opportunity to do that. I know the logic is against this, but when one looks at the figures, it is an opportunity to make a change. The Government could be forced to have a look at some of the long-run consequences of having such poor pensions, where they factor in low uptake of pension credit. One of the documents produced for the Budget on changes in household incomes mentions that they factor in that people will not claim benefits to which they are entitled. That is not very fair. Today is an opportunity for the little people to hit back.
My Lords, I have put my name to Amendments 1 and 7 in this group, as well as to Amendments 3 and 4 which will be debated later. I am delighted to follow the noble Lord, Lord Rooker. He spoke sanely about what these amendments would do and why they should do it.
The noble Baroness, Lady Altmann, made the case very clearly. There are 2 million pensioners living in poverty and 1 million in extreme poverty. Noble Lords need to know that this Bill would put more people in this position. We should not be passing it unamended.
I find the arguments against our amendments pitifully thin—I am sorry, but I do. I remind the House that, in Committee, the Minister, who wants to do the right thing, said:
“The Government’s triple lock manifesto commitment remains in place”.—[Official Report, 26/10/21; col. 738.]
I know that that is a reference to the fact that we are told that the suspension will be for only one year, but that is not good enough. If you suspend the earnings lock for one year, the cumulative effect goes on, so the commitment is lost.
The commitment was to keep the earnings lock in place because earnings might well be greater than inflation—particularly CPI inflation—and there is no doubt that that will be the case. After all, the Government keep telling us that they want a high-wage economy. But they do not seem to want higher increases for pensioners. We know that, in most cases, these people’s spending is very curtailed. It goes predominantly on fuel and on food. Those are constituents of the CPI, but they are not in the same proportion as they are in pensioners’ spending. Therefore, increases in fuel and food prices hit pensioners harder.
I am still bemused as to how, in Committee, the Minister was able to tell us that,
“we are not currently expecting widespread, significant and sustained increases in consumer food prices in the coming months”.—[Official Report, 26/10/21; col. 740.]
I do not know what she knows, but the supermarkets certainly are. These price rises are already coming through. They are not yet fully reflected in the CPI, but we know that prices in the shops are going up. And the more that wages go up in this new, high-wage economy where we are encouraging drivers of HGVs to demand more money—which the Government say they deserve—the more this will feed through into increased food prices.
We need to make sure that our pensioners can eat. I do not want to be responsible for pensioners going hungry —or even hungrier than they have been in the past—and I do not believe that the Minister does either. It is imperative that we do what should not be beyond the wit of any Government and come up with a number that approximates effectively to where underlying earnings have gone in the last year. I have every confidence that the ONS can do this. Indeed, CPI is not quite as robust as the Minister would have us believe; it is often adjusted after a few months, or even a year, because a lot of numbers have to be adjusted as new information comes through. We could come up with an adjusted earnings figure which would enable the Government to maintain their manifesto commitment, which I am sure it would really like to do. It would enable the rest of us to ensure that pensioners –those on pension credit, as well those on the basic pension—lead a slightly better life. This is all part of the levelling-up agenda.
My Lords, in speaking briefly in support of Amendment 5, although I also support the other amendments in this group, I will spare noble Lords the full lecture on the use of relative and so-called absolute poverty measures that I gave in Committee. As the Minister completely ignored the point in her response to that group of amendments in Committee, I return to it now. In discussing an assessment of the Bill’s impact on pensioner poverty—which is certainly necessary—we should be clear how we measure poverty.
When mentioning poverty, the Minister constantly uses the so-called “absolute measure”, and no doubt she has been briefed to do so today. I say so-called because it is better described as an anchored measure, anchored to the poverty line in 2010-11 adjusted for inflation, but taking no account of changes in living standards in the intervening period. In doing so, she ignores what has happened using the more commonly used relative measure, which is part of the suite of official measures.
As already noted, pensioner poverty has risen to 18% in 2019-20 compared with 2011-12 when, according to the House of Commons Library briefing on the Bill, it was at an historic low of 13%. We are talking about eight years here, and not the kind of year-to-year change that Ministers argue leads to counterintuitive results if a relative measure is used. This is something which should be of concern to the Government rather than glossed over by playing with statistics. Not least, it should be of concern because, in the past, Ministers have acknowledged the need to draw on the full suite of measures used to compile the Government’s own statistics. Moreover, David Cameron, when leader of the Conservative Party, committed the party to recognition that poverty is relative and to both measuring and acting on relative poverty, reflecting the fact that:
“some people lack those things which others in society take for granted.”
I asked the Minister in Committee what has changed, other than that the Government’s record on poverty looks worse using the relative poverty measure. I would be grateful if she could answer today and undertake to look at why relative pensioner poverty is on the increase. As a first step, she could accept the modest amendment in the name of my noble friend as, like her, I found the Minister’s response in Committee unconvincing. The Minister rightly has a reputation for caring about those in vulnerable circumstances. Does she really not care about the impact of this Bill on pensioner poverty?
I ask your Lordships’ indulgence to make a few observations following events last week, in the context of Amendment 5 on poverty, in the name of the noble Baroness, Lady Sherlock. My noble friend Lady Stroud and I are not pursuing our amendment on universal credit at this time.
I was delighted with the Chancellor's decision to improve work allowances and reduce the universal credit taper to 55%. According to my intelligence, this was very much a last-minute decision. I have always felt that there is a tipping point in terms of encouraging people to work more, and a taper of 55% is much more likely to be near that point than the 65% at which we were forced to start the new welfare system. However, I am much more concerned that the Chancellor did not feel able to improve the standard allowances, which have been eroded by 9% in real terms over the last decade, and which are now too low. There would be no point in an amendment which sought a vote on the standard allowance, since I believe that the Chancellor has done enough to eliminate any risk of rebellion among Conservative Back-Benchers on the issue. I am conscious, also, that Lady Stroud and I have tried the patience of the House by moving an amendment considered inadmissible by the Clerks.
Nevertheless, I sense that a sea change in public attitudes to welfare is now under way. In my account of the traumatic reform of the welfare system Clashing Agendas, I quote Rupert Harrison, the then-Chancellor’s chief of staff, on why the benefit cap was introduced. He told me:
“I know it didn’t make much in the way of savings but when we tested the policy it polled off the charts. We’ve never had such a popular policy.”
That was in 2010. This year, there have been a number of polls showing that most people in the country support extending the universal credit uplift. I do not believe that turn-round in attitudes has been purely because of the perceived meanness of the standard allowance. Universal credit is perceived as a fair and rationale safety net which eliminates the arbitrary nature of the legacy systems.
So, as the Chancellor contemplates the £25 billion of headroom that he is reported to have built into his Budget arithmetic, I urge him to use a small proportion of that figure to alleviate the real hardship being suffered by our very poorest citizens as soon as possible. My three-point recommendation to him is: first, restore the 9% erosion in standard allowances; secondly, tie the standard allowance to average earnings, something that we are debating in the context of pensions right now; and, thirdly, start getting rid of the excrescences such as the two-child policy and the benefit cap.
There is no need for late-night reactive decisions by a UK Chancellor on the shape of our welfare system. One of the clauses that I inserted into the Welfare Reform Act 2012 allows comprehensive trialling by the DWP of all the major elements within universal credit to discover the econometric impact of changes. For instance, the department can discover the exact optimal point of the taper, among many other aspects of the benefit. It may be that the point at which the Treasury makes the most tax and loses the least welfare revenue is a taper of 50%, for example, rather than 55%. The department can test and keep testing as society changes.
I thank my long-time colleague, my noble friend Lady Stroud, for her indefatigable efforts to find a way to help the most vulnerable in our society. Without all her energy and passion, I do not believe we would have achieved the progress that we have.
My Lords, I shall speak to Amendment 5 in the name of the noble Baroness, Lady Sherlock. I thank and pay tribute to my noble friend Lord Freud, who I believe did a huge service in putting his weight behind the amendments last week.
This amendment speaks to the impact that changes to social security have on those who are in poverty, and it is that poverty impact which I want to focus on here. I want to put on record my thanks to the Minister for all that she did to work with the Chancellor to ensure that as we stand here today the universal credit taper rate is being lowered to 55% and the work allowance increased by £500. Those who are doing everything they can to ensure that they and their families work themselves out of poverty will benefit hugely from this budgetary intervention.
However, it goes without saying that, as my noble friend Lord Freud has just alluded to, there is a group who will not benefit from this change: those on the standard allowance, those who cannot work, those with sicknesses and disabilities. It is to that group that this House must now turn its attention. Testing this House with inadmissible amendments late at night is not the business for today, but we need to keep our focus on this issue.
The challenges that we and many across this House highlighted were the rising costs of inflation and rising fuel bills at the same time as the removal of the £20 uplift. The NICs increase will not impact on that group. A new Social Security (Uprating of Benefits) Bill is coming to the House shortly. It will cover universal credit and focus on the annual uprating of universal credit in line with inflation. We have an opportunity to argue that this should be in line with where inflation will be at the time when it is laid rather than where it was in September, in order to protect these households. There is also a fund of £500 million that has gone to local authorities to cover the colder months of the year. That should be ring-fenced and allocated to those who are on the standard allowance and unable to work or, better still, put through universal credit for that group.
Speaking specifically to the amendment, one of the reasons why the Government are struggling to deliver poverty impact assessments on pensioner poverty or working-age poverty is that they have yet to decide how they are going to define and measure poverty. This matters, and it is one of the key reasons why they have so frequently walked into trouble on issues of poverty. If only the Government realised that poverty measurement can be their friend and guide. It could have guided them through their decision-making during the pandemic and through the challenges of free school meals. I have heard it said that this cannot be done in real time, but with RTI we are so much closer to being able to measure real-time impacts and make informed choices to protect our most vulnerable people.
However, today is a day to say thank you to the Government for their investment in the lives of those who are in work and on low wages, but also to ask them to be watchful for the poverty impacts on those who cannot work—those with disabilities, children and pensioners—and to take action where vulnerability is visible.
My Lords, I support these amendments as they support the very poorest and most vulnerable people of pension age, who are going to face the same rising costs of living as everyone else. When we come to group 3, I hope to speak in more depth about what I believe should happen with overall pension policy, but for this group, I want to focus on the most vulnerable.
When I headed up Age Concern England, we ran many campaigns calling for an end to pensioner poverty—a problem that sadly still exists today. Part of the problem is the low uptake of pension credit, something that the noble Baroness, Lady Altmann, has worked tirelessly on, building support across the House. These two amendments would ensure that, at a time when we are likely to face rising prices, our most vulnerable pensioners are supported.
My Lords, as many noble Lords have said today, these amendments are about pensioner poverty. I thank the noble Baronesses, Lady Altmann and Lady Sherlock, for tabling them and for presenting so clearly their purpose.
As others have said, we are often told that pensioners are well off and do not need the protection of the triple lock. Certainly, many pensioners with private pensions are well off by previous standards, but because of this we should not forget about the more than 2 million pensioners living in poverty, many of whom are older pensioners with more severe needs and higher heating costs. These people are dependent on the state pension and it is essential that we protect its value if they are not to be put in even more poverty.
I very much welcome what the noble Lord, Lord Freud, and the noble Baroness, Lady Stroud, have said. I thank them for their campaign and courage, and for the ways they have managed to alleviate some of the suffering due to the inadequate safety net that we have heard described. I am sure that we on this side of the House would welcome the reforms that the noble Lord, Lord Freud, talked about, and the focus of the noble Baroness, Lady Stroud, on poverty and in particular those who have not been helped by the Budget. We look forward to working with them on that.
As many other noble Lords have said, inflation is going to be higher than 3%, if we are to believe all the forecasts. We know that pensioners, and older pensioners in particular, spend more time at home and feel the cold more, and that energy bills are a higher share of their household incomes. In the light of the soaring costs of energy alone, there is good reason to believe that the proposed increase here is not only inadequate but a real-terms cut.
I will speak to Amendment 5, on the impact assessment, which is another that I have signed; the noble Baroness, Lady Sherlock, talked about it, as have others. In our late-night debate on Tuesday, we heard about the failure of the Government to really assess the impact of some of their measures and, in particular, about their use of regulations—from the noble Lord, Lord Hodgson, the chair of the Secondary Legislation Scrutiny Committee. We also heard about the lack of scrutiny of fundamental policy changes which seriously affect people’s lives. I very much hope that the Government will take on board the need for these impact assessments and have positive evidence before we inflict swingeing cuts and policies on large numbers of the population who are, in general, the most vulnerable.
To conclude, I will say a few words about women pensioners, referred to in Amendment 5. Many of us are aware of the injustices suffered by women, many of whom have not had the opportunity to amass a private pension because they have been unpaid carers for many years. Many of these women are dependent on the state pension and are among the poorest pensioners. I hope that the Government will take account of this and act on this injustice, by making sure that we have proper impact assessments and that evidence is brought to us when we are making these decisions.
My Lords, I thank the noble Baronesses, Lady Altmann, Lady Janke and Lady Wheatcroft, and the noble Lord, Lord Hain, for their amendments. These amendments aim to ensure that the standard minimum guarantee is uprated by earnings rather than by CPI inflation. In order to address the Government’s concern that this would entail an increase of 8.3%, they would instead require the Secretary of State to review the rate by reference to a rate of earnings growth, adjusted to take account of the distorting impacts of the pandemic.
As I said in Committee, the Government recognise that the standard minimum guarantee in pension credit is the safety net for pensioners on the lowest incomes. I therefore also understand the concern that the incomes of pensioners in this group should continue to be supported. As has been said, the standard minimum guarantee has always been linked to earnings, originally as a non-legislative commitment and, since 2008, by law. However, it is still the Government’s view that there is no alternative earnings measure upon which uprating can be based that is sufficiently robust. If there were, there would be no reason not to apply it to all the earnings-linked pensions and benefits. There is no adjusted measure of earnings growth that has the status of an official statistic. Instead, the ONS has published a range of possible estimates, which it advises should be treated with caution.
The noble Baroness, Lady Altmann, has suggested that the Government could adopt 5% as a reliable measure of earnings growth. This is the increase in average earnings in 2021 compared to 2020, as forecast by the OBR in its economic and fiscal report. There are two issues with this measure. First, the ONS has, to date, published data only up to August 2021, so the 5% is partially based on forecast earnings for the period September to December; and forecast data, as opposed to historical data, is inherently uncertain and liable to change. Secondly, if we were to take this approach, we would also be changing the reference period for the review from May to July, year-on-year, to the calendar year. This would mean that, for next year’s review, if we reverted to using earnings growth for the year to the period May to July 2022, as we would already have accounted for May to December 2021 in the April 2022 uprating, we would be double counting. To avoid this would mean using a calendar-year measure, partially based on a forecast beyond the current review.
However, the measures that the Government took last year, together with those in this Bill, will ensure that the safety net for pensioners on the lowest incomes more than keeps pace with inflation. Over the two years of the pandemic, it will have increased by more than the increase in prices. It was increased by 1.9% in April 2021, when the CPI for the relevant uprating review period was 0.5%, and it will be increased by 3.1% from April 2022, in line with the relevant rate of the CPI this year. We believe that this strikes a fair balance over the two years between the interests of pensioners and those of younger taxpayers.
On the relationship between the full rate of the new state pension and the single rate of the standard minimum guarantee, which the noble Baroness, Lady Drake, raised in Committee, the Government believe it is right that the contributory state pension should deliver a foundation income above the level of the basic means test. This is not only so that future pensioners know that they will see the full benefit from any additional retirement saving but because, unlike pension credit, there is not the problem of take-up, which, despite the efforts of Governments of all persuasions, has persisted over time and is unlikely ever to match that of the state pension.
In Committee, the noble Baroness, Lady Drake, also made the point that, at other times, the Government have applied cash increases to the standard minimum guarantee which exceeded the statutory minimum earnings. This Bill gives the Secretary of State the same flexibility to go beyond the minimum—in this case, CPI. The “overindexation” of the standard minimum guarantee on earlier occasions was done solely to ensure that those on pension credit did not have the triple lock increase on their state pension clawed back in the means test. That is not the position we are in this year. As we have made clear, this Bill is for one tax year only. After that, the standard minimum guarantee in pension credit will continue to increase at least in line with earnings from 2023-24.
Several noble Lords referred to pension credit take-up, I have written on this to outline the action we are taking with partners and stakeholders to address this very important issue. We are particularly concerned to ensure that people are aware of the guarantee credit, which is the safety net in the pension system and our most crucial lever for bearing down on poverty levels among today’s pensioners.
Of course, pension credit is a gateway to other valuable entitlements for pensioners on low incomes, such as discounts on energy bills, cold weather payments and free TV licences for those over 75. We can make much of these advantages by encouraging people to claim what they are entitled to.
On Amendment 5, I thank the noble Baronesses, Lady Sherlock and Lady Janke, for raising these important issues. I share their concerns about pensioner poverty and about older women in poverty. I assure the House that we are committed to ensuring economic security at every stage of people’s lives, including when they reach retirement.
However, I have to inform the noble Baronesses that their amendment, as it stands, is inoperable. As the Bill takes effect only from April 2022, the data required for a review six months after the Bill’s passing will not be available. In the absence of actual data, the only way to provide an assessment would be to forecast and model how many pensioners might have their income lifted above the various low-income levels under an earnings uprating versus an inflation uprating. Assumptions would need to be made about how an individual pensioner’s income would change in the future under each scenario. This would require making assumptions about, for example, how each pensioner might change their behaviour around other sources of income, such as drawdown of income from investments or a change in earnings when faced with different amounts of state pension, which is virtually impossible to do with accuracy. These projected incomes would then need to be compared to projections of the various income thresholds, which are themselves extremely uncertain. Therefore, there is a very high risk that any analysis seeking to forecast the number of pensioners moving above or below these projected poverty thresholds would be misleading due to uncertainty about the economy and pensioners’ behavioural responses to various levels of state pension.
The department collects and publishes a wide range of data on income and poverty, which are released annually in the households below average income report series. Reports with estimates of pensioner poverty covering 2021-22 and 2022-23 will be published in 2023 and 2024 respectively.
I can, however, announce today that we will publish the impact assessment for the Bill. This sets out information such as key characteristics of state pension and pension credit recipients and impact on protected groups. The Government have been convinced by the arguments made by noble Lords that this document should be made available. I congratulate the noble Baronesses and other noble Peers on their successful persistence in raising the issue. We are now in a position to provide the document in a version that incorporates the measures outlined in last week’s Budget. I will write to noble Peers after this debate with a copy of the document, which we will also place in the Libraries of both Houses.
My noble friend Lady Altmann raised the issue of CPI figures. September CPI was 3.1%; the OBR is forecasting CPI to rise and peak at 4.4% in quarter 2 next year. However, from April to August this year, CPI averaged 2.3%, so the September figure of 3.1% is halfway between the forecast peak and what CPI actually was for the first five months of this financial year.
The noble Baroness, Lady Wheatcroft, spoke about food, fuel and housing costs. Although we are expecting inflation to rise—and clearly a substantial part of this rise will be driven by the temporary rises in fuel costs —it is important to note the facts about what has actually happened to inflation over the last 12 months. Average CPI over the last 12 months has been 1.3%, but food prices actually fell by 0.6% and household fuels increased by only 0.1%. The biggest rises were in transport, at 3.9%, and communication, at 2.4%.
The noble Baroness, Lady Lister, challenged why we use absolute poverty measures. This Government prefers to look at absolute poverty over relative poverty, as relative poverty can provide counterintuitive results. Relative poverty is likely to fall during recessions, due to falling median incomes. Under this measure, poverty can decrease even if people are getting poorer. For example, some think tanks have projected that relative poverty will have fallen sharply in 2020-21 during the pandemic. The absolute poverty line is fixed in real terms, so will only ever worsen if people get poorer and only ever improve if people are getting richer.
My noble friends Lord Freud and Lady Stroud talked about the changes to universal credit, which are more than welcome. I thank my noble friends for their interventions on universal credit and I am sure that their points—and others—will have been heard clearly. In view of my remarks today, I ask the noble Baroness to withdraw her amendment.
My Lords, I thank my noble friend for her response and all noble Lords who have spoken in this important debate. I pay tribute to the noble Baroness, Lady Sherlock, for the way in which she introduced her amendment, and I support Amendment 5 in her name and those of other colleagues.
I would like to put on record that I did not mention any figure in my remarks. That was deliberate: it is not up to me to tell the Government what figure to use to uprate. Is my noble friend saying that the Government are unable to produce an adjusted earnings measure that is rational? A judicial review would have to be based on a figure being irrational. I am sure that my noble friend is deeply uncomfortable about this debate, and I have huge sympathy for her: I know that she cares about the poorest pensioners, as she cares about so many others in our society. But I am really disappointed in the Government’s response and the rationale that they are using.
I will withdraw Amendment 1, but I might return on Amendment 7 in my name. In the meantime, I beg leave to withdraw this amendment and, again, thank my noble friend for her response and all other noble Lords for their supportive remarks.
Amendment 1 withdrawn.
2: Clause 1, page 1, line 6, leave out from “if” to end of line 8 and insert “the Secretary of State had determined that the general level of earnings obtaining in Great Britain had increased by 8.1%.”
Member’s explanatory statement
This amendment would remove the provision substituting “prices” for “earnings” and retain the earnings link for the 2022-23 year by stipulating the Government will assume earnings have risen by 8.1% for the purposes of uprating. This reflects the annual increase in the index of average weekly earnings following the practice adopted by the Secretary of State in recent years.
My Lords, I should first mention a non-pecuniary interest as an unpaid adviser to the National Pensioners Convention. I do not want to detain the House for too long on this amendment, not because it is not important but because I want it to start a debate rather than reach a firm conclusion.
This Bill is about the increase in state pension benefits next April—more specifically, the increases in the flat-rate basic and new state pensions. But I think such a debate makes sense only in the context of what our long-term objective is for these flat-rate elements of the state system.
We are not debating that today but, to nail my flag to the mast, I am moving this amendment to emphasise that I—and I hope other Members of the House—believe that both the basic and the new state pensions should be materially higher than their current levels. As my noble friend Lord Rooker pointed out, we have one of the poorest basic pensions in Europe. That is why I am arguing that when we have a chance to have an 8.3% increase—there was a slip of the pen; it says 8.1% in the amendment, but it should be 8.3%—we should take it as a step towards that goal. The Minister has not said that we cannot do it because of financial or technical difficulties, so I feel that while we have this chance to move towards a higher flat-rate state pension, we should take it.
Quite apart from the case that has been made and will be made today for urging the Government to stick by their freely given promise to protect the triple lock, I believe that a substantial increase is needed in any event. In saying so, I am not debating the triple lock. This is about the appropriate ultimate level for both the basic state pension and the new state pension, a debate which has largely been avoided.
I want to repeat the words of my noble friend Lady Drake, who said in Committee that the job of the triple lock is
“to recover from … years of decline against earnings—a sort of accelerator, to get back to a reasonable comparative position.”—[Official Report, 26/10/21; col. 729.]
My question is: what is the reasonable comparative position for the basic state pension? I am going to dodge the issue of how it will be paid for and what it will cost, except to say that I have no problem with arguing that there should be higher taxes on those with the broadest shoulders, looking in particular at the taxation of capital and interest. I also believe that we should restore the Treasury supplement. It is still there in legislation, and it could be used to deliver what I believe would be an adequate flat-rate state pension.
To answer my question, I believe that we need a new pensions commission to settle the issue of what the basic state pension should be and how it should be paid for. Of course, we can look back to the original Pensions Commission and its report—now 16 years ago—which was effectively asked to look at earnings-related pensions. But the commission came to the conclusion that there is no point looking at what earnings-related pensions delivered unless you also look at the flat-rate state pension. I think we are now in the opposite position. We have learned, with the introduction of automatic enrolment, what private earnings-related market-based pensions can deliver, and we need to extrapolate back from that to decide what the state should provide so that the two together deliver adequate pensions.
The level of the state pension was outside the strict remit of the original Pensions Commission but, as it made sense to discuss the two together, its figures were broadly based on a flat-rate pension of something like 30% of median earnings. What that suggests in current terms is a flat rate of something like £184 per week, which, in truth, is not that much short of what the new state pension will be following the increase next April. The problem is that we have learned, since 2005, that there should be a greater role for the flat-rate pension. The picture we had back then was somewhat rosy; we have since seen what private pensions can deliver: lower interest rates, the structural difficulties that we have experienced, mini pensions and market-based pensions. In addition, there has been a lot more work on what constitutes adequate living standards for pensioners.
I turn to the views of pensioners themselves. The National Pensioners Convention has a policy of basing its pension target on the national living wage rather than median earnings; I think there is much in that approach. It also believes that the basic pension for a single person should be 70% of the living wage. The living wage is what the Independent Living Wage Foundation established as providing an adequate standard of living. The pensioners’ suggestion of 70% of that is, perhaps, is a bit on the modest side. In cash terms, it is £232 pounds a week, significantly above the new state pension.
Other people have been working in this area too. The Pensions and Lifetime Savings Association has a figure for a minimum acceptable income of £210 per week and suggests that a moderate level would be £400 a week. I would go for a figure somewhere between the two. There is also the real Living Wage Foundation. Most of the work that it has done and gets the publicity for concerns the living wage—it has now had to retitle this the “real living wage” as the term living wage got nicked by somebody else—but it also produces figures for the real living pension; it suggests that this should be 70% of median earnings.
There is now this wide debate on what the state flat-rate pension should be; I want to see the debate take place. Given what I have quoted today, 8% or so this year seems reasonably modest as a step towards achieving that figure while moving towards a long-term objective. We need a new pensions commission to tell us what that figure should be. I hope that the Government agree that this is an issue they need to address, and that they will commission work and arrive at some sort of objective for the flat-rate pension. Part of the problem we have in today’s debate is that we are discussing the increase, not the target.
My Lords, if Amendment 2 is agreed to, Amendment 3 will not be called due to pre-emption.
My Lords, I support my noble friend Lord Davies of Brixton and his detailed remedy for future problems, and the call for an 8.1% increase in the state pension. DWP has not given us the median numbers, but the pre-2016 average or mean state pension is £155.08 while the post-2016 figure is £164. 23. It seems that the older you are, the lower the pension you actually get.
Discrimination against senior citizens is built into the system itself, which is wrong: 8.1% of that tiny amount is very small. A correspondent who contacted me from New Zealand said, “In New Zealand Super, there is a phrase that at 65, you get 65—at 65 you retire and you get 65% of average wage.” That is at least two and a half times more as a fraction of average wage than it is in the UK, where it is impossible for anyone really to live on it.
We have heard from many Members of your Lordships’ House that the state pension is the only or main source of income for many, many people. I do not know whether Ministers speak to ordinary people to hear their experiences of trying to manage poverty. I will read out just one message that I have received from a senior person: “I am struggling to pay my rent, buy food and pay for gas, electricity and water. TV is my only source of company and the government is now taking that away too. I can’t afford to buy a TV licence. It would be better for me to go to prison. At least I will be warm and I will also be fed.”
Earlier, the Minister rattled off a whole range of pension benefits that people can collect. Will she tell the House how a 75 year-old with no TV for company, with one heating bar in a room, with no access to the internet and with her local library shut, gets access to those benefits and asks for help? I should be very grateful if she can describe to the House how that person can make ends meet on this meagre state pension.
We have institutionalised poverty in this country and the voice of the poor is not being heard, so I fully support my noble friend’s call for a pensions commission. However, people cannot wait for that. We need an 8.1% increase now.
My Lords, my apologies: I was too slow to leap up. I thank my noble friend Lord Davies for introducing his Motion and thank all noble Lords who have spoken. As I said in Committee, I think we all share an underlying concern, which is about the living conditions of pensioners—particularly poorer pensioners—in our society. I will not rehearse our debates on pensioner poverty, but I am grateful to my noble friend Lord Davies for opening up the question of a strategic approach to the state pension.
The assumption had been that the state pension, old or new, was the basis, or the foundation, of developing retirement income and that any private provision would be on top. Given that we have rising levels of pensioner poverty now, and looking across the landscape of current saving rates on auto-enrolment, are the Government confident that this strategy is working and that people will have adequate income in retirement on the basis of the figures that she is seeing? I should be interested to hear her response to that.
My noble friend Lord Sikka again mentioned the question of people who are struggling. We are very anxious about the cost of living facing pensioners in the difficult months ahead, which is why I very much hope that the Government are tackling pensioner poverty in the ways that we have discussed.
Taking my noble friend Lord Davies at his word, he did not in fact raise this with the intention of pressing the Government for 8.1% now but to raise the broader questions. I hope the Minister will take him on that basis and give him a response that will help to answer the kind of questions he has raised.
I apologise for being even slower to rise. I will not detain the House long. I would just like to echo and support the calls for a wider review of state pensioner support. That is long overdue. Perhaps this debate will produce a willingness at the department to look again at all the elements of the way we support pensioners in this country.
My Lords, I thank the noble Lord, Lord Davies, for his amendment. I understand his passion for retaining the link between state pension uprating and earnings growth. This passion applies even in the exceptional circumstances generated by the Covid-19 pandemic, when earnings declined by 1% one year then rebounded by 8.3% the next. By contrast, the Government increased the state pension by 2.5% last year and intend to do so by 3.1% this year. This is in view of protecting the value of the state pension despite a decline in earnings last year, protecting its purchasing power next year and having due regard to the current fiscal situation and the effects on younger taxpayers. The Bill, therefore, replaces the link with earnings for one year only with a requirement to increase these rates at least in line with the increase in prices or by 2.5%, whichever is higher.
It has been agreed by many in this House and the other place that 8.3% is an anomalous figure distorted by the slump of wages at the start of the Covid-19 pandemic and by the effects of millions of people moving off furlough back into work. The noble Lord’s suggestion of 8.1% would generate a cost of more than £4.25 billion in the year April 2022-23, relative to increasing the state pension in line with the provisions in the Bill. The Government do not believe it would be fair to younger taxpayers to increase these rates by such a high percentage on top of the 2.5% increase last year, when earnings slumped by 1% and inflation stood at 0.5%. After this year, the legislation will revert to the existing requirement to uprate at least by earnings growth, as per the Government’s triple lock manifesto commitment, and it still remains in place.
The noble Lord, Lord Sikka, raised the issue of how pensioners can access their entitlements. Noble Lords will see with the letter that has gone out today that we are committed to making sure that pensioners can access their full entitlement under pension credit. The difficulty seems to be persuading them to make a claim. We offer various ways of accruing benefits, including by telephone and post. Where necessary, the department can offer home visits. We also work with partners and stakeholders such as Age UK to help people claim, and we will continue to do so. I therefore ask the noble Lord, Lord Davies, to withdraw his amendment.
I do not think the Minister really responded to my request to initiate a debate about the structure of pension provision. But I am not going away. I will raise this issue at every opportunity, and I hope that at some stage we will be able to have a productive discussion about what to me is the key issue. The technical details of the uprating basis are important but the structure is crucial. With the leave of the House I will withdraw my amendment, but the issue is not withdrawn.
Amendment 2 withdrawn.
3: Clause 1, page 1, line 7, leave out from the first “of” to end of line 8 and insert “earnings obtaining in Great Britain, as adjusted to take account of the exceptional impact of the COVID-19 pandemic on the level of earnings.”
Member’s explanatory statement
This amendment is intended to maintain the link between pension uprating and earnings but requires the Secretary of State to make adjustments that are considered appropriate for distortions in the traditional ONS Average Weekly Earnings figures, which were caused by the exceptional pandemic effects and Government measures on the labour market.
My Lords, I rise to move Amendment 3 and give notice that I intend to divide the House on this amendment. I am enormously grateful for the support of colleagues across the House, including the noble Baronesses, Lady Wheatcroft and Lady Janke, and the noble Lord, Lord Hain. I am, of course, grateful to my noble friend and the officials who have engaged with us over the past weeks on this Bill. However, I still believe that these amendments are necessary. Amendment 3 would retain the earnings link uprating for the state pension triple lock rather than removing it as the Bill proposes.
I appeal to noble Lords on these Benches, as well as across the House, to recognise that these amendments are seeking to protect a solemn manifesto commitment made at the 2019 general election. Amendment 3 would preserve the important social security principle and the triple-lock promise of protection for the basic and new state pensions against rises in average earnings. Amendment 4 is consequential on Amendment 3. It was accepted by the Whips yesterday but, if the Minister does not agree, I ask her to confirm that and explain why she might not accept it when she responds. It would permit the Secretary of State to adjust the traditional average weekly earnings statistics produced by the Office for National Statistics, which have been used for uprating in past years, for the effect of the pandemic, which has upwardly biased the figures.
This Bill was perhaps not necessary. In the Social Security Administration Act 1992, which we are being asked to revise through the Bill, Section 150A (8) explicitly allows the earnings statistics to be adjusted. The legislation states that when reviewing how to uprate the state pension each year:
“the Secretary of State shall estimate the general level of earnings in such manner as he thinks fit.”
So this is not a question of having to use the 8.3% earnings statistic.
When Members of the other place voted on this Bill to abandon the manifesto pledge to 12 million citizens, they did so on three bases which I believe are flawed. First, they were led to believe that no alternative was available to using the 8.3% figure but, as I have just demonstrated, the Act would permit that in any case. However, to be helpful, we have laid Amendment 4, which explicitly states that, for the year 2022-23, should the Government believe that the earnings figures are distorted, they may adjust for the effect of the pandemic.
The second basis was that the other place was told that the 3.1% figure would still protect against rises in the cost of living. Indeed, when summing up, the Minister said that the so-called double lock of CPI or 2.5%
“will ensure that pensioners’ spending power is preserved and that they are protected from the higher cost of living”.—[Official Report, Commons, 2/9/21; col. 86.]
This also does not stand up to scrutiny. Since that debate, the inflation outlook has significantly deteriorated, but on further examination it is clear that September’s 3.1% CPI figure was downwardly biased by the effects of the pandemic. For example, there was a sharp fall in hotel and restaurant costs, as well as in household services, which hardly form a major part of most pensioners’ budgets. In his Budget speech, the Chancellor said that inflation in September was 3.1% but is likely to rise further. The OBR said:
“We expect CPI inflation to reach 4.4 per cent next year”
warned that it could peak at close to 5% and added that
“it could hit the highest rate seen in the UK for three decades.”
That is around 7.5%. Last month, gas and electricity bills rose by 12%. Food prices are rising, and the OBR warns of a further rise in the energy price cap next April. Yes, this is for one year only, but what a year to choose to do this, while older people are facing a cost-of-living crisis and the protection that they were relying on is being removed.
The third basis was that not doing this would cost £5 billion per year and that earnings fell last year, but pensioners received a 2.5% rise, so they will have money taken from them next year as some kind of payback. Using an adjusted figure would still save several billion pounds relative to the £5 billion cost. But after seeing alcohol and fuel duty cut in the Budget and the bank surcharge allowance raised, and adding up the amount of Exchequer savings that those measures entail, half the cost of not honouring the triple lock will cover the costs of just those three measures. I appeal to noble Lords across the House: is this really the country that we believe that we should be living in? Is that the priority for public spending?
This is also a perfect example of our role. If we are scrutinising legislation that has come over to our House and which we believe that it is flawed, that it was perhaps passed through on a false premise, or if circumstances require us to send it back for reconsideration, is that not precisely what we should be doing? Twelve million citizens depended on that commitment. We have a chance to ask the other place to reconsider, perhaps in the light of updated information. I hope that noble Lords across the House can support this.
My Lords, as no one else is getting up, I will. I support Amendments 3 and 4 and congratulate the noble Baroness, Lady Altmann, on her tenacity in pressing this issue.
I have made it clear at each stage of the Bill that, while questioning the rationale for the triple lock, I strongly support the double lock that links pensions to earnings or prices as crucial to maintaining or hopefully even improving pensioners’ living standards. If under the triple lock it is possible to raise pensions by the arbitrary figure of 2.5% in some years, I do not understand why what is proposed in the amendments is deemed to be not sufficiently robust by the Government. I have yet to hear a convincing response to the very strong case made by the noble Baroness, Lady Altmann, nor have I received any letter from the Minister today. I have just checked my phone, and nothing has come through.
If, despite assurances to the contrary, and when an alternative that did not use the 8% figure was clearly available, there was a jettisoning of any earnings link, it is not surprising that this has given rise to fears that the link could be scrapped at some future point, just as it was in 1980. As has already been pointed out, the case for maintaining some form of earnings link, in line with the amendment, is all the stronger given the anticipated increase in inflation. Many people on low incomes—pensioners and others—face a bleak winter, especially if inflation rises as high as 5%, as predicted by the Bank of England’s chief economist recently—and that is before taking account of the differential impact of inflation on those on low incomes, for whom fuel and food represent a disproportionate proportion of their budget, as noted already. They will struggle during the winter months without any additional help with fuel, as called for by National Energy Action, and when they finally get their uprating next April, it will not be enough to compensate. While it is very welcome that the Government have finally agreed to produce an impact assessment of the Bill, it is a shame that we have not got it to inform our debate today.
Echoing what I said in the first group of amendments, I hope that, despite what she said earlier, when responding to these amendments, the Minister will not once again trot out the statistics based on the so-called absolute measure of poverty, when she knows full well that pensioner poverty, on the relative measure, is on the rise over a longish time period. Rather than avoid the issue of pensioner poverty, as it is experienced relative to the rest of society, the Government should be working to prevent a further increase. This amendment provides them with a means of doing so.
My Lords, I would first like to apologise to your Lordships’ House for being unable to speak on the Bill at Second Reading and in Committee due to direct participation in Select Committee work. I am very pleased to follow my noble friend Lady Lister and to congratulate the noble Baroness, Lady Altmann, on bringing forward these cross-party amendments.
Although we in Northern Ireland make our own social security legislation, in all instances it replicates legislation here because the money comes from here. I look across the Chamber at the noble Lord, Lord Dodds; he and I were former Ministers in the Northern Ireland Executive with responsibility for pensions and all social security matters. We may have had the flexibility to bring in slight amendments, but we had to adhere strictly to the principles and policies because of the issue of parity.
I am pleased to support these amendments because, like my noble friend Lady Lister, I believe that pensioner poverty is deepening. In Northern Ireland, I see it day in, day out; people—particularly pensioners, many of whom have paid in over their lifetime’s work through national insurance contributions and tax—now find themselves reliant on the use of food banks. To say the least, the pandemic has worsened their situation; it has made mental illnesses more acute and people are unwell, and they also have less money for important items such as foodstuffs, which they require to survive.
I support these amendments because they are important for protecting pensioners, including the poorest, in line with an earnings figure that is adjusted for pandemic distortions. Protecting women and those who are the poorest in our society should be a mandatory obligation on all of us. There is a duty of responsibility to reject the proposal to remove the triple lock pension system. I say to the Minister and the Government Front Bench that this decision will impact most on those women who find themselves in the greatest level of poverty, who have already been subject to their entitlement to a pension dropping from the age of 60 to the age of probably 66 or 67, as per the Pensions Act 1995 of this Parliament.
I am therefore very happy to support these important amendments. There is a duty of integrity to protect all parties’ manifesto commitments and to amend the uprating Bill to ensure that all pensioners—people who have provided for all of us—are duly protected in the best financial way.
My Lords, I put my name to these two amendments for all the reasons that have just been outlined by the noble Baroness, Lady Altmann, and others who have spoken. It seems absolutely the right thing to do, on behalf of 12 million pensioners, to ask the other place to think again, after it spent just two and a half hours considering how to penalise 12 million people in this country.
It is only right that the link to earnings which was part of the manifesto promises should be preserved. In 1979, the Government of Margaret Thatcher abandoned that link. It was restored again in 2011, but the effects live on and, today, pensions are still below their relationship to earnings in 1979. The argument that this is a one-off does not hold water.
I will not repeat the argument that I used in the first group of amendments, save to say that this is not the time when we should make our pensioners poorer; when we can afford, apparently, to make bankers richer, and enable them to drink more champagne as they fly on short-haul flights in the UK, we really need to think again about whether pensioners should be made poorer. Make no mistake about it: the way inflation is headed, pensioners will be poorer.
The Minister talked about the CPI, but she was looking backwards. It is no good telling pensioners what prices have been; when we are talking about the money they will get in the future, the conversation needs to relate to where prices are going. Prices are going up much faster than the rate by which we are talking about raising pensioner income. For those reasons, it is absolutely right that this House should ask the other place to think again.
My Lords, I support the amendment in the name of the noble Baroness, Lady Altmann. I share with her the many years that we have been working on these issues, and I am anxious that we get the balance right on pension policy.
Amendment 3, which would restore the link between pension uprating and earnings, is essential. This link was removed back in 1980. It resulted in many years of pension rates failing to increase at the same rate as average earnings. At that time, I was at Age Concern England, where we ran campaigns calling for an end to pensioner poverty and for the link with wage movement to be restored. Sadly, when this link was finally restored, in 2011, it was done as part of the triple lock, whereby pensions would increase by average earnings increases, inflation or 2.5%, whichever of the three was the higher. For the last decade, wage movement has been stagnant, and the rate of inflation also quite low. At a time when wages were not increasing, we called on workers to pay for the triple lock, creating, in my view, intergenerational unfairness.
At Second Reading, I spoke about the Intergenerational Fairness Forum report, which made a number of recommendations, including that the triple lock be replaced with a double lock, whereby pensions increase at the rate of average earnings or inflation, whichever is the greater. I refer to my interests as stated in the register, and in particular to my role as president of the Pensions Policy Institute. In 2019, this organisation released a report entitled Generation veXed, which found that people born between 1966 and 1980, who entered the workforce before automatic enrolment and who have worked during a challenging economic climate, have poorer levels of retirement savings when compared with the generation that went before them. This Generation X cohort have been asked to fund the current triple lock, while their ability to save for their own retirement has been, sadly, rather poor.
Retirement policy requires a balance and should not change with each electoral cycle. The situation we find ourselves in today, with the Covid-19 pandemic, is that the Government expect significant wage movement. Of course, this is due not only to the pandemic; it is due also to rising prices caused by Brexit, which will put pressure on employers to increase wages.
Amendment 3 would ensure that the link between pensions and earnings was retained, but it would allow the Secretary of State to make adjustments in situations like the one we face this year. I support the amendment as a sensible solution to the situation we are facing at the present time, but I reiterate my belief that, in future, we should abandon the triple lock and specifically the 2.5% uplift, and instead have a double lock based on earnings and inflation. If in future there is concern that earnings are again not increasing, rather than implement a 2.5% increase for pensions the Government should instead look at their economic and employment policies to ensure that earnings and pensions are both increasing at a decent rate.
My Lords, I support the amendments in the name of the noble Baroness, Lady Altmann. As I made clear earlier, I am in favour of a somewhat greater increase, but I am glad to have whatever is available. I want to make two additional points.
First, there is a lack of trust in the Government. The one way in which they could assuage that lack of trust is by accepting the noble Baroness’s amendment. They really need to explain to us what the downside is of accepting the amendment. One can understand that they do not want to do it, but they need to tell us the disadvantages of adopting the approach.
My second point is a sort of response to the noble Baroness, Lady Greengross. Characterising this as between generations is a category mistake. It is between people on low incomes and people on high incomes; it is between people without much money and people with wealth. That is the redistribution required. To characterise it in terms of generations is simply wrong.
My Lords, I again thank the noble Baroness, Lady Altmann, for all her work on this issue and the comprehensive briefing that she produced—it must have taken her a very long time, but it was extremely interesting. The issue of the uplift is cogently challenged by her presentation. I know that support for the triple lock has been from all parties in this House, but we are told that it must be suspended for another year in view of the anomalous rise in average weekly earnings, as presented by the Secretary of State in the other place. As the noble Baroness said, there was little scrutiny there. Not only that, but since the Bill went through the other place, lots of developments have occurred, such as a massive increase in energy prices, pressures on supply chains and inflation predictions, which together seem a strong reason for reconsideration of the decision taken. Having signed the amendment, I too will support it today and hope that it succeeds for that reason.
As the noble Baroness has pointed out, the rise in earnings is distorted by the economic impact of the pandemic. There is a way for the triple lock to be retained, as there are ways of allowing for the impact of the pandemic on the increase of average weekly earnings, as she has referred to in her paper. These adjusted figures are used by others, including the OBR and ONS, and are recognised as being a much more realistic basis for analysis of other economic indicators.
As many noble Lords have said during our debates on this Bill, it is essential that the triple lock continues. I will certainly speak with the noble Baroness, Lady Greengross, afterwards to hear her reasoning behind the point she made today. If we are not to lose value from the state pension, as has happened since 1979, future generations of pensioners will have even more need of a state pension that has kept up with living costs, as today many young people have no private pension provision at all.
We have all expressed that we are unhappy that pensioners are not being protected from imminent steep rises in living costs. As the noble Baroness, Lady Lister, said, they will face a bleak winter unless we can get this decision reconsidered. The Budget took no account of this and again leaves pensioners threatened with a crisis in the coming months. On the contrary, the Government have used this measure as a means of saving; dropping the triple lock and using 3.1% saves the Treasury £5.4 billion, £5.8 billion and £6.1 billion in the next three years. Yet again, as we have said in this debate, the UK has the lowest state pension in Europe, and it is still below 1979 levels in relation to earnings. In 2020 it was only 19% of average earnings, whereas it was 26% in 1979.
I very much support the alternative approach of the noble Baroness, Lady Altmann. I think most of us here agree that what is proposed in the Bill is woefully inadequate. I hope that all Members of this House will support this amendment and send it back for MPs to think again.
My Lords, I thank the noble Baroness, Lady Altmann, for explaining her amendments, and all noble Lords who have spoken. I welcome my noble friend Lady Ritchie to the debate and thank her for sharing her perspective on Northern Ireland with us and the position of women. That was very helpful.
We had a good discussion at earlier stages of the Bill about the way the Government have gone about finding an alternative to the triple lock which will deal in some way with the impact of the pandemic on earnings data. As the noble Baroness, Lady Janke, has just indicated, I do not think many of us are very happy with where the Government have landed; I think that is safe to say. I will not rehearse all the arguments from Committee, but I am going to summarise them because noble Lords have made some very important points about poverty. There is an additional dimension to this amendment about the question of principle.
The Government came to power on the back of a manifesto commitment to the triple lock. Labour also supported the triple lock at the last election. Therefore, for all of us, the starting point is that the triple lock should apply. We on these Benches accept that the earnings growth data have been distorted by the effects of the pandemic directly, and the effects of the furlough scheme and changes in hours. But that does not mean the Government should just ditch their manifesto promises.
As my Commons colleague, the shadow Pensions Minister Matt Rodda MP put it at Second Reading:
“At the very least, Ministers should maintain an earnings link, explain their decisions, offer binding commitments to protect the triple lock and protect the incomes of less well-off pensioners.”—[Official Report, Commons, 20/0/21; col 63.]
Well, quite. Both in the Commons and in this House, Labour has made clear its view that the Government should have found a way to deal with this that maintained the earnings link. The importance of the earnings link has been very well explained by the noble Baronesses, Lady Wheatcroft and Lady Greengross, my noble friend Lady Lister, and others.
But how should that be done? In the Commons, Labour suggested using an average rise in earnings over a longer period of time. In this House, I first suggested that to the Minister not in this Bill but in the passage of the Social Security (Up-rating of Benefits) Act 2020. That was the emergency Bill designed to deal with the fact that earnings were negative last year, therefore something had to be done to uprate it. This year in Committee, again I raised the question of why the Government did not smooth the effects over two years, but I got no satisfactory answer and I accept that time has moved on. So where does that leave us?
The Government will say that we cannot pin down precisely the size of the pandemic effect on earnings growth. That is true, but the best we have is the work that the ONS has done. Its modelling stripped out the two main things: the base effects and the compositional effects. If noble Lords will forgive me for “nerding” for a moment, I will explain them.
The base effect is essentially that, a year earlier, people were on furlough and worked fewer hours; when you measure earnings a year later, more of them have gone back to work and are on full hours, so earnings appear to have jumped a lot. That is one effect. The compositional effect is a change in the composition of the workforce—people on lower incomes were more likely to lose their jobs in the pandemic.
The ONS modelled stripping both of those effects out to try to get a figure for real underlying earnings growth across the year to use as a reference point. It came up with a range for that underlying growth. The Government do not like it because they think it is not robust enough to use as a measure for uprating earnings. If they do not like those figures, I suggest that it is up to the Government to go away and find some other way to show that the earnings link is being maintained. Amendment 3 does not specify any figure, and Amendment 4 merely says that the Government should use a figure for earnings chosen
“in the light of reasonable adjustments to take account of the impact of the COVID-19 pandemic based on the Office for National Statistics reported earnings figure.”
In the Commons, my colleague, the shadow Work and Pensions Secretary, Jonny Reynolds, said:
“I do believe there is a need to maintain the value of the state pension and the objectives of the triple lock are ones we should keep to”.—[Official Report, Commons, 20/9/21; col. 84.]
That is the problem with the Government’s approach in a nutshell. Their proposals in the Bill mean stepping away from the fundamental principle that pensions should keep up with earnings. They also breach the manifesto commitment to the triple lock, which, as my noble friend Lord Davies said, is a breach of trust with the electorate—that is the third, coming after the cut in overseas aid and the national insurance rise. There must be a better way than this, and this amendment directs the Government to find it. If they do not like this wording, they can bring back an amendment in lieu.
I realise that the Bill needs to be on the statute book by 26 November, for reasons to do with IT, but that is more than three weeks away. The Government managed to get the whole Bill, in all its stages, through the Commons in a few hours, so I do not believe it is beyond their wit to be able to come up with an alternative and come back to the House in due course.
For us, this is a matter of principle. It is not just about the amounts of money. That is why we are supporting this amendment, specifically on the earnings link for the state pension. The Government should find a way to keep their manifesto promise and maintain the earnings link, and to do so in an appropriate way. I hope the Minister will accept it.
My Lords, I thank the noble Baronesses, Lady Altmann, Lady Janke and Lady Wheatcroft, and the noble Lord, Lord Hain, for their amendment. The Government’s reasons for not adopting an altered measure of earnings have not changed. That includes the unacceptable level of risk that would be attached to changing the definition of earnings using the current legislation. I remind your Lordships again that the cost of failing to secure Royal Assent to this Bill by mid-November would be in the range of £4 billion to £5 billion.
I very much understand my noble friend Lady Altmann’s concern about a temporary suspension of the earnings link, for all the reasons she and others have so eloquently outlined. But the fact remains that the figures quoted from the Office for National Statistics have no official status and have been taken from a blog that the ONS published, alongside the usual earnings statistics, first in July this year and then in subsequent months.
The key reason why the Government cannot accept this amendment is that the ONS figures are just not robust enough to form the basis for an uprating decision. This is best demonstrated by two quotes from the ONS:
“The blog explains that there are a number of ways you can try to strip out these base effects, but there is no single method everyone would agree on. We have tried a couple of simple approaches. Neither approach is perfect … Our calculations of an underlying rate are there to help users understand base and compositional effects, but there remains a lot of uncertainty about how best to control for these effects, so they need to be treated with caution.”
Using a range of possible estimates based on a method that cannot be agreed on does not provide a sufficiently robust basis for making critical decisions about billions of pounds-worth of expenditure.
A further point is that the ONS has calculated its range of adjusted underlying earnings growth for a measure of regular pay. The usual measure of earnings used for uprating is total pay, which is regular pay plus bonuses, because this gives a more complete picture of earnings, as bonuses can play an important part in earnings. There are no such problems with CPI inflation, which is a robust national statistic and provides a clear and sound basis for this year’s uprating, with no need for any complex adjustments.
I must remind the House that this Bill is for one year only. From 2023-24, the legislation will revert to the existing requirement to uprate by at least earnings growth, and the Government’s triple lock manifesto commitment remains in place.
Finally, I point out that, if a percentage of 3.1% or more is applied in 2022-23 to the current rate of the basic state pension, this would mean that the full yearly rate will have increased since 2010 by £570 more than if it had been uprated by prices; that is over £2,300 pounds more in cash terms. In addition, people over state pension age are entitled to free winter fuel payments worth £2 billion every year, free eye tests and NHS prescriptions worth around £900 million every year, and free bus passes worth £1 billion every year.
My noble friend Lady Altmann talked about the cost-of-living crisis in relation to energy and inflation. Ofgem’s energy price cap has protected consumers from the recent fluctuations in wholesale gas prices. Millions of low-income households will be supported with the cost of essentials through the £500 million household support fund. This builds on the £140 warm homes discount, which helps 2.2 million low-income households with their energy costs, and the winter fuel payment, which provides £200 toward energy bills for households with a member at or above state pension age and £300 for households with a member at or above 80 years old.
The noble Baroness, Lady Lister, talked about not receiving a letter. I am assured that the letters have gone out. If, by the end of this debate, she still has not received one, I hope she will let me know and I will make sure this is rectified. I say the same to everybody in the House: I am sure that those letters have been sent. In the light of my remarks, I ask the noble Baroness to withdraw her amendment.
My Lords, I thank my noble friend for her response and all noble Lords who have spoken in this debate. I totally agree with the noble Baroness, Lady Sherlock, that this is a matter of principle. The noble Baroness, Lady Janke, and my noble friend Lady Wheatcroft talked about inflation pressures, which have risen significantly, making 3.1% clearly a real-terms cut in the state pension. The noble Baronesses, Lady Greengross and Lady Lister, talked about the historic precedent of removing the earnings link and the danger of setting that precedent to the rise in pensioner poverty. The noble Lord, Lord Davies, spoke about lack of trust. The noble Baroness, Lady Ritchie, talked about poverty, particularly for older women, and the impact in Northern Ireland.
The response to this is that we would be running an unacceptable level of risk in producing adjusted figures. The Minister is being asked to tell the House that there is no method that everyone could agree on; that no method is perfect, and therefore we will not do anything at all. That is not required for us to send this legislation back or to avert a legal challenge. Indeed, Amendment 4 explicitly tries to deal with that.
The state pension will always be a call on younger taxpayers and, with an aging population, it will always be a tempting target to raid. But the state pension is the basis of the majority of pensioners’ income in retirement, and it is part of the social contract in our welfare state, on which our society is based. It underpins the national insurance system. If we break that contract, even supposedly for just one year, I believe it will be setting a seriously dangerous precedent. Pensioners are not a cash machine for Chancellors to take money from when wanting to fund other projects or tax cuts elsewhere, especially not in the eye of a cost-of-living storm. I apologise to my noble friend, but I do not accept the responses that she has been asked to give us. I therefore want to test the opinion of the House.
4: Clause 1, page 1, line 11, leave out paragraphs (a) to (e) and insert “in subsection (2), at the end there were inserted “in the light of reasonable adjustments to take account of the impact of the COVID-19 pandemic based on the Office for National Statistics reported earnings figure.””
Member’s explanatory statement
This amendment is consequential to the amendment at page 1, line 7.
Amendment 4 agreed.
5: Clause 1, page 2, line 11, at end insert—
“(3) Within six months of the passing of this Act, the Secretary of State must publish a review of the impact of this Act on pensioner poverty.(4) The review must examine, but is not limited to, the impact of this Act on women.(5) This review must be laid before both Houses of Parliament, and a Minister of the Crown must arrange to make a statement.”
My Lords, on Amendment 5, I thank the Minister for having listened to our representations on the impact of this Bill and for agreeing to publish an impact assessment. I would have preferred to have had a chance to read it before making a decision. However, given the Minister has moved on this issue, I accept her assurances and will not press my amendment. I should warn her that we shall keep coming back to the matter of pensioner poverty, so I hope that the Government have plans to tackle this in the longer term. For today, I thank her and shall not press my amendment.
Amendment 5 not moved.
6: Clause 1, leave out Clause 1
My Lords, I first congratulate the noble Baroness, Lady Altmann, on winning her vote, which is a great achievement for so many people out there. I declare my interests in the Members’ register: I am an unpaid adviser to the Tax Justice Network and the people’s panel for the Convention on the Elimination of All Forms of Discrimination against Women.
I thank the noble Baroness, Lady Bennett of Manor Castle, and my noble friend Lord Davies of Brixton for supporting this amendment. I am also grateful for the support of the National Pensioners Convention, Silver Voices, the BackTo60 group and many other civil society organisations, as well as the thousands of pensioners who have written to me to support my amendment.
The amendment in the name of the noble Baroness, Lady Altmann, goes only so far. I am seeking a full 8.1% increase for our retirees, which is consistent with the commitment the Government gave in their election manifesto that
“We will keep the triple lock”.
All we have heard since is why the Government will not keep their pledge. They say things like, “It is temporary” or “We can’t afford it”, but I will debunk all those claims in a moment. Clause 1 is also contrary to the Government’s levelling-up agenda. Rather than levelling up, it impoverishes citizens and condemns millions of current and future retirees to a life of poverty and misery. There is no moral or economic rationale for this; indeed, none has been offered by any Minister so far.
The Government’s own statistics, published on 3 September 2021, say that the average weekly pre-2016 state pension is £169.21 for males, £141.98 for females, and the overall mean is £155.08. The average weekly post-2016 pension is £166.34 for males, £160.11 for females, and the overall average is £164.23. As we can see from these figures, women are especially impoverished by the way that pensions are calculated and paid. They will be hit even harder by the abandonment or, as the Minister might say, the temporary suspension of the triple lock.
The state pension is the main or sole source of income for the majority of retirees. As I have said before—I have not had any volunteers—I doubt that any Minister could actually live on that, even if this pension was to increase by 3.1% next April. Retirees have for far too long been neglected by successive Governments. Governments have taken away the right to a free TV licence for over-75s. They took away the earnings link in the 1980s, and they are taking it away again. Today, the average state pension is around £8,000 a year and only roughly 25% of earnings, and it is the lowest in the industrialised world. The full state pension—which the Minister has referred to a number of times in debates this week and last week—of £9,350 is received by only four out of 10 retirees. Some 2.1 million pensioners receive less than £100 a week, and most of those are women. Many are unable to negotiate the maze of benefits which they may well be entitled to; they are simply not really claimed.
In OECD countries, the state pension is nearly 60% of average earnings. The EU average is close to 63%, as was pointed out last week. There is a long list of countries that take better care of their retirees than the UK, including the Netherlands, Portugal, Italy, Austria, Spain, Denmark, France, Belgium, Finland, the Czech Republic, Sweden, Canada, Germany, the USA, Norway, Switzerland, New Zealand, Australia, Ireland, Chile, Japan, Poland, Mexico, Hungary, South Korea, Luxembourg and Slovakia, to mention just a few. Many of these countries are not even as wealthy as the UK, but their Governments seem to care for their citizens. Why are the Government here so indifferent to the plight of their own citizens?
Low pensions condemn our citizens to a life of misery. Some 1.3 million retirees are affected by malnutrition or undernutrition. Around 25,000 older people die each year due to cold weather, and we will no doubt hear the grim statistics for this year, possibly on 26 November when the next numbers are out. Despite the triple lock, the proportion of elderly people living in severe poverty in the UK is five times what it was in 1986, which is the largest increase among major western countries. Some 2.1 million pensioners live in poverty, and the poverty rate has actually increased since 2012-13.
The Government must keep their election pledge and increase the state pension in line with average earnings of 8.1%. The 3.1% increase is backward looking; it offers an increase only in line with past increases in the consumer prices index, which is lower than the retail prices index. It takes no account of the forecast rate of inflation of 5% and the huge increases in the price of food, energy, rents and other essentials. The rate of inflation for retirees now is probably higher than the average CPI. In many cases, the 3.1% increase will not even enable retirees over 75 to buy the TV licence that the Government have taken away from them.
The Minister has emphasised that the suspension of the triple lock is temporary. However, its effects are permanent; they affect not only the current but the future generation of retirees. Lower pensions now will definitely ensure lower pensions in the future. The Treasury’s Red Book says that by switching to a double lock, the Government will deprive retirees of £5.4 billion of pensions in 2022-23. This rises to £5.78 billion in 2023-24, £6.1 billion in 2024-25, £6.5 billion in 2025-26 and £6.7 billion in 2026-27. That amounts to £30.5 billion removed from pensioners’ pockets over the next five years. I cannot remember any other Government taking that much away from the pockets of our senior citizens. This money would be mostly spent in the local economy, which increases footfall in beleaguered town centres and has a great multiplier effect on the economy. The double lock that the Government are offering delivers huge damage to retirees and local economies. Let us not forget that retirees pay taxes too, whether it is VAT, income tax, duties, council tax or other taxes.
The best legacy for future generations is a decent state pension. Future generations will be even more reliant on the state pension. Due to the Government’s laws, the workers’ share of GDP has shrunk beyond recognition, from 65.1% in 1976 to 49.4% now. It is the biggest decrease in any industrialised country. Yet the Government expect that people will somehow be able to save for a private pension; for many, that simply will not be possible.
Some 14.5 million people live in poverty and many rely upon food banks, far less save for a private pension. Some 42% of UK adults do not earn enough to pay income tax. How do the Government expect these people to put enough away for a private occupational pension? The poorest 50% of the population have only 9% of the wealth. Whichever statistic we look at, it tells us that future generations will rely on the state pension more than ever before.
Retirees are not asking for much: only 8.1% of the very little pension that they already receive. Very little of a little is still little, but it will enable many to keep their heads above water. The Minister told us earlier today that a full triple lock would cost, I think, another £4.25 billion. That is far less than the £895 billion that the Government handed to speculators in the form of quantitative easing. It is less than the annual subsidy given to railway, oil and gas companies, and many others. The Minister has said that we cannot afford this, but the Chancellor last week found £4 billion for banks, and the big five banks alone are expected to declare profits of £33 billion. It just shows how the Government’s priorities are misplaced. The money should be going to the poorest, not to the richest sipping their prosecco on a short-haul flight.
The cost of the full triple lock can be easily met. As I have pointed out before, the national insurance fund account has a £37 billion surplus. The Minister may wish to disagree; I will be happy to engage with that, without any problem. That £37 billion could be used to pay just under £5 billion in extra cost. Extra money can be generated, for example, by taxing capital gains in exactly the same way as earned income; that would raise £17 billion. The Government charge zero national insurance on unearned income; if capital gains were subjected to full national insurance, that would be another £8 billion.
Taxing dividends in the same way as earned income would raise another £5 billion plus £1 billion in national insurance contributions. Ensuring that incomes above £50,300 were subjected to the full national insurance charge of 12% would raise another £14 billion. Last week, 30 of the richest people petitioned the Chancellor, urging him to tax them and other rich people more because, they said, they “can afford to pay”. The Government could heed their call; a modest level of wealth tax could generate some £70 billion a year.
There is no moral or economic rationale for impoverishing our retirees. There is no shortage of resources, as the Government’s tax cut for banks has demonstrated. Inflicting misery on our senior citizens is the Government’s choice, but it should not be acceptable to this House. We must check these impulses and invite the Government to rethink.
Finally, I am reminded of the immortal lines—my favourite—from Winifred Holtby’s great novel South Riding:
“We’ve got to have courage, to take our future into our hands. If the law is oppressive, we must change the law. If tradition is obstructive, we must break tradition. If the system is unjust, we must reform the system.”
I beg to move.
My Lords, first, I congratulate the noble Baroness, Lady Altmann, on her success in getting her amendment through. I very much hope that the Government will take the opportunity to respond positively with an amendment in lieu. However, I think it is still important to continue the debate on this amendment in the name of my noble friend Lord Sikka—to which I was pleased to add my name—as evidenced by his powerful speech introducing it.
I have already spoken so my position is clear, but I want to make three brief points. First, in all humility as a new Member, I believe that this amendment is this House doing its job. We did not vote against the Bill at Second Reading, which would have killed it. This amendment effectively sends a blank sheet back to the Commons, asking it to think again, as is our constitutional right.
Secondly, the amendment makes the point that the Bill constitutes a clear abrogation of a voluntary election promise. We must keep on repeating the point; time spent doing so is not wasted. This Government have too often broken promises—every opportunity should be taken to remind people of that.
Thirdly, the pensioners who I have worked with for decades do not understand fully the workings of the legislative process. They would find it incomprehensible if I and others did not vote against this legislation when we had the opportunity to do so. When we disagree with what is being done, it is our duty as well as our right to send the Bill back to the Commons saying clearly, “Think again.”
My Lords, like the noble Baroness, Lady Ritchie, I was unable to join the debate on the Bill at an earlier stage. At this late stage, I will not, of course, be giving anything like a technical speech; I leave that to my noble friends Lord Sikka and Lord Davies. However, I have received a volume of correspondence on this matter. In this brief intervention, I will summarise the arguments in that correspondence.
All of the correspondence provides evidence, albeit anecdotal, that the removal of the triple lock will cause serious and significant financial problems. As my noble friend Lord Sikka has said, even if the triple lock is withheld only for this year, the fact is that it will have an effect in years to come. I made the point as general secretary of the National Union of Teachers that teachers’ pay being held down affects their future incomes. We know that that happens.
I will summarise the arguments, but using my own words. Growing old, many of them said, is hard enough, as we have seen from the impact of Covid-19, without having to find extra money for food and energy bills. Nationwide, millions of current and future pensioners are being condemned to a life of poverty and even, possibly, early death. Of course, these remarks do not apply to those of us above pension age in your Lordships’ House. But, as we all know, we are not typical of the pensioner population, many of whom will suffer in a very serious way if we do not uphold the triple lock; many will be faced with significant hardship. The triple lock was, after all, a guarantee, a promise, a manifesto commitment—and it ill behoves any politician to break manifesto commitments.
My Lords, it is a pleasure to follow my noble friend Lady Blower. I support all the amendments that have been advanced today because they all have the object of protecting the level of state pensions. I particularly support Amendment 6, moved by my noble friend Lord Sikka.
I apologise that I was out of the country last week and so missed participation in Committee. However, I hope noble Lords will allow me to develop a short point that I made at Second Reading. Because, as a Member of your Lordships’ House, I have endeavoured to restrict my participation to the issues that arise from the rights and interests of workers, I want to emphasise two reasons why the state pension is of such concern to workers. The first is that pensions are the deferred wages that workers effectively earned while they were able to work. Once retired, their capacity to earn from their labour is exhausted and pensions are essentially what sustains them. Low earnings lead to low pensions, and the pay gaps manifested in earnings are duplicated in pensions—the gender pay gap in particular, but also differentials based on ethnic origin and disability.
The impact on pensioners of the failure of pensions to keep up with the costs that they face—as noble Lords and, in particular, noble Baronesses have pointed out—will be profound. Some 25,000 of our elderly already die of the cold each year, 2 million live in poverty and 1.3 million do not get enough to eat. Life expectancy is falling in the areas with the greatest poverty.
That leads to my second point. The second reason why present pensions are also of concern to those who are currently in work is this: my noble friend Lord Sikka reminds us that the Government estimate that, by the removal of the triple lock, they will save £5.4 billion from pensioners in the year 2022-23 and some £30.5 billion over five years. That is money that, were it left in the purses and pockets of pensioners, would be spent on food, clothing, heating, rent and so on. Pensioners’ incomes are spent in their local economies. There they help to sustain the jobs of current workers, particularly in shops and local services. Make no mistake: more high street shops will close and more jobs will be lost from the failure to maintain the triple lock, and it will hit the poorest areas the hardest. The impact may be indirect but the ending of the triple lock will affect current earners as well as current pensioners.
The Minister, who is rightly respected because of her sensitivity to the plight of the less well-off, knows that well. She was kind enough to write to me and other noble Lords after Second Reading explaining her position, but her Government have no answer to the two essential points made in the debates today. The abolition of the triple lock will mean that poor pensioners and the poorest local economies in the country will be made yet poorer. Such outcomes are far from necessary, as my noble friend Lord Sikka has repeatedly demonstrated through the progress of the Bill. I therefore support his amendment and all the others that seek to salvage something from the wreckage.
My Lords, I thank my noble friend Lord Sikka for introducing his amendment, and all noble Lords who have spoken.
As I have said previously, many of us around this House share an underlying concern about the living conditions of pensioners, especially poorer pensioners. We have had lengthy debates about pensioner poverty in Committee and in debating my Amendment 5, so I am not going to revisit the issue at length at this stage of the Bill. However, I am pleased that the Government have agreed to publish information about the impact of the Bill, which I hope will help us to press the case for a fresh assault on the growing problem of pensioner poverty.
I explained in earlier debates our stance on uprating and what we think is the right way forward. We do not believe the Government have presided over earnings growth of 8%, much as they would like us to think they have. We think they should find a way to deal with the earnings data distortion caused by the pandemic and look for a way forward that maintains the earnings links and uprating and fulfils their manifesto commitment to a triple lock. That is the right way forward.
There is an additional issue in how this amendment is framed. The elected House has voted for the Bill and, since it has only two clauses and Clause 2 is simply the commencement, extent and name of the Bill, to delete Clause 1 would effectively completely eviscerate the Bill. I understand how strongly my noble friend feels about this issue; we all feel strongly. The question is not what we want to happen and what we think is the right thing but how this House can best achieve a result for those who most need our help.
So although we cannot support my noble friend’s amendment, that does not in any way mean that I believe the Government have got this right; I really do not think they have. That is why we on these Benches are very happy to throw our weight behind the amendment that is going to go back to the Commons and make them look at this issue again. I urge the Government to find some way in which they can fulfil their manifesto commitment, maintain that earnings link and make sure that people out there get the uprating that they need. I hope the Government can do that.
My Lords, this clause requires the Secretary of State to review the rates of the basic state pension, the new state pension up to the full rate, the standard minimum guarantee in pension credit and survivors’ benefits in industrial death benefit by reference to the general level of prices in Great Britain. This is in contrast to, and in place of, the provisions of the Social Security Administration Act 1992, which require a review by reference to the general level of earnings.
Under the clause, if the relevant benefit rates have not kept pace with the increase in prices the Secretary of State is required to increase them at least in line with that increase or at least by 2.5%, whichever is the higher. If there has been no increase in the general level of prices, the increase in the benefit rates must be at least 2.5%. The requirement will apply for one tax year only, after which we will revert to the existing legislation and the link with the general level of earnings will be re-established.
As this is a two-clause Bill, if the noble Lords, Lord Sikka and Lord Davies, and the noble Baroness, Lady Bennett, successfully oppose Clause 1, the Bill will fall. As a result, these pension rates will increase by 8.3%, which is the average weekly earnings index for the year to May-July 2021. That means that, if the Bill does not achieve Royal Assent in good time, there will be an increased cost to the Exchequer of between £4 billion and £5 billion.
The noble Lord, Lord Sikka, raised the issue of the state pension and government content being so low. The Government have a proven track record of helping people to plan for their retirement. We have reformed the state pension system, introducing the new state pension to be simpler, clearer and a sustainable foundation for private saving to address the fact that millions of people were not saving enough for their retirement. Automatic enrolment into a workplace pension was created to help them with their long-term pension savings. Together, the new state pension and automatic enrolment into workplace savings provide a robust system for retirement provision for decades to come. Last month the UK pensions system ranked ninth in a report by Mercer that looked at the systems of 43 countries. It measured adequacy, sustainability and integrity, and the UK Government were grouped with countries such as Sweden, Finland and Germany.
In taking into account the points that I have raised, I ask the noble Lord to withdraw his amendment.
My Lords, I thank the Minister and all noble Lords who have participated in the debate. I shall pick up some of the points.
Earlier, the Minister referred to how pensioners can get winter fuel payments. Thousands of pensioners are tuned in and watching, and while the Minister has been talking some of them have sent me information to say that the winter fuel payment was last fixed in 2011. If it had increased in line with inflation, it would be around £159. The Government have once again chosen to hurt retirees, because there has been no increase in line with price level changes.
I have also been sent information about the Christmas bonus of £10, which was introduced in 1972. It is still £10. Pensioners would be lucky to get a plate of egg and chips and a cup of tea with that. If the bonus had been kept in line with inflation, it would now be £140—another example of how pensioners have been short-changed.
The Minister said that, from 2023 onwards, we will revert to the triple lock, but no commitment is given that the amount lost will be restored to pensioners. As I said, over the next five years, £30.5 billion will disappear. The Minister has not said that even a penny of that will be restored, so pensioners will remain on low pensions—not only current but future pensioners.
The Minister referred to the extra cost. I have suggested numerous ways by which the extra cost could be met, and they must have been evident to the Chancellor when he gave a £4 billion cut to banks. Obviously, the Government’s priority is the banks, rather than our senior citizens, who are struggling to heat their houses and eat sufficient food. The Minister talks about the new pension arrangements, but the point remains that, if you earn little and put away something, it will still bring you little. The issue of pensioner poverty is not really tackled.
My noble friend Lady Sherlock said that this clause was passed in the Commons, as many clauses are passed in the Commons before Bills arrive in this House. This House’s duty is to scrutinise legislation, give its opinion and urge the Commons and the Government to rethink, as my noble friend Lord Davies of Brixton said.
There is no invisible hand of fate which condemns our retirees to a life of poverty and misery. It is the invisible hand of political institutions that has condemned millions to a life of poverty and early death. This House should not be willing to be a part of that invisible hand, which will bring more misery to not only current but future generations.
I am not convinced by the Minister’s explanation and I should like to test the House’s opinion.
The Deputy Speaker decided on a show of voices that Amendment 6 was disagreed.
Amendment 7 not moved.
Clause 2: Extent, commencement and short title
8: Clause 2, page 2, line 14, leave out subsection (2) and insert—
“(2) Section 1 of this Act comes into force on such day as the Secretary of State may appoint by regulations.(2A) Regulations under subsection (2) may not be made until the Secretary of State has laid a report before Parliament setting out how the National Insurance Fund would be affected if such regulations—(a) were made, and(b) were not made.(2B) Section 2 of this Act comes into force on the day on which this Act is passed.”
My Lords, if I may say so, I am a little surprised. I did say “Content” when the question was put on the previous amendment; it may not have been loud enough for some, but the people watching out there will no doubt form their own opinion on why a vote was not allowed.
I turn to my amendment to Clause 2. It requires that suspension of the triple lock not become effective until the Government present a report to Parliament showing its effects on the National Insurance Fund account.
By a happy coincidence, the Minister wrote to me on 25 October in a joint letter, which was also copied to a number of other Members of your Lordships’ House. The background is that, during the Second Reading of the Bill on 13 October 2021, I stated that the most recent audited accounts of the National Insurance Fund, for the year to 31 March 2020, showed a surplus of £37 billion, and said:
“That is more than enough to meet the triple lock obligation of £5 billion.”
Eventually, the Minister replied:
“This is a pretty challenging question, and I do not know. I will go away and find out, write to the noble Lord and place a copy in the Library.”—[Official Report, 13/10/21; cols 1869, 1888.]
The subsequent letter from the Minister seems to deny that there is a surplus of £37 billion, or that, if there is, it is not available to fund the triple lock.
It would be helpful for me to refer to the appropriate parts of the letter, so that I can challenge and debunk the claims being made. First, the Minister said:
“The National Insurance Fund (NIF) part-funds the NHS as well as paying for contributory State Pensions and contribution-based benefits. The NIF operates on a multi-year basis and balances expected contributory pensions and benefits spending with forecast National Insurance income. The NIF is currently forecast to have an annual deficit in 2022/23.”
“There is no surplus in the Fund that can simply be drawn upon. The Government Actuary’s Department recommends a surplus is kept in the NIF to cover day to day variations in expenditure. The surplus is lent to the Government while that happens—it cannot simply be spent again. When the fund runs low, the Treasury injects new money into it in order to ensure that the State Pension and other benefits are still paid. When the Fund is in surplus as it currently is, the surplus is invested in order to help pay down the national debt”.
First, let me confirm that I agree with the Minister when she said that:
“The National Insurance Fund (NIF) part-funds the NHS as well as paying for contributory State Pensions and contribution-based benefits.”
That said, the National Insurance Fund has a different accounting basis. Page 14 of the fund’s 2020 accounts states:
“An allocation for the NHS is paid over by HMRC before the contributions are paid into the NIF and therefore the NICs are shown net of the NHS element”.
That does not support what the Minister said. Page 16 of the same accounts tells us:
“The NHS allocation is paid over by HMRC to the NHS before any contributions are paid into the NIF and so the figures shown are net of this NHS allocation. The NHS allocation was £26.5 billion in 2019 to 2020 (£25.4 billion in 2018 to 2019) and forms part of the total NHS funding”.
What does this mean? This means that the money going into the NHS has already been taken from the gross national insurance contributions, and the amounts remaining in the NIF are not for the purpose of the NHS. They are used to make specific payments for benefits such as state pension, employment and support allowance, bereavement benefits, maternity allowance, jobseeker’s allowance, Christmas bonus, guardian’s allowance and incapacity benefit.
During the year to March 2020, the payments of these benefits and related administration costs were £106.1 billion. The receipts were £113.1 billion, leaving a surplus for the year of £7 billion. The accounts for the earlier years were prepared on exactly the same basis; the cumulative surplus is £37 billion, and it is available to the Government to pay higher state pension, among other things. The National Insurance Fund accounts are audited by the Comptroller and Auditor-General. The accounts are prepared on a going concern basis. No material uncertainties have been expressed by the auditor or the officials running the account.
The Minister’s letter also asserted:
“The NIF is currently forecast to have an annual deficit in 2022/23.”
However, I scoured the Chancellor’s Statement last week and there was absolutely no mention of the fact that this £37 billion surplus is going to disappear in a puff of smoke and that somehow he needs to raise extra money to cover the national insurance payments. There is nothing to that effect in the Treasury’s Red Book or in the Office for Budget Responsibility’s analysis, which I have also scoured. The Red Book looks five years ahead and says that for 2022-23, national insurance proceeds are expected to exceed the March 2021 amounts by £29.4 billion: no sign of any deficit anywhere. So, perhaps the Chancellor, the Treasury and the OBR have not noticed that the £37 billion is going to vanish. That is pretty careless. I invite the Minister to provide details of this deficit forecast, together with the economic, demographic, and employment assumptions underpinning this claimed deficit, and a related sensitivity analysis, so we can all see where this £37 billion is vanishing to.
At no stage during the entire parliamentary passage of the Bill, in either House, did the Government make any reference that this £37 billion surplus actually exists or that it is going to vanish. It is clear that there is a £37 billion surplus. The audited accounts say so and the Comptroller and Auditor-General says so. The surplus is net of the allocation to the NHS. The Government have overlooked this surplus in pushing their policy on abandoning the triple lock. They developed the wrong policy. Now, it seems, some ex-post rationale is being developed to say that somehow this surplus does not really exist. Everything is wrong here. The question remains: why are the Government not using the £37 billion surplus, or at least £5 billion of it, to maintain the triple lock?
There are other worrying statements in the Minister’s letter. For example, it says the surplus
“is lent to the Government while that happens—it cannot simply be spent again.”
This means the Government grab the money that is there to pay higher pensions and benefits. If anything is “lent,” that means it is repayable. That is how the word is used in everyday language. All loans are repayable until they are written off. Why are the Government able to walk off with large sums of money that are designated for payment of specific benefits?
There is another disturbing sentence. The Minister’s letter states:
“When the Fund is in surplus as it currently is”—
either it is or it is not; the Minister says it is—
“the surplus is invested in order to help pay down the national debt.”
Is the national debt being paid with national insurance contributions? This means that the Government are not using the designated resources to increase the benefits to the poor, needy and vulnerable, but are using them to reduce the national debt—the same debt which is increased by subsidies to rail, oil and gas companies or the £4 billion tax cuts to banks.
Why are the senior citizens being penalised by the Government? Why are their potential pension benefits being used to pay the national debt? I am not at all satisfied with the Government’s explanation of the use of the National Insurance Fund accounts and urge them to submit a detailed report to the House. I beg to move.
My Lords, perhaps the Minister could clarify what I complained about on Second Reading and in Committee, which is the way this has worked. We have not had a report from the Government Actuary, even though one on the regulations will be required. The Minister has said that there will be an impact assessment. Will it effectively include all the material that would be in the Government Actuary’s report on the regulations?
My Lords, I normally think my job is basically to help the House by offering an idiot’s guide to how things work, but I think it is beyond me this evening. My noble friend has asked so many questions that I want to add only a couple.
First, I want to see whether I can understand what the Minister was saying in her letter on 25 October. I think she was saying that the national insurance scheme is financed on a pay-as-you-go basis, with contribution rates set broadly at a level necessary to meet the likely cost of contributing benefits and pensions in that year, taking into account any other payments and receipts and the need to maintain a working balance, which seems to be targeted at 16.7% of benefit expenditure. That is an oddly precise figure, whose basis completely eluded me, but maybe she can enlighten me.
The Minister’s response said the fund may be in surplus now but it was forecast to be in deficit next year so there would not be a surplus to draw on. I think her case is that the context of surplus is not meaningful, because the fund is designed to wash its face, and therefore, if income is lower or expenditure higher than expected, the Treasury tops it up and reverses those ships back out again. Is my idiot’s guide right—have I understood the Minister’s case? If so, can she answer some questions?
If there is a surplus of £37 billion, why is it so high this year? What is the projected deficit for next year, and why is it projected as that? I think my noble friend addressed my next question on the hypothecation of funds for the NHS. When the Secretary of State makes her statutory decisions on uprating, is any reference made to the state of the National Insurance Fund?
Finally, on a slightly tangential point, anyone who has ever knocked on doors during elections will know that a certain proportion of voters is still convinced that the National Insurance Fund is hypothecated at the level of the individual: “There is a savings account somewhere in the Treasury with my name on it; my national insurance contributions go into that and pay my benefits and pension when I retire.” I think that is one of the reasons why so many people are outraged when they find their state pension age pushed back or, after years of paying contributions, they finally claim benefits and find they are incredibly low—far lower than the tabloid coverage had led them for many years to believe was being offered in largesse to the poor.
In practice it is a pool system, not an individual one, and today’s workers pay for today’s pensions, not their own pension. Given that, does the Minister think there is enough transparency on the way the National Insurance Fund works? People are now paying 20% standard rate tax and 12.5% NI, so most workers are going to be paying 32.5%; and NI kicks in at a lower threshold. Does she think the Government are sufficiently accountable for all that and the way it is spent? I would be interested in her comments.
My Lords, out of courtesy to the noble Lord, Lord Sikka, and the noble Baroness, Lady Sherlock, for the points that she has made, and to bring some clarity to the questions raised, I hope that the House will agree that I sent the letter in good faith, and will allow me to take it back to officials with the points that have been raised and come back with, I hope, the re-emphasis that is needed to clarify the position on the fund. However, I am advised that the first point raised by the noble Baroness, Lady Sherlock, in her summing up, is correct.
As the noble Lord, Lord Sikka, will be aware, there is an existing statutory requirement under the Social Security Administration Act 1992 for a GAD report on the likely effect on the national insurance fund of the draft Social Security Benefits Up-rating Order and the draft Social Security (Contributions) (Rates, Limits and Thresholds Amendments and National Insurance Funds Payments) Regulations. There is no equivalent statutory requirement for this Bill, and GAD will conduct its assessment in the round based on the draft uprating order, which will include all benefits paid out of the national insurance fund, not just the ones covered by this Bill.
With respect to an assessment of the impact on the fund if this legislation is not passed, it is important that the working balance of the national insurance fund remains positive, as this ensures that there are always enough funds to pay for these benefits and allows the Government to deal with short-term fluctuations in spending or receipts. If the balance of the fund is expected to fall below one-sixth of forecast annual benefit expenditure, the Government will transfer a Treasury grant, paid from general taxation, into the fund. This ensures that benefits such as the state pension can always be paid as necessary.
I know that several noble Lords have suggested that, when in surplus, the fund can be used to increase expenditure beyond the level originally planned, but I am afraid that that is a misconception. The balance of the national insurance fund is managed as part of the Government’s overall management of public finances and reduces the need for it to borrow from elsewhere. Therefore, any additional spending from the national insurance fund would represent an increase in overall government spending and, without cuts in other areas of spend or additional taxes, an increase in government borrowing.
Not passing this Bill would not only increase state pension payments from the fund this year by an anomalously high figure of 8.3% but have a long-lasting compounded impact for decades to come as the anomalous figure would be baked into the baseline. The Government do not believe that this would be fair to younger taxpayers. Based on these arguments and the commitment that I have given to review the letter and the questions raised today, I ask the noble Lord to withdraw his amendment.
My Lords, I am very grateful to the Minister for her explanation. I understand and agree that some margin of safety is needed in any account, but this is a £37 billion surplus, out of which only £5 billion is needed to maintain the triple lock—a small proportion. When somebody asserts that accounting numbers are perhaps not serious and I have investigated, I have normally given them the phone number of the Serious Fraud Office and said, “Maybe you’d like the bed-and-breakfast facilities at one of Her Majesty’s establishments”. However, I will not offer that to the Minister, as she has promised to return to the House with an explanation.
We need a fuller investigation and report, bearing in mind the point that my noble friend Lady Sherlock made: why have these surpluses built up? The surpluses have not always been around, but they have built up, and the Treasury’s forecast is for a vast increase for the period in which the Minister’s letter said that we were going to have a deficit. If it was so important, the Chancellor should have said something. It should have been in the Treasury and OBR documents. It is not there. I cannot help feeling that some ex-post rationale is being developed to say that we are not going to maintain the triple lock, and somehow offer an explanation.
However, in view of the Minister’s offer, I beg leave to withdraw my amendment.
Amendment 8 withdrawn.
Advanced Research and Invention Agency Bill
My Lords, the Advanced Research and Invention Agency Bill creates a new funding agency, ARIA. ARIA will support ambitious programmes of research and innovation, seeking the scientific and technological breakthroughs that transform the lives of people across the UK and around the world. It will further diversify and strengthen our UK funding landscape, which is appropriate at a time when public investment in R&D is increasing to £20 billion in 2024-25 and concerted action is being taken across Government to reinforce the position of the UK as a science superpower.
Our science system already benefits from a variety of funding streams: government spending through UKRI programmes such as the Strategic Priorities Fund, investment from businesses small and large, and charitable sources such as the new Wellcome Leap. That plurality is a strength that we are seeking to build on with ARIA. I therefore emphasise at the start that the motivation for ARIA’s creation is to innovate how research is funded, rather than any specific topics or areas which need investment. It is about enabling a new programme-led approach to public R&D funding, optimised for high-risk research—new for the UK, that is, as we have learned from the tremendous successes of this funding model around the world, mostly from the United States, which many noble Lords will of course be familiar with.
I emphasise the two core features of this approach: first, the expectation that the full benefits will be felt only over the long term, which therefore requires patience; and secondly, that for every programme that produces transformational benefits many will not, which requires a fairly unique attitude towards failure. The research community has been clear, in providing evidence and through engagement, that it wants to see these realities of the research process reflected in the new funding body. I hope that these issues similarly resonate with many noble Lords who are concerned with research and its funding. These features are central to the approach that we are seeking to take with ARIA.
Before expanding further on the role that ARIA will play, I must emphasise the existing excellence of the UK’s R&D system. Although the Government have engaged with and sought to learn from similar agencies in other countries, ARIA must be designed sensitively to the UK’s unique context. That means not copying wholesale from elsewhere, or blindly replicating features that might in some places be successful, without carefully considering the fit with the UK system. It also means remaining conscious of the scale of this new agency. ARIA’s £800 million budget is significantly less than 2% of overall UK R&D spending.
Looking at that total spending, ARIA represents a small addition at the high-risk end of the spectrum and is equipped to take a unique approach to supporting that type of research and development. Viewed through that lens, one important point should be clear: ARIA will complement rather than compete with the system-wide responsibilities of UKRI—the steward of our overall research landscape. Indeed, those responsibilities remaining firmly outside of ARIA’s remit goes hand in hand with the autonomy and freedom that we expect it to have.
ARIA is not an institution for responding to the day-to-day priorities of government, whether specific strategic challenges, or the Government’s desired balance of research, development and commercialisation activities. ARIA’s clear remit will be to pursue programmes of research focused on realising specific objectives that have the potential to produce transformative, long-term benefits. These objectives must be set by programme managers with deep technical expertise and brilliant ideas, who are empowered to pursue those objectives with a variety of tools and a single-minded focus and to fund research and innovation projects through contracting and granting in businesses, universities and elsewhere, drawing those contributors and their outputs together to realise their objectives. They must be free to do so, in the expectation that a small proportion of projects will in time lead to things that are truly extraordinary.
Taking this approach requires trust in the good that comes from investment in this type of R&D—the high-risk, long-term and difficult to measure, which we have clearly and repeatedly heard could be better provided for. But it is not only a matter of trust; the evidence for this R&D investment and its spillover benefits is compelling. Research suggests that while the annual private rate of return from R&D and innovation averages 20% to 30%, the social returns are two to three times higher.
Although ARIA will be specialised and—by taking a new approach—something of an experiment in how we fund UK R&D, it should be one that the whole system learns from. Aspects of ARIA’s unique approach might successfully be applied to other UK R&D funders, and I expect the potential benefits of that to act as an incentive for close integration with the wider research system, which will be so advantageous both for ARIA and other actors.
This Bill—and the creation of ARIA—aligns us with many other countries using the funding model that I have outlined. From the US to Japan and Germany, this programmatic approach to supporting the most ambitious research goals has been deployed, in some cases with extraordinary success, and it is entirely appropriate that at this point we seek to apply it through ARIA to benefit UK science, research and innovation.
I will now move on to the specific provisions of the Bill and set out how the key clauses relate to the ambition and approach that I have just described. I will first address ARIA’s functions, as detailed in Clause 2. ARIA is expected to primarily operate as a funder of others, which is reflected in its functions to
“do, or commission or support others to do”.
It is not restricted to operate at a particular point on the technology readiness level spectrum; indeed, individual programmes may require a mixture of projects that seek to solve fundamental science challenges alongside work to develop and apply existing knowledge in new contexts. This is reflected in Clause 2(1), which places development and exploitation alongside the conducting of scientific research. The range of financial support that ARIA can provide is expressly broad. This equips programme managers to tailor the funding that they provide so that it is appropriate to the specific recipient and project. This is essential in supporting a broad—even unexpected—coalition of researchers and organisations, and ensuring the diverse input that is known to be so beneficial in solving difficult scientific problems. The unexpected collaborations and high degree of interdisciplinary work that we expect this to support is one of the most compelling features of the programme-led ARIA model.
Clause 3 gets to the very heart of ARIA’s approach. Implicit in pursuing high-risk research and ambitious programme goals must be recognition that many projects and programmes will not fulfil their stated aims. The risk of failure is high, and that must be accepted from the outset if ARIA is truly to be equipped to tackle the most difficult challenges, with ground-breaking implications. Clause 3 states that ARIA may give particular weight to those ground-breaking benefits when supporting R&D activities which, almost by definition, carry a high risk of failure.
This is a valuable approach for two reasons: first, because of the transformational benefits of success in this arena—the scale of impact of technologies such as the internet, GPS or mRNA vaccines, all supported by the US DARPA, is difficult to overstate; and secondly, because of the spillover benefits that can accrue even from unsuccessful projects, such as collaborations and approaches that would not otherwise have existed, or progress that later proves vital for fields or problems unrelated to the original programme.
I turn now to the role of the Secretary of State, which is addressed in Clauses 4 and 5 and in Schedule 1. It is also notable by the provisions that the Bill does not contain. I have already spoken about ARIA’s need for autonomy, and on that basis, the role for the Government in its ongoing affairs must be limited. The provisions in Clauses 4 and 5 of the Bill represent a baseline to ensure ARIA’s operation, allowing funding to be provided and issues of national security to be addressed. The public money provided to ARIA requires an appropriate level of oversight and, accordingly, there are provisions to ensure core tenets of good governance in Schedule 1. This includes the Secretary of State’s power to appoint non-executive directors and the reserve power to introduce conflict of interest procedures should it prove necessary in future. However, there is no power for the Secretary of State to require a strategy, no specific power of direction over ARIA’s allocation of expenditure, and the Secretary of State’s information rights are deliberately limited to the exercise of their functions with respect to ARIA.
In these matters we have sought to strike a balance between protecting ARIA’s strategic and operational autonomy, which is essential to its remit, and providing sufficient assurances for the important role with which it is to be entrusted. This difficult-to-strike balance has been a theme of much debate on the Bill so far, and I have no doubt that that will continue to be the case in our House.
Continuing this theme, I will speak briefly on the exemptions the Bill affords ARIA from standard public sector obligations around procurement and freedom of information. There are practical and operational reasons for both. Exempting ARIA from the Public Contracts Regulations’ contracting authority obligations is a result of its fundamentally different way of operating compared to our other core public R&D funders. We expect ARIA not only to give grants but to commission and contract others to carry out research. The exemption ensures that ARIA can procure services, goods and works related to its research goals at speed in a similar way to a private sector organisation. This mirrors the successful approach taken by DARPA, which benefits from other transactions authority, giving it the flexibility to operate outside US government contracting standards.
On FoI, the pertinent question to me is where we want ARIA’s staff to direct their focus. Earlier, I spoke about people with deep technical expertise and brilliant ideas who are empowered to pursue their objectives. I believe that of course that should apply to all ARIA staff and that this ambition is the last thing we should move away from if we want this organisation to succeed. In this unique case, I do not think those people should be employed to administrate FoI requests. This approach should be viewed in the light of ARIA’s other statutory commitments to transparency through its reporting and accounts, subject to scrutiny by the NAO, and with the natural incentives towards openness of having an identity to build and collaborators to attract.
Returning finally to the purpose of the Bill before us, it is right that we recognise the existing excellence of our R&D system and that we add to it only in a considered way. However, I believe we should also allow ourselves to consider the possibilities in doing so and challenge ourselves on whether we could do more, or better, in the ways we support UK science and innovation. The creation of ARIA, through this Bill, is an exciting addition to our research landscape, but it is also a judicious one, rooted in historic successes, drawing on international best practice and responding to the current needs of UK researchers. I beg to move.
My Lords, it is a totally unexpected pleasure to follow the Minister as I am the first in the list. It is a great honour to take part in this debate, the first Second Reading in which I have taken part, when I consider the range of other speakers who we are going to hear from this evening, all of whom are so very distinguished. I am also mindful of the fact that the president of the Parliamentary and Scientific Committee is contributing to the debate. As his vice-president, I cannot remember a time when both officeholders were speaking together.
The relationship between the Government and science is subtle, complex and of critical importance to the future of the country. It goes without saying that we have a tremendous record on science in this country, to which I pay tribute, along with everybody else. Our record on Covid vaccine development and distribution is but the latest example. The UK is world class, but it is a competitive world out there and this Bill matters to our future if we are to be the science superpower we all want us to be.
The problem for successive Governments of all kinds is that they have to try to find a balance between giving researchers the freedom to follow their own instincts and curiosity, while at the same time guiding large sums of public money towards wider societal benefits, such as national prosperity and real improvements in the quality of life for their citizens. This balance is not easy to strike. ARIA represents an attempt to strike a new balance by introducing a new organisation with a relatively small staff and a relatively small amount of money with extreme freedom to decide what to do without the existing constraints that apply elsewhere. There is also a difficult and delicate balance to strike between parliamentary oversight and the intellectual freedom which will be necessary to enable ARIA to generate the creativity required to do things differently.
The Minister made it clear in his opening speech that what is being proposed is something very new because we are dealing with high risk and potentially high reward, as he acknowledged. Therefore, the heart of what the Bill is about is not so much an agency as an idea. We are discussing an experiment never before undertaken in the UK, and we are being invited to approve and establish a new participant in what is called the scientific landscape. If we were having a vote today, I would vote for the Bill because this is broadly a good idea and I support additional funding for science, but it raises lots of questions which is going to make the Committee stage very important, and I will return to that in a bit.
First, I hope the House will allow me a brief moment to consider the wider historical context of the proposals that the Government are inviting us to consider today. More than 100 years ago, I think in 1918, Lord Haldane chaired the committee that led to the establishment of the first research council. The Haldane principle that emerged was, in essence, that research should be decided by researchers and not the Government. This has stood the test of time not least because it is convenient for Ministers. It shields them from bearing the direct responsibility for making individual decisions on individual funding.
ARIA takes this a stage further. It will need to offer real scientific independence at programme level. With regard to peer review, standard processes may not always be appropriate for ARIA, as it aims to empower exceptional scientists to start and stop projects quickly. I do not particularly care for military analogies, but when I think about ARIA it makes me wonder whether in times past Barnes Wallis or Alan Turing might have been funded by ARIA. They were both individually brilliant.
Over the decades the structural organisation of science in government has been through endless changes. For about a quarter of a century science was put in with the Department for Education, to create the DES, and, frankly, that is where science languished. I regard the start of the modem era as being when the noble Lord, Lord Waldegrave, launched Realising our Potential in 1993, rearranged the research councils and set up the Office of Science and Technology. Even the current department, BEIS, has over the past 20 or more years been through many changes in emphasis and names from the DTI to the ungainly DIUS, if anybody remembers that, and there may be more name changes on the way. Then there are things such as the Technology Strategy Board, which became Innovate UK until its absorption into UKRI, and even UKRI itself, which was described at the time as the kind of reform that comes along only once in a generation, was formed only in 2018.
Some argue that there is no point in creating ARIA if it is going to be just another entity in the science landscape doing the same things as UKRI but with less money. There is no guaranteed method, and never has been, of successfully identifying commercially successful projects arising out of science research. Too often in this country, as noble Lords will know very well, we have suffered from what is called “the valley of death”—that is, we are good at discovering new things but bad at developing them and exploiting them for commercial success. However, it is hard to legislate for success.
The agency will not automatically succeed. On the contrary, one of its earliest proponents suggested that if ARIA is not failing then it is failing, which is an interesting point. Last weekend, I went to see the latest James Bond film—I recommend it—and it occurred to me that there is a link between those films and this Bill. If the Minister was promoting ARIA as a movie, I can see it now: “ARIA—Licence to Fail.” Whether it does or not is almost impossible to predict because we do not know when a transformational breakthrough will be made, so consistency of funding over the next 10 years will be crucial.
One thought that comes to mind at the start of the many questions I want to put is about the agency’s proposed name. We know that much of the inspiration for ARIA comes from America. When this idea was first mooted by the Government in March 2020, they called it ARPA. They have now chosen the letter “I” for “invention” rather than “P” for “projects”, and that is an interesting distinction worth exploring. “Invention” conveys more of an individual exercise, whereas “projects” suggests a more collaborative approach with many more people involved, so we may discuss in Committee whether we should reconsider the title.
I am grateful to all those organisations that have been in touch to offer advice on ARIA, and I am sure there will be a lot more as we go through Committee. They include the Royal Society of Biology, the Biochemical Society, the Physiological Society, the Campaign for Science and Engineering, the Royal Society of Chemistry and others.
My own list of questions is not exclusive; I am sure that other noble Lords tonight will have many more. But they include the following: what will the relationship be between ARIA and the existing parts of the research landscape, such as UKRI, in particular? What will it be with the new science and technology council, recently established by the Prime Minister, and the new Office for Science and Technology Strategy? What about its relationship with the Council for Science and Technology, currently co-chaired by the chief scientific adviser and the noble Lord, Lord Browne of Madingley?
It is kind of the noble Baroness to mention it. If I had a pair of scissors, I should have to cut this speech in half, and noble Lords would no doubt be only too grateful. I will do so verbally.
One area where I think we will divide in Committee is that the Government are determined to exempt ARIA from freedom of information. Like other noble Lords, I received a briefing from the Information Commissioner’s Office, which strongly advocates that FoI requests should be allowed. The News Media Association has also taken the trouble to write to us on the same issue. I am sure that is something we will explore.
In drawing my remarks to a close, I will mention the famous questions that DARPA used to identify projects which were worth funding. First, what are you trying to do, and can you explain it in jargon-free language? Secondly, how is it done today, and what are the limits of current practice? Thirdly, what is new in your approach, and why do you think it will be successful? Fourthly, who cares? If you are successful, what difference will it make? Fifthly, what are the risks? Sixthly, how much will it cost? Seventhly, how long will it take?
Finally, the Bill proposes that the Government must wait 10 years before taking any action to close ARIA down, so I look forward to taking part in the Second Reading of the “ARIA (Continuation) (Amendment) (No. 2) Bill 2031”, when we will at least have the experience of 10 years to guide us in our debates.
My Lords, clearly we need to discuss the R&D and innovation context in which ARIA is designed to sit. We now know the spending context; the UK has a long-term target for UK R&D to reach 2.4% of GDP by 2027. But the Chancellor has pushed back the target of £22 billion per annum on R&D, from 2024-25 to 2026-27, which may impact on private investment.
Beyond this, there is no shortage of road maps, reviews and strategies which lay out government policy in this landscape. In 2020, we had the well-intentioned R&D road map. Since then, we have had the UK Innovation Strategy with its “Vision 2035”, the AI strategy, the Life Sciences Vision, the fintech strategic review—all, it seems, informed by the integrated review’s determination that we will have
“secured our status as a Science and Tech Superpower by 2030”—
language repeated recently by the Chancellor. I see now that we are due a review of UKRI, on top of the Nurse review. I am sure that they are meant to give us a warm feeling, but it is very unclear how all the aspirations reflected in these documents fit together, let alone with ARIA—
“a brand in search of a product”,
to quote the Science and Technology Committee.
The noble Lord, Lord Hague, wrote a wise piece in the Times a couple of weeks ago. In concluding, he said:
“But the officials working on so many new strategies should be running down the corridors by now and told to come back only when they have some detailed plans that go far beyond expressing our ambitions.”
The problem is working out how and whether the creation of ARIA is any kind of priority, and practically how it will operate in terms of skills and resources. The key to understanding this seems to be the framework document which will outline the operational relationships for ARIA, but we are told this will not be published until after the Bill is through. That cannot be acceptable.
The budget for ARIA, at £800 million over four years, looks relatively modest when compared with the research councils’ budgets, especially when funding is actually only £500 million up to the end of this spending review period. From what one can see, ARIA will be entirely independent of UKRI, as the Minister stated, including Innovate UK. My concerns are the opposite of those of the Science and Technology Committee regarding ARIA’s potential dislocation from mainstream innovation strategy. Given that, what oversight over ARIA will the Treasury have? What will be the public accountability of ARIA, and how transparent its activities? Will it co-ordinate activities with UKRI at all? Will the National Science and Technology Council have any role in relation to ARIA?
It is surely completely unacceptable, as the ICO has pointed out, that it should be exempt from Freedom of Information Act requirements. As it said:
“Without this, there will be a lack of transparency, accountability, trust and confidence in ARIA.”
After all, the US equivalent of ARIA, DARPA, is covered by the US FOIA. As the ICO also says, the FOIA
“includes safeguards which allow a balance to be struck between the public interest in transparency and the protection of legitimate interests.”
As the Minister described, programme managers, it seems, will be appointed to commission work funded by ARIA. But what is the operating model—along the lines of the Crick or the Turing or that of the EPSRC? How will it commission research and collaborate with universities, the start-up community, catapults or research operations of larger companies? Where does ARIA fit with the levelling up regional aspirations for R&D? What is the likely interaction of ARIA with the UK’s technology clusters and with initiatives for regional and local innovation? Of course, as the Delegated Powers and Regulatory Reform Committee has pointed out, ARIA’s existence could be short-lived—abolished by the Secretary of State’s fiat.
The truth of the matter, however, is that we do already rank highly in the world of early-stage research, and some late-stage, not least in AI. It is in commercialisation —translational research and industrial R&D—where we continue to fall down. As the noble Lord, Lord Willetts, is quoted as saying in a recent excellent HEPI paper “Catching the wave: harnessing regional research and development to level up”:
“We all know the problem – we have great universities and win Nobel Prizes, but we don’t do so well at commercialisation.”
The functions for ARIA listed in the Bill include to
“encourage, facilitate and provide advice”
and to provide grants, loans and investments in companies, so what will be the long-term relationship with Innovate UK? Despite the creation of and support from the British Business Bank, our investment culture is more risk averse than Silicon Valley. Our innovators are having to sell out too early. The DARPA model has a powerful relationship with industry. Is that the intention here?
There are many other things that we could improve in our UK R&D and innovation universe, beyond the creation of ARIA. Our research sponsoring bodies could be less micromanaging. I welcome the Chancellor’s moves to extend R&D tax credits to investment in cloud computing infrastructure and datasets, but our patent box scheme is complex to apply for and not cost effective. There should be more support for catapults, which have crucial roles as technology and innovation centres, as the House of Lords Science and Technology Committee recommended. We could also emulate America’s Seed Fund, the SBIR and STTR programmes. On the regional front, we should be seeking to make universities regional powerhouses, tied in with the economic future of our city regions through university enterprise zones.
But finally, will the Minister give us a hint as to which technologies the Government consider will form the core of ARIA’s programmes? I am very enthusiastic about the future of UK research and development, innovation and their commercial translation in the UK, and want them to thrive for all our benefit. However, I remain to be convinced that ARIA is the answer to many of these questions. It is not enough to say, as the innovation strategy paper does:
“we do not know what ARIA will create. That is the point.”
We need a great deal more assurance about where it fits and whether it will be a useful addition to our R&D and innovation landscape.
My Lords, I start on a positive note: I am supportive of the establishment of ARIA. I wish its budget was bigger than it is. ARIA is modelled on the US agency DARPA, which has its focus on research and technology related to the military. DARPA’s success has built confidence among venture capitalists and angel investors, leveraging more funds above its core funding.
The strength of the UK’s research sector is its diversity of funding. Despite the belief of some, research councils in the UK have been very successful at funding discovery science. A good example is the MRC Laboratory of Molecular Biology in Cambridge, which has conducted high-risk, high-reward discovery research from its beginnings. What has been lacking is the freedom that research councils need to explore new ideas and take some risks. The governance structure of government R&D funding, with strong BEIS involvement, ties the research councils, Innovate UK and UKRI in bureaucratic knots, stifling research and innovation.
Having got that off my chest, I think the introduction of a new funding stream presents new opportunities. In being able to support projects that are high risk, it could help broaden and strengthen the UK’s research capabilities, allowing new sectors to emerge. The “I” in ARIA—invention—is good, because it offers an interesting and original creative opportunity. Grants for invention of technologies tend to do very badly in peer review in comparison with grants that aim to discover something. ARIA money explicitly to fund invention of technologies could be very powerful.
I now come to some of my concerns, which I hope the Minister might help allay. The Government have done a good job of framing the structure of ARIA, presented just now by the Minister, taking the best of the learning from DARPA and other US ARP agencies while accepting that some aspects need to be different in the United Kingdom. However, there is a need to better define and articulate the scope and objectives of ARIA, knowing that the agency’s impact will depend on its ability to do things differently. I hope the Minister will comment on this, too.
ARIA will fail if it is not allowed to do things differently. To this end, there is a need for a strong, non-traditional CEO, empowered to shape the operating model of ARIA and given the freedom to do so. Further, the agency’s autonomy and speed to action will require a governance model that protects it from day-to-day politics, encourages and allows it to be driven by greed for learning and progress and not be judged by failure, and ensures an appropriate level of funding over a reasonable length of time. For this and more, the agency needs a strong, respected, politically powerful chair who strongly backs the CEO and is single-minded with an objective of making ARIA a success. ARIA also needs a strong senior political figure who is prepared to bat for it and defend its autonomy and is willing to take the flack when there is bad news. Without this, ARIA will fail. Much of DARPA’s and other ARPAs’ success in the USA is down to the strong backing they get from the Secretaries of State in the relevant government departments. I ask the Minister to comment on the model of governance and on who the senior Minister responsible for ARIA will be. Will it be the Secretary of State for BEIS?
Researchers in the UK are keen to embrace new models of support that allow them to explore high-risk ideas. The opportunity to unlock latent potential in translational research in the UK is enormous. Currently, this is biased towards big industry, while individual scientists are increasingly interested in entrepreneurial models of translation. Such a model could rival US innovation models. To achieve this, more is needed than what is already proposed in the Bill. ARIA grants should waive the 20% cost sharing, which will be a barrier to high-risk research and translation. Can the Minister confirm that it is the intention to do so?
Current requirements for spin-out companies in the UK compared to those in the US are cumbersome, bureaucratic and costly. They stifle innovation and need to change. ARIA should be able to explore funding private and hybrid institutions for research, a highly successful model that DARPA has followed. DARPA’s and other ARPAs’ success in the United States is related also to US Government procurement policies that favour innovations developed by agencies. It is hard to envision ARIA’s success without a comprehensive public procurement strategy alongside. I hope the Minister can comment on that.
I end by wishing that ARIA is a success. If it is, it could be a model for more UK R&D funding.
My Lords, like others in the innovation space, I have come strongly to support ARIA. I know from my experience as an Innovations Minister that UK research bodies—UKRI, NIHR and our research charities—are really productive. We mobilise rigorous, independent teams on research investment decisions; we administer research to a very high standard of accountability and efficiency, and we validate results through rigorous peer review—these are very commendable qualities. That research bureaucracy is why the payback from UK investment is very high.
However, I have had lived experience of big gaps in our national capability. Our research bureaucracy moves at its own pace, to its own beat, and is not always aligned with our national priorities. During the pandemic, I found time and again that the very reasons why we are so successful in peacetime are exactly the reasons why we were not good in an urgent situation. Investment decisions took too long, creating consensus around complex challenges was sometimes impossible, and validation processes were sub-scale, inconclusive and took an inordinate amount of time. That is why I strongly support ARIA. In the heat of battle, too often I was tearing my hair out with the committee-led, network-based, consensus-building, “I’ll get round to it in my spare time”, monthly-meeting approach. What I yearned for was a high-risk approach, which is what ARIA brings to the party.
RECOVERY, the Vaccine Taskforce, the Therapeutics Taskforce and the innovations and partnership team within Test and Trace were all unorthodox arrangements that delivered massive results for the country. That is why I agree with the Minister that there is a clear appetite for high-risk, high-reward research with strategic and cultural autonomy. This will usefully challenge the current orthodoxies, and the experiment will usefully inform reforms in how we do research.
I want to echo one concern raised by other noble Lords, about the strategic direction of ARIA. I am gravely concerned that the emphasis on autonomous objective-setting does not give the impetus and direction necessary for success. My experience is that the most impactful returns come when there is a clear outcome from the very beginning. By way of a metaphor, perhaps I may tell you this: I remember when the Prime Minister made generalised appeals for help during the pandemic. The response was often creative, exuberant and completely unfocused. I remember in one instance the NHSBSA having to stand up nearly 3,000 operators to triage and assess the various offers that had come in. When the final analysis was done, it found that only a handful had any value. But when we published our requirements, we frequently had our needs met within days. This principle applies to even the most brilliant research organisations run by the most brilliant research managers.
I appreciate that we are looking at enabling legislation. I have brought enabling legislation through the House myself, so I understand that many practical arrangements will be solved in secondary legislation, but I want to emphasise two higher-order matters that need to be clearly answered by the Minister at this stage. If they are not, I fear that the process of secondary legislation will be a difficult challenge.
First, I would really like the Minister to give a commitment that ARIA will be orientated around a small number of clear, societal challenges, and play a role in stimulating cross-disciplinary innovation. I would like the Minister to talk a little about where in the Bill that commitment could or should be articulated. If that commitment and orientation can be put into the Bill, what will the framework for agreeing those challenges be? I appreciate that this is not the place to make those decisions today, but the Bill needs clarity now from the Minister on how those decisions will be made, how success will be assessed and how they can be updated as ARIA continues its business.
Secondly, there is a question in my mind about what stage in the innovation cycle ARIA will be targeting. In the 21st century there are very few unclimbed mountains in the world and very few apple-drop moments, when a single inventor has a profound brainwave that transforms thinking. During the pandemic, it was my expectation that this global catastrophe would elicit a number of breakthroughs, particularly in the field of pathology. I spent a huge amount of time with Israelis, Singaporeans and South Africans looking at, for instance, spit tests, breath tests, the MIT cough tests, Covid dogs, a test that involved radar and a test from France involving testing wastewater.
In fact, the two biggest breakthroughs involved high-risk strategies and they were programme-led, but they were iterations of two very long-standing technologies. The first, the lateral flow test, was first used in 1956 and is commonplace for pregnancy, HIV and drug tests. It was incredibly tough to find one that worked to our satisfaction, but when we did, we could send out hundreds of millions to catch asymptomatic illness. The second was the good old PCR test, which benefited from an army of robots automating the process, meaning we could get from a few thousand a day to nearly a million a day. These were unromantic iterations, but they were hard-fought and delivered a huge amount of value.
The same could be said of vaccines. It took the Oxford team just three days to essentially retool a malaria vaccine, though it did take them 300 days to prove efficacy and safety. On therapeutics, dexamethasone was first synthesised in 1957, but, after 10,000 clinical trials, it proved to work around the world.
For that reason, I believe ARIA should be focused not on new scientific discoveries but on transformational applications.
My Lords, first, I apologise to the Minister as I was two minutes late coming in, but I had been discussing the triple lock for three hours and I had somewhere to go—I will not go any further than that; I hope that is acceptable. Secondly, it is an honour to take part in this debate with so many distinguished Members.
There is no escape from the fact that we have here an orphan piece of legislation. We have the Minister here as its foster parent, and we must thank him for providing it with as much love and support as he can muster, but the natural parent—the person responsible for the orphan’s conception—is long gone. Perhaps this is why there is a certain lack of focus, as other Members have mentioned.
I will support the Bill at Second Reading, if only because it is a type of natural experiment; a single data point in finding out what is an effective method of funding worthwhile research. Let us see how it works out.
However, it needs to be looked at closely in Committee, as there are obvious shortcomings. Others have mentioned the exclusion from freedom of information. There is no convincing explanation advanced for that, though the “burden” is referred to. But a well-run organisation ought not to find it a burden, particularly as we were promised in the statement of policy intent that the agency
“will be an outward facing body which will proactively provide information about its activities”
—except when people ask.
Concerns were also mentioned by the Delegated Powers and Regulatory Reform Committee of the House. There is the power given to the Government to dissolve an agency that is established by Parliament; the argument is that, if it is established by Parliament, it should be dissolved by Parliament. There are also examples of wide-ranging Henry VIII powers.
The main concern I wish to raise—I have mentioned this before and was grateful to meet the Minister earlier in the week—is the lack of a clear story; a story to tell us, the taxpayers, what the agency is meant to be doing, what it is for and how it will work. The only words in the Bill itself that mark out the agency as doing anything special in the work it undertakes are in Clause 3, “Ambitious research, development and exploitation: tolerance to failure”:
“In exercising any of its functions under this Act, ARIA may give particular weight to the potential for significant benefits to be achieved or facilitated through scientific research, or the development and exploitation of scientific knowledge, that carries a high risk of failure”.
So all we really have is
“the development and exploitation of scientific knowledge, that carries a high risk of failure”.
One good thing, even if it is unfortunate that it needs to be said, is that the term science is defined in Clause 12 as including social sciences. Much of the discussion about the agency has assumed that it would undertake only what is often characterised—mistakenly, in my view—as hard science.
However, what is not defined in the Bill is risk. Risk is, unfortunately, a term that is misunderstood and frequently misused. While I think Clause 3 is right to include risk, the Government need to say more about what it means in this context. What do they mean by risk? There is not much enlightenment in the Explanatory Notes. Clause 2(6) says that the agency “must have regard to” economic growth or benefits, “scientific innovation and invention” and
“improving the quality of life”.
But that goes without saying.
We also have the statement of policy intent document. It is meant to describe the rationale and intended purpose of the agency. But the document is astonishingly vague, full of buzzwords, and depending in practice on decisions that are yet to be taken. Of paramount importance among those decisions is the appointment of both the first chief executive officer and the chair, who are presented as key to the success of the agency, as
“the first CEO will have a significant effect on the technological and strategic capabilities of the UK over the course of generations.”
The appointment of the CEO by the Secretary of State will therefore, in effect, determine the future of the agency. It is not just a matter of staffing or of finding someone with the skills to run an organisation; it is an appointment that will go to the heart of what the agency is supposed to do. We are still waiting, even though we were told last March that the recruitment process would “soon begin”.
Can the Minister tell us where we have got to? Can he also tell us perhaps what questions the Secretary of State is going to ask the candidates in the appointment process? The appointment process is key, and we need to know more about what the Secretary of State will be looking for when they come to make the appointment. It is also the CEO who will appoint the programme managers.
It is worth highlighting the words of the chair of the Commons Science and Technology Committee, the right honourable Greg Clark MP, who has said:
“The Government's financial commitment to supporting such an agency is welcome, but the budget will not be put to good use if ARPA’s purpose remains unfocused. UK ARPA is currently a brand in search of a product. The Government must make up its mind and say what ARPA’s mission is to be”.
It has been renamed ARIA, but we do not have any greater clarity on its purpose. In my dying seconds, I suggest that its purpose be climate change; ask it about climate change.
My Lords, I am grateful to my noble friend for his introduction to the Bill. Like the noble Lord, Lord Davies of Brixton, I had a feeling that we were being handed the Dominic Cummings vanity project. When I listened to my noble friend on the Front Bench, I thought otherwise. It survives beyond him and very much has a life of its own. I look forward to us helping to define that life.
I also look forward to further contributions from the noble Viscount, Lord Stansgate. There was much that I think he was planning to say which I look forward to hearing in Committee.
As my noble friend Lord Bethell said, we need to define the essence of what we are dealing with and what we need to get into focus. We certainly need to inject a greater sense of purpose into the legislation. Its purpose is to be different from the rest of the research landscape. There is much we can do in the legislation to make that a little clearer so that it does not duplicate the work of UKRI. There are great projects which are the subject of challenges and missions by UKRI and the research councils. We do not want to see those duplicated.
What is distinctive about ARIA? First, as the noble Viscount, Lord Stansgate, mentioned, it is letting go of the Haldane principle—it is not that politicians should be determining the objectives of ARIA, but it should not be bound and controlled by a process of peer review and evaluation. These are missions to be pursued. The project teams may well want to do this in ways that would not necessarily engage the support of their peers. This is why it carries a high risk of failure in the minds of others. In the course of our debates, we need to focus on the legislation and the minds of those who come to run ARIA.
We also need to think about what we do well and where the gaps are in our research landscape. The noble Lord, Lord Patel, referred to the Laboratory of Molecular Biology. I declare an interest—I was the MP who represented LMB. It has done a remarkable job and continues to do so. In the area of molecular biology, it has a focus. It did not always necessarily have a specific research objective in mind, but it was clear about its ability to bring together the very best people with the very best ideas to examine the issues. As a consequence, there were some fantastic discoveries —on DNA sequencing, monoclonal antibodies and X-ray crystallography of proteins. It was the recipient of 12 Nobel prizes—more than any other single research institute anywhere in the world.
We must not say that we cannot do this. The question is where and in respect of what should we do it in future? The LMB also gives us a sense of some of the ways in which ARIA could do its job, by bringing together the very best people into project teams and giving them a direct stake in the benefits—including the economic and commercial benefits—derived from their discoveries. The LMB has done this to the point where people have left the laboratory, set up businesses and then come back into LMB in order to undertake further original research with the objective of doing the same thing all over again with some new discovery.
We want to examine and make sure that ARIA as an agency can be an active investor and participant, perhaps even the originating promoter of these enterprises. I believe that this is the Government’s intention. Potentially, the best researchers in the world—in a different area from the LMB, perhaps in artificial intelligence or an information society—would come here to work with ARIA because they knew they would benefit, and we would benefit as a consequence. We really need to focus on this and make sure that this potential lies within ARIA’s remit.
When we come to examine the Bill, we need to look at it very carefully. Clause 3 is distinctive in mentioning what constitutes “particular weight”. What constitutes transformational research, although it is not called that? What do we mean by a high risk of failure? Clearly, we do not mean a 100% risk. I suspect we do not mean 99% either. The noble Lord, Lord Davies of Brixton, had it right. We have to understand the risk-reward relationship. We are looking for projects where, if the chances of failure are relatively high, the rewards for success are transparently potentially even greater. This is why we are prepared to take the risk and to go down this path.
As we think about this, I hope that we do not slavishly copy the DARPA US business model. We should bear in mind the models that have been found to be successful in this country, including LMB. We should look, for example, at where we have deficiencies—such as in engineering and IT, where there are not sufficient opportunities. We should also look at the way in which Germany has used research institutes like LMB more widely in order to give that sense of continuing focus and objectives in a number of different areas of research. I look forward to our debates on the Bill.
My Lords, I join other noble Lords in thanking the Minister for the thoughtful way in which he introduced this Bill. I declare my own interest as chairman of the Office for Strategic Co-ordination of Health Research.
It is a pleasure to follow my noble friend Lord Patel and the noble Lord, Lord Lansley, with his very insightful observations. I echo my noble friend Lord Patel in strongly welcoming the proposition by Her Majesty’s Government to create this new agency. As we have heard, it represents a substantial opportunity to broaden the different streams of funding available to drive our broad national research and development effort.
Our nation is particularly successful at delivering research and development. There are many fine institutions. We can all draw attention to many discoveries that have had a profound impact during decades of state-directed research funding. Those research interventions have been built over time. They have been based on important principles, such as Haldane, and on the principle that Governments can define national priorities and that research effort can be directed to try to answer those priorities. It is right, therefore, that Her Majesty’s Government should decide to establish a new agency with a different and distinctive purpose.
By definition, research is attended by uncertainty. It is part of the scientific method. This is not so much a criticism as a recognition that many of the agencies and structures that we have developed, such as UKRI, the research councils and Innovate UK, are obliged to conduct their approach to making funds available for research to institutions and entities beyond the public sector in a way that is somewhat bureaucratic. There has not been the tolerance for failure. Indeed, if anything exists in our system, it is a deep dissatisfaction with a failure of research. Where projects have failed or where it has been considered that public funds have been used inappropriately, there has always been substantial criticism.
For ARIA to be different, it needs to be released from some of the bureaucratic constraints that attend other funding agencies, if it is to achieve its principal objective of being able to support proposals for research that will be truly transformational and have potentially the greatest impact. Therefore, some of them will be attended with the greatest risk of failure. I fully accept what the Minister said in his opening comments, that it would be completely wrong to create a new agency that is constrained exactly by the constraints that attend our current funding agencies.
In equal measure, however, in creating such an independent agency, predicated on the basis that failure must be accepted, the real challenge is the potential for risk. There are three important questions which I hope that the Minister will be able to answer, not necessarily in this debate, but while the Bill is in Committee
The first is to provide clarity about the relationship between ARIA and current existing agencies such as UKRI, the research councils and Innovate UK, but also more broadly in our research funding eco-systems—the charities and others which might have an interest in some of the areas of research that ARIA decides to support. I know that in the other place Her Majesty’s Government were unable to accept amendments to the Bill attending the question of a formally defined memorandum to describe these relationships, and that is acceptable. However, there needs to be absolute clarity about how these relationships will be defined, and how in practice ARIA will sit alongside these other agencies and ensure that there is not unnecessary duplication and waste in terms of its use of public funds, as we have heard, in comparison to what other agencies may be doing successfully at the moment.
The second is the question of accountability. Clearly, it is essential for any public body to have a form of accountability. The Minister spoke about this, and, indeed, in the Explanatory Notes, there is clarity about ARIA having to lay its accounts before Parliament and being subject to review by the National Audit Office. Indeed, as I understand it, the Secretary of State will have to answer for ARIA in the other place.
However, I have a concern in this regard, and it is slightly counterintuitive. Although we will all be very enthusiastic about the establishment of an agency that will tolerate failure, how confident can we be that our system will actually tolerate that failure? At some moment in time, will that failure become too much to accept? It might be that, in terms of the scientific approach—the project-led approach by those driving the agenda within ARIA—it was perfectly acceptable to take that approach. However, let us say that the broader political system, the commentators and others, will not accept it. There needs to be some protection for ARIA by way of appropriate accountability so that it can defend itself against the kinds of criticisms and attacks that might happen in the future when failure starts to occur. In that way it will not be undermined, and what is an important contribution to the research-funding landscape will not be inadvertently or too soon undermined and destroyed.
The final point is that we need to be clear about where this fundamental research, invention and discovery go in terms of the next stage. We should not, of course, replicate the model of DARPA in the United States; it has a completely different purpose. The purpose of ARIA, quite rightly, will be much more broadly defined. There needs to be some clarity about how government departments and other agencies might participate in taking advantage of the benefit of the product of ARIA to ensure that there is continued funding and support so that that translation and ultimate application is not lost.
My Lords, I welcome this Bill. I think it is a bold and exciting project. It takes pride in not being able to predict what it is that will come out of it and in truly giving the science a free hand to lead the way. As has been shown by the original ARIA—the American DARPA—really quite incredible technologies and products can be created in this sort of environment, not to mention in a very cost-effective way for the Government. As was evident in the DARPA challenges, much more money was spent by competitors investing in their individual offerings than the prize money offered by the Government to the winners. This saved the Government millions.
I have just a few comments to make. First, although I appreciate the advantages of accounting officers and responsibility being clearly laid down, the truth is that nobody knows what will come in the future. As I said a moment ago, an agency that can try things out to see if they will work is a very positive step for any R&D project. It is perfectly clear to me, however, from looking at the wording of this Bill, that this agency is more than usually dependent on the genius of the chairman and the chief executive. Because they are given such a free hand, they must be aware of their responsibility—as I am sure they will be—to achieve meaningful gains forward in R&D for UK plc.
There is a lot of money at stake in funding this programme. Taxpayers will rightly want bang for their buck, so it must not be allowed for the challenges set by ARIA to stray away from its serious scientific and technological funding roots. I am concerned that the Bill may not have futureproofed this concept securely. I somehow doubt that a chairman and a chief executive who are recruited after a successful career in the Civil Service will have the right abilities to make the most of this opportunity.
Secondly, the non-executives will be more than usually important in this agency and I therefore support what others will say, or have said, about making certain that they declare their conflicts of interests, if any; but whenever I have been a non-executive director of a business, I have learned many things. Will the non-executives be prohibited from co-investing in the bright ideas come across by ARIA? The sorts of people we want to see appointed as non-executives will be those who have successfully judged risks and are at ease with taking them. Many of these may be very wealthy individuals and they may be very much attracted to the opportunity of co-investing. Some funds that face this scenario run blind pools, where the non-executives may invest but not take any decisions to realise their investment or further invest. Others have a limit of up to, say, 15% of the investee company to be owned by the non-executives of the parent organisation.
All this would take careful thought, and I am sure that the Minister will consult with people who have run similar funds to ensure that robust structures on industry standards for this sort of safeguarding are explicitly set out in the framework for the relationship between ARIA and the department. Furthermore, although the Government chief scientist will be one of the non-executive directors—and that is wonderful—we do not yet know who the others will be. Can the Minister tell the House if he has any further information on this? How will the non-executive directors be chosen and screened? That is a point made by the noble Lord, Lord Davies.
Thirdly, Clause 2(4)(b), states that the conditions under which ARIA provides its support may include provisions under which property is to be restored. It is not clear to me as to whether that is real property, intellectual property, or both. Neither does it say what restored means, and to whom it is restored, or whether it is required to be physically restored or some other interpretation is permitted. Perhaps a government amendment to make this clear would be welcomed.
It will be important for ARIA not to duplicate projects that are perfectly well served by other agencies, just because they are fashionable. I can applaud the Earthshot Prize, but the range of subjects it covered should be enough to discourage ARIA from going for environmental matters, however important they are. Similarly, UKRI has great concentrations on various sectors, and I presume that those sectors are best covered as they are at present. This should not really restrict ARIA, because there are so many problems of a long-term nature. I would like to see prizes given out only for only scientific and physical inventions that are made in the UK. ARIA should not be the vehicle for rewarding individuals for thought or teaching, for example, however wonderful. Can the Minister give the House some clarity on this?
Finally, the Minister said that a framework will be provided for the relationship between ARIA and the department. As so often in legislation, the framework can actually be more important than anything else, but we are told that we are going to see it only after we have passed the legislation. Can we see the draft framework before the end of the passage of this Bill?
Overall, I am enthusiastic about this Bill, and look forward to the slight nips and tucks here and there that I believe are necessary to ensure that this agency has the best shot at being an effective catalyst to— hopefully—so many of the future’s brightest innovators and inventions.