Social Security Benefits Up-rating Order 2010

My Lords, first I must give apologies from my noble friend Lord Kirkwood of Kirkhope, who was all geared up to make a powerful contribution to the debate about this order. However, the Statement on high-speed rail has put paid to his plans and so he is, at this moment, on a non-high-speed train heading north to Scotland. I have to say at the outset that I am a very poor substitute on this matter. However, even I, with no particular head for figures, can see why my colleagues in another place, led by my honourable friend Steve Webb, were so outraged at the Government’s decision to freeze state pension top-up payments this April, which will leave almost 9 million pensioners worse off, that they voted against the order last week. At this point, I should declare an interest in that I receive a disability benefit and a state pension. Steve Webb characterised the Chancellor’s original Statement about what would happen to the annual uprating of benefits in the Pre-Budget Report last December as "a complicated stitch-up". The reason for the complication was that, for the first time in 50 years, as the Minister has just said, the retail prices index was negative. RPI inflation in September was minus 1.4 per cent. The Chancellor announced that, unless he took positive action, this would mean no increase in benefits. As a result, he confirmed that various benefits and the basic state pension would not be frozen but would rise by 2.5 per cent in April. With regard to pensions, he did not make it explicitly clear that the 2.5 per cent applies only to the basic state pension, not to the additional pension or increments gained through deferment. Most pensioners look at their total pension, not at separate bits of it, and will wonder why their pension is failing to keep pace with their rising household bills, particularly high fuel bills. Inflation has now started to rise, which will further erode their savings. It is now at 3.5 per cent, so to give pensioners an average of 2.5 per cent on just their basic state pension will feel more like a real cut than a real increase. We all know that RPI fell last year because of mortgage payments, which do not affect most pensioners, who are therefore having the worst of all worlds. For the record, it may be worth saying how many pensioners we are talking about: 6.5 million pensioners receive just SERPS, the state earnings-related pension; 1.8 million receive both SERPS and the state second pension; and another 150,000 receive only the state second pension. That is well over 8 million pensioners who will not receive a 2.5 per cent increase. By this sleight of hand, the Chancellor is saving half a billion pounds. Why should the poorest people have to bear this particular burden? If the Minister counters with the fact that the Government are being kind by bringing forward an increase to help the most vulnerable people in society, including pensioners, it must be pointed out that, as my honourable friend Steve Webb said in the other place, this year the increase is being brought forward temporarily and is not being consolidated into the rate of benefit that must be increased. The 1.5 per cent does not go into the base level that is then indexed; it is taken away so that the indexation applies only to the pre-increase rate. That might be termed "indexation theft". Just to underline the point, looking at child benefit and disability benefit increases, the Minister has said that an increase in those benefits will be brought forward by 1.5 per cent this year, when inflation is notionally nil or negative, instead of next year. Next year, they will go up by whatever inflation is, less 1.5 per cent. It is no coincidence that there is an election in the offing. Finally, my noble friend Lord Kirkwood of Kirkhope urged me to mention two further matters. The first is the Government Actuary’s report, which he thinks ought to have more publicity than it does, and I can see why. It is not a point that has escaped my honourable friend Steve Webb either. At point 1.3 on page 3 the report says: ""The updated estimates of benefit payments and contribution receipts in 2009-10 are £75.7 billion and £78.1 billion, respectively"." So there is surely no excuse for not being more generous to pensioners. Points 1.5 and 1.6 say: ""The balance in the fund at 31 March 2011 is estimated at £50.2 billion, or 63.8% of the estimated benefit payments (including redundancy payments) of £78.7 billion in the year 2010-11 ... The balance in the fund at 31 March 2011 is expected to be comfortably above the recommended level of 1/6th of annual benefit expenditure"," and so on. If this cushion of money is a work of fiction, why is it talked about in the Government Actuary’s report as though it really exists? If it is set out as I have mentioned, it is quite legitimate to ask what has happened to it. The one further point that my noble friend urged me to make relates to the whole business of the uprating of benefits, tax credits and tax allowances, and refers to the fact that they rise only in line with inflation and not with average incomes. According to a report from the Joseph Rowntree Foundation in 2008, which was the first major study to analyse the long-term impact of uprating in both the benefits and tax systems, the existing uprating rules on their own could result in child poverty rising to unprecedented levels within 20 years. This debate is long overdue, but it is worth making the point here that there is no doubt that the cost of raising money through uprating taxes and benefits more slowly than earnings growth is borne disproportionately by those on lower incomes.