Pensions and Social Security

I wish to say something about the public spending implications of using the September 2011 CPI figure for uprating and about the fairness of doing so. Using that September figure for the following April-to-April fiscal year means that it will be 18 months out of date by the end of 2012-13. If the Government had not used the September figure and had instead used the six-month average to the end of 2011 of 4.7%, the Treasury would have been able to save a remarkable £780 million compared with the 5.2% uprating. Alternatively, the Government could have decided to take an average figure from April 2011 to April 2012, using a forecast for the current quarter. Had they done so, the figure would have been not 5.2% or 4.7%, but 4.4%, which would have saved Her Majesty's Treasury £1 billion from the uprating—and there is more. Let us just ask ourselves what this uprating is really about. It is done to compensate benefit recipients for the cost of living increases from April 2012 to April 2013—it is about the actual cost of living. The Bank of England forecast for what inflation will average during that period is 2.8%, rather than the 5.2% that we are being invited to sign up to. If that 2.8% figure were used, the welfare bill saving to Her Majesty's Treasury would be more than £3 billion. Times are tough and we need to look after the most vulnerable in society, but I am also a public spending hawk. The Chancellor of the Exchequer is doing very good work in setting out an austerity programme, but it is not nearly austere enough for me. The public spending implications of this uprating are terribly important, and I hope that the Minister will explain in a little more detail than he did in reply to my earlier intervention what the Government's thinking was at the time of the very public discussion in September and October, in the run-up to the pre-Budget report, about what we should do about this September figure. I repeat that that figure does not begin to reflect the actual cost of living for the 12 months from April 2012, which this uprating is meant to cover. The figure being used will be 18 months out of date by the end of that uprating year, which is about to commence. The forecast is for 2.8% and if we had followed that, rather than the 5.2% figure, £3 billion would go to Her Majesty's Exchequer. Now, for those who will say, ““Ah—he wants to be beastly to pensioners,”” I have that one covered, too. Pensioners, as distinct from non-pensioner benefit recipients, should have the benefit of the triple lock using not the September 2011 figure but that for the year before the uprating year—that is, from the fiscal year we are in now, from April 2011 to April 2012. As I said, that would be 4.4% rather than 5.2%. If we gave pensioners that benefit, as we would differentiate the uprating for pensioner and non-pensioner benefit recipients, non-pensioner recipients would get 2.8%. We could, nevertheless, save the Exchequer £1.7 billion. Using a more rational and economically literate uprating figure, rather than the figure from the September prior to the fiscal year that is being uprated, would mean that we could save the Treasury money. Let me make one point about the idea of basing calculations on Bank of England inflation forecasts from April of this year to April 2013. I know that some people are very sceptical about Bank of England forecasts. At least one of them is present in the Chamber—or two including me—and that is my right hon. Friend the Member for Wokingham (Mr Redwood), who is very distinguished and hugely learned. Even if one were to say that 2.8% for the fiscal year 2012-13 is a bit on the low side and that the Bank might be wrong, inflation is still very likely to fall to 3%. There are three reasons for that: first, the VAT increase is falling out of the calculation; secondly, the inflationary effects of the massive decline and depreciation in sterling are being unwound; and, thirdly, world commodity prices, particularly as regards energy products, fuel and so on, are coming down, too. So there are at least three reasons—probably more—for believing that the next 12 to 18 months will see a declining trajectory in price inflation. Let me say a few words about the practicality of using forecasts as I have suggested. The flexibility that I am seeking as an alternative to sticking to a rigid September forecast for a full six months before the year of uprating begins can be seen in New Zealand, where they distinguish between pension benefits, which are not allowed to fall below 65% of average earnings in that year or rise above more than 72%, and non-pension benefits, where the Government have discretion. That would be much more sensible and the discretion could be used on the basis of the forecasts, which are more relevant and relate to the year in which one is trying to compensate benefit recipients rather than using an out-of-date September number. There is a key point, which was raised in the press and media last autumn, about whether it can be right—my hon. Friend the Member for Enfield North (Nick de Bois) touched on this—for non-pensioner benefit recipients who are receiving a 5.2% increase to receive it at a time when those who are working on very low incomes are not receiving any kind of uplift at all and have to cope with the ravages of the rising cost of living. We know that that is something that not only right-of-centre Conservative Members of Parliament like me will say. My point is not a million miles removed from the excellent Government policy of a benefit cap of £26,000 for any family that does not have anyone in their household in work. Why should people who do not work get a better deal than those who try to do work of some description, whether it is part time or otherwise? I find it difficult to justify to my constituents how this Government have doggedly stuck to a September CPI uprating. The thrust of my remarks is based on the grounds of fairness to those who are working, poor and on low incomes and of affordability to Her Majesty's Treasury at a time when we are trying to squeeze every possible pound of taxpayers' money spent in the public interest to make it work more effectively and to get the deficit down. Some of the figures amount to billions—not just millions—and that money could be used to do good things. We could potentially reduce the deficit faster than projected or target tax cuts. There is money to be squeezed out of the budget of the Department for Work and Pensions. In that spirit of honest inquiry and with a desire to squeeze public spending harder and to see a better deal for those who are not benefit recipients but nevertheless work hard at the bottom end of the labour market so that they have justice, too, I believe that a 5.2% uprating sends entirely the wrong message. It also sends the wrong message to me as a believer in introducing serious incentives to work rather than incentives to receive benefits.