Social Security Benefits Up-rating Order 2012

My Lords, it is a lot easier to spend £6.6 billion extra than to remove it. I accept that noble Lords are pleased that we are sticking to the CPI to September figure—the 5.2 per cent—even though it is a high figure. It is important for the Government to do that because once you start moving the figure around to suit your convenience the suspicion arises that there is no principle behind that decision and that it is done to save money. Therefore, you save money in one year but there is a lack of confidence in the longer-term strategy. The point about the CPI is that these things even out, although the figure that is arrived at in a particular year might be painful for the Government's finances. Clearly, this year it is painful to stick with that figure. However, if you stick with the same month, given that it is an annualised figure—it lasts a whole year—it should even out. Albeit that this is a very difficult year, there were some siren voices demanding that we take a particular course, as the noble Baroness, Lady Lister, said. However, it was decided that to do something other than what we have done would undermine the principle of the measure. I would like to pick up on the point about the triple lock. I think that the noble Lord, Lord McKenzie, has been a little grudging about what we are doing with that, which is trying to drive up, over the long term, the level of the basic pension compared with average earnings, because it has lost that relationship. The problem with that is that more and more people go on means-tested pension support, with all the complexity that noble Lords complain about. Clearly one thing that we are trying to do with the pension reform that we have consulted on is to get a liveable rate without all these special levels of support, and the triple lock is another mechanism to do that. While I am on the topic, I confirm to my noble friend Lord German that the switch from the guaranteed credit to the savings credit and the closing of the thresholds was done precisely so there would not be a cut in the basic pension for those pensioners. While I am touching on CPI versus RPI—we will not have a major debate on that, although we all enjoy it—I want to make the point that there is work going on on the CPI. Only a relatively small proportion of the difference between RPI and CPI is because of the housing element; the rest is the substitution effect—the bulk, as noble Lords will all remember. When that work on a new CPI comes in, the Government will need to look at it and take a decision on what to do. I think that that is the best response I can give to the noble Lord, Lord McKenzie. However, I need to defend myself slightly from the noble Baroness, Lady Lister, on what was a very interesting and excellent letter that I got on my description of the differences between CPI and RPI. I must point out that it was only one letter, which is unusual—I did not get every economist in the world writing to complain or differentiate—but I did enjoy it. The noble Lord, Lord McKenzie, asked a large number of very good questions—as I would expect—some of which I can answer and others I will write to him about. In particular, I will write to him on the issue of guaranteed minimum protections on contracted-out pensions. That really is complex and I need to provide specific chapter and verse on those protected arrangements. The noble Lord asked about the local housing allowance. It will be set in April 2012 to establish the baseline, and it will be uprated from a year on, based on September-to-September figures. On the migration from IB to ESA, these are technical provisions but there are some potential effects for individuals. Again, I think that that is a matter for a letter. On service charges, it is the elements of the individual items such as fuel that are raised in line with their particular price increases, and that is done—and has been done for some time—by convention rather than the aggregate. On non-dependant deductions, as noble Lords will remember, there was an announcement that they would be moved up to match the level that they would have been if they had not been frozen in 2001. The increases in 2012-13 have been calculated based on forecast rent growth. New income bands determine the amount of the deduction, based on earnings growth. Will passported benefits be taken into account? The answer is yes, when looking at the financial effects of uprating individual benefit elements that give rise to derived entitlements. With regard to the effect of statutory payments on small businesses, again, I think that that is a matter for writing. We will discuss this with colleagues in BIS who are responsible for those payments and get the most up-to-date figure for the number of small businesses that have been reimbursed. On the savings credit changes, the £200 million savings on savings credit are recycled into the guaranteed credit, so there is no net saving to the Government. This means that 30,000 fewer people will receive savings credit. Some will have their entitlement extinguished because their income is above the new maximum savings credit level. I say that in response to my noble friend, Lord McKenzie—sorry, the noble Lord, Lord McKenzie. I was looking at my noble friend Lord Kirkwood, who is the other person who asks impossible questions. The noble Lord, Lord McKenzie, asked about the impact assessment. In practice, last year's assessment sets out the shape of the effects of applying CPI as the preferred index. That is why we have only conducted an additional equality impact assessment this year for the pension credit measures, as they are the novel measures. I will talk to my noble friend Lord Kirkwood about his particular interest, the national insurance fund, where he looks at the way that the fund balance is moving. It is expected that it will be above the recommended level, which is a sixth of annual benefit expenditure, but I think that I will need to write to him about any change in the balance in recent years. I think that I have dealt with all the questions. If I have missed anything, I will, of course, write. In the words of the Chancellor of the Exchequer, the uprating order of 2012 will provide support for those who have worked hard all their lives—