Oral Answers to Questions

Rachel Reeves Excerpts

Monday 10th January 2011 Commons Chamber

[Steve Webb]

I am grateful to the hon. Gentleman for referring to the previous Government’s plans. In his constituency, vulnerable pensioners, vulnerable disabled people and vulnerable families with young children received four or five cold weather payments this winter to help them with their fuel bills in January 2011. His policy, and the plans that we inherited, would have reduced those payments to £8.50 a week. We have paid £25 a week four or five times to vulnerable pensioners in his constituency.

[Rachel Reeves (Leeds West) (Lab)]

I will give the Minister another try: will he accept that with pensioners set to pay an extra £217 in 2011 because of the VAT rise, the basic state pension rising by only the same amount as planned by the previous Government and now news that the Department for Work and Pensions and the Treasury cannot agree the £140 flat-rate pension that he has extolled, pensioners have very little to look forward to in 2011 but a lot to fear?

[Steve Webb]

The hon. Lady used to be an economist, so I would not dream of suggesting that any of the figures that she has quoted are in the slightest bit dodgy. She will be aware that colleagues at Her Majesty’s Treasury have calculated that the impact of the VAT rise for each percentage point increase is just less than £1 a week for single pensioners. The 2.5% increase will cost pensioners £2.50 a week, which compares with our £4.50 pension increase this April, and there will be additional increases in 2012 because of the VAT rise, so I dispute her figures.

Benefits Uprating

Rachel Reeves Excerpts

Wednesday 8th December 2010 Commons Chamber

[The Minister of State, Department for Work and Pensions (Steve Webb)]

With permission, Mr. Speaker, I should like to make a statement about the uprating of pensions and benefits for 2011-12. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 11 April 2011 for each pension and benefit, and arrange for the figures to be published in the Official Report.

As the Chancellor said in his autumn statement, we have taken

“decisive action to take Britain out of the financial danger zone.”—[Official Report, 29 November 2010; Vol. 519, c. 530.]

Our decisions today about uprating are part of the plan to ensure we both get on track and stay on track, now and in future.

The Department for Work and Pensions is continuing its comprehensive review of social security policy, including pensions and benefits uprating. As many hon. Members will know, an important component of the future plans for uprating pensions and benefits is the move to the consumer prices index—the CPI. For 2010, additional pensions and benefits were held at their 2009 levels because the retail prices index—the RPI—was negative, at minus 1.4%. In those circumstances, many people saw no increase in their pensions or benefit. Why did the RPI fall? It was mainly because of falling mortgage interest payments, but only 7% of pensioners have a mortgage. People with earnings-related pensions lost out because of a fall in costs that did not benefit them. Had the CPI been used to measure the change in prices last year, benefits such as additional state pension would have been increased.

The CPI is the headline measure of inflation in the UK as well as the target measure used by the Bank of England, and it is internationally recognised. The CPI uses a methodology that takes better account of consumer behaviour in response to price increases. The Government believe that it is right to use one appropriate index for uprating additional state pensions, public and private pensions and social security benefits, and that CPI is a more appropriate measure of changes in the cost of living of pensioners and benefit recipients than RPI. In addition, the House may be surprised to learn that the RPI excludes the spending patterns of the poorest pensioners.

For all those reasons, the Government have decided to move to the CPI. I acknowledge that over the long term the CPI tends to rise more slowly than the RPI. However, the question is not which is the higher or lower number but which is the most appropriate way to track and measure the changes in average prices. The coalition will ensure that the value of many important pensions and benefits is maintained through a rise of 3.1% even in these tough economic times. In addition, steps have been taken to protect low-income families with children through above-indexation increases to child tax credits. Such measures are better targeted on low-income families and will ensure that the measures in the Budget and spending review, of which the move to CPI was a part, will have no measurable impact on child poverty in the next two years.

For consistency, we also announced on 8 July that we would move to CPI as the basis for calculating the statutory minimum increases for revaluation and indexation of occupational pension schemes. Hon. Members will wish to note that the annual revaluation order, which implements the decision, is being laid before Parliament today, together with our consultation document which sets out proposals and seeks views on the impact of using CPI for private sector occupational pension schemes.

The consultation document includes three main proposals. First, we propose legislation to ensure that schemes that choose to stay with RPI do not have to pay CPI in those years when CPI is greater than RPI. We do not intend to put an additional burden on schemes. Secondly, we plan to include indexation and revaluation on the list of changes where employers are required to consult with their employees. I was surprised to learn that schemes had been able to change indexation and revaluation without any duty to consult employees. We will change that. Thirdly, we need to consider what to do when schemes specifically state that RPI should be used and when they do not have the power to amend scheme rules.

I know that many people will have been alarmed by press speculation that we were planning to override scheme rules. We were tempted to respond to the inaccurate reports in this morning’s press, but we were keen that this announcement should come out in a formal, structured way and to the House first of all. However, I am pleased to announce to the House that, contrary to press speculation, we do not plan to grant schemes a modification power to make it easier to use CPI when they do not already have the power to amend scheme rules. We believe that members’ trust in schemes and the scheme rules could be severely damaged if we intervened to give schemes the power to change their rules when the scheme does not already have such a power. Trust in pensions is important and I believe that intervention demands strong justification.

Finally, I should like to turn to one of the early actions of this coalition Government: the restoration of the earnings link for the basic state pension. Unlike the Opposition, who had 13 years to make that important change but failed to do so, the Government made good on the pre-election promises to restore the link with earnings and delivered that promise within months of coming into power. In fact, we have gone further. We have protected the future value of the basic state pension with a triple guarantee that it will rise by the highest of the growth in earnings, the growth in prices or 2.5%. The triple guarantee means that even in times of slow earnings growth, we will never again see a repeat of small rises such as the 75p rise in 2000.

The new rate for the basic state pension will be £102.15 a week for a single person—an increase of £4.50 a week. From April next year, single people on pension credit will receive an above-earnings increase to their minimum guarantee of £4.75, taking their weekly income to £137.35. For couples, the increase will be £7.30, taking their new total to £209.70 a week. Separately, to help manage expenditure, the Chancellor used his spending review statement to announce that we will freeze the savings credit maximum. Over time, the savings credit has resulted in more and more pensioners being caught up in the means-tested system. Freezing the savings credit maximum helps us to focus resources on the poorest pensioners.

At a time when the nation’s finances are under severe pressure, the Government will be spending an extra £4.3 billion in 2011-12 to ensure that people are protected against cost-of-living increases. We have protected the basic state pension with our triple guarantee and we have confirmed that most people on pension credit will benefit in full from the cash increase enjoyed by those on the basic state pension. Our move to CPI for the uprating of the majority of other pensions and benefits will result in an uplift of 3.1 per cent from next April and will set the future of uprating on a more appropriate, consistent and stable basis that is fair to individuals and the taxpayer. Throughout this statement, I have outlined our firm commitment to ensure that no one is left behind, and I commend the statement to the House.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Minister for giving me advance sight of the statement today. Both sides of the House agree that we need to cut the Budget deficit, even if we differ in our approaches, but let us be clear from the outset that what is set out today is not about deficit reduction. Making this permanent change from the use of the retail prices index to the consumer prices index, the impact of which will be felt long after the deficit is long gone, is an ideologically driven move that Labour opposes. If it were a time-limited change, we would consider whether it was a fairer alternative to deep cuts in departmental expenditure and would be willing to work with the Government on it. We would have supported a time-limited change to uprating, but why would the Government change the uprating of benefits in a way that will have an impact after the deficit has been reduced if not for ideological reasons? I agree that we need to get the economy back on track, but why will we be punishing the poorest in society and our pensioners even when the economy is growing again? Can the Minister confirm just how much worse off people will be over the next 10 years as a result of the switch and, correspondingly, how much money it will save the Government?

The Minister has conceded today that CPI will rise more slowly than RPI, but he says that the question is not about which index is higher or lower. That might not be the question that he wants to focus on, but for millions of pensioners and low-income families up and down the country, that is exactly the question to focus on. They will be asking how they will make ends meet following these changes. What advice would the Minister give to people who will be worse off year in and year out as a result of his decisions today?

Let us look at the detail. The Minister has outlined the Government’s commitment to continue Labour’s policy of restoring the earnings link for the basic state pension with a triple-lock guarantee. [Interruption.] The Government Front-Bench team may laugh, but they know that we committed to doing that and they are doing nothing more than continuing with our policy. Given that the Government are usually so intent on regressive cuts, the announcement in the Budget sounded too good to be true. The Minister’s statement has confirmed that when something seems too good to be true, it usually is. His statement means that millions of pensioners will see the value of their pension fall every year, and that will be compounded by the increase in VAT, which will leave couple pensioners worse off by £275 a year and single pensioners worse off by £125 a year. To what extent will the Government’s combined measures on the change in uprating of the state second pension, the state earnings-related pension scheme, public sector pensions and the VAT increase wipe out any benefit to pensioners from the triple-lock guarantee?

What of the Government’s previous promises? Before the election, the Minister said:

“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept…we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

That is quite clear, I think, but today the Minister has confirmed that people who have paid into the state second pension, the state earnings-related pension scheme or a public sector pension throughout their working life will see their pension in retirement uprated by CPI, not RPI, as they had thought, which changes the rules of the game for pensioners and those coming up to retirement.

In just one week, we have seen the Lib Dems break their promises to students and to pensioners. The Minister will know, but for the benefit of others I shall remind him, that I have written to him to ask him to set out why he believes that CPI is a better measure of inflation for pensioners. I have copied that letter to the UK Statistics Authority, which on 6 October said:

“We believe that the CPI should become the primary measure of consumer price inflation but only when the inclusion in the index of owner occupiers’ housing costs has been achieved.”

I have not had a response to that letter, and given his attempt at explaining today, it is clear why.

The Minister has not produced any evidence to justify the change in indexation. Indeed, for pensioners and low-income families, average inflation is more than RPI and CPI, because of fuel and food costs. It is entirely disingenuous for him to claim that CPI is a better measure of inflation for pensioners when, in reality, pensioner incomes will be lower as a result. It is disingenuous as well to argue that CPI is a better measure of inflation than RPI for those on benefits. Those in that group spend more on food and fuel, so the average inflation is higher, not lower, than either RPI or CPI. Age UK says that CPI is not better, and that evidence is backed up by the Institute for Fiscal Studies. It adds that older people tend to spend more on essentials such as food and fuel, and still spend on housing costs such as council tax. I ask the Minister now, what evidence—not assertion, but evidence—is there that CPI better reflects inflation for pensioners and low-income families?

It is not just pensioners for whom this uprating makes no sense. The Government have said that, from 2013-14, they will uprate local housing allowance by CPI, rather than local rents, meaning a total disconnection between local housing markets and the housing allowance. The long-term consequences are likely to be dire, so will the Minister confirm whether that will be a permanent shift and whether he is comfortable that pensioners and low-income families risk losing their homes because of changes in rents over which they have no control?

The Government enthusiastically talk about making work pay—we would all support that—but we also hear today that they have said that they will freeze working tax credit but uprate jobseeker’s allowance. Does that not mean that the gains from moving into work will shrink every year? Will the Minister explain how that is compatible with the drive to get people back to work?

Finally, does the Minister agree with the Child Poverty Action Group, which says that the

“effective inflation rate for the poorest households was higher than RPI in recent years when the cost of basic essentials like food and domestic fuel rose much faster than other prices”?

It adds that CPI uprating will make inequality and poverty worse.

[Steve Webb]

I am grateful to the hon. Lady for her questions. The CPI

“is more reliable because, taking account of spending by all consumers, this consumer prices index gives a better measure than the old RPIX measure of spending patterns. It is more precise because… it takes better account of consumers substituting cheaper for more expensive goods.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

How right the previous Prime Minister was when he said those words.

There is a sensible debate to be had about the most appropriate price index. The hon. Lady said that pensioner inflation is always higher. I did not notice the previous Government using a higher inflation measure for pensioners in the 13 years during which they decided these things. In fact, over the past 20 years—not the past five, which Age UK used—the average pensioner inflation and the average non-pensioner inflation were the same. In other words, there are times when it is higher and times when it is lower, as we would expect, but in the long run they are the same. Previous Governments never used pensioner-specific inflation rates; nor do we propose to.

It was good of the hon. Lady to say that she would consider the CPI for this Parliament. Obviously, we are announcing today the benefit rates for next April, so I am assuming that, in the event that the House comes to vote on these matters, she will support the benefit rates that we are proposing. It was not entirely clear to me whether she was for them or against, but I hope that, in due course, it will be clear.

The hon. Lady asked about the use of the RPI and felt, I presume, that it is a better measure of inflation. Does she believe that in the year to September 2009 pensioner inflation was negative? I have never met a pensioner who thought that their inflation was negative. The goal is to use an index that matches inflation experiences, and that is what we have done.

The hon. Lady mentions the IFS and its views on the issue. The main difference between the CPI and the RPI is not the basket of goods but how the two indexes respond to price increases. The IFS found that the substitution effect used in the CPI is a better measure for lower-income households, so its judgment is that, on that key difference, the measure that we are using better fits the inflation experience of lower-income households. I am glad she cited the IFS, because it was right on that point.

The hon. Lady raises the issue of people meeting their fuel bills, and, as my right hon. Friend the Prime Minister said, the cold weather payment is one of Labour’s ticking time bombs. This winter, it was due to fall to £8.50 a week. That was in the spending plans, but my right hon. Friend the Chief Secretary to the Treasury and my right hon. Friend the Secretary of State for Work and Pensions agreed that it was not fair—that paying people £8.50 a week this year would not be acceptable. So, we found the money to set it at £25 a week not just this winter, but for the whole Parliament, and pensioners on low incomes are better off as a result.

The hon. Lady asks about the net effect of the changes, glossing over the earnings link, which, mysteriously, was Labour policy but never implemented in 13 years. It is funny how things become implementable in opposition but not when one controls the levers of power. The earnings link on average gives about 2% a year above prices; the CPI change on average gives about 1% a year less than the RPI. So for those with low and modest occupational pensions, the net effect on pensioners of the two taken together will be positive.

We have a package of measures to protect the interests of pensioners. The earnings link over the long run will give a newly retired pensioner an extra £15,000 in state pension over their retirement, compared with the prices indexing that Labour, when it had the levers of power, applied for 13 years. That is what it applied in office for 13 years: the prices link. Within months, we have gone to the earnings link, and pensioners will appreciate what we have done for them.

Oral Answers to Questions

Rachel Reeves Excerpts

Monday 22nd November 2010 Commons Chamber

[Chris Grayling]

I am very happy to give my hon. Friend that assurance. This issue—along with that of people with mental health issues—has been of paramount importance to me, and it is one of the subjects to which I asked Professor Harrington to pay the closest attention. I hope my hon. Friend will see tomorrow that he has recommended a number of measures that will help in that respect, but I can also assure her that we will continue to review this issue. We will continue to study the process as it unfolds, and we will make further improvements as and when necessary.

[Rachel Reeves (Leeds West) (Lab)]

I thank the Minister for that answer, which we welcome. He knows that there is support from both sides of the House for Professor Harrington’s review and Labour will support the Government in taking forward meaningful reform, particularly in identifying mental health problems such as depression and schizophrenia. What assurances will the Minister give the House that reforms to the work capability assessment will better support people with mental health conditions get back to work?

[Chris Grayling]

One of the things I made sure to do when we set up the review was invite the chief executive of Mind to take part in one of the support groups for Professor Harrington. That input has been hugely valuable. I have also invited the mental health charities to make recommendations about possible changes to the descriptors, which might also help enhance the process. They are due to respond shortly. We will make sensible changes as and when we can. I intend to brief the hon. Lady and her colleagues about the contents of the Harrington review tomorrow morning, and perhaps we can talk briefly behind the Speaker’s Chair about how best to arrange that. I want them to be part of the process, and I am very happy to take suggestions from Opposition Members as well. As the hon. Lady rightly says, this is a cross-party issue. We have to get it right. It is in all our interests that we get it right, and I think we share the aspiration that this process should be fair and firm.

Oral Answers to Questions

Rachel Reeves Excerpts

Monday 18th October 2010 Commons Chamber

[Steve Webb]

We have asked our review group to look at the age limits for auto-enrolment, but my hon. Friend is right to say that getting young people interested in pensions is a challenge. We think that automatic enrolment will be part of the answer to that because, for the first time, they will have to decide whether to stay in a workplace pension. We also have to ensure that it always pays to save.

[Rachel Reeves (Leeds West) (Lab)]

The beauty of auto-enrolment, as set out by the Labour Government, was that it would benefit all workers. Will this Government honour that commitment, which will support those on low incomes most of all, as well as temporary and agency workers, who often have the worst pension provision? Or will the Government water down those plans, storing up problems of pensioner poverty for the future?

[Steve Webb]

I welcome the hon. Lady to the Dispatch Box for the first time, and I look forward to working with her to establish cross-party consensus on pension reform wherever possible. She mentioned the actions of the last Labour Government, which I think she will recall were taken on an all-party basis. Our review was not meant to undermine automatic enrolment but simply to make it work, and work effectively—and that we will do.