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Mrs. Beckett: My hon. Friend makes an important point. I have already said that there will undoubtedly be many occasions, as further details emerge on the issues on which my right hon. Friend the Chancellor is consulting, during debates and question times when these matters can be explored. I understand my hon. Friend's suggestion. There is a great temptation to arrange a special debate so that Opposition Members can make it plain that they accept that my right hon. Friend has gone further than they intended and that they would be unlikely to be able to support any further action. However, I suspect, given past precedent, they will attempt to find a way of wriggling out of that.

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Social Security

1.11 pm

The Secretary of State for Social Security (Mr. Alistair Darling): With permission, Mr. Speaker, I should like to make a statement--first, on the annual uprating of benefits, and secondly, on pensions and the new pension credit.

First, on uprating, subject to the following exceptions, most national insurance benefits will rise by the retail prices index, which is 3.3 per cent., and most income-related benefits will rise by the Rossi index, which is 1.6 per cent., in the usual way. Details of the uprating will be placed in the Vote Office and will be published in the Official Report.

Secondly, the Government believe that it is right to do more to help people with disabilities and carers. We know that it is particularly hard for families on low incomes who are bringing up children with disabilities. I am therefore proposing to increase the disabled child premium by £7.40 a week, on top of the normal uprating. So as part of our drive to end child poverty, about 80,000 children will see a rise in the disabled child premium--from £22.25 a week to £30 a week, over and above their basic entitlement to benefit.

Just as we are committed to abolishing child poverty, we are determined also to provide greater security for those who are unable to work. That is why I announced in 1998 that we would introduce a disability income guarantee from April next year for people with severe disabilities. When it was first announced, we set the guarantee at £128 a week. However, today I can announce that when it is introduced in April, it will be not £128, but £142--that is £14 more a week. For couples, it will be £186.80.

Thirdly, we want to do more for carers. We all owe a debt of gratitude to people who give up so much to care for their relatives. That is why in September I announced that we would extend the invalid carer's allowance to people over 65, raise the earnings threshold and extend payments for eight weeks after the death of the person being cared for. I also announced at that time a £2 a week increase in the carer premium, which is the extra supplement for carers on income support.

Today I can go further. I have decided that the increase in the carer premium will be not £2 a week, but £10 a week on top of the normal uprating. That means that the premium will rise from £14.15 to £24.40, helping more than 200,000 carers on low incomes. In total, the Government will be spending nearly £200 million more next year on supporting carers and people with disabilities, and every year thereafter.

I now turn to pensions. I confirm that the basic state pension will rise by £5 for a single pensioner next year, and by £3 the year after. For married couples, the figures are £8 and then £4.80.

I can also tell the House that the widows and bereavement benefits, which will go to men and women equally for the first time next year, will also rise by £5 next year and £3 the year after.

For this winter, I can confirm that pensioners will start to receive their £200 winter fuel payment from Monday.

Today, I am also publishing a consultation paper on the new pension credit. Copies will be available from the Vote Office following my statement.

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There is a fundamental fault in the system we inherited. Saving should be rewarded, not punished. So the pension credit will, for the first time, reward the thrift of millions of people who have worked hard to save for their retirement.

The credit builds on the long-term reforms the Government have already made. We are building, block by block, a coherent and sustainable strategy for pensions.

For tomorrow's pensioners, we are reforming the state second pension, giving greater security in retirement to 18 million people on low incomes. For moderate and higher earners, we are introducing the new stakeholder pensions from next April.

The pension credit will not only help millions of today's pensioners on modest incomes, it will also complement those long-term reforms by rewarding people for saving. The message is clear: whatever one can afford to put by, it will always pay to save.

Our aim is both to end pensioner poverty and to ensure that all pensioners share in the rising prosperity of the nation.

When we came to office, the inequality in pensioner incomes had grown dramatically under the previous Government. That means that the old approach--an across-the-board increase, whether linked to prices or earnings--is inadequate. It would not do nearly enough for the poorest pensioners, and it would not do enough to reward thrift. A new approach is required to deal with the reality of pensioner incomes today.

First, there are now many more pensioners retiring on very good pensions, thanks mainly to occupational pensions and, of course, the state earnings-related pension scheme. One in six pensioner couples are now retiring on £20,000 a year, and that proportion will grow steadily over time.

Those pensioners are sharing in the rising prosperity of the nation. For those who come within the scope of the tax system, we are determined to give them a fairer deal. We have already halved the rate of tax on savings income from April 1999 and increased pensioner tax allowances. Today, I can announce further proposals to raise those allowances.

At the moment, most pensioners have no income tax to pay, but for those who do, in 2003 the Government propose to raise the age-related allowances by £240 that year over and above indexation. On current forecasts, that will take the allowance to £6,560 a year for those aged 65 to 74, and to £6,850 for those aged 75 or more.

Throughout the remainder of this Parliament, we propose to carry on raising those allowances in line with earnings. As a result, more than 3 million pensioners will gain from that.

Secondly, we inherited a situation in Britain--the fourth largest economy in the world--in which there were too many pensioners living in poverty. Poverty has no place in a civilised society. That is why the Government were right to make ending pensioner poverty their first priority. It is also why we introduced the minimum income guarantee, which is already helping nearly 2 million pensioners.

Now we want to go further to tackle pensioner poverty. As the Chancellor announced yesterday, we are increasing the minimum income guarantee over and above the planned earnings increase, so that from next April,

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no single pensioner need live on less than £92.15 a week. For 285,000 of the poorest pensioners in this country, that is a rise of £14 a week between now and next April.

When we introduce the new system in 2003, the minimum income guarantee will be set not at £92 but at £100 a week--that is £22 a week more than today. For the first time, a single pensioner will be guaranteed at least £100 a week. For every subsequent year in the next Parliament, the guarantee will be raised in line with earnings.

The next stage of our reforms, however, is to help the millions of pensioners who worked hard all their lives, saved for their retirement and rightly believe that they are being punished, not rewarded, for their thrift.

All of us are familiar with pensioners who feel let down by a system that has not rewarded their thrift. A pensioner with £20 of occupational pension on top of her state pension can sometimes find herself just a pound or two better off than someone who had saved nothing. That is unfair and unjust, and it will stop. That is why we are introducing the pension credit--to help pensioners with savings or a modest income in retirement. For the first time in the history of the welfare state, saving will be rewarded, not punished.

I can confirm that when it is introduced in 2003, the credit will reward all those with weekly incomes up to £135 for single pensioners, or £200 for couples. Today I can tell the House that 5.5 million pensioners--that is, half the pensioner households in this country--will be better off as a result of the new credit.

Not only will the new system ensure that pensioners are better off when they retire, but crucially, it will ensure that the support that they get from the state will keep up with the rises in family incomes over their retirement, because not only will the minimum income guarantee rise in line with earnings, but so will the new pension credit.

Let me explain how the credit will work. First, we will guarantee a minimum income, which by 2003 will be at least £100, or £154 for couples. Secondly, on top of that, for every pound saved, pensioners will receive an additional cash credit. That will mean extra cash on top of the basic state pension: sums of between £1 and £23 a week. The amount of that reward will depend on the amount of savings and other income.

Take, for example, a pensioner in 2003 who is on the basic state pension, which we then expect to be £77, and who has income from savings or an occupational pension of, say, £20 a week--in other words, a total weekly income of £97. With the credit, her income will be raised to the minimum income guarantee of £100, but on top of that, she will receive a credit of £12 extra for her saving, so her income will be not £97, but £112. The pension credit will mean that she is £15 a week better off because of her saving.

The changes that we are making will be of particular advantage to women, because on average, women have smaller occupational pensions than men, and of course they are likely to live longer. They are therefore more at risk from the falling value of their pension income over their retirement. As a result, more than two thirds of those who will benefit from the credit are women.

The credit also allows us to make a number of other changes. First, we have always recognised the unfairness of people losing out simply because they have modest

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savings in a bank or building society. We have already announced that from next year, as we prepare for the pension credit, we are raising the capital limits for the first time in 10 years. As a result, 500,000 pensioners will get an average of £5 a week more, and many will find themselves entitled to extra support for the first time.

From 2003, we are going further. As part of the credit, we are scrapping the capital limits completely. Instead, we will look at the income that pensioners receive from their savings. Not only are we abolishing the capital limits, but we are getting rid of the rules on tariff income for pensioners, so we will no longer assume that pensioners can get a ludicrous 20 per cent. return on their savings.

The second change is that we will make it easier for pensioners to get the money to which they are entitled, and get rid of the weekly means test. Now, there are some who weep crocodile tears at means testing for pensioners, but who did nothing about it for 18 years. We will.

At present, we ask all taxpaying pensioners to tell us about their income just once a year, if that. However, we ask poorer pensioners to tell the benefits system about changes every week. There is no good reason for that. The credit will be based on an income assessment that is more like the tax system.

When one retires, a calculation has to be made about one's basic state pension, based on the contributions that one has paid. In the future we will be able to work out at the same time how much a pensioner is entitled to under the minimum income guarantee and the pension credit. We know that most pensioners have stable incomes, so after the initial award at retirement, adjustments will need to be made only when circumstances change significantly.

We are making it easier for pensioners to claim their entitlements, by introducing a dedicated new service for pensioners. People will be able to claim by phone, which will give pensioners the better service that they want.

Although most pensioners have stable incomes, there are pinch points during the year when they need to meet the costs of lump-sum bills. That is why pensioners have welcomed the extra help that they receive from the winter fuel payment and the free TV licences for over-75s. They constitute more help when it is most needed.

We promised to make sure that all pensioners would share fairly in this country's rising prosperity, and the measures that we have announced fulfil that promise. As a result of our reforms, all pensioners will gain. We are spending £8.5 billion more on pensioners over this Parliament--that is £5 billion more than an earnings link would provide. We promised to do more for those who most need it most. That is why, next year, the poorest third of pensioners will get five times more than they would have received under an earnings link.

We promised to do more to reward saving. That is why, under the tax changes that I have announced today, 3 million pensioners will be better off. The new pension credit means that 5.5 million pensioners will be better off.

Next week, the £200 winter fuel payment will be provided. Next April, the £5 and £8 increases in the basic state pension will be introduced, and the minimum income guarantee will increase to £92.15. The following April, a further £3 and £4.80 will be added to the basic pension, and from 2003, we will provide the guaranteed income of at least £100, the new pension credit and higher tax allowances to reward saving.

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There is therefore a clear choice for the future. We are increasing the winter fuel payment, not abolishing it. We are building on the basic state pension, not undermining or privatising it. We are tackling pensioner poverty, not ignoring it, and we are rewarding saving, not penalising it.

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