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The retail prices index is applied to uprate contribution-based jobseekers allowance, child benefit, incapacity benefit, carers allowance and disability living allowance. Those are the main benefits. The RPI is calculated by the Office for National Statistics each month by collecting about 110,000 prices of about 650 goods and services in about 150 locations and on the internet. These goods include the obvious onesbread, cereal, furniture and clothing, as well as water, gas and electricity. With that information, the ONS uses data from the Departments
family expenditure survey and other detailed expenditure analyses put together by market research companies and trade reports, and arrives at a representative shopping basket. The changes in prices of the goods in the basket are used to produce a headline figure that is intended to be broadly representative of the cost of living.
With reference to the RPI, which is the subject of the order, it is worth pointing out that the patterns of pensioner expenditure are not explicitly factored into the representative shopping basket. The ONS explains that that pattern of demand is probably atypical and would distort the average. Pensioner households, which on average derive about three quarters of their income from the state one way or the other, are having some of their benefits uprated by the order according to an inflation index that does not explicitly acknowledge or comprehend how they spend their money. That is worth considering.
I am not for a moment suggesting to the Minister that previous Governments made the calculations in any other way [Interruption.] The Under-Secretary of State for Work and Pensions, the hon. Member for Warwick and Leamington (Mr. Plaskitt), is always quick to make a sneering party political point, but I will not be tempted. In a spirit of honest inquiry, I am not suggesting that the matter was fully considered by any Conservative Administration in the past. I simply wondered what the Ministers views were.
I ask that because the question is endlessly put by so many of the hard-working lobby and interest groups that work on behalf of their customers, those who are of pensionable age. The Minister knows as well as I do who I am talking about. They make some very good points, and it would be useful to get an idea of the Ministers thinking about why no Government have so far explicitly recognised the much higher inflation levels that pensioners experiencemuch higher than the RPI measure that is the subject of the order.
The other index that is the subject of the order is the Rossi index, which is used to uprate different allowances and benefits listed in the orderjobseekers allowance, council tax benefit, housing benefit and income support. It is compiled in the same way as the RPI, except that it excludes rent, mortgage interest payments and housing depreciation costs.
Parenthetically, and to provide context for the two separate inflation measures that are the subject of the order, it is worth reminding ourselves that both those indices are different from the consumer price index, which is the measure now used by the Bank of England to calculate bank rate. The CPI is similar to the RPI in so far as it uses a basket of allegedly everyday goods to compare how prices have changed over the period, but it also excludes council tax, mortgage interest payments and other major housing costs.
With the RPI in September 2006 standing at 3.6 per cent. and the Rossi at 3 per cent., these represent nine-year September highs, and the order contains one of the biggest upratings since 1997. With the exception of contribution-based jobseekers allowance, non-income-related benefits, including incapacity benefit, child benefit and disability living allowance, all will be uprated by 3.6 per cent., which was the RPI figure in the year to September 2006. To demonstrate the magnitude of the
proposals, the long-term rate for incapacity benefit will rise from £78.50 to £81.35. The highest level of care component in the DLA will increase on average from £62.25 to £64.50. We support those increases. Housing benefit, income support and other income-related benefits to which I have referred will be uprated not by RPI but by the Rossi figure of 3 per cent. To give an example from the real world, housing benefit for a single 25-year-old, all things being equal, will rise from an average of £57.45 to £59.15. Income support will rise from £57.45 to £59.15. We welcome those modest increases [ Interruption. ] Yes, we welcome them.
The September 2006 RPI is used, too, to calculate the annual increase in the basic state pension. The minimum guaranteed pension credit is linked to the higher level of earnings. But the 2004 Budget report specified that the basic state pension would continue to rise each April by 2.5 per cent., or the increase in RPI in the 12 months to the preceding September, whichever is higher. In September 2006, RPI was 3.6 per cent., and thus higher than 2.5 per cent., so it forms the basis for the uprating of the basic state pension, which will rise by just over £3 for a single pensioner, to £87.30. Again, we welcome that increase, but I urge the Minister not only to reflect on the nature of those increases but to comment on them. The representative basket of goods for the RPI and the Rossi methodology contains an incredible array
Mr. Ruffley: If my hon. Friend had been in the Chamber throughout my speech he would have heard an analysis bordering on the tedious of the number of items that are included and the way in which the Office for National Statistics obtains that information not just from 150 shop locations but from the internet. However, he can read that at his leisure tomorrow in Hansard, which he looks at first thing in the morning over his café latte as he attends to his two charming children at the breakfast table. There is a treat in store for him tomorrow.
The representative basket of goods that forms the basis for the methodology of RPI and Rossi calculations contains an incredible array of items, weighted in a way that is supposed to be representative of the average spending patterns of the man or woman in the street. People on very low incomes, however, who receive the benefits that are the subject of the uprating order, face much higher levels of inflation, because of the nature of their daily expenditure patterns. For example, the price inflation of gas, electricity and council tax is an important consideration, because there is a systematic tendency for people on low incomes to spend a higher proportion of their incomes than other income groups on necessities that are subject to higher inflation. Many of them do not face an RPI of 3.6 per cent.the increase in major benefits proposed by the uprating orderbut a far higher inflation rate in their daily lives. An increase in their benefit of 3.6 per cent. could therefore amount to a real-terms reduction in their income. This may seem a rather technical point and, because a smile plays on the Ministers face, I am happy to acknowledge that it is no
different a set of propositions than could have been levelled at Conservative Ministers before 1997. However, it now bears on the poverty debate, which has taken on a new lease of life in the past year or so. Ministers and shadow Ministers are talking more intelligently about how we tackle relative poverty, not just absolute poverty. We have an identity of interest in having a full and frank debate about those policy issues. Our solutions may be different in tackling poverty, but at least we have the same goal in mind.
I look forward to hearing the Ministers comments. He might like to tell us about the new personal inflation calculator introduced last month by the Office for National Statistics, which gave rise to some interesting media coverage. The calculator is a basic tool designed to allow an individual man or woman to calculate the rate of inflation that they personally facenot a bad initiative for a Government body to undertake. It works on the following principle: a person goes to the personal inflation calculator website and enters his or her weekly expenditure for a given set of 23 items, such as tobacco, petrol and food. They can also enter their mortgage payments, their annual expenditure on house insurance, DIY and other items. Using the inflation rates and levels of expenditure on each of those goods, the calculator will produce for an individual his or her own personal RPI.
James Purnell: The only reason there was a smile playing on my lips was that I was wondering whether, in their policy review, the Conservatives are considering having different inflation rates for different population groups. How far would that process go? Would they have different inflation rates for people in the north or the south? Would they have different inflation rates for people in their 20s or 40s, or for those with more, or less, inflationary tastes? Where are they going to stop?
Mr. Ruffley: The Ministers imagination is running riot. I do not think that we have ever indicated that there should be different regional inflation rates or anything else. All I can say to him is that the policy group on social justice is at arms length from Front Benchers. It is not due to deliver the second phase of its policy prescriptions until June of this year. The Minister, like me, will have to hold his excitement in reserve, and perhaps we can have a grown-up debate on the matter when the group publishes its independent findings. I look forward to that.
John Bercow: I am extraordinarily grateful to my hon. Friend for giving way because he is addressing the House with the intellect of Einstein and the eloquence of Demosthenes, and I would expect nothing less.
I put it to my hon. Friend, who is making an extremely cogent and powerful speech, that there is a certain otherworldliness about the Governments approach in expecting, in all cases, people to use a ready reckoner that is accessible through the website. I chair the all-party group on speech and language difficulties, and this is a serious point: the Minister must understand that there are many disadvantaged people, notably those with speech, language and communication impairments, who are statistically much less likely to use such a mechanism to find out what they are entitled to.
My hon. Friend makes an important point. I do not wish to be churlish; the Government put
the website together and it is something that has not been done before. I hope that they will reflect on what he said and write to me, or to him, to give some indication of how wider access for those with learning and other disabilities can be delivered in the calculation of ones personal inflation rate. As usual, he makes a trenchant point, to which I hope Ministers will respond with the good grace for which they are universally popular.
The calculator presumes to come up with an individualised RPI, but of course an individual punching in the data today would be inputting especially high figures for utilities. According to Ofgemthe Office of Gas and Electricity Marketsgas bills have risen by 71 per cent. and electricity bills by 45 per cent. since 2003. Ministers may want to quibble about what Ofgem is saying. I am not too worried about that, but the major thrust of its argument and, indeed, my argument is that those are astronomically high increases in utility bills far exceeding the level of RPI or the Rossi index in this order. According to the Department for Communities and Local Government, the average council tax bill is about one third higher than it was in 2003, while average water and sewerage rates have increased by just over one quarter.
The average man or woman in the street will have been hit by those increases. Let us assume for a moment that they do not have to access many or, indeed, any of the benefits that are subject to this measure. They could equally say, when they are calculating their own level of inflation, that they have seen tiny RPI increases in things that they buy a lot of. For instance, I think that the average figure for a year in relation to inflation for compact discs would be about 0.8 per cent.less than 1 per cent. We are talking about a 10 per cent. reduction in real terms in the cost of audio-visual equipment. That is good news. There are examples of deflationary pressures. There are falls in the prices of goods such as clothing. Any of us who potter down our local high street see that there are not inflation increases higher than Rossi or RPI in respect of those goods.
We understand that, but we also know about the representative basket as regards inflation for all goods. Taken together, those inflationary and deflationary forces have led to an average RPI of 3.6 per cent, but not for pensioners. It is fair to say that if all that pensioners spent their money on was CDs and audio-visual equipment, all would be well, but they do not. A large proportion of their monthly income goes on utility bills and council tax, so for pensioners the reality of inflation is very different from Rossi or RPI, which is the subject of this order. Shona Dobbie of the Alliance Trust summed the situation up when she said:
The impact of price increases on basic goods and services falls most heavily on the elderly, who spend a higher proportion of their monthly budget on necessities.
There is no exact science to this, as Ministers well know and as I well know, but there are some decent estimates of the personal inflation levels faced by pensioners in our community today. Last December, Capital Economics did a short study of how inflation affects different groups in society and it concluded that some pensioners face a personal consumer prices index inflation rate of more than 9 per cent.9.1 per cent., to be exact. Similarly, using the Department for Work and Pensions
family expenditure survey, the Alliance Trust has sliced and diced some numbers and examined pensioner expenditure on 85 different items to construct a CPI inflation rate of more than 4 per cent. for the over-75s.
There are two points to be made in taking those studies on board. First, both the organisations to which I referred based their workings on a CPI method, rather than RPI. The CPI of course excludes housing costs, council tax and mortgage payments, but in so doing it tends to underestimate the cost of living for pensioners by about 1 per cent., according to the ONS. The second point about those estimates of the level of inflation a pensioner household will experience in the real world is that, although we are uprating the main pensioner benefits in line with RPI, pensioners are facing in some cases a decline in real terms in their weekly income.
A regular claim made by the Governmentwe heard it from the Minister a few moments agois that they have moved up to 2 million pensioners out of poverty. However, let us not forget the context. Help the Aged has calculated that there are 1.3 million pensioners with incomes just 10 per cent. above the poverty threshold of 60 per cent. of median income.
I hope that the Minister, while no doubt wanting to claim credit for the work done by the Government in the past nine years, will accept that there is much more to do to tackle pensioner poverty. In that spirit of working harder and doing more in future to fight pensioner poverty, does he agree that moving some pensioners from just below the poverty threshold to just above it is not really what this is about? It may hit a narrow target, but we need to cast our minds towards some depressing statistics about pensioner fuel poverty. Would the Minister like to comment on the fact that the number of people in pensioner households living in fuel povertythat is, where the household spends more than 10 per cent. of income on fuel to maintain a satisfactory temperature, which is usually defined as 21° C for the main living area and 18° C for other occupied roomswill have doubled since 2004? Whatever we talk about in terms of improving the outlook for pensioners trying to get out of poverty, those are some fairly damning statistics, which simply are not good enough.
Adam Afriyie: My hon. Friend is making some worthwhile points about retail price inflation, the Rossi measurement and the CPI measurement, and how a particular group such as the elderly may not have their household bills reflected by that. Does he share my concern that council tax has risen at such a tremendous rate that, where council tax benefit has not kept up, it is creating a huge trap for some of the least well-off?
I thank my hon. Friend. His power to anticipate what I am going to say is legendary. He will be happy to know that I am about to turn to council tax benefit, but it may be useful for the record to reconfirm the respect that I had for him in the Standing Committee that considered the Welfare Reform Bill, where he brought together a wealth of excellent real world examples from his constituency of Windsor about the impact that benefit dependency has on his constituents. He was able
to throw an interesting sidelight on how Government changes, which are sometimes dry, complicated and boring to many people, affect people at the sharp end, so I am grateful to him, as ever.
The doubling in fuel poverty among pensioners since 2004 is something that the Minister would, I think, like to comment on. In the interests of balance, he can wheel out the statistics about improvements made, but what about the rather unfortunate record on fuel poverty?
Tackling pensioner poverty must continue to be a top priority for any Government: the current Government and, I trust, a future Conservative Government, led by my right hon. Friend the Member for Witneywho, as I said, has done a fantastic job in raising awareness about social justice and welfare issues in the 12 months since he took up his position. In 2004-05 there were 1.8 million pensioners living in poverty. Let us not forgetthis is a critical new pointthat there were 1.6 million pensioners not claiming the pension credit to which they were entitled. I do not wish to stray out of order in any way, Mr. Deputy Speaker, but one cannot have a sensible discussion about the uprating of these benefits, particularly as they relate to pensioners, without understanding that the other part of the equation is the take-up of the benefits that are the subject of the order. It may interest the House to know that in November 2004 the then Secretary of State for Work and Pensions said:
The Government still has a take-up problem on pension credit.
The new estimates for benefit take-up were announced in October 2006. The figures do not extend beyond 2004-05, but according to the 2006 Department for Work and Pensions reports Income Related BenefitsEstimates of Take-Up in 2003/2004 and Pension CreditEstimates of Take-Up in 2004/2005 the percentage of pensioner couples entitled to just the guaranteed pension credit who received it fell from a range of 61 to 75 per cent. in 2003-04 to a range of 55 to 68 per cent. in 2004-05. In 2003-04, 53 per cent. of pensioners entitled to pension credit but not claiming it were below the poverty line as set by the Government. According to the National Audit Office report Progress in Tackling Pensioner Poverty: Encouraging Take-Up of Entitlements, if pension credit take-up were increased by just under a third30 per cent.to a level similar to that for housing benefit, about 320,000 pensioners could be lifted out of poverty according to the Governments own measure of that. Almost a third of a million pensioners would be lifted out of poverty if the take-up of that benefit, which is a subject of this order, were increased.
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