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I know that the Government will argue today against uprating for actual fuel costs and say that it would be quite inappropriate to use other elements of inflation
in examining the way in which benefits are uprated. During a quiet morning, however, I looked through a long piece of paperworkthe uprating statementsent by the Minister back on 11 December 2006. I examined in particular the increases and non-increases of benefit and counted up the number of benefits that were not increasing at all. I suddenly reached the section on housing benefit, which dealt with non-dependent deductions, rent rebates and allowances. One category listed is entitled service charges for fuel. The most interesting fact to note is that those service charges are going up enormouslyby 29.2 per cent.in 2007-08. Not being as familiar or literate about these matters as my hon. Friend the Member for Northavon (Steve Webb), I thought that that extraordinary aspect of Government generosity might be used as a precedent for arguing that the winter fuel payment should go up by a higher rate. Then, however, I discovered that the service charges for fuel are actually the allowance for fuel costs that is made where housing benefit is paid to people who pay a rent that includes the cost of fuel. In other words, the Government are saying that for people who pay rent and do not pay a dedicated fuel costthey are not supposed to receive housing benefit in order to pay for those costsit can be assumed that the cost of fuel has gone up by 29.2 per cent. That allows the Government to avoid paying an excessive amount of housing benefit to those individuals.
That is pretty cheeky of the Government. On the one hand, there is a winter heating allowance, which is disappearing in relation to the cost of winter heating, while on the other the Government are actually using the 29.2 per cent. increase in costs to ensure that housing benefit is clawed back from people on low incomes. I would be grateful if the Minister commented on that and let us know whether it sets a good precedent that would allow the Government to look more generously in future at the uprating of the winter heating allowance.
From the other interesting document on the national insurance fund and how it is accruing, we discover that because the Government are uprating many of the benefits only at the rate of inflation and many allowances by nothing at allmore than a third of the allowances and premiums are not being uprated at allthe surplus on the fund will increase from £4.8 billion of revenue versus expenditure in 2007-08 to £10.042 billion in 2011-12. The total cumulative balance in the fund will increase from £43 billion in 2007-08 to £74 billion in 2011-12. The pensioner lobby, which frequently approaches the Minister about this issue, may well suggest that he can afford to offer a more generous pension because he has a huge amount in the national insurance fund. We can all imagine what they will say.
I would like to touch on a few specific benefit issues that arise from the uprating statement. It is worth saying from the outset that this provides one of the rare opportunities to look into how the whole benefits system is mapped out for ustaking account of the 464 different rates, premiums and allowances that I mentioned earlierand it should provide an opportunity for the Government
to consider how complex the benefits system has become since Beveridge and others designed it 50, 60 or even 70 years ago.
We know that the Government have a simplification team that is supposed to be looking into all these matters, but when the issue was raised in Work and Pensions questions recently, it sounded as if the work being done was not particularly radical. As each new Secretary of State comes in and goes through the red boxes on the first day, he quickly makes a speech saying how complex the benefits system is and what a hideous nightmare it has become. He says that it must all be cut back, but then the new Secretary of State disappears somewhere after about a year. It was slightly earlier than that at one point [Interruption.] Probably June this year, as the hon. Member for Bury St. Edmunds says. The benefits system is then left in that very complex state.
As a consequence of the uprating statement, I hope that we will increasingly focus on how messy and complex the system has become. There are all sorts of historic anomalies, such as the 25p additional payment, which now succeeds only in irritating pensioners at the age of 80 and the Christmas bonus, which was supposed to be equivalent to a double pension when first introduced, but would now buy only a small proportion of a turkey.
We will talk about particular benefits and pensions in more detail later, but we should note that we have a benefits and pensions system that is phenomenally more reliant on means-testing than Mr. Beveridge could ever have thought up. What are the implications of the uprating of pensions today? There is a basic state pension of £87.30 and a means-tested minimum guaranteeor whatever it is now calledof £119.05. That means a gap of almost £32 between the level of the pension when people have accrued all their contributions for 44 years or 39 yearsit is now going to be 30 yearsand the level that people get if they accrue nothing at all and end up on means-tested benefits. If Mr. Beveridge had been asked to comment on such a system, he would have regarded it as absolutely crackpot to set the full level of the basic state pension £32 below the minimum means-tested level.
I think that Beveridge would have been worried about many of the issues raised by the hon. Member for Bury St. Edmundsfor example, the problem of take-up of pension credit or council tax benefit. We discover that little more than half of all pensioners are actually taking up their entitlement to council tax benefit despite the extraordinary increases in council tax since 1996-97. I believe that Beveridge, in reflecting on todays uprating statement and the implications of the uprating of different benefits, would have been very worried by the relianceor over-relianceon means-testing. He would have wanted an uprating provision that reduced the number of people on means-testing in the future in relation to pensions, so that there was an incentive to save, and in relation to all the other means-tested benefits that the Minister discussed earlierincluding tax credits. Although those credits are not specifically the subject of this uprating statement, there has been a big increase in the number of people impacted by the means-testing of tax credits.
According to the Institute for Fiscal Studies, that has undermined work incentives since Labour came to power in 1997.
I will not rehearse to too great an extent some of the debates that we have had at modest length in Committee when considering the Pensions Bill over the past few weeks. However, it is worth picking up the continuing dissatisfaction among Liberal Democrat Members about the delay and confusion in restoring the earnings link for pensionssomething to which we will no doubt returnand about the fact that the number of people on means-tested benefits will increase as a consequence.
We are also concerned about the fact that the future uprating of the basic state pension, which is supposed to be done on the basis of earnings, will be done on the basis of an earnings index that the Government are determined not to include in the Pensions Bill, so that this Government or a future Government could pick and choose the earnings index that they want to use from time to time. That is a matter of concern to hon. Members on both sides of the House, as is the fact that the Government have removed the safety net that existed in the 1970s, when the basic state pension had to be uprated according to the higher of either earnings or prices. We now discover that it will be uprated only according to earnings, even if the increase in prices is higher than that in earnings during the year.
James Purnell: On a point of clarification, we have left the flexibility for the Government to decide between inflation and earnings. The Government have not said that the pension would increase in line with earnings every time if that was below inflation. I think that the hon. Gentleman understands the point. All that the Bill says is that the Government could decide at what rate the pension would have to increase and that it would have to go up at least in line with earnings.
Mr. Laws: On uprating, the Minister is confirming precisely that the guarantee that was in place under the predecessor Labour Government in the 1970s is not the guarantee that he will now put in place. The higher of either inflation or earnings will not be used. Indeed, there is even a removal of the minimum guarantee, which has been implemented over the past couple of years, that the increase would not be less than 2.5 per cent. That certainly concerns us.
James Purnell: The hon. Gentleman accepts the point that I madeat least earnings will be used in those situationsand he knows full well that the link to earnings means that the pension will go up much faster than inflation and be worth about twice what it would otherwise be worth by 2050. So I hope that he will not be scaremongering unjustifiably.
I will certainly not be scaremongering, but the Minister has acknowledged that he has taken a decision to break the earnings uprating policy that was introduced in the 1970s, under which there was a guarantee that pensions would never increase by less than inflation. The guarantee in the 1970s was that pension would never fall in real terms and that, if earnings were higher than inflation, it would go up faster. He is now saying that he will not include that
guarantee in the Bill. He is saying that he wants to reserve the right to contemplate circumstances where the pension can fall in real terms. That is what we object to in relation to this aspect of the upratings.
I have a couple of final issues. Housing benefit is the second biggest component of the benefits bill after pensions. This years uprating will increase the cost of housing benefit, which has risen from about £11 billion in 2000-01 to £15.3 billion in the latest year for which information is available. That increased cost, with the upratings, is quite surprising when one considers that 20 per cent. fewer people claim housing benefit now than in 2000-01. In other words, the cost has increased, despite a falling number of people using the benefit. One of the things that that indicates is that the Government need to put a lot more emphasis on increasing housing supply to take the pressure off housing benefit and to ensure that it is not being wasted because of having to increase the amount hugely in the future as a consequence of higher house prices.
The final specific benefit that I want to comment on is the uprating of incapacity benefit and jobseekers allowance. We remain disappointed that, despite a fair degree of cross-party support, the Government have not decided to move more ambitiously to consolidate incapacity benefit and jobseekers allowance into a single working-age benefit, with one rate for the uprating. If the Government were willing to do that, it would ease some of the transitions from welfare into work and ensure the removal of the incentives in the system, which still exist to an extent, for people to remain on incapacity benefit rather than jobseekers allowance.
We will not vote against the uprating order today, as we did not last year. We welcome, as far as they go, this years modest increases, but an overview of the benefits system and the uprating that has taken place this year would demonstrate that the standards that Beveridge and others who founded this element of the welfare state set in the 1940s and 1950s are not met in the benefit system that is delivered by this uprating. The element of security is not delivered for those people who are reliant on means-tested benefits that they do not end up claiming or for pensioners who get the basic state pension, which is below the poverty level. The element of incentive is not delivered by the reliance on means-testing, and the element of responsibility that Beveridge sought is not delivered by the rules and regulations for benefits, which has even now been acknowledged by the Secretary of State for Work and Pensions, who is due to make a statement on that matter in the next few weeks.
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): We have had a short but detailed and interesting debate, comprising only Front-Bench spokespeople. I will endeavour to reply to the points that the hon. Members for Bury St. Edmunds (Mr. Ruffley) and for Yeovil (Mr. Laws) made, some of which overlap. I am pleased that the order has already commanded the full support of the House. They made comprehensive and thoughtful speeches, and most of their points were perfectly legitimate and proper.
On the different measures of inflation, the hon. Gentlemen rightly referred to the recent steep increases in utility bills and energy prices. Of course, there have been considerable energy price spikes before in the past40 years or so and, in all those previous cases, there was no winter fuel payment, which offers a measure of relief from such spikes. It is fair to say that, despite the recent sharp increase in gas and electricity prices, the winter fuel payment will still cover the winter fuel bill of most pensioner households.
The hon. Member for Bury St. Edmunds is right to point out that there are different rates of inflation for the various goods that make up the basket that constitutes the purchases that pensioner households make. He fairly pointed out that there has been little inflation in clothing prices, which constitute a considerable element of pensioner purchases. The dominant item for most pensioner households is food, for which inflation rates have been very flat if not negative. That goes some way to offset the steep increases in utility bills that pensioners, like everyone else, have experienced.
On average, over the past 18 years, pensioners have faced lower inflation than those who are of working age and pensioner average income has grown faster than earnings over the past 10 years. To help to meet the costs of fuel, particularly in the winter when it is the most sensitive issue, we introduced the winter fuel allowance, which began at £20. It has now increased to £200a tenfold increaseand £300 where the pensioner household contains a pensioner over the age of 80. Over the whole time frame, the increase in the winter fuel payment has well exceeded the rate of inflation. That needs to be borne in mind when looking at the current situation.
Following the fall in wholesale prices, energy retail suppliers are beginning to forecast lower prices. They have already announced some reductions, with some more to come. Both hon. Gentlemen would acknowledge that there is a certain volatility in utility prices. We need to see that the inflation measure that we use reflects the entire basket of goods that pensioner households purchase and is not overly dependent on one element that is notoriously more volatile than any of the other major components.
Mr. Plaskitt: I am suggesting that the hon. Gentleman take into consideration the overall period that I was referring to, which has seen the winter fuel payment that started at £20 reach £200. That tenfold increase clearly indicates our intention to assist pensioner households in overcoming fuel poverty. That is why, for those aged over 80, who are more vulnerable, the amount has increased to £300. As I said, notwithstanding the recent increases in retail prices, those winter payments will still meet the winter fuel bill of a typical pensioner household. That is the most important consideration for us to bear in mind.
Issues were also raised about council tax, which can be a burden on pensioner households and constitute a considerable element of the expenditure that pensioners
face. Both hon. Gentlemen were right to emphasise the importance of council tax benefit and of seeing that it is fully taken up. They reasonably asked what action the Government were taking to try to increase take-up of council tax benefit. The Pension Service is engaged in an outreach exercise that involves telephoning pensioners who we think are entitled to the benefit to try to ensure that it is taken up. Thousands of calls a week are being made. We have also tried to simplify the paperwork. There is now a vastly reduced single form that, if necessary, does not even have to be completed by the pensioner household; it can be completed over the phone. All that is required is a signature to authorise collection. That is a considerable advance on the previous forms, which I accept were too long and complicated. That simplification in the application process has helped to improve take-up of that important benefit.
Mr. Ruffley: The burden of my argument was that the adequacy of the level of benefit is important, as is take-up. I mentioned not only council tax benefit take-up, which is way too lowI adduced statistics to prove that pointbut pension credit take-up. For the benefit of the House, will the Minister indicate when the next set of take-up statistics for both council tax benefit and pension credit will be available and whether he will report on progress along the lines of outreach and so forth?
Mr. Plaskitt: Yes. I am pretty sure that we publish those figures on an annual basis. If the hon. Gentleman cares to check, he will see the point at which they are generally published. I was just about to move on to pension credit take-up, which he legitimately raised. At present, 3.3 million individual pensioners benefit from pension credit. The average award is about £43 a week, which emphasises the importance of taking pension credit up. It is encouraging to see that, in the case of the guarantee credit, which is the aspect of the credit that is directed at the most vulnerable and lowest income pensioner households, the take-up rate is as high as 81 per cent. That is a significant improvement on the minimum income guarantee, which preceded it.
Again, we are trying to do all that we can to encourage and extend take-up. Local pension services are running a benefit entitlement check programme. There were more than 2 million mailings as part of that programme last year. As a result of increasing the awareness of the benefit, we are now handling about 4,000 calls a week on the telephone-based application line. Increasingly, we can develop means of using data sharing, based on other information that we have in the Department, to help us to identify customers who we have reason to believe have an entitlement to pension credit, but who may not have taken it up. Using the data-sharing techniques, we can identify who those people are and contact them. That should enable a further increase in take-up over time.
Both hon. Gentlemenagain, perfectly reasonablyraised benefit complexity. We all accept that the welfare state has become very complex. Governments of all persuasions have made individual reforms to the welfare system, each perfectly reasonably intentioned, but with the effect of adding yet more changes on to the base and making the thing more complex. It therefore behoves
us to try to do what we can to achieve greater simplicity in the system and to iron out some of the complexities that undoubtedly cause problems for the operation of the system and for the customers who receive the benefits.
The work of the simplification unit, which was referred to in the debate, has helped us to establish the principles on which we can proceed. For example, we now ask searching questions about any intended reform or revision that we might be thinking of making to the benefit system. The test that it has to pass is whether it will help us to achieve greater simplicity, rather than adding to complexity. The issue is partly about trying to prevent greater complexity from coming into the system, as well as looking at a whole range of aspects of the existing system to see whether there are historic complexities that we can iron out by harmonising arrangements. We have done quite a lot of that. Partly as a result of the work that the simplification unit has done, we have already seen about 300 statutory instruments scrapped as a contribution towards achieving greater simplification across the benefit system. However, it is a huge task, as I think that the hon. Member for Yeovil would acknowledge, and no doubt the work will be ongoing for a long time.
Mr. Laws: It sounds as though the work of the simplification unit is useful and is generally in a helpful direction, but surely it will not be able to deliver the fundamental overhaul of the existing benefit system that would really be necessary to achieve the type of massive simplification that Secretaries of State constantly talk about. Is not something more ambitious necessary?
Mr. Plaskitt: Indeed. One could carry out any number of technical changes to the welfare system and achieve some measure of simplification as one went, but I agree that, if we want to try to arrive at the degree of simplification that we all hope to see, something more substantial is required. However, I hope that the hon. Gentleman does not use that as a way of diminishing the importance of the work that we are doing as we go forward with those specific measures of simplification. He will know that we have a large ambition for simplification. That was set out in the welfare Green Paper that we published some 18 months ago. I think that he would accept that that Green Paper sets out bold, long-term ambitions for reform of the welfare system.
Mr. Ruffley: We talk about reform of the system. The Minister makes the point that it is an ongoing, laborious process, but excitement has been generated outside this place, and even on our own side, about the review led by the Minister for Employment and Welfare Reform, in conjunction with Mr. David Freud, as announced by the Secretary of State in December. It would be useful if the Minister shed some light on when that report will be published, because it is pertinent to the debate.
Mr. Plaskitt: I have no doubt whatsoever that the report will stimulate much debate, as the hon. Gentleman says. We said that we expected it to be published early in the new year, which is round about where we are now, so hopefully he should not have to wait too much longer.
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