The
Committee consisted of the following
Members:
Chairman:
Mr.
David Wilshire
Boswell,
Mr. Tim
(Daventry)
(Con)
Burgon,
Colin
(Elmet)
(Lab)
Carswell,
Mr. Douglas
(Harwich)
(Con)
Clapham,
Mr. Michael
(Barnsley, West and Penistone)
(Lab)
Clappison,
Mr. James
(Hertsmere)
(Con)
Cunningham,
Mr. Jim
(Coventry, South)
(Lab)
Curry,
Mr. David
(Skipton and Ripon)
(Con)
David,
Mr. Wayne
(Caerphilly)
(Lab)
Duddridge,
James
(Rochford and Southend, East)
(Con)
Flynn,
Paul
(Newport, West)
(Lab)
Gerrard,
Mr. Neil
(Walthamstow)
(Lab)
Hewitt,
Ms Patricia
(Leicester, West)
(Lab)
Kilfoyle,
Mr. Peter
(Liverpool, Walton)
(Lab)
O'Brien,
Mr. Mike
(Minister for Pensions
Reform)Rowen,
Paul
(Rochdale) (LD)
Willott,
Jenny
(Cardiff, Central)
(LD)
Mike Clark, Committee
Clerk
attended the
Committee
Second
Delegated Legislation
Committee
Monday 9 June
2008
[Mr.
David Wilshire in the
Chair]
Social Security Benefits Up-rating Regulations 2008
4.30
pm
The
Chairman: Under normal circumstances, somebody who had
signed the request for such a sitting would be asked to move the
motion, but no one in the room has done so. However, it appears from
the list of signatures that this was mainly a Liberal Democrat
initiative, so I shall call Jenny Willott, who did not sign the
request, to move the
motion.
4.31
pm
Jenny
Willott (Cardiff, Central) (LD): I beg to move,
That the
Committee has considered the Social Security Benefits Up-rating
Regulations 2008 (S.I. 2008, No.
667).
I
apologise, Mr. Wilshire, for the confusion caused by Liberal
Democrats changing roles in the past week, as a result of which we
still have some sorting out to
do.
I
make it clear that we are not opposed to the general uprating of
benefits and pensions that are proposed in the statutory instrument. I
wish to raise the exemptions and the people who are exempted from the
uprating, specifically overseas pensioners. The matter has come up
several times in recent years, and I understand that similar
regulations last year and the year before were prayed against. The
matter has also come up frequently during discussions on the Pensions
Bill, and there have been several debates in both Chambers of
Parliament on it. The issue is important, and many people are affected
by it, so we want to raise it again this
year.
Almost
everyif not everyconstituency is affected, given the
number of people who are involved. There are now more than a million
people drawing UK pensions who live overseas. The latest figures show
that nearly 530,000 people live in countries in which their pensions
have been frozen, so a significant number are
affected.
Many
of those people can vote in the UK and, in fact, are registered to do
so. They certainly have families who are registered and who vote in the
UK, so the issue cannot just be swept under the carpet. We should be
concerned about it because it affects the welfare of our constituents
and those who are entitled to vote for
us.
It
has been said in recent years that not all those who are affected are
British citizens. I believe that the subtext is that we should not be
worried about them. It is true that not all those affected are British
citizens, but many of them are. They are from a huge range of different
backgrounds. It is not the case that those who live on frozen pensions
are wealthy people who decided to retire somewhere nice and warm. Some
are public servants who live on public servants pensions. Some
are the
relatives, parents or partners of people who moved overseas for work.
Some have returned to their country of origin after working in the UK
for many
years.
Some
of the people who live on frozen pensions are extremely poor. One case
is a lady in her 80s who lives in Australia on a basic state pension of
£15 a week. One could not live on that in the UKwe would
not expect anybody toso it seems unfair to expect somebody
overseas to live on that
amount.
There
are also concerns about the arbitrary nature of decisions about the
countries in which pensions are frozen. If the list included countries
where the cost of living was extremely low, or where there had been no
inflation or very low levels of inflation, there would be some logic to
it and I would be able to understand that, but there is no such
pattern. In past debates, a Minister referred to Japan, where for
several years there was deflation rather than inflation. The suggestion
was that if pensions had been uprated by the cost of living in the UK,
the situation would have been very unfair, but that is a rare example.
Few countries around the world have been lucky enough to have
deflation, and certainly not countries such as Canada, South Africa,
New Zealand and so on, which are the countries in which many of the
pensioners on frozen pensions live.
Mr.
Tim Boswell (Daventry) (Con): I declare an interest in
that I receive a retirement pension, although I have no immediate plans
to move abroad. We all need the Minister to indicate whether he will
simply play a forward defensive stroke, as usual, or whether he can
give any indication of sensitivity to the kind of anomalies that the
hon. Lady has fairly brought forward. Will there be some suggestion
those anomalies might at least be reviewed with a view to, if not
completely eliminating them, at least removing some of the grosser
excesses and unfairnesses of the policy that have developed over
several
years?
Jenny
Willott: Absolutely. The hon. Gentleman makes a useful
point, and I shall take that up in a minute or two. The discrepancies
are very large. To say that the increases in the UK result from cost of
living increases in the UK disregards completely the international
circumstances of many of those pensioners. If the same people with the
same contributions records were living in this country, their pensions
would be increased year on year. This cost is not over and above what
would be expected had they remained in this country. It is a cost that
the Exchequer would otherwise have borne had those people not chosen to
move
away.
I
understand the wide range of reasons that are given for why these
pensions should not be uprated each year. I read a lot of points that
were made in various debates, and I was struck that most hon. Members
seemed to acknowledge that there was an unfairness. This generally
comes down to the issue of cost. Few people feel that this is a
perfectly reasonable way for us to continue; most people seem to accept
that there is a problem. The question is simply whether we are prepared
to pay to alleviate that
unfairness.
I
appreciate that controlling the budget and managing costs is
fundamental and the only responsible way to behave. If it was being
proposed that we should completely eradicate all the unfairness from
this point in time, and
uprate all frozen pensions to current UK levels and pay the arrears, the
cost would be exorbitant. Although several early day motions relating
to that have been tabledI have signed them, as have others on
both sides of the Houseit is pretty much impossible for all
political parties to support that ideal situation because of the cost
that would be incurred. Nevertheless, we can recognise the unfairness
in the current system and we could move to recognise the contribution
that those affected have made to the UK by working here and by
contributing to our national insurance system.
It could be
cost-effective to do that by starting uprating from this point in time,
rather than bringing everybody up to the level at which they would be
in the UK. There are clearly a lot of objections to that from those who
are affected and feel that they would like their pensions to be uprated
to the existing UK level now. However, that would be a reasonable and
cost-effective step towards recognising the unfairness. According to
figures given in a parliamentary answer, it would cost around
£20 million to £30 million in the first year,
which is a very small amount in the grand scheme of the
Governments budget. I would be grateful if the Minister would
comment on that proposal.
As a first
step, my hon. Friend the Member for Inverness, Nairn, Badenoch and
Strathspey (Danny Alexander) has suggested that rather than starting
the uprating immediately, we could acknowledge that the Government were
uncomfortable about the cost that could be incurred and instead
establish an independent process that would look at the unfairness in
the system and determine how a cost-effective and reasonable solution
could be achieved, which is what the hon. Member for Daventry referred
to earlier. That would not involve the Minister giving a financial
commitment today, but it would mean that we could look at the situation
to see whether there was a possibility of moving forward and finding a
way that was financially viable. I should be grateful for the
Ministers
comments.
4.39
pm
Mr.
James Clappison (Hertsmere) (Con): It is a great pleasure
to serve under your chairmanship this afternoon, Mr.
Wilshire. I suspect that our consideration will not take an immense
amount of
time.
I
am grateful to the hon. Member for Cardiff, Central for outlining her
proposals so clearly. Notwithstanding her initial remarks about getting
things in order, I congratulate her on marshalling her arguments in
such a way and avoiding the slight problem that the Liberal Democrats
had on one occasion when they voted against such a measure, which would
have meant that those who were in receipt of pensions, benefits, income
support and jobseekers allowance would not have received their
uprated
benefit.
Mr.
Clappison: If the hon. Lady wants to say that there was
never any such occasion, I am happy to be corrected, but I believe that
there
was.
Jenny
Willott: I was not going to say anything of the sort. I
was just going to reassure the hon. Gentleman that that will not happen
today.
Mr.
Clappison: I am sure that Committee members will be
relieved to hear that, as will the recipients of these
benefits.
It
is important to bear in mind that this is one of the measures that
comes in the context of the benefits uprating that was announced to the
House in February. The context of the debate is that we are uprating a
range of benefits in line with inflation: pensions, pension credits,
state pension credits, guaranteed pension credits, jobseekers
allowance, incapacity benefit and income
support.
The
hon. Lady elegantly skirted around two central points for the purposes
of her arguments. She acknowledged that the regulations were concerned
with retail price inflation in this country, but failed to enlarge on
that as far as the receipt of benefits in other countries is concerned.
We are dealing with the effects of inflation in this country. The
regulations uprate benefits to reflect changes in retail prices in this
country, as measured by the retail prices index for most purposes, and
the Rossi index for others. We have to measure the appropriate uprating
for benefits according to inflation in this country, not that which may
or may not be taking place in other countries because of their economic
circumstances.
Mr.
Boswell: Did my hon. Friend notice the Secretary of
States response the other day when I asked whether this
years uprating should be accelerated to take account of
escalating food and fuel prices? He did not respond with the usual
forward defensive stroke of, We have no plans to do so.
Interestinglyperhaps pregnantlyhe responded that he was
not aware of any proposals in that direction. Does my hon. Friend read
anything into
that?
Mr.
Clappison: My hon. Friend, who has long experience of
these matters, makes a very interesting point. It is fair to say that
many people in this country feel that the increases that they face in
food, fuel and energy prices are much greater than the increase in the
retail prices index, on which the Government have based this change.
The RPI increase is 3.9 per cent, while the Rossi increase, which is
the RPI index less housing costs, is only 2.3 per cent. While those
have been used for the uprating that has taken place in previous years,
many people will feel that the increases in their everyday living costs
are not reflected by the changes. We are talking about the changes that
are taking place in this country, which the hon. Member for Cardiff,
Central failed to
grasp.
The
second point that the hon. Lady skirted around even more elegantly is
that there is an expenditure implication. We either uprate the benefits
for this group of people or we do not. If we do, there is an
implication for benefit expenditure. We cannot say that we want to
uprate their benefits and that there will be no expenditure
implication. We have to face up squarely to the fact that if we do
this, there will be a benefit expenditure
implication.
The
Conservatives face up to both points I have raised. We have had an
interesting little debate, but I say to the hon. Lady that it has been
in the wrong context. We are talking about uprating benefits to meet
the inflationary pressures faced by people in this country, some of
whom are on very limited incomes.
4.44
pm
The
Minister for Pensions Reform (Mr. Mike
O'Brien): It is a pleasure to serve under your able and no
doubt firm chairmanship, Mr. Wilshire, although I do not yet
see a need for a great deal of
firmness.
The
Chairman: Just give me the
chance.
Mr.
O'Brien: I welcome the hon. Member for Cardiff, Central to
her new position as the Liberal Democrat spokesperson on pensions and
social
security.
The
regulations are consequential on the annual social security uprating
order. They make a number of provisions, although todays
discussion has been exclusively on frozen UK state pensions for
overseas pensioners. Regulation 3 is at the heart of the debate. It
comes out of an arrangement that we entered into with various countries
to ensure that people did not pay towards social security entitlement
in two countries and receive that entitlement in only one. Since 1955,
the UK state pensionalong with widows
benefitshas been payable worldwide. Anyone who has built up
entitlement to the state pension here gets it, no matter where they
choose to live or what their nationality is. The fact that the pension
is not uprated for all overseas pensioners is a long-standing issue
that goes back to the 70s. Both Labour and Conservative Governments
have said that they have no intention of either negotiating new
reciprocal agreementsso that more pensioners in those countries
receive annual incrementsor changing the status quo regarding
annual
uprating.
Upratings
are paid to pensioners living in the European economic area and
Switzerland, under the European Communitys social security
legislation, and we have some reciprocal agreements, many of which have
been mentioned. Some months ago I met with pensioners from various
countries to discuss some of the issues. I again confirm that we do not
have any plans to negotiate new reciprocal arrangements or to change
the uprating
rules.
I
have sympathy with some of the cases of pensioners living overseas. I
will come back to the case in Australia because I have some questions
about that for the hon. Lady. In some countries, peoples
circumstances are difficult; they are on very low incomes and are
reliant on their UK pension. However, I am elected in this country by
constituents here, and if I am to find extra money, my first priority
is to spend it on pensioners in the UK oras we are under an
obligationin the EEA. We have food and fuel price issues in the
UK. If the Liberal Democrats view is that the priority should
be people living in other countries, that is a matter for them, but I
do not share that view. That means not that I lack sympathy, but that I
have a sense of priority, and that is an important
distinction.
There
are more than 1 million people living abroad who receive a UK state
pension, at a cost of around £2.5 billion. The pensions of half
those peoplemore than 500,000are uprated annually at a
cost of £1.5 billion. The pensions of the remaining
half are frozen, at a cost of £l billion. We must bear in mind
that not all those million-plus people are UK citizens. The Liberal
Democrats have often tried to make it sound as though nearly
10 per cent. of UK nationals claim
pensions
from overseas, but that is not the case. Many of those people came to
this country, worked here, built up national insurance contributions
that took them into entitlement, and then returned to their country of
origin. Since that group of people is so large, the costs of unfreezing
pensions in frozen-rate countries and paying them at the rate at which
they would have been paid had the individuals concerned remained in the
UK would be £470 million, with ongoing costs of £500
million, rising year on year. Fully unfreezing and backdating the
pensions, and paying arrears so that each person would be treated as if
he or she had never left the UK, would cost in the region of £3
billion, and would increase costs by around £500 million year on
year.
I
accept that that is not the point that the hon. Lady is making. She is
saying that she wants us merely to draw a line and move forward from
here, but it must be understood that a significant long-term cost would
be associated with that. If the current amount of frozen pension in
payment were uprated by prices, the additional cost would be some
£30 million, which would increase year on year. If an increase
by earnings were introducedthe Liberal Democrats have been
pressing for increases by way of earnings instead of pricesthat
would cost an additional £50 million in the first year. Again,
that would rise year on year, and, by 2050, the cost would be about
£2 billion, which is a significant
sum.
Let
me talk about some of the people who would get those payments. I return
to the case that the hon. Lady referred to of the elderly lady who
lives in Australia on, we were told, £15 a week. Australia has a
means-tested benefits system, and I am interested to know whether that
person qualifies for Australian benefits. Normally, in such
circumstances, she would, which means that she would not be living on
only a UK pension of
£15.
Jenny
Willott: The point that I was trying to make was not what
her overall income was, but that she contributed in the UK throughout
her working life, but receives £15 rather than the £90
that she would receive if she were in this
country.
Mr.
O'Brien: That is an interesting point. The hon. Lady says
that nobody should have to live on £15 and she now accepts that
the lady in Australia is obviously not living on £15. That is
fine, but we have a situation in which we have a number of
pensionersthe largest number of pensioners in this category are
in Australiawho are able to claim means-tested benefits. At
present, many of them are claiming means-tested benefits. If we were
annually to uprate the amount of pension that they receive, as the
Liberal Democrats urge, some of the other benefits that they receive
would be withdrawn. In other words, we would, in effect, produce a
dividend for the Australian taxpayer. The Liberal Democrats
appear to be suggesting that the British taxpayer should pay
more so that the Australian taxpayer can pay
less.
All
sorts of benefits come from taxation, and we urge our constituents to
pay more. I would have a great deal of difficulty saying to my
constituents, I want you to pay more tax so that Australian
taxpayers can pay less. That does not seem a very good approach
to take with my constituents, but I wish the hon. Lady luck with
hers.
We
also heard from the hon. Lady that people go to live abroad for all
sorts of reasons, and I entirely accept
that reasons of family, circumstances and other demands mean that they
are obliged to live in other countries. However, by and large, they do
so voluntarily, subject to commitments. As Lord Hoffman said in the
recent case of Carson, which was considered in the House of
Lords:
she
put herself outside the primary scope and purpose of the UK social
security system. Social security benefits are part of an intricate and
interlocking system of social welfare which exists to ensure certain
minimum standards of living for the people of this
country.
That
is an important statement from the Law Lords. We have, as our first
obligation, those who reside in this country. As I said, if extra
funding suddenly landed on my desk, I, as a Pensions Minister, would
rather spend it in this country. I do not lack sympathy for those who
live elsewhere, but we need a system of
priorities.
Those
living abroad who have an entitlement and are approaching state pension
age are contacted by the international pension centre and informed that
they have certain rights. We ensure that, when we can, we help them to
get a just and fair entitlement. However, I
am not satisfied that there is a strong enough argument for making them
a priority in the allocation of this countrys taxpayers
funds.
I
want us to make our constituents our priority and to ensure that we pay
them what is appropriate. This years uprating adds almost
£4 billion to Government spending and reinforces our commitment
to build an active welfare state and to tackle poverty by helping those
who are most in need. That is my priority, but we will have to wait to
see what the Liberal Democrats priority is. At present, it
seems to be those who live abroad, rather than the British taxpayer or,
indeed, the British-based
pensioner.
The
Chairman: I think that that brings us to the end of those
who want to speak. I had hoped to call the hon. Member for Liverpool,
Walton, because somebody boasting a badge that says that he is the best
granddad in the world should get a reference in
Hansard.
Question
put and agreed to.
Committee
rose at four minutes to Five
oclock.