House of Commons portcullis
House of Commons
Session 2007 - 08
Publications on the internet
Public Bill Committee Debates

Social Security Benefits Up-rating Regulations 2008

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 every—if not every—constituency 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 UK—we would not expect anybody to—so 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.
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 Government’s 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 Minister’s 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 jobseeker’s allowance would not have received their uprated benefit.
Jenny Willott rose—
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, jobseeker’s 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 State’s response the other day when I asked whether this year’s 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.” Interestingly—perhaps pregnantly—he 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 today’s 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 pension—along with widows’ benefits—has 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 agreements—so that more pensioners in those countries receive annual increments—or changing the status quo regarding annual uprating.
Upratings are paid to pensioners living in the European economic area and Switzerland, under the European Community’s 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, people’s 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 or—as we are under an obligation—in 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.
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 introduced—the Liberal Democrats have been pressing for increases by way of earnings instead of prices—that 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 pensioners—the largest number of pensioners in this category are in Australia—who 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.
“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 country’s taxpayers’ funds.
I want us to make our constituents our priority and to ensure that we pay them what is appropriate. This year’s 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 o’clock.

House of Commons home page Parliament home page House of Lords home page search page enquiries ordering index

©Parliamentary copyright 2008
Prepared 10 June 2008