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“The rise in relative poverty is a direct consequence of the relatively low growth in low incomes between 2004-05 and 2005-06.”
Will the Minister give us his view on that and tell us where these benefit upratings fit into the general picture? There are important questions about not only relative poverty but severe poverty—that is, people living on 40 per cent. of contemporary median income. Again according to the IFS, the risk of severe poverty increased between the years 1996-97 and 2005-06. Will the Minister tell us where these benefit upratings fit into the picture, and is he prepared to give us any forecast on severe poverty?
Strange as it may seem when one is talking about relative poverty and severe poverty, many of those in receipt of these benefit upratings will be subject to a fairly heavy burden of taxation—or what will be so for them. According to one survey, the poorest fifth of households pay a higher proportion of their income in taxes than any other group. Obviously, quite a lot of that will be accounted for by indirect taxation, but can the Minister give us any idea how many of those in receipt of these upratings are paying direct taxation—that is, income tax or national insurance contributions?
The underlying aim must be, wherever possible, to move people from the benefits system into work and to reduce the number of people subject to the upratings in the order. Let us take one example. Certain parts of the order increase payments to those in receipt of long-term incapacity benefits. I have already given the House the statistics on long-term incapacity benefits, which are striking. More than 55 per cent. of incapacity benefit claimants have been in receipt of incapacity benefits for more than five years and, under this Government, those on incapacity benefit for more
than two years are more likely to die or retire than to get a job. There are also, strangely, several hundred thousand people under the age of 35 claiming incapacity benefit—500,000 altogether, including some who are very young. Will the Minister share with us any views he has on the incidence of long-term incapacity benefit claimants and draw the connection between getting at least some of those people off incapacity benefit and reducing the annual expenditure on benefits?
In considering by how much expenditure on uprating can be reduced in future, will the Minister take into account the evidence that many people in receipt of these benefits, including incapacity benefit and the benefits uprated under the order, want to work and are being let down by the system as currently constructed? In a written reply to me last July, the national statistician told me that more than 2 million of the economically inactive want a job. That figure must include many of those in receipt of the uprated benefits under the order. Taking into account all those on out-of-work benefits, we estimate that nearly 5 million people are on such benefits, including many subject to the order—such as 2.6 million people claiming incapacity benefit, which is being uprated, and 837,000 people on jobseeker’s allowance, which is likewise being uprated. Against that rather dismal background, can the Minister give us a sense of where he sees expenditure on these benefits going in future? Does he expect as much to be spent on these benefits in years to come because of the sheer number of people claiming?
I appreciate that the order is an annual exercise, but it is not a model of simplicity, and the explanatory memorandum is not exactly forthcoming. It tells us what is happening in a very broad sense but gives us little insight into the details in respect of individual benefits. For example, how easy is it for a pensioner to find out what effects article 6(10) has on his or her entitlements under the Social Security Contributions and Benefits Act 1992 or the Pension Schemes Act 1993? In an attempt to scrutinise Government proposals such as this, the Social Security Advisory Committee asked the Minister’s Department to provide what it called a complexity impact statement. It is salutary to read what the committee—the expert body charged with looking at the social security system and all such uprating orders—says in its most recent report. It says:
“We noted in our last report that these statements had told us little about either how the Department’s guidelines on simplification have been applied in each case or about the impact statements that have been made subsequently. We have found this lack of exposure of the process frustrating and on the basis of the limited information that has been offered to us, we have been unable to judge whether any substantial progress is being made”.
In short, these and other measures coming from the Department are too complicated for a complexity impact statement. If that is how the distinguished members of the Social Security Advisory Committee found things, what must they be like for the recipient who wants to find out more about their entitlements under orders such as this? To put it as the committee diplomatically did, there is a substantial barrier to full customer engagement. That is a good description of the way this Government so often operate.
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Paul Flynn (Newport, West) (Lab): This annual uprating debate is not the most striking example of the power of Parliament over the Executive. The order is not amendable, and unfortunately all we can do is take it or leave it. The Lib Dems were unwise to vote against it one year; they were then castigated for being against the increase in pensions. We should consider this situation. We would dearly like to suggest amendments to this order, which I shall come to later.
I and, I suspect, every Labour Member congratulate the Government on their achievements in this area during the past 10 years. I regularly hold public meetings with pensioners and with Age Concern to tell them what is going on and to increase the uptake. I would like to make one plea on uptake. There is real resentment among pensioners about taking handouts, which runs very deeply for certain generations who have worked all their lives and never taken a handout. They see the pension credit and income support as handouts; they accept the entitlement of the basic pension because they have paid for that. That is a serious problem and it is a persistent one. It used to be the case that about an extra half a million people needed to claim income support to bring them up to the minimum income guarantee level, but we now hear that 1.7 million do not claim pension credit.
I appeal to the Minister to find a better way to deal with the issue than the take-up campaign. We have had dozens of those in the past, and none of them has been very successful. Surely there must be some way the Department can delve into the records to identify those who are entitled to pension credit and more income support. It can then write to them and tell them, “There is a very large sum of money to which you are entitled, and it’s waiting for you.”
Mr. MacNeil: In an intervention, I suggested to the Minister the idea of telephoning certain groups of pensioners, but he was not as enthusiastic about that as he might have been. I wonder whether the hon. Member for Newport, West (Paul Flynn) would support a pilot project of telephoning the most needy pensioners to improve the uptake of these credits.
Paul Flynn: There must be a better way of doing it. I will take part in the campaigns that the Minister will lead. We have the communications alliance now, which gives a chance to publicise the meetings and get pensioners along, but we must find a better way than the simple uprating campaigns that have been only partially successful in the past.
This debate provides a chance to look at many of the defects in the system. We must consider the figures that are not uprated; this is a serious matter. We rightly concentrate on the benefits that will be increased, but some figures are not uprated annually at all. In particular, I refer to the capital limits for entitlement to means-tested benefit. The amount of capital that a pensioner can have without benefit entitlement being affected was fixed at £6,000 in 2001—a great deal more than it was in the past. Seven years later, it remains £6,000.
A constituent of mine, Mr. Cliff Knight, who is a doughty campaigner for pensioners and is a local historian, is finding that the ageing process comes with
many companions and that he needs many services that he never previously required. The example is interesting and I want to go into detail about it. He was refused a grant to buy a stair lift. The means test for disabled facilities grants is based on the housing benefit rules. Although the weekly needs of a disabled pensioner are assessed at £186.55 for housing benefit purposes, increasing to £194 this April, the figure for calculating entitlement for a disabled facilities grant is £171.40, which was the housing benefit rate for 2005-06. Surprisingly, that makes a huge difference. The failure to increase the sum since 2005-06 makes a difference of £8,812 in the amount of grant payable. That is staggering. It means that many people, who are entirely deserving of the grants, are floated off them by the failure to uprate the amount in line with inflation. We must examine that—a large cohort of pensioners has been badly dealt with because of that problem.
There is plenty of good news from the Government. It has been gratifying to be a Labour Member in a successful period for pensions. Last year’s Pensions Act embodied two fundamental and welcome changes to entitlement to the basic state pension. First, the earnings link, which was severed in 1980, is to be restored so pensions will increase, as they did before then, at least in line with the increase in average earnings.
The second welcome change especially affects women. The number of years of contributions that is needed to qualify for the full rate of pension is currently 44 for men and 39 for women. That will now be reduced to 30 years for both sexes, thus putting right an old injustice.
However, the order reflects neither benefit because the change in the contribution conditions will not come into force until April 2010 and the earnings link will not be restored until at least 2012 and possibly not until 2014. In both cases, the delay is hard to defend, especially given the surplus in the national insurance fund. If current trends continue, we will be in the extraordinary position whereby the surplus in the national insurance fund will be enough by 2013 to fund a Northern Rock rescue, should such a calamity recur.
For many years, I used to get up early to table early-day motion 1, asking for the restoration of the earnings link. If we had restored it in 1997, it would have been affordable because the subsequent increases in inflation have been low. That should have happened—it would have been a great advantage to us.
Breaking the earnings link had a dramatic effect on the basic pension. Most of the damage was done under the Tories. The basic pension fell from 23.7 per cent. of average earnings in 1981 to 17 per cent. in 1997. That is sad, bearing in mind my comments about the value of the basic pension as something to which people feel they are entitled and are proud to take. Take-up is virtually universal. Sadly, the process has continued, with a further drop under the present Government from 17 to about 15.4 per cent. The valued pension is therefore being reduced all the time, thus increasing the amount people have to claim.
Single pensioners are now about £47 a week worse off than they would be if the link had never been broken. That is a large sum of money. Everyone—
including all the Opposition parties, I believe—agrees that the link must now be restored. Do people understand what it means? Everyone, especially those on small incomes, fears that their income will not keep up with inflation. They are going to find themselves with a reducing power to spend. They want the link as it gives a great deal of security, and if it is not there they rightly object. The link is justified and will be hugely popular for the party that introduces it. However, pensioner organisations do not understand why they have to wait at least another four years until they have it. By 2012, the pension will be 14 per cent. of average earnings, and each year’s delay beyond that date will reduce it still further.
It is not just today’s pensioners who will suffer from the delay; it will also mean a permanent reduction in the value of the pension as a proportion of average earnings for generations to come and a permanent increase in the proportion of pensioners forced to rely on means-tested benefit. At the very least, the Government should now give a definite commitment to restore the link by 2012, leaving open the possibility of earlier action.
On contribution conditions, the second fundamental change embodied in the Pensions Act 2007 was the reduction in the number of years of contributions required for women eventually to qualify for a full or nearly full basic state pension. Those who stand to benefit most are those who, wisely or not, chose to pay the reduced married woman’s contribution and those who paid full contributions when they could but had substantial gaps in their contribution records for the years when they were bringing up children or caring for disabled members of their family.
However, until 1978 the years devoted to child care or other family responsibilities did not count towards the state pension. Barbara Castle introduced the home responsibilities protection, or HRP, the effect of which was that those years were to be left out of the pension calculation. That meant that a woman with, say, a 10-year gap in her contributions record during which she was caring for children or a disabled relative could still qualify for a full pension—an act that we all accepted as absolutely right. However, HRP did not start until 1978 and did not apply retrospectively. There are therefore still a large number of women over pension age whose child-rearing years occurred at least in part before 1978 and who still receive reduced pensions as a result.
To their credit, the Government have recognised that. The May 2006 pensions White Paper said:
“Women’s pension entitlements are, on average, catching up with men’s. But there remains a critical cohort of women over the age of about 45 now who did not fully benefit from HRP. They have significantly poorer contribution records—despite the fact that most of them will have made important and valuable contributions to society.”
The admirable solution proposed in the White Paper and embodied in last year’s Act was to reduce the number of contribution years needed for a full pension, but only for those reaching pension age in 2020 or later. However, most in the critical cohort referred to in the White Paper are already over pension age now. It is the older women who are worst affected, because more of their child-rearing days occurred before 1978, when HRP started.
A woman now aged 80 would have been 50 in 1978, so would probably derive little or no benefit from HRP, and will almost certainly receive a reduced pension as a result, yet the new and more generous rules will not apply to her. Moreover, it is plainly unfair that a woman born on 5 April 1950, and now aged 57, should receive a much smaller pension in April 2010 than a woman with the same contribution record who was born a day later. However, that is the effect of the change in the contribution conditions as it stands now.
As April 2010 approaches, people will become increasingly aware of the cliff edge that we will face at that time. It is difficult to believe that the Government will not be compelled by public opinion and the deep sense of injustice that will be felt to backdate the change, so that existing as well as future pensioners benefit from it. I urge the Minister and the Government to make a decision, rather than leaving it to the last moment, so that women already receiving reduced pensions can at least look forward to a better pension from 2010 onwards.
The national insurance fund is a fascinating subject with which I have bombarded Pensions Ministers in a number of Governments for rather a long time.
Mr. MacNeil: I have been listening with interest to the hon. Gentleman. Is he talking about a citizens pension—an automatic entitlement for each and every citizen of pensionable age?
Paul Flynn: That would be a fine objective to aim for.
As the Minister said earlier, the Government have—for good, persuasive reasons—concentrated on those whom they perceive to be the poorest pensioners. The great problem is, however, that the people on whom they have concentrated are not the poorest pensioners. The poorest pensioners are not those who are claiming pension credit and income support to bring them up to at least the minimum income guarantee; the poorest pensioners of all are those who are not claiming the allowances to which they are entitled. They are the ones who need to be targeted now. We should be aiming to provide a universal benefit that is as popular as child benefit—which is taken up by 99 per cent. of those who are eligible—and has no stigma attached to it. Sadly, however, we are not getting nearer to achieving that goal; we are getting further away.
Any proposals for increases in benefits must take account of their affordability, as the Minister has rightly said. The cost of pensions and other contributory benefits falls on the national insurance scheme, and the Government Actuary’s report shows that, once again, the fund is in extremely good shape. It is expected to end this financial year with a balance of £46 billion. Because the fund has no borrowing powers, the Government Actuary recommends that the year-end balance should be enough to meet two months’ expenditure, but £46 billion is enough to meet eight months’ expenditure. By the end of next year, the balance is expected to reach £57 billion, which will be enough to cover nearly 10 months’ expenditure. The fund has been accumulating ever-increasing balances over the past 15 years, and this is set to continue. The Government Actuary’s projection shows the balance trebling by 2013 to £115 billion, the equivalent of more
than 16 months’ expenditure. The process has continued under this Government. We started off with a balance of £500 million, and the amount has simply accumulated.
It is often suggested by campaigning bodies such as the splendid National Pensioners Convention that, instead of building up these massive surpluses, the money should be used to meet part of the cost of an improvement in the state pension. That is a very persuasive argument. There is a standard response, which I have seen in numerous letters from Ministers over the years. They say:
“The National Insurance Fund is run on a pay-as-you-go basis. When there is a surplus, it is invested in gilts. If the surplus was used to increase benefits, the Government would need to raise the equivalent through other means such as raising taxes.”
That is a key revelation. In other words, the Government are deliberately collecting more money in national insurance contributions than is needed to pay benefits, and using the surplus for purposes which, however worthy they might be, have nothing to do with national insurance.
This is a genuine stealth tax. I am sorry to have to use that term, as it has been vastly overused, and misused, by the Opposition. In the short term, this might be a convenient arrangement for the Government, but in the longer term, it can only undermine confidence in the whole national insurance system. Moreover, if national insurance contributions are regarded as just another form of taxation, the Government are open to the serious objection that the rich do not pay their fair share. They pay only 1 per cent. of their earnings over £670 a week, compared with the standard employee’s contribution of 11 per cent.
Personally, I pay nil per cent., because I am in the position, having passed retirement age, of not having to pay national insurance contributions. I have raised this matter with Chancellors in the past, and I would suggest to the Minister that, if the Government are looking for a way of raising money fairly painlessly, they could ask people who work after retirement age to continue to pay national insurance contributions. They can certainly afford to pay them, and there would be a great deal of justice if those fortunate enough to work after retirement age did so. That would raise £2 billion, and I believe that that is what should happen. At the moment, however, we have a situation that is leading to serious injustices in the system.
I come back to the fact that I look forward to saying with pride at the next election what a marvellous job the Government have done over the last 10 years. As the motto of one of the schools in my constituency says, “Nid da lle gellir gwell”—there is no good that cannot be improved upon. We have yet to reach perfection in the system, so I hope that the Minister will take account of what have hopefully been my many constructive suggestions.
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