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28 Oct 2008 : Column 176WH—continued
Constituents have often told me that the Government are good at collecting taxes, but much less efficient at delivering help when people need it most. The pension credit is a case in point. It is difficult for me as a constituency MP to assure pensioners of the need to apply for pension credit when one in three awards is incorrect. All hon. Members will have had first-hand experience of the impact of that. The credibility of the whole pension system is called into question when fraud and error rates are so high.
Another concern about means-testing in the light of the Government’s proposals for personal accounts and the emphasis on encouraging saving is that there is no escaping the fact that extensive means-testing will erode the returns from savings, and reduce the incentives to save.
Richard Younger-Ross: Does my hon. Friend accept that with the current reforms, pensioners are receiving advice on whether to buy extra years, but if they are entitled to pension credit, they are, perversely, better off if they do not buy extra years and, instead, rely on that benefit? The way to get people to save is to simplify the system and to provide a basic pension without the complications of credits so that there is an incentive to save, and that they keep their savings when they retire.
John Barrett: We must have a system in which it makes sense to make provision for years ahead, instead of the alternative of making no provision and hoping that the benefits system will pick up the slack. We cannot afford any more reasons for people not investing in pensions. The list is already long enough.
Among the many victims of the 10p tax fiasco were elderly people on low incomes, and hot on the heels of that was the news that pensioners now stand to miss out on hundreds of millions of pounds in benefits because the eligible backdating periods for pensioners claiming pension credit, housing benefit and council tax benefit have been cut from 12 months to three months, and for working-age claimants the period is being cut from 12 months to six months. Clearly, both are unjustifiable, given the additional lengths that people must go to to justify a backdated claim, but pensioners seem to be particularly harshly treated.
The group most failed by the current system is undoubtedly women. Like those a century ago, the poorest of today's pensioners are women, the vast majority of whom receive less than a full state pension. Many were badly advised about paying the small stamp or were unable to pay national insurance contributions, perhaps because they were caring for their families, or were in low-paid or part-time employment. We have had some welcome concessions from the Government this week, but there is still no help for women who have already retired and who are not receiving a full state pension, or those who have made less than a quarter of the full contributions and who currently receive no basic state pension at all.
As we see the failure of means-testing, I am confident that conventional wisdom will swing behind the idea of a citizen's pension at a rate that can genuinely deliver security and dignity in retirement for every citizen, and yet which is simple enough for everyone to understand. Such a pension system would be equitable and would not discriminate between men and women.
Of course, many of the issues raised today will be picked up as the Pensions Bill makes its way through the other place. It is vital that it is correct, because we cannot afford to get it wrong. At a time when hundreds of billions of pounds have been found to protect banks and bankers, it is time that the Government provided the same level of concern for our pensioners.
10.23 am
Mr. Nigel Waterson (Eastbourne) (Con): I congratulate the hon. Member for Teignbridge (Richard Younger-Ross) on securing this debate. As he pointed out, it is timely that we are debating the matter again—we recently had a debate on pensioner poverty in the House during Opposition time—and are discussing pensioner poverty in the anniversary year of the start of the state pension. I do not want to detract from the plaudits given to Lloyd George, but I remember that a member of the House of Lords at the time criticised the proposals on the grounds that they would sap the moral fibre of the nation. However, life has moved on.
I am a little concerned that the Liberal Democrats are now less in touch with the real issues affecting pensions. In my constituency, they rapidly went off the idea of a local income tax when it was pointed out that most families in Eastbourne would end up paying more than under the current system. Apart from the cost aspect, there is still a huge unanswered question about the residency test in the so-called universal or citizens pension and how that will be established. When it comes to being out of touch, the leader of their party is apparently massively ignorant about the true level of the state pension, but I am sure that that is now engraved on his forehead.
Sadly, we are debating this important issue against the background of the turmoil in economic and financial markets, and the downturn—perhaps “Brown-turn” would be a better expression—in our economy as the recession takes a grip. It is interesting to remember what the Labour party said in its manifesto back in 1997:
“We believe that all pensioners should share fairly in the increasing prosperity of the nation.”
Who could disagree with that sentiment, but is that what has happened under this Government? The other side of the coin is that as the recession takes a grip on the whole economy, we should be careful to safeguard older people, because they are likely to be hit disproportionately badly by economic problems compared with other groups in society.
It is worth repeating the point about pensioner inflation, which is a fact, because such a high proportion of pensioners’ disposable income is spent on council tax, utility bills, food, fuel and so on, so their real inflation rate is much higher. A figure of 9 per cent. was mentioned this morning, but an article the other day suggested that the true inflation rate might be 13 or 14 per cent. for pensioners. Age Concern in its excellent brief for this debate makes that very point. It says:
“In most years since 1987, the increase in the Basic State Pension has been broadly similar to pensioner inflation. However, since 2006 the real value of the Basic State Pension has been falling. In 2007 and 2008, even the guarantee element of the Pension Credit, up-rated each year in line with average earnings has not been sufficient to compensate pensioners for the real inflation they experience.”
We have heard about means-tested benefits, and the Government have tested to destruction the ability of such benefits to get help to those who need it most. We have heard about the 1.8 million pensioners who do not claim the pension credit to which they are entitled, and we have also heard about backdating. It seems peculiar at this precise moment in the economic cycle to make it harder for older people, who, despite the best efforts of the Pension Service, often find it difficult to navigate through the process to obtain pension credit or other means-tested benefits.
John Barrett: One of the most important reasons for leaving in place backdating in excess of three months is that when a pensioner’s circumstances change—perhaps because of a bereavement in the family—changing a claim is not the No. 1 priority. It may be some months after a family bereavement before they get round to claiming an additional entitlement.
Mr. Waterson: The hon. Gentleman is absolutely right, but the Government have form. Shortly after they first came to power, they sharply reduced the backdating for some benefits. I believe that bereavement allowance was included, which seemed particularly harsh.
Another issue that came up is the link with average earnings. The Government are committed to that at some point, but are coy about saying when. They said that it might be 2012 or 2015, but that it must be affordable. As we head into choppy economic waters, the word “affordable” may become more significant. We joined some Labour rebels on 22 April in voting for an amendment to the Pensions Bill merely requiring the Government to say precisely when they would restore the link. However, Labour MPs were, of course, whipped to vote the amendment down. It may be that the Minister, whom I welcome to her new role, can enlighten us on that matter today and make a commitment in this debate, before she is too much in the grip of the Treasury.
As we head into these difficult times, my main point is that older people need reassurance. The briefings from Help the Aged and Age Concern make it clear that we are not only talking about the direct economic affects on pensioners, but their sense of isolation and depression, which we know is much more likely to affect older than younger people. Indeed, that also results in costs to the NHS and so on.
Before we take into account housing costs, we know that 2.5 million pensioners live in poverty, of whom about two thirds are women. That is happening in the 21st century and in the fifth richest country on the planet. The Government have form for trying to define away a problem. Recently, Ministers—although I hope this Minister will resist the temptation—have been prone to say that, as a result of their marvellous policies and a successful 11 years in government, pensioners are now less likely than other members of society to fall into poverty. Of course, that depends on what measurement is used. The House of Commons Library has kindly supplied information for me that shows that if one uses the before-housing-costs income measure, the equivalent figures for falling into poverty would be 23 per cent. for pensioners and 18 per cent. for the population as a whole—in others words, pensioners are more likely to
fall into poverty than other members of society. As if that were not bad enough, recent Eurostat figures show that only pensioners in Latvia, Spain and Cyprus are more likely to fall into poverty than pensioners in this country.
As the hon. Member for Edinburgh, West (John Barrett) said, much of this issue depends on take-up. It is interesting that when pension credit was originally unveiled, the Treasury assumption was that 1.5 million people would never get around to claiming pension credit. As we have heard, some £5 billion a year of benefit that should be going to older people remains unclaimed. That is a huge amount, which, as the Institute for Fiscal Studies has said, could take 500,000 pensioners out of poverty at a stroke. That is a very arresting figure.
The Minister certainly has the time, but I wonder whether she has the inclination to talk about what is called automaticity—or something like that—which is the process of making benefit payments automatic. We all know that there is a huge failure to claim some benefits. I forget which hon. Member made this point, but the worst offending benefit is that for the council tax. In my constituency in Eastbourne, a lot of elderly people, particularly widows, own their flat or house. They are very cash poor, but because they are owner-occupiers they are totally convinced that they have no right to claim council tax help. That is precisely why, even among older people where the claim rate is low, owner-occupiers are the lowest category of claimants of council tax benefit. I know that the Government have been trying to look at how to bring in an automatic way to claim and pay benefits. It would be helpful to know what progress they have made so far and what other proposals they have in mind. I suspect that the Treasury is quite smug about the situation because it means that it can carry forward £5 billion from one year to the next.
Finally, I shall touch on what Age Concern has been doing. A while ago, it launched a campaign—I helped to launch it in my constituency, where we have an active Age Concern branch—on the subject of advice. One of the first things that local authorities up and down the country tend to do when times are hard and Government money is not available is cut back on advice services. It is painfully obvious to me that, despite our best efforts in advice surgeries, what older people need more than anything is good, reliable, trustworthy advice about what they are entitled to and so on. Coupled with the concerns about budget cuts in the Pension Service expressed in the Help the Aged brief, which was prepared for this debate, that is particularly worrying. The brief states:
“We believe this is a serious omission and sends out the wrong signal about the importance of local action on the ground to improve pensioner incomes.”
By that, it means that the Government are failing to include a local measure of pensioner poverty. None of the 198 indicators set out for local authorities relate to pensioner poverty.
We have talked about the huge problem of fuel poverty. It is estimated that there are 2.5 million pensioner households in fuel poverty already. According to any measurement, that figure must be increasing. We still have a disgraceful record in this country for excess winter deaths: there were some 22,300 last winter. As
the recession takes a grip, one can only imagine how bad that situation will be this winter.
On annuities, I was pleased that yesterday during the debate on the Pensions Bill my colleagues in the Lords proposed that there should be a temporary relaxation of the compulsory annuitisation rule. At the moment, those coming up to 75 are facing huge turmoil in the markets and will be required to set their income for the rest of their lives. I am therefore very annoyed and upset that the Government have set their face against a temporary relaxation of the compulsory annuitisation rule. I am surprised that the Liberal Democrats apparently did not support us in the Lobby in the Lords last night. That is a great shame because, at this stage, we should be doing everything we possibly can to help those who are retired or coming up to retirement.
The Government’s priority should not be to help bankers or financiers; our older citizens deserve not to be lost sight of among the present turmoil. Frankly, we need to ensure that we do not have the situation that we have had in my constituency where retired constituents have had to choose between spending their winter fuel allowance on fuel, council tax or grocery bills.
10.36 am
The Minister of State, Department for Work and Pensions (Ms Rosie Winterton): I congratulate the hon. Member for Teignbridge (Richard Younger-Ross), first, on the lesson on how to pronounce the name of his constituency, which I am sure none of us will never forget, and secondly, on securing the debate, which, as he said, is very important. Hon. Members have made some interesting contributions. The hon. Gentleman pointed out that this subject is not only important because many older people, some of whom are pensioners, come to our surgeries, but because we are all aware of the enormous changes that are taking place in our society.
Demographic changes are, in many ways, hugely welcome because, of course, people are living longer, are leading more active lives and are enjoying fruitful later years. However, that also presents certain challenges. I think that half the population will be over 50 by 2050, so it is important that we look to the future as well as consider some of the points made about the immediate issues facing pensioners. At the moment, there are about 12 million pensioners in this country and we spend about £80 billion of public funds supporting them. That means that some £12 billion a year more has been spent on pensioners than would have been the case if 1997 policies were still being pursued.
We have heard a lot today about means-testing and form-filling, but I start by saying that I make no apology for the fact that the Government’s strategy since 1997 has been to target help on the poorest pensioners, while providing a solid foundation of support for all. I say that because when I was elected in 1997, we faced a crisis nearly every winter as a result of the meagre cold weather payments that were made available. There was no winter fuel allowance as it exists today. People, particularly women, were living on the very lowest incomes. It was a commitment of the Government I supported to do something about that and to help the poorest people. In 1997, it was almost as if age was a proxy for poverty. The Government were determined to tackle that.
The targeted measures that we talk about, such as pension credit, have helped to lift 900,000 pensioners out of relative poverty. We spend £12 billion more on pensioners each year than we would have done if 1997 policies had been continued, and about half of that— £6 billion—goes to support the poorest third of pensioners. In 1997, the poorest pensioners lived on £69 a week. Today, pension credit means that no one must live on less than £124 a week; the figure is £189 for couples. That is a rise of more than one third in real terms.
Points were raised about increasing the basic state pension. When we talk about the figure of £124 a week, we must not forget that 1 million pensioners on pension credit also receive help with housing benefit—on average, £61 a week. Some 1.6 million pension credit recipients are also in receipt of council tax benefit. That is about £14 a week. When we consider the overall help that reaches the poorest people, we have to be wary of saying that a blanket approach of £151 a week will solve all the problems, because it will not solve the problems of those on the lowest incomes. In fact, it would reduce the assistance that they receive. It is important that those who advocate a blanket approach recognise the effect that that would have on the poorest pensioners. To forget that is to do an injustice to the help that we are giving at the moment.
Today, the poorest pensioner households are £2,100 a year better off. Age is no longer a proxy for poverty. That is real progress and a record of which the Government can be proud. We have been comprehensive in our approach. Winter fuel payments were £20 in 1997; now, they are £400 for over-80 households.
Jeff Ennis (Barnsley, East and Mexborough) (Lab): I thank my right hon. Friend for giving way on what is an important point. The winter fuel allowance has had a dramatic effect on poorer pensioners in my constituency. The Minister will know that on a number of occasions over the past 18 months I have raised on the Floor of the House the 25p age addition for pensioners over 80. That has remained static at 25p since 1972, when it was introduced by the Heath Government. In 1972, people could buy 2 lb of cheddar cheese with 25p; now, they cannot even buy a second class stamp. Of course, more than one third of all pensioners over 80 now pay income tax. That is a credit to the Government as well, but by having the weekly allowance, that third of pensioners over 80 are paying income tax on the 25p, so they are receiving 20p a week. The Government should consider scrapping the 25p age addition and, say, putting £50 on the winter fuel allowance. Will the Minister take up that suggestion with her Treasury colleagues for future consideration?
Ms Winterton: My hon. Friend has campaigned vigorously on that matter and I suggest that he meets me to discuss some of the proposals that he has advocated. At present, we have no plans to change the system, but I would be most interested to hear his wise, as always, counsel on the matter.
Ms Winterton: I will give way to the hon. Member for Teignbridge.
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