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Session 2008 - 09
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Public Bill Committee Debates

Draft Christmas Bonus (Specified Sum) Order 2008

The Committee consisted of the following Members:

Chairman: Mr. Roger Gale
Baron, Mr. John (Billericay) (Con)
Barrett, John (Edinburgh, West) (LD)
Boswell, Mr. Tim (Daventry) (Con)
Clark, Ms Katy (North Ayrshire and Arran) (Lab)
Corbyn, Jeremy (Islington, North) (Lab)
Davies, David T.C. (Monmouth) (Con)
Dobbin, Jim (Heywood and Middleton) (Lab/Co-op)
Drew, Mr. David (Stroud) (Lab/Co-op)
Fraser, Christopher (South-West Norfolk) (Con)
Jones, Helen (Warrington, North) (Lab)
Kidney, Mr. David (Stafford) (Lab)
Morgan, Julie (Cardiff, North) (Lab)
Prosser, Gwyn (Dover) (Lab)
Selous, Andrew (South-West Bedfordshire) (Con)
Willott, Jenny (Cardiff, Central) (LD)
Winterton, Ms Rosie (Minister for Pensions and the Ageing Society)
Rhiannon Hollis, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 16 December 2008

[Mr. Roger Gale in the Chair]

Draft Christmas Bonus (Specified Sum) Order 2008

The Chairman: Good morning, ladies and gentlemen. Members may remove their jackets, if they wish to do so.
10.30 am
The Minister for Pensions and the Ageing Society (Ms Rosie Winterton): I beg to move,
That the Committee has considered the draft Christmas Bonus (Specified Sum) Order 2008.
I am delighted to be here this morning under your chairmanship, Mr. Gale, to discuss what I hope will be a welcome order made under sections 148 and 175 of the Social Security Contributions and Benefits Act 1992. The purpose of the order is to award a one-off payment of £60, to provide direct and swift financial support to 15 million people, 12.5 million of whom are pensioners in receipt of state pension or pension credit; 2.5 million other people will also benefit from the one-off payment, because the money will go to some 2 million disabled people, including about 300,000 children, 350,000 carers and 150,000 people who are in receipt of bereavement benefits. That is real help, when and where it is needed most.
We recognise that many older people are concerned about their finances during the current economic downturn. That is why we are spending approximately £900 million on the additional Christmas bonus payments. That means an extra £60 in pensioners’ pockets, on top of the regular £10 Christmas bonus received annually in December. The Christmas bonus will be paid in two instalments. Recipients will get £10 this month, as in previous years, with the additional £60 to be paid between January and March in the new year.
Mr. Tim Boswell (Daventry) (Con): Will the Minister confirm that the additional payment, being part of the Christmas bonus, will be tax-free? I have not found that stated anywhere in the literature. For the record, in case I do not get around to making a speech, I ought to declare an interest in the matter.
Ms Winterton: Yes, it is a stand-alone payment, which is a tax-free sum, so it will not affect any recipient’s entitlement to the income-related benefits that they may already receive.
The majority of state pension customers should receive the £60 payment in January, in addition to their pension. The remaining 3 million customers will get their £60 in February or March next year. Practically, that is the earliest that we could make the payments after seeking and obtaining the approval of the Committee and of the other place. A negative resolution has moved the qualifying week from the first week in December to the week commencing 22 December. That provision came into force on 27 November. The payment will be made automatically, so no one needs to worry about how and where to claim.
I hope that the Committee will agree that the one-off payment will provide genuine help to 15 million people, 12.5 million of whom are pensioners. It will be a valuable means of support to many of those who need it most during a time of increased financial pressure. It builds on other targeted measures in the Chancellor’s pre-Budget report, including an increase in the basic state pension from £90 to £95 a week and the biggest increase in pension credit since it was introduced. No pensioner need live on less than £130 a week from April 2009. The order adds to the significant help already in place for pensioners, such as the increase in the winter fuel payment.
The Government have recognised the need to help people on the lowest incomes at this time. The one-off payment will address some people’s concerns. The order is compatible with the European convention on human rights, and I commend it to the Committee.
10.35 am
Andrew Selous (South-West Bedfordshire) (Con): It is a pleasure to serve under your chairmanship this morning, Mr. Gale.
I thank the Minister’s officials for their usual comprehensive brief in the explanatory memorandum, which I and other Members, I am sure, have found helpful this morning. For the sake of clarity, can the Minister confirm that the first statutory instrument related to the order was the one that she mentioned, which moved the qualifying week on a negative resolution. The second paragraph of the explanatory memorandum says that the order is
“the second part of a pair of statutory instruments”.
The Minister is nodding, which is helpful.
Can the Minister also confirm the position of Northern Ireland in respect of the order? Paragraph 5 of the explanatory memorandum, “Territorial Extent and Application”, states that this instrument applies only to Great Britain. Furthermore, has the Department for Work and Pensions made any estimate of the impact that this £900 million will have on jobs and gross domestic product? The Minister referred—as does the explanatory memorandum—to the Chancellor’s comments in the pre-Budget report and said that this money needs to be paid as quickly as possible, as part of the Government’s fiscal stimulus package. Quite a considerable sum is being spent from pressed public finances, so it would be good to know what the Minister believes the impact on the economy will be. We realise that the payment will be helpful to pensioners, disabled people and others who will receive it.
The Minister pointed out that the order could be perhaps more appropriately called “new year”, rather than “Christmas”, given that she told the Committee that, in the main, the £60 will be paid in January, although some of it will be paid up to March. Someone commented in the other place that pensioners, in particular, might therefore end up receiving the money themselves, rather than spending it on their grandchildren if they get it after Christmas, rather than before. Perhaps that was part of the Government’s thinking.
I note the £2 million administration cost. Will the Minister say whether it was not possible to make the payment all in one go? One imagines that computers could have been programmed to pay people £70, rather than £10. I realise that £2 million is quite a small amount in relation to the £900 million cost of the order, but when there is considerable pressure on public finances, that £2 million administration cost could have been reduced or saved.
Finally, as the Minister went a little wide of the order in some of her remarks about the increase in the basic state pension, can she say anything on the reduction that pensioners get in their pension credit in terms of their savings amounts? The Government assume a savings rate for pensioners of over 10 per cent. That was a source of contention to pensioners when interest rates were higher than today. The Government assumed the figure of 10 per cent. before the recent cut in interest rates, so can the Minister tell us whether they intend to reconsider that, to help pensioners who have tried to do the right thing and set by some money for their old age?
10.38 am
John Barrett (Edinburgh, West) (LD): I certainly welcome this morning’s announcement. It is a nice thought that all Members here today will have played their part in delivering £900 million to deserving individuals over the Christmas and new year period. It is often referred to as a pensioner’s bonus, but the 2 million disabled, 300,000 children and carers and a number of other people who will also receive the benefit are a vital group.
As mentioned by the Conservative spokesman, it is effectively a new year bonus—most of it will be paid then. I hope that the Government will not announce this new, new year bonus again after Christmas, because they have been known in the past to declare the same amounts two or three times.
I am happy to see the order go through; it is a welcome boost, both for the individuals who will receive it and for the economy. The vast majority of the £900 million will be spent, and that is a good thing.
I have one or two questions on the overall issues for pensioners. The bonus is part of a package for pensioners, along with their pensioner savings and any income that they receive. It is a one-off bonus, when what pensioners actually need is something all year round: an increase in the basic state pension. Their pension has risen markedly slower than the costs that they face, so what we have here is a sticking plaster at one time of the year.
The other thing that pensioners are looking for is a statement on Equitable Life. I will not digress from what we are talking about today, but it is part of the bigger picture. Again, as was mentioned by the Conservative spokesman, the assumption is that 10 per cent. of pensioners’ income will come from their savings, and that is clearly not going to happen. There is also a large amount of unclaimed pension credit, but I will not go into that, as it is wide of the remit for this morning’s debate.
We would like the bonus to be larger, but the money that is being put forward by the Government is very welcome, not only for pensioners, but for the disabled, carers and other groups who will receive it, and we are delighted to support it.
10.41 am
Mr. Boswell: May I briefly comment? As I have already indicated to the Committee, I have an interest in the matter in that I am now in receipt of a state retirement pension, which I claimed on reaching qualifying age, which was over a year ago. [Hon. Members: “Surely not.”] I am delighted to have the encouragement of my colleagues in talking about that. It gives me the advantage of age and perspective, and I need to share a couple of points with the Committee in welcoming the order. First, my political mentor, who was a great man, was the late Iain Macleod. He once memorably described his attitude to a Government concession of the day by saying that he did not intend to shoot a one-legged Santa Claus. We have a Santa Claus here, and even if the payment is only qualified alleviation—some of it will be spent and some will go to reduce the liabilities that pensioners have incurred, and I do not know the distribution—it is, of course, welcome.
Secondly, on the genesis of the original Christmas bonus scheme, although I cannot claim credit for it—certainly not pension credit, as that came afterwards—I happened to be the then head of the Conservative party’s economic department, and I have a feeling that I had some part in the initiation of the scheme in 1972. I am sure that, as I move towards retirement, I should claim credit for that, too. It was an interesting idea at the time, and I shall make one or two comments on its substance.
As I have already explored with the Minister by implication, the payment is tax-free and when grossed up, it is more beneficial to people like me, who are in receipt of other income and are paying marginal tax at 40 per cent., or 45 per cent. if the Labour party is returned at the next election. Paradoxically, it is also more valuable to people at the savings credit end, and it distributes against people in the middle. Although it was introduced in the Government package as equivalent to an acceleration of the additional pension to be paid in April next year, it will not have the same distributional effects.
The second important point on distribution is that the bonus is payable to disabled people who are below the qualifying age—I use that for shorthand, but I refer also to other groups—and there is an interesting anomaly in relation to the winter fuel payment, which is not paid to people in that category, partly because the cost is greater, but it is difficult to sustain that logic.
On the whole idea of the Christmas bonus payment, as I mentioned, I was party to some of the discussions when it came in. The payment was a substantial amount then; it was more or less like another week’s pension. I have not checked the retail prices index through from 1972, but I have a feeling that the £70 bonus is not that far different from the £10 bonus that was payable over a generation ago. We have not made it a very material payment, although, as I indicated, it will be useful to pensioners.
In due course, we need to look at the payments structure. As I mentioned, we have the winter fuel payment, the Christmas bonus—which has been allowed to wither on the vine, until its sudden revival to inflate the economy—the free television licence for over-75s and the state retirement pension, which is taxable. Some of my colleagues have looked at a rationalisation of those schemes in the past, as a matter of policy, and have been attacked for doing so. However, whatever else one may say, it cannot be a tidy position for the Government to administer, and it is perhaps not the cheapest possible solution for getting money to pensioners.
I thank the Minister for the initiative. I shall benefit personally and proportionately; others might benefit even more. I hope that the Minister will reflect at leisure on the structure of these benefits, as I am sure my colleagues will. Such benefits may be useful in difficult and exceptional times, but they need rationalisation when we get to a steady state.
10.45 am
Gwyn Prosser (Dover) (Lab): My constituents in east Kent will welcome this news, and like the hon. Member for Daventry, I also declare an interest, as I will benefit from this change. [Hon. Members: “Surely not.”] I will not detain the Committee any longer, except to ask whether the Minister has considered those pensioners and other recipients who heard the news in the pre-Budget statement and saw the headlines in the newspapers, but who will get £10 at Christmas, rather than £70. Will she ensure that it is broadcast, loud and clear, that more good news will come in the new year?
10.46 am
Ms Winterton: I thank members of the Committee for their broad welcome to the proposals—it is a pleasure to bring some Christmas cheer to my hon. Friend the Member for Dover and the hon. Member for Daventry. I will try to address most of the points raised by hon. Members, and I confirm that the statutory instrument referred to was that which moved the qualifying week. That ties in with the point raised by the hon. Member for South-West Bedfordshire about the £2 million administrative cost. He is right—ideally, it would have been good to pay both together. However, because of the timing of the pre-Budget report on 26 November, we laid the order moving the qualifying week straight away, and it was not possible to tie that in with the payments that were already being processed. That is why we needed a different system; hence the administrative cost. Parallel legislation covering Northern Ireland will be introduced in due course.
Andrew Selous: Just to clarify, will people in Northern Ireland therefore receive the payment later than people in the rest of the United Kingdom?
Ms Winterton: I am not sure whether people in Northern Ireland will necessarily receive the payment later, given the time difference regarding what goes out in December. However, everyone should have received the payment by the end of March. If the situation is different, I will write to hon. Members.
The hon. Gentleman asked about the estimates for jobs and GDP. That is part of the Chancellor’s overall fiscal stimulus package. I do not have the exact figures for jobs, but when we introduced the minimum wage guarantee in 1999, the evidence showed that spending rose by an amount similar to the boost given to the incomes of poorer pensioners. Such payments feed into the economy—some have suggested that people will put the money into savings, but previous evidence shows a feed through into the whole economy.
John Barrett: Does the Minister accept that, although £900 million extra will be given in the bonus, more than £2 billion of pension credit is still unclaimed? If a move can be made towards that claim, it would have a larger impact. If £2.5 billion is unclaimed, given that the sum is less than £1 billion, that still leaves £1.5 billion in the pot, so a lot more could be done.
Ms Winterton: Of course, we undertake a whole range of initiatives to encourage people to claim pension credit and will continue to do so. As I have said in previous Committees, perhaps we, as Members of Parliament, can come up with ideas to encourage our constituents to claim. I am doing a lot of work with Age Concern and Help the Aged to make sure that people do so, and I am always looking at what else can be done. We have introduced one telephone line to assist people to claim state pension and pension credit. People often do not claim their housing and council tax benefits, but using that service, we can send information about them direct to the local authorities, so that, in a sense, a separate claim does not have to be made. The key is often in the fact that unclaimed amounts can be part of housing benefit.
Mr. David Drew (Stroud) (Lab/Co-op): I am delighted to serve under your chairmanship, Mr. Gale, so close to Christmas. I congratulate the Minister’s Department on what it has done in my area with the village agents. They are employed to go out in rural areas to check on elderly people, particularly those who might live in nice properties but are income poor, to see whether they are entitled to benefits. The system works excellently, and I commend its use throughout the country.
Ms Winterton: I thank my hon. Friend for that information and will pass it back to my staff. Incidentally, I visited the pensions centre in Burnley yesterday and listened to some of the calls. That brought home the fact that we need to get over to people that the bonus is certainly an entitlement; it is nothing to do with handouts. People are entitled to the bonus. We need to do some work to overcome people’s reluctance to come forward and to ensure that they are aware that they are entitled to receive it.
The hon. Member for Edinburgh, West talked about increasing the state pension. The Liberal Democrats proposed a figure of about £151 a week, but people can receive about £130 a week through pension credit, and given that the average housing benefit award is about £60 a week and that the average award for council tax benefit is about £14, that gives us a figure of about £198 for many vulnerable people. Being able to target those people is crucial, so there must be an element of means-testing, but it is important to remember that some people would lose out considerably under a blanket figure.
Ms Winterton: Well, as my hon. Friend may be aware, some reviews of housing benefit have been undertaken recently to make sure that people receive their adequate entitlement. One of the issues is that people have not been claiming it, which is why we have tried to make it easier for them.
John Barrett: Unfortunately, there will be a statement later today about a number of people who have been overpaid their pensions by possibly in excess of the amount under discussion. Will the Minister’s Department ensure that people will not receive good news in the morning and bad news in the afternoon? Some people who will get a £60 extra payment may well be about to be told that their pension will be reduced in the coming year by who knows what amount.
The Chairman: Order. The cup of good will from the Chair has just about run out. I have tried to be as generous as I reasonably can in the broad context of a debate that should be about the Christmas bonus. It might be a good idea if we could now return to the Christmas bonus.
John Barrett: Christmas past.
The Chairman: In some cases, yes.
Ms Winterton: I hope that the written statement later will give the hon. Gentleman some reassurance.
Finally, I want to address the tariff referred to by the hon. Member for South-West Bedfordshire. About 80 per cent. of pensioners who get pension credit have savings of £6,000 or less, so they would not have the kind of tariff income applied. People would need to have capital in excess of about £100,000 before the tariff income rate would reach 10 per cent. The formula itself is not intended to represent any rate of return that could be obtained from investing capital.
Andrew Selous: Following what the Minister’s colleague said in the other place yesterday, does not the tariff cut in on savings over £6,000? When people have £6,001, the tariff starts to apply. The Minister may have been making the point that it does not bite at a particularly high rate, but I believe that it cuts in from £6,000. If I am wrong, perhaps she would correct me.
The hon. Member for Daventry asked about applying the winter fuel payment to other groups. Many of the benefits for people with disabilities and so on include an element that is intended to cover heating costs, which is why the winter fuel payment does not apply in those cases.
My hon. Friend the Member for Dover makes the very important point that we need to ensure that people understand that the payment will be made in January. Of course, in a lot of the literature that we are publishing and in dealing with the enquiries that we have received, we are trying to stress that and make it absolutely clear. I take his point that we may all have people coming to our surgeries to ask where their other £60 has gone, but we will certainly make every effort to ensure that people understand that the payment will follow later.
Andrew Selous: May I press the Minister a final time? I am keen that what is on the record is understandable to people outside this place. I understand that, for every £500 above £6,000 that a pensioner has, if they are not in a nursing home, £1 a week is deducted. Therefore, they would have £52 a year taken off their pension credit if they had £6,500 in savings and were not in a nursing home. Will the Minister confirm that? We would not want people to read a transcript of our proceedings and think that there was no deduction unless they had £100,000 in savings.
Ms Winterton: The notional rate of income is £1 for every £500 or part of £500 in savings held above the £6,000 threshold, which is half the rate assumed for working-age benefits.
I hope that, with those clarifications, the Committee will approve the order.
The Chairman: May I wish all hon. Members a happy Christmas—those whom I shall not see again before then—and, on an entirely non-partisan basis, a very good new year?
Question put and agreed to.
That the Committee has considered the draft Christmas Bonus (Specified Sum) Order 2008.
11 am
Committee rose.

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