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12 Feb 2009 : Column 1548

Mr. Heald: One of the slightly disappointing things about the Minister’s announcement is that the cut in savings credit, which was supposed to come in when the basic state pension was increased by earnings, is being implemented early—this year. She will recall the national insurance contributions change where the upper accrual point was introduced. Again, that was supposed to happen because the basic state pension was being uprated by earnings, but it was brought in early—last year. Is it not time that she did what her old friends in the TUC suggest and introduced the uprating by earnings or prices, whichever is the higher now?

Ms Winterton: Of course if we had introduced the increase by earnings this year, it would been lower than the change that we are making by using the RPI. We have said that we will restore the link with earnings, either by 2012 or before the end of the next Parliament. That is our commitment—the Conservative party abolished the earnings link and we have said that we will restore it. As I said, this Government are spending about £13 billion more on our pensioners in general.

This morning, I tabled a statement—I did inform both the Opposition Front Benchers about it—explaining two supplementary issues concerning payments of invalidity allowances to pensioners from April 2009. In December, we announced new rates of invalidity allowance for customers under pensionable age to support the alignment of the rates of incapacity benefit and employment and support allowance. The rates for eligible pensioners due to receive invalidity allowance will be increased in line with the RPI in the usual way. The Department subsequently wrote to pensioners eligible for an invalidity allowance informing them of their entitlements, however, because of a technical error a number of incorrect entitlement notices were sent. That means that about 45,000 people may be overpaid and about 25,000 may be underpaid, depending on their individual circumstances. Weekly overpayments will range from a minimum of 5p to a maximum of £3, and the maximum underpayment will be £1.80 a week. Any arrears will be paid to customers, and we will not take any action to seek recovery of the overpayments.

As the Department works through the affected areas, we will write to all customers who are affected to explain their position. As people become pensioners from April 2009, they should automatically move on to the higher rate of invalidity allowance. Because the uprating order for this year does not provide the statutory basis ordinarily needed to make these higher payments, we shall be making them on an extra-statutory basis in the coming tax year—about 7,000 customers are affected, and the payments involved total about £350,000. Obviously, I am sorry that this unfortunate situation has occurred, but the issue is a technical one and we will put it right.

John Barrett: I wish to put on record the fact that I appreciated having early sight of the Minister’s statement and that the Liberal Democrats welcome her decision not to reclaim these amounts, even where the sums are relatively small. We appreciate that, and we know that many constituents up and down the country will too.

Ms Winterton: I thank the hon. Gentleman for his support. I should emphasise that customers will not need to take any action themselves; the Pension, Disability and Carers Service will identify and correct cases as soon as possible, and will contact all those concerned.

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On working-age benefits, we will increase most income-related benefits by the Rossi index, which is the RPI excluding rent, mortgage interest, council tax and depreciation. Most working-age income-related benefits will increase in line with the September Rossi index of 6.3 per cent. That means that the personal allowance for a single person over the age of 25 will increase from £60.50 a week to £64.30—for a couple the increase will be from £94.95 to £100.95. Incapacity benefit and employment and support allowance will both be increased using the Rossi index so that, over time, all customers in similar circumstances will receive the same level of support.

Mrs. Joan Humble (Blackpool, North and Fleetwood) (Lab): Can the Minister say a word about the carer’s allowance? Most people who receive it are of working age, and a recent report by the Select Committee on Work and Pensions recommended that the Government should look to synchronise the increase in the carer’s allowance with the increase in the minimum wage. It did so because too many carers who are working receive an increase in the minimum wage in the autumn that then disqualifies them from the carer’s allowance, and they have to wait until the April uprating before they can be eligible again. Will she examine that particular issue?

Ms Winterton: Yes, I will certainly look at the points that my hon. Friend has made. I know that she cares passionately about this issue and I can reassure her that we value the work that carers do. In the national carers strategy, we have outlined our vision that by 2018 carers will be universally recognised and valued as being fundamental to strong families and stable communities. Within that, we will of course constantly bear in mind the support that carers receive through the benefits system. We have amended our proposal so that we will not move carers from income support until we have a clear and detailed plan setting out reform of the benefits system over the long term to take account of the needs of carers.

Andrew Selous: I commend the hon. Member for Blackpool, North and Fleetwood (Mrs. Humble), who is an assiduous member of the Work and Pensions Committee, for raising that point. I would say gently to the Minister that this issue has been around for a few years now, and perhaps she could go back to the Department with a sense of urgency about getting it sorted, because it does cause worry for many people.

Ms Winterton: I will certainly take that point back to the Department.

In the July 2008 welfare reform Green Paper, we proposed that incapacity benefit customers with an age addition would have their benefit frozen until the rates were aligned with contributory employment and support allowance. However, following consultation, my right hon. Friend the Minister for Employment and Welfare Reform announced in December that incapacity benefit customers with an age addition would see their overall benefit increase by at least half of Rossi—3.15 per cent. That means that they will not receive less than £95.15 a week, which is the same amount of incapacity benefit as someone in the support group getting contributory employment and support allowance.

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The cost of uprating benefits from April 2009 is nearly £6.2 billion, with almost two thirds going to pensioners. We are not taking a do nothing approach: we recognise that it is absolutely right to protect the most vulnerable in society, particularly during times of economic hardship. The cost of doing nothing would be enormous, and we are better positioned to help people during the recession than previous Governments were. On top of our active efforts to increase benefit take-up, the money that I have announced today represents real help and action now when it matters most. I commend these orders to the House.

1.33 pm

Andrew Selous (South-West Bedfordshire) (Con): The Conservatives support the uprating of benefits and pensions because we believe that anything that will help hard-pressed individuals and families at this incredibly difficult time for the United Kingdom is welcome. In these orders, the guaranteed minimum pension increases by 3 per cent.; incapacity benefit claimants with age additions receive an increase of 3.15 per cent.; the standard minimum guarantee element of pension credit increases by 4.8 per cent.; the basic state pension, carer’s allowance, attendance allowance, disability living allowance, industrial injuries benefit, incapacity benefit and child benefit increase by 5 per cent.—by the increase in the RPI; and income-related benefits, including income support, jobseeker’s allowance, employment and support allowance, housing benefit and council tax benefit increase by 6.3 per cent. or by the Rossi index which is unusually, as the Minister has already told us, more than the RPI this year because housing costs have fallen. While most tax credits will increase by 5 per cent., the child element of the child tax credit is rising by 7 per cent.

So we have six different percentage increases applied to more than 14 pages of different benefits, which is why I shall mention the issue of benefit complexity later. I suspect that it is the complexity of the subject that has meant that, in my recent experience, fewer and fewer Members attend this debate every year. If it is difficult for hon. Members who are meant to understand such things, how much more difficult must it be for our constituents, with their busy lives?

We have already had some discussion about the rate of inflation for pensioners. They will no doubt be very pleased to get more than the 75p increase that they got from this Government a few years ago. However, is it appropriate to use the RPI to uprate pensions—a point made quite properly by my hon. Friend the Member for North-East Hertfordshire (Mr. Heald) a moment ago? I wonder whether he is aware that Capital Economics, a forecasting house, has calculated that the pensioners’ inflation rate to December last year was actually 12.2 per cent. The question we really need to ask is how the indices are calculated and whether they are fit for purpose.

John Barrett: Does the hon. Gentleman agree that we are entering a unique situation in the year ahead? It is possible that we will have negative inflation during this recession, so pensioners’ inflation might rise at the same time as the indices used to calculate the uprating of benefits actually fall.

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Andrew Selous: The hon. Gentleman makes a valid point, and we will have to keep the issue under review, especially as far as pensioners are concerned, in the extraordinary circumstances into which we are heading.

Depending on the benefit, either the RPI or the Rossi index is used. Before we decide on the merit of the order, it is worth trying to understand which inflation measure is applied to each benefit and why. It is important to debate those issues because they open up important questions about whether different groups in our society suffer from different inflationary pressures. The benefits that people will access as a result of the order being made today will differ depending on the inflation measure that is applied to the benefit. The question that we have to ask when considering the merits of the order is whether the uprating will cover the increased cost of living to which the particular group drawing that benefit is subject. The RPI is applied to uprate contribution-based jobseeker’s allowance, child benefit, incapacity benefit, carer’s allowance and disability living allowance. Those are the main benefits to which it applies. The RPI is calculated by the Office for National Statistics each month by collecting some 110,000 prices of about 650 goods and services in about 150 locations, including on the internet. These goods include the obvious ones—bread, cereal, furniture and clothing, as well as water, gas and electricity. With that information, the ONS uses data from the Department’s family expenditure survey and other detailed expenditure analyses put together by market research companies and trade reports, and arrives at a representative shopping basket. The changes in prices of the goods in the basket are used to produce a headline figure that is intended to be broadly representative of the cost of living.

With reference to the RPI, which is the subject of the order, it is worth pointing out that the patterns of pensioner expenditure are not explicitly factored into the representative shopping basket. The ONS explains that that pattern of demand is probably atypical and would distort the average. Pensioner households, which on average derive about three quarters of their income from the state one way or another, are having some of their benefits uprated by the order according to an inflation index that does not explicitly acknowledge or comprehend how they spend their money. That is an important point that we need to bear in mind.

Mr. Evans: If elderly people have got into financial difficulties, they may have borrowed money either on credit cards, for which the rate of interest bears no relationship to current bank rates, or they may even have been induced to borrow from loan sharks, who can charge obscene rates of interest. A constituent came to see me last week about the financial difficulties that he had fallen into, mainly because of the loans that he had taken out.

Andrew Selous: I am very glad that my hon. Friend has raised that point. He is right to do so: those on very low incomes, such as pensioners and others, are extremely vulnerable to unscrupulous people charging very high rates of interest. Indeed, that was why the former shadow Secretary of State was right to raise concerns that people on benefits were going to be charged rates of up to 27 per cent. in the White Paper brought forward by the Department. However, the broader important point
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has to do with the lack of availability of affordable credit for very large numbers of constituents around the country. We need to be a lot more innovative about involving credit unions and perhaps many other players who are not in the field to meet what is a very real need. This is a serious point, and my hon. Friend is right to raise it.

The Rossi index is the other main index used to uprate the different allowances and benefits—jobseeker’s allowance, council tax benefit, housing benefit and income support—covered by the order. It is compiled in the same way as the retail prices index, except that it excludes rent, mortgages, interest payments and housing depreciation costs. It is higher than the RPI this year because housing costs were falling over the year to September to 2008. It is also important to remember that the Rossi index is different from the consumer price index which, confusingly, is the main inflation index used by the Government and the Bank of England.

Later in my remarks, I shall refer to the Government Actuary’s report accompanying the two orders before us. It looks at the orders’ effect on the national insurance fund that is used to pay out benefits and pensions for which national insurance contributions are a necessary qualifying condition. They include state retirement pension, contributory jobseeker’s allowance and contributory employment and support allowance.

There are concerns about the assumptions being used by the Government Actuary and the Chancellor in the pre-Budget report, and the use to which the fund may be put. That is an important subject, and I shall deal with it later in my remarks.

The benefits and pensions that are uprated by these orders are vital elements in combating child, adult and pensioner poverty, but by no means are they the whole solution. We want to help the workless get back into work, where appropriate, and we want to find the best possible ways of enabling people to avoid poverty, including poverty later in life. We recognise the strong connection between worklessness and children growing up in poverty, and that it leads to fewer life chances for those children.

As for the effect of the order on the child-related benefits, we support the Government’s aim to end child poverty by 2020, and we will support them if they produce sensible legislation to make that target binding. On its own, however, uprating the benefits in this order will not be enough, as the Department’s figures show that the number of children in poverty has risen by 100,000 for the second year in a row. On current progress, the Government will miss by 500,000 children their target of halving child poverty by 2010. We believe that a broader approach is needed, one that does not just involved the benefits uprated by the order. They are vital, of course, but there needs to be serious engagement with schools, family life, local authorities and registered social landlords.

I turn now to the working-age benefits, which of course are of immense significance after yesterday’s greatly increased unemployment figures. In December, 1.97 million people were declared unemployed, a total that was 146,000 up from the three months to September 2008. Not all of them are entitled to claim the benefits uprated in the order, and not all of those entitled to claim choose to do so.

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The order increases jobseeker’s allowance for those under 25 to £50.95 a week. That is relevant, as unemployment among 18 to 24-year-olds sadly increased by 38,000 in the three months to December to 616,000.

Mr. Lindsay Hoyle (Chorley) (Lab): The hon. Gentleman is making some very important points. We all recognise that, in general at least, unemployment is rising in everyone’s constituency. Does he agree that we should reformulate the statutory redundancy pay to assist those being made redundant? It is a long time since it was looked at, and does he agree that we should consider introducing annual uplifts?

Andrew Selous: I am very grateful that the hon. Gentleman has raised that issue, and I studied carefully the comments that he made on this matter on the Gallery News email service yesterday. He has a point, and I shall refer to it in my remarks very shortly. I was quite struck by the percentages to which he drew attention yesterday, so I think that he is certainly on to something. I do not know exactly how we will solve the problem, but I commend him for raising it.

Jobseeker’s allowance for people over 25 has been raised to £64.30 a week, an amount that the Minister for Employment and Welfare Reform admitted yesterday that he would be unable to live on. That is relevant because the claimant count for January increased to 1.23 million, which means that 73,800 more people were claiming the uprated benefit than was the case the month before.

As the hon. Member for Chorley (Mr. Hoyle) has noted, there has been no increase in statutory redundancy payouts, and the important point that he raised yesterday is that they represent some 56 per cent. of average weekly earnings, as opposed to 203 per cent. when they were first brought in in 1965. That is something that the House should be concerned about. If there has been a specific policy change, I think that we should know about it and debate it. We should see whether we think that it is fair and right, and what we can do about it within the limits of public expenditure. However, if the amount paid has been allowed to wither on the vine without anyone noticing or caring, that is concerning to me.

This is important, because redundancies are, very sadly, up. In the three months to December, 259,000 people reported that they had become redundant. Sadly, the OECD believes that many more people will claim the benefits uprated in the order, and it has predicted that unemployment will rise faster in the UK than in any other G7 country.

My party has a range of positive proposals to tackle unemployment, but I do not think, Mr. Deputy Speaker, that you would consider me in order if I decided to outline them now. Instead, I want to turn to the very important matter of pensioner benefits that has been raised already, and quite properly, by a number of hon. Members.

The Chancellor’s pre-Budget statement in November was the basis for a significant part of these orders, but its wording was not as clear as it could have been. It has been criticised by the Daily Mirror and more recently by the National Pensioners Convention. The Chancellor said:

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Dot Gibson, the formidable vice-president of the National Pensioners Convention, is still waiting for her £60 payment. She has said that

I want to look at the issue of means-testing and take-up, which my hon. Friend the Member for Ribble Valley (Mr. Evans) quite properly raised at the start of the debate. There are 3.7 million beneficiaries aged 60 and over in receipt of income-related benefits, and that is 30 per cent. of the population of that group. However, 1.8 million are not claiming the pension credit uprated in the order, which has now been increased to £130 a week. That is of great concern. It may interest the House to know that, in November 2004, the then Secretary of State for Work and Pensions said:

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