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Lord Higgins: My Lords, that rather makes the point on which I was about to intervene. I understand that it was not only my party nor, indeed, just the party of the noble Earl. I believe that a significant number of Labour Members in the other place also supported the Early Day Motion. It was an all-party agreement, not the Government's.

Earl Russell: My Lords, I am grateful to the noble Lord for making that point. That is very true. There were several interventions from Labour Members and a good deal of support in the background. Therefore, I believe that no one party would wish to take credit for what happened.

My honourable friend Mr. Webb has discovered that the winter fuel payment of £20 costs £12 million a year to administer, whereas if it had been paid as a weekly increase in the pension the extra administrative cost would have been nothing. Indeed, £12 million is an awfully expensive price for a headline. I did not think that even the most expensive newspapers in the country charged that much for advertising space. The Government do not seem to have any clear answer to the really big problem of pensioner poverty, which is defective contribution records. If the Minister has an answer to that I shall listen to it with great pleasure. In particular, they do not seem to have an answer for the problem which will become more common with the growth of the single market; namely, people whose contribution records are defective because of the amount of time that they have worked outside this country.

Therefore, despite the best efforts of the Department of Social Security and the rest of the Government, inequality is not diminishing. I have been very struck by the information from Households Below Average Income that 70 per cent. of Pakistani and Bangladeshi families come in the bottom 20 per cent. of income distribution. That is something which should not be. The progress towards equal pay is very nearly stalled. I hope that we will be thinking again about a new equal pay Act.

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There are many fields in which there is a great deal more work to be done. In the future, therefore, instead of barking up the wrong tree I hope that we may see the Government beginning to bark up some of the right ones.

8.20 p.m.

Baroness Hollis of Heigham: My Lords, I should like to thank both noble Lords for their contribution to this evening's debate on the up-rating order. It did not entirely surprise me that the noble Lord, Lord Higgins, asked a series of questions which would not have been inappropriate to some degree in a National Audit Office committee or Treasury committee, nor that the noble Earl, Lord Russell, raised areas of social policy which he and I have discussed on many an occasion. As I say, I think these roles into which we have fallen may persist.

I shall do my best to answer some of the questions that have been raised. As regards some of the questions the noble Lord, Lord Higgins, asked on NIRS 2, I shall write to the noble Lord because issues of commercial confidentiality are involved. The noble Lord will understand that. He asked whether it was usual to have an uprating not preceded by a Statement. As I recall I read out a Statement on this issue and welfare reform last autumn. I remember that the noble Baroness, Lady Castle, tackled those issues in feisty form. We dealt with the two issues together as it seemed appropriate to do so. I accept that that was an unusual way of tackling the matter. However, it is not every year that we set out our stall in terms of a major welfare reform Bill.

I know that the noble Lord will return to issues of working families' tax credit, means testing, the contributory principle and so on. The noble Lord raised a point which was also emphasised by the noble Earl, Lord Russell. He referred to pensioner poverty, minimum income guarantee and take up. The noble Lord said that according to the CAB people had thought that the minimum income guarantee was somehow an increase in their basic state pension as opposed to an increase in the income support related element, as the state retirement pension is below income support levels.

The following matter has been raised in this House on many occasions. There is a real problem as regards identifying the pensioners who are entitled to claim income support but are not doing so, and encouraging them to claim it. We originally estimated that about 1 million pensioners--mainly elderly single women over 75 who do not have contributory pensions in their own right--are entitled to income support who fail to claim it. That figure may be a little high as it is now clear that one of the main reasons those people fail to claim income support--or are ineligible if they do so--is that although their income may be below income support levels, their capital floats them above income support. Many of those pensioners were raised in a culture of keeping £5,000 or £10,000 in the bank to pay for their funeral or to leave to their children. That prevents them from drawing down that income. Therefore they live on an income which is below

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income support levels but they do not qualify for income support because of their capital. However, as I say, they are not willing to draw down that capital.

Of the 600,000 pensioners who are disqualified from the minimum income guarantee, we estimate that more than half have excess capital of over £20,000. Of those, some 190,000 people have capital of over £50,000. Nevertheless their income can be below income support levels. That forms a major part of the dilemma. That is not to say that the Government are not considering the capital rules. Nonetheless the spread of income on capital is as wide as the spread of income--

Earl Russell: My Lords, when the Minister considers the reluctance of pensioners to spend their savings, will she remember the rapid escalation in funeral costs?

Baroness Hollis of Heigham: My Lords, I entirely take that point. That is why the social fund now identifies reasonable costs for a funeral that will enable the pensioner or the pensioner's family members to afford a funeral with help from the social fund if they do not have sufficient savings to cover that. The point I sought to establish was that the disqualification of pensioners from income support was affected by capital which in many cases constitutes a sizeable sum.

Lord Higgins: My Lords, the sums may be sizeable but that was not my experience when I was an MP and dealt with constituents. Are not these the very people who will be hit by the tax credit problem which I mentioned?

Baroness Hollis of Heigham: My Lords, it depends how that £50,000 is converted into income. The broader question that was asked concerned why pensioners were failing to claim the minimum income guarantee to which they were entitled. As I said, one of the main reasons for that is the capital rules. We need to consider whether the existing capital rules are appropriate. We are now receiving feedback from our nine or so pilot schemes which indicate that pensioners feel there is a stigma attached to claiming this benefit and pensioners are ignorant of their entitlement to benefit. A slightly worrying feature is that a person may have applied for income support or a benefit in the past to which he was not entitled. That person was rebuffed and deterred from making subsequent applications. Having said that, I do not in any sense underestimate the difficulty--having identified the people who are entitled to the money--of persuading people to claim the benefit. That generation of older people comprises people who are extremely reluctant to claim a means tested benefit which in the past was associated with national assistance and all that that entailed. I believe noble Lords will understand what I mean.

As I said, the noble Lord referred to the CAB. However, he may have also noted that the CAB supports the steps the Government are taking to increase the take up of income-related benefits by pensioners. The CAB states that extra publicity will be necessary to ensure that all pensioners are aware of how they are to be provided with a guaranteed minimum income. We

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entirely accept that point. Obviously the longer term response must be to ensure that pensioners have access to a decent second pension. The problem with the guaranteed minimum income concerns those pensioners who have not been able to build up a decent second pension in their own right, whether through SERPS or through occupational pensions.

One of the important elements in our pensions proposals is the proposals for the new second state pension. As your Lordships will be aware, those on modest incomes who may be in and out of work and who earn between, say, £3,500 and £9,000 will in future be entitled to a pension as though they were earning £9,000 a year. That is a massive redistribution for some of the lowest paid. That will benefit women. One must take account of the implications for carers who will effectively obtain a £1 a week's worth of pension for every year of caring. That also applies to those caring for children. I think your Lordships will accept that we have a twofold problem with pensions. There is the immediate problem of the poverty of existing older pensioners and the longer term problem of ensuring that we float pensioners off poverty by giving them access to a decent second pension. That is the basis of our proposals.

The noble Lord, Lord Higgins, raised a whole set of connected issues about NIRS. I believe I have noted most of the questions asked about this. However, if I have missed any of the more technical points I shall write to noble Lords as these are technical issues. I do not think anyone would deny that there have been real and serious problems with NIRS 2. However, they should not be exaggerated as they are being overcome. There is a stabilisation and recovery plan which has been developed jointly by the Contributions Agency, Andersen Consulting, the Benefits Agency and the Employment Service, with input from the Inland Revenue. NIRS 2 is basically a computer system which does not affect the Inland Revenue. Therefore some of the noble Lord's concerns are not, fortunately, justified. NIRS 2 does not affect any of the income-related benefits, or any of the universal benefits such as severe disablement allowance, ICA, disability living allowance, DWA, income support, income-related jobseeker's allowance, child benefit, family credit, housing benefit or council tax benefit. Those account for about half of all our benefit expenditure. However, NIRS affects benefits which are dependent upon the payment of national insurance contributions; namely, retirement pensions, incapacity benefit and contributions-based jobseeker's allowance. Also affected--as the noble Lord noted--are rebates paid into approved personal pension schemes. As I say, there is a problem here and we are not trying to suggest otherwise. However the two areas which I think give rise to the need for an alternative path of income support are retirement pension and widows' benefit. Since 6th January of this year NIRS is on-stream to provide long-term benefit calculations in respect of retirement pension and widows' benefit.

The noble Lord asked a series of connected questions about compensation and the like. This is an extremely large system which handles about 65 million accounts. It is the largest in Europe. No records have been destroyed

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during the conversion, or as a result of live processing. All benefits are currently either unaffected or are using standard or interim procedures during transition. After transition any interim payments will be retrospectively adjusted and appropriate compensation on retrospective payments will be made accordingly. I hope that deals with the bulk of the noble Lord's points on that issue.

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