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Lord Rooker: I take the noble Lord's point. In the absence of being able to see the code, there is weight to his remarks. But the code is purely a modified version of the existing code. It is a consequential change, simply because the cash that will be collected under this clause will be collected in-country, as opposed to being collected at ports. The consequences of that change require modification of the code. That is the substance of the change.
When Members of the Committee have had an opportunity to examine the draft code, if they believe that it goes beyond that, I shall be more than happy to consider using the negative procedure. I am not against the idea. The codes of practice are important. We want them to carry some force as codes of practice rather than legislation. Sometimes it is better if they carry the force of Parliament, although that is not always the case.
The modifications of the code are merely consequential amendments relating to that one change. There are a couple of drafting improvements, but they are minimal. If Members of the Committee believe that I have over-egged the pudding, I shall certainly be willing to consider the negative procedure when we debate this matter on Report. I believe,
however, that when noble Lords see the changes in the draft, they will see that the changes are essential and that they are purely consequential on the expansion of the cash seizure scheme; namely, that cash is seized in-country, not merely at the ports.
Lord Campbell of Alloway: I have not seen the code. I should be conversant with the trigger clause but am not. Can the Minister say whether it is a code of practice or whether it has legal efficacy? If it has legal efficacy, surely it must have affirmative or negative resolution—from my point of view that is probably immaterial. But I should like to know the status of the code.
Lord Rooker: I shall cite the sentence that I have here because that will get it on the record. The code of practice in question is a code of practice for authorised officers who are officers empowered under the Terrorism Act 2000 to make cash seizures. It is simply as a consequence of the expansion that the code needs to be modified. It clearly has not received the negative procedure in the past. That is the implication of the note that I have.
Lord Campbell of Alloway: It has no legal efficacy. It is merely a code of practice.
Lord Rooker: But that is not unusual for government officers. On a variety of issues we discuss with industry a code of practice. The Government make inquiries of industry. We set down a voluntary arrangement. We do not want to be heavy handed. If we can operate non-legalistic codes of practice which are effective and do the job it is better than having to ram codes of practice through the legal system.
Lord Elton: I think that I am right in saying that the code of practice in question was printed as a draft called the Code of Practice for Authorised Officers under the Terrorism Act 2000. It was made statutory by the publication of a statutory instrument. The Minister is now saying that under the present legislation further amendments are needed and that they should be made under this legislation and not, for some reason, under the Terrorism Act 2000. I understand that such a code has force within a court of law and can be appealed to in a case. Therefore, in the sense to which my noble friend Lord Campbell of Alloway refers, it is a legal document with force.
Perhaps I may express a concern. The Minister said that this is needed only to make a couple of necessary and quite minor changes without which the provision will not work. We all accept that. But the power remains for ever. The power remains with the Secretary of State to make far more sweeping changes with no restraint from Parliament.
Lord Goodhart: Perhaps I may intervene. When making the commencement order, this is a once-and-for-all power to vary without parliamentary control. Thereafter subsequent changes go back to the procedure under the Terrorism Act which requires affirmative resolution.
Lord Elton: I stand corrected. Clearly the Minister's undertaking has more force than it would otherwise.
Lord Rooker: The noble Lord is right. It is a one-off. The code is introduced under the 2000 Act. If a revised code of practice were brought into force under that Act it would be by the affirmative procedure. I hope that I have not misled the noble Lord. The effect of the amendment would be to make a commencement order, in so far as it revised the code, subject to the emergency affirmative resolution procedure. It would cease to have effect unless it was debated and approved by both Houses within a period of 40 days. The modifications of the code are set out in the commencement order. This would have the effect of initiating debate on the code itself. That is why we do not think that the amendment is necessary. It is a small consequential adjustment.
Lord Goodhart: I am grateful to the Minister. I shall look at what the revised code states. Unless it appears to go beyond what is consequential, I would not wish to bring back the amendment. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Grocott: I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
Benefits Uprating
3.45 p.m.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): My Lords, with the permission of the House, I should like to repeat a Statement on the annual uprating of benefits and pensions, on the pension credit, and on new measures to help more people into work.
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XAs a result of the reforms we have made, we are able to do more once again to provide greater security for those who are unable to work, and who are retired. And this year, we will again increase some benefits by more than the usual uprating.
XWe are also making fundamental reforms to reward savings. I will set out how the pension credit provides a radical departure from the social security system we inherited, and I will announce further measures to provide greater employment opportunity for those who can work.
XFirst, on uprating, most national insurance benefits will rise in the normal way by the retail prices index, which is 1.7 per cent, and most income-related benefits will rise by the Rossi index, which is also 1.7 per cent. Details will be placed in the Vote Office and will be published in the Official Report.
XWe are already doing more to help parents, so that families can balance their work and home lives. That is why, in this uprating, the standard rate of maternity allowance and statutory maternity pay will rise from #62.20 up to #75 next April—the largest increase in maternity benefit since 1958, helping around 340,000 families a year—and in 2003 it will go up again to #100 a week.
XIn addition, the Sure Start maternity grant will rise from #300 to #500 next year. In 1997, a new mother on income support would have received just #100 to pay for essential items; from next year, she will get #500—a substantial increase for mothers on low incomes.
XThis year, we want to do more to help families who are bringing up children with disabilities. When we came into office, the extra money paid to low income families with a disabled child was just #21 a week. Last year, we increased it by more than #7 a week.
XThis year, I can go further. I propose to increase the disabled child premium by another #5 a week, on top of the normal uprating, to a new rate of #35.50. In 2003, it will rise again by #5 over and above inflation—to more than #40 a week on top of basic income support or tax credits. That will benefit around 80,000 children. That is extra help where it is most needed, for families on low incomes—both in and out of work—with disabled children.
XThere is one further change I want to announce today. In the past, people with the most severe disabilities found that if they or their partners were in work, often against all the odds, they lost entitlement to the independent living fund, which pays for their essential care.
XSo I can tell the House today that from April next year the earnings of disabled people and their partners will no longer be taken into account in the independent living fund—worth an average of #130 a week to those families. At the same time, we will increase the capital limits, in relation to the fund, to extend help to people with savings of up to #18,500.
XWe are also determined to boost pensioner incomes. In 1997, the poorest pensioners were expected to live on just #68.80 a week. Last year, we increased the minimum income guarantee to #92 a week. From April next year, the minimum income guarantee for a single pensioner will rise by #6 to #98.15 a week. That is an increase of #23 a week for the poorest pensioners, over and above inflation, since we came to office. For couples, the new rate will be #149.80.
XTo ensure that all pensioners share in the rising prosperity, I confirm that the basic state pension will rise by #3 in April, and by #4.80 for married couples. The widow's and bereavement benefits, which, because of the changes that we made in 1998, are now paid equally to men and women, will also rise by #3. As we promised in our manifesto, the basic state pension will remain the foundation of retirement income, which is why we have announced
- guaranteed rises for the future of at least #100 a year on the basic state pension for single pensioners, and at least #160 a year for couples.
XWe also promised to do more to reward pensioners who have saved for their retirement. A year ago, I published a consultation document, which set out our proposals to reward thrift. Today, I am publishing our response, setting out how the pension credit will work. Copies are available in the Vote Office. Tomorrow, I shall also publish the pension credit Bill.
XAll of us have met pensioners who struggled during their working lives to put something by for their retirement and who then found that they were little or no better off than people who had saved nothing. The pension credit will make sure that, in future, it pays to save.
XThe pension credit works in two ways. First, it will bring pensioners' entitlement up to a guaranteed minimum level of at least #100 a week in 2003, or #154 for couples, and rising in line with earnings for the rest of the Parliament.
XSecondly, it will provide an additional top-up to reward pensioners aged 65 or over who have saved for their retirement. Pensioners with modest second pensions and savings will get more as a result of their thrift.
XThere is a further change that is essential to reward savings. We will abolish the rule that excludes pensioners with #12,000 or more in savings from any help. There will be no upper savings or capital limit. Instead, we will introduce a fairer system for taking into account income from savings.
XAround half of all pensioners will stand to gain from the pension credit: more than 1 million pensioners from raising their guaranteed income; and more than 4 million pensioners from the savings reward, and the improvements to the rules on the treatment of savings. Two-thirds of those who stand to gain from the pension credit are women, and half of those are over the age of 75. On average, pensioners will gain #400 a year, with some getting up to #1,000 a year. That is the difference that the pension credit will make.
XAny pensioner with income below around #135, or couples with an income below #200, will see their hard-earned savings rewarded with extra money, not penalised as in the past. We are also making it easier for pensioners to get all their entitlements. Last year, I said that we would end the weekly means test and the endless form-filling—and we will. The pension credit will be calculated at the same time as the basic state pension when people retire. In most cases we will reassess the income of those over 65 only every five years—not every week, every month or every year. Each year, they will see an automatic rise in their pension credit, after the uprating, and taking account of any changes in their second pensions.
XThe pension credit will increase the guaranteed income, it will end the weekly means test and it will reward thrift. It will remove an injustice in the system. For the first time, it will pay to have saved, even modestly. More than 5 million pensioners stand to gain.
XI now turn to employment. Over the past four years, we have introduced more help than ever before to make work pay and to make work possible. Today, I am also publishing a paper with my right honourable friend the Chancellor, which demonstrates the need to provide more employment opportunities to those who have missed out in the past.
XThe analysis shows clearly what happened when we did not have a system that actively helped people into work and when the Government took a hands-off approach to unemployment, leaving it to chance. Between the 1970s and the mid-1990s, the number of lone parents and sick and disabled people on benefits trebled. A whole generation was written off.
XThree immediate conclusions follow from that paper. First, we need to do more to help everyone of working age to get into work wherever possible. That is why we are extending the single gateway to the benefits system—Jobcentre Plus—across the whole country starting next year. Everyone of working age will have work-focused interviews to help them into jobs wherever possible.
XSecondly, when people lose their jobs, the evidence shows that the quicker we intervene, the quicker people will get back into work. As the Chancellor set out yesterday, our economy is well placed to deal with global uncertainty and the labour market is in a stronger position than for a generation. However, when people lose their jobs and when there are redundancies, we need to take action quickly. There are jobs available. Every month, half a million people enter work or change jobs.
XWe need to do more to match people with the vacancies that employers are trying to fill—the 10,000 vacancies notified to the Employment Service every working day. Today, I can announce that I am allocating an additional #6 million over the next 2 years to the rapid response service, which offers prompt help to people who have been made redundant. The money will be used by each region to put together the right response for people in their communities, making sure that people affected by redundancy have the information and help they need to find new jobs. They will work to match people's existing skills to those needed by new employers and they will make sure that retraining is available to help people move into new industries.
XThirdly, we now have the lowest unemployment level for 25 years, but there are still people who need extra help to take up available jobs in their areas. Over the past four years, the New Deal has established a new welfare contract, with more help and support than ever before, in return for greater responsibility on the part of individuals to help themselves.
XToday, I can announce a further measure, building on the New Deal, for long-term unemployed people who need more intensive help to get into work. Such people may have gone through the New Deal and still have not been able to find a job. We will guarantee those who qualify a full-time job, lasting up to a year and paid at the national minimum wage. They will have the same employment rights and they will be entitled to the same in-work benefits as anyone else. In return, it is not unreasonable to require people to take up that opportunity. We aim to give people a choice of job, but they will not be able to turn down all offers and remain on benefit.
XWe will start this approach in six places from April next year, in areas within Sheffield, Cardiff, Oldham, Sunderland, Lambeth and East Ayrshire. We will follow those with a second group over the summer, covering areas within Leeds, South Manchester, Sandwell, Bristol and Greenwich. In the autumn, there will be further pilots within Hackney, Great Yarmouth, Knowsley, Rotherham and Coventry, with provision starting by the end of the year in Burnley, Wrexham, Dundee and Bradford. I will be writing to honourable Members in all 20 areas, asking them to become involved.
XThese are jobs that we will pay for, working in partnership with employers, local authorities and organisations with experience in offering intermediate labour market opportunities. It is an investment of #40 million to equip 5,000 people who are currently long-term unemployed with the skills, the support and the experience of work that they need, as a stepping stone to jobs in the local labour market.
XBritain's unemployment level is the lowest since the 1970s. The New Deals have helped hundreds of thousands of people into work. We are determined to ensure employment opportunity for all, including those who have missed out in the past. These measures will help us to do that.
XWe are doing more to help people into work and to help those who cannot work and we are making sure that, for the first time, pensioners are rewarded for their savings. I commend this Statement to the House".
4 p.m.
Lord Higgins: My Lords, I am sure that the House will be grateful to the noble Baroness for repeating the Statement. As it concerns pensions, I should declare an interest as chairman and trustee of an occupational pension scheme.
There are certainly a number of aspects of the Statement that should be welcomed, particularly the proposals on disabled children's benefit, the changes in the independent living fund and the change with regard to capital limits. All of those are welcome.
I had intended to begin with what is almost a traditional remark by saying that the good news was announced by the Chancellor yesterday and that the bad news was announced by the Secretary of State
today, in the sense that the Chancellor normally announces the benefits and the Secretary of State announces the increases in national insurance contributions that are used to finance those benefits. Clearly, my previous remarks have been taken into account by the Secretary of State because there is no mention of the cost of the increases that the noble Baroness has announced. Are we to understand that there will be no increase in national insurance contributions? If some are to be made, no doubt the House would wish to know.The policy has changed on the basic pensions uprating. Two years ago there was an increase of only 75p—a matter that caused enormous agitation. Immediately ahead of the general election, that was suddenly increased to #5. As the next general election is not immediately pending, this year's increase is only #3. However, an overall guarantee has been announced that the annual basic state pension will rise by #100 for a single pensioner and #160 for married couples in 2003. Subsequently, the basic pension will rise each year by 2.5 per cent or by the increase in the retail prices index, whichever is the greater. That provided the Chancellor with a very good sound-bite yesterday.
We have just been told that the basic state pension will form the foundation of retirement income, as stated in the manifesto. Will the Minister confirm that that increase is irrelevant to the large number of people on minimum income guarantee? They will have a separate arrangement.
In that respect, is it not the case that the proposals announced by the Minister will result in more and more erosion of the importance of the basic state pension because the basic state pension is not rising as fast as the minimum income guarantee? The effect will be more and more means-tested benefits. In the light of those proposed changes, will the noble Baroness say what percentage of pensioners she expects to be on means-tested benefits in the period she has described, compared with the figure in 1997? There has clearly been a substantial increase in means testing, with the corresponding effect on the incentive to save and so on, although that will be ameliorated to some extent by the pension credit, to which I shall come in a moment.
Is it not also the case that although the Chancellor keeps increasing benefits, many people do not claim them because they do not understand the benefits to which they are entitled? Two years ago, Age Concern suggested that about 750,000 people were not taking up the income support to which they were entitled. Can the noble Baroness say what percentage will not take up the improved benefits that the Chancellor has announced?
I fully accept that the noble Baroness has been seeking to deal with the take-up problem. We are now told that there is a new form for applying for minimum income guarantee, which instead of being 40 pages in length is 10 pages. Some aspects of it are rather curious. A question in Part 2 asks:
- XDoes your partner agree to you making this claim?".
- XPlease still tell us as much as you can about your partner".
While it is true that the document has been chopped from 40 to 10 pages, a helpful leaflet has been attached to it—amounting strangely enough to 30 pages—saying what the document is all about. It is all very confusing, so there may still be problems of complexity, which bedevil the whole system.
The Chancellor of the Exchequer and the Secretary of State have become obsessed with a multiple system of tax credits. One must wonder how many people actually understand the system. I have always taken the view that both the Chancellor and the noble Baroness do, although I am beginning to wonder even about that. We should consider what has happened since 1999 when five new tax credits for families were proposed. The Chancellor decided to scrap three of them and he then added another two. I rather doubt whether even the noble Baroness could say exactly straight off the top of her head what those five were, which three were scrapped and which two were added. She is looking a little puzzled, but if the noble Baroness does not understand these matters, it seems highly likely that no one in the country does so.
The serious point to be made is that the system has become more and more complicated. It will be further complicated by the pension credit. While one welcomes the fact that those with savings, within a very narrow band of incomes, will get some benefit, as against having it taken away totally because they are on means-tested benefits, none the less the pension credit system will extend means testing still further.
It was pointed out in one of the weekend papers that, under the pension credit, for every pound of income above the basic state pension, which is #77 up to the level of the minimum income guarantee of #100, an elderly person would receive an extra 60p. Once that total income, including the pension had reached #100, the top-up would immediately be reduced by 40p for every extra pound of income. The marginal rate of tax will therefore be 40 per cent.
Will the noble Baroness explain the position of a pension credit recipient who has income above the full basic state pension and other benefits? I understand that the marginal rate—or tax rate—of withdrawal of benefit will be an effective rate of 52 per cent when the recipient receives council tax benefit, 79 per cent if he receives housing benefit and 91 per cent if the recipient receives both of those benefits. No doubt we can consider those matters at Second Reading and beyond after the Bill is published. It is worrying that this kind of structure is being constructed. We shall examine it in great detail.
While there are welcome aspects of the Statement, the Government's pension policy is in disarray. The basic state pension has been eroded and there has been a massive extension in means testing, to which I referred. The stakeholder pension, which was the flagship of the Government's proposals, appears to be
missing its target. I understand that of the 416,000 that have been sold, only about 34,000 went to people in the #10,000 to #20,000 income group, at whom the proposal was aimed. We spent many hours in this House debating the state second pension, but Mr Timmins, a well-known authority on these matters, said in the Financial Times that he believed that it had been overcome by events.On top of that, the occupational pensions scheme, which is so important, is under threat not only by the Chancellor's change to ACT, which is finally beginning to bite because of the rundown in pension fund surpluses, but by other changes on actuarial valuation, the accountancy system, FRS 17, and so on. There remains great concern about the proposal that people must draw their annuity at age 75. We had hoped that the Chancellor would finally have faced up to the problem and removed that limit. It is particularly important because of the low level of annuity rates which are a consequence of the Government's policy with regard to borrowing.
The Chancellor announced yesterday a massive increase in borrowing in the years to come. That is likely to raise annuity rates. But people are still being forced to take their annuities when they reach 75 when they may be able to find a better deal later. This is a matter on which your Lordships voted in favour, only to have it overturned in the Commons on at least two occasions. I hope the Chancellor, having missed this opportunity, will none the less do something about it in the near future.
4.10 p.m.
Earl Russell: My Lords, the Minister shot my fox. For as long as I can remember debating these Statements—since 1989—I have been calling for capital limits to be uprated in line with inflation. The Minister has now not merely done it; she has abolished the limit and is bringing in new methods of calculating the treatment of savings. I look forward with a great deal of interest, first, to looking at those methods; and, secondly, to preparing a new message on tape ready for delivery next year. This one is finished. I should like to say thank you. That is a well-earned piece of thanks because the Minister has put a great deal of work into this.
I should like to welcome a number of other points in the Statement. The increase in maternity grants is particularly to be welcomed. It is an expensive time in anyone's life and it does not get any cheaper.
I welcome the increase in the Sure Start grant, but with one qualification which the Minister can probably script for me. Under the Sure Start system one risks disentitlement if one does not accept the help on offer. How many people has that happened to? The Minister may not have that figure instantly to hand. Also, does it have a discriminatory impact on Christian Scientists who do not believe in calling in medical help? We spent a lot of yesterday listening to discussion on incitement to religious hatred and the evils of religious discrimination. We must remember that some people actually believe that it is wrong to call
in professional medical help. For the benefit system to discriminate systematically against them raises questions which call for a certain amount of thought. I should like to hear that that thought has been given and what the answer is.I welcome the disregard for the independent living fund. I welcome also the uprating for the capital limit of the independent living fund.
I am glad that there is a rise in the basic pension; I am sorry that the Government could not manage any more. But can the Minister tell us what the take-up figure of the MIG is? We have had a great deal of discussion about the MIG and I will not go through it again. The take-up figure is where it matters most.
The pension credit is, in a sense, undoing the effect on savings which is created by MIG; so we have a sort of Xtwo-step". I hesitate in the Minister's presence to describe it as a Xmilitary two-step"; but it is becoming something almost as much interlocked. In fact, the Government's pension policy is beginning to resemble Penelope's Shroud—there is an endless series of re-stitching going on.
That raises one of the big questions on pension credits. In its present form that scheme does not bear the mark of finality; it is something with which a future government may want to tinker. So the two-step will turn into a three-step; then it will turn into an eightsome reel and after that I do not know. So it is a rather uncertain foundation on which to plan for retirement. As one whose retirement is within the next 12 months I must declare an interest in saying that.
It is an extremely complicated system. I know the Minister is making a big point of the forms being filled in at the same time; but I doubt whether many people will understand the interaction between the three elements of MIG, the basic pension and the pension tax credit. Where we have a complicated system and an insecure means of planning, we usually also have a low take-up. The Minister will remember the debates on child benefit in the 1980s, though I regret she did not have the privilege of taking part in them here; I wish she had. The key point was always that, because child benefit was simple, the take-up was remarkably high. Here we have the exact reverse. So we may be producing a system where there is not a great take-up, where an immense amount of thought has gone into it but with a great deal of effort—like racing a car engine out of gear. I await with some anxiety to see what the effect will be.
I must also confess that I was surprised—though this will not surprise the Minister—that the Government have not paid attention to the adequacy of basic benefit levels. I have with me a further briefing from the Zacchaeus 2000 Trust, with which I know the Minister is familiar because a copy was sent to her. It draws attention to a number of further studies in progress. They show serious levels of poverty among those on benefit, especially those who have got into debt. That makes it more serious that, first, there is no systematic study of those who are on lower figures than 40 per cent of average income. We do not know
anything about those who are on 20 per cent or 10 per cent of average income, or in some cases even less. That is a real gap in the department's research.Secondly—this has been part of my tape since 1989 and I regret that I see no reason to take it off—there is no study whatever of the levels of debt among people on social security benefit. Those two things are badly needed. Until the Government have them, they cannot judge the force of the arguments that the Zacchaeus 2000 Trust is putting forward. That is why those arguments concentrate on the need for a study to determine a minimum level of income necessary to determine good health, which is the policy of these Benches as well as the policy of the trust. But I can see no sign of any government even so much as engaging in the argument. This is another missed opportunity and I regret it.
I am also a little surprised by one or two things in the employment section of the Statement, really as an example of academic method. Paragraphs 31 and 32 draw attention to the much lower number of people who are unemployed. We all welcome that. They appear—I put it no stronger because I am not sure they are saying it—to be claiming all the credit for the active labour market policy. The chronology is wrong for that. The fall in unemployment began before the 1997 general election. Therefore it must have been started by policies for which the present Government cannot claim responsibility. If indeed any large part of it is achieved by the policies of the present Government, we are not given a clear answer as to how.
Paragraph 45—the Minister's new initiative of the offer of a job—sounds awfully good. But I am not sure that when this gift horse is looked in the mouth it will be quite as good as it appears to be. First, I hear a distinct whiff of Louis Blanc behind me. Secondly, I hear the problem about the whereabouts of the jobs and the people. I do not know whether the Minister was in the House recently when my noble friend Lord Greaves asked a question about the price of housing in Burnley and Oldham, where the market has effectively collapsed. We can compare that with the sort of things said about housing by my honourable friend David Rendel, MP for Newbury. Newbury have the jobs and Burnley and Oldham have the housing. And it is not very easy to uproot somebody from Burnley and Oldham and put them in a job in Newbury. I do not know whether the Government have thought that through.
The second, and more serious, is the element of conscription behind this plan. The Minister said that it is reasonable to require applicants to take a job. In certain circumstances that may be so. I would not want to trust the machinery of the state in any form under any party, not even my own party, to make that decision for me. Some very curious decisions have been made. I can recall some made under the youth training scheme in the past. For example, there was an asthmatic who was required to work regularly as a painter. He attempted to do so and was not fit to work for another six months. There was also an electrician
who was colour blind. He was required to take a job as an electrician. I am rather glad that he did not do my wiring.I believe that before introducing compulsion the Minister should remember not only that the gentleman in Whitehall does not always know best; the lady does not, either.
4.21 p.m.
Baroness Hollis of Heigham: My Lords, I thank the noble Lord, Lord Higgins, and the noble Earl, Lord Russell, for their response; and if not the noble Lord, Lord Higgins, then at least the noble Earl, Lord Russell, for the generosity of his response on so many fronts. That was a very pleasant change. But I am sure that the noble Lord, Lord Higgins, meant to, but forgot.
I turn first to the points made by the noble Lord, Lord Higgins. He opened with a kind of rallying cry about the erosion of the basic state pension. That is a bit rich, given that last year we increased the basic state pension for single pensioners by #5; this year by #3; and have made a commitment to at least an additional #2 per week in future. If that sort of increase represents the erosion of the basic state pension, then I suggest to the noble Lord that in the use of the word Xerosion" he and I do not mean the same thing.
The noble Lord went on to a more substantive question; namely, whether the way in which and the extent to which we are seeking to target help to the poorest pensioners represents means testing. I accept that we can bandy labels between us. There is a real issue here because the noble Lord knows as well as I that if one opts for universal benefits everyone gets the same and one preserves existing inequalities in incomes. We know that in the past decade or so the top 20 per cent of pensioners saw their incomes grow by 85 per cent and the bottom 20 per cent by about 28 per cent. Universal benefits simply preserve that inequality. As a result, everyone gets the same: the poorest one-fifth get the same as the richest one-fifth. The alternative is to try to ensure that five times as much goes to the poorest one-fifth.
That is my view. If one accepts that, the question then is how one can make that targeting effective so that those entitled are able to claim and do so and that they are confident about their claim. What matters is that the money goes to those who need it. Most of your Lordships would be on the receiving end of the generosity of the noble Lord, Lord Higgins, but at the expense of some of the poorest in Burnley and Oldham, as the noble Earl, Lord Russell, pointed out.
The question is whether what we are proposing, both the pension credit element of guarantee and the pension credit element of reward, represents proper targeting of benefit. I believe that it does, just as taxation targets those who are better off who pay more. As the noble Lord admitted, we are going from complicated forms of 40 pages down to 10 pages. Above all, we are having only five-year checks. Basically, we accept the fact that when a person retires
and receives a pension, the income is likely to be stable. Pensioners may be affected by the loss of a spouse and may go into hospital for long-term care. They may also have a big inheritance. Apart from that, they are likely to have a stable income.We look at their income at the time of retirement, check with them what the figures are, and then, all being well, the retired person will continue to receive that money for at least the next five years and probably thereafter. Therefore, we reduce our intervention in their lives to a possible minimum and give them security of income free of bureaucracy which will enable them to enjoy a much more generous lifestyle than in the past.
As a result of what we doing under the pension credit, half the number of pensioners in this country will gain. For example, at the moment a pensioner who is the widow of a local authority manual worker receives only one-half of her former husband's pension, about #100 per month. At the moment she does not gain one penny from that because it is offset against the minimum income guarantee. But in future she will not lose every penny. She will keep #60 of that #100 and she will be better off by #60 per month.
These proposals should not be criticised as being miserly means testing when we are ensuring that targeted money goes to people such as the widow to enjoy the kinds of things that so far she has been unable to do. I hope that the whole House will welcome that as decent, proper and targeted.
The noble Lord asked about housing benefit and council tax benefit. That is a perfectly fair point. At a cost of half a billion pounds we shall be raising the applicable amounts accordingly so that poorer pensioners on pension credits see the full gain. It is a proper question to ask. We are doing it and it is costing half a billion pounds. As a result there will not be the deduction rates which the noble Lord first feared.
The noble Lord asked about the state second pension. I could go into a general defence of our pension policy, but I do not believe that that is appropriate given the time. But no doubt we shall return to the broader issues. The stakeholder scheme is in its early days. It is going well, but there is a long way to go and there are many questions still to be answered about how we reach the self-employed. It is important that we devise all possible means for ensuring that people retire with a pension. A pension credit now means that those even with modest pensions such as #20, #25 or #30 per week will be able to achieve real gains having made those savings.
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