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Baroness Hollis of Heigham: I do not want to be polemical, but I believe that is a bit rich coming from an Opposition who, when in power, introduced the income support system, which assumed a return of 20 per cent on capital. We are not inventing the social security system from scratch. We have turned an existing savings rule, which was both capped and seriously heavy in terms of its implication for deemed income, into something which is not capped and which for about 95 per cent of pensioners reflects a rate of return which will be either less than or at the existing rate of return from any capital in a building society account or long-term bond. I believe that that is a remarkably generous move to make and far in advance of everything that we inherited.
Baroness Turner of Camden: I thank the Minister for that explanation, which I do not find entirely persuasive. I also share the view that it is unfair to deem people to have an income which they cannot have had. I do not entirely accept the difficulty for individuals who are perhaps slightly better off and who may have earned a reasonable income during work but who are faced in retirement with not such a marvellous pension return. It is not so difficult for such people to ascertain what their rate of interest has been and to make an appropriate return as to the actual amount of income received. I simply do not accept that that is terribly difficult.
I also understand the Minister when she says that we are talking about slightly better off people. They are slightly better off, but they are not wealthy. One is not wealthy nowadays if one has capital over £12,000 in the bank; many people have managed to save that while working hard. I do not see that they must be regarded as people who are so well off that they do not need any particular attention.
I will look carefully in Hansard at what the noble Baroness said. Perhaps we will come back to this on Report. I do not find the explanation all that persuasive. I am not concerned about what the previous government did; I am concerned about what it says in our legislation. I beg leave to withdraw.
Amendment, by leave, withdrawn.
Baroness Noakes moved Amendment No. 89:
- Page 9, line 19, leave out subsections (2) and (3) and insert—
The noble Baroness said: The amendment covers several things that we have already covered. I shall not repeat the arguments. It covers the deletion of subsection (2), which we have just debated, and it covers the use of income tax rules, which we debated earlier. I shall not go over that ground again. However, the additional thing that this probing amendment would do is to delete subsection (3), which says that,
As the Minister knows, I favour the more natural definitions that are rooted in other parts of the financial system in this country, in particular the income tax system. However, given that we are not going down that route and that I am rapidly giving up hope of any form of Damascene conversion on the opposite Bench, I would like the Minister to say for what purposes she intends that subsection (3) would be used. For what reasons must income and capital be calculated or estimated in ways prescribed by the Secretary of State? I beg to move.
Baroness Hollis of Heigham: I would have thought that the discussion that we have just had would have covered the point raised by the noble Baroness. For example, we are talking about a capital sum of £6,000 for exemption. In the past, the noble Earl, Lord Russell, for example, tried to raise the floor and the ceiling of capital limits. I used to join him in that. It is not inconceivable that a future government may wish to revisit that issue. It is equally possible that a future government might wish to revisit the issue of a notional rate of return, as we have done with pension credit. The subsections give such powers, and obviously they will be subject to the usual parliamentary scrutiny.
Baroness Noakes: I thank the Minister for that. I had understood that the rate of return was being dealt with by subsection (2), which we have already debated, and not subsection (3). However, I take it that the example that she gave shows that subsection (3)
Amendment, by leave, withdrawn.
[Amendments Nos. 90 to 92 not moved.]
Baroness Noakes moved Amendment No. 93:
The noble Baroness said: Having moved Amendment No. 93, I shall also speak to Amendment No. 94. They are also probing amendments.
Amendment No. 93 would delete subsection (4), which says that income,
I have already said once or twice that some of the ways in which the clause is constructed represent a kind of fantasy world that the department occupies with regard to income and capital. The subsections allow the department to average out income. The Explanatory Notes refer to averaging out earnings, but the powers would doubtless be used for other purposes as well. I am not sure that pensioners, who might understand averaging of income, would understand averaging by reference to periods other than that being referred to.
I shall not press further my main themes of using natural definitions of income and capital, but I should be grateful if the Minister could explain why these powers are needed. I beg to move.
Lord Hodgson of Astley Abbotts: I wish to support the amendment moved by my noble friend. Given that this is primary legislation, the provisions are extraordinarily widely and loosely drawn. As my noble friend Lord Higgins has pointed out, we do not yet have the benefit of regulations which might help in our thinking.
What gives cause for the greatest concern is the fact that there is no way of controlling any future government in respect of these important aspects of the Bill, except through regulations. I think that some form of statement included in the primary legislation would be helpful. So far we have not been able to tease out of the Government enough of their strategic thinking to give us confidence that sufficient pegs have been hammered into the ground within the primary legislation.
Earl Russell: My concerns are very similar to those of the noble Lord, Lord Hodgson of Astley Abbotts. I think that I am somewhat allergic to overprescription, a phenomenon not by any means confined to the
In particular I am interested in the wording of subsection (4):
Baroness Hollis of Heigham: It would be important if it were true in that form. It is not, because any such exercise of power is embedded in a regulation which will have to come before the House either through affirmative or negative procedures. I would remind the noble Earl, Lord Russell, of what I am sure he already knows: the Delegated Powers and Regulatory Reform Committee thought that our use of regulation-making powers in the Bill was entirely satisfactory—I hope I have not put words into the mouth of the committee. It put forward no suggestions and proposed no alterations to that effect. We have been given a clean bill of health in that respect.
On many occasions the noble Earl has teased both myself and previous Ministers standing at this Box when we have had what are called the "Humpty Dumpty" clauses, in which income may be treated as capital and capital may be treated as income. When one scratches at the surface, one finds a perfectly good reason for it: it is done in order to avoid avoidance, if I may put it in those terms.
It is only sensible that a person's income in respect of any period shall be calculated in accordance with prescribed rules. The alternative would be to calculate it in accordance with no rules, which I am sure would be unwise.
By removing subsection (4), Amendment No. 93 seeks to remove the capacity of the Secretary of State to prescribe rules, within regulations and subject to parliamentary scrutiny, for how income should be calculated in respect of any period. Pension credit entitlement—the emphasis should be put on "any period" in respect of this—will be calculated on a weekly basis. The guarantee credit will be calculated by comparing the appropriate minimum guarantee with the pensioner's income. Where the appropriate minimum guarantee exceeds the income, pension credit will make up the difference.
The savings credit will be calculated by using certain percentages of the rewardable income, again on a weekly basis. Therefore, to achieve the pension credit calculation it will be necessary to ensure that both the pension credit and the income are expressed in weekly terms. Regulations will ensure that this will be the case.
A further use of the subsection will be to allow the decision maker to attribute income. This would mean that income would be taken into account over the same period for which it was paid. An example would be where the weekly state retirement pension is paid at four-weekly intervals. Without the facility to attribute the payment over four weeks, the decision maker would need to take the whole of the amount into account when it was paid—that is, for one week—but take nothing into account for the remaining three weeks. That would create a situation where the pensioner was not entitled to pension credit for the week of payment but was entitled for the other three weeks. That would obviously be an unacceptable situation for pensioners and administrators.
Like the noble Earl, Lord Russell, we are all concerned about our reliance on delegated legislation. I reassure the Committee that the secondary powers to be introduced under subsection (4) would be used only to ensure that a correct amount of pension credit entitlement may be calculated. Therefore I urge the noble Baroness to withdraw the amendment.
Amendment No. 94 seeks to remove subsection (5), which contains the power to prescribe rules, within regulations, to be used to average income over a period. This power already exists within the minimum income guarantee provisions and it will be used in exactly the same manner in the pension credit calculation of entitlement—that is, it will allow the decision maker, where an income is irregular or erratic, to calculate an average, using a reasonable period for that calculation.
If the amount of income fluctuates, we want to be able to use an average figure. The fluctuation may follow a regular pattern—for example, the younger partner of a pensioner getting pension credit who is weekly paid may normally work one day a week, but on one week in four may work two days or none. In such a case, we intend that the average is taken over one cycle of that pattern.
If there is no pattern, we intend to base the average on the last two payments, if paid monthly or at longer intervals, or the last four if paid at shorter intervals, unless that would give an unrepresentative result—for example, if it included a wholly abnormal payment such as a Christmas bonus and so on. In that case we intend to provide for the flexibility to be able to use a different period which would give a more accurate, representative result.
This is a fully tried and tested method of calculating income throughout social security. It will work to the pensioner's advantage because it will provide an accurate calculation of his/her weekly income. With those explanations—as I said, it is perhaps the averaging of the period that we should be concentrating on in this subsection of the clause—I hope the noble Baroness will be content to withdraw the amendments.
Baroness Noakes: I thank the Minister for that comprehensive reply. Those of us who have spoken to the amendments have expressed disquiet about the powers in the Bill and the way in which they may possibly be used. We shall reflect further on what the Minister has said. In the meantime, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 94 and 95 not moved.]
"( ) Income shall be calculated in accordance with rules which apply for income tax purposes."
"Income and capital shall be calculated or estimated in such a manner as may be prescribed".
Page 9, line 23, leave out subsection (4).
"in respect of any period shall be calculated in accordance with prescribed rules".
Amendment No. 94 would delete subsection (5), which says:
"The rules may provide for the calculation to be made by reference to an average over a period (which—
remarkably—
"need not consist of or include the whole or any part of the period concerned)".
So it can be some other period.
"A person's income in respect of any period shall be calculated in accordance with prescribed rules".
Is there anywhere else in this Bill or in any other social security law a limitation on what some future government might prescribe under that subsection? Alternatively, is it a completely open-ended power, a pure Cambyses clause that allows the Secretary of State to do whatever he likes? That point is, I think, of some importance.
9.30 p.m.
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