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Pensions Bill
House again in Committee on Clause 5.
Lord Oakeshott of Seagrove Bay moved Amendment No. 21:
Clause 5, page 7, line 1, leave out from “means” to end of line 8 and insert “the tax year 2007—2008”
The noble Lord said: Amendment No. 21 is in my name and that of my noble friend Lord Kirkwood. I shall also speak to Amendment No. 23. As we are now after the dinner break and have a long list of amendments in front of us, I propose to go into overdrive, if that is all right. The amendments ask for clarity and precision on when the earnings linking, which we all agree is necessary and long overdue, will come into place. Amendment No. 21 asks for it to be brought forward to now or as soon as possible, effectively next year. The other amendment is to make the Government commit themselves that it will not slip beyond 2013. Amendment No. 21 is our preferred option, but we also have Amendment No. 23. We ask the Government to respond as clearly as possible, given that this is the cornerstone of the Bill. We have good support from Help the Aged and from other charities. It is essential that this is brought forward and made clear. I beg to move.
Baroness Turner of Camden: I was very pleased to learn that the Government had accepted in principle at least that the basic state pension should be linked to the wages index, as I think we all were. It will be recalled that Lady Castle, with my support, repeatedly sought to persuade the Government of the necessity to do that, but it was always opposed on the basis that it would mean increases for people who did not really need it. It has been the view of many of us, including the TUC, that the basic state pension should be increased and then linked to the wages index, which would have meant that far fewer people would have to rely on means-tested benefits, which are expensive to administer, often do not reach those who are entitled to them and are regarded as humiliating for many who need to claim them.
The Bill envisages linking the BSP to the wages index, but not until a date some time in the future. The National Pensioners Convention believes that about 3 million present pensioners may not be alive by then to benefit from it. Baroness Castle would, I am sure, have been pleased at the Government’s change of heart about the wages index link, but she would have been less than happy about the delay in its introduction so that many will not benefit. Moreover, it looks as though the Government are intent on providing themselves with a get-out clause if it is not felt to be affordable at that time. That is not satisfactory; it should be introduced as soon as possible after the Bill becomes law.
If it is claimed that many will benefit who do not need it, the answer is simple; the better off will simply pay more tax. It will be of enormous assistance to many. I hope the Government will see the justice of this. It was originally intended that BSP should be linked to the wages index, but that was changed by subsequent Governments. I understand that, had it been in operation all these years, the BSP would now be worth about £142 a week, enough to lift many out of the need to claim means-tested benefits. Although the pension credit has assisted many pensioners, as we all agree, it has not helped everyone, and I urge the Government to arrange for the wages index link to operate earlier than has hitherto been indicated. I support the amendment.
Lord Skelmersdale: I have an amendment in this group. Perhaps I may ask, like St Thomas Aquinas, “When, dear Lord, when?”. That is exactly the point behind—
Baroness Hollis of Heigham: He then said, “But not just yet”.
Lord Skelmersdale: Indeed, but it does not suit my case to carry on. The Government’s position appears to be rather mixed on this, because they seem to be insisting that the link will partly be paid for by the rise in state pension age and partly by new money, and that the Bill is affordable, with clear funding structures behind it. In the next moment, almost in the next breath, the Government claim that further flexibility is necessary on the timing to ensure that the promise that the Bill makes to pensioners is affordable. For goodness’ sake, which is it?
Baroness Greengross: I very much support the amendments of the noble Lords, Lord Oakeshott and Lord Kirkwood, and support what the noble Baroness, Lady Turner, said. I welcome the plan to link the pension with earnings, and noble Lords across the Committee feel strongly about that. I hope that the amendment of the noble Lord, Lord Oakeshott, will be carried. In the event that it is not, can the Minister at least consider those who are 80 and above, because, making them wait until 2013 takes a risk that they will not be here? It would seem cruel to say to them, “It’s going to happen, but you will probably not be around to benefit from it”. In the event that the Minister feels that he cannot support the much better amendment that has been proposed, will he at least consider the over-80s?
Lord McKenzie of Luton: I thank the noble Lords, Lord Oakeshott, Lord Kirkwood and Lord Skelmersdale, for their amendments and for providing a chance for us to debate the restoration of the earnings link to the basic state pension. The Pensions Commission made it clear that there was no crisis for today’s pensioners, but there would be for future pensioners unless reforms were made to address the issues that they faced. We are following the thrust of the Pensions Commission’s proposals by developing solutions for the future. Uprating the basic state pension in line with earnings is one of those solutions. I start by confirming the Government’s commitments on earnings uprating.
First, we will continue to uprate the pension credit standard minimum guarantee in line with earnings beyond 2008 and over the long term. At present, there is no legal obligation to do this. This Bill puts that commitment in primary legislation to provide certainty on that point. Secondly, during the next Parliament, we will link the uprating of the basic state pension with average earnings over the long term. Our objective, subject to affordability and the fiscal position, is to do that in 2012, or by the end of the next Parliament at the latest.
That commitment was set out in the Government’s pensions White Paper of May 2006, and Clause 5 legislates for it. We will make an announcement at the beginning of the next Parliament specifying the date for introducing the earnings link for the basic state pension. This group of amendments seeks to bring forward either the date from which the earnings link is restored or when and how that date should be announced.
The noble Lords, Lord Oakeshott and Lord Kirkwood, tabled an amendment that seeks to bring forward the date for introducing the earnings link for the basic state pension so that earnings uprating takes effect from the tax year 2008-09. Some noble Lords have expressed disappointment that we are not promising to restore the earnings link earlier than 2012, but the costs arising from introducing it earlier are considerable. Introducing the earnings link from 2008-09 would cost an extra £2.2 billion in 2012 alone. Costs would continue to rise over time to about £6.5 billion a year in 2050. Those costs might be affordable if we were restoring the earnings link only in the short term or in isolation from other changes, but not if we want to link pensions with earnings over the long term as part of our wider reforms. Earnings uprating is part of a package of complementary reforms, and trying to unpick the timing of this element of those reforms fundamentally changes that package.
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Many Members of the Committee will know that the Pensions Commission recommended that earnings uprating should be introduced from 2010 or 2011. The noble Lord, Lord Turner, has confirmed that a short delay in the introduction of earnings uprating, to our objective date of 2012, does not undermine the overall direction of our reforms.
The second amendment of the noble Lord, Lord Oakeshott—Amendment No. 23—seeks to ensure that the latest tax year in which earnings uprating of the basic state pension takes effect begins before 6 April 2013. In other words, the amendment would dictate that earnings uprating had to be in place no later than the tax year beginning April 2012.
It is important that the Committee is assured of our clear commitment to restore the earnings link. Although we have said that our objective is to uprate the basic state pension by earnings from 2012, it is right that the Government have a degree of flexibility to consider its timing in the light of the prevailing economic circumstances of the time. Committing any Government now to restoring the earnings link in 2012 without any flexibility to take account of the fiscal position at that point in time would not, I suggest, be a sensible proposal.
The noble Baroness, Lady Greengross, tabled Amendment No. 22, which also seeks to bring forward the date for introducing the earnings link for the basic state pension and industrial death benefit but only for people aged over 80. Earnings uprating for this group would take effect from the tax year 2009-10, which would mean that this group would get a head start over younger pensioners.
One effect of the amendment—unintended, I feel sure—is that the rate of basic state pension for the cohorts of people who benefited from earnings uprating in this way would always be higher than for those who reached the age of 80 after earnings uprating was introduced. Indeed, this could lead to the existence of a number of different rates, thereby adding complexity to a system which we are attempting to simplify. As I said, I doubt whether that was the intention behind the amendment.
We will continue to uprate the pension credit standard minimum guarantee in line with earnings beyond 2008 and over the long term. Pension credit already helps well over 1 million people over the age of 80 and they will continue to benefit from this. Much of the additional money which we have given to existing pensioners over the past 10 years has gone to older pensioners—for example, through higher winter fuel payments and free TV licences.
As I said, earnings uprating is part of a package of complementary reforms, and trying to unpick the timing of this element, even for older pensioners alone, changes that package. The costs arising from earlier introduction, even for people over 80, are not inconsiderable. In the first year alone, it would add some £100 million to state pension costs and by 2012 that would grow to around £400 million.
I reiterate that the Pensions Commission made it clear that there is no crisis for today’s pensioners but there would be for future pensioners unless reforms were made to address the issues that they face. We are following the thrust of the Pensions Commission’s proposals by developing solutions for the future. Our reforms will go further, locking in the gains already made against pensioner poverty and providing a more generous state foundation on which to save.
As I have already confirmed, we have said that we will make an announcement at the beginning of the next Parliament specifying the date for introducing the earnings link for the basic state pension, and that is reflected in the Bill. The final amendment in this group—Amendment No. 24, tabled by the noble Lord, Lord Skelmersdale—concerns the timing and manner of that announcement. The amendment seeks to specify, more precisely than in the Bill, when the Government will make an announcement on the commencement of earnings uprating. In effect, it commits the Government to making such an announcement within the first six months of the beginning of the next Parliament and to do so by an oral Statement to Parliament.
Clause 5 not only guarantees that earnings uprating will happen in the next Parliament but also commits the Secretary of State to make an order before 1 April 2011 identifying the designated tax year—that is, the first year in which a review with regard to earnings will take place. This announcement could be made within the first six months of the start of the next Parliament or earlier, or by oral Statement under current arrangements. I do not believe that we have to stipulate that in legislation.
Our policy for introducing earnings uprating of the basic state pension is absolutely clear. Clause 5 of the Bill provides certainty by legislating for the commitment we have given, guaranteeing that earnings uprating will happen in the next Parliament. Earnings uprating forms the majority of the costs arising from our state pension reforms. Although we have made clear when we intend to restore the earnings link for the basic state pension, the timing for this has rightly been framed with regard to affordability and sustainability of the overall package of reforms over the long term. That flexibility is essential if the package is to stay within the envelope of affordability. The Bill already provides certainty on the Government's commitment to introduce earnings uprating in the next Parliament, and in an affordable way, by guaranteeing this in legislation. For those reasons, I urge noble Lords to withdraw these amendments.
Lord Skelmersdale: I am confused. I shall read Hansard extremely carefully to see what the Minister has said, but I understood him to say that 2012 would be the date; then he said that 2012 is the intention; and then he said we must have flexibility. To leave such a large window of time is totally unacceptable. Primary legislation should be enacted, not put on the shelf somewhere until the Secretary of State judges that the time is right to make some positive headlines. The Government, having made this brave decision, owe it to pensioners to tell them in a reasonable time when it will happen.
Lord McKenzie of Luton: We intend to tell people in a reasonable time when it will happen. We have made a commitment to make an announcement early in the next Parliament. There is a commitment to lay an order before 1 April 2011. As I made clear, our objective is to do it by 2012, subject to affordability and the fiscal position. There is bound to be a need for a degree of flexibility. Notwithstanding that, a clear commitment that it will happen by the end of the next Parliament at the latest is enshrined in legislation. It seems to me that that is very clear and binds the Government within fairly tight parameters.
Lord Skelmersdale: That could be eight years.
Baroness Turner of Camden: The Minister mentioned a very large figure, saying it would cost several million—£2 billion. Are there any costs to offset against that? Surely there could be some savings. First, a number of better-off pensioners would pay more tax and, secondly, there would be less expenditure on means-tested benefits which otherwise would be payable but which people would not need to claim because they were receiving increased pensions.
Lord McKenzie of Luton: My noble friend is correct. I believe that figure is a net figure. If it is not, I shall certainly write to my noble friend and ensure that she has the net figure.
Lord Oakeshott of Seagrove Bay: The more I listen to the debate, the more I realise that a period in a Parliament is a nonsense. Why should pensioners have to wait longer if it happens to suit Gordon Brown to run right up to 2010 rather than call an election next year? It seems to me that, in principle, there should be a date. I feel like offering the Minister a deal; that we will drop all our suggestions of raising the basic state pension and that we shall even drop our support for citizens’ pensions if he will promise that the basic state pension is put up by £1 a week every time the word “flexibility” is used in our debates.
More seriously, I thank the noble Baronesses, Lady Turner and Lady Greengross, for their support—I could call them the usual suspects. The point is well made by Age Concern and Help the Aged that without the restoration of the link with earnings, the real value of the basic state pension in today's earnings terms will fall to £79 by 2012. Pensioners are seeing the value of their pensions decrease steadily in relation to average earnings. They have waited long enough. At this stage, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 22 to 24 not moved.]
Clause 7 [Removal of link between lower earnings limit and basic pension]:
Lord McKenzie of Luton moved Amendment No. 26:
The noble Lord said: I shall speak also to Amendments Nos. 27, 28 and 29. These amendments make changes to Clauses 7 and 8 as a result of recommendations made by the Delegated Powers and Regulatory Reform Committee in its ninth report. Clauses 7 and 8 deal with the removal of the link between the lower earnings limit and the rate of the basic state pension. Because of that link, the level of the lower earnings limit currently increases in line with prices. However, the link means that without the changes made by Clauses 7 and 8, the lower earnings limit would increase in line with earnings once the earnings link is restored because it is connected to the rate of the basic state pension through legislation.
Our view is that the lower earnings limit should not automatically increase in line with earnings simply as an unintended consequence of restoring the link between earnings and the basic state pension. Therefore, Clause 7 amends the existing delegated power contained in Section 5 of the Social Security Contributions and Benefits Act 1992 so that where regulations prescribe the level of the lower earnings limit, the level will no longer be linked to the weekly rate of the basic state pension. Clause 8 amends corresponding provisions in the Social Security Contributions and Benefits (Northern Ireland) Act 1992, as national insurance falls to be legislated for in respect of the whole of the UK.
We believe that the provisions that govern the setting of the lower earnings limit should allow for flexibility, which is what Clauses 7 and 8 achieve by providing the Treasury with the discretion to set the amount of the lower earnings limit. The Treasury will separately consider the appropriate uprating of the lower earnings limit once the link with the basic state pension is broken.
However, the Delegated Powers and Regulatory Reform Committee, in its ninth report, highlighted the significance of the lower earnings limit as the entry point to contributory benefit entitlement. In light of that, it considered that once the link between the lower earnings limit and the rate of the basic state pension is broken, regulations that set the rate of the lower earnings limit should no longer be subject to the negative procedure, but rather to the affirmative procedure. It also recommended a parallel change in Clause 8 which makes provision for Northern Ireland. I am pleased to say that we unreservedly accept the committee’s recommendations. We therefore tabled Amendments Nos. 27 and 29, which ensure that those recommendations are fulfilled. A couple of small tidying up amendments—Amendments Nos. 26 and 28—are necessary as a result. I beg to move.
Lord Skelmersdale: Having been rather intemperate on my last intervention—unnaturally intemperate, I hope—I congratulate the Government on acceding to the suggestions of the Delegated Powers and Regulatory Reform committee. I have no complaint about the rationale behind Clauses 7 and 8, and I agree with the committee and the Government that the regulations should be by affirmative instrument, not by negative resolution.
Lord Oakeshott of Seagrove Bay: We on these Benches agree. We congratulate the Government and we also congratulate the Regulatory Reform Committee, under the chairmanship of one of my predecessors in this job, my noble friend Lord Goodhart, on doing its job well and keeping the Government honest.
On Question, amendment agreed to.
Lord McKenzie of Luton moved Amendment No. 27:
“( ) In section 176(1) of the SSCBA (instruments subject to affirmative procedure), before paragraph (a) insert—
On Question, amendment agreed to.
Clause 7, as amended, agreed to.
Clause 8 [Removal of link between lower earnings limit and basic pension: Northern Ireland]:
Lord McKenzie of Luton moved Amendments Nos. 28 and 29:
“( ) In section 172 of the Social Security Contributions and Benefits (Northern Ireland) Act 1992 (Assembly, etc. control of regulations and orders)—
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