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The other income-related benefits are to be increased by the Rossi index, as the Minister said. That of course excludes rent, mortgage interest, council tax and—for some unknown reason—depreciation. I have never understood that; perhaps someone could take me quietly aside at some point

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and explain. Over the past year, this has been 2.3 per cent, which again will not be popular in some quarters through ignoring the point of the swings and roundabouts that I have just mentioned. It tends to be pensioners, through their lobby groups, who complain most about this. It would be helpful to know the Government’s view.

Talking to pensioners brings me to the order that we are discussing in parallel, the guaranteed minimum pensions order. As the Minister said, where inflation is more than 3 per cent, the guaranteed minimum pensions indexation is capped at 3 per cent. Unlike my noble friend Lady Noakes—she will be returning to the House tomorrow—I am not a pensions guru, although I struggle hard to make some useful points. Therefore, with regard to a point just made, what effect does guaranteed minimum pension have on defined benefit pension schemes year by year? I can understand that in the past it has had some effect by dragging up the level of the minimum pension payable, but is that still the case, especially in the, alas, very rare defined benefit schemes? It would be useful to know that.

Accompanying these orders is the report of the Government Actuary—or, rather, the acting one, Mr Johnston. I have not been able to check whether last year’s Government Actuary’s Department report said the same thing as we find in paragraph 4 of the conclusion; namely, the obvious fact that if economic conditions depart from the assumptions in paragraph 4.1, which I shall come to in a minute, then the balance of the National Insurance Fund, as of 31 March, will be different from the £56.974 billion anticipated at the end of the financial year 2008-09. That may or may not be meant to sound a cautionary note but it is rather stating the obvious.

One of these imponderables must surely be the unemployment level, which is mentioned as a contributing factor in paragraph 4.1. The others in that paragraph are the employment level—as opposed to the unemployment level—which is expected to rise from 27.6 million in 2007-08 to 27.7 million in 2008-09. That is a modest increase indeed. The question arises as to where people are to come from to fill those extra 100,000 jobs. Does the Minister expect the Prime Minister’s wish to be realised when he talks of British jobs for British workers, which, with the number of immigrants coming into this country, is what I would describe as patent nonsense? Those immigrants, of course, mainly come from EU countries, and there is nothing that this Government or indeed any other can do to stop them. The pass was sold years ago, although with the new accession countries, as they are called, it was under this Government’s watch.

Another assumption that the acting Government Actuary makes is that the number of people unemployed and claiming benefit will be 840,000 on average in 2007-08, rising to 870,000 in 2008-09. We all know that the economy is slowing down but I am confused by these assumptions, because the most recent figures for unemployment that I have, which come from the Labour Force Survey, are 1,606,000 unemployed and 7.9 million defined as “economically

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inactive”. For the purposes of clearing up my confusion, what has happened to 810,000 people? Surely they cannot all be so self-sacrificing as not to claim benefit.

Finally, it used to be recognised that the prudent balance in the National Insurance Fund was one-sixth of expected expenditure. Mr Johnston reports that the surplus in the fund is likely to be well in excess of this at £56,947,000 by the end of 2008-09. It is perhaps hardly surprising that the National Pensioners Convention has recognised this, commenting that the surplus has been rising by more than 2.45 times in the increase of expenditure. It has therefore called for a substantial increase in the state pension, and there was a report to that effect in a tiny paragraph in Saturday’s Financial Times.

There are two points here on which I should like the Minister to respond. The first is that the fund covers a lot more than pensions; it includes jobseeker’s allowance and incapacity benefits as well as pensions. The new pensions benefits, which are expected to be £8.108 billion in 2008-09, are much more volatile than pensions and depend on assumptions which may or may not be realised.

I cannot discover what allowance has been made for longevity, although I note that total expenditure is increasing at a higher rate than the extra payments would warrant as a result of the uprating. This is the subject of the next order, so perhaps my remarks are out of place here. Nevertheless, I would be grateful for the Minister’s response to the national convention, which I believe would be the first time that any Minister would be able to put such a response on the record. Not only I would be grateful, but I am sure that the convention would, too. With these questions, I approve the orders.

4.45 pm

Lord McKenzie of Luton: I am grateful for the range of contributions. I shall try to deal with as many points as I can and will certainly write where I cannot.

The noble Lord, Lord Kirkwood, asked why we cannot do away with the guaranteed minimum pension. The Pensions Act 2007 contains provisions which allow schemes to convert guaranteed minimum pension rights to normal scheme benefits so long as they are equivalent. That is a means of addressing the noble Lord’s question. The provisions cover also the removal of contracting-out or defined contribution schemes, which is a welcome simplification of pension arrangements.

The noble Lord, Lord Skelmersdale, asked what this was all about. Where there are defined benefit schemes—previously, defined contribution schemes—and a contracting-out of SERPS, the legislation required that those contracted-out schemes provided a guaranteed minimum pension which was broadly equivalent, although not identical, to SERPS. The provision requires those defined benefit and defined contribution schemes to maintain a pension that covers the SERPS from which people have withdrawn.

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Lord Skelmersdale: Yes, I fully understand that, but my question could be translated as “Do they still have a value?”, because I am beginning to doubt it.

Lord McKenzie of Luton: Indeed. The purpose of the uprating is to make sure that their value is maintained, with the right not to maintain them as a guaranteed minimum pension in the future but to build an actuarial equivalence into normal benefits being provided for in the legislation that we discussed extensively last year. Yes, there is a value. The order is about maintaining or preserving that, but giving schemes the choice to convert to equivalence, so that one no longer has to go through the detail and complexities of these calculations.

I hope that I have dealt with guaranteed minimum pensions. Perhaps I may deal next with the range of inflation measures. The noble Lords, Lord Kirkwood and Lord Skelmersdale, were right that they are inevitably backward-looking, which is the only sensible way to approach them. There is a range of measures, such as RPI, Rossi, RPIX, which is retail prices less mortgage interest payments, and the consumer prices index, which is the main macroeconomic inflation indicator and commonly used internationally. Each has its role. Traditionally, we have used RPI for the upratings. For the 2008 uprating, the RPI is 3.9 per cent and the CPI is down at 1.8 per cent, so it was beneficial to individuals that we used the RPI figure. Of course, if there are cost increases in certain commodities after the announcement, during the course of the year before the next uprating there is inevitably a bit of a lag to that—but it will be caught up when the next uprating takes place. The impact on energy prices needs to be seen also in the context of the Government’s fuel poverty strategy, which has invested considerable amounts of money in targeting the most vulnerable and helping them to tackle fuel poverty; 1.6 million households have already been helped under the Government’s Warm Front programme.

Lord Kirkwood of Kirkhope: The Minister cannot get away quite as easily as that. The winter fuel payment was set at £200 in 2003, I think, and is still £200 in 2008. Some of these thresholds and disregards do not do the job that he argues that they do.

Lord McKenzie of Luton: Again, you have to look at the totality of support and income that goes to households. It is right to say that the winter fuel payment is not uprated annually. However, when you look at its current value of £200 and £300 for the over-80s and compare that with the £20 in existence when we came in—

Lord Kirkwood of Kirkhope: That was nothing to do with me.

Lord McKenzie of Luton: No—it is never anything to do with the Liberal Democrats. There has been a dramatic improvement in outcomes.

Both noble Lords touched on the issue of the economic climate and how that is going to impact on the figures. Of course, we know that the international

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credit crunch is producing pressure on growth across the globe. We would maintain that, because of the financial stability in the UK and the fiscal and monetary infrastructure that is in place, the UK is better placed to weather that storm than most economies.

On the labour market, I did not quite follow the figures given by the noble Lord, Lord Skelmersdale, and perhaps I need to study the record in detail. I wonder if he is quoting two different measurements—the Labour Force Survey and the claimant count—which are not necessarily measuring precisely the same thing.

Lord Skelmersdale: I do not think that I was confusing them but I was most certainly comparing them, because there is an enormous difference. I was asking why the Minister thought that there was such an enormous difference.

Lord McKenzie of Luton: From recollection, the Labour Force Survey asks a number of questions on a sampled basis, looking back a number of weeks and forward a number of weeks. It would count as employment if someone was available and in work for as little as an hour a week. But rather than confuse the noble Lord with anecdotes, I shall write more specifically to set out precisely what is included.

Lord Skelmersdale: That would be helpful, especially in view of the 16-hour rule.

Lord McKenzie of Luton: Indeed. For the purposes of clarity I should set down in writing the different components of those two measures.

My next point goes to the heart of the point that both noble Lords made about working-age families without children and the challenges of living perpetually on benefit when it is uprated only by RPI. Yes, of course that is so—which is why we placed so much emphasis and did so much work on the benefit of encouraging and supporting people into work, for a whole range of reasons. There is the whole issue around the health, work and well-being agenda—that being in work is generally good for your health and being out of work is generally bad for your health. We know that it is the best route out of poverty, overwhelmingly for most families, which is why the investment has gone in, why we have the New Deal and why there have been the very dramatic improvements in the labour market statistics. The number of people in work is a record 29.36 million. ILO unemployment was down 13,000 on the last quarter and the number of out-of-work benefits have fallen by 1 million since 1997. Those are real and dramatic changes in the labour market, and we need to keep supporting people into work.

The greater emphasis will be achieved by integrating the skills and work agendas to make sure that people who come on to jobseeker’s allowance have skills screening and the help that they need to improve their skills. Under the flexible New Deal, we want to make sure also that people have the benefit of

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advisers and support, so that they not only get into work, but are sustained and encouraged to progress in it. If one were to compare most in-work calculations with equivalent benefit calculations, one would see that people are overwhelmingly better off in work. I accept that that is not always well understood, although Jobcentre Plus will do a calculation as a routine part of a customer’s experience. People sometimes forget that benefits such as council tax benefit and housing tax benefit are in-work as well as out-of-work benefits and do not necessarily factor them into the calculation. However, these are the challenges of helping people to understand and of supporting them into work.

The noble Lord, Lord Kirkwood, drew comparisons between the percentage levels of the basic state pension to show what they have been historically. He was right: the Government’s approach when they came into office was to target resources on those who needed them most. We make no apology for that because of the paucity of provision for pensioners in 1997. It was absolutely right to do that. We know that we have spent more on pensions and invested more on pensioners than would have been the case if we had only uprated the basic state pension by earnings rather than prices. We would not have done better. Under the pension reforms last year and those that we shall discuss soon, we have put in place foundations to help more people access a full basic state pension and to relink the basic state pension with earnings in 2012 or the end of the next Parliament. Nor should we overlook the benefits of S2P and what that has meant for generally poorer workers in additional support and extra pension provision.

Lord Skelmersdale: If pension outgoings from the fund rise by the level of earnings, and income rises by the RPI, there is bound to be an imbalance between the two. Is that why the Government are building up the balance in the National Insurance Fund? Is this the real answer to the pensioners convention?

Lord McKenzie of Luton: Not specifically. I was going to come on to the surplus in the national insurance fund, because we inevitably debate it at this time of year. The reality, and the answer to the National Pensioners Convention, which says that that surplus could be used dramatically to increase pensions now, is that the surplus is effectively invested back into other public services. If we spent that on increasing pensions immediately, one would have to raise taxation to deal with the other public services which the surplus currently supports. It is not available as a free amount, and is not otherwise allocated and invested in government services.

The noble Lord, Lord Kirkwood, asked whether we have the right strategy for child poverty. Six hundred thousand children have been lifted out of relative poverty already. The details announced in the previous Budget and the PBR on child benefit and child tax credit, and the issues that we have discussed in the child maintenance Bill, will support another 300,000 children in getting out of poverty, but there

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are still big challenges that we need to make sure we meet. We should not shy away from setting tough targets simply because they are tough.

My noble friend Lord Jones asked about statutory paternity pay and statutory adoption pay. We dealt with this on the then Work and Families Bill. I am struggling to remember which year it was—I think it was 2006. I do not have a detailed breakdown of the information but I shall certainly write to my noble friend. Of course, we should recognise that these things are generally met by employers and not by government.

The noble Lord, Lord Skelmersdale, again asked about the National Insurance Fund and said that he thought it covered a lot of things other than pensions. There is a tabulation showing total benefits for 2007-08 of something like £65 billion, with a breakdown of the figures for retirement pensions, additional pensions, widows’ bereavement pensions, incapacity benefit and contribution-based jobseeker’s allowance, and there is also a schedule showing the totality of those payments.

The noble Lord also raised the question of pension take-up and the work that is being done in that respect. Given the time that we have spent on this order, perhaps I may send him a note, as I think that we have ranged over this matter before. Very extensive work is going on to ensure that people take up the benefits to which they are entitled. I hope that I have dealt with each of the questions raised. If noble Lords do not wish to challenge or raise any other points, I shall commend the order to the Committee.

On Question, Motion agreed to.

Social Security Benefits Up-rating Order 2008

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): I beg to move the Motion standing in my name on the Order Paper.

Moved, That the Grand Committee do report to the House that it has considered the Social Security Benefits Up-rating Order 2008. 8th Report from the Joint Committee on Statutory Instruments.—(Lord McKenzie of Luton.)

On Question, Motion agreed to.

Social Security (Contributions) (Re-rating) Order 2008

5.02 pm

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton) rose to move, That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Re-rating) Order 2008.

The noble Lord said: I am pleased to introduce this order, which deals with various national insurance contribution rates and thresholds. I can confirm that it is compatible with the European Convention on

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Human Rights. All the changes were announced in a Treasury press release published on 18 October 2007.

Since 1997, the Government have delivered a comprehensive programme of reforms to the tax and benefit system. Those reforms have simplified the system, tackled child and pensioner poverty and made work pay. The 2007 Budget announced the next stage in these reforms as part of a rebalancing of the tax and NIC systems to offer more support for work, families and pensioners. The package simplified income tax and NICs, increased the personal allowances for those aged 65 and over, and changed the rates and threshold for child tax credit and working tax credit. It means that from April 2009 there will be just two main rates of income tax, and they will apply to the same bands of income as the two rates of national insurance contributions, creating one of the simplest personal tax structures of any developed country.

To achieve this simplification, the package of measures announced in the Budget in 2007 included alignment of the upper earnings limit and upper profits limit with the level at which higher rate income tax is paid from April 2009. This is a two-stage process and the change in this order to the upper profits limit for the self-employed is part of the first stage.

I start with the small earnings exception for the self-employed, below which the self-employed may claim exemption from paying class 2 contributions. The exception will rise in April from £4,635 to £4,825 a year—an increase broadly in line with prices. Many people choose to pay these contributions in order to protect their benefit entitlement. The rate of class 2 contributions for 2008-09 will rise from £2.20 to £2.30 a week—again, an increase broadly in line with prices.

Staying with the self-employed, the draft order sets the profits limits between which main-rate class 4 contributions are paid. The lower limit, at which class 4 contributions become due, will increase broadly in line with inflation and the income tax personal allowance from £5,225 to £5,435 a year. At the other end of the scale, the upper profits limit will continue to match the upper earnings limit for employees, which will go up as part of the personal tax package to £40,040 for the 2008-09 tax year. This ensures that the self-employed pay main-rate class 4 contributions on much the same range of earnings as employees liable to class 1 contributions and is an essential element in making the national insurance system fair for everyone. The draft order also deals with the weekly rate of voluntary class 3 contributions, which help those with insufficient contribution records in any given tax year to make up a qualifying year for benefit purposes. The rate of class 3 will rise in April by 30p to £8.10 a week, a standard rerating in line with prices.

The review of contribution rates is accompanied by a report from the Government Actuary detailing the effects on the National Insurance Fund of the draft order and the draft order uprating benefits laid by my right honourable friend the Secretary of State for Work and Pensions. I am pleased to say that there is no expectation that the fund will need a Treasury grant for the 2008-09 tax year.

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Northern Ireland has a separate national insurance scheme from Great Britain but the two schemes are closely co-ordinated and maintain parity of contribution rates. This draft order covers both Great Britain and Northern Ireland, and I commend it to the Committee. I beg to move.

Moved, That the Grand Committee do report to the House that it has considered the Social Security (Contributions) (Re-rating) Order 2008. 9th Report from the Joint Committee on Statutory Instruments.—(Lord McKenzie of Luton.)

Lord Kirkwood of Kirkhope: I have a question or two. We have had a very good run, and the Minister has been very assiduous and helpful this afternoon. In earlier debates, the noble Lord, Lord Skelmersdale, acutely put his finger on some of the key contents of the Government Actuary’s departmental report, and he was right to do so because we know that the established procedure is that the Government Actuary recommends that a minimum balance of one-sixth of the estimated annual benefit expenditure should be kept in the fund, and that it would not be safe to go below that because it would prejudice the potential future payment of benefits. However, as the noble Lord, Lord Skelmersdale, rightly said, if we look at 2008-09, the estimated balance in the National Insurance Fund, to which this order contributes, is £56,000,000,000; that is not one-sixth or 16.7 per cent of the estimated benefit expenditure, but 81.5 per cent. At what point does the Government Actuary ever get round to saying that there is more money in the fund than the Government know what to do with? If we look at appendix 9—I am sure the noble Lord, Lord Skelmersdale, has it in front of him—there is a forward projection about the balance at the end of the years 2008-09 to 2012-13. I accept that they are estimates and there will be lots of variables and assumptions in them, but the balance at the end of the year as a percentage of benefit payments goes from 81.5 per cent at the end of 2008-09 to 136.3 per cent of benefit expenditure.

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