Welfare Benefits Up-rating Bill — Committee (1st Day) (Continued)

Part of the debate – in the House of Lords at 6:15 pm on 25 February 2013.

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Photo of Lord Kirkwood of Kirkhope Lord Kirkwood of Kirkhope Chair, Information Committee (Lords), Chair, Information Committee (Lords) 6:15, 25 February 2013

My Lords, it is a pleasure to move Amendment 6, standing in my name and that of my good friend, the noble Baroness, Lady Lister of Burtersett. This is a probing amendment. It is something about which I feel very strongly. It is a modest proposal that does not seek to disrupt the certainty of which my noble friend made so much earlier in the course of these important debates. The amendment simply disapplies the 1% uprating in Clauses 1 and 2 in the event of inflation reaching 3% in 2014-15. In those circumstances, we would revert to the default position of the annual uprating mechanisms that we all know and love. We would achieve the savings without exposing clients on benefits in future to the risks of inflation above and beyond the government estimates on which the savings will be made.

It is important to remember that the Bill deals with two years of annual uprating. However, we must factor in to the totality of the situation we face the already accepted £505 million that the Autumn Statement estimated that the 1% uprating would yield in this current year. I am sure that we are all looking forward to the uprating statement later in the week. In addition, the saving from the 1% uprating of local housing allowance is being dealt with through separate legislation. Both these reductions have already been made for the current year, 2013-14. We must not forget the reductions this year, in addition to those of the two years for which the Bill provides.

What will the Government do if the OBR estimates are too low? We know that the Budget Statement is a few weeks away. No doubt the Office for Budget Responsibility will discharge its duty to make available to the Chancellor, and subsequently to the rest of us, its best evidence and estimates about the inflationary risks that we face. However, we all understand that the Bill is based on the CPI and inflation forecast of the OBR, which at the moment stands at 2.6% in September this year, to be followed by 2.2% in September 2014. Those are the estimates on which the savings of £1.2 billion in 2014-15 and £1.9 billion in 2015-16 are posited.

My colleagues have been as concerned as I have been over the past few days. I am no economist but I am now more nervous about inflationary pressures increasing. The Governor of the Bank of England designate, Mr Mark Carney, has already signalled that he might take a different view and so the strategy may change. If he goes for growth-I hope he will consider that seriously because it is an element of economic policy that we need to explore in the immediate future-it will almost certainly have inflationary consequences. The fall in the value of the pound and exchange rate concerns will all increase prices. I am a well-known pessimist-I am rarely disappointed-and I think that things will get worse before they get better. Food and fuel prices, and rents in certain parts of the United Kingdom, particularly in London, will certainly increase. To be confident that the figures of 2.6% in September 2013 and 2.2% in September 2014 are going to stick is not a safe basis on which to establish this policy.

As I said at Second Reading, the way the Bill is contrived at the moment is a one-way bet for the Chancellor because he locks in his savings but banks everything else if inflation goes beyond 2.2% and 2.6%. I do not think that is fair. It produces government certainty but, sure as anything, it will produce uncertainty for the benefit claimants in 2014-15 and 2015-16 if inflation breaches the OBR's estimates. The Government need a plan B to deal with the increasing risk that the price that will be paid by benefit cuts in future will be higher than the Government really need.

The value of the lost purchasing power of these benefits is very sensitive to inflationary increases and I asked the Library to look at what some of these measures would mean. It is difficult to make sense of tables in a speech because it is hard to speak in tables but if the OBR estimates for 2014 and 2015 increase by 1%, the savings will not be £1.1 billion and £1.9 billion but £1.8 billion and £3.3 billion. A 1% increase on the OBR estimates would change the cut in the value of the benefits from 4% to 6%. The next line in the table tells me that if the OBR estimates are underestimated by 2%-not 1%-in 2014 and 2015, the savings to the Chancellor will be £2.5 billion and £4.7 billion. That is a cut in the real value of benefits of 8%. I could go on-and, rather obviously, it would get worse-but we can all pay our money and take our choice about what the inflation rate will be. I have got a table, which is freely available, which shows its effect on the cuts in benefits.

There is no certainty of any kind about where inflation will come to rest in September 2014 and September 2015 and there is nothing in the Bill, as it stands, that gives any protection whatever to benefit claimants. For me, that risk is far too great. The purpose of the amendment is to try to get on the record-I will look at it very closely-the Government's suggestions about what will happen if the OBR estimates are under-estimates. I look forward to hearing from the Minister about that.

I was encouraged to receive support from a rather surprising direction. In Committee in the Commons, a Mr John Redwood-of whom noble Lords may have heard-argued that,

"every action should be taken to get inflation down. If inflation suddenly took off, this would become a much tougher and crueller policy than Ministers have in mind".-[Hansard, Commons, 21/1/13; col. 66.]

I agree with Mr John Redwood.