Clause 5
Pensions Bill
4:30 pm
James Purnell (Minister of State (Pensions Reform), Department for Work and Pensions; Stalybridge and Hyde, Labour)
Yet again the hon. Gentleman intervened on that point, but failed to say what his answer is. We can all deduce that he wants to pretend to have the policy without telling us how he will fund it. The record will make that absolutely clear.
I am going through the historical context to contrast two Opposition parties that do not have full, clear policies with a Government who are legislating on the basis of a clear policy—one with which the Opposition parties may disagree, but one that we have set out in legislation.
There have been calls on this Government and on previous Administrations to restore the earnings link to the basic state pension, but it has been rejected since 1980 because of the potential exponential rise in cost if it is done in isolation. What makes it possible in the Bill is the increase in the state pension age and other changes such as the abolition of adult dependency increases that we debated at a previous sitting. We have thus created the basis for a long-term settlement of the issue, which is why we can legislate on it.
As I said, the Government are required to uprate the basic state pension and other contributory benefits in line with prices. That is the situation at the moment. Although the Secretary of State is given discretion about how to measure the movement in prices, in practice the retail prices index has been used for that purpose. I mention that because all we are doing in the Bill is replicating the same structure in the future. Current legislation gives some discretion to uprate by more than prices, but not by less.
I reassure the hon. Member for Eastbourne that this is the one occasion on which the computer says yes, it would be possible to do this more quickly because it is a fairly simple change. We have to change the amount that the pension goes up every year, so deciding to do it on a different basis would not be complicated.
Under the current legislation, the Secretary of State already has discretion, and that is reflected in proposed new section 150A in relation to the requirement to uprate in line with earnings.
Some of the amendments define specific measures to be used for uprating. The first clutch of those are amendments Nos. 29 and 31, which would return us to the position in the 1970s, where the pension goes up by the higher of prices or earnings. Hon. Members will be aware that that approach was not recommended by the Pensions Commission, which said that it should be uprated by reference to earnings, not by the higher of the two. The Government have taken that approach in the proposal, not because we think a future Government would not want to uprate in line with prices if they were higher than earnings, but because we think the Government of the day should have some flexibility.
The reason for wanting that flexibility is that although it could happen in innocuous circumstances it is also possible, or even likely, that in situations where there was a large discrepancy between earnings and inflation, with inflation being the higher, in times of genuine economic difficulty when inflation was rising sharply or earnings were falling sharply, the Government might need to help to stabilise the economy.
In that instance a commitment to uprate the pension in line with the higher of the two could force the Government to cut back on expenditure elsewhere or to severely limit its contribution to getting the economy back under control. I do not say that we envisage that economic situation happening under this Government, but if the Opposition were to win we would not want to tie their hands in dealing with what could be an inflationary spiral.