Retail Prices Index (Error)

Part of the debate – in the House of Commons at 10:48 am on 18th December 1987.

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Photo of Mr Nicholas Scott Mr Nicholas Scott , Chelsea 10:48 am, 18th December 1987

With permission, Mr. Speaker, I should like to make a statement about the Government's proposals to make extra payments to social security claimants following the recent discovery of the error in the retail prices index.

The House will know that the effect of the error has been to understate the annual inflation rate on average by about one tenth of 1 per cent. in most months since February 1986. As a result, the rates of retirement pension and other long-term benefits should, in general, have been 5p higher than they are this year and lop higher than the rates that will come into effect next April. Several benefits, including child benefit, are unaffected.

The House will know that we have already made it clear that the Exchequer will not benefit from the effects of the error on social security expenditure. In line with this principle, we intend to make special payments to the following social security recipients: retirement pensioners, supplementary pensioners, those receiving widows benefits, industrial injuries benefits, war pensions, invalid care allowance, invalidity benefit, mobility allowance, attendance allowance and severe disablement allowance. This will be followed by action to correct benefit rates for all recipients at the April 1989 uprating.

The payments will be at a flat rate of £8— slightly more than the standard £7·85 loss — to retirement pensioners, and, in line with their actual loss, £5 for mobility allowance recipients. We have arranged with the Post Office that payments will be made from the first week of February for those paid by order book. Action will be taken by the Department's local and central offices to ensure that those paid by other means — for example, through credit transfer—will also receive their money at that time.

There are a few severely disabled war and industrially injured pensioners who will lose significantly more than £8. Because this affects a comparatively small group it will be possible to make special arrangements to ensure that they are given extra compensation. Inevitably, this will take more time, but payments will be made as soon as is practicable. I also propose to pay an additional amount to those who retire or become widowed between the time the special payments are made and April 1989. These special payments will be made on an ex gratia basis, and parliamentary approval will be sought in a Supplementary Estimate. Pending that approval, urgent expenditure will be met by repayable advances from the Contingencies Fund.

Overall we estimate that, as a result of the error, £109 million will have been underspent. The arrangements that I have described will cost rather more than £100 million. To fulfil our commitment that there should be no gain to the Exchequer, the remainder will be allocated to suitable charities.

My hon. Friend the Paymaster General is making it known today by written answer that no extra statutory payments will be made to pensioners of public service occupational schemes administered by central Government. The savings to the Exchequer arising from this decision will be added to the sum available for disbursement to charities as a result of the underspend on social security benefits and will bring it to between £10 and £15 million. We shall ensure that charities and benevolent associations active in support of retired public servants will be among those with an opportunity to benefit from this arrangement.

The House will recognise that, with nearly a billion social security payments a year, it would be a disproportionately complex and time-consuming operation to seek to calculate and pay exactly what each individual has lost. I feel confident that the House would wish to see this mistake corrected in a way that combined as far as possible speed of payment and fairness. I believe that our plans provide a sensible and effective way of doing this.