Social Security

Royal Assent – in the House of Commons at 1:11 pm on 12th February 2009.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber) 1:11 pm, 12th February 2009

I beg to move,

That the draft Social Security Benefits Up-rating Order 2009, which was laid before this House on 28 January, be approved.

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Photo of Alan Haselhurst Alan Haselhurst Deputy Speaker and Chairman of Ways and Means

With this we shall take the following motion, on pensions:

That the draft Guaranteed Minimum Pensions Increase Order 2009, which was laid before this House on 28 January, be approved.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

I am satisfied that the orders are compatible with the European convention on human rights.

This year's social security benefits uprating order increases support for people on pensions and benefits by more than £6 billion. It reinforces our commitment to providing real help in the current economic climate, taking total benefit expenditure for the next financial year to an estimated £142 billion. We are committed to doing everything we can to get real help to people, taking action now when it matters most.

The headline figures are generous, and I hope that they will be welcomed throughout the House. Pension credit will rise by the highest amount since its introduction, targeting the most vulnerable, and we will increase the basic state pension by 5 per cent. in April. That means more cash in pensioners' pockets, and it comes at an important time for them. The order will add some £6.2 billion to Government expenditure, of which almost £4 billion will support pensioners, £1.2 billion will help working-age people, £890 million will go to disabled people and carers and £70 million will go to children.

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Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

How much of the money will go to pensioners automatically, and how much will they have to claim? I ask because, as the Minister will know, a number of elderly people are not aware of all the benefits that are available to them, with the result that a substantial amount that could benefit them is not claimed.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

The hon. Gentleman is right. We need to ensure that pension credit is claimed by those who are entitled to it. Later in my speech I shall say more about the type of assistance that we are trying to give people to ensure that they claim.

The order will increase most national insurance benefits in line with the retail prices index. As we have done in earlier years, we will base the uprating exercise on data produced in September, when the retail prices index stood at 5 per cent. I should emphasise that the September RPI of 5 per cent. was the peak of last year, higher than earnings.

Let me explain what this means for British pensioners. The basic state pension will increase by £4.55 to £95.25 a week, while the standard rate for couples will rise by £7.25 to £152.30. That is the biggest increase since 2001.

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Photo of Oliver Heald Oliver Heald Conservative, North East Hertfordshire

There has been considerable concern about the true rate of inflation for pensioners. Obviously the Minister is using a recognised measure—the RPI—but the Rossi index, surprisingly, was much higher than the RPI this year because of rises in food and heating costs. Is the Minister satisfied that 5 per cent. is a true reflection of the price rises that pensioners are facing and have faced over the last year?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

It is true that there have been extra pressures, especially this year. I am about to describe some of the other measures that we have taken—particularly in regard to the winter fuel allowance—to reflect some of those increased pressures, while, as the hon. Gentleman says, sticking to the formula. That, as I am sure he knows, is the way in which a number of Administrations have worked.

As I have said, from April 2009 pensioners on the lowest incomes will see the biggest increase in the pension credit standard minimum guarantee since its introduction in 2003. It will rise by £5.95 a week for single pensioners and by £9.10 a week for couples, which means that no single pensioner need live on less than £130 a week, and no couple on less than £198.45 a week. That underlines our determination to target help on the people who need it most—those with the lowest incomes. This year we will spend more than £13 billion more on pensioners than we would be spending if we had retained the policies we inherited from the last Government. As a result of those tax and benefit changes, the average pensioner household is £1,600 a year, or £31 a week, better off, while the poorest pensioner households are, on average, around £2,200 a year better off.

As Mr. Evans pointed out, it is vital for us to do all that we can to ensure that benefit recipients and pensioners receive the support to which they are entitled. That is why we have tried to simplify the claims process, removing the need for people to complete and sign claim forms: claims for housing benefit, council tax benefit and pension credit can now be made together by means of a single telephone call.

We are considering a number of other ways we can ensure that people receive their entitlement, such as the use of data matching to identify those who may be entitled to pension credit but do not currently receive it, provision for around 13,000 home visits a week by the local pensions service to vulnerable customers, and the promotion of take-up through a range of activities including direct mail initiatives, local partnership work, and regional radio, press and outdoor advertising. We also intend to support Members of Parliament who run their own campaigns locally. Those campaigns in themselves can be quite successful.

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Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

Today the Lancashire Telegraph, a newspaper that covers my constituency and several others in east Lancashire, is launching its own campaign on behalf of the elderly and pensioners to raise the profile of all the issues that cause problems to them. The Minister will be concerned to learn that over the past six weeks, during the very cold spell that we have experienced, there has been an enormous increase in the percentage of elderly people who have died as a result of, for instance, respiratory problems and lack of heating. What more does she think could be done, particularly during the current bad weather, to ensure that no pensioner will have to make the choice between food and turning the fire on?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

One of the key measures that we have taken this year is the tripling of cold weather payments from £8.25 to £25 a week. That has meant that whereas last year we paid out about £4 million in cold weather payments, this year we have already paid out about £166 million. We are trying to ensure that extra help is provided. I shall discuss some of the other changes that we have made to ensure that real action is taken now.

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Photo of John Barrett John Barrett Shadow Work and Pensions Minister

The Minister mentioned that a lot of pensioners are able to access information about benefits by telephone. One of the issues raised in the equivalent debate last year was the poor quality of service given by a number of call centres. Is she convinced that things have moved on and that when people phone up for help they get the support and advice they need?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

When I visited one of the headquarters of the Pension, Disability and Carers Service—perhaps the hon. Gentleman should pay it a visit, if he has not already done so—I was certainly very impressed with the way pensioners were dealt with carefully: people tried to take their details and talk them through their eligibility. I constantly keep in touch with the directors of the service and so on, not only to ensure that the service provision targets are being met, but to examine all the time what else can be done to improve the system. It is vital that we examine different methods—for example, working with organisations such as Age Concern or Help the Aged, and, in particular, with local centres that older people—perhaps those on lower incomes—might frequent, so that we get the services and the information to these people, with a particular emphasis on the fact that these are entitlements. We must encourage them to take up their entitlements.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

Before we move off the issue of call centres, may I point out that some of the most vulnerable people who will be affected by the benefits uprated in this order have to approach the social fund, and its telephone service is a lot worse than that in other parts of the Department? Will the Minister look into that with her colleagues, and ask the relevant Minister to write to me on that specific point?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

Yes, of course. If the hon. Gentleman has particular examples, I would be more than happy to pass them on to ministerial colleagues.

I wish to touch on the points that have been raised about the extra help that we have provided this year. We have, for example, increased the winter fuel payments by £50 for households with someone aged between 60 and 79, and by £100 for households with someone aged 80 and over. That means that the total direct help with fuel costs this year for pensioners aged between 60 and 79 will be £250—the figure will be £400 for those aged 80 or over. My right hon. Friend the Chancellor also announced, in the pre-Budget report, a one-off increase of £60 to the annual £10 Christmas bonus. That is additional direct financial support that will benefit not just pensioners, but all 15 million people who receive the Christmas bonus, including those on disability and bereavement benefits.

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Photo of Oliver Heald Oliver Heald Conservative, North East Hertfordshire

One of the slightly disappointing things about the Minister's announcement is that the cut in savings credit, which was supposed to come in when the basic state pension was increased by earnings, is being implemented early—this year. She will recall the national insurance contributions change where the upper accrual point was introduced. Again, that was supposed to happen because the basic state pension was being uprated by earnings, but it was brought in early—last year. Is it not time that she did what her old friends in the TUC suggest and introduced the uprating by earnings or prices, whichever is the higher now?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

Of course if we had introduced the increase by earnings this year, it would been lower than the change that we are making by using the RPI. We have said that we will restore the link with earnings, either by 2012 or before the end of the next Parliament. That is our commitment—the Conservative party abolished the earnings link and we have said that we will restore it. As I said, this Government are spending about £13 billion more on our pensioners in general.

This morning, I tabled a statement—I did inform both the Opposition Front Benchers about it—explaining two supplementary issues concerning payments of invalidity allowances to pensioners from April 2009. In December, we announced new rates of invalidity allowance for customers under pensionable age to support the alignment of the rates of incapacity benefit and employment and support allowance. The rates for eligible pensioners due to receive invalidity allowance will be increased in line with the RPI in the usual way. The Department subsequently wrote to pensioners eligible for an invalidity allowance informing them of their entitlements, however, because of a technical error a number of incorrect entitlement notices were sent. That means that about 45,000 people may be overpaid and about 25,000 may be underpaid, depending on their individual circumstances. Weekly overpayments will range from a minimum of 5p to a maximum of £3, and the maximum underpayment will be £1.80 a week. Any arrears will be paid to customers, and we will not take any action to seek recovery of the overpayments.

As the Department works through the affected areas, we will write to all customers who are affected to explain their position. As people become pensioners from April 2009, they should automatically move on to the higher rate of invalidity allowance. Because the uprating order for this year does not provide the statutory basis ordinarily needed to make these higher payments, we shall be making them on an extra-statutory basis in the coming tax year—about 7,000 customers are affected, and the payments involved total about £350,000. Obviously, I am sorry that this unfortunate situation has occurred, but the issue is a technical one and we will put it right.

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Photo of John Barrett John Barrett Shadow Work and Pensions Minister

I wish to put on record the fact that I appreciated having early sight of the Minister's statement and that the Liberal Democrats welcome her decision not to reclaim these amounts, even where the sums are relatively small. We appreciate that, and we know that many constituents up and down the country will too.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

I thank the hon. Gentleman for his support. I should emphasise that customers will not need to take any action themselves; the Pension, Disability and Carers Service will identify and correct cases as soon as possible, and will contact all those concerned.

On working-age benefits, we will increase most income-related benefits by the Rossi index, which is the RPI excluding rent, mortgage interest, council tax and depreciation. Most working-age income-related benefits will increase in line with the September Rossi index of 6.3 per cent. That means that the personal allowance for a single person over the age of 25 will increase from £60.50 a week to £64.30—for a couple the increase will be from £94.95 to £100.95. Incapacity benefit and employment and support allowance will both be increased using the Rossi index so that, over time, all customers in similar circumstances will receive the same level of support.

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Photo of Joan Humble Joan Humble Labour, Blackpool North and Fleetwood

Can the Minister say a word about the carer's allowance? Most people who receive it are of working age, and a recent report by the Select Committee on Work and Pensions recommended that the Government should look to synchronise the increase in the carer's allowance with the increase in the minimum wage. It did so because too many carers who are working receive an increase in the minimum wage in the autumn that then disqualifies them from the carer's allowance, and they have to wait until the April uprating before they can be eligible again. Will she examine that particular issue?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

Yes, I will certainly look at the points that my hon. Friend has made. I know that she cares passionately about this issue and I can reassure her that we value the work that carers do. In the national carers strategy, we have outlined our vision that by 2018 carers will be universally recognised and valued as being fundamental to strong families and stable communities. Within that, we will of course constantly bear in mind the support that carers receive through the benefits system. We have amended our proposal so that we will not move carers from income support until we have a clear and detailed plan setting out reform of the benefits system over the long term to take account of the needs of carers.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I commend Mrs. Humble, who is an assiduous member of the Work and Pensions Committee, for raising that point. I would say gently to the Minister that this issue has been around for a few years now, and perhaps she could go back to the Department with a sense of urgency about getting it sorted, because it does cause worry for many people.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

I will certainly take that point back to the Department.

In the July 2008 welfare reform Green Paper, we proposed that incapacity benefit customers with an age addition would have their benefit frozen until the rates were aligned with contributory employment and support allowance. However, following consultation, my right hon. Friend the Minister for Employment and Welfare Reform announced in December that incapacity benefit customers with an age addition would see their overall benefit increase by at least half of Rossi—3.15 per cent. That means that they will not receive less than £95.15 a week, which is the same amount of incapacity benefit as someone in the support group getting contributory employment and support allowance.

The cost of uprating benefits from April 2009 is nearly £6.2 billion, with almost two thirds going to pensioners. We are not taking a do nothing approach: we recognise that it is absolutely right to protect the most vulnerable in society, particularly during times of economic hardship. The cost of doing nothing would be enormous, and we are better positioned to help people during the recession than previous Governments were. On top of our active efforts to increase benefit take-up, the money that I have announced today represents real help and action now when it matters most. I commend these orders to the House.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions) 1:33 pm, 12th February 2009

The Conservatives support the uprating of benefits and pensions because we believe that anything that will help hard-pressed individuals and families at this incredibly difficult time for the United Kingdom is welcome. In these orders, the guaranteed minimum pension increases by 3 per cent.; incapacity benefit claimants with age additions receive an increase of 3.15 per cent.; the standard minimum guarantee element of pension credit increases by 4.8 per cent.; the basic state pension, carer's allowance, attendance allowance, disability living allowance, industrial injuries benefit, incapacity benefit and child benefit increase by 5 per cent.—by the increase in the RPI; and income-related benefits, including income support, jobseeker's allowance, employment and support allowance, housing benefit and council tax benefit increase by 6.3 per cent. or by the Rossi index which is unusually, as the Minister has already told us, more than the RPI this year because housing costs have fallen. While most tax credits will increase by 5 per cent., the child element of the child tax credit is rising by 7 per cent.

So we have six different percentage increases applied to more than 14 pages of different benefits, which is why I shall mention the issue of benefit complexity later. I suspect that it is the complexity of the subject that has meant that, in my recent experience, fewer and fewer Members attend this debate every year. If it is difficult for hon. Members who are meant to understand such things, how much more difficult must it be for our constituents, with their busy lives?

We have already had some discussion about the rate of inflation for pensioners. They will no doubt be very pleased to get more than the 75p increase that they got from this Government a few years ago. However, is it appropriate to use the RPI to uprate pensions—a point made quite properly by my hon. Friend Mr. Heald a moment ago? I wonder whether he is aware that Capital Economics, a forecasting house, has calculated that the pensioners' inflation rate to December last year was actually 12.2 per cent. The question we really need to ask is how the indices are calculated and whether they are fit for purpose.

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Photo of John Barrett John Barrett Shadow Work and Pensions Minister

Does the hon. Gentleman agree that we are entering a unique situation in the year ahead? It is possible that we will have negative inflation during this recession, so pensioners' inflation might rise at the same time as the indices used to calculate the uprating of benefits actually fall.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

The hon. Gentleman makes a valid point, and we will have to keep the issue under review, especially as far as pensioners are concerned, in the extraordinary circumstances into which we are heading.

Depending on the benefit, either the RPI or the Rossi index is used. Before we decide on the merit of the order, it is worth trying to understand which inflation measure is applied to each benefit and why. It is important to debate those issues because they open up important questions about whether different groups in our society suffer from different inflationary pressures. The benefits that people will access as a result of the order being made today will differ depending on the inflation measure that is applied to the benefit. The question that we have to ask when considering the merits of the order is whether the uprating will cover the increased cost of living to which the particular group drawing that benefit is subject. The RPI is applied to uprate contribution-based jobseeker's allowance, child benefit, incapacity benefit, carer's allowance and disability living allowance. Those are the main benefits to which it applies. The RPI is calculated by the Office for National Statistics each month by collecting some 110,000 prices of about 650 goods and services in about 150 locations, including on the internet. These goods include the obvious ones—bread, cereal, furniture and clothing, as well as water, gas and electricity. With that information, the ONS uses data from the Department's family expenditure survey and other detailed expenditure analyses put together by market research companies and trade reports, and arrives at a representative shopping basket. The changes in prices of the goods in the basket are used to produce a headline figure that is intended to be broadly representative of the cost of living.

With reference to the RPI, which is the subject of the order, it is worth pointing out that the patterns of pensioner expenditure are not explicitly factored into the representative shopping basket. The ONS explains that that pattern of demand is probably atypical and would distort the average. Pensioner households, which on average derive about three quarters of their income from the state one way or another, are having some of their benefits uprated by the order according to an inflation index that does not explicitly acknowledge or comprehend how they spend their money. That is an important point that we need to bear in mind.

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Photo of Nigel Evans Nigel Evans Conservative, Ribble Valley

If elderly people have got into financial difficulties, they may have borrowed money either on credit cards, for which the rate of interest bears no relationship to current bank rates, or they may even have been induced to borrow from loan sharks, who can charge obscene rates of interest. A constituent came to see me last week about the financial difficulties that he had fallen into, mainly because of the loans that he had taken out.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am very glad that my hon. Friend has raised that point. He is right to do so: those on very low incomes, such as pensioners and others, are extremely vulnerable to unscrupulous people charging very high rates of interest. Indeed, that was why the former shadow Secretary of State was right to raise concerns that people on benefits were going to be charged rates of up to 27 per cent. in the White Paper brought forward by the Department. However, the broader important point has to do with the lack of availability of affordable credit for very large numbers of constituents around the country. We need to be a lot more innovative about involving credit unions and perhaps many other players who are not in the field to meet what is a very real need. This is a serious point, and my hon. Friend is right to raise it.

The Rossi index is the other main index used to uprate the different allowances and benefits—jobseeker's allowance, council tax benefit, housing benefit and income support—covered by the order. It is compiled in the same way as the retail prices index, except that it excludes rent, mortgages, interest payments and housing depreciation costs. It is higher than the RPI this year because housing costs were falling over the year to September to 2008. It is also important to remember that the Rossi index is different from the consumer price index which, confusingly, is the main inflation index used by the Government and the Bank of England.

Later in my remarks, I shall refer to the Government Actuary's report accompanying the two orders before us. It looks at the orders' effect on the national insurance fund that is used to pay out benefits and pensions for which national insurance contributions are a necessary qualifying condition. They include state retirement pension, contributory jobseeker's allowance and contributory employment and support allowance.

There are concerns about the assumptions being used by the Government Actuary and the Chancellor in the pre-Budget report, and the use to which the fund may be put. That is an important subject, and I shall deal with it later in my remarks.

The benefits and pensions that are uprated by these orders are vital elements in combating child, adult and pensioner poverty, but by no means are they the whole solution. We want to help the workless get back into work, where appropriate, and we want to find the best possible ways of enabling people to avoid poverty, including poverty later in life. We recognise the strong connection between worklessness and children growing up in poverty, and that it leads to fewer life chances for those children.

As for the effect of the order on the child-related benefits, we support the Government's aim to end child poverty by 2020, and we will support them if they produce sensible legislation to make that target binding. On its own, however, uprating the benefits in this order will not be enough, as the Department's figures show that the number of children in poverty has risen by 100,000 for the second year in a row. On current progress, the Government will miss by 500,000 children their target of halving child poverty by 2010. We believe that a broader approach is needed, one that does not just involved the benefits uprated by the order. They are vital, of course, but there needs to be serious engagement with schools, family life, local authorities and registered social landlords.

I turn now to the working-age benefits, which of course are of immense significance after yesterday's greatly increased unemployment figures. In December, 1.97 million people were declared unemployed, a total that was 146,000 up from the three months to September 2008. Not all of them are entitled to claim the benefits uprated in the order, and not all of those entitled to claim choose to do so.

The order increases jobseeker's allowance for those under 25 to £50.95 a week. That is relevant, as unemployment among 18 to 24-year-olds sadly increased by 38,000 in the three months to December to 616,000.

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Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

The hon. Gentleman is making some very important points. We all recognise that, in general at least, unemployment is rising in everyone's constituency. Does he agree that we should reformulate the statutory redundancy pay to assist those being made redundant? It is a long time since it was looked at, and does he agree that we should consider introducing annual uplifts?

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I am very grateful that the hon. Gentleman has raised that issue, and I studied carefully the comments that he made on this matter on the Gallery News email service yesterday. He has a point, and I shall refer to it in my remarks very shortly. I was quite struck by the percentages to which he drew attention yesterday, so I think that he is certainly on to something. I do not know exactly how we will solve the problem, but I commend him for raising it.

Jobseeker's allowance for people over 25 has been raised to £64.30 a week, an amount that the Minister for Employment and Welfare Reform admitted yesterday that he would be unable to live on. That is relevant because the claimant count for January increased to 1.23 million, which means that 73,800 more people were claiming the uprated benefit than was the case the month before.

As Mr. Hoyle has noted, there has been no increase in statutory redundancy payouts, and the important point that he raised yesterday is that they represent some 56 per cent. of average weekly earnings, as opposed to 203 per cent. when they were first brought in in 1965. That is something that the House should be concerned about. If there has been a specific policy change, I think that we should know about it and debate it. We should see whether we think that it is fair and right, and what we can do about it within the limits of public expenditure. However, if the amount paid has been allowed to wither on the vine without anyone noticing or caring, that is concerning to me.

This is important, because redundancies are, very sadly, up. In the three months to December, 259,000 people reported that they had become redundant. Sadly, the OECD believes that many more people will claim the benefits uprated in the order, and it has predicted that unemployment will rise faster in the UK than in any other G7 country.

My party has a range of positive proposals to tackle unemployment, but I do not think, Mr. Deputy Speaker, that you would consider me in order if I decided to outline them now. Instead, I want to turn to the very important matter of pensioner benefits that has been raised already, and quite properly, by a number of hon. Members.

The Chancellor's pre-Budget statement in November was the basis for a significant part of these orders, but its wording was not as clear as it could have been. It has been criticised by the Daily Mirror and more recently by the National Pensioners Convention. The Chancellor said:

"So I will ensure that every pensioner gets a one-off payment of £60 on top of the £10 Christmas bonus, from January. For couples, that figure will be £120, also paid from January."—[ Hansard, 24 November 2008; Vol. 483, c. 503.]

Dot Gibson, the formidable vice-president of the National Pensioners Convention, is still waiting for her £60 payment. She has said that

"the Chancellor implied that this payment was in effect a bringing forward of the increase in the state pension due in April, but if it doesn't arrive until the end of March, the whole episode has been a charade. Millions of older people have been misled and must now be left feeling cheated.

One pensioner rang up to say her brother who lives in France got his £60 on January 1st, but she lives in London and is still waiting...If we had a decent state pension in the first place we wouldn't need to rely on these extra payments."

I want to look at the issue of means-testing and take-up, which my hon. Friend Mr. Evans quite properly raised at the start of the debate. There are 3.7 million beneficiaries aged 60 and over in receipt of income-related benefits, and that is 30 per cent. of the population of that group. However, 1.8 million are not claiming the pension credit uprated in the order, which has now been increased to £130 a week. That is of great concern. It may interest the House to know that, in November 2004, the then Secretary of State for Work and Pensions said:

"The Government still has a take-up problem on pension credit."

Of the poorest pensioners, where household income is less than 40 per cent. of median earnings, 60 per cent. are not claiming the benefits that they are entitled to—up from 36 per cent. in 1997-98. About 40 per cent. of those entitled to council tax benefit, uprated also in the order, do not claim it.

We rightly hear a great deal about fuel poverty, particularly regarding pensioners, but pensioners often tell me that they consider themselves to be in council tax poverty, too. I find it quite extraordinary that up to £4.5 billion of means-tested benefits that should rightly go to older people is unclaimed each year. Perhaps that is what the Prime Minister feared when he said:

"I want the next Labour Government to achieve what in 50 years of the welfare state has never been achieved—the end of the means test for our elderly people".

We welcome the increase in the state pension, which, as the Minister told us earlier, will be worth £95.25 a week and £152.30 for a couple, and perhaps the Minister will join me in gently pointing out again to the leader of the Liberal Democrats that it is not about £30 a week. Will the Minister also tell us exactly when the Government intend to restore the link with earnings for the state pension? She alluded to the well-worn formula, but many people would like greater precision on that subject. If she said something on that when she replies to the debate, we would all be grateful.

It is worrying that the take-up of pension credit continues to decline, as an answer that the Department gave on 3 November last year shows. In November 2003, the take-up for female pensioners was 64.9 per cent., and according to the latest figures that I have, which are for February 2008, it has declined—albeit only by a small amount—steadily to 62.1 per cent. So we not only have a problem, as my hon. Friend the Member for Ribble Valley has quite properly identified, but one that is getting worse.

It is worth putting on the record the number of pensioners not claiming individual benefits, which are uprated by the order. Up to 1.82 million older people are not claiming pension credit—41 per cent. of those entitled. Up to 350,000 older people are not claiming housing benefit—18 per cent. of those entitled. Up to 2.14 million older people are not claiming council tax benefit—a staggering 45 per cent. of those entitled.

Pensioner poverty has risen by 300,000, both before and after housing costs are taken into account, and is higher than in 1997. In 2006-07, 2.5 million pensioners were living below the poverty threshold of 60 per cent. of median income, representing 23 per cent. of pensioners. After allowing for housing costs, 19 per cent. of pensioners were below 60 per cent. of median income, representing 2.1 million individuals. Those facts were pointed out by Help the Aged as recently as Tuesday of this week. Again, perhaps when the Minister replies, she will tell the House what estimate of pension credit take-up the Chancellor of the Exchequer will use in his Budget report this year.

The Government received quite a lot of criticism last autumn for their decision to reduce the period of backdating from 12 to three months for pension credit claims. That suggests that they are more interested in saving money than in increasing take-up. So will the Minister confirm that at least 110,000 pensioners will be adversely affected by that change and that they will tend to be older pensioners, who will not be able to claim some of the benefits uprated by the order?

Falling interest rates may be popular with some people—indeed, with many people, particularly home owners—but they are really bad news for one section of the population. So does the Minister recognise that many pensioners are facing real hardship because their hard-won savings are now attracting very low interest, thus forcing them to rely on many of the benefits uprated by the order? We are talking about people who have done the right thing and what successive Governments told them to do: they saved during their working lives, so that their savings could supplement their incomes in retirement. To add insult to injury, those with modest savings are assumed to earn 10 per cent. on their savings in respect of their eligibility for pension credit, which is uprated by the order.

Will the Minister update the House on the conversations that the Minister for Employment and Welfare Reform told the House that he would have with her and the Treasury on this matter when he made his statement on 11 December, as reported in column 697 of Hansard. We would like to know how they got on when they went to the Treasury on that matter. Will the Minister confirm that she is wholly confident that the new personal accounts system will begin on time and that people who are being auto-enrolled into personal accounts will not be worse off by not being eligible for pension credit, which is, again, uprated by the order.

The Government have presided over the decline in a large number of occupational pension schemes, and we would like to hear the Minister say something about that as well, because of its direct effect on people being forced to claim the benefits in the order.

Fuel poverty has been mentioned by one or two hon. Members, and the statistics that the Department for Business, Enterprise and Regulatory Reform released recently show that electricity prices have gone up by 17 per cent. in real terms and gas prices by 27.1 per cent. over the past year. Again, that has a bearing on the 5 per cent. figure used to uprate the basic state pension.

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Photo of Lindsay Hoyle Lindsay Hoyle Labour, Chorley

The hon. Gentleman is being generous with his time in giving way. I agree with him on fuel poverty. I blame the energy companies for their sheer greed in putting up prices and not bringing them down. Does he agree that that is part of the problem and that families, particularly pensioners, are being put into poverty, purely because of the greed of the energy companies?

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

Certainly there is some truth in what the hon. Gentleman says, and I personally think that we need a range of policies to deal with this very important issue and the scandal of the poorest people paying the most through prepayment meters—a matter that I raised in the House a number of years ago. We could do all sorts of things—for example, with the Post Office card account, the use of which the hon. Gentleman will be particularly keen to encourage. People could be provided with decent information, telling them whether they are getting the cheapest tariff. They should not have to ring up and ask; it should be made absolutely obvious to them—something that the Conservative party is proposing. There is something in what the hon. Gentleman says, but we can do a number of other important things to tackle the issue.

I want to deal with fraud and error—a subject that the Minister for Employment and Welfare Reform mentioned when he made the December statement in relation to the order. It is an important issue, because if we were able to deal more effectively with the £2.6 billion overpaid, we could uprate many of these measures more generously. The figures are pretty staggering: £2.6 billion overpaid, and £1.1 billion of benefit expenditure underpaid. That has been going on for a very long time, and it includes money paid wrongly to prisoners, to people who have moved abroad and who were not entitled to it, to people already earning an income through employment and to people already claiming other benefits.

The Department is now running a sort of television show, showing some of its inspectors doing very good work. It makes quite entertaining television, but I tell the Minister in all seriousness that £2.6 billion is a very large amount of money at a time of great pressure on public expenditure. Again, I ask her to go back to the Department and discuss the matter with the Secretary of State and her fellow Ministers and to urge that that matter be pushed rather higher up the Department's agenda. We could be more generous with the uprating of a number of these benefits, which, as a number of Members have pointed out already, are not that generous for many of our fellow citizens in great need.

I want to consider the issue of the complexity of the benefits system. As I have said, 14 pages of benefits are uprated by the order that we are considering. That is 14 sheets of closely typed A4. The National Audit Office report, "Progress in tackling pensioner poverty: Encouraging take-up of entitlements", underlines the fact that complexity is part of the problem when it comes to delivering support to those who need it. It states:

"Many pensioners and those that advise them"— we must not forget the lobby groups and support groups that help pensioners—

"consider the systems and administrative procedures for claiming benefits to be too complex. In all there are 23 potential entitlements for pensioners, with 36 linkages between 16 of them."

Our pensioner population will need degrees in higher mathematics to work their way around some of the system.

Similarly, the 17th report of the Social Security Advisory Committee, published in 2004, says:

"complexity characterises the entire benefits system...the size, complexity and dispersion of the benefits system, and the blurring of the boundaries over what should constitute its proper role has led to a pervading sense of a loss of cohesion".

Bodies do not come much more independent than the Social Security Advisory Committee. Help the Aged makes a point in similar terms. It says, on benefits for pensioners, that the

"system is so muddled and poorly advertised that even Pension Credit, a widely advertised benefit aimed at some of the poorest older people, is only claimed by just over half of those entitled to it."

I come to the final subject that I want to discuss. It is incredibly important, and I should be grateful if the Minister would respond to this part of my speech as fully as she can when she winds up the debate. If there are points to which she cannot respond, will she write me a fairly full letter on the subject, and put a copy in the Library? I refer to the thorny issue of what is happening in the national insurance fund. I have great concerns about the assumptions that the poor old Government Actuary, Mr. Trevor Llanwarne, has been forced to use, namely the ones given to him by the Chancellor in the pre-Budget report. I have before me a report from the Government Actuary's Department; it is directly relevant to the debate. Indeed, it was produced for the House, and is about the two orders before us. The Government Actuary is forced to use the assumption, made by the Chancellor in the pre-Budget report, that there will be an increase in earnings growth of 3.2 per cent. in 2009-10. The average of the forecasts in the Treasury's January comparison of independent forecasts for the UK economy is an increase in earnings growth of only 2.7 per cent for 2009-10.

The assumption in the pre-Budget report on claimant count unemployment for 2009-10 was 1.31 million. Yesterday, the figure rose to 1.23 million. The Treasury's January forecast for 2009-10, which uses independent forecasts, is average claimant count unemployment of 1.83 million, so the first thing that I want to say about the national insurance fund is that I am concerned about the assumptions in the pre-Budget report that the Government Actuary has been forced to use. Even small changes in those assumptions are likely to have a very large impact on the fund.

I want to ask the Minister a question that I should think almost every Member of the House is asked regularly by pensioners in their constituency, not least if those pensioners are allied to the National Pensioners Convention. It is on the thorny subject of the increasing surpluses in the national insurance fund, and the fund's increasing balance. I do not know about the situation in the Minister's constituency, but in mine, the Dunstable pensioners' association and other bodies haul me in once a year and ask, "What are you MPs doing? You are sitting on more and more cash in the fund. We're not very well off. By law, the money can be given only to pensioners and others. Why can't we have some of it?" That is more or less what they are saying.

I see from the Government Actuary's report that the Government Actuary is required to make sure that there is a yearly excess of at least one sixth over and above what is paid in benefits. This year, that will be a sum of £12.5 billion, yet when we look at the report, we find that the balance is actually £52 billion. The surplus, and therefore the overall balance, has got larger year on year since about 1997, and it is forecast to grow in a substantial way. If Members look at page 30 of the report, they will see that the balance will rise from £52 billion in 2008-09 to £102 billion in 2013-14. That is a substantial rise. That may well be necessary because of demographic trends in the population—there will be a lot more pensioners, and a lot fewer people paying into the national insurance fund—but I have not found that clearly stated by any Minister in recent times.

It causes me slight concern that when Paul Flynn tabled a question asking the Minister's predecessor, Mr. O'Brien, about the issue, part of the answer received was:

"when there is a surplus it is invested in public services."—[ Hansard, 22 February 2008; Vol. 472, c. 1116W.]

The Minister knows as well as I do that, by law, the national insurance fund can be used only for pensions, jobseeker's allowance and so on—a very narrowly defined range of public services. People might see the answer and think that money was being taken out of the fund and spent elsewhere in government. The Minister's predecessor went on to say, again in a written answer:

"The equivalent of the excess of receipts overpayments would need to be raised through tax increases to maintain the Government's fiscal strategy."—[ Hansard, 21 April 2008; Vol. 474, c. 1858W.]

That is in relation to the issue of ever-increasing yearly surpluses in the fund.

There may be perfectly good reasons why the balance in the fund is increasing in such a significant way—and such a sustained way, according to the forecasts in the back of the report—but we need clearer answers on the issue, if only so that we can properly engage with people from the National Pensioners Convention and others who are, quite properly, considering the issue and wondering whether the Government could be more generous. I hope that I am not blind-siding the Minister on that issue; I know that it is technical and complicated, but it is incredibly important. I am not playing party politics on this serious issue. If she is not able to give the House a full answer today, will she write me a full letter, and place a copy of it in the Library, so that every Member can see it?

To conclude, I hope that when we debate next year's uprating order, fewer people will be in dependency, and more people who want support can get it. I also hope that the millions of people who say that they would work if they had the proper support will have had the chance that they want of a better life for themselves and their families, and the chance to be less reliant on benefits. We hope, too, that more of our fellow citizens will be able to make arrangements for their pensionable age, so that some of the all-too-low pensioner incomes will be higher. We will work with the Government on any proposals that they make, but I serve notice on them that the Opposition will make their own proposals to deliver better welfare, and a fairer system that lifts more people out of dependency, which is not where so many of our citizens want to be.

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Photo of John Barrett John Barrett Shadow Work and Pensions Minister 2:09 pm, 12th February 2009

It is interesting that in a week when much of the news has been about people at the other end of the pay scale—those earning large sums of money—we are considering people who are surviving on benefits, and who are very much at the opposite end of the scale. Sadly, important though the measures before us are, they will not get the same news coverage as people who have been getting large bonuses and salaries. That is not to say that the measures are not important; they affect millions of people.

Andrew Selous covered many of the issues in great detail in his excellent speech. We welcome the uprating today. We are talking about a significant amount of money that will go to those who are most in need. I am delighted to see pensioners getting a significant rise in their pension. Of the £6.2 billion, £4 billion is going to pensioners. I could say it is too little too late, but we should welcome what has been announced today. It is a good thing.

We have heard the details of the figures involved. I share with the hon. Member for South-West Bedfordshire a concern about the complexity that runs throughout benefits uprating and the entire benefits system. The 14 pages of details are too much. It is not only difficult for those receiving the benefits to understand; it is also very difficult for those trying to give them advice and work out exactly what benefits people are entitled to.

As I said in my intervention, I thank the Minister for prior sight of her statement on invalidity allowance. I am pleased that no amounts will be claimed back. It is clear, once again, that because of the complexity of the system, many errors are made. So many people contact hon. Members regularly about errors made by the Department for Work and Pensions, particularly on tax credits. The Minister dealt with one relatively small error, but there are far larger errors out there that need to be tackled. It is also worth remembering today that there are many tapers, allowances and premiums that are not being uprated and have not been uprated for many years.

We are entering different times. Last year's benefit uprating occurred before the increase in unemployment that we are, sadly, seeing now. With unemployment nudging the 2 million mark and with four unemployed for every vacancy, tackling poverty among the population of working age will assume increasing importance. Even in my constituency, which is not normally noted for much unemployment, Royal Bank of Scotland headquarters announced 2,300 redundancies earlier this week. Many people, for the first time in their lives, will be looking at the results of today's debate. People who have never known unemployment in the past will rely on the upgrading and the benefits that we are discussing.

With unemployment rising across most sectors, there will be an increasing number of skilled workers on benefits and seeking employment. Although the extra money for jobseeker's allowance is welcome, is the Minister concerned that back-to-work benefits and policies under the Welfare Reform Bill are ill suited to high unemployment? We are considering a number of changes but, in the words of one famous individual, the times are a-changin'.

I welcome the commitment that incapacity claimants with an age addition will not receive less than £95.15 a week. But does the right hon. Lady understand the frustration of disability groups, in particular, that the rate of support component will be no more than incapacity benefit, despite past promises to the contrary? Does she share my concerns that welfare to work and jobseeker's allowance arrangements have been designed to work in a period of low unemployment, as I said, unlike the circumstances that we will see in the year ahead? We are considering the uprating and various cost of living rises—the Rossi increase was mentioned—but we may be moving into a time of negative inflation.

In the year ahead, as we enter uncharted waters, the Minister and her Department should consider how we ensure that benefits reach a more realistic level. I am amazed at how many people survive on the basic benefits. In the Treasury Committee, one banker asked what the level of jobseeker's allowance was—what people have to survive on. The figure is about £60 a week. The individual who answered the question was earning about £60,000 a month. Some people out there are surviving on very low levels of benefit.

I welcome the decision to increase the state pension to £95.25 a week. Will the Minister take on board the point that when benefits are calculated, the income that savers are assumed to receive from their savings is 10 per cent., but that is not happening in practice? People who have been prudent throughout their lives, people who have saved and put money by, do not want to dip into their capital because that will reduce their income and affect the amount of benefits they will have to ask the state for. Many pensioners who have been prudent all their lives do not want to apply for means-tested benefits.

There is too much means-testing in the system which, along with the complexity, puts many people off applying for benefits. It has been estimated that 1.8 million eligible pensioners do not claim pension credit. When I have raised the issue of means-testing in the past, it has been argued by the Government that that will focus most help on the people who most need it, so that the most deserving are in receipt of the amounts to which they are entitled. Sad to say, those most in need are not those who are entitled to and receive means-tested benefits, but those who are entitled to but do not receive the means-tested benefits, and they are right at the bottom of the heap. Those 1.8 million pensioners who are entitled to money but are not receiving it were often told by the Government that increased amounts such as the Christmas bonus would help make up the difference, but the sum paid out in that form is a small fraction of the £2.8 billion in unclaimed pension credits.

Fraud and error have been mentioned by previous speakers. It is vital that we ensure that fraud and error are kept to a minimum because both, in effect, take money away from those who are entitled to benefits. The elderly, the disabled, the unemployed, and people trying to get into work and off benefits should get the maximum support to which they are entitled, and if money is being lost through fraud or error, it is not going where it needs to go.

The Minister mentioned the winter fuel payment. Although I agree that that is usually a Budget issue, will she consider a higher rate for those who claim the higher rate mobility component of disability living allowance? Although benefits help many of those who are disabled, it is extremely expensive to keep the home of someone who is disabled warm, for two reasons—partly because, in certain cases, disabled people do not move around as much as the rest of us, and partly because there is a far higher unemployment level among the disabled so they are more likely to be at home and to need their home heated. The third factor is that the average income of a household with a disabled person in it is lower, so although the costs of running a disabled household are often higher, the income is often lower. The people caught in that pincer movement need extra benefits, and we must make sure that those who are entitled to the benefit receive it.

It was mentioned earlier that falling interest rates were helping those with mortgages, but many of those who are unemployed and receiving mortgage interest relief are on fixed rate mortgages. I was pleased to see that the Chancellor and the Department have agreed not to introduce the formula which reduces the amount of mortgage relief until May, but if the base rate stays at 1 per cent., the current system whereby people receive their mortgage interest relief is 1.58 per cent. above base rate. That will give people mortgage interest relief at about 2.5 per cent., but 50 per cent. of those paying mortgages have fixed rate mortgages at 5 or 6 per cent.

I appreciate the action that the Government have taken by not reducing until May the amount that such people are paid, but between now and May a new system will have to be introduced or we will find that the new group of unemployed people who are on fixed rate mortgages will receive a benefit that does not cover their mortgage interest. The end result of that will be that not only will they have lost their job but they will be in danger of losing their house. We hope that many people who are unfortunate enough to lose their job will get back into the job market fairly quickly, but in these times of rising unemployment, that will be more difficult. The last thing that they need is to lose their house at the same time.

As I have said, I do not want to be niggardly, and I welcome the measures that have been introduced. When the Minister winds up the debate, I would like her to address the issues that we must deal with in the future—higher unemployment, means-testing, which is a major problem with the uprating, low inflation, complexity, which other hon. Members have mentioned, and the high levels of error and of fraud.

In conclusion, I welcome what has been given, but the Department has far to go.

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Photo of Oliver Heald Oliver Heald Conservative, North East Hertfordshire 2:20 pm, 12th February 2009

I am glad to have the opportunity to contribute to this important debate.

John Barrett echoed a point that my hon. Friend Andrew Selous made from the Front Bench about the complexity of the benefits system and of the uprating that we are considering today, which is where I want to start. It is widely recognised that the system of benefits is complex. When the question, "What is a reasonable amount of money for an income replacement benefit?" is asked, there are many different answers. It has been thought for some time—the Work and Pensions Committee has reported on this—that we, as a country, should have a serious look at our benefits system and what a proper level of income replacement benefit should be.

We should not have a situation in which carer's allowance goes up by one amount and jobseeker's allowance goes up by another, and we should not have a situation in which carer's allowance, which is supposed to be an income replacement benefit for carers, is a totally different amount from JSA, which is also supposed to be an income replacement benefit. Our system is over-complex, and the case for simplification is strong. I hope that the Minister and her colleagues will, in the quietness of their private discussions, examine whether we cannot move to a system that better suits the needs of the new century.

There are, of course, temptations for Ministers in an over-complex system, and the devil is often in the detail. On the face of it, it is surprising that Ministers come here every year to announce "handsome" increases in benefits, yet at the same time the Institute for Fiscal Studies, which produced a major report on the matter last autumn, tells us that in 10 years' time pensioner poverty will be exactly the same as it is now. It is very surprising that with all those handsome increases, the Joseph Rowntree Foundation told the Work and Pensions Committee that over a 20-year period the effect of fiscal drag and benefit erosion, which lies in the detail of what has been announced, means that the Chancellor will recoup 3.6 per cent. of gross domestic product from the overall bill. That raises questions about the core benefits system, such as whether those benefits are sufficient for the people whom they are supposed to help and what is really going on behind the scenes.

I suspect that a good deal of sleight of hand goes on, and I will give two examples after I have commented on the point made by my hon. Friend the Member for South-West Bedfordshire about the national insurance fund. Tolley's tax notes record that

"David Lloyd George stood before Parliament and introduced...the novel concept of National Insurance...as a 'temporary expedient'...It is a curious fact that despite the size and permanence of this levy, very many people know little about it".

In the fourth edition of their text on the matter, Ogus and Barendt record:

"People are prepared to subscribe more by way of contributions, which they see as offering returns in the form of personal and family security, than they would be willing to pay by taxation".

The Government have been diverting money from the national insurance fund into the health budget. The Minister may want to comment on that, but it did not use to happen to the extent to which it does now. That is why the parliamentary answer to which my hon. Friend the Member for South-West Bedfordshire referred pointed out that we must bump up income tax, or a tax, if we do not want a large balance in the national insurance fund—it is jiggery-pokery or sleight of hand.

The Work and Pensions Committee produced a major report on carers in the autumn. One of our points concerned the size of carer's allowance, which is much smaller than other income replacement benefits. We made the case that the Government should conduct a major review of carer's allowance and that they should treat it as a proper income replacement benefit.

The Committee also made a more technical point, which Mrs. Humble mentioned earlier. Each year, the decision about uprating the amount that people can earn if they are on carer's allowance is made in April, whereas the decision on the national minimum wage is made in October. The effect is that if the national minimum wage goes up by a certain amount, a number of carers are forced off benefit. In the spring, when the uprating takes place, they go back on to benefits, because the benefits have caught up. The Committee felt that that was unhelpful and that the changes should be synchronised, because that would help many carers organise their lives.

The sad thing is that that would inevitably cost the Government a little bit of money, because those people would no longer be forced off benefit, which is an example of the sleight of hand that occurs. Maintaining that lack of synchronicity saves the taxpayer a little bit of money, but it messes up the lives of carers and is not helpful. Perhaps the Minister will care to admit that that is why the situation has not been changed.

The Committee highlighted that problem and pointed out that it is making life very difficult for carers. It is therefore surprising that the limit for earnings by those receiving carer's allowance has been frozen, so carers will not catch up this year. Not only is there no synchronicity, which we wanted to help carers, but carers have been done down a little bit by the limit not being increased in line with inflation, which is slightly higher than normal this year. That is another example of sleight of hand.

My other example concerns the savings credit element of the pension credit. This year—this is being done at a very odd time—the band of income covered by savings credit is being raised. The effect is to narrow the band of income that is eligible for savings credit, which means that pensioners who have got just a little bit more than the basic state pension will get less help than previously. The timing is odd, because the band was supposed to be raised in the context of the Government's introduction of the new system, under which the basic state pension will be uprated by earnings rather than prices. The argument was that if the basic state pension plus the new arrangements for the state second pension were in place, that would already be helping those who had a little more than the basic state pension, so it would be right at that point to start cutting back on the savings credit. However, to raise the band now, when nobody has even set a date for the introduction of the uprating by earnings, is an example of the Government taking advantage. They are trousering a little money now, when really that should be done later.

It is the same sort of thing as happened last year with the National Insurance Contributions Bill. The Government introduced the upper accrual point for national insurance contributions—again, that was supposed to happen when the basic state pension was uprated by earnings. However, the Government introduced that early as well. They have another year or two, perhaps more, during which people with incomes in the band between the upper accrual point and upper earnings limit are paying national insurance contributions and getting nothing for it. That approach—eroding benefits through the details, with a little sleight of hand—is one of the things that leads to strange results. Generous announcements are made, yet the overall effect, when we consider the detail, is not as good as it seems. So, yes, I support the uprating measures that we are discussing; obviously, benefits should be uprated. However, why do Ministers not have a look at what such little sleights of hand say to the general public and savers?

There is a consensus in the House that we should tell people that they should save for a rainy day and for their pensions so that they do not end up in the situation of so many in the past who said, "There was no point in saving, because I'd have got just as much on benefits." We are trying to change that culture; we are saying that there should be a much more solid basic state pension and better inducements to save, and that we should gradually remove means-testing from the system. Yet the little lost battles that I have mentioned are working the other way. The system is not all moving in the same direction with a plan designed to encourage hard-working people who want to save.

One has to ask why the Treasury is like that. There is a solid and long-standing history in the Department for Work and Pensions of wanting to encourage saving and, frankly, to minimise the means-tested benefits bill in the longer term. However, the Treasury looks at everything year by year in a short-term frame. It wants to make little salami slices so that it gets a little back-pocket money from its negotiations with the Department for Work and Pensions. However, overall, that is not in the national interest.

The burden of my remarks is to ask the Minister whether it is possible for the Government to try to make longer-term decisions to sort out the benefits system. Does the devil always have to be in the system's detail? The result is that the Chancellor saves a little money in the longer term, but we do not get what we really want.

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Photo of Charles Walker Charles Walker Conservative, Broxbourne 2:32 pm, 12th February 2009

Normally, this House adopts an austere voice when it debates pensioners. However, I want to start by adopting a celebratory voice to talk about pensioners, because if we had no pensioners, we would have to invent them. In my constituency, and those of my hon. Friend Mr. Heald and the Minister, pensioners provide a huge public and civic service. There are armies of grandparents dropping off and picking up the children from school and providing babysitting services during the day and in the evenings so that hard-working parents can have a drink at the pub or go out for dinner. Grandparents are hugely important in that role.

I hope that all our constituencies have flourishing charitable sectors. Which people are the mainstay of charitable organisations? By and large, they are pensioners—people over the ages of 60 or 65 who are fully engaged with their communities. I am thinking of meals on wheels or taking other elderly people to hospital appointments. Again, I say that if we did not have pensioners, we would have to invent them. The same applies to political parties. I am sure that my constituency is like—

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

Order. I understand why the hon. Gentleman wants to make flattering remarks about the necessity of pensioners in our society; perhaps he would now be kind enough to move on to the order that we are now debating.

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Photo of Charles Walker Charles Walker Conservative, Broxbourne

But that is exactly the point, Madam Deputy Speaker. If you will just bear with me for a little longer, I will relate it to what we are discussing.

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Photo of Sylvia Heal Sylvia Heal Deputy Speaker

I have been quite lenient in allowing discussion on the matter. I think that we understand the hon. Gentleman's point and perhaps he could now address his remarks to the order.

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Photo of Charles Walker Charles Walker Conservative, Broxbourne

I will, Madam Deputy Speaker.

It is important that I make two observations about pensioners and their role in our communities, and explain why it is so important that we value that role. We in this place can never, ever do enough for pensioners. If I were Prime Minister, I would very much like to uprate the annual pension by £100 or £200 a week. However, I am not the Prime Minister and I appreciate that that would be impossible to do, whoever I was. I welcome the Government's announcement that they are uprating the state pension, but it is, frankly, not generous: £100 or £150 is the bare minimum. Therefore, we in this place constantly need to ask ourselves what more we can do for the retired. Are we doing enough? Of course, the answer will be that we are never, ever, doing enough, but we need to ask ourselves the question.

It is important that when we discuss pensions, we consider the many issues facing pensioners today. We understand that although the value of their savings is not deteriorating, the interest on them is going down. A little more than eight months ago we have interest rates of over 5 per cent.; now, we have interest rates of 1 per cent. That is reducing pensioners' income. A few months ago, we had historically high petrol prices; again, that took a disproportionate amount of pensioners' income. As we have discussed, one index of inflation—the retail prices index percentage—puts pensioner inflation at 12.2 per cent., not the accepted percentage that we live by in this place. We have also seen year-on-year above-inflation increases in council tax, which have a disproportionate impact on pensioners and their incomes. A couple of hon. Members alluded to that.

There is also the cost of utilities. The cost of electricity and gas in the wholesale markets has come down, but that has not yet fed through into the pricing of utilities on the doorsteps of pensioners. I am a relatively wealthy Member of Parliament, and I can afford to wait for utility prices to come down. I do not like waiting—nobody does—but I can afford to do so. For many pensioners, this is becoming very serious. We are having one of the coldest winters for 20 years. I congratulate the Government wholeheartedly on recognising that, but it is very important that they continue to place pressure on the utility companies to get their act together in this respect.

Pensioners are absolutely at the heart of all our communities, and we owe them a huge debt of thanks and gratitude. Much of what they do goes unpaid and unrecognised, so we in this place have an obligation, year on year, to ensure that we are doing as much as possible for them.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber) 2:38 pm, 12th February 2009

This has been a positive and engaging debate. I join Mr. Walker in his praise of pensioners and the very positive points that he made. Labour Members believe that we have demonstrated that we share that view through several of the measures that we have taken and increasing provision for pensioners, whether in the pensions and benefits system itself, or on wider issues such as investment in the national health service and other public services that are used by our pensioners.

Many points have been made during the debate. I will try to cover all of them, but if I do not do so, I will ensure that I write to right hon. and hon. Members. A number of contributions, particularly that of Mr. Heald, referred to the slightly complicated benefits system. The Department has a simplification unit that is constantly looking at how we can simplify benefits. I am sure that it would acknowledge that complexity has been placed on complexity, but we try to refine the system as much as we can. It is important, as the hon. Gentleman said, to look at a system that allows for longer-term decisions, and an element of certainty. However, as constituency MPs, we can all own up to the fact that when we press for changes to the benefits system, such changes can sometimes inevitably lead to a greater degree of complexity.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

On a point of genuine inquiry and interest, is the Minister aware of any country that has cracked this nut? Are the UK Government looking for inspiration from any other country that has gone down this path successfully? I would be interested to hear if she is aware of any.

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

Other countries often look to our welfare state for inspiration, because it has led the way in providing a crucial safety net for many vulnerable people. We look to other countries to see whether changes have been made that could help to simplify our system. On welfare-to-work benefits, for example, we have considered whether there are simpler systems in other countries.

I want to deal with a number of points raised, starting with the so-called 10 per cent. rule, which was raised by John Barrett. I want to emphasise that there is no 10 per cent. rule. The income tariff is a simple method of calculating the contribution that people are expected to make to help to meet their living costs. Some 80 per cent. of pension credit recipients are unaffected by what is called the income tariff. The rules have been in place since 1988, but the Government have tried to make the system more generous than it was. Under the previous system, anyone with savings above £12,000 was not eligible for any support at all. The less generous rules also assumed £1 a week for every £250 of savings. Not only is the rate of tariff income half of the previous rate, but we have abolished the upper capital limit, which gives more people access to more support.

The hon. Member for North-East Hertfordshire, among others, raised the issue of carer's allowance. As I said, as we work towards reforming the benefits system we will consider how we can best support carers in line with the principles outlined in the carers strategy.

The hon. Member for Edinburgh, West talked about the fact that inflation was very low and asked what would happen next year. Decisions on uprating for 2020-11 will be made later in the year, but the Government have already made a commitment to increasing the basic state pension by at least 2.5 per cent. Should inflation fall to a negative figure next year, I can assure the House that we would not be looking to reduce current benefit levels.

A number of hon. Members touched on the question of trying to increase pensioner take-up. I said during my speech that there were a number of areas in which we wanted to see how we could improve take-up, and we will continue to do so.

On benefit fraud and error, I reassure the House that we have an error strategy and that we are constantly considering ways to ensure that errors are not made. As I said earlier, I have tabled a statement to apologise for the fact that two types of error have been made, but we certainly try to minimise them. The estimated level of overpayment due to fraud and error across all benefits is at 2 per cent., the lowest ever, and we are bringing it down. There has been a great deal of consensus that personal accounts and auto-enrolment are the right way forward, and we certainly want to ensure that they start in 2012.

I turn to the rate of pensioner inflation, as I believe it is called. It is true that a report by the Institute for Fiscal Studies on the inflation experiences of older households, published in October, suggested that in August 2008 pensioners were experiencing inflation of 7.4 per cent., or about 9 per cent. in the case of the oldest and poorest pensioners. However, it is important to point out that it also stressed that in the long term average inflation is almost identical for pensioners and non-pensioners. It showed also that pension credit is worth about £430 a year more than it would have been if it had been uprated since 2001 according to the inflation index used in the report. Similar figures show that the state pension is currently £340 a year more than if it had been uprated according to the inflation figures given in the report since 1987.

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Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

The Minister says that pensioner inflation is the same as for the rest of the population in the long term. Does she mean during the time when a person is a pensioner or over their whole life?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

I believe that it is during the time when they are a pensioner, but I can return to the hon. Gentleman with further details on the report if that would help.

On the general point that hon. Members made about savings, I hope that they are aware that the Chancellor has said that he is considering policy options to help pensioners who are currently affected by the interest rate cuts, and that those options may be implemented in the Budget this spring.

I will write to the hon. Gentleman about the national insurance fund. I am sure that he realises that the combination of recent economic prosperity and demographics means that contributions currently exceed claims. Some of that money has been used to reduce Government borrowing, which ensures that everybody benefits, including pensioners. However, that does not necessarily mean that today's recipients have an unlimited claim on the fund. We need to consider the balance between what is currently happening and what will happen if things become difficult, perhaps because of the downturn or when the demographic balance shifts. We need to ensure that we get that balance right. As hon. Members said, there is a campaign by people who say, "There is £30 billion, it is our money and we should have it straight away." However, there are other important factors for us to take into account when considering the national insurance fund.

I reiterate a point that I believe I mentioned earlier: we have legislated to re-establish the link between the basic state pension and earnings. As I said, subject to affordability and the fiscal position, our objective is to do that in 2012, and in any event by the end of the Parliament.

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Photo of Oliver Heald Oliver Heald Conservative, North East Hertfordshire

Savings credit is help for pensioners who have a bit of income on top of their basic state pension. Why is the Minister cutting back on that? The Pensions Policy Institute described the policy as

"a tighter squeeze on Savings Credit".

Why is that being done so far ahead of the change to basic state pension earnings?

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Photo of Rosie Winterton Rosie Winterton Minister of State (Regional Affairs) (Yorkshire and the Humber), Minister of State (Department for Work and Pensions) (Pensions Reform) and Minister (Yorkshire and the Humber)

We have tried to get the balance right between a fair pension system for all and ensuring that the most vulnerable people get the help that they need. As I said earlier, the extra assistance that we have made available to people on pension credit—and the savings element of it—is far more generous than that under previous Administrations.

We are considering a comprehensive package of help for pensioners. We have a robust foundation on which to redouble our efforts to do more. We can do even more by looking to the longer term, planning for the future and making the right choices to answer the questions posed by demographic change and turning challenge into opportunity.

The Pensions Act 2007 and the Pensions Act 2008 have laid the foundations for pension reform, backed by positive consensus. The Welfare Reform Bill will ensure that support is matched by responsibility. That is especially important in an economic downturn. The cost of uprating benefits for next year is nearly £6.2 billion and almost two thirds of that will go to pensioners. That is significant investment which recognises that it is right to protect the most vulnerable in society, especially in times of economic hardship.

On top of our active efforts to increase benefit take-up, the money represents genuine help and action now, when it matters most. That is the right approach, and I am therefore pleased to commend the orders to the House.

Question put and agreed to.

Resolved,

That the draft Social Security benefits Up-rating Order 2009, which was laid before this House on 28 January, be approved.

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