Social Security

Part of Opposition Day — [4th Allotted Day-First Part] – in the House of Commons at 9:35 pm on 1st March 2010.

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Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 9:35 pm, 1st March 2010

I am only just warming up.

One of the key things the voting public will want to know is where we go from here on pension uprating. We heard a staggeringly evasive contribution-even by Tory standards-from Mr. Waterson, who protested that the Government had been uncertain about when they would restore the earnings link, yet when he was challenged directly to say when the Conservatives would do so, answer came there none. All we know is that the Conservatives have said they will find the money for the earnings link by increasing the male state pension age to 66. They said that they would do that in 2016, which on my reckoning is beyond the end of the next Parliament, so where will they find the money? If they propose to restore the link earlier, when will they do it? Pensioners are simply being told that that will happen at some point in the next Parliament.

The hon. Gentleman rightly derided the failure of the Labour Government to restore the earnings link for the past 13 years. His party failed to do so for 17 years, so we are up to 30 already. Does he seriously think that pensioners should be made to wait for up to another five years, on a "Vote for us: we won't tell you when we'll do it, but we might get round to it some time in the next five years" ticket?

Let us consider someone who has just reached pension age, say a woman at 60, or a man at 65, or-this has just occurred to me; this is live-a man who turned 65 in 1980, when Mrs. Thatcher-now Baroness Thatcher-broke the earnings link. Such a man will be 100 by the end of the next Parliament. Only then could he be confident that a new Conservative Government would have restored the earnings link. Should somebody who retired the year Mrs. Thatcher broke the earnings link have to wait until they are 100 to see it restored? Even in the world of pensions, that might be regarded as glacial progress.

My hon. Friend the Member for Twickenham has had his thumbscrews out. He has tested our sums and has concurred that the Liberal Democrat commitment for the pension should be to restore the earnings link not at some vague time in the next Parliament but with immediate effect-a link to the higher of prices or earnings, or the 2.5 per cent. underpinning. We have identified, as our costed manifesto always does, a list of things that we would not do, but this is the pension priority that we will introduce. That is why we were so disappointed when the regulations failed to meet that priority.

The point about pensions has been well made. To be fair, the hon. Member for Eastbourne was right to say that the headline rate of inflation really does not do it for pensioners. The retail prices index, in particular, is massively deflated by falling interest rates. Those are great news for people who have a mortgage and are borrowing money, but for pensioners falling interest rates are not merely not good news, but actually depress their incomes through falling savings rates. It is the infamous double whammy. The headline RPI is negative, which does not benefit pensioners, but their incomes are falling because of low interest rates-a double hit. Pensioners will not perceive themselves as having experienced no inflation.

We know that inflation is 3.5 per cent. or more, so to give pensioners an average of 2 per cent. in April, as the uprating does, will be a real cut. It is saying to pensioners, "You're first against the wall. You're first to take the pain of the recession." That is what the order does, which is why we shall oppose it tonight.

There are two issues relating to the order to which I want to draw the House's attention. The first is pensions. The second is the temporary child benefit and disability benefit increase. The Minister said that the Government were bringing forward a rise that would have happened next year. She asked in what sense there was a real cut, and I will tell her. This year those benefits will increase by 1.5 per cent., when inflation is notionally nil or negative. Next year they will go up by whatever inflation is, less 1.5 per cent. Any graph of the real value of benefits would show an increase the year before the election and a fall the year after the election. That fits my definition of cynicism. The Government say, "Well, we'll bring some money forward just before you are about to vote for us, and then we'll claw it back the year after the election."

Indeed, it gets worse: the temporary bringing forward of the money is not consolidated into the rate of benefit that must be increased. In other words, the 1.5 per cent. does not go into the base level that is then indexed; it is taken away again and the indexation applies to the pre-increase rate. That is a curious notion of indexation. So this is purely about timing, and the idea that the electoral cycle might have some bearing on it is very hard to resist.

I want to raise a final issue, which is always the elephant in the room during such debates. I want to tell my hon. Friend the Member for Twickenham that I have found some money. In fact, I can tell him that I have found £50 billion-I do not want much of it-sitting in the national insurance fund. As hon. Members will know, along with the order, the Government Actuary's Department produces a report on the national insurance fund, and it tells us that the estimates for 2009-10 are payments of £75.7 billion and receipts of £78.1 billion. The recession may have done a bit to that, but the fund is more than £2 billion in surplus in 2009-10. Of course, that adds to the accumulated surplus in the fund, so that the balance at 31 March 2011, according to the Government Actuary, will be £50 billion-not a bad day's work, really.

The law only requires the balance in the fund to be one sixth of annual expenditure on benefits. The actual balance in the fund is about two thirds of annual estimated benefit payments. So pensioners' groups always ask us where the money has gone. When we find out where it has gone, it is a bit of surprise. A little bit of the money goes to the national health service, but the law says that most of it must go towards national insurance benefits, pensions and so on. But at the rates in the order, it cannot all be spent on national insurance benefits and pensions. They are not big enough to spend all the cash on, so the balance keeps rising year after year.

Where does the money go? My understanding is that the fund is a bit like a soft bank that lends money to the rest of public sector, so that the Government need not borrow it from elsewhere. Of course, when the Chancellor said in a recent Budget that he would increase national insurance contributions to help fill the hole in the Budget, he was doing so to spend that money not on national insurance benefits and pensions, but on others things, presumably. How can the fund be used as a label and a soft way to raise tax, when the money is not spent on national insurance benefits and pensions?

I wonder whether the Minister can tell us where the £50 billion is. Is it held by the national insurance fund? This is a serious question. Is that £50 billion, or is everything beyond the 16 per cent. that must be kept lent out? If so, to whom? Who is borrowing the national insurance fund? Where is it? Where is our cash? Who is borrowing it? What interest rate are they paying? Or is the national insurance fund being used as a sort of low-interest loan-a kind of Carol Vorderman approach to Government finances? I apologise to the Conservatives for using that example. Is this a way of getting in soft money at low interest rates to lend to the rest of the Government? Is that really what Beveridge had in mind? Did he think that the national insurance fund would essentially become a kind of easy credit option for the Government? We have come an awful long way since the start of the contributory principle.

It is deemed bad form to ask such questions. Clever people do not ask where the national insurance fund money is, because we all know that the fund is work of fiction, but then why does the Government Actuary produce glossy reports telling us how much is in it? How much does it cost to produce the reports telling us that there is £50 billion in the fund, although when I ask Ministers about it they say, "But there isn't. Don't be silly, Steve. We know that the £50 billion isn't really there. There isn't really any money there at all, and you certainly couldn't spend it." Well, where is it? Why do we go through this charade every year? Either this is a charade or it is real money. If it is real money, where is it, and what is being done with it?

We would like to amend the regulations and take out the elements that freeze additional pensions, graduated pensions and state second pensions, but parliamentary procedure does not allow that. It would be nice to think that our votes in the House on Thursday on so-called modernisation would allow us, among other things, more scope to amend statutory instruments rather than simply voting for or against them, but we are not allowed that subtlety. We must vote for or against.

We have set out our reasoning on the Order Paper, in early-day motion 957. We will vote against the order tonight. If the Government were to say that that might deprive people of their benefit increases, as has been gently indicated, I have had a word with my hon. Friend Mr. Heath, the shadow Leader of the House for the Liberal Democrats, and he has nobly said that he will be prepared to make time in the business of the House for a debate on a revised set of regulations as early as tomorrow. We would be happy to give extra time to debate a revised version of the uprating regulations tomorrow, with the offending elements amended so that everyone gets their benefit increase and the £500 million that has been taken away from pensioners can be restored. There need be no loss or administrative delay to anyone, simply a more rational set of regulations.


Peter Morris
Posted on 3 Mar 2010 6:56 pm (Report this annotation)

I can tell Dr Steve Webb where the £50 billion is - it is invested in Call Notice Deposits with the Debt Management Office which is part of the Commissioners for the Reduction of the National Debt. It is held in interest bearing deposits and last year the Government paid something like £1.3 billion in interest payments to the NI Fund for the use of that money. Of course, this year it will be much less due to the drop in interest rates.