Pension Credits and Benefits Uprating

– in the House of Lords at 3:44 pm on 9th November 2000.

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Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security 3:44 pm, 9th November 2000

My Lords, with the leave of the House, I shall repeat the Statement made by my right honourable friend the Secretary of State for Social Security in another place. The Statement is as follows:

"With permission, I should like to make a Statement, first, on the annual uprating of benefits and, secondly, on pensions and the new pension credit.

"First, on uprating, subject to the following exceptions, most national insurance benefits will rise by the retail prices index, which is 3.3 per cent, and most income-related benefits will rise by the Rossi index, which is 1.6 per cent, in the usual way. Details of the uprating will be placed in the Vote Office and will be published in the Official Report.

"The Government believe that it is right to do more to help people with disabilities and for carers. We know that it is particularly hard for families on low incomes who are bringing up children with disabilities. I am therefore proposing to increase the disabled child premium by £7.40 a week, on top of the normal uprating. So as part of our drive to end child poverty, around 80,000 children will see a rise in the disabled child premium from £22.25 a week to £30 a week over and above their basic entitlement to benefit.

"Just as we are committed to abolishing child poverty, we are also determined to provide greater security for those who are unable to work. That is why we announced in 1998 that we would introduce a disability income guarantee from April next year for people with severe disabilities.

"When it was first announced, we set the guarantee at £128 a week. But today I can announce that when it is introduced in April, it will not be £128, it will be £142--£14 more a week. And for couples, it will be £186.80.

"Thirdly, we want to do more for carers. We all owe a debt of gratitude to people who give up so much to care for their relatives. That is why in September I announced that we would extend the invalid carer's allowance to people over 65; raise the earnings threshold; and extend payments for eight weeks after the death of the person being cared for. I also announced a £2 a week increase in the carer premium, which is the extra supplement for carers on income support.

"Today I can go further. I have decided that the increase in the carer premium will, from next April, not be £2 a week, but £10 a week on top of the normal uprating. That means that the premium will rise from £14.15 to £24.40, helping over 200,000 carers on low incomes. In total, the Government will be spending nearly £200 million more on supporting carers and people with disabilities next year--and every year thereafter.

"I now turn to pensions. I confirm that the basic state pension will rise by £5 for single pensioners next year, and by £3 the year after. For married couples, the figures are £8 and then £4.80. I can also tell the House that the widows and bereavement benefits (which will go to men and women equally for the first time next year) will also rise by £5 next year and £3 the year after.

"And for this winter, I can confirm that pensioners will start receiving their £200 winter fuel payment from Monday.

"Today I am also publishing a consultation paper on the new pension credit. Copies will be available from the Vote Office following my Statement.

"There is a fundamental fault in the system we inherited. Saving should be rewarded, not punished. So the pension credit will, for the first time, reward the thrift of millions of people who have worked hard to save for their retirement. The credit builds on the long term reforms the Government have already made. We are building block by block, a coherent and sustainable strategy for pensions.

"For tomorrow's pensioners we are reforming the state second pension, giving greater security in retirement to 18 million people on low incomes. And for moderate and higher earners, we are introducing the new stakeholder pensions from April.

"Not only will the pension credit help millions of today's pensioners on modest incomes; it will also complement these long term reforms by rewarding people for saving. The message is clear: whatever you can afford to put by, it will always pay to save. Our aim is both to end pensioner poverty and to ensure that all pensioners share in the rising prosperity of the nation.

"When we came into office, the inequality of pensioner income had grown dramatically under the last government. This means that the old approach--an across-the-board increase, whether linked to prices or earnings--is inadequate. It would not do nearly enough for the poorest pensioners. Nor would it do enough to reward thrift. A new approach is required which deals with the reality of pensioner incomes today.

"First, there are now many more pensioners retiring on very good pensions, mainly thanks to occupational pensions and of course SERPS. One in six pensioner couples are now retiring on £20,000 a year, and that proportion will grow steadily over time. While those pensioners are sharing in the rising prosperity of the nation, for those who come within the scope of the tax system, we are determined to give them a fairer deal.

"We have already halved the rate of tax on savings income from April 1999 and increased pensioner tax allowances. And today I can announce further proposals to raise those allowances. At the moment most pensioners have no income tax to pay. But for those who do, in 2003 the Government propose to raise the age-related allowances by £240 that year over and above indexation. On current forecasts, that will take the allowance to £6,560 a year for those aged 65 to 74, and to £6,850 for those aged 75 or more. And throughout the remainder of the Parliament we propose to carry on raising the allowances in line with earnings. Over 3 million pensioners will gain from this.

"Secondly, we inherited a situation where in Britain--the fourth largest economy in the world--there were too many pensioners living in poverty. Pensioner poverty has no place in a civilised society. That is why the Government were right to make ending pensioner poverty their first priority, and why we introduced the minimum income guarantee, which is already helping nearly 2 million pensioners. Now we want to go further to tackle pensioner poverty.

"As the Chancellor announced yesterday, we are increasing the minimum income guarantee over and above the planned earnings increase. So from next April, no single pensioner need live on less than £92.15 a week. For 285,000 of our poorest pensioners, that is a £14 a week rise between now and next April. And when we introduce the new system in 2003, the minimum income guarantee will be set not at £92, but at £100 a week; that is £22 a week more than today. For the first time a single pensioner will be guaranteed at least £100 a week. And for every subsequent year in the next Parliament, the guarantee will be raised in line with earnings.

"But the next stage of our reforms is to help the millions of pensioners who worked hard all their lives, saved for their retirement and rightly believe that they are being punished, and not rewarded, for their thrift. All of us are familiar with the pensioner who feels let down by a system that has not rewarded their thrift. A pensioner with £20 of occupational pension on top of her state pension can find herself just a pound or two better off than someone who saved nothing. That is unfair, unjust and it is going to stop.

"That is why we are introducing the pension credit--to help pensioners with savings or a modest income in retirement. So, for the first time in the history of the welfare state, saving will be rewarded, not punished. I can confirm that when it is introduced in 2003, the credit will reward all those with weekly incomes up to £135 for single pensioners, or £200 for couples. Today I can tell the House that 5.5 million pensioners--that is half of all pensioner households in this country--will be better off as a result of the new credit.

"Not only will the new system ensure that pensioners are better off when they retire, it will also ensure that the support they get from the state will keep up with the rises we are seeking in family incomes over their retirement. Because not only will the minimum income guarantee rise in line with earnings; but so will the new pension credit.

"Let me explain how the credit will work. First, we will guarantee a minimum income, which by 2003 will be at least £100, or £154 for couples. Secondly, on top of that, for every pound saved, pensioners will receive an additional cash credit. This will mean extra cash on top of the basic state pension; sums of between £1 and £23 a week. The amount of that reward will depend on the amount of savings and other income. Take, for example, a pensioner in 2003 who is on the basic state pension, which we then expect to be £77, and with income from savings or an occupational pension of, say, £20 a week the total weekly income will be £97. With the credit, her income will be raised to the minimum income guarantee of £100. But on top of that, she will receive a credit of £12 extra for her saving. So her income will not be £97, but £112. The pension credit will mean she is £15 a week better off--that is her reward for saving.

"The changes we are making will be of particular advantage to women. On average, women have smaller occupational pensions than men. And because they are likely to live longer, they are more at risk from the falling value of their pension income over their retirement. As a result, two-thirds of those who will benefit from the credit are women. The credit also allows us to make a number of changes. First, we have always recognised the unfairness of someone losing out simply because they have modest savings in a bank or building society. We have already announced that from next April, as we prepare for the pension credit, we are raising the capital limits for the first time in 10 years. As a result, 500,000 pensioners will gain an average of £5 a week, and many will find themselves entitled to extra support for the first time.

"But from 2003 we are going further. As part of the credit we are scrapping the capital limits completely. Instead, we will look at the income pensioners receive from their savings. Not only are we abolishing the capital limits, but we are also getting rid of the rules on tariff income for pensioners. So we will no longer assume that pensioners can get a ludicrous 20 per cent return on their savings.

"And the second change is that we will make it easier for pensioners to get the money they are entitled to and get rid of the weekly means test. Now, there are some who weep crocodile tears at means testing for pensioners, but who did nothing in 18 years to change it. We will. At the moment we ask all tax-paying pensioners to tell us about their income just once a year, if that. But we ask poorer pensioners to tell the benefit system about changes every week. There is no good reason for that. So instead, the credit will be based on an income assessment that is more like the tax system.

"When we retire, a calculation has to be made about our basic state pension. At the same time, we can work out how much a pensioner is entitled to under the minimum income guarantee and the pension credit. We know that most pensioners have stable incomes. So after the initial award at retirement, any adjustments will only need to be made when circumstances change significantly; and we are making it easier for pensioners to claim their entitlements by introducing a dedicated new service for pensioners. People will be able to claim by phone, giving pensioners the better service they want.

"Although most pensioners have stable incomes, there are of course pinch-points during the year when pensioners need to meet the costs of lump sum bills. That is why pensioners have welcomed the extra help they receive from the winter fuel payment and the free TV licences for over-75s--more help when it is most needed. We promised to make sure that all pensioners would share fairly in the rising prosperity; and the measures we have announced deliver on that promise. As a result of our reforms, all pensioners will gain. We are spending £8.5 billion more on pensioners over this Parliament; that is £5 billion more than an earnings link.

"We promised to do more for those who most need it. That is why, next year, the poorest third of pensioners are getting five times more than they would have done under the earnings link. We promised to do more to reward saving; that is why under the tax changes I announced today 3 million pensioners will be better off; and the new pension credit will mean that 5.5 million pensioners will be better off.

"So, from next week: the £200 winter fuel payment; from next April the £5 and £8 increases in the basic state pension and the minimum income guarantee goes up to £92.15; from the following April a further £3 and £4.80 on the basic pension; and from 2003 a guaranteed income of at least £100; and the introduction of the new pension credit and higher tax allowances to reward saving.

"So there is a clear choice for the future. We are increasing the winter fuel payment, not abolishing it. We are building on the basic state pension, not undermining it or privatising it. We are tackling pensioner poverty, not ignoring it. And we are rewarding saving, not penalising it.

My Lords, that concludes the Statement.

"I commend this Statement to the House".

Photo of Lord Higgins Lord Higgins Conservative 4:00 pm, 9th November 2000

My Lords, the House will be grateful to the noble Baroness, Lady Hollis, for repeating the Statement which was made in another place. Noble Lords will be particularly appreciative of the fact that she read it as though it were her own. It is easier to understand such complex matters if that is so rather than ripping through a Statement at high speed.

We on this side of the House welcome a number of aspects of the Statement. First, we welcome in particular the proposals for helping the disabled and carers, and for the projected abolition of the capital limit. We also welcome the proposed increase in the basic state pension. However, for 30 years I represented a constituency with the oldest population in the country and therefore I know well how pensioners think. I know that they will be asking themselves how it is that last year they were told that the maximum increase the Chancellor could possibly offer was 75p when suddenly this year it can be increased to £5. It may cross their minds that there may be an extraneous factor such as the timing of other events which they do not fully understand. No doubt the Minister will enlighten us on how it is suddenly possible to make such a massive increase compared with the measly, insulting increase of last year.

Secondly, as regards the basic pension, is the Minster aware that we on this side of the House believe that in addition to the increases which the Government have announced it is right to roll up the gimmicks on television licences, winter fuel payments, Christmas bonuses and so forth in order to save the heavy administrative costs and inefficiencies in delivering them and to devote the money instead to an increase in the basic pension? In that context, suitable adjustments should be made in relation to taxation and those receiving lower-level benefits. That would ensure that as regards the basic pension everyone would be better off than under the Government's proposal.

Finally, with regard to the basic state pension, does the Minister believe that there is a slight inconsistency in the Government's reaction to the proposal for linking pensions with earnings, so eloquently put forward by the noble Baroness, Lady Castle? They replied that much of the money would go to people who did not need it, but at the same time they increased the winter fuel allowance which also goes to many people who, in the Government's sense of the words, do not need it. Is not that a strange and inconsistent policy for the Government to adopt? No doubt the Minister will be able to give an explanation, but it is difficult to understand how these two parts of the policy can be reconciled.

The noble Baroness has, both in opposition and in government, made such statements on a number of occasions. The normal practice with regard to upratings is to state what they will be and what the corresponding increase in national insurance contributions will be. Surprisingly, in the Chancellor's Statement yesterday no reference was made to that and, more to my surprise, no reference was made to it in the noble Baroness's Statement today. If my understanding of a report in today's Times is correct, an additional £2,000 a year will be collected in national insurance contributions from those with incomes of more than £30,000 a year. That is an increase of 7.5 per cent; three times the rate of inflation. If that is correct--and no doubt the noble Baroness will tell us--it is extraordinary that no mention of it was made by the Chancellor yesterday or by the noble Baroness today. Clearly, as regards those with incomes of more than £30,000 a year, it is yet another stealth tax.

That brings me to the next point we need to question. The Government, as usual, pay tribute to the important role of occupational pensions. Once again, I must declare an interest as chair of an occupational pension fund. They are still suffering severely for the most notorious stealth tax; namely, that which was the result of the Chancellor's first Budget when he changed the rules on advance corporation tax and removed some £6 billion from occupational pensions.

In that context, perhaps I may raise another point with the noble Baroness. It would seem that the Chancellor's policy is to tax in order to repay debt. The effect of that is significant in relation to the gilt-edged market. If the Government are borrowing less, the supply of gilt-edged assets is less and the yield on gilt-edged assets will fall. So, too, will the rate on annuities. Therefore, the effect of the Government's policy in that respect is to reduce the level paid on annuities, even below the dramatic fall over the past two years. There are implications for those who will still be forced to take an annuity at the age of 75. Despite our having raised the matter on many occasions on the Floor of your Lordships' House, that has not been dealt with in the Statement. There are implications for the minimum funding requirement of such funds, on which the Government have made no comment and appear to be procrastinating in reaching a decision.

I turn next to the minimum income guarantee which is to be increased in line with earnings. Contrary to the Government's declared policy of wanting to reduce the number of people submitted to means testing, will not the effect be to increase the number? Perhaps the Minister would quantify that for us. The Social Security Select Committee of another place pointed out an inconsistency in the Government's policy in that respect. The change is likely to discourage those who might otherwise go into stakeholder or other pensions because for reasons of which we are aware it tends to discourage savings. That will be the case despite the proposal as regards pensioner credits. We shall study carefully what the Government now propose, but it would seem that the level of income at which the change will be effective will not be much higher. A superficial reading of the Government's White Paper suggests that the pensioner credit fades out at an income of £7,000 per year.

Photo of Lord Higgins Lord Higgins Conservative

Yes, my Lords, for a single pensioner. In order to avoid going through the appalling arithmetic, I have dealt throughout with the case of a single pensioner. The proceedings would be considerably delayed if one were to deal also with pensioner couples.

Photo of Lord McIntosh of Haringey Lord McIntosh of Haringey Deputy Chief Whip (House of Lords), HM Household, Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords)

My Lords, as the noble Lord is making that point, is he aware of the provision in the Companion that the time for the Opposition Front Bench spokesmen and the Minister's reply to them is limited to 20 minutes?

Photo of Lord Higgins Lord Higgins Conservative

Yes, my Lords; I believe that to be the case. No doubt the noble Lord is more familiar with these matters than I; he has been in the House a great deal longer. None the less, the fact that we have a long Statement needs to be taken into account. I am coming almost to my conclusion, but it would appear that the pensioner credit fades out at that level of income and that the amount of credit will be capped. However, we shall examine all the proposals most carefully.

The noble Lord who intervened and then walked out--perhaps he was distraught at my response--said recently in answer to a Question that the Government's intention was to halve pensioner poverty in 10 years. I have been worried by that undertaking--if that is the right expression, or words to that effect. The Government are committed to reducing pensioner poverty, which is common ground between us. I have had great trouble trying to ascertain which definition of "pensioner poverty" is to be used in deciding the extent to which the Government succeed in their objective. In a Question for Written Answer, the noble Baroness referred me to a recent publication by the Government which set out a whole series of definitions of "pensioner poverty". We must understand clearly the definition against which the Government propose to be judged.

Photo of Earl Russell Earl Russell Liberal Democrat 4:11 pm, 9th November 2000

My Lords, looking at the Chamber, I recall reading many years ago a novel by the late Maurice Edelman which described a visit by a foreigner to another place. The visitor commented on the extreme emptiness of the Benches and asked what was being discussed. He was told that the subject was pensions. His response was that he would have thought that the Chamber would be very full as pensions concerned so many people. No. That story comes to mind when one compares the populousness of the Chamber now with the position a few minutes ago when we were busy blowing bubbles in Greenwich.

I welcome the basic uprating. I also welcome, as crumbs from the rich man's table, the small improvements in disability benefits and benefits for carers. I seek clarification of the figures. One is told that there is to be £200 million more for carers. As always, I should like to know: more than what? Does the figure combine a real terms increase with an uprating, or is it all a real terms increase, and what is the base line?

Obviously, the pensioner package is the main point of comment. If the Government had done something like this a year ago they would have avoided a great deal of trouble, but there is force in the proverb that hope deferred maketh the heart sick. The price of settlement tends to increase over the passage of time, and it is possible that it may not create the degree of satisfaction now which it could perfectly reasonably have done a year ago. According to the Pre-Budget Report, the total for the pensioner package is £2.5 billion. I shall not make any comparison with our proposals which would have cost £3.5 billion--I am not here to say that mine is bigger than yours--but I am concerned about how well the money is targeted to particular needs.

Before I deal with that, I should like to raise one question which arises from paragraph 54 of the Statement. The Government claim to have spent £8.5 billion more on pensions since 1997. More than what? Is this figure all real terms, or does it include uprating increases? Above all, does it take account of the £3 billion undershoot in public spending in the first year of this Government which the Treasury, with consummate brilliance, wrote into the totals on which future uprating was based? Is it based on the figure as it was on the day John Major went off to watch cricket at the Oval, or is it an increase on the figure £3 billion lower after the first year's undershoot? The answer to that would be interesting.

I have always been concerned about the problem of take-up of the minimum income guarantee. The Minister may remember that yesterday at the time of the Treasury Statement I asked what was the budgeted expenditure for the cost of implementing the increase in the minimum income guarantee. The noble Lord, Lord McIntosh of Haringey, was unable to answer. I referred that matter to my honourable friends, and perhaps I may now tell the Minister the answer to that question. According to the report of the Government Actuary, which was published a few minutes ago, the cost is expected to be £600 million for 2001-02 and £750 million for £2002-03. It is not a very large part of a £2.5 billion package and suggests that some of my doubts about the take-up of the minimum income guarantee are shared on the government Benches.

I must declare an interest in the winter fuel payment as I am eligible for it. But, simply because I am eligible, I wonder whether it is as well targeted as it might be. It is a difficult question because, in the light of today's figures on the increase in winter deaths, the need for a fuel payment is clearly urgent. On the other hand, lack of food as well as lack of heat contributes to the risk of hypothermia. I wonder whether the case for concentrating the money on those in need may be more relevant here.

I understand why the noble Lord, Lord Higgins, has decided that he would take the money away from these things and put it into the basic pension. That was what the voters told us. On the other hand, I remember meat being given to the lions in Philadelphia Zoo. They did not like it and roared in protest. The keeper took away the meat and the lions roared twice as loud. I fear that in the months to come the noble Lord, Lord Higgins, may have cause to remember that story.

Next year there is to be an increase of £3 in the basic state pension. Is that an increase in real terms, or does it include the ordinary uprating? If it is the latter, it is not very remarkable; if it is a real terms increase, it is wholly to be welcomed.

I shall not go through all the arguments about our age-related additions of which the Minister is perfectly well aware. However, apropos paragraph 25 of the Statement, if the Government are so condemnatory of age-related additions, why did they accept them in the income tax system but not for the basic pension? To ask the question that a pupil once asked me about a contradiction in my index: where are the Government right? I look forward to the answer of the noble Baroness.

I regard the pensioner tax credit with interest. We on these Benches believe that this is basically a new name for a taper. I recall a number of arguments with the Minister in the early years of this Parliament when the Government set their face firmly against taper increases. No doubt something has led the Government to change their mind. That is often welcome, but one should like to know what has persuaded them.

Paragraph 49 of the Statement refers to the adoption of the family credit system and fixing it for a longer time. I can understand both sides of the argument. It fits better here than with people in inflexible part-time employment, but there are problems with people whose benefit is fixed for any length of time. I hope that some attention has been paid to them.

The Minister's claim to set out to abolish child poverty is a little optimistic while the Government have not given up the idea of disentitling people to benefit. There is nothing on that subject in the Statement; nor is there anything about mending the holes in the safety net, the problems of verification, the tightening of the conditions of eligibility, housing benefit, or the links between poverty and transport and services. There are no doubts about the use of compulsion. I am afraid that there is a good deal of evidence--the Minister need not incriminate herself by answering this--of the shift of control of social security policy away from the Department of Social Security towards the Treasury. I deplore that, but I do not ask the Minister to say whether she agrees.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security 4:20 pm, 9th November 2000

My Lords, I am in some difficulty. I have one minute to answer all the questions from the two Front Benches, otherwise I shall be in flagrant breach of the rules. I shall write to noble Lords.

The noble Lord, Lord Higgins, asked why the TV licence and winter fuel payments were not rolled up in the basic state pension. A recent survey by Saga of 5,000 people showed that they preferred the Labour Party's approach by three to one. The noble Lord asked whether the winter fuel payments would be universal. Fifty per cent of those suffering from fuel poverty are pensioners. As a result, that contributes about 50,000 extra deaths from hypothermia. We are also seeking to tackle that.

The noble Lord, Lord Higgins, said that MIG would actually discriminate against savings. That is precisely why we are introducing the pensioner credit which builds in savings.

The noble Earl, Lord Russell, asked whether the £200 million for carers is new money. Yes, it is. He asked whether the £8.5 billion more on pensions was over and above RPI or included RPI. It is over and above RPI. I have made the 20 minutes.

Photo of Baroness Castle of Blackburn Baroness Castle of Blackburn Labour 4:21 pm, 9th November 2000

I, too, am concerned by what is happening to the uprating of the basic state pension, as, I am sure, are many in this House. Do we understand that the £5 addition last week is a one off--a great defect of the Conservative Party's pensions proposals--or does it reflect a permanent change in the principle underlying the operating of the basic state pension? Why is that £5 reduced to £3 in the second year? Above all, what is going to happen in the third and subsequent years? What is to be the principle underlying and governing the uprating of the basic state pension? Will the Minister tell us? If she cannot, why not?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, the £5 and the £8 are from next April. The additional sum of £3 is for the following year. Given the prudent management of the economy, we believe that this is now the right time to make the money available to all pensioners. But through our minimum income guarantee and through our pension credit, what we are also doing is making sure that the poorest pensioners gain most. Something like one half of all the Government's new money is being spent on the poorest pensioners. Therefore, the bottom 20 per cent and the next 20 per cent get three times as much as the rest. I am sure that my noble friend would wish to see such redistribution in favour of the poorest pensioners.

Photo of Baroness Carnegy of Lour Baroness Carnegy of Lour Conservative

My Lords, can the Minister answer the final question asked by my noble friend Lord Higgins and tell us precisely which definition of "pensioner poverty" is being used in the Statement? I think we need to know that.

The Chancellor tells us that he has been very prudent and wants to avoid stop-go. The noble Baroness has explained to us that the pensioner income guarantee and the pensioner credit will both be earnings-related. I think she said that some five and a half million people are involved. That must be a large sum involved every year. If these matters are earnings-related, it means that if earnings rise very fast in an inflationary way, too much money will be chasing too few goods. That problem will be enormously added to by what the pensioners get through the earnings-related addition. Does the noble Baroness not think that this will be extremely inflationary? Does she not think that this is perhaps contrary to the Chancellor's policy of being prudent.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, there are many definitions of "pensioner poverty" because poverty is multi-faceted. But the Government's broad definition of "poverty" tends to be either 50 per cent of mean or 60 per cent of median. It may be that the noble Baroness was slightly misled by the noble Lord's suggestion that there is a commitment to a statistic in terms of pensioner poverty. To my knowledge, that commitment has not been made. I should certainly support such an effort. But the commitment is to tackling child poverty and the statistics relate to that, not to pensioners. Perhaps there was something of a red herring there.

The noble Baroness asked whether extra money going into the pensioner credit would be inflationary. I am sure that the noble Baroness does not mean to suggest that the position on her side of the House is that one should not increase pensioners' income because one may fuel inflation. I am sure she would wish to dissociate herself from that suggestion.

Photo of Baroness Carnegy of Lour Baroness Carnegy of Lour Conservative

My Lords, I am not speaking for the Opposition; I am speaking for myself. I want to know whether or not this will be inflationary. Of course I understand the position. I am a pensioner myself. I have an interest. I am just asking whether it will be inflationary.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, I am not a Treasury Minister. But my understanding is that if one is investing additional income in some of the poorest members of society, that is less likely to be inflationary--in the sense that the income is totally spent on food, housing and basic goods--than if one is investing additional income in those with higher disposable incomes. Let me remind the noble Baroness of what we are doing. At the moment, someone on a minimum income guarantee gets something like £77. From next April that will increase to £92 income for a single person and up to £100 when the new pensioner credit is in position. That is roughly speaking the bottom 20 per cent of our population profile--for the most part, older single women who are poor now, either because they did not work or because they had interrupted work careers. We need as a result to help them. Any increase in the basic state pension does not help them because for the most part they do not have complete state pension records. Therefore, to raise their pension by an earnings link will not help them. They have to be targeted in this way through MIG.

There is the second group who may have saved £20 to £30 which as a result barely lifts them above the MIG floor. That is the group we are trying to seek--the next 20 per cent--with the pensioner credit which has been warmly welcomed. Of course there are many questions--some raised by the noble Earl, Lord Russell--that we have not yet answered because this is a consultative scoping document and we want people's responses on it. What we are seeking to do is to ensure through MIG that we help the poorest 20 per cent; through the pensioner credit we help the next 20 per cent. At that point the stakeholders and occupational pensions kick in for the rest, who will be floated above that level. In that way, for the longer as well as the shorter term, we shall be addressing pensioner poverty.

Photo of Lord Ashley of Stoke Lord Ashley of Stoke Labour

My Lords, I warmly welcome the increases for disabled people and for carers. These are nothing like as derisory as has been made out by noble Lords opposite. I am particularly pleased about the amount paid to carers. I pay tribute to the noble Baroness, Lady Pitkeathley, who brought the issue of carers before the House. Her work has no doubt resulted in the Government's move.

Although I welcome the increases in pensions, they should not be going only to older people; they should be going also to severely disabled people of working age. Their problems are the same as those of older people.

Lastly, perhaps I may refer to the winter fuel payment, which is not a gimmick as the noble Lord, Lord Higgins, made it out to be. The winter fuel payment is an extremely important payment of £150 per year. Pensioners over 60 years of age get it. I believe that severely disabled people are entitled to the same kind of payment because they suffer the cold as much as old people. In the main they are poor and cannot afford to warm their houses. Will the Government consider as a matter of urgency the payment of the winter fuel payment to severely disabled people?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords. I shall take that point back, but I would not like my noble friend to be under any misapprehension about the degree of support that we are offering disabled people in this package today. Of the £200 million new money--not recycled or reannounced money--something like £100 million is going to increase the carers' premium, which the noble Lord welcomed. Of the other £100 million nearly half is going to disabled children. That is the disabled child premium on income support. Half of the rest is a disability income guarantee for the poorest disabled families. So half of that £100 million is already going to disabled children and people of below pensioner age. I believe that their needs too are being properly addressed in this Statement.

Photo of Lord Rix Lord Rix Crossbench

My Lords, as president of Mencap, I was both amazed and delighted that the very first part of the Statement on the annual uprating of benefits was concerned with families who have children with disabilities. It then went on to a subject which is often well below the title--those disabled people who are unable to work and their carers, which unfortunately includes many people with a learning disability. The disability income guarantee is to have a considerable uprating while carers, too, are to share in this long-overdue largesse. No doubt the reason for this decision to spend £200 million more next year on supporting carers and people with disabilities is largely due to the undoubted charm, diligence and expertise of the noble Baroness, Lady Hollis of Heigham, in persuading her right honourable friends the Chancellor of the Exchequer and the Secretary of State for Social Security to act with such munificence. But I should like to congratulate the noble Baroness and inquire whether the promise of support for every year up to 2001 is but a harbinger of even better things to come.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, I am delighted that the noble Lord, Lord Rix, has welcomed our measures. Given the position of responsibility he has held and the way he has fought for a particular and sometimes overlooked constituency, I am particularly glad about the way the carer premium and the disabled child premium will interlock. It means that a parent--perhaps a lone parent--who is on basic income support and cares for a child who has severe learning difficulties or possibly cerebral palsy will gain not only from the increase in the carers premium, which will go up not by £2 but by another £8, which means £10, but also from the increase in the disabled child premium--so that family may enjoy a cash increase of nearly £20 and a real increase of around £17 or £18 next April, which will make a significant difference to their ability to lead better quality lives. I am delighted that the noble Lord felt able to welcome it.

Photo of Lord Roberts of Conwy Lord Roberts of Conwy Conservative

My Lords, while there are clearly very welcome aspects of the Minister's Statement, a great many of the benefits really amount to jam tomorrow. Perhaps I may take the Minister back to her example of personal credit. As I understood her, she instanced the person on £77 of pension who has an occupational pension of £20. Then, by some device, that £97 became £100; and not just simply £100, but there was a further payment of £12 in respect of savings. Is that £12 related to the level of occupational pension for which the person has qualified after, presumably, working for it, and to what is the extra £3, which makes the £100, related?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, it is an extremely technical system. People will need to spend a little time with the documents which have only just become available. Perhaps I may give a simpler example. Let us roll forward to 2003 and assume for these purposes that the basic state pension is £77 and that the minimum income guarantee is £100. Someone has an occupational pension or income from savings of £30. At present, if he had that £30, he would end up with £77 state pension and £30 occupational pension, giving an income of £107. So he would be only £7 better off for his occupational pension than if he was on the minimum income guarantee as he had never saved or contributed towards a pension. That is why, at the moment, the system discourages thrift. In future, if someone has an occupational pension and the full state pension of £77, he will be credited with the MIG level--so he will go from £77 to £100--and then he keeps 60 per cent of his occupational pension. So he will keep 60 per cent of £30, which is, say, £18, up to the figure of £200 for the couple. It means that that person would therefore have £100 plus 60 per cent of £30, which equates to £118, instead of the original £107. For that extra £30 he will receive a full £18 extra and more than he would have received under the existing scheme. That is why we believe that it is so much more generous to people who have a modest occupational pension; and, as I said, two-thirds of the gainers will be women.

Photo of Baroness Wilkins Baroness Wilkins Labour

My Lords, I wholeheartedly welcome the Government's announcement of an extra £200 million a year for disabled people and carers. That will provide greater security for those disabled people who are unable to work. Does my noble friend agree that in future much greater security needs to be provided for those disabled people who need personal care but who have managed to find work? They feel insecure about the future because they face losing a large proportion of their income to the cost of their care.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, as my noble friend will know, the Government have introduced the disabled person's tax credit. Together with the disablement income guarantee, that will represent a significant increase in the basic floor of income for disabled families. We are talking about a figure of £182 a week for the disability income guarantee. In addition to that, people enjoy, rightly, tax free, as a universal benefit, disability allowance. But I suspect that my noble friend is concerned not so much with those groups on people on low incomes who go into work but who have rather lower care needs, but with those who have severe care needs which are currently being met by the Independent Living Fund. Discussions are underway with the Independent Living Fund. My noble friend has made representations on that subject. So I would suggest that she joins us in those discussions. I am sure that she will be able to make her point very fully and very forcefully there.

Photo of Lord Monro of Langholm Lord Monro of Langholm Conservative

My Lords, the noble Baroness did not have time to answer an important question asked by my noble friend Lord Higgins. What will be the increase in the national insurance contribution next year and in subsequent years?

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, I did not answer it because national insurance has nothing to do with the Department of Social Security.

Photo of Baroness Crawley Baroness Crawley Labour

My Lords, like many noble Lords, I very much welcome the pension increases, the increase in the minimum income guarantee and the introduction of the pensioner credit. While for some that will not be enough, for very many people, particularly the poorest pensioners who are women, this will be a very welcome package. What are the Government doing to respond to those pensioners who complain, sometimes with justification, that the bureaucracy involved in obtaining benefits is still too much for them? Perhaps my noble friend will take this opportunity to talk about how the Government are approaching the issue of bureaucracy.

Photo of Baroness Hollis of Heigham Baroness Hollis of Heigham Parliamentary Under-Secretary, Department of Social Security

My Lords, my noble friend is absolutely right. If we are to use a targeted approach to respond to pensioner poverty, we have to ensure that pensioners who are eligible for help not only know about it but claim it. There is agreement all around the House on that. So far, so good. Around 600,000 people have responded to the campaign for take up. We have processed about 60,000 of those claims and so far half of those have been successful. We will know the full sums only when we have processed all of those claims. As part of our efforts to make more pensioners willing to come forward, we have introduced the new telephone system. People can make claims on the telephone. For the future, once we have carried out what I would call the initial audit of a pensioner's income at the point of retirement, we would hope thereafter to be able to produce a system which is much more user friendly--perhaps much more akin to the tax system--and in which the pensioner will need to notify us only if there is a significant change in his or her income subsequent to retirement; perhaps due to bereavement or inheritance. In that way, with the support, I am sure, of the entire House, we hope to see all pensioners claiming every penny to which they are entitled and which we owe them.