Clause 15 - Indexation and revaluation

Pensions Bill [Lords] – in a Public Bill Committee at 1:00 pm on 14 July 2011.

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Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 1:00, 14 July 2011

I beg to move amendment 38, in clause 15, page 10, line 24, at end insert—

‘( ) Schedule 3 to the 1993 Act (which sets out methods for revaluing accrued benefits for the purposes of section 84 of the 1993 Act) is amended as follows.

( ) After paragraph 1(4) insert—

“(5) The sub-paragraphs above are subject to sub-paragraph (6).

(6) If paragraph 2A applies to the pension or other benefit, the final salary method is to apply the requirement of the rules of the scheme mentioned in paragraph 2A(1).”

( ) After paragraph 2 insert—

2A (1) This paragraph applies to the pension or other benefit if the rules of the scheme under which it is payable contain a requirement that the accrued benefit be revalued by adding to the accrued benefit an amount of at least the relevant amount.

(2) “The accrued benefit” has the same meaning as in paragraph 1.

(3) “The relevant amount” means the amount which, ignoring paragraph 1(5) and (6), would be the additional amount specified in paragraph 1(1A), (1B), (1C) or (1D) (as the case may be) were the appropriate higher revaluation percentage and the appropriate lower revaluation percentage to be determined on the following basis.

(4) The higher revaluation percentage and the lower revaluation percentage for the revaluation period mentioned in paragraph 2(7) are to be taken to be the percentages which would have been specified in the Secretary of State’s order—

(a) had the following been substituted for paragraph 2(3)(a)—

(a) the percentage increase in the retail prices index for the reference period in relation to the revaluation period (“the inflation percentage”), and”,

(b) had, in paragraph 2(3A)(a), the words “the percentage which appears to the Secretary of State to be” been omitted,

(c) had paragraph 2(4) been omitted,

(d) had, in paragraph 2(5), the words “sub-paragraph (3)(a)” been substituted for “that sub-paragraph”,

(e) had, in paragraph (b) of the definitions of “the higher maximum rate” and “the lower maximum rate” in paragraph 2(6), the words “retail prices index” been substituted for “general level of prices”, and

(f) had the following been inserted after paragraph 2(6)—

(6A) In this paragraph “retail prices index” means—

(a) the general index of retail prices (for all items) published by the Statistics Board (or any predecessor), or

(b) where that index is not published for a month, any substituted index or figures published by the Board (or any predecessor).””’.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

With this it will be convenient to discuss Government amendments 39 to 43.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

We are now in part 3 of the Bill, which deals with a range of issues, one of which is the measurement of inflation for pension purposes. Clause 15 relates to the use of the consumer prices index for the indexation of pensions in payment, and it relates to particular sorts of schemes. If satisfactory to you, Miss Clark, and to other hon. Members, I suggest that we discuss the merits—or otherwise—of CPI when we discuss the next group of amendments, which includes clause stand part and new clause 11. I will therefore  restrict my remarks to amendments 38 to 43 and the specific technical issue of the CPI underpin. I will discuss CPI more substantively when we debate the next group of amendments.

As the Committee will know, the Government have a role in setting a floor for the indexation and revaluation of occupational pension rights. They decided last summer that the measure of inflation used should be CPI and not the retail prices index—we will discuss the reasons behind that decision when we debate the next group of amendments. By and large, that has a substantial beneficial effect on company pension schemes because their liabilities are reduced if they are able to use CPI. There are, however, pension schemes that have the words “retail prices index” hard-wired into their rules.

If CPI is set as the minimum, in times when CPI is higher than RPI—such as in September 2009—we could have a scheme that was, to use a colloquial phrase, one of the good guys. The problem with that is that someone providing what I suspect Labour Members would regard as good revaluation—RPI every year—could find that the cost of indexation had actually increased. Not only would they have to pay RPI every year, but in years when CPI exceeds RPI, they would have to pay CPI. Perversely, we have given those people who would use RPI anyway an extra cost, and that was never our intention.

That is called the CPI underpin. The risk is that if we do not do something, CPI will be applied even when it is bigger than RPI. That was not the intention. Clause 15 states that it will be good enough for schemes to index payments by RPI and that the Government are not going to come back and say, “But CPI is higher this year, so you must use that over and above RPI.”

We consulted on that issue. People often say that Governments do not listen to consultation, but one point that came out of the consultation and was raised in the House of Lords was, “That’s fine for indexation, but what about revaluation?” In other words, indexation happens once someone has retired regarding how their pension is increased, as dealt with in clause 15, but revaluation happens once someone leaves a scheme, up to pension age. We have not tackled a possible CPI underpin for revaluation.

Potentially, that does not matter much. Revaluation can take place over a period of many years, and although CPI might be higher in the odd year, over a run of five or 10 years, the overall impact of CPI as against RPI will almost invariably show the RPI number to be bigger. For someone who has many years of revaluation, that is immaterial. There could be circumstances, however, where someone’s revaluation period, over the whole revaluation linked to CPI, would be greater than RPI. That was never our intention. Amendment 38 and associated amendments deal with that by saying that if revaluation is by RPI, that will be good enough. The Government will not insist on CPI revaluation, even if that would have been higher.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I am carefully following the Minister’s argument, which seems sensible. Will he confirm, as I think he has implied, that the main debate about CPI and RPI will take place a little later? Does he plan to refer to the impact assessment released  by his Department on 12 July entitled “Impact of the move to CPI for Occupational Pensions”, so that we can better understand the respective impact of revaluation and indexation, not only on the pension funds about which he is so concerned, but on the pensioners about whom most of the Committee are concerned?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Yes.

We consulted on a range of issues including the CPI underpin. That consultation ended in March and we published our response on 16 June. We had over 150 responses—somebody reads these documents, which is good. Many of those responses were detailed and technical, but the issue of CPI underpin and revaluation attracted the most comments. There were already concerns that the CPI underpin provision in the Bill is too restrictive and does not help when companies are restructuring. We have sought to respond positively on those issues.

We have listened to the consultation. The amendment will add to schedule 3 of the Pension Schemes Act 1993 a new method of calculating a revaluation, which means that schemes can continue calculating revaluations using RPI. As for the linked amendments and making the application of the CPI underpin to pensions in payment easier, we accept that our original plans were too restrictive so, in response to the consultation, the test now targets whether RPI-based increases have actually been paid, not simply whether the rules require them. The advice that we have received is that that will make life easier for schemes, which want to do RPI. That is fine by us. The other issue is transfers, and we do not want the possibility of a CPI underpin to become a barrier to scheme restructuring, so the amendments ensure that the provision to address the underpin problem survives a transfer if the result is that the member has received RPI-based increases since the start of 2011 and will continue.

I will come to the substantive issue about the CPI in a moment, but I hope that I have assured the Committee that the specific amendments deal with an unintended consequence of the CPI, which is that we do not want to put an inadvertent additional burden on schemes which want to do RPI revaluation or RPI indexation. I commend the amendments to the Committee.

Amendment 38 agreed to.

Amendments made: 39, in clause 15, page 10, line 27, leave out ‘subsection (4) substitute—’ and insert ‘subsections (3) and (4) substitute—

“(3) Subsection (2) does not apply to the annual rate of a pension under an occupational pension scheme, or to a part of that rate, if under the rules of the scheme the rate or part is for the time being being increased at intervals of not more than twelve months by at least the relevant percentage.’.

Amendment 40, in clause 15, page 10, line 33, leave out from beginning to end of line 36 on page 11 and insert—

‘(4ZA) Subsection (2) does not apply to the annual rate of a pension under an occupational pension scheme, or to a part of that rate, if subsection (4ZB) applies to the rate or part.

(4ZB) Subject to subsection (4ZD), this subsection applies to the rate or part if, under the rules of the scheme, the rate or part is for the time being being increased, and since the relevant time has always been increased, at intervals of not more than twelve months by at least—

(a) the percentage increase in the retail prices index for the reference period, being a period determined, in relation to each periodic increase, under the rules, or

(b) if lower, the default percentage for that period.

(4ZC) In subsection (4ZB) “the relevant time” means—

(a) the beginning of 2011 or, if later, the time when the pension became a pension in payment, or

(b) if the pension was transferred to the scheme from another occupational pension scheme as a pension in payment after the beginning of 2011, the time of the transfer.

(4ZD) If the pension was transferred to the scheme as mentioned in subsection (4ZC)(b), subsection (4ZB) does not apply to the rate or part unless, immediately before the transfer, subsection (4ZB) (read with this subsection if relevant) applied to the rate or part by reference to the scheme from which the pension was transferred (or would have applied had subsection (4ZB) been in force immediately before the transfer).’.

Amendment 41, in clause 15, page 11, line 39, leave out ‘(4)’ and insert ‘(3)’.

Amendment 42, in clause 15, page 11, line 42, leave out ‘to (4ZD)’ and insert ‘and (4ZB)’.

Amendment 43, in clause 15, page 11, line 46, leave out ‘to (4ZD)’ and insert ‘and (4ZB)’.—(Steve Webb.)

Question proposed, That the clause, as amended, stand part of the Bill.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

With this it will be convenient to discuss new clause 11—Triennial Report—

‘(1) The Secretary of State must publish a triennial report about the impact of CPI on accrued benefits and pensions.

(2) The report required under subsection (1) must, in particular, include an assessment of the impact of the measure on—

(a) scheme members;

(b) employers;

(c) tax-payers; and

(d) pension protection fund levy-payers.’.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

The new clause calls for a triennial report to assess the impact of using the consumer prices index as the measure of inflation. It is a probing amendment to discuss the changes in the Bill. It seeks that assessment from, among others, pension scheme members, employers, taxpayers and Pension Protection Fund levy payers, and would be an opportunity to reflect on the RPI-CPI switch. We have been clear in debates on benefit uprating that we do not support the decision to adopt permanently the consumer prices index as currently constructed for the determination of benefit uprating and of pension revaluation and indexation. While we support the use of CPI, not RPI, in the short term as a means to reduce the deficit, we do not believe that, on a permanent basis, it is the right way to uprate pensions or other benefits.

Making a permanent change from the use of the retail prices index to the consumer prices index with the impact being felt even after the deficit is long gone is an ideologically driven move that we do not support. While I agree that we need to get the economy back on track and to reduce the deficit, it makes no sense that pensioners and those on the lowest incomes who are least able to bear the burden will be punished by such a change, even when our economy is back on track and the deficit has been eliminated.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

If the triennial report were published in 2014, and it showed a difference between the two approaches, would the Labour party propose in its manifesto for 2015 a reversion to RPI?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

In the same way as I would not expect the hon. Lady’s party to publish its manifesto for the 2015 election, we will not say what we will be putting in our manifesto. [ Interruption.] If any hon. Member wants to make an intervention, I shall be happy to give way.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

The hon. Lady says that she supports CPI if we are broke, but not on principle. On principle, she believes that we should use RPI revaluation. Why cannot she tell us now that that is the principle she will apply in 2015, or does she believe that she might not adopt her principle in practice?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

There are two points that we need to consider. First, as the Minister knows, there are moves to reform the consumer prices index to include housing costs, so we would want to consider that. Secondly, we have said that we support the use of CPI as a means to reduce the budget deficit, and we do not know what the financial and economic circumstances will be at the next election. For those reasons, we will not be writing our manifesto for the next election now. However, I can be clear that we do not think that CPI is the most appropriate way of uprating pensions and other benefits.

As Committee members know, the PPF is funded by levy payers rather than taxpayers. The Minister said earlier that, after consultation, the override for occupational pensions was not applied by the Government, so why are the Government going ahead with moving from RPI to CPI for the PPF, rather than allowing the board of the PPF to make that decision about the right way to uprate pension payments for those in the PPF?

The Minister will know that, last year, the PPF was in surplus by £396 million, so why is a change needed to the way in which the PPF makes payments? In addition, he will know that pensions paid by the PPF that are not already in payment are reduced by 10%. Does he think it is right—on top of the 10% reduction to which pensions already paid are subject—to further reduce the pensions of people who might, if they were in an occupational pension scheme, have looked forward to RPI uprating if they had stayed with their employer and if their employer had not gone bust?

It is our understanding of the process and legislation that we do not need amendments to the Bill to secure changes to the way in which PPF payments are uprated in future. The issue of uprating pensions, including the basic state pension, state second pension, public sector and occupational pensions is determined annually through statutory instruments. These are now undertaken by the increase in the general level of prices, which is generally not specified to be RPI or CPI, or indeed any other measure. Therefore, a future Secretary of State could take a different view on the most appropriate measure of the increase in the general level of prices without the need to change primary legislation.

The situation with regard to the PPF is similar. Clause 15 removes reference to the RPI and substitutes

“the general level of prices in Great Britain”.

However, that does not lock in the CPI for all time, so we do not in principle object to that change.

The change to uprating the various facets of pensions by CPI, subject to statutory powers, will, as we know, have a significant impact, particularly over time. On average, the RPI is 0.83 percentage points higher than  the CPI. So, in any given year, benefits linked to CPI will give people 0.3% less income. The CPI figure for the year to September 2010—for the last round of uprating—was 3.1%. The equivalent RPI figure is 4.6%, so the difference at the moment between the two indices that we are considering is 1.5 percentage points. If the Government make this a permanent change, experts estimate that that change could cost pensioners between 15% and 20% of their retirement income. Indeed, in his report, Lord Hutton stated:

“This change in the indexation measure”— from RPI to CPI—

“may have reduced the value of benefits to scheme members by around 15% on average. When this change is combined with other reforms to date across the major schemes the value to current members of reformed schemes with CPI indexation is, on average, around 25% less than the pre-reform schemes with RPI indexation.”

We have accepted that for the basic state pension and for other benefits, this is a necessary move for a time-limited period for deficit reduction purposes. For private sector occupational schemes, the extent to which the CPI ends up being used for revaluation and indexation depends on the scheme rules, and we support the Government in not pursuing the override. Nevertheless, the updated impact assessment produced by the Department in February shows that the total cost of the reduction in the anticipated value of members’ pension rights, including the stop and flow of pensions, is £86 billion. That is not a deficit reduction saving, but an almost equal and opposite benefit for sponsoring employers, and there are consequential benefits to the Pension Protection Fund and levy payers. The Pensions Policy Institute has calculated that for public sector workers, the switch could cost a median earner 4% a year at age 75 and 8% a year at age 85. A deferred member of an occupational scheme who withdraws at age 40 could have their starting pension income reduced by around 20% by age 65.

Whether the CPI should be the primary measure of inflation is still a subject of much debate. The UK Statistics Authority has suggested that it should be used, but only when the index of owner-occupied housing costs is included, which is not now. The Royal Statistical Society has questioned whether the coverage of the CPI makes it appropriate for all purposes. On noting that the CPI’s methodology has many supporters, the RSS questions whether the comprehensive use of the geometric mean at the lowest level of aggregation is the best approach for products for which consumers are typically slow to substitute expensive outfits, brands or varieties for cheaper ones. It said:

“While the consumer price index (CPI) is acceptable for macroeconomic purposes and for international comparisons within the EU we do not believe its coverage is generally appropriate for inflation compensation purposes”,

including for pensions and payment.

Photo of Lilian Greenwood Lilian Greenwood Opposition Assistant Whip (Commons)

Does my hon. Friend share my concern that pensioners are potentially even less likely to substitute with lower-priced goods when prices change?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

I do not know of evidence that suggests one way or another, but older people might have more entrenched spending patterns and may find it hard to travel to different shops to access differently priced goods. There are also wider issues about what measure  of inflation is more suitable for pensioners. While the Pensions Minister has said that he thinks that the CPI is a more appropriate measure of inflation for pensioners, many, including Age UK, disagree.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

I thank the hon. Lady for delivering a well-researched argument. I believe that she used to be at the Bank of England. Will she clarify for the Committee which inflation index the Bank is supposed to target and which index the Bank’s pension scheme uses for its members and ex-members?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

My pension has now transferred to the scheme that we have here, but my understanding is that the Bank of England is continuing to use the RPI measure, presumably because it thinks that that is more appropriate for uprating pensions. That is consistent with what the Royal Statistical Society is saying, that while the CPI is acceptable for macro-economic purposes, its coverage is not appropriate for inflation compensation purposes. That is why the Bank uses one measure for targeting inflation but another for inflation compensation purposes. That seems to be an entirely consistent view. However, having transferred my pension, I do not benefit from the more generous uprating of pensions.

Photo of Alok Sharma Alok Sharma Conservative, Reading West

The hon. Lady is making an interesting case. May I take her back to what the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), the former Prime Minister and a former Chancellor, said in his pre-Budget report in 2003? On the CPI measure of inflation, he said:

“It is more reliable because, taking account of spending by all consumers, this consumer prices index gives a better measure than the old RPIX measure of spending patterns.”—[Official Report, 10 December 2003; Vol. 415, c. 1063.]

The right hon. Gentleman led the Labour party for some years and was a Labour Chancellor of the Exchequer. Is the hon. Lady saying that she now disagrees with what he said then?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

Spending matters are different from inflation compensation, as I am sure the hon. Gentleman will understand. I again go back to what the Royal Statistical Society has said:

“while the consumer price index (CPI) is acceptable for macroeconomic purposes and for international comparisons”— so the targeting of the CPI by the Bank of England is appropriate—the coverage for inflation compensation purposes is not sufficient. [Interruption.] The hon. Gentleman shakes his head. I am happy to take further interventions, if he wants to continue the discussion, but it is difficult to respond when I do not know why he is shaking his head.

As I am sure hon. Members understand, there are two differences between the RPI and the CPI. The first relates to coverage. The CPI does not include housing costs—not only mortgage payments, but household insurance, council tax and other measures associated with living in a home, which most people do even if they have no mortgage. The second difference is between the use of the arithmetic and the geometric mean. If the hon. Gentleman does not wish to intervene on that point, I shall continue.

The Government have made a virtue of using the same measure of inflation for both purposes, but is it necessarily right to make one index as relevant to pensioners and those on benefits as to macroeconomic management? Age UK has created what it calls a silver retail prices index that better reflects pensioners’ spending patterns and, therefore, the inflation rate for pensioners. That measure of inflation differs from others because pensioners have different spending patterns from other groups. The Minister says that the CPI is more appropriate for pensioners than the RPI, but Age UK has specifically looked at how older people spend their money and, on its measure, those aged over 55 have experienced price rises almost 2 percentage points above that suggested by the headline RPI figures since the beginning of 2008, rising to 4 percentage points for those aged over 75.

That pattern is not surprising, because we all know that older people spend a higher proportion of their income on energy costs and food, the prices of which have been rising at a faster rate in the past few years. To change from the RPI to the CPI when pensioners face higher inflation compared with the overall RPI, let alone with the CPI, seems particularly unfair to them. If the Government want a measure of inflation that is more appropriate to pensioners, they should consider the evidence from Age UK and others showing that, rather than being lower than the RPI, inflation for older people is usually higher.

The gap between real and headline inflation for older people over that period has cost the average 60-year-old £620 a year, and that figure rises to more than £700 for someone aged between 65 and 69. That is mainly down to the different impact that fuel and energy price increases, reductions in savings rates, increases in mortgage interest payments and so on have on older versus younger people’s spending power.

I have tabled the new clause because, as the change has such profound consequences, the Government should certainly monitor and consider its impact. We oppose making a commitment to a long-term change, when there is no settled view on the CPI index as it is currently constructed. Given the long-term nature of pensions policy, we should move away from the status quo only with caution and after having made a full analysis, which we are still lacking.

We should also consider the expectations built into the current system, not least those of millions of workers who believe that they have been unfairly dealt with over the change from the RPI to the CPI. They believed that they had built up accrued rights to a pension that would be uprated in line with the RPI rather than with the lower CPI. The Minister has said that

“a pension promise made should be a pension promise kept”,

but many people feel that that promise is not being kept. The new clause seeks only an ongoing basis for analysing the consequences of the shift from the RPI to the CPI. It also carries with it the statement that we do not want to commit ourselves to the CPI index permanently. I hope that the Government will at least agree to look at the impact of that switch on pensioners and their living standards.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North 1:30, 14 July 2011

I rise to support my hon. Friend’s authoritative statement. I will speak at greater length later, on the Pension Protection Fund clause, but I have some questions for the Minister. I suppose the fundamental point is that there is a perfectly proper discussion to be  had about the measurement and technical appraisal of inflation. How do we measure inflation for people whom we rather quaintly refer to as pensioners? Interestingly, when we meet fathers and mothers, we do not call them child benefit recipients, so it is curious that a whole group of our society is named after the social security benefit that they receive. I shall put that to one side, but I may use the term later to show my inconsistency on the matter. On measuring inflation, my colleague has expressed concern about the effect of rising gas and electricity prices on many elderly people. We should discuss such matters authoritatively and see whether there might be better measures in future.

No doubt later the Minister will wax eloquent and, as usual, very technical about the superiority of CPI over RPI, but if CPI gave more generous pensions to elderly people than RPI, would he be supporting it? It beggars belief that he would say, “Well, actually, in recent years CPI has been a percentage point or so more and is likely to be so in future. That’s rather good for elderly people, because they will get greater pensions. I am so technically committed to the measure that I have fought the good fight with the Treasury. I have found the extra millions for state pensions and I have recommended using CPI.”

The fact is that the Minister will present his good, academic, technical appraisal of CPI—the glory surrounding it and the halo over it—because actually it is meaner, in terms of pension beneficiaries in most years, than RPI. That is the reality of the matter. I shall not be surprised if the Minister has a good argument against me, because he argues well. However, I use the phrase again: it beggars belief.

Alok Sharma rose—

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I will give way, although I am keen that Government Members scrutinise this Government and not only the previous Labour one. However, if the hon. Gentleman has a relevant contribution to make, we look forward to hearing it.

Photo of Alok Sharma Alok Sharma Conservative, Reading West

I thank the right hon. Gentleman. He has described CPI as “meaner” than RPI. What does he believe will be the overall funding difference in pensions as a result of using CPI rather than RPI?

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I think it is significant. The question is, faced with the deficit, which the hon. Gentleman is keen to discuss, too, but it is good to draw him out on pensions on this occasion, who should shoulder the burden? By adopting CPI, we are saying that many of our elderly people, many of whom are on low incomes and low occupational pensions, should shoulder a disproportionate burden. [ Interruption. ] Is the hon. Member for Nuneaton going to mutter to himself or would he like to make a contribution to our debate? No, he is reluctant to share his mutterings with the Committee, which is unfortunate.

Compare the situation with our famous bankers, or the pension entitlements of chairs and chief executives of top FTSE 100 companies. Will their pensions decline in real terms as the pensions of most working people will decline if we move permanently to CPI? The hon. Member for Reading West thinks that it is fair that the bankers should pay what pensions they want and that his constituents should have to shoulder this huge burden, but that is for him to defend to the electorate.

Photo of Alok Sharma Alok Sharma Conservative, Reading West

Will the right hon. Gentleman give way?

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

Is it about the Labour party or the Government?

Photo of Alok Sharma Alok Sharma Conservative, Reading West

I do not think that I have mentioned the bankers at all, but the right hon. Gentleman is obviously keen to do so. I return to my question, which he did not answer. What is the difference in the funding? It would be very nice if he gave us a number—a round number would be helpful, but a number would be useful.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I suppose it would be a round number and it would be a significant one. However, I no longer have the support of the civil service in these matters, and no doubt the Minister will have that figure in his pocket to alarm us with—to his great joy, because he does not think that we can afford to pay proper pensions.

I referred earlier to the Minister’s document, which I have only just come across—I do not know whether it has been circulated to the Committee—on the impact of the move to CPI for occupational pensions.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

On 12 July, I tabled a written statement announcing publication, which made it available to the whole House.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

That is good, but it could be argued that it should be on the Table as it is a very relevant document.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

In which case, the Minister will have read it, so will he explain two things? The first is table 2 —he knows it well, but it is on page 9—and the assumptions about the proportion of schemes with particular indexation and revaluation rules. I find that table slightly complicated, but clearly it shows that a significant number of schemes have rules stating that RPI should rule the waves. I cannot work out whether it is 25%, or 25% plus 51%. I have seen an estimate that perhaps 80% of schemes or something of that order are still pursuing RPI, so many schemes will continue in that way. I give him notice that it is relevant to the PPF argument, when it will not apply, and I will raise that later. I should be grateful if the Minister will talk to us about that in plain arithmetic.

The Minister has touched on table 3 over the page, but will he explain at slightly greater length the two issues: revaluation, which is important, and indexation going forward? When looking at that table, will he also ensure that I understand it properly? These things may be complicated, but when it refers to a decline in liabilities of 20% or so for both men and women, does that mean that over time their real pension, compared with what it would have been under RPI, will decline by 20%? That seems to be the common-sense interpretation, but sometimes it is not as simple as that. That would seem to accord with the shadow Minister’s figures. No one knows what will happen to RPI and CPI, but we are talking about substantial declines from the status quo in what people’s occupational pensions will be in future.

Does the Minister agree that this is the big pension story of this Parliament in terms of the impact on people’s real living standards in both the state sector and the occupational sector when it applies there? I concede that it does not always apply. That is the big, big story, because if people over their lifetime as pensioners—I have used the term—see declines of 20%, when the large number of pennies and pounds drops, they will be shocked. They will understand that this is the great controversy of this Parliament when it comes to pensions.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

It is a pleasure to respond to the debate. We aired the issues extensively in the debate on the revaluation order, but since then we have published a revised impact assessment. The hon. Member for Leeds West quoted the February impact assessment, and I remind the House that we published it on 12 July. It indicated a slightly lower impact on pensions. The hon. Lady quoted a figure of £86 billion, but the revised impact assessment, which is based on fresh research and further detailed changes, reduces that estimate to £73 billion. That is still a lot of money, but I wanted to put on the record the fact that the estimate has been reduced in the most recent impact assessment.

As we are discussing the fundamental issue of CPI and RPI, it is worth reminding the Committee why we are here. When we were elected in May 2010, indexation of pensions and benefits that had taken place a month earlier was based on inflation in the year to September 2009. That was a peculiar year, because the RPI was negative and the CPI was positive.

One of my first duties as a Minister was to reply to angry letters—I do not get many of them now, obviously—asking, “Why has my SERPS pension been frozen?” or, “Why has my company pension been frozen?” or, “Why has my public sector pension been frozen?” My answer was, “Don’t you realise that inflation was negative?” Funnily enough, I could not sign those letters with a straight face, because I am yet to meet anyone who thinks that the movement in the retail prices index in the 12 months to September 2009 was an accurate measurement of the inflation that those folks had experienced.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions) 1:45, 14 July 2011

Does the Minister think that the inflation experienced by pensioners is currently above or below both the RPI and the CPI measures of inflation?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I think it is pretty clear that it is above those measures at the moment. Given the basket of goods that pensioners spend their money on and what has happened to food and fuel prices, it would be hard to maintain that inflation is not higher. There are other periods when the opposite is true. The hon. Lady quoted the Age UK silver RPI, which covers a limited time period, but over a two-decade time period, there is no systematic difference between pensioner inflation and non-pensioner inflation. Clearly there are times, as now, when pensioner inflation may be higher because of the basket of goods impact, but there are times when it is lower. There is no evidence of a systematic difference.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

If the Minister recognises that pensioner inflation is currently higher than both RPI and CPI, is this the right time to reduce how pensions will be uprated to below the RPI measure?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

The hon. Lady’s logic is that when pensioner inflation is above the revaluation rate, we should use pensioner inflation, and when it is below, we should use general inflation. [ Interruption. ] If it is her policy that under Labour pensions would always be indexed by pensioner inflation, even when that was lower than RPI and CPI, as it sometimes is, that would be a bold statement. She would be saying that sometimes pensions would go up by less than the rate of inflation. That is worth the Committee knowing.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

My question was whether the Minister thinks that this is the right time to reduce the uprating. If he thinks that on average the two rates are the same, but that currently the pensioner inflation rate is higher than both RPI and CPI, is this the right time to reduce how pensions are uprated?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

This has the feeling of one of those things where it would never be the right time for Labour. To give an example, would it have been the right time, as per the spending plans we inherited, to slash the cold weather payment from £25 when it is freezing to £8.50?

Photo of Chris Evans Chris Evans Labour, Islwyn

I find that offensive. The Government cut the winter fuel payment for the most vulnerable pensioners. The hon. Member for Reading West shakes his head—

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I understand that when he stood for election, the hon. Gentleman did not look at the spending plans he was standing on, which cut the winter fuel allowance.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

Order. Will the Minister respond in the context of this clause?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

The question was whether this is the right time to move to what we believe is a better measure of inflation. The point was made that this is a difficult time for pensioners. The point I was trying to make on the cold weather payment was that it would have been exactly the wrong time had we not been doing other things such as reversing the planned cuts to the cold weather payment.

The issue of how much pensioners spend on fuel has been raised. As part of our policies, including the CPI switch, we targeted additional help at the most vulnerable pensioners. That was not the 60-year-old higher rate taxpayer who gets the winter fuel payment, but the cold weather payment recipient—the poorest pensioner, disabled person or family with young children. We trebled Labour’s planned level of payment. Every penny of that money was money well spent.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

Does the Minister think that pensioners this year will get more or less than they did last year with the combination of the winter fuel allowance and the cold weather payment?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

It depends on how cold the winter is. Cold weather payments are triggered by weeks of temperatures below freezing. I do know that when it is freezing cold, we will be putting in the money. We put £400 million into cold weather payments this winter, as against about £130 million that would have been paid.

Photo of Sheila Gilmore Sheila Gilmore Labour, Edinburgh East

The Minister is making a statement today, and he has made it on previous occasions. Is that not different from a projection for the future made at a time when it had not been decided whether there would be cold weather payments and at what level they would be set? The Minister is of a view that he knew what mind an incoming Labour Government would have had.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

To explain to the hon. Lady, Governments publish spending plans beyond the current year and those plans are based on policies. The Department for Work and Pensions published spending plans that went well into this Parliament. We know the basis on which those plans were constructed, which was that a temporary pre-election increase in the winter fuel payment would be reversed, and that cold weather payments would be cut.

I will return to the clause. When we came to power, RPI was clearly not doing the job for which it was intended, and it was swamped by mortgage interest payments—the right hon. Member for Croydon North offended me grievously by suggesting that we would not have looked at this issue had CPI been higher than RPI.

Photo of Harriett Baldwin Harriett Baldwin Conservative, West Worcestershire

Will the Minister confirm that one of his first acts was to ensure that the state pension was increased by a triple lock of the higher of CPI, average earnings or 2.5%?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

My hon. Friend is right, and that point is germane to the discussions we will come on to about people who will get smaller increases than they would have done by using CPI, but bigger increases in the basic state pension. For the record, we estimate that anybody with a pension of £800 or less a month will do better through the combination of the triple lock and CPI than they would have done under a continuation of previous policies. It is true that people with large occupational pensions will get smaller increases than they would have done, but I regard the combined impact of our provisions as relatively progressive, which I am sure will go down well with the Labour party.

On the basket of goods in the index, we want something that is fit for purpose. The problem with RPI based on mortgage interest is that most pensioners do not pay mortgages any more—the percentage varies a little bit, but it is a minority sport. When interest rates are falling, as they did dramatically in the year before September 2009, that creates a double whammy for pensioners. Not only does headline RPI fall or go negative and they receive no increase in their pension, but their rate of savings falls at the same time. As the hon. Member for Leeds West said, just at the point that pensioners need extra help, we kick them in the teeth by not measuring inflation appropriately.

There is a strong case on the basis of the basket of goods, but I will also mention that the much-hallowed RPI deliberately and specifically excludes the poorest quarter of pensioners. The idea that RPI is the best possible way of indexing pensions, even when it excludes the spending patterns of the poorest pensioners about whom we are most concerned, seems a bit odd.

There is a discussion about CPI, and CPI including owner-occupier housing costs—just for the record, the hon. Member for Leeds West might have been understood  to say that housing costs are not in the CPI. Rent, which for many pensioners is more important than mortgage interest, is in the CPI, and it is important to put that on the record. Owner-occupier housing costs are not incorporated, and the CPI advisory committee has looked at how those might be included. Interestingly, it rejected the idea of simply plonking in mortgage interest payments, which is how it is done using RPI. However, it is doing a detailed programme of work, which I believe will conclude over the next year or two, to look at ways of including owner-occupier housing costs. I have repeatedly said on the record that we will look at that programme once we have it—we cannot do that now because it does not exist—and see whether that would be a more appropriate measure. We are entirely open to the possibility of finding a good way of including owner-occupier housing costs.

The second fundamental problem with RPI over CPI is the substitution effect. It is the argument that, when prices change, people change their behaviour. For example, rather than buying best cuts of meat, people might buy cheaper cuts of meat or shop at a cheaper supermarket. People change their behaviour, so the impact of price changes will depend on how people respond. The Institute for Fiscal Studies looked at the substitution effect in the CPI, not the RPI, and said that it was “a sound rationale for the change”. In other words, its judgment, that of the RSS to which the hon. Lady referred, and that of several people is that RPI “arguably overstates inflation” because it does not take account of the substitution effect.

We are using a more robust, accurate measure of inflation in CPI. We are open to new measures, which is why reference is not made to the consumer prices index. We do not want to go through such matters again, but each year—and slightly in relation to new clause 11—we have an uprating order, an uprating statement for debate in the House and regulations introduced under the affirmative procedure to give us an annual chance to debate the impact of CPI.

However, we have produced a detailed analysis of such matters. I often consider that we go the extra mile. I am referring to the third version of the impact assessment. I cannot think of the number of hours we have spent on providing Parliament with accurate information about the impact of CPI. Because most of the impact of CPI on occupational pension schemes is about the accumulated liabilities, not the future impact—for reasons I shall explain—it will not change very much if we published a report in three years’ time.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

One reason why the Department has had to publish three impact assessments is that, each time it published one, the figures changed by several billion pounds. It is not a matter of its wanting to give more information, but that it cannot get the information right.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

No, not three times.

One of the main reasons why the numbers are different in the most recent impact assessments is that we have done what the Committee is asking us to do, and have carried out detailed fieldwork research on occupational pension schemes. We quickly discovered that they all have different rules. The assessment is a detailed, thorough piece of work, tables 2 and 3 of which I shall refer to in response to the right hon. Member for Croydon North. I hope that the Committee will welcome the fact that, rather than say, “We shall not give you an impact assessment for six months because we have not done the fieldwork,” we give an early estimate and update it in light of fresh research, which is what we have done.

In response to the right hon. Gentleman’s specific questions about tables 2 and 3, table 2 splits the 100% of occupational pension schemes into four groups. That is based on whether the revaluation of the entitlement of people who leave the scheme before pension age is on RPI or the statutory basis, CPI, and whether the pensions in payment are indexed according to RPI or the statutory basis, CPI. The numbers in the cells add up with a bit of rounding to 99%—the universe of 100%. He quoted the 80% figure, which was our original estimate. If he adds up the two numbers in the first row—indexation based on RPI, regardless of the revaluation—he will see that it adds up to 76%. We had previously estimated 80%, so notwithstanding what the hon. Member for Leeds West said, I think that is pretty good. We had an initial estimate before the field research of dozens of pension schemes, and we came out with 76%, not 80%.

As for the 51%, we are discussing a percentage of schemes, not a percentage of members, and if we picked a scheme at random, the most likely scheme would be one in which, when pensions are in payment, they are linked to RPI, but when the scheme revalues past service up to pension age, it will do so by CPI. Under the 25% figure, both of those processes are done by RPI.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

Am I right or wrong in thinking that it is the revaluation that has the most significant impact on the pension paid? Obviously, it depends, but I shall let the Minister respond.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

It is the most significant in the sense that, as the right hon. Gentleman will see from the table, three quarters of schemes are using RPI for indexation. It is the revaluation that matters most because more schemes are linked to the statutory minimum for revaluation than for indexation. However, for any given individual, if the person worked for the same employer up to pension age, it does not matter at all because there is no revaluation, because the person is still in employment. It will depend on when the person leaves the firm and so on. In a sense, what the right hon. Gentleman says is true: the indexation change has less impact because three quarters of the schemes use RPI at the moment anyway. I hope that clarifies his questions on table 2.

Table 3 is, in a sense, the analogue of table 2. It takes each of those four cells, and each of the columns in table 2, bar the first one, matches up to one of the cells in table 2, which gives us a subdivision for men and women, although, as the right hon. Gentleman will see from the table, the numbers for men and women are not really very different. It tells us about the impact—on average—of the schemes on the different sorts of arrangements.

For example, in the final column, we have what we call RPI RPI schemes—schemes that revalue by and index by RPI, which is about a quarter of the universe, as it were. Actually, without clause 15, which does the CPI underpin, we have slightly increased liabilities, but essentially it is zero. In the second column, in which we have the most common sort of scheme, the RPI indexation has no effect, but the revaluation does, and that is where the 16% reduction is. Just to clarify the right hon. Gentleman’s question, it is the reduction in pension scheme liabilities. The impact on individuals will vary enormously according to age, length of service and so on. We have used a stylised individual to get to those figures, but the answer will be different for every individual. However, on average, that is the answer to the question.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North 2:00, 14 July 2011

I think I understand it so far, but will the Minister say more about the impact on the individual? Obviously, it depends, but there must be some average figures—median figures—for men and women. To what extent is their pension going to be reduced? That is what I am interested in.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Well, these are the average figures. They are averages for men and averages for women.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Over the course of a retirement, not at the point of retirement. This is to do with a discounted stream of liability. It does not directly translate into a pounds and pence at the point of retirement figure. It is discounted to give us a lump sum value, and it is in terms of the impact on the scheme.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I think it is important for us, Parliament and the public to understand this. Earlier, in the Minister’s very authoritative, interesting and technical appraisal of CPI against RPI, we got the impression that it was about swings and roundabouts and that it depends on the year and so on. However, is he now saying that, on average for men and women over a lifetime, their pensions will be one fifth lower than they would have been if he was not proposing this reduction?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

What I am saying is that he will see there are four columns beyond the first one, and we divide the pensions universe into those four columns. Half of all schemes are in the second, substantive column—column three. A quarter of all schemes are in the final column where there is no impact, so it is not correct to say that there is an average 20%. If we happen to have CPI and CPI, a person gets done by both, as it were. If someone gets done by CPI on revaluation and CPI on indexation, and they are an average person leaving the scheme 15 years before the end on an average income with average characteristics, it might be a 20% impact over the course of their retirement. So it is an average worst-case scenario; that column applies to less than one in five schemes. These are averages.

Malcolm Wicks rose—

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Let me continue for a second. I am not denying that if we take £73 billion at net present value out of the long-term liabilities of occupational pension schemes, some people will see significantly lower occupational pensions than they would have done. I am presenting the figures. The right hon. Gentleman keeps trying to get me to say it: these are the figures for the impact on the liabilities of the scheme.

I will address some of the other points.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

No. I think we have drilled this one to death.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

Well, I thought this was scrutiny, Chair. It will be recorded that the Minister is not giving way.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am not giving way. I am trying to address a number of questions that the right hon. Gentleman and others have asked. If he still thinks I have not addressed them, he can obviously come back.

The right hon. Gentleman was concerned—I think the hon. Member for Leeds West asked about this—about the use of the CPI for the Pension Protection Fund, which we may come on to in a separate clause. The board of the Pension Protection Fund does not have discretion to make up the rules; it implements the statutory rules of the fund. It would be very odd to say to the PPF, “But, guys, pick your own inflation rate.” The Chancellor of the Exchequer has indicated that for the purposes of indexing social security benefits, state earnings-related pensions and linked occupational pensions, we are going to use CPI extensively and pretty comprehensively through Government. To then say that the Pension Protection Fund down in Croydon can measure inflation differently, even though it was set up by the pensions legislation that the right hon. Gentleman was involved in, would seem inconsistent.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

As I said, the Pension Protection Fund was in surplus of, I think, about £396 million last year. This year, it will reduce its levy by £120 million due to the shift from the RPI to the CPI alone, and £600 million overall. The PPF clearly does not need to be made financially viable. The levy is paid by levy payers, not taxpayers, so it is different from state pensions. I wonder why the Minister feels the need to change that.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

We are back in the Opposition’s blind spot here, saying that burdens on business is somehow free money, and that if the hit is on the taxpayer, perhaps we will rig the inflation measure for a few years and then go back to a proper one, and if pension schemes will pay the money, who cares?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

Bear with me a second; I am responding to the previous point. As we have applied the CPI to the PPF, and because of other changes—the PPF sets its levy based on a range of considerations, but the hon. Lady is right in saying that that is a substantive one—the  PPF has saved pension schemes, which means employers and pension scheme members, because they are not separate entities, £120 million. That is either £120 million more that can go into pensions, of the sort that I assume the hon. Lady would approve of, or £120 million that British business does not have to find, which can help it through the recession. The suggestion that somehow, because it is not the taxpayer, it is of no great material importance seems extraordinary.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

We managed to have a good scrutiny of Government policy this morning. The Minister seems to be trying this afternoon to put words in the mouths of Opposition politicians that they frankly have not said. He decided not to override occupational pension schemes, which I believe is the right thing to do. However, as a result, many pension schemes will continue to pay out under the RPI. Does he consider that to be a big cost to business? That shows a failure to understand its concerns, yet the Minister seems to think that I do not understand.

The PPF levy is reducing by £480 million this year, without the £120 million, but I believe that the PPF levy is reducing by £600 million. Perhaps the Minister can give us the figures of this year’s reduction in the PPF levy. What is due to the shift from RPI to CPI, and what is for other purposes? My understanding is that that levy is falling anyway, so the burden on business is falling.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I am sure that I will be corrected if I am wrong. My recollection is that the levy is falling from £720 million to £600 million, so it is falling by £120 million a year. I do not believe the PPF has published a breakdown of the factors behind that, although CPI is clearly significant. I cannot give a figure for the split because I do not think the PPF has published one. However, it would be fair to say that the chances are it will be a pretty big impact, which I think is entirely welcome. The fact that pension schemes will not have to find that money is good news for the schemes, employers and their members.

It is important to note that the PPF was set up to reflect the statutory minima. If we are putting CPI in as the minimum, it would be very odd indeed to have a pension compensation arrangement that is more generous than some of the schemes that it is providing insurance for, in terms of indexation or revaluation. We will discuss PPF in more detail, but the fundamental point that we risk losing sight of in the whole debate is that we have a statutory duty to define the general increase in the price level. We must do so properly. We cannot say, “We know that inflation is really the RPI, but because we are broke, we are going to pick a different number for a few years. We can’t even promise in four years’ time that we won’t be broke, so we will go on fiddling the inflation numbers until we have some money, and then we will do proper inflation protection.” That seems to me the unprincipled approach.

The principled approach seems to be to take a look at the detailed, careful statistical work that has been done on the better measure of inflation. People imply that the CPI is some number that someone wrote on the back of a fag packet. The amount of meticulous, careful  statistical work that goes into creating the Bank of England’s headline measure of inflation is extraordinary and well beyond me. To then say that it does not measure inflation properly is extraordinary. Our judgment is that across the board, for indexing benefits, tax credits, public sector pensions and state earnings-related pensions, we need to have a consistent measure of inflation, properly constructed, with a basket of goods that works and which properly reacts to price changes. That is what we believe the CPI does, but we do not have a closed mind on the matter. If the experts come back to us and say that we can do a better CPI that includes owner-occupied costs in a new way, we will certainly look at doing so.

Photo of Lilian Greenwood Lilian Greenwood Opposition Assistant Whip (Commons)

If the CPI is so perfect a measure of price inflation, why when the Minister constructed the triple lock did he not choose to use CPI or average earnings? He also put in an underpinning of 2.5%. What was the thinking behind that?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I think the point about the triple lock is that there are essentially three basings on which one might set the state pension. First, where is it relative to people who are in work? What are we doing for pensioners? For 30 years pensioners were left behind and we have done something about that. Secondly, does it keep pace with the cost of living? We have taken a judgment on how that is best measured. Thirdly, do we want to insult people by giving them pennies? Unlike the previous Government, we decided not to do that. If that is political, I plead guilty.

Photo of Alok Sharma Alok Sharma Conservative, Reading West

It appears from the debate that the Opposition are against the triple lock. Perhaps the shadow Minister will discuss that in her summing up.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I have to say to my hon. Friend that I have not the faintest idea what the Opposition are for or against; the truth is that they have not either at this point, but I am sure it will become apparent.

Photo of Malcolm Wicks Malcolm Wicks Labour, Croydon North

I usually talk about pensions; the Opposition talk about Mr Gordon Brown and the Labour Government.

For the education of new Government Members, will the Minister confirm my historical memory that it was Mrs Thatcher’s Conservative Government who broke the index link between pensions and wages? There is a certain amount of humbug coming from a particular quarter of the Committee Room.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

Order. May I ask the Minister to respond in the context of the clause that we are debating?

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions

I certainly will. Simply to say, when judging the most appropriate form of indexation and the principles on which that should be done, one should look at what people do rather than what they say.

The goal of measuring the general increase in the price level is to protect people against inflation. We believe the CPI is a good way of doing that. It has a better basket of goods, which better fits the retired population in particular, and the statistical advisers agree that it responds better on the substitution effect. We could produce another report in three years’ time, but I doubt very much that it would say anything terribly different. The impact assessment is thorough on those points. We have an annual uprating statement, which we debate every year, so I am not convinced that we need yet another report in three years’ time. I therefore urge my colleagues to reject the new clause and support clause 15.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

I found the tone of the debate on the probing new clause disappointing, both from the Minister and from some hon. Members on the Opposition Benches. The point of Committee is to scrutinise the Bill; the point of the new clause is to scrutinise the shift from the RPI to the CPI. We might have done that in a way that produced more light than steam.

The Minister said that the Government would have looked at the shift from the RPI to the CPI whether or not financial savings were to be made in the measure. Like my right hon. Friend the Member for Croydon North, I find that quite incredible, because the shift was part of the package of measures to save money in the welfare budget. There is nothing wrong with trying to save money, but the Minister should at least be honest about why the Government are pursuing the policy. He can hide behind his briefings and his special cases, but in reality, the measures will cause pensioners to be worse off in future. People contributing to pensions will get lower pensions in retirement than before, including those who have been paying in to pensions thinking that they would be uprated by the retail prices index, who now find that they will be uprated by the consumer prices index. The provision would be laughed out of court by every pensioner who knows the reality of their level of inflation. The cost of their shopping and utility bills is going up and up, and the shift from the RPI to the CPI does nothing to help them. As my right hon. Friend said, the Minister is pursuing these policies because they are meaner. That is why the Government are supporting them.

Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 2:15, 14 July 2011

Is the hon. Lady dangling a carrot of pensioner price indexation in front of the nation’s pensioners, or is it just for effect?

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

As I said to the hon. Member for West Worcestershire, Labour, like the Liberal Democrats, or the Conservatives—[ Interruption. ] If the Minister wants to intervene again—I have accepted every intervention—I am happy to take it, but if he wants to mutter from his seat, that is his prerogative.

Photo of Alok Sharma Alok Sharma Conservative, Reading West

From what the hon. Lady is saying, it is clear that she has no policy at all. If she has, perhaps she should spit it out. The Minister has raised a clear issue, and we would all like a response to it. Will the hon. Lady address that point?

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

I remind the shadow Minister that she must respond in the context of this clause.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

And I have every intention of doing so. We all know that the point of a scrutiny Committee is to scrutinise the Government’s legislation. As much as those on the Government Benches would like to scrutinise Labour policy, that is not the purpose of this Committee. [ Interruption. ] The hon. Member for Reading West mutters and shakes his head, but unless he knows something that I do not, the point of these Committees, as I am sure the Chair would agree, is to scrutinise Government legislation on a number of areas. Whether it is automatic enrolment or the state pension age, it has been the Opposition that have put down alternatives and set out other ways of doing things that are fairer to both existing and future pensioners.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

I will in a moment. The real loss of the four days we have spent in Committee so far is that the transitional arrangements that the Government promised to the 500,000 women most impacted by this Bill have not been debated or discussed. The Government have put nothing forward, despite their promises on Second Reading.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

The hon. Lady talks about fairness. I accept what she is saying of us as a Government being fair to pensioners. Does she not also think that there is a real implication in this on future generations? We have to be fair, when thinking about these policies, to future generations—our children and their children—and what they will have to face going forward.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

I am at a loss to understand why the Government are switching from RPI. Are they doing it to save money, as I believe, or are they doing it because they believe that it is the right form of inflation? Is the hon. Gentleman supporting the shift from RPI because it is a cost-saving measure, or is he supporting it because he believes that it is a better measure of inflation?

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

I address the shadow Minister’s comments by saying that I made that point because I have a conscience in relation to my children and their children, while trying to be fair to the current cohort of pensioners and our generation as we go forward into that period of life.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

It would have been nice to hear a bit more of the hon. Gentleman’s conscience, as well as the rest of Government Members’ consciences, throughout the four days we have had in Committee, particularly on the 500,000 women who will have to wait up to two years longer. The hon. Gentleman shakes his head and raises his eyebrows, but we have heard nothing from him on that point.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

Order. I remind both hon. Members that they must address the clause, not other matters that were debated earlier.

Photo of Marcus Jones Marcus Jones Conservative, Nuneaton

On a point of order, Miss Clark. At that point I did not shake my head. I want that put on the record.

Photo of Katy Clark Katy Clark Labour, North Ayrshire and Arran

I do not know whether the hon. Gentleman shook his head or not. The hon. Member for Leeds West made her contribution, which is on the record, and the hon. Gentleman has put his position on the record. That draws a line under the matter.

Photo of Rachel Reeves Rachel Reeves Shadow Minister (Work and Pensions)

I am sorry if I upset the hon. Gentleman by suggesting that he shook his head. I will not do so in future.

It is difficult to understand whether the Government are changing from RPI to CPI because they think it is a cost-saving measure, which would be legitimate, or because they think it is a better measure of inflation. We all want fairness between generations and intragenerational fairness but, as my right hon. Friend the Member for Croydon North asked, is it fair that those receiving pensions and other welfare benefits are so disproportionately impacted by the changes, while the bankers have received a tax cut this year?

The reason why the Government do not want to have a triennial review of the evidence is that they know it would reveal that pensioners are worse off because of the proposals—by up to 15%, as Lord Hutton has suggested, or even by up to 20% or 25%—in relation to not only their state pensions, but to the PPF and their occupational pensions. Pensioners are worse off because of the shift from the RPI to the CPI, and the Minister and Government Members know it. Some of them may think that it is a fairer measure of inflation, but I do not know a single pensioner who agrees with them.

Question put and agreed to.

Clause 15, as amended, ordered to stand part of the Bill.