Work and Pensions written question – answered on 13th March 2007.

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Photo of David Laws David Laws Shadow Secretary of State for Work and Pensions

To ask the Secretary of State for Work and Pensions what recent estimate he has made of the costs of uprating the basic state pension on the basis of average earnings in each year from 2008-09 to 2015-16; and if he will make a statement.

Photo of James Purnell James Purnell Minister of State (Pensions Reform), Department for Work and Pensions

Under our reforms, more people will be receiving state pensions based on their national insurance records, and there will be a more generous basic state pension due to the restoration of the earnings link. This provides a solid foundation for private saving. The guarantee credit will continue to provide a safety net and reforms to the savings credit will reduce the spread of means testing and support the savings incentives that are an integral part of the reform package.

The following table contains the projected additional cost of earnings-uprating the basic state pension from 2008 relative to current system spending.

Table 1: Cost of earnings uprating the basic state pension, net of income related benefits
£ billion, 2006-07 prices
Cost of uprating from 2008
2008-09 0.4
2009-10 0.9
2010-11 1.5
2011-12 2.1
2012-13 2.7
2013-14 3.4
2014-15 4.0
2015-16 4.7

1. The analysis is based on the reform proposals presented in the Pensions Bill rather than the White Paper. Some methodological improvements were made to the projections of basic state pension expenditure and revised data has been used between publication of the White Paper and the introduction of the Pensions Bill.

2. Net costs include savings seen from reduced expenditure on other income related benefits (pension credit, housing benefit and council tax benefit). They do not include any change in income tax revenue or national insurance. Annex A of the Pensions Bill RIA shows the cost of earnings uprating the BSP on a gross basis.

3. Net costs assume the pension credit standard minimum guarantee is uprated by earnings from 2008.

4. Figures do not include the effect of any other reform measures.

5. Costs or savings presented in the table are based on long-term projections of United Kingdom benefit spend, consistent with the pre-Budget report 2006.

6. Figures exclude the effect of personal accounts.

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