Guaranteed Minimum Pensions Increase Order 2020

Considered in Grand Committee

Moved by

That the Grand Committee do consider the Guaranteed Minimum Pensions Increase Order 2020.

My Lords, I will start with the Guaranteed Minimum Pensions Increase Order. I will cover this briefly as it is an entirely technical matter that we attend to in this place each year. The order concerns contracted-out defined benefit or final salary occupational pension schemes. It will increase scheme members’ guaranteed minimum pensions that accrued between 6 April 1988 and 5 April 1997 by 1.7%, in line with inflation as measured by the consumer prices index.

I should now like to turn to the Social Security Benefits Up-rating Order. The Government are committed to supporting working families and providing financial security for pensioners, and the provisions in the order reflect this. It will increase the basic state pension and the new state pension in line with the triple lock; increase the pension credit standard minimum guarantee in line with earnings; increase working-age benefits in line with prices; and increase carers’ benefits and benefits intended to meet additional disability needs in line with prices.

The Government’s commitment to the triple lock means that the basic state pension will continue to be uprated by the highest of earnings, prices or 2.5%. The triple lock has been an invaluable tool in combating pensioner poverty, so keeping it in place gives pensioners the financial security and certainty they deserve. This year, the increase in earnings was the highest of the triple lock figures. As a result, the basic state pension will increase by 3.9%, rising to £134.25 a week for a single person. This increase is at the highest rate for the past eight years. From April this year, the basic state pension will be over £1,900 a year higher in cash terms than in April 2010.

Four years ago, the Government introduced the new state pension, which provides a transparent and sustainable foundation for private saving and retirement planning for people reaching state pension age from 6 April 2016 onwards. We have also committed to increase the new state pension by the triple lock, so from April 2020 the full rate of the new state pension will increase to £175.20 a week. This year, state earnings-related pension schemes, other state second pensions and protected payments in the new state pension will rise by 1.7%, in line with prices.

My lords, at last, after four years we finally have an uprating order that actually uprates working-age benefits. But it is very disappointing that it does nothing to start making good the serious losses sustained by an estimated 27 million people, in and out of work, who rely on those benefits, amounting to an average loss of nearly £400 a year for families with children. That will be the focus of my contribution this afternoon.

According to the House of Commons Library briefing, the real value of affected benefits has been cut by about 6%. Taking account of all uprating restrictions across the decade, they are about 9% lower than if CPI indexation had applied since 2010. A cut of nearly 10% in the real value of benefits that were already far from generous represents a shameful attack on the living standards of many of the poorest in our society.

Although the department has done nothing to assess the actual impact on those affected, civil society organisations have provided some evidence, and I thank them. For instance, Citizens Advice reports that from April to August last year,

“four in 10 of the people we helped with debt to claim income-related benefits didn’t have enough money to cover their living costs. This is up from 32% in 2016-17—a 25% increase since the benefits freeze came into effect”.

In contrast, the proportion of households with what it calls a “negative budget” who are not in receipt of those benefits has remained largely unchanged. StepChange, too, identifies the benefits freeze, alongside other social security cuts and changes, as key factors in high levels of problem debt and as

“undermining financial inclusion policy goals”.

The Heriot-Watt University/Trussell Trust State of Hunger report and last week’s Marmot report likewise identify the low level of benefits as a key factor in growing food insecurity and reliance on food banks. The latter argued that benefit and taxation policies since 2010 have largely been responsible for the worsening socioeconomic situation underlying widening health inequalities. The Government’s own statistics show an increase in levels of severe income deprivation. It is worth noting that the impact of the benefit freeze will probably be seen as much, if not more, in the intensity of poverty as in the numbers in poverty, given that many of those affected will already have been in poverty. According to the CPAG, an average family in poverty is now £73 below the poverty line, compared with £56 below in 2012-13, adjusted for inflation. As the Joseph Rowntree Foundation put it, the largest single driver that has “tightened poverty’s grip” in the past few years has been the freeze.

When I raised the benefits freeze issue in Oral Questions the other week, the Minister generously responded that she could not argue with the points I had made and that her door was open to discuss them further. I am very grateful that, true to her word, she arranged for me to meet with her and officials. I will pick up some of the points she made during our exchange in Oral Questions. I emphasise that I do so not to go over old ground for the sake of it, but to support my case for an above-inflation increase now that the freeze has ended.

One of her arguments was that benefits had been rising faster than median earnings. This is true if one takes a short-term perspective, but that period was an aberration in a longer-term trend that has seen working-age benefits plummet relative to median earnings. According to the IPPR, the rate at which the benefit for a single unemployed person was frozen represented only 12.5% of median earnings last year, compared with 20% in 1984. If the relativity between benefits and earnings is important, surely the argument cuts both ways and the Government should seek to make good at least some of the shortfall, the more so because, as the Resolution Foundation emphasises in a recent study,

“adequate benefit levels have a critical role to play in protecting all households from in-work poverty”—

the very route out of poverty that Ministers like to laud. The foundation calculates that, as benefits have become increasingly inadequate, households, including lone-parent families, need to work longer hours to lift themselves out of poverty, which may well not be in the interests of family life. Indeed, it suggests that the number of hours needed to escape poverty are “often unreasonable”.

The Minister also argued that the benefits system was “unsustainable” and that the Government had to take

“very difficult decisions to try to balance it out”.—[Official Report, 13/1/20; col. 443.]

I have two points in response. First, on the basis of OBR analysis, the level of spending would appear to have been perfectly sustainable. Its 2014 Welfare Trends Report noted that

“the proportion of national income devoted to welfare spending has not shown a significant upward or downward trend over time.”

More recently, it estimated that, on current trends, spending on support for children and working-age adults would be at its lowest share of GDP since 1990-91. Yes, “difficult” decisions had to be made, but difficult for whom? To quote the Marmot report:

“Throughout the austerity of the last 10 years, choices have been made as to who most experiences the effects of tax and benefits reforms … working-age families with children within the five lower income deciles have experienced the most significant and negative impacts in the long term as a result of tax and welfare policies.”

A different, fairer choice would, for instance, have prioritised protecting the safety net over increases in personal tax allowances, which are regressive in their impact and some of which, in effect, were paid for by cuts to that very safety net, as shown by analysis by the LSE’s Centre for Analysis of Social Exclusion.

The Minister also prayed in aid the increase in the national minimum wage. Welcome as that is, it is of little help to those hurt by the freeze, including those in work, because, as the IFS has pointed out, only a minority of those who gain from the national living wage are in households hit by the benefits freeze: minimum wages are much less tightly targeted than working-age benefits.

The Minister rightly noted that a major contributory factor to the freeze’s impact was higher than expected inflation towards the end of the period, but she acknowledged that that “is no excuse”. It is not, but it is a very good reason for now making good, at the very least, the part of the cut attributable to higher than expected inflation, which, if I have read the Commons Library briefing correctly, saved the Treasury around £1.2 billion more than it had anticipated. This is money that the Treasury owes to those in receipt of benefits, not least as it rejected widespread calls, including from leading Conservative MPs, to end the freeze a year early in response to the unanticipated increase in inflation.