My Lords, I shall speak also to the draft Benefit Cap (Annual Limit) (Amendment) Regulations 2023 and the draft Guaranteed Minimum Pensions Increase Order 2023. All three draft instruments relate to the way in which pension and benefit rates are increased, and in my view the provisions of all three are compatible with the European Convention on Human Rights.
The Social Security Benefits Up-rating Order increases state pensions and benefits by 10.1% from April 2023, in line with the increase in the consumer prices index in the year to September 2022. The draft Benefit Cap (Annual Limit) (Amendment) Regulations also increase the four benefit cap levels by 10.1% in April 2023, in line with the increase in benefit rates. The Guaranteed Minimum Pensions Increase Order sets out the annual percentage by which the relevant part of an individual’s contracted-out occupational pension must be increased. The relevant part is the guaranteed minimum pension that was earned between 1988 and 1997. Occupational pension schemes are required to increase these, where they are in payment, by 3% for the tax year 2023-24.
By way of history and context, the Committee will know that inflation in the year to September has been the conventional measure used by Governments since 1987 in reaching a decision on how to increase the rates of state pensions and benefits. This is the latest figure that can be used to allow for the necessary operational and IT changes to be made across the DWP, HMRC and local authorities so that the new rates can come into force the following April.
This year, more than ever, it is imperative that these rates are increased so that we protect pensioners and people on low incomes. Putin’s illegal war in Ukraine and two years of a global pandemic mean that we and our partners across the G7 face levels of price inflation unprecedented in recent times. Strategically, the Prime Minister has made clear his commitment to halve the level of inflation this year, and on 9 February the Governor of the Bank of England told the Treasury Select Committee that he expects inflation to fall rapidly this year to somewhere below 5%.
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Lastly, I turn to the Guaranteed Minimum Pensions Increase Order, which I will refer to as the GMP increase order. GMPs in payment, which were accrued between 1988 and 1997, will increase by 3% in April 2023. This is because, as the Committee will know, there is a cap on the indexation level applied to this part of the GMP. This indexation is paid by occupational pension schemes. The 3% cap strikes a balance between providing members with some level of protection against inflation, while not increasing schemes’ liabilities more than is reasonably sustainable. This is intended to strike a reasonable balance between member protection and employer affordability. Without this cap, we run the risk of putting unreasonable pressure on formerly contracted out defined benefit occupational pension schemes, which could put their future viability at risk.
It must be noted, that when inflation is above 3%, as is currently the case, most people with post-1988 GMPs who reached state pension age before April 2016 will receive a top up of 7.1% through the additional state pension. Therefore, they would receive the same inflation protection as if they had not been contracted out. However, the additional state pension was replaced by the new state pension in April 2016. Therefore, people reaching state pension age from this date do not receive a top-up through the additional state pension. There are, however, transitional rules in the new state pension that can be particularly beneficial to people with GMPs and others who have been contracted out. Such members will still receive the 3% increase from their occupational pension scheme. Those members of occupational pension schemes reaching state pension age in or after April 2016 will still get the benefit of the new state pension, which is protected by the triple lock.
I mentioned earlier the need for further shorter-term help while we bear down on inflation and implement the annual uprating of state pensions and benefits. The Government are therefore providing over £11 billion in 2023-24 through cost of living payments to offer tax-free cash support that does not count towards the benefit cap. They will include: up to £900 in cost of living payments to households in receipt of eligible means-tested benefits, which will be split into three payments of around £300 each across the 2023-24 financial year; a separate £300 winter payment to over 8 million pensioner households paid in addition to the annual winter fuel payment; and a £150 payment to people in receipt of an eligible disability benefit. Further to this, the energy price guarantee will be extended from April 2023 until the end of March 2024. Over this period, the EPG will bring a typical household bill to around £3,000 per year in Great Britain. Equivalent support will of course continue to be provided in Northern Ireland.
Additionally, for those requiring extra support, the Government are providing an additional £1 billion of funding, including the Barnett impact, to enable the extension of the household support fund in England in the next financial year. This is on top of what has already been provided since October 2021, bringing total funding to £2.5 billion. Local authorities can use this to help households with the cost of essentials. I am pleased to announce that the guidance for this next iteration has now been published on GOV.UK and maintains the flexibility of the current scheme. As I said in the Chamber earlier today, it will be for the devolved Administrations to decide how to allocate the additional Barnett funding.
In conclusion, the draft Social Security Benefits Up-rating Order 2023 and draft Benefit Cap (Annual Limit) (Amendment) Regulations 2023 provide vital protection for those who rely on state pensions and benefits at this time of particularly high inflation. In addition, the GMP increase order requires occupational pension schemes to increase post-1988 GMPs in payment by 3%. With that, I commend these instruments to the Committee.
My Lords, I welcome the Minister to this annual outing for us social security geeks and thank him for meeting me earlier this week. Of course I welcome the uprating of benefits and the benefit cap in line with inflation, even though it is no more than convention that leads us to expect it when it comes to the benefits themselves. I realise that the Government were under some pressure from within the Conservative Party to limit the increase to that in average wages, and it is to their credit that they withstood that pressure.
However, there is a real danger that, come April, some of the media will go to town on the 10.1% increase as if it somehow represents a bonus for claimants not enjoyed by those in paid work. It is therefore important that the Government make clear the context of the increase and also that, for two-fifths of universal credit claimants, their UC is topping up earnings. The issue was raised in the Commons debate on the regulations by Conservative MP Jerome Mayhew, who said it had been raised by his constituents on the grounds that they felt it was unfair, but he explained why
“it is fair. That is because it is morally right to protect the purchasing power of those very poorest families at an absolute level, even when other people in employment are suffering as well. I think it is right, because personal inflation is at its highest in the poorest families and food inflation is responsible for a higher percentage of their spending”.—[Official Report, Commons, 6/2/23; col. 706.]
Mr Mayhew made a strong moral case and rightly pointed to how, when energy and food prices are rising faster than overall inflation, those on low incomes suffer most. According to the Child Poverty Action Group, of which I am honorary president, in 2023-24 benefits will be 14% higher in cash terms than in 2021-22, but over the same period prices will be 21% higher for low-income families, so despite the uprating in line with overall inflation, they will be worse off. The Resolution Foundation warns that even as inflation starts to fall, food price inflation, currently running at nearly 17%, will continue to pose a particular problem for low-income families, as will high energy costs.
Yes, he could. Incidentally, the concern that this freeze is causing was evident from the unprecedented number of unsolicited briefings that I received for my Question.
According to the IFS—these figures are different from the ones I used earlier—just 8% of low-income private renters now have all their rent covered by housing benefits, compared with almost half in the mid-1990s. For 32% of them, the amount of rent not covered by housing benefits eats up at least one-third of their non-housing-benefits income, a situation faced by just 14% of the group in the mid-1990s. I ask the Minister not to say again that those affected can turn to discretionary housing payments because, as they are discretionary and cash-limited, they do not provide the security that is needed. The DHP budget was cut by 29% last year, leaving many authorities struggling to meet demand, according to Shelter.
Another related way in which the link between need and entitlement has been broken is the benefit cap, which, along with the two-child limit, hits larger families particularly hard. Of course, it is very welcome that the cap will for the first time be uprated in line with inflation this year, but that will cover only one year’s inflation. According to calculations done for me by the Library, the rates contained in the regulations will still leave the cap 9.8% less than it would have been had it been uprated in line with inflation since it was set at its current level in 2016. How is that fair? Whatever one thinks of the cap—I agree with the noble Lord, Lord Freud, that it is an excrescence—at the very least, its level should be maintained in real terms annually. I hope that it will be from now on for as long as it exists.
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The Minister in the Commons rightly underlined that the inflation proofing of the cap meant that it would not prevent claimants benefiting from the uprating, but I am not sure that he was correct to say that “all households” will
“see an increase in their benefit following uprating”.—[Official Report, Commons, 6/2/23; col. 681.]
What about those who have migrated to universal credit with transitional protection? When we debated the managed migration regulations, we pointed out that those who were migrated before the uprating could lose out as a result of their transitional protection being swallowed up, in total or in part, by the uprating. Does the Minister have an estimate of the number who might not receive any or all of the uprating because of the loss of transitional protection? Surely the advice to claimants now must be not to migrate until after uprating day.
I end by quoting from an open letter from participants in the Changing Realities research project, published in a recent report from the APPG Child of the North. It is all too easy for us to sit or stand here and forget the people whose lives are directly affected by the uprating that we are debating. This gives a glimpse of what the last year has been like for those affected:
“The cost of living has strangled us. Stopped us from living normal, healthy lives … Nothing is affordable. Our children are hungry. Schools report ‘short concentration’ and ‘unmanageable moods’. They have lost their childhood … we are sick with anxiety, drowning in financial doom. And the government has offered nothing but a flimsy life jacket. We need more … Perhaps you don’t see desperation unless you have lived it? Well learn from us. Because we are living it.”
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More immediately, the draft uprating order ensures that state pensions and benefits keep pace with the increase in the cost of goods and services over the longer term. For this year’s uprating, the September CPI figure of 10.1% is forecast to be higher than actual inflation in the following year, but this follows two years where the opposite has been true. Using a consistent index ensures that these fluctuations even out so that state pensions and benefits retain their purchasing power over time.
In the shorter term, the Government acknowledge that further help is needed alongside the twin longer-term strategies of bearing down on inflation and uprating benefits consistently over time. The Government are therefore making provision for further cost of living payments in addition to the annual uprating. I will say more about these payments later, which I am sure the Committee realises are already well-rehearsed in this House.
Let us turn now to the detail of the draft Social Security Benefits Up-rating Order 2023. First, on state pensions, due to the Government’s commitment to the triple lock for 2023-24, the basic and new state pension will be uprated by the highest of earnings, prices or 2.5%. Consequently, as the increase in prices is the highest, state pensions will increase by September’s CPI of 10.1% for 2023-24. As a result, from April 2023 the full basic state pension will increase to £156.20 per week for an individual. The full rate of the new state pension will increase to £203.85 a week.
Other components of people’s state pension awards, such as those previously built under earnings-related state pension schemes, including the additional state pension, will also increase by 10.1%. The safety net for pensioners on low incomes, which is the pension credit standard minimum guarantee, will also increase by 10.1%, rising to £201.05 for a single pensioner and £306.85 a week for a couple.
I know that the take-up of pension credit is a matter of particular interest across the House and to members of this Committee. Noble Lords raised the matter on several occasions with my predecessor and noble friend, Lady Stedman-Scott. I thought I might share the latest position to be helpful to the Committee. Since April 2022, the Government have undertaken a substantial and sustained communications campaign to raise awareness of pension credit and to promote take-up. Since the awareness campaign began, weekly pension credit applications are on average 73% higher compared to the year before. Noble Lords will also be encouraged to learn that the latest statistics show that more households were in receipt of pension credit in August 2022 than in May 2022. This is despite the fact that the eligible population for pension credit is declining, as the new state pension lifts more pensioners above the basic level of the means test.
For those below state pension age, this order increases the personal and standard allowances of benefits, including universal credit. Noble Lords will be aware that there is no statutory requirement for the Secretary of State to increase these rates. However, to protect the most vulnerable in the current economic situation, he has decided to increase them by 10.1%, in line with the consumer prices index in the year to September 2022.
The monthly amounts of universal credit work allowances, which is the amount that a person with children or limited capability for work can earn before their universal credit payment is affected, will also increase in April by 10.1%. This too is a discretionary decision on the part of the Secretary of State. For those eligible for a work allowance who are receiving support with housing costs, the allowance will increase to £379 per month. For those eligible for a work allowance who are not receiving support for housing costs, it will increase to £631 per month.
Additionally, the order increases statutory payments by 10.1%. These include statutory adoption pay, statutory maternity pay, statutory paternity pay, statutory shared parental pay, statutory parental bereavement pay and statutory sick pay.
Turning to another important area, that of disability and carer’s benefits, the Government will continue to ensure that carers and people who face additional costs because of their disability get the support that they need. The Government recognise the vital role that unpaid carers play, and carer’s allowance will increase from April by 10.1% to £76.75 per week. Unpaid carers may also access support through universal credit, pension credit and housing benefit, all of which include additional amounts for carers.
For a single person, the carer element in universal credit will increase to £185.86 a month from April, while the additional amount for carers in pension credit and the carer premium in other income-related benefits will increase to £42.75 a week. Benefits for those who have additional costs as a result of disability or health conditions will also increase by 10.1%. These include disability living allowance, attendance allowance and PIP—the personal independence payment.
I turn to the draft Benefit Cap (Annual Limit) (Amendment) Regulations, which will also increase each of the four benefit cap levels by 10.1%. This will ensure that all households see an increase in their benefit following uprating. The national benefit cap levels will be £22,020 a year for couples and lone parents, and £14,753 for single people. For households living in Greater London the levels will be £25,323 a year for couples and lone parents, and £16,967 for single people. Just to put this in perspective, it means that households will be able to receive benefits up to the equivalent gross earnings value of around £26,500, or £31,300 in London.
There are a number of further important points that help put this April’s uprating in context and serve to strengthen Mr Mayhew’s case. First, claimants have had to live on benefits plunging in value over the past year as a result of an increase last April of a mere 3.1%, despite our best efforts in both Houses, when inflation was expected by the OBR to average 10.1% over that period. According to the Joseph Rowntree Foundation, as a result 2022 saw the greatest fall in the value of the basic rate of unemployment benefit since 1972, when annual uprating began. The Minister has, as I expected, pointed to the additional cost of living payments that have been made and to the extension of the discretionary household support fund available from local authorities but, welcome as they are, neither provides the certainty and security that an increase in weekly benefits provides. One Citizens Advice adviser cited in a just published report spoke for many when they described the support fund as
“a very small sticking plaster on a very big wound”,
and because the cost of living payments take no account of family size, couples with two or more children will be worse off despite them, according to the CPAG. I will leave to the forthcoming debate on the additional payments Bill the other problems associated with one-off payments.
Just how difficult this past year has been for families in receipt of benefits was underlined in an open letter to the Prime Minister and the Chancellor yesterday from a group of organisations which called on them not to let this become the “new normal”. Resolution Foundation research highlights the emotional distress suffered by many in receipt of benefits and that one-third of poorer household feel that their health has been negatively affected by the cost of living crisis.
This all underlines the point that we made last year about the shortcomings of an annual uprating based on inflation around half a year earlier, especially at a time of high inflation and given that universal credit can be uprated much more quickly. Nigel Mills, a Conservative member of the Work and Pensions Committee, was one of those who expressed exasperation at this state of affairs in the Commons debate. He said:
“Now that we know that more of the legacy benefits will be continued on late into this decade, surely it is time to try to get a system that means we can do an uprating that reflects the real cost of living at the time that income comes in.”—[Official Report, Commons, 6/2/23; col. 687.]
His plea was echoed by Sir Stephen Timms, the chair of the committee that last year called for reform but to no avail, but it was ignored by the Minister in his closing speech. I know that the Minister addressed that in his opening speech, but I ask him to take this point back to the department and have another look at it.
Another theme of the Commons debate was the extent to which the benefits being uprated meet or do not meet the needs of those who rely on them. I think I have raised this issue in just about every uprating debate I have participated in, but it has taken on a renewed urgency given the growing evidence of hardship. Indeed, the APPG on Poverty, which I co-chair, is currently undertaking an inquiry into benefit adequacy. Bright Blue is one of many organisations that have recently drawn attention to this issue. In a recent article for Conservative Home, its head of research noted that
“the baseline level of support is inadequate in helping people avoid destitution.”
Similarly, the Joseph Rowntree Foundation concluded in its poverty report that
“the basic rates of benefits are inadequate and do not allow recipients to meet their essential needs.”
Have the Government’s considered the recommendation from Bright Blue and others that there should be a Low Pay Commission-type body to advise government on benefit rates?
Although it has been a failing of successive Governments to have uprated benefits without questioning whether the rates are adequate to meet people’s needs, the situation has been made worse by the cuts made over the past decade, which have reduced the value of working-age and children’s benefits and, particularly for families with children, have broken the link between need and entitlement. That is another reason why inflation-proofing is justified now.
However, one key benefit is not being inflation-proofed: the local housing allowance. Despite the Work and Pensions Secretary representing the freezing of the allowance as maintenance in cash terms at the elevated rates agreed for 2021—as if it were a bonus—the fact is that the value of the LHA has been cut for the third year running when average private rents increased by between 8.6% and 10.5% between September 2020 and September 2022, according to a highly critical Secondary Legislation Scrutiny Committee report. Although that freeze is covered by separate regulations, it affects the impact of the regulations that we are debating today because it means that claimants must use more of their basic benefit to cover their housing costs. I argued this earlier in Oral Questions but neither of the questions I asked were replied to by the Minister, and he may well bow his head in shame at that.