In speaking to this order, I will also speak to the draft Guaranteed Minimum Pensions Increase Order 2025. In my view, the provisions in both instruments are compatible with the European Convention on Human Rights.
Let us begin with the draft Social Security Benefits Up-rating Order. This instrument will increase relevant state pension rates by 4.1%, in line with the growth in average earnings in the year to May to July 2024. It will increase most other benefit rates by 1.7%, in line with the rise in the consumer prices index in the year to September 2024. As such, the up-rating order commits the Government to increased expenditure of £6.9 billion in 2025-26. In so doing, it maintains the triple lock, benefiting pensioners in receipt of both the basic and the new state pensions; raises the level of the pension credit safety net beyond the increase in prices; increases the rates of benefits for those of working age; and increases the rates of benefits to help with additional costs arising from a disability or health condition, as well as carers’ benefits.
I turn now in more detail to the issue of state pensions. The Government’s commitment to the triple lock means that the basic and full rate of the new state pension will be uprated by the highest of the growth in earnings or prices, or 2.5%. This will therefore be 4.1% for 2025-26, in line with the conventional average earnings growth measure. As such, from April 2025 the basic state pension will increase from £169.50 to £176.45 a week, and the full rate of the new state pension will increase from £221.20 to £230.25 a week. The basic and new state pensions will increase by 4.1% in April of this year, benefiting 12 million pensioners by up to £470 next year. That is up to £275 more than if pensions had been uprated simply by inflation. Other components of state pension awards, such as those previously built under earnings-related state pension schemes, including the additional state pension, will increase by 1.7%, in line with the statutory minimum requirement of prices.
The safety net provided by the pension credit standard minimum guarantee will increase by 4.1%. For single pensioners it will increase from £218.15 to £227.10 a week, and for couples it will increase from £332.95 to £346.60 a week. The Government are committed to supporting pensioners on the lowest incomes and want everyone entitled to this support to receive it. That is why we launched the national pension credit campaign.
I turn now to the support given to those in the labour market, such as universal credit and the legacy means-tested benefits it replaces. The up-rating order increases the personal and standard allowances of working-age benefits, including universal credit, by 1.7%, in line with the increase in prices in the year to September 2024. Around 5.7 million families are forecast to benefit from the uprating of universal credit, with an average annual gain for a family estimated to be £150. Additionally, this order increases statutory payments by 1.7%, including statutory maternity pay, statutory paternity pay, statutory shared parental pay and statutory sick pay.
My Lords, I have lost count of the number of these debates I have participated in while in opposition on the Benches opposite. This is the first debate I have participated in while knowing that there is a commitment to tackle child poverty and a serious government taskforce drawing up a strategy to do so. So I can applaud that, and the welcome improvements in benefits announced in the Budget. But I am afraid I have to concur with the Joseph Rowntree Foundation, which in its recent poverty review described the improvements as “timid” and falling
“a long way short of what is required to deliver the scale of changes needed.”
So this speech is less supportive than I would have liked.
As already noted, the uprating of working-age and children’s benefits by 1.7% follows the convention of increasing them in line with inflation the previous September. But as JRF points out:
“According to OBR and Bank of England forecasts, this may well be the low point of inflation in the near term, with inflation in 2025/26 likely to be higher, meaning benefits will lose a little value next year”.
Indeed, inflation is already at 3%, and just today we heard of a higher than expected energy price cap increase. Losing a little value may not sound very significant, but when benefits are so low to begin with, as I will come back to, it can make a real difference for families struggling to get by.
My noble friend the Minister previously raised the long reference period for the uprating, as did the Work and Pensions Committee in last year’s report on benefit levels. Disappointingly, the DWP told the committee that even in the longer term, when the migration to universal credit is completed, it has no plans to shorten the reference period. Can my noble friend say whether this might be looked at again under the new Administration?
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In conclusion, there is a lot of talk these days about the so-called ballooning welfare bill, ignoring the £50 billion a year which, according to CPAG, has been cut from the social security budget over the past decade or so. As charity after charity has emphasised, in the words of JRF, any credible child poverty strategy must include policies that rebuild the tattered social security system. This will of course take money, so it is crucial that the Treasury is on board. I know that my noble friend understands all this and is limited in what she can say to us, but I hope that she will feed back to the Treasury the concerns that have been raised.
I finish by quoting someone with lived experience of living on benefits who is part of the Changing Realities project. Gemma is disabled and a single mother of three children, as well as a carer for her autistic nephew. She writes of sleeping in the same bed as her children to keep warm during the cold spell and of the black mould that is starting to appear: “For families like mine, living on a low income, we have run out of corners to cut. I cannot wait for warmer days. I’m at the bottom of a dark hole and there is no way of getting out. I sometimes find it difficult to imagine how my situation can get better, but it really has to because life should not be this hard”. My Government have a responsibility to give parents like Gemma some hope that their situation will get better and that their lives will not continue to be that hard. As Gemma herself advises, that has to mean bold and real change by investing in social security.
My Lords, it is very good to be here today and I am glad to be able to contribute on this important subject. As we consider a proposed uprating of 1.7%, as compared with 6.8% last year and 10.1% the year before, I am mindful of the different backdrop to this year’s decision. We may no longer be in a period of soaring inflation, but costs remain high in just about every area of life. The discrepancy between the inflation rate from September 2024, by which most means-tested benefits will be uprated, and the current rate of 3% will be felt particularly by those who have not benefited from wage growth this year. This is a timely moment to explore social security as the Government set out their wider agenda in this area.
The manifesto commitments to review universal credit as a means of supporting people into work and addressing poverty and to produce a child poverty strategy could give us a basis on which to improve the lives of millions of people in our country. Indeed, bold action is required in both these areas and, like other noble Lords, I await the outcome of these reviews with keen interest.
As the Church of England’s lead bishop for housing, I see the consequences of not aligning housing support with housing costs, with half of private renters on housing benefit experiencing poverty. I suggest that local housing allowance ought to be linked to private rents as a matter of course, especially taking into account research from the Joseph Rowntree Foundation, which shows that 81% of low-income private renters in receipt of housing benefit are going without essentials such as food, heating and warm clothing. I very much hope that the Government will consider the adequacy of social security in their review of universal credit. For the first time since its introduction, we have an opportunity to explore how well the system works and to consider carefully the impact of sanctions, deductions and the five-week wait on the lives and incomes of people who rely on social security simply to make ends meet.
My Lords, I refer to my entry in the register of interests as a trustee of pension schemes, and I thank the Minister for her clear explanation of the two statutory instruments before us.
I want to raise an issue concerning the Guaranteed Minimum Pensions Increase Order 2025. Given the pace at which DB pension schemes are transitioning to buyout contracts, this raises the issue of the extent to which, and how, a buyout contract contains liability for a guaranteed minimum pension, and the contractual provision of a promise to provide at least that pension from the age of 60 or 65. Is this a liability that all buyout contract providers must take on when they accept the original transfer from the defined benefit pension scheme? Secondly, does the DWP intend to update its guidance on the guaranteed minimum pension, considering the extent of buyout activity now taking place among DB pension schemes?
My Lords, I, too, thank the Minister for her presentation. I also support very strongly the Government’s commitment to the triple lock, despite the loud and frequent calls for it to be abandoned. It is worth repeating that those who call for it to be abolished often do so from a position of financial security, conveniently ignoring the fact that large numbers of pensioners are dependent on the state pension, which is still one of the lowest in Europe.
I also welcome the capping of automatic deductions on debt from universal credit that leave people far below the amount they need to live on. But over the last year there have been reports of record levels of deductions from universal credit, and I wonder if the Minister could comment on the reasons for those.
The 1.7% uprating for other benefits will be of little comfort to the growing numbers in poverty. The Joseph Rowntree report has been mentioned already; it tells us that one in five people in the UK—21%—are in poverty. Of these 14.3 million people, 8.1 million are working-age adults, 4.3 million are children and 1.9 million are pensioners. Children, as we have heard, have higher risks of poverty overall, at 30%, versus 21% for the whole population. But larger families with three or more children have consistently faced a higher rate of poverty: 45% of children in large families were in poverty in 2022-23. That is an appalling indictment of this policy, which Labour Oppositions have criticised so much, as the noble Baroness, Lady Lister, acknowledged. I wonder how long it will take for the Government to abolish it.
Today’s uprating means that we are looking to approve a basic rate of universal credit of £92 a week for a single person aged over 25, and £145 for a couple. Yet the Joseph Rowntree Foundation and the Trussell Trust have estimated that at least £120 is needed for a single person, and £200 for a couple, in order to afford even the basic essentials—a shortfall of around £30 a week on the bare minimum needed to survive. Shortfalls in the benefit system are key drivers of poverty, depriving people of the basic necessities for survival. Specific features have been found to increase the numbers in poverty, including the benefits cap and the two-child limit, and the erosion of the value of universal credit means that its standard allowance is now at around its lowest levels as a proportion of average earnings. I too support the Joseph Rowntree Foundation on having a basic minimum floor for universal credit.
My Lords, I, too, thank the Minister for clearly outlining the essence of these two SIs. I recall that last year, they were debated separately but I cannot remember why. Nevertheless, we are reverting to the status quo ante, and I hope that this will speed things up somewhat.
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However, at the outset, I wish to state that His Majesty’s Opposition support the core principles of these SIs—namely, the uprating of pensions in line with earnings, and of benefits in line with inflation. I also acknowledge that the SIs are largely technical in nature. I shall now turn to the effect of the orders. I do not intend to go into too much detail because the Minister set out the specifics, and for that I am grateful. However, I note the pension uprating and the guaranteed minimum pension, and the two questions raised by the noble Baroness, Lady Drake. I am sure that the Minister will put her mind to answering those. This is very much an annual issue and a technical adjustment. The GMP also remains an annual point of discussion in the Committee.
However, I understand that some pensioners may not see the effect and value of the uplift until the end of May, due to a quirk in the timing of payments, as pensions are paid four weeks in arrears. The change takes effect from 7 April, as we know, and unless I have misunderstood, this issue warrants clarification from the Minister, particularly regarding any mitigating measures that can be put in place. I am ever mindful of the pensioners affected by the cut in the winter fuel allowance. What might be done there?
The uplift will see the benefits rise in line with inflation. The level of the rise is based, as we know, on retrospective statistics—1.7%—in line with the September CPI rate of inflation, which has been alluded to today. As the noble Baroness, Lady Lister, and the right reverend Prelate the Bishop of Chelmsford have said, we should all be concerned about the latest ONS figures on inflation, up 0.5% from December and now at 3% for January. Inevitably, this will erode the value of family finances. Price rises of certain goods are the core of the problem. This is another blow on top of the winter fuel allowance cut for pensioners and the employer national insurance contribution rises, with their impact on businesses and job security, and the emerging evidence of a chill on recruitment, I am afraid.
Although this debate focuses on the two SIs, it provides an opportunity for me to reflect on the wider welfare and pensions landscape. I hope the Committee will forgive me for doing that, because we face the serious issues of inactivity and dependency on our welfare system, with taxpayers currently spending £65 billion a year on incapacity and disability benefits—a figure expected to rise to £100 billion by 2029 unless the Government undertake clear, serious and immediate reform. We have also seen an alarming rise in musculo- skeletal and mental health issues, with people opting for sickness benefits whose financial support far exceeds what they could earn from work. The system is failing to incentivise work and, as a result, we are seeing a growing number of individuals on long-term sickness benefits. We have read a lot about that in the press.
Universal credit has succeeded in reducing unemployment benefit claims and moving people into work by providing support and strict job-search conditions. However, the incentives in the sickness benefit system, particularly the limited capacity for work-related activity allowance—the so-called LCWRA category—have led to individuals receiving significant support without any meaningful obligation to re-engage with the workforce. So, I should like to touch briefly on welfare reform proposals and the delays. Here, I diverge from the views of the noble Baroness, Lady Lister, and one or two others who have spoken. The Government have picked up from where we left off with the opportunity for substantial reform. Suggestions in the media about scrapping the LCWRA category, abolishing the work capability assessment or introducing a duty to engage—if that is the way it is described—with work coaches are certainly encouraging.
So, here are my questions for the Minister. Can she update the Committee on the current strategy for incapacity benefit? Can she confirm that fit notes from doctors are not being reformed? If so, what will the process be to move from a doctor’s medical assessment—as I understand it, the current sign-off rate is 94%—to a detailed and fair assessment, with a definitive decision on an individual’s ability to work, to work part-time, to work from home only or, as I do acknowledge, to do no work at all if that is the outcome of the assessment?
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The up-rating order will also increase rates by 1.7% for those with additional disability needs and for those who provide unpaid care for them. This commits the department to increased expenditure of £0.9 billion in 2025-26. This means that benefits such as disability living allowance, attendance allowance and personal independence payment, intended for those who have additional costs as a result of disability or health conditions, will rise in line with the rise in CPI in the year to September 2024.
This order will also increase carer’s allowance by 1.7% from April 2025, from £81.90 to £83.30 per week. Recognising the vital role played by unpaid carers, the Government have also announced that from April, the weekly carer’s allowance earnings limit will be tied to the level of 16 hours’ work at the national living wage.
I turn now to the draft Guaranteed Minimum Pensions Increase Order 2025—the GMP order—which is a routine, technical matter we attend to each year. I shall therefore be brief.
The GMP order was laid before the House on 16 January 2025. It sets out the annual percentage increase that must be applied to the GMP part of an individual’s contracted-out occupational pension earned between 1988 and 1997. Occupational pension schemes that provide GMPs are required to increase GMPs earned during that period, and which are in payment, by 1.7% for the tax year 2025-26.
The 1.7% figure is taken from the CPI inflation rate for the year to September 2024. That approach is broadly consistent with other uprating approaches, and it balances the need to provide members with a measure of inflation protection while giving schemes greater certainty about their ongoing liabilities.
In summary, the draft Social Security Benefits Up-rating Order implements the Government’s commitment to the triple lock; it provides for a real-terms increase in the value of the safety net in pension credit; and it increases the rates of benefits for those in the labour market, as well as those with additional disability needs, and those providing unpaid care to people with those needs.
The draft GMP order requires formerly contracted-out occupational pension schemes to pay an increase of 1.7% on GMPs in payment earned between April 1988 and April 1997. This provides people with a measure of protection against inflation, paid for by their scheme. I beg to move.
The Work and Pensions Committee also recommended that limits on benefit entitlements such as the benefits cap be uprated annually. Again, it is disappointing that no such increase was announced for this year. As a recent report by the IPPR, supported by Save the Children, notes, the effect of the near constant freeze is to make the policy
“considerably more punitive than at the point of introduction”.
The stock response from the DWP—that the legislation requires the level of the cap to be reviewed every five years only, and that therefore, following the 2022 review, another review is not required until November 2027 —simply is not good enough. It may not be required but it is permitted, and so long as the cap continues, it should be reviewed annually so that, at the very least, those hit by it, mostly families with children, can benefit in full from the annual uprating.
Together with the two-child limit—also ignored in the Budget—the cap is a key driver of child poverty, as well as contributing to homelessness and disproportionately affecting survivors of domestic abuse. Research has shown that it is not achieving its aims. I know that my noble friend will say that we have to await the outcome of the child poverty review for any decision on the cap and the two-child limit, but every day they continue spells misery for many thousands of parents and children.
The other serious omission in this year’s uprating is the local housing allowance. As the IPPR report points out, this is tantamount to a benefit freeze for housing support and breaks the principle that support should be tied to changing rents in a local area. The result is that, for those with housing costs at or above the current LHA, the real value of their uprated UC will in effect be cut.
The impact of all this has to be understood in the context of benefit levels that, in the words of JRF, fall a
“long way short of what is needed to enable recipients to escape poverty”,
and that mean that many continue to “struggle needlessly”. Paid work may be the best route out of poverty, but it is not a route open to all. For too many, it proves a cul-de-sac, as they swap out-of-work poverty for in-work poverty. Inquiries by the All-Party Parliamentary Group on Poverty, of which I am co-chair, and the Work and Pensions Committee received
“a wealth of evidence that benefit levels are not meeting need”.
Benefit levels were never generous, but the effect of years of freezes, cuts and restrictions imposed by the Conservatives have meant that, in the words of the Financial Fairness Trust,
“we do not have a safety net worth its name”.
As a result, claimants are denied access to the most fundamental material resources needed to function day to day and to have healthy lives. The Work and Pensions Committee’s recommendations concerning the establishment of a benchmark for assessing benefits adequacy and the review of the extent to which current benefit levels are meeting this benchmark were rejected by the previous Administration. I urge my noble friend and her colleagues to look at them again. I ask her whether any consideration has been given to Trussell’s and JRF’s proposals for a protected minimum floor in UC, as a first step towards an essentials guarantee. For anyone who believes that poverty is relative, this is a pretty minimalist demand.
The Work and Pensions Committee also recommended that the local authority household support fund should be made permanent, so that local authorities can better plan the support they provide. This is not the place to go into detail but, if my noble friend has not already done so, I urge her to read the recent proposal from Trussell for a permanent and effective system of discretionary cash-first local crisis support, with broad statutory duties and ring-fenced funding that would incorporate both the household support fund and welfare assistance schemes where they still exist. It sees such a scheme as a crucial element in meeting our manifesto pledge to try to end mass dependence on emergency food parcels, which is a moral scar on society. At a recent meeting of the APPG on Ending the Need for Food Banks, the Minister for Employment assured us that the reform of local crisis support is definitely under review. It would be good if my noble friend could confirm this on the record in Hansard. As welcome as the extension of the fund for another year is—and it is welcome—those working on the ground need to be given some hope for the future. We heard reports at the meeting that food bank workers on the front line are scared and are burning out.
Scared, too, are many in receipt of disability benefits, in the face of mounting speculation about cuts to their benefits. It is worth remembering that disabled people are at disproportionate risk of poverty, in part because of the additional costs associated with disability. A recent report by Pro Bono Economics for Z2K warned that cutting the benefits that go some way toward meeting these costs could have a seriously damaging impact on the health and well-being of disabled people.
Also looking ahead, the Minister for Social Security and Disability advised, in the Commons debate on this order, that the Government would “set out shortly” how they plan to fulfil the manifesto commitment to a review of UC. Is my noble friend able to say any more at this stage about, for example, whether it will follow the example of the child poverty review in taking evidence from stakeholders, including those with lived experience of UC?
I welcome the introduction of the fair repayment rate, which is an important step towards ensuring that deductions do not cause people to fall below the threshold of what we would consider an acceptable standard of living. Despite this, I still worry about the impact of the deductions. I draw the Committee’s attention to the Private Member’s Bill brought forward by the right reverend Prelate the Bishop of Manchester, which would equalise the standard allowance of universal credit for care leavers under the age of 25. Care leavers have shared their experiences of deductions from their universal credit, which, when taken from an already lower rate, can leave them struggling to afford essentials. This cohort of young adults cannot necessarily rely on the same level of family support as many of their peers.
Even though we have resumed uprating benefits in line with inflation, their real-terms value is low by historic standards. The major issue is that benefits are not calculated in relation to the day-to-day costs people face. One solution could be for benefits to rise in line with wages rather than prices, as advocated by, among others, the Resolution Foundation. Another could be to introduce a minimum floor in universal credit to ensure that people have the money they need to afford the essentials, as advocated by the Trussell Trust and the JRF. It seems eminently sensible to calculate benefits in relation to the day-to-day costs people face. We have a precedent for this, with pensions credit calculated by comparing a person’s income with the amount the Government think necessary to live on. I would be grateful to hear the Minister’s views on whether means-tested benefits could be subject to a similar assessment.
As I close, I reflect on the impact of poverty on our places of worship and wider communities. There will always be a place for voluntary provision, particularly when it comes to support that requires a more human and relational touch; but we must be attentive to the reasons why there is so much demand for food banks, warm spaces, breakfast clubs and the many other activities hosted in church buildings and by other faith groups and charities. We see first hand what the statistics bear out: poverty is deepening in our country. Investment in social security, alongside reforms in other areas, is essential in order to turn the tide on poverty.
Another feature is that the capital cut-off for universal credit has been frozen since the benefit was introduced. This is a form of taxation by stealth of the least well-off, and it hits hard people in their 50s and 60s who are on benefits, having saved something for later life. For example, if they have more than £16,000 in non-pension ISAs, they are disqualified from universal credit. I wonder whether this needs to be looked at again.
The House of Lords Select Committee report Hungry for Change recommended that:
“The Government should embed consideration of the cost of the Eatwell Guide into calculations of benefit payment rates”.
Many of us were very surprised to hear that this is not factored into the calculation of the amount of benefits needed to live on. The report continued:
“The cost of the Government’s dietary guidance should be built in as a reference point to consideration of government interventions, including those relating to welfare and public food provision”.
It also cited, horrifyingly, that
“the poorest decile of UK households would need to spend 74% of their after-housing … income on food just to meet the cost”
of the Government’s Eatwell Guide, as
“compared to just 6% in the richest decile”.
With individuals and families denied the means of buying bare essentials, will the Government undertake a proper assessment of the adequacy of benefit payments to pay for the cost of essentials, including food?
The uprating today, as others have said, is not realistic in the face of ever-increasing poverty in the UK. A far-reaching and radical review of the benefits system is needed to tackle some of the fundamental problems. I know that we all look forward to the forthcoming benefit review, and the child poverty strategy, which we very much hope will address some of these desperate issues that continue to condemn families and individuals to a life of insecurity, hunger and misery, and children to a childhood of deprivation that will stay with them for life.