Social Security (Up-rating of Benefits) Bill

I must draw the House’s attention to the fact that financial privilege is engaged by both Lords amendments. If the House agrees to either Lords amendment, I shall ensure that the appropriate entry is made in the Journal.

Clause 1

Up-rating of state pension and certain other benefits following review in tax year 2021-22

I beg to move, That this House disagrees with Lords amendment 1.

With this it will be convenient to consider the Government motion to disagree with Lords amendment 2.

The Social Security (Up-rating of Benefits) Bill is a one-year Bill by reason of the pandemic. Last year, as you will be aware, Madam Deputy Speaker, we changed the law for one year to increase state pensions by 2.5% at a time when average earnings had fallen and consumer price inflation had increased by half a percentage point. If we had not taken this action, state pensions would have been frozen.

This year, average earnings growth is estimated to be unusually high, distorted by the cumulative effects of a natural economic reaction to the coronavirus pandemic and the response to the supportive measures introduced by the Government to protect livelihoods. The figure for average weekly earnings from May to July—the measure used for uprating earnings-linked benefits—has grown by 8.3%, which is over two percentage points higher than at any time over the past two decades. Recognising this covid-related distortion, the Government are setting aside the earnings link for one more year, 2022-23, and continuing the double lock of at least inflation or 2.5%. The triple lock will be applied again in the usual way for the basic and new state pensions from the following year.

Of course I understand why the Government have decided not to increase the state pension by 8%, but is it still their intention that the value of the state pension should, over time, at least keep track with earnings?

The right hon. Gentleman will be aware that we remain committed to the triple lock. This is a one-year-only Bill. This will be a continuation of the policy that the Government introduced as part of the coalition in 2010 and have continued to pursue on an ongoing basis since then. There is no intention to change that.

I will make some progress.

It is right that I address these Lords amendments, Madam Deputy Speaker, because, as you rightly outlined, they engage financial privilege in that they interfere with the financial arrangements made by the elected House of Commons. That alone, I respectfully submit, is sufficient reason to disagree with the Lords amendments. However, it is also right that I address directly the point that was made by the House of Lords that invites the Secretary of State to measure earnings as if they were not actually growing by 8.3%. I assure the House that there is no robust way of calculating them as if they were not.

The independent Office for National Statistics has responsibility for producing economic statistics to the highest possible standards. ONS experts investigated whether it was possible to produce a single robust figure for underlying earnings growth that stripped out impacts from the pandemic, and concluded that it was not possible. Alongside the actual earnings growth figures, the ONS suggested a possible indicative range of 3.6% to 5.1%. These figures do not have national statistics status. Indeed, the ONS itself includes heavy caveats on the issue and advises caution in approaching it. The Bank of England also cast doubt on identifying a figure that could be relied on. The ONS said:

“There are a number of ways you can try to strip out these base effects, but no single method everyone would agree on. We have tried a couple of simple approaches…Neither approach is perfect…Our calculations of an underlying rate are there to help users understand base and compositional effects, but…there remains a lot of uncertainty about how best to control for these effects.”

It said that the statistics therefore “need to be” treated “with caution”.

We believe it would be reckless in procedure and in law for this or any other Government to set a precedent for uprating benefits or pensions using a methodology that is not robust and for which there is no consensus. That is why the Government have decided to suspend the earnings link in this year of exceptional and anomalous earnings growth. Instead, we decided to apply a double lock underpinned by the established consumer prices index published and approved by the ONS. This approach was also recommended by the Social Market Foundation and other commentators, and very strongly by this House on Second Reading, Report and Third Reading. That is the legislation that this House passed to the Lords, and that is the legislation I would urge this House to send back to the Lords.

I remind the House that over the two years of the pandemic the Government will have ensured that the pensions covered by this Bill will have increased by much more than prices, by reason of the 2.5% increase last year and the link to CPI this year. In those circumstances, I commend this House to reject the House of Lords amendments and agree that we proceed with this one-year Bill by reason of the pandemic.

Whatever else could be said about the House of Lords, it is a place that genuinely contains a great deal of expertise on the subject of pensions. We are fortunate to have that expertise in Parliament and we should be prepared to listen to it. Having studied the exchanges in the Lords, I feel that the Government’s positions on this matter have not held up well under scrutiny, and the debate has moved on considerably since we last discussed it here.

Labour will therefore vote to accept the amendment put forward by the former Conservative Pensions Minister Baroness Altmann, which was well argued and handsomely carried, but which also most closely reflects our own position on these matters. That is to say, we accept, as I have said clearly and repeatedly, the Government’s case that the true figure of earnings growth in the UK is not 8.3%. It would be absurd to maintain that that is what is happening to our constituents’ wages right now. Labour supports the triple lock. We believe the Government’s manifesto commitment should be binding and that the connection to earnings in the uprating decision for this year should remain.

In her remarks, Baroness Altmann made it clear that she was not proposing a specific uprating figure by proposing this amendment. That is important. It seems to me that all Conservative MPs could vote for this amendment, honour their own manifesto commitment, and still address the problem of how the pandemic has distorted the earnings data. It would just require the Government to effectively make an assessment of whether real wage growth is higher or lower than CPI inflation, and, if higher, use that figure.

When we last held a debate on this in the Commons, the Government said that that would not be legally sound, but the Lords debate knocked that down fairly easily. As Baroness Altmann said, for a judicial review to occur, the figure the Government used would have to be found to have been brought about by the Government acting irrationally. That is something we can never rule out with this Government, but it should be more than possible to avoid that. If I may say so, one of the reasons the Government lost this vote so badly in the Lords was their tendency to rely on short-term, inconsistent arguments to bounce from one day’s headlines to another’s.

The hon. Gentleman criticises the Government for not coming up with a solution, when he is unable in any way to come up with a solution or figure himself, as are the Office for National Statistics, the Bank of England and all other reputable organisations. In fact, the House of Lords did not come up with a figure, so what, pray, if he would enlighten the House, is the precise figure that he would see pensions increase by?

I am grateful for the Minister’s intervention. I am about to explain why he has got himself and the Government into this position.

What figure?

With respect, the Minister just needs to listen to this point. He stands at the Dispatch Box and, like all Ministers, tells us that black is white. For instance, when the Government reacted to the crisis of their own making—when we saw the pumps run dry and the shelves go sparse—they claimed to the country that this was a secret masterplan towards a high-wage economy that they had had all along. Now, we are having to see the Minister and the Government tie themselves in knots again, because he has been sent here to make the case, which we have heard him put very well, that the figure is too distorted and therefore we need this primary legislation, yet—and this is the problem, Minister—according to the Prime Minister, wages are up, workers have never had it so good and that is why the Government can cut £20 a week from universal credit. They are making two completely opposing arguments. We do not even know whether the Government believe that wages are rising faster than inflation. I politely say to the Minister that they cannot expect to have it both ways.

I will repeat a number of points that colleagues may have heard me make before, but I feel they need to be repeated in light of some of the media comments on the Bill. The uprating of the state pension is relevant to millions of pensioners in this country, but it is wrong to present it as an issue of intergenerational unfairness. That is because these decisions are also fundamentally about how we ensure that the state pension is indexed and retains real value for people who are in work today when they come to retire. This Government have been grossly unfair on people of working age, but frankly that is due to the burden of taxes they have inflicted on workers, rather than through the operation of policies such as the triple lock.

I hope the Minister took on board the comments made about pensioner poverty in this House and the other place. The Government’s use of what they call absolute poverty, which in reality is a measure of poverty relative to a fixed line in 2010, is unsatisfactory because not only does it ignore the statistical evidence, which is that pensioner poverty is now rising after it fell considerably under Labour, but it limits a serious debate on the drivers of that rise. The big picture is that the OBR predicts that as a country we will be spending an extra £6 billion a year, year-on-year, on pension-age benefits every year up until 2024-25. That is the year that the forecasts in the welfare trends report go up to, so it is likely to continue to rise after that. Pensioner poverty is going up as spending rises substantially. We should be having a much more substantive debate about that, looking at housing costs, energy prices, food and access to good financial and investment advice. The way in which the Government present their own progress means that any real wage growth over the last decade allows them to claim that poverty has declined, so when the Minister says that 200,000 pensioners have been lifted out of poverty since 2010, the reality is that that is a very poor level of performance compared with that of all previous Governments. Poverty is always relative, because it is a measure of whether someone has the means to live a fulfilling life in the society of which they are a member. That is not just a left-of-centre viewpoint, but one that until recently was accepted by Conservatives, too.

As the MP for North Norfolk, which has some of the highest numbers of older people in the country, I know you will understand, Madam Deputy Speaker, why I want to speak briefly in this debate. First, we have come back to basics. I was a finance director and a chartered accountant before I came into this place, so I have a reasonable grasp of statistics, and it is fair to say that this Government have, to the tune of around £400 billion, safeguarded the country through a pandemic that no one ever expected. Not only that, but the national debt sits at some £2.2 trillion, so it is understandable that we are sitting here this evening being extremely careful and prudent about what we do with our public finances.

The electorate, as we have seen many times before, will forgive a Government many things, but they will not forgive a Government being reckless with the public finances. We have to understand that, much as we would like to increase pensioners’ pay, every 1% increase costs the Exchequer a billion pounds. To put that in perspective, with an increase of some 8% to 9%, we are looking at an increase of some £8 billion to £9 billion. I can therefore see entirely how that would sit when we have to look in the eye of a prison officer, a police officer, a teacher, a firefighter or any other public sector worker who has seen their pay frozen for the past year. That is the real context. It is about fairness and a statistical anomaly caused by the dip, coming off furlough on to 100% pay and when the ONS statistics were taken. It has given rise to this one-off statistical anomaly.

What the House of Lords has proposed is sensible, and I took that to the Secretary of State to ask whether we could do something to still honour the framework of the triple lock, while ensuring that we have a sensible parameter to measure it by. The answer that came back was exactly the same as the one the excellent Minister just gave: we need a robust metric. We cannot just move the goalposts and cherry-pick a point in time because the argument does not fit at the moment. Many of my constituents have written to me about this issue, and when a detailed reply has gone back to them, a great number understand why we have this one-off double lock.

It is a pleasure to follow the hon. Member for North Norfolk (Duncan Baker), who spoke about the risks of throwing a billion pounds about here and there. I know he was not in the previous Parliament, when the Government were propped up by the Democratic Unionist party, but I recall them having no great difficulty finding a billion pounds down the back of the sofa. Indeed, I think the hon. Member for Strangford (Jim Shannon) was worth about £100 million, which is probably more than Messi.

Unlike the Minister, I am glad to see the Bill back in the House this evening, because the amendments passed by their lordships give the Government an opportunity to perform a U-turn with ermine grace and charm. Before it went back to the other place, the Bill as originally drafted facilitated the British Government breaking yet another manifesto commitment, namely the pensions triple lock, which I remind the House all parties in this Chamber committed to at the election fewer than two years ago. Thankfully, the Bill was amended in the other place, and I am grateful to Baroness Altmann for Lords amendments 1 and 2, which seek to restore the earnings link.

As we are relatively short on time, I will not go over some of the meatier issues that I outlined on Second Reading, including the Government’s repeated breach of their manifesto commitments, the worrying trends in pensioner poverty, pension comparisons with OECD countries and the—at best—disappointing lack of action on pre-existing equalities that are baked into our pension system. In speaking in favour of the Lords amendments, I will outline why the SNP continues to vote to respect its 2019 election manifesto commitment and why the Budget has changed things, which may result in more Opposition Members voting tonight than on Second Reading.

The Minister will have familiarised himself with the House of Lords Official Report, but in the interests of completeness and for the benefit of Hansard, I remind the House of what Baroness Altmann said on the cost of living crisis, which affects all the constituents we seek to represent in this House. She reminded the other place of the Government’s view that

The 12% figure is not reflected in Northern Ireland, where energy prices have risen by some 30%, and the cost of living has also risen by 20%. Does the hon. Gentleman agree that, for that reason, we must support the Lords amendments for the pensioners?