HC Deb 09 December 1976 vol 922 cc827-38

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Tinn.]

1.25 a.m.

Mr. Fergus Montgomery (Altrincham and Sale)

It is now almost 1.30 a.m., which is not the best time to make a speech, but I am grateful for this opportunity to raise the issue of the problems facing retirement pensioners as a result of rising prices. This Adjournment debate arose out of an answer that I received on 15th November from the Under-Secretary of State for Prices and Consumer Protection. I apologise to the Under-Secretary for Health and Social Security, who has been kept here so late to answer the debate, because he is not the culprit. I would have liked the Under-Secretary of State for Prices and Consumer Protection to reply.

On 15th November, the Minister stated that the Retail Price Index had risen by 61 per cent. between February 1974, when the Labour Government first came into office, and October 1976, the month for which the latest figures were available. He went on to say that pensions had increased by 96 per cent. in the same period. That was a misleading statement for any Minister to make.

From February 1974 to October 1976 pensions rose by 69.6 per cent. for a married couple, and for the period from February 1974 to November 1977 the increase will be 96 per cent. That makes no allowance at all for price rises between now and November next year.

Some time ago the Chancellor of the Exchequer made the proud boast that by the end of 1976 the rate of inflation would be down to single figures. It is a good thing that people take very little notice of the Chancellor's forecasts, because he is always wrong. He is the same man who announced, during the October 1974 election, that the rate of inflation was running at 8.4 per cent. How anybody could have believed that is beyond my comprehension.

We know that prices will rise dramatically and that it will not be too long before the November pension increase will be eroded. Yet the complacency goes on. Yesterday, the Treasury said that pensioners had never had it so good. If I said that to pensioners in my constituency I would be laughed out of court. The suggestion that they are having a bonanza is a cruel joke.

I get letters from pensioners explaining the difficulties that they have to endure and the problems of eking out a living. Their modest savings have declined because of inflation. They are faced with increasing fuel bills, soaring food costs, and rising rates and fares. It is small wonder that they say they cannot afford any new clothes, that they have great difficulty in buying replacement bedding, and that they cannot afford the amount of heat they require. This is borne out by the increase in the number of deaths from hypothermia.

The Government acknowledged the difficulties that the pensioners were experiencing when they increased the heating allowance for those receiving the supplementary pension, but by doing this they created even more problems. They gave nothing to those on the borderline, many of whom needed help just as badly. The Government have agreed that the elderly need more time to pay their winter fuel bills, but they have merely put off the day of reckoning. Those bills still have to be paid. The recent increase in the cost of gas and electricity has added to the existing burden.

The two categories of pensioner for whom I feel particularly sorry are the very old and those who have no relatives. The former had little opportunity to save during their working lives, because they lived through the depression. The latter cause me sometimes to wonder whether the Welfare State is all that it is cracked up to be. Far too many people of my generation seem to do little or nothing for elderly relatives, and tend to take the view that the State should support them. During the poverty of the depression there seemed to be more thought for others. Over the years we have tended to become a more selfish society.

There is a famous hymn which begins God moves in a mysterious way His wonders to perform. We all know that the Government are incapable of performing wonders, but they do things in a mysterious way. Until this year the pension increases were always announced in March and came into effect in November. An increase was largely based on the rate of inflation from March the previous year up to the March when the increase was announced.

Under normal circumstances, therefore, the increase that came into effect this November would be based on the Retail Price Index for March 1975 to March 1976. But the Government, to suit their own ends, changed the calculations this year. They were crafty, and realised that if they calculated the rise this year under those circumstances they would find it very expensive, due to the massive increase in the Retail Price Index. What they have done is to change the rules, so that the pension increase announced in March 1976 and paid in November 1976 was calculated on the increase in prices from November 1975 to March 1976 and on what they thought the increase in prices would be between March 1976 and November 1976.

I have already said what I think about the Chancellor's forecasts. It is disgraceful that the Government should have decided that the last pension increase should be so dependent on the judgment of a man who would be hard pressed to tip the winner in a one-horse race.

Now, whenever one raises the question of pensions with Ministers one is always bombarded with statistics. We all know that statistics can be used to prove just about anything. In February 1974 the pension for a married couple was £12.50. In November 1975 it was £21.20, and at the time of the last increase—November 1976—it was raised to £24.50. So, no doubt the Government will proudly say that this proves an increase between February 1974 and November 1975 of 69.6 per cent., and with even greater glee will point out that from February 1974 to November 1976 pensions have increased by an enormous 96 per cent.—cleverly omitting to point out that the increase has to last until November 1977.

I think that these figures need to be examined more closely. The pension for a married couple increased by 69.6 per cent. between February 1974 and 12th November 1976—that is the weekend before the latest increase. But at the same time the all-items retail price index has risen by 60.8 per cent. between February 1974 and October 1976. I am sorry that I cannot give a more up-to-date figure, but the relevant figures for November are not due for publication until 17th December. The increase in the all-items retail price index is bad enough, but between February 1974 and October 1976 the index of food prices rose by 67.8 per cent., which is only 1.8 per cent. less than the pension increase.

Now let us look at the more generous assertion of the Government that between February 1974 and November 1976 the increase in pension for a married couple amounts to 96 per cent. They conveniently ignore the fact that this increase has to last until November 1977, and no one doubts that prices will continue to rise. The Chancellor's estimate is that prices will rise by about 15 per cent. on a yearly basis. No doubt the Chancellor will be wrong again in his assessment. I hope that price rises will be lower than his forecast, but I have a horrible feeling that in fact they will be greater. So, during 1977 the increases in the Retail Price Index will be continually eroding the value of the pension.

It could well be that by mid-1977 prices will have risen since the Labour Government took office by the same amount in purchasing power as pensions have increased over the same period. On this basis the pensions increase will only just have kept abreast of inflation. This really does make a mockery of all the fine words that we heard from the Labour Party in the General Election of February 1974, when they promised to make life so much better for the pensioners of this country.

Today—or, I should say, yesterday, in view of the lateness of the hour—my hon. Friend the Member for Romford (Mr. Neubert) asked the Chancellor of the Exchequer what was the purchasing power of the average pensioner couple in February 1974, on 30th October 1976 and on 16th November 1976 based on the internal purchasing power of the £ sterling at 100p in February 1974, 62p on 30th October 1976 and on 16th November 1976. The answer was: The retirement pension for a married couple was £12.50 in February 1974, £21.20 on 30th October 1976 and £24.50 on 16th November 1976. If the internal purchasing power of the pound were taken as 100p in February 1974 and its value on both 30th October and 16th November 1976 as 62p then the relative purchasing power of these pensions by comparison to February 1974 would be £12.50, £13.15 and £15.20 respectively. That means that in real terms the purchasing power of the pension from February 1974 to November 1976 has increased by £2.70.

I have always believed that it was futile to talk to people about the size of the pension. The important thing to all of them is the amount of goods that the pension will buy. I am sure that the Minister is aware that The Guardian runs a feature called "Shopping Basket", which assesses the weekly increase in the cost of food for a low income family with two children. It is estimated that from November 1975 to September 1976—a period of less than a year—the increase for food alone for this typical family was £2.39½. So, for a pensioner married couple, the figure would be about £1.20, which would leave them £2.10 out of their latest increase to pay for all the other price increases in the pipeline until November 1977. To put it another way, from November 1975 to November 1977 the percentage pension increase is 15.6 per cent., and over the same period I believe that the Retail Price Index will go up by over 30 per cent.

I hope, therefore, that the Minister will explain the estimate made of the rate of erosion of the latest pension increase and state when, in 1977, he expects to see the complete erosion of the latest pension increase.

I apologise again to the Minister for the fact that he had to stay to reply to this debate. As I explained at the beginning, I should have preferred another Minister to be here, because I believe that that Minister misled the House in November.

1.39 a.m.

The Under-Secretary of State for Health and Social Security (Mr. Alfred Morris)

I am grateful to the hon. Member for Altrincham and Sale (Mr. Montgomery) for raising this topic on the Adjournment. As I know he will appreciate, a great deal of my ministerial work is concerned with the elderly, not least with giving practical help to the most needful of elderly people. Thus, I listened to his speech with a very personal interest.

This is a caring Government, with a very good record in tackling the problems that old people face. Our aim has been not only to protect but to improve the living standards of the elderly. Notwithstanding our inheritance and the daunting economic circumstances with which we have to deal, our achievements show that we were wholly sincere in making our pledges to give very high priority to elderly people. Whether we should have spent as much as we have on improving social benefits may be a matter of controversy, but there can be no dispute about the fact that we have improved social benefits on an unprecedented scale since 1974.

Our answer to the continuing problem of inflation is twofold: first, to bring down the rate of inflation, which is in everyone's interest; and, secondly, to uprate pensions to counter the effects of inflation on the elderly and others in special need.

Retirement pensions have now been uprated four times by the present Government. With the uprating last month, pension rates have now risen by 97 per cent., in cash terms, since our predecessors' last uprating in October 1973. This is well ahead of the 69 per cent. increase in prices over the same period. In the last three years, we have increased public expenditure on pensions and other social security benefits by about £1,000 million in real terms, taking account of price increases. At a time when we have been under strong and sustained pressure to reduce public expenditure, this is no mean achievement.

We are all aware of the dangers of inflation at annual rates as high as 27 per cent., which we experienced 18 months ago. Since then, we have cut the annual rate to under 15 per cent. Hon. Members will regret that a disappointing rate of growth, the severest drought for centuries and other factors interrupted the fall in the rate of inflation, but our anti-inflation policy is continuing, and deserves maximum support, not least from those concerned with the welfare and well-being of the elderly. It is inevitable, until we conquer inflation, that the value of pensions falls between upratings. Even so, in October 1976, the real value of the pension was still in excess of the rate introduced by the previous Government in October 1973.

The Government have been active to protect pensioners from price rises. We came into office pledged to improve their position. In our 1974 manifesto, we promised to raise the level of pensions to £10 a week for a single person and to £16 for a married couple. We brought these rates into force—in record time—by the end of July 1974. These amounts seem unimpressed now, but they represented an increase of 29 per cent. in cash terms over the last rates introduced by our predecessors in October 1973 only 9 months before. In real terms, that is after taking account of price rises, they represented an increase of 13 per cent. over the October 1973 rates. This was the largest increase both in cash and real terms achieved at any time since the National Insurance Scheme was introduced in 1948. I am sure that the hon. Gentleman will agree that this really was impressive.

We had also promised to keep pensions in line with the movements in the general level of earnings or prices, whichever would give pensioners the better deal and, when we came into office, we gave that commitment the force of law. This again was an important breakthrough for the elderly. The law provides that pensions and other benefits must be reviewed at least annually, but we had pledged to go further and we kept that promise also.

In 1975, because of the high rate of inflation, we increased pensions twice—in April and in November. Pension rates went up by 16 per cent. in cash terms in April and by 15 per cent. in November. Our purpose was to ensure that we maintained the real value of pensions. In fact, we did more than this. Between October 1973 and November 1975, pensions rose by 72 per cent., whereas prices rose by 49 per cent. Pensions had therefore risen to a new peak with an increase in real value of 15 per cent.

Moreover, our anti-inflation measures were bearing fruit. By July 1976 the annual rate of inflation had fallen from 27 per cent. in August 1975 to 13 per cent. and we decided that we could return to annual upratings. Last month, we raised pensions again by 15 per cent.

It was this latest uprating that brought pension rates to 97 per cent. in cash terms above our predecessors' last uprating in October 1973—

Mr. Montgomery

The Minister keeps going on about the generosity of this Government and the enormous cash increases they have given to pensioners. Will he bear in mind the enormous rise in inflation under this Government, as compared with the last Tory Government?

Mr. Morris

I am not going on about the generosity of this Government. 1 passionately believe that elderly people, not least disabled people among the elderly, deserve the highest priority. What I am saying is that in very difficult economic circumstances the Government have given the highest priority to elderly people. I am saying that we have done a great deal of good work for the elderly in extremely difficult economic circumstances.

I said earlier that at the time of the last uprating we raised pension rates by 97 per cent. since our predecessors' last uprating in 1973. Pensions are still keeping well ahead of the rise in prices, while supplementary pensions have similarly improved.

I know that mere figures of this nature mean little to the majority of pensioners. As someone said recently, statistics do not make a noise in the frying pan. Pensioners see, and are understandably concerned about, the price rises in the shops. But the effect of what we have done—and here I pay a sincere tribute to my late colleague and friend Brian O'Malley—has been to increase the purchasing power of the pension by nearly one-sixth over the last three years after allowing for the high rate of inflation we have experienced over that period. To this extent pensioners have done better than the majority of the working population.

The comparisons I have made have been with the movements in the general index of retail prices, which reflects the changes in the make-up of the average family budget. The pensioners' index reflects that of average pensioner households and although pensioners spend a higher proportion of their income on particular items such as food and heating the movements of the two indices have diverged little.

Some items have gone up in price more than others—particularly food and fuel. The question of food is important. Food subsidies are a matter for my right hon. Friend the Secretary of State for Consumer Protection. But one of the primary arguments in 1974 for allocating resources to food subsidies was that they gave the greatest assistance to those on low incomes, including pensioners, for whom they have been of significant help.

Food subsidies are now running at an annual rate of over £400 million and apply to the basic foods—milk, butter, cheese, bread and flour. This is, of course, of undoubted importance in helping to keep food prices down.

As the hon. Gentleman knows, because of the urgent need to reduce public expenditure, food subsidies are being run down, although this is being done as gradually as possible to minimise, as far as practicable, the impact on consumers. But this run down must be set against the background of the considerable improvements in the real value of pensions to which I have referred.

This run down will inevitably have some, albeit a minor, effect on the index of retail prices but pensioners are again protected, in that the law requires that pensions have to be increased in line with prices or earnings, whichever is the more beneficial.

There has been a great deal of discussion about the green pound. There are those who argue insistently for a devaluation of the green pound. As hon. Members will be aware, the EEC Commission has recently proposed a devaluation of 4½ per cent. in the green pound. But my right hon. Friend the Prime Minister, speaking in the European Council, has made it clear that the Government cannot at the present time accept any devaluation, because of its effects on food prices and, hence, on the Government's attack on inflation. It is clearly impossible to go on for ever holding our farmers' returns fixed whilst their costs rise, but for the time being the Government regard their attack on inflation as the overriding priority.

As to fuel costs, pensioners who qualify for supplementary pensions can receive further help with their fuel bills. Although fuel costs are included in the overall scale rates for supplementary pension to meet living costs, pensioners who either need extra heating on health grounds or have unusually expensive homes to heat may receive extra heating additions. These additions were increased in November by 27 per cent. Furthermore, in very exceptional cases, a lump sum payment may be made towards a supplementary pensioner's fuel bill. The sums paid under the supplementary pension scheme vary according to the circumstances of the pensioner, but there is considerable discretion for assistance to be given towards the costs of high fuel bills.

Now we are doing even more than this in providing extra help with electricity bills this winter for the consumers who seem likely to have the greatest difficulty with their fuel bills. My right hon. Friend the Secretary of State for Energy recently announced that a scheme is being worked out to give recipients of supplementary benefit and family income supplement a discount on their electricity bills, the cost of which will be met by the Government. Electricity is used by virtually all these consumers and, in the case of those in all-electric households, tends to lead to the heaviest fuel bills. We recognise that the scheme will not be perfect in meeting all needs and circumstances, but its importance is clear and undeniable. With the limited resources available we decided to give extra help to those who are likely to be hardest pressed.

To help others, a code of practice is being designed to protect genuine hard ship cases from disconnection and to help them make suitable arrangements for the payment of their gas and electricity bills. The code is now the subject of final discussions with the two industries and the unions concerned and between my right hon. Friend and the local authority associations and staff representatives. Once agreed, the code will be promulgated by the industries. The latest draft was recently placed in the Library of the House of Commons.

This is an indication of the way in which we have kept our pledges. There is no complacency. All in all, as a result of the four upratings in July 1974, April 1975, November 1975 and that of last month, and other improvements in social security benefits, it is estimated that we have increased public expenditure on pensions and other social security benefits by about £1,000 million in real terms—that is, after taking account of price increases—compared with the expenditure following the last increase by the previous Government in October 1973. About half of this has gone to pensioners. This is a massive shift of resources in favour of the most vulnerable members of society.

It is said that we should have done more—that we should have increased pensions by a higher amount and more frequently. But what we have done has been achieved in a period very severe economic difficulty and the constraints on public expenditure are even greater now than they were. Some idea of the costs involved are that the uprating last month amounts to an extra £1,400 million in a full year. More than half of that is for retirement pensions. I think that this shows that we have been far from complacent. Indeed, at a time of considerable pressure to reduce public expenditure, our achievements in increasing the purchasing power of pensions are really quite remarkable.

We have been under daunting pressure from people who insist again and again and again that we are spending too much in this field. I do not say that this is the point of view of the hon. Member for Altrincham and Sale, but he knows that there are many other people who argue relentlessly that the Government are spending far too much in social security.

I have explained, moreover, that the pensioners take a large part—

The Question having been proposed after Ten o'clock on Thursday evening, and the debate having continued for half an hour, Mr. DEPUTY SPEAKER adjourned the House without question put, pursuant to the Standing Order.

Adjourned at five minutes to Two o'clock.