HC Deb 12 March 1979 vol 964 cc231-42

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

Mr. Deputy Speaker (Mr. Bryant Codman Irvine)

Before I call the hon. Member for Birmingham, Perry Barr (Mr. Rooker), may I say that I understand that both he and the Minister have consented to certain brief interventions during the debate.

12.58 a.m.

Mr. J. W. Rooker (Birmingham, Perry Barr)

In this brief Adjournment debate I wish to raise the subject of the uprating of retirement pensions, and especially the uprating that took place last November. I want to call upon my hon. Friend the Minister to consider paying a bonus of an extra week's pension for Britain's 8 million pensioners. I believe that this is urgently required to make up for what I consider to be a sleight of hand or conjuring trick which occurred last November. At that time pensioners received 1.8 per cent. less than the law required that they should receive. When we consider that one week's pension is worth 2 per cent. of the total pension, it may be seen that the 1.8 per cent. that we are talking about is a substantial sum.

Section 125 of the Social Security Act 1975 provides in respect of the pensions uprating that the Secretary of State shall estimate the general level of earnings and prices in such manner as he thinks fit and shall have regard either to earnings or prices according to which he considers more advantageous. That seems to be quite clear and is fully understood by all those inside and outside the House. This promise, which exists in law, is something to which the Tories have never agreed, and it was a real advance at that time in Parliament's treatment of our pensioners or senior citizens.

I do not think that Parliament should allow the pensioners to be double-crossed in the way they have been over the latest pensions uprating. The fact that pensions have been increased in real terms, well above the cost of living measured by the retail price index, is not in dispute. I hope that my hon. Friend will not spend the time that he has in the debate in arguing that case, because it is not relevant, because it is not what Parliament promised the pensioners. They were promised an increase in line with prices or earnings, whichever was the most advantageous.

In the year from November 1977 to November 1978, prices increased by 8.4 per cent. earnings increased by 13.2 per cent., and the pension uprating was only 11.4 per cent. This shortfall against earnings amounts to £16.12 for a single person, or 31p a week. It amounts to £25 a year, or 50p a week, for a couple. On those figures it can be clearly seen that the pensioners' own money was hi-jacked by the Government to pay their Christmas bonuses at Christmas 1978.

I do not wish to cast around to allocate the blame for the problem. It is difficult and real. One of the causes is that the pension announcement has to be made about 20 weeks in advance of the date of the payment. November is the date of payment, but the earnings figures from November to November are not known until the following January. When an announcement is made in May 1978, as it was in this case, we cannot challenge the figures until mid-January 1979. It is for that reason that it took so long before I and my hon. Friends were able effectively to challenge the Government on what we always thought would be an undervalue in the uprating. That is why I and my hon. Friends the Members for Chorley (Mr. Rodgers), for Coventry, South-West (Mrs. Wise) and for Sowerby (Mr. Madden) wish to tackle the Government on this issue tonight.

When my right hon. Friend the Minister for Social Security was questioned on the uprating he said: The important factor is what the annual increase in earnings will be in November."—[Official Report, First Standing Committee on Statutory Instruments, &c., 21 June 1978; c. 30.] The fact remains that we know that it was 1.8 per cent. more than the increase that the pensioners received, and therefore if the matter is not put right it will be a breach of trust on the part of the Government with Parliament and the pensioners.

I realise that the 1977 uprating was slightly in excess of both prices and earnings. The figures that I have worked out show that, even when that is taken into account, there is still a substantial shortfall when we take into account the 1978 uprating. In his letter to me of 13 November 1978 my right hon. Friend said that no corrective action is taken if a forecast has been too generous. The letter was also set out in a written answer to me of 17 January 1979, at col. 771 of the Official Report. When we look at the figures now, we find that that is a wholly inaccurate statement if we take together the November 1977 uprating and the 1978 uprating, because the Government have pulled back the excess of 1977, so that the pensioners are left with a real shortfall over the two years, even taken together. Therefore, it is not true.

I am not saying that someone said"Let us get it all back ", but the effect has been the same as though that decision had actually been taken. It is something that cannot be left undone. We have to take action about the matter. It is no good arguing that we shall have to put the matter right this coming November.

It is a tragedy and a sad fact that, even so far as the matter was a scandal, not one trade union leader has raised this issue publicly. It is left to Labour Members. When Jack Jones retired from the leadership of the Transport and General Workers' Union, the pensioners of this country lost the most effective champion that they had had in recent years. It is a sad fact that no one is big enough to put his boots on—not even any of the Ministers at the DHSS. At present, pensioners are paying for the fact that there is not a Jack Jones who will tackle the Government for what is clearly a buccaneering attitude concerning the up-rating of November 1978.

The shortfall does not sound very much, but to a pensioner couple 50p a week is a very substantial sum. To put the matter right would cost only £165 million, which is less than the taxpayers had to use to bail out the Crown Agents. That is the scale of figures with which we are dealing.

To say, as the Government have said so far in answer to the questions tabled by my hon. Friends and myself, that the Government will take account of the shortfall at the next uprating is not good enough. To start with, the base is wrong, and the single pensioner will still have lost £16 for this year and the pensioner couple will still have lost £25, which they cannot get back. That will not be made up. The Government will not say "We shall raise the base from which we calculate the next uprating, and we shall also throw in for good measure the extra money that was lost for that year." I cannot see that happening.

Nevertheless, the matter must be put right. My hon. Friend the Under-Secretary and his colleagues in Government will not be able to get away with leaving the matter as it is, because my hon. Friends and I will keep coming back to it. It is right that Labour Members should do this. The Labour Government put this promise into law. It will be a charade if we do not cary it out.

It is no good saying that the courts have looked at the matter. They have not looked at the issue I am raising tonight. They looked at the issue only when the Government changed the base of the calculation. That was a different matter in 1976. On this question there is now a substantial shortfall in the guesstimate of the prices and earnings figures, and 1.8 per cent. is so substantial an amount that it is almost a week's pension over the year.

I hope that the Under-Secretary will make a positive statement tonight that will give hope to Britain's 8 million pensioners and let them know that they have not been forgotten, that this issue has not been overlooked and that there are some hon. Members who are aware of the matter and are watching the small print and working on their behalf. I hope that tonight my hon. Friend will be able to give some assurance to millions of pensioners.

1.8 a.m.

Mr. George Rodgers (Chorley)

I thank my hon. Friend the Member for Birmingham. Perry Barr (Mr. Rooker) for being very generous in allowing time for other hon. Members to intervene in the debate. He has put the case very lucidly and constructively.

I should like also to pay tribute to the Government, who have increased pensions in real terms. We are aware that that is a considerable achievement.

I think that we appreciate the difficulty in having to anticipate what will be the rise in prices and wages over a sustained period. None the less, many of us are seriously disturbed by the fact that a firm pledge, about which we have frequently publicly and proudly boasted, is apparently not to be honoured. The pledge was to increase pensions in line with rises in prices or wages, whichever was most beneficial to pensioners.

I am rather wary about the strangely worded replies to parliamentary questions that have been given by the Minister for Social Security. He has suggested that the current shortfall would be taken into account together with the general fiscal and monetary prospects. That strikes me as a commitment that contains considerable escape clauses. It is not a fair commitment at all. I hope that that matter will be clarified.

I recognise that if the main Opposition party ever achieved power, a Conservative Minister would not be subjected to an inquisition of this nature. I think that it is healthy and democratic that the challenge now should come from the Government side of the House. The sum involved is indeed trivial. When compared with the revenue lost in tax evasion, which is estimated at some £1,000 million per annum, it is insignificant. It is small in comparison with the bounty that this benevolent Government hand over to private industry during the course of a year, but it is vital and tremendously important to our pensioners.

The solution that has been proposed is simple and straightforward. We suggest that an Easter bonus should be paid to pensioners to recompense them for this deficit in what they were entitled to expect. A case has been put honestly, fairly and well. I look for an equally helpful and constructive reply from the Minister.

1.10 a.m.

Mrs. Audrey Wise (Coventry, South-West)

It is a great pity that the Government have to engage in what my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) called guesstimates. This difficulty is of their own choosing.

In April 1976, when the changed basis of calculation was announced, it was clear that the change was brought into being because it was advantageous to the Government at that stage and saved £500 million compared with what would have been required for that pension uprating to keep in line with the historic costs of inflation. The escape by the Government on that occasion has left a legacy of continual misunderstanding and difficulty, which I greatly regret. It is unfortunate that the Government who brought in such a great advance in the method of calculating upratings, acknowledging that pensioners either had to be kept in line with inflation or had to receive the same sort of benefit of increased earnings received by the average worker, have been partially undermining their own policy because of the change to forward forecasting.

It has been partially undermined because people are left with an uneasy feeling that they do not understand what is happening. My hon. Friend the Member for Perry Barr has made it clear that this is bound to be the case because one cannot know whether the estimate has been correct until long after the announcement and until three months following the up-rating itself. If this matter is not corrected on this occasion, this precedent will serve as a positive incentive to Governments in future to ensure that any error in their estimate is on the side of underestimating rather than overestimating. It is bad and dangerous to work like that. I appeal to my hon. Friend the Under-Secretary to make clear that the Government accept that it is not fair and not possible to continue on this basis without correcting this error.

We acknowledge that the Tories are not committed to this concept. We acknowledge also that the increase which the pensioners have received is a real one. That very fact makes it even more imperative that no feeling should be left among pensioners that they have not received as fair treatment as they expected. It is not sensible for the Government to undermine their own policy in this way. I urge my hon. Friend to ensure that the matter is corrected.

1.15 a.m.

Mr. Max Madden (Sowerby)

I join in the congratulations to my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) on initiating this debate and thank him for allowing me an opportunity of pressing the Government to think again about this matter.

Everybody recognises that the pension increase last November was nearly 2 per cent. less than it should have been on the basis on which we all understood it was being reckoned, namely, that it would keep pace with prices or earnings, whichever was the greater, on a November-to-November basis. The present gap between what pensioners are getting and what they should be getting is 31p a week for single people and 50p a week for a married couple.

The reasons have been outlined by my hon. Friends, and the Government's difficulties are understood. We have paid tribute to the Government's fine record on retirement pensions, which have increased by 20 per cent. in real terms since 1974. The new basis for calculating pensions was a great advance. Sadly, the Tories have never supported it and are unlikely to support it in future. When we initiate such an advance, it is important for the Government to keep faith with it. I therefore strongly urge the Minister to provide an additional payment, a bonus to all pensioners, to bring them up to the full benefit that they should have had last year.

We have had a rigorous winter. Heating bills will be very large for pensioners and everybody else in the next few weeks. There has been a large increase in the television licence fee. The cost of living for pensioners has, sadly, increased significantly over the last year and an additional payment is needed as early as possible. If the Government do not give all pensioners more as soon as possible, it will be a major blemish on an otherwise fine record.

I hope the minister will say that the Government intend quickly and honourably not only to protect their own fine record but to do justice to the machinery that we introduced in the belief that it would protect pensioners' interests.

1.18 a.m.

The Under-secretary of State for Health and Social Security (Mr. Eric Deakins)

I know that my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker) and my other hon. Friends who have spoken are familiar with some of the background to the provisions for uprating social security benefits, but it may be as well if I outline them briefly so that we have them on the record.

The Social Security Act 1975 requires the Secretary of State to review the level of benefits each year to see whether they have retained their value. For this purpose pensions and long-term benefits have to be compared with the general level of earnings or prices, whichever is the more advantageous, and short-term benefits with prices. If benefits have not retained their value the Secretary of State must increase them at least to such extent as he thinks necessary to restore their value ". As to the mechanics of the increase, we have established a pattern of annual uprating benefits each November. This is an appropriate time for the upratings to take place as it assures pensioners and other beneficiaries of their additional money before the onset of winter with its increased expenses. Hon. Members will appreciate that the task of increasing the benefits of millions of people is a massive one, involving a minimum period of five or six months, depending on the complexity of the uprating proposals. Of course, computers can do much of this for us but the main problem arises in relation to the 3 million or so supplementary beneficiaries whose benefit has to be recalculated individually by clerical staff. That work cannot begin until the new rates have been announced. There is no easy way out of this problem.

All this means that the new rates of benefit to be increased in November have to be determined and announced months beforehand. For this purpose a forecast has to be made of the increase in earnings and prices which are likely to occur up to the date when the new benefit rates are to come into force.

This method of uprating on the basis of forecasts was challenged in the courts in 1977, but both the High Court and the Court of Appeal confirmed that the forecasting method of uprating was correct in law and that the Secretary of State should base each year's uprating on the best available forecast of what the movement of earnings or prices was likely to be over the relevant period.

That is the background against which we have to consider the uprating of benefits that took effect last November. The Secretary of State carried out his review in April 1978, and the forecast that he made about the likely rise in prices and average earnings between November 1977 and November 1978 was based on the most reliable estimates available at that time. Based on these estimates, short-term benefits went up by some 7.1 per cent. from November and pensions and other long-term benefits went up by some 11.4 per cent.

We now know that over the year from November 1977 to November 1978 prices rose by 8.1 per cent. That means that there was a shortfall of 1 per cent. in the uprating of short-term benefits. Over that period earnings rose by 13.3 per cent., so that there was a shortfall of 1.9 per cent. in the uprating of pensions and other long-term benefits.

The current pension rates of £19.50 for a single person and £31.20 for a married couple are still greater in purchasing power than those which took effect in November 1978. In fact, they represent the highest levels of pension ever in real terms. After allowing for price rises, their purchasing power in November 1978 was 3 per cent. higher than in November 1977, and about 20 per cent. higher than the rates introduced in October 1973, shortly before this Government took office.

Nevertheless, I accept that pensioners have received less than they would have received if the earnings forecast had been precisely correct. However, as the courts pointed out, forecasts, by their very nature, are unlikely to be accurate. The forecasts made at the time of the Secretary of State's review will therefore some- times turn out to have been too high or too low when measured against the actual movement of the indices.

If the increase in benefits is higher than would have been justified by the actual increase in prices or earnings, the result is pure gain for the beneficiaries concerned. In the first place, they get a higher rate of benefit than if the estimate had been precisely correct. But then the new rate also provides a higher base as a starting point for calculating the new uprating. For example, in 1977 we put up pensions by 14.4 per cent., whereas the actual increase in prices between November 1976 and November 1977 was 13 per cent. Pensions therefore went up more than prices, and the new higher rate was the one that fell to be increased again in November 1978.

In answer to the point about comparison between 1977 and 1978, taking the two years together, between November 1976 and November 1978 pensions rose by 27.5 per cent. Over the same period prises rose by 22.1 per cent. and earnings by 23 per cent. Pensions therefore increased in purchasing power over that two-year period by 4.4 per cent. and went up more than earnings.

The courts considered the question of the accuracy of forecasts when they considered the forecasting method of uprating. They confirmed that the Secretary of State was not failing in his statutory duty if the forecasts he used proved in the event to be not entirely accurate. There is therefore no statutory requirement to make good the shortfall in last November's uprating.

However, as we have already made clear, the shortfall will be one of the factors that we shall take into account, along with the general economic prospects, when we are considering the amount of this year's uprating.

I cannot say more than that at this stage. As my hon. Friend the Member for Perry Bar will be aware, social security provisions, including the new rates of benefits to be introduced in November, are included in the general review of the economic situation carried out as part of the formulation of the Budget proposals. Until that review has been completed, my hon. Friend will understand that it is not possible to give any indication of the Government's proposals.

What I can say is that we fully appreciate the concern expressed by my hon. Friends in this debate—and I am sure that they are echoing a concern felt by the whole Labour movement—about the shortfall in last year's uprating. We shall take into account all that has been said in deciding our course of action, and I must ask my hon. Friends to await the announcement of the Government's proposals.

My hon. Friend the Member for Perry Barr has suggested that the pensioners' money was hi-jacked to pay for the Christmas bonus. If by that he means that the pension rates introduced last November were deliberately set low in order to provide resources for the payment of the bonus, I strongly refute it.

Mr. Rooker

I am not saying"deliberately." The Tory Party suggested a 53-week year in order to take the money off the pensioners to pay the bonus. I am not saying that it was deliberate, but that was the effect of what happened.

Mr. Deakins

That certainly was not our intention, and I am glad that my hon. Friend has acknowledged that. The forecasts of earnings and prices movements on which we based the new benefit rates were the best available to us, and benefits were uprated in line with those forecasts. The Christmas bonus was a separate operation, decided later in the year, for which resources had to be found separately.

These matters ought to be considered in the light of our record in relation to pensions and other social security benefits. Our record is second to none and one of which we can be justly proud. In spite of the difficult economic situations that we have faced—perhaps the worst since the 1930s—we have increased the rates of pensions and other long-term benefits by much more than prices have increased, so that the rates introduced last November represented an increase in real value—after taking account of price rises—of some 20 per cent. over those introduced in October 1973 by the previous Administration.

We have also introduced a range of new benefits. These include non-contributory pensions, mobility allowance and invalid care allowance—all of which are related to disablement without a test as to means. By next month, the phasing in of the new child benefit scheme will be complete.

For the future, the new pension scheme, the first benefits of which begin to be paid next month, is designed to solve the problems of low incomes in retirement. It will ensure that every contributor to the scheme receives, either from the State or from an occupational scheme, an additional pension relating to his other past earnings, on top of the basic State pension. The levels of the new State pension will build up gradually over 20 years so that a married man on average earnings will retire on pensions for himself and his wife of more than half average earnings.

With this record, pensioners and other beneficiaries can be confident that we are fully aware of their problems and will have them in mind in determining our course of action.

Question put and agreed to.

Adjourned accordingly at twenty-six minutes past One o'clock.