HL Deb 01 July 1986 vol 477 cc820-9

7.33 p.m.

Baroness Hooper

My Lords, I beg to move that the draft Social Security Benefits Up-rating Order 1986, which was laid before the House on 8th May be approved. This order is accompanied by a report from the Government Actuary on the effects of the proposals on the national insurance fund and by a statement on mobility allowance.

With your Lordships' permission, I will deal also with the other four Motions in my name on the Order Paper, which are the draft Child Benefit (Up-rating) Regulations 1986, laid before this House on 8th May; the draft Family Income Supplements (Computation) Regulations 1986, laid before this House on 8th May; the draft Supplementary Benefit Up-rating Regulations 1986, laid before the House on 5th June; and the draft Pensioners' Lump Sum Payments Order 1986, laid before the House on 8th May.

These statutory instruments put into effect the up-rating of social security benefits announced by my right honourable friend the Secretary of State in another place on 24th February. They also provide for the payment of a £10 Christmas bonus.

This is in some ways an unusual up-rating. As your Lordships already know, we are changing the date of the up-rating from November to April in order to bring the tax and benefit years more closely into line. This will also have the effect of giving beneficiaries an increase at a time when many of them may have bills such as rate demands to meet. To introduce this change smoothly we brought forward the 1986 up-rating to July, which means that this up-rating comes only eight months after last November's 7 per cent. up-rating and is therefore based on only eight months' movement in prices. The next up-rating will be from April 1987, again after only 8 months. This, coupled with the fall in inflation, accounts for the relatively low level of the increase.

It might be helpful to your Lordships if I outlined some of the main features of the proposed up-rating. Most benefits, including retirement pension, widows' benefits and unemployment benefit, are going up by 1.1 per cent., which accurately represents the increase in prices between May 1985 and January 1986, the measurement period for this intermediate up-rating. This means, for example, that a married couple's retirement pension will go up from £61.30 to £61.95 a week; the pension for a single person will go up from £38.30 to £38.70 a week. The long-term rate of supplementary benefit will go up by the same cash amount as the relevant contributory benefit. Child benefit will go up by 1.4 per cent.—from £7.00 to £7.10 a week. Mobility allowance will be increased in line with the retail price index to £21.65 a week.

Not only does it cover only 8 months' price rises rather than a year; it is 8 months of a period when inflation was falling rapidly. This up-rating is a demonstration of the success of our policies—a success that I believe even noble Lords opposite grant us. Inflation is now at its lowest level since 1968. This is good news for the whole country, but it is especially good news for pensioners and others on low or fixed incomes. Pensioners no longer have to go into shops and see prices going up almost before their very eyes. Nor are they forced to watch as the value of their savings is inexorably eaten away, as when—and I have to say it—under the previous administration the real value of a pensioner's savings invested in a building society fell by a third. We should therefore welcome the small size of this up-rating as a sign that inflation is under control and that we have managed to get off the treadmill of massive increases in public expenditure generating massive increases in prices which in turn fuel further increases in public expenditure. We do not propose to get back on that treadmill, and we certainly do not agree with the unusual economics of those who would like inflation to be higher so pensioners can appear to get a bigger increase because it is inflation-linked.

One reaction to the level of the uprating has been to say, "If it matches the retail price index increase then the retail price index must be wrong". That is not the case and I am sure that some people have erroneously been comparing the increase with annual rates of inflation. The retail price index is a generally reliable indicator of the effects of inflation, and it is certainly the best we have. There are indeed some circumstances when variants of the whole retail price index seem to be better measures for benefit increases, but, on the whole and for most benefits, the retail price index remains the best measure for inflation.

The retail price index minus housing costs—which I believe is known as the Rossi index—is the measure which has been used to up-rate supplementary benefit since 1982. We have decided to vary the measure this year and to keep the up-rating in line with the cash increase in the relevant contributory benefit in order to minimise the problem of people being floated on and off supplementary benefit by tiny variations of 5p or lOp between the supplementary benefit scale rates and the rates of other benefits received by supplementary benefit recipients. I do not claim that we have acted here out of anything other than pragmatism. But with three up-ratings in 16 months it is not sensible either for claimants or for the administration of the system to shuffle people on and off supplementary benefit, possibly on each occasion.

For similar pragmatic reasons we do not propose through these regulations to up-rate most of the additional requirements in supplementary benefit. We have to balance the administrative effort of Carrying out the up-rating against the advantage to claimants of the extra 5p or at most l0p. Again I remind your Lordships that the transition to a new up-rating timetable means that this is the second of the up-ratings in a very short period. Up-ratings mean a tremendous additional burden on local offices, which hampers their ability to deal with other benefit issues expeditiously. We took the view that so far as possible we should simplify their task, and these up-rating regulations therefore provide only for increases in the adult and children's scale rates, the various personal expenses rates, and a limited number of additional requirements. The recent announcement of a 3½ per cent. cut in electricity prices from July will, of course, give further help to beneficiaries.

It is appropriate to make a special mention of the increase in child benefit, which, though small in itself, at l0p, demonstrates the Government's commitment to child benefit as an important feature of benefit support for families with children. We remain anxious to concentrate more resources on low-income families with children, as we shall be doing in the new income-s related benefit structure set out in the Social Security Bill, which, as we know all too well, is currently being considered in your Lordships' House.

Child benefit is an essential feature of our benefit system, and we have reaffirmed that in this up-rating. In general, these instruments set out to achieve price protection of all main social security benefits with the minimum of administrative effort and disruption for claimants. As usual, increases in prices taking place between the end of the measurement period—in this case January—and the implementation of the up-rating from 28th July will be taken into account for the next up-rating, on which an announcement will be made in the autumn.

As your Lordships are aware, the next up-rating will take place in April 1987 and will be based on price rises between January and December. From then, we return to a normal up-rating track but with benefit increases aligned to the time when most other financial changes affecting households take place: in April. I remind your Lordships that even this interim up-rating will cost some £420 million in a full year in addition to the £2 billion cost of last year's up-rating. Total spending on social security will thus stand at almost £43 billion in 1986–87–31 per cent. of all public expenditure. That is a massive sum in anyone's book and a convincing demonstration of our commitment to the welfare of those dependent on social security benefits. I beg to move.

Moved, That the Supplementary Benefit Up-rating Regulations 1986 laid before the House on 5th June [25th Report from the Joint Committee]; the Family Income Supplement (Computation) Regulations 1986 laid before the House on 8th May [23rd Report from the Joint Committee]; the Child Benefit (Up-rating) Regulations 1986 laid before the House on 8th May [23rd Report from the Joint Committee]; the Pensioners' Lump Sum Payments Order 1986 laid before the House on 8th May [23rd Report from the Joint Committee]; and the Social Security Benefits Up-rating Order 1986 laid before the House on 8th May [23rd Report from the Joint Committee] be approved.—(Baroness Hooper.)

Baroness Jeger

My Lords, I congratulate the noble Baroness on her audible reading of her brief. As an old-age pensioner, I look forward to collecting 40p a week extra very soon. I must set that off against the fact that a cup of coffee in your Lordships' establishment costs 25p. That means that I can have only an extra one and a bit cups of coffee for my 40p.

To be serious, the noble Baroness said that the up-ratings were especially good for pensioners. I cannot agree with her. At present, the perception of people on low incomes and pensions is that the retail price index is irrelevant to their spending patterns. People who go out shopping and looking at prices complain constantly that the prices they pay for those things on which they spend most of their money are not coming down. That happens because, as we know—the Institute of Fiscal Studies has made it clear—poorer people spend more on essentials such as heating and food, and 10 per cent. of householders in the lowest income groups have an expenditure which has risen 17 per cent. above the average prices paid for goods by the top 10 per cent. of income recipients. That is because the poorest people do not spend a great deal of money on petrol, gin, jewellery and many other such items which come into the retail price index.

The thought that I want to leave the noble Baroness with tonight is that it is essential that there be some revision of the retail price index. It is based on a basket of purchases. It does not relate to the purchases of the poorest people.

I was interested to see in Hansard a Question about the retail price index put to the noble Lord, Lord Young of Graffham. He said:

My Lords, the weighting of the index is revised as a matter of routine at the beginning of each year. I have no immediate plans to change the way that this is done. However, I expect to receive shortly a report from the RPI Advisory Committee and will be ready to consider making changes in the light of its recommen-dations".— [Official Report, 10/6/86; col. 115.] It would be helpful if the noble Baroness could tell us tonight that we can look forward to hearing something soon about that report and knowing whether the Government will make some changes which will help people whose expenditure does not reflect the RPI. They know it. Their pattern of spending is completely different.

I must refer to child benefit. I cannot understand why it is not index linked. Indexing of child benefit would maintain a tax equity. If the Chancellor increases personal allowances, for instance, it is the only way to ensure that the tax relief benefits not so much the single and the childless as the family with children, and thus we can ensure a tax free benefit for the family. Child benefit was cut by £175 million last year. That has not been reinstated. I cannot see how the noble Baroness can apparently rejoice in an increase in child benefit of lOp. That is disgraceful.

There was agreement in Parliament that child benefit was the best way to deal with family poverty. When family allowances and child income tax allowances were abolished, child benefit replaced them. There was a cut of £175 million last year. We now have this pitiful increase of lOp. That does not restore the 35p cut which was made last year. I do not know what is the Government's real thinking on child benefit. It is now worth less than the previous combination of family and income tax allowances. It is not making the impact on poor families that we envisaged.

I wish to mention housing. I wonder how much the Government will save by the removal of the non-householder rent addition from young adults aged 21 to 24. That will hurt poor households which are not claiming supplementary benefits or housing benefit. It will further erode the independence of young adults. That is another question.

I am worried and puzzled—I am not very good at figures—because I have looked up the Government Actuary's report on up-ratings and I find in paragraph 10 (I would not trust myself to do other than quote): The new estimate for 1986–87 shows a surplus of £108 million compared with the estimated deficit of £80 million in the November 1985 report". If the national insurance fund is doing so well that it has a surplus, I cannot understand why there is such meanness particularly with child benefit. We must go back to the fundamental political point.

I do not propose to detain your Lordships much longer tonight on the subject of social security, to which we shall return again and again. When we had a policy of linking the up-ratings to earnings, people on social security were much better off. Because they are now linked to the RPI, which itself arguably does not reflect the spending habits of the poorest people, less money is awarded. Time after time under this Government we are having up-ratings which are inadequate on the Government's theory of relating them to the retail price index. They do not even relate child benefit to the retail price index.

The situation is unsatisfactory. We are glad if anybody gets a halfpenny more, but for people needing child benefit to receive only 10p a week extra is unacceptably mean. I do not know what old-age pensioners will do with their 40p a week! I trust that they will respond when they have a chance at the next general election.

Lord Banks

My Lords, I am grateful to the noble Baroness, Lady Hooper, for explaining some of the content of the orders. We on these Benches agree with the moving of the up-rating date. We think that it is sensible to align the benefit year and the tax year, but I do not think that what the Government are doing is fully understood in the country. That is one reason why they have received a great deal of hostile criticism about the smallness of the increase. Nevertheless, previous experience has shown that when the period of reference is altered beneficiaries can suffer.

If we look at this case, from July 1986 to November 1986 claimants will be 1.1 per cent. better off than they would have been had the alteration not been made. But it seems to me that from November 1986 to April 1987 they are bound to be worse off, since the annual rate of inflation to May 1986, which would have determined the rate of benefit paid during that period, is unlikely to be 1.1 per cent. Indeed, it is likely to be in excess of that. Will that not almost certainly mean an overall loss for beneficiaries? If so, how much will that overall loss be? Would it not have been better to increase the up-rating by a higher percentage than the particularly low rate of inflation in the shorter reference period in order to ease the transition?

The noble Baroness, Lady Jeger, pointed out that the real value of child benefit was cut last November. In this up-rating that cut is not made good, but at least there is no further cut in real value. Can the noble Baroness, Lady Hooper, say that there will be no further cut in the real value of child benefit in future up-ratings? I should be most grateful if she could direct her attention to that question. Is it the Government's intention to maintain the real value of child benefit? It would be helpful to us if she could give a direct answer to that question. Will the Government make good last year's cut in the real value at some point in the future?

There is to be no increase in the basic pension, although it is falling behind earnings. What do the Government propose to do about that? When will be a suitable time to allow pensioners to catch up with earnings? If nothing is done, the basic pension will form a lower and lower proportion of the state pension. In due course the bulk of the state pension will be earnings-related. Must not that affect the poorest adversely?

Looking at the £10 Christmas benefit, I note that it is not intended to increase that in this up-rating and it remains at that sum. Is it never to be increased? Is it to be allowed to decline in value year by year?

Paragraph 8 in the Government Actuary's report is a little disturbing. It says: Statistical information from different sources does not appear to be consistent and therefore the figures contained in the current report have a higher margin of uncertainty than usual". But it says that further work is under way to reconcile the data. What progress has been made with that work?

Finally, today is 1st July. These rates in the main become operative this month. The Government must have made all arrangements on the assumption that the House will agree to the orders this evening. I wonder what the Government would do if we were to reject them today, as we have a right to do. Is it right that the Government should rely on our being bound by convention not to do so? Does not the House being asked for its approval at this late date make the whole process a mere formality?

Baroness Hooper

My Lords, this has been a short but interesting debate. I am sorry that it has been necessary to limit the discussion of these important instruments and that they have arrived so late in the timetable, but noble Lords will appreciate the difficulties that the business managers have been experiencing of late. Nevertheless, I believe that the quality if not the quantity of the debate has shown that your Lordships' scrutiny of the instruments is in no way affected by the timing.

With your Lordships' permission, in view of the time, I do not propose now to deal with any of the points raised in the debate which could best be taken up in the context of our consideration of the Social Security Bill. However, I shall do my best to respond to other issues directly related to the up-rating.

First, I should draw your Lordships' attention to the fact that the increases in the up-rating will for most beneficiaries be free of tax for this financial year. This easement was announced in his Budget Statement by the Chancellor of the Exchequer and will not only mean that pensioners and others receive the full benefit of their increases but also that they do not have the disruption of a tax recoding in the middle of the year. From April next year when we move the up-rating cycle to its new starting point, there will no longer be any change in tax codings during the year on account of benefit changes. I am sure that your Lordships will welcome that sensible move, which will be a convenience both for claimants and for administration.

I was grateful to the noble Lord, Lord Banks, for welcoming the need for the change in the up-rating cycle. The noble Baroness, Lady Jeger, referred to the fact that the increase would buy only one more cup of coffee, but I remind your Lordships that the cost of that cup of coffee is the same as it was a year ago. The noble Baroness is therefore much better off than she would be had it doubled in price as a result of a higher rate of inflation.

The noble Baroness and the noble Lord asked about the basis and level of up-rating for pensioners. We are all accustomed to finding individual items of expenditure that have increased by a greater percentage than the RPI, but we never look at the items which have increased by less than the RPI or not at all. The RPI attempts to balance out such variations according to the weight of their impact on the individ-ual household. As noble Lords know, the composition of the RPI is the responsibility of technical experts advised by the Retail Price Index Advisory Committee who regularly review the weights used and other issues. It is at present sitting and is due to report shortly. Its recommendations will, I understand, be incorporated into the RPI in January next year, as is normal practice with any revisions.

The committee is also reviewing the special pensioners price indices which are designed to reflect specifically the exchanges in expenditure experienced by pensioner households heavily dependent on state benefits. Those indices, which exclude housing costs, show that pensioners have experienced lower rates of inflation than the population at large. For example, in the period from November 1978 to November 1985 the RPI rose faster than the pensioners' price indices by more than 6 percentage points and the rate of retirement pension rose by 16 percentage points.

It has been proved both that the RPI is more favourable to pensioners on the whole than the specialised index and that if the RPI or the special pensioners' price indices should understate in any way the true level of inflation experienced by pensioners and other social security beneficiaries, as claimed in the recent report by the Institute of Fiscal Studies, which was referred to by the noble Baroness, that is cushioned by the real-terms increases that the pensioners have received.

The noble Baroness, and indeed the noble Lord, also made specific reference to child benefit. The noble Baroness, in particular, referred to the index linking of child benefit. These instruments provide for an increase in child benefit in line with prices. I shall not repeat the arguments about the permanent indexation of child benefit given by my noble friend last night during the debate on the Social Security Bill. I confirm, as my noble friend did, the Government's commitment to this benefit.

Lord Banks

My Lords, I hesitate to interrupt the noble Baroness. What exactly is the commitment if it does not entail indexing? Could it mean that the value is allowed to decrease to the point of extinction? The commitment requires some definition.

Baroness Hooper

My Lords, we can I believe assure the noble Lord that the Government's commitment is not to see any decrease or suffering in real terms in respect of child benefit. I can perhaps refer the noble Lord to the statement made by my noble friend Lady Trumpington in the course of the debate last night. No doubt this point will be discussed at further stages of the Social Security Bill.

The noble Baroness referred to the level of the national insurance fund. A working surplus in the national insurance fund is necessary to ensure that benefits can actually be paid. Referring back to child benefit, this is not of course paid out of the national insurance fund. I can go further in respect of the noble Lord's supplementary remarks and say that our commitment is to maintain child benefit as a major and valuable contribution to all families' incomes.

Baroness Jeger

My Lords, before the noble Baroness leaves the subject of child benefit, can she explain to those of us who have no actuarial knowledge or experience how it is worked out that there should be an increase of 10p a week? What is the underlying mathematics of 10p? Could it not have been 12p or 20p?

Baroness Hooper

My Lords, no doubt it could have been more or indeed less. I shall have to do a little more research before I can give an actuarial definition, as I do not claim in any way to have the knowledge of an actuary in the matter. I shall certainly be happy to refer back to the noble Baroness on that point.

The noble Baroness asked how much was saved by removing the non-householder addition from young people's benefits. She asked how much the Government were saving by removing this supplementary benefit from the 21 to 24 year-olds. The gross 1986–87 savings will be around £8 million a year. We have never made any secret of this. But this change is not within the scope of the Motions before the House tonight.

The noble Lord, Lord Banks, asked about the effect of the change of date in terms of what people were going to receive. Trying to compare pensioners' incomes under the new up-rating with what it would have been if there had been a November up-rating in line with former practice is akin to an exercise in leapfrogging. A further up-rating will take place in April 1987 during the period that would have been covered by the November up-rating. It is more or less a case of swings and roundabouts. What you may lose in the short term, you will gain in the long term. I see that the noble Lord shakes his head. I apologise if I have not been able to deal sufficiently fully with all the questions or indeed all of the points raised. After reading Hansard carefully, I shall, if necessary, write to noble Lords to follow up any outstanding points.

I have already referred to the tremendous burden that a benefit up-rating places upon the staff of the Department of Health and Social Security particularly in local offices. I should like to take this opportunity to pay tribute to their efforts in carrying out this task. I must repeat that this up-rating fully honours the Government's pledges to protect the levels of pensions and linked benefits and further demonstrates the successes of our economic policies in defeating the evil of inflation. I commend the regulations and the orders to your Lordships.

On Question, Motion agreed to.

Viscount Long

My Lords, I beg to move that the House do now adjourn during pleasure until 8.30 p.m.

Moved accordingly, and, on Question, Motion agreed to.

[The Sitting was suspended from 8.6 until 8.30 p.m.]

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