Pensions and Benefits: Payment Arrangements

HL Deb 17 March 1993 vol 543 cc1530-40

7.56 p.m.

Lord Peston rose to ask Her Majesty's Government whether they plan to introduce automated credit transfer arrangements for the payment of pensions and other benefits, and what effect this would have on the viability of the national network of sub-post offices.

The noble Lord said: My Lords, the Question that I have placed before your Lordships today has three dimensions. There are three government departments which are or may be concerned. Clearly, since I refer to the payment of pensions and other benefits, it is a matter for the Department of Social Security. That is why the noble Lord, Lord Henley, will reply to the Question. However, since we are discussing the network of sub-post offices which are essentially small businesses—I have asked the Question because of my responsibilities with respect to industry—it is equally a matter for the Department of Industry. Many of the sub-post offices most at risk are in rural areas and therefore justify a departmental environmental approach to the matter. I therefore accept that a wide range of interests is involved.

I have put down the Question in order to raise a broad issue: what is going on? I hope to receive an answer from the noble Lord, Lord Henley. As I understand the matter, the Department of Social Security is conducting a trial involving how social security benefits, but notably pensions, will be paid. That is the origin of the matter that has been brought to my attention.

I wish for more and better particulars about the trial. I hasten to add that I do not wish to be accused of being a Luddite. I am not against considering new means of making payments. But there is more to the issue than that. I seek additional clarification on the nature of the trial. I am led to believe that persons who are about to collect their pensions for the first time have been sent letters about possible collection arrangements for their pensions. I have copies of the three types of letter: one kind emphasises the advantages of using a bank or building society, but mentions the option of using a post office. The second type again emphasises and gives advice about banks and building societies but virtually mentions post offices en passant and says that one has to send away for further information. The third merely refers to banks and building societies and then states that there may be other means.

My thoughts are that, if this is a trial, it does not meet the minimum requirement of a statistical nature for a trial, which is, essentially, a lack of bias. A document which I have before me on the one hand devotes a great deal of space to the option of giving the benefit straight into a bank or building society account. It then states, quite rightly, "Getting your money in this way has many advantages". On the other hand, the word "advantages" does not appear at all in relation to the second possibility, which is by order book at a post office. Speaking as someone who at one time had considerable expertise on statistical testing. I do not believe that it remotely meets the minimum standard required for what is called a trial. This means in particular that any information derived from the alleged trial will simply be so biased as to be quite worthless. I ask the noble Lord to tell me what is the purpose of the three different letters and why the word "trial" is being used. What is going on?

My next question is that, in carrying out such an exercise, one would expect that a variety of interests would be consulted. Again, I ask the noble Lord, who has been consulted? Have any of those who in some way represent pensioners been consulted? Has the Post Office been consulted and if so in what form? Has the organisation called the National Federation of Sub-Postmasters been consulted?

To revert to my opening remarks, in so far as it is obvious that the Department of Social Security, the Department of Trade and Industry and the Department of the Environment are involved, has there been a government committee and government consultation which provide the background to all this? Will the results of the "trial" be reported back to a group of Ministers and officials?

I said that, apart from the substantive question of the means of paying pensions, there is a serious question about the sub-post offices. They are small businesses. If I may make my usual acerbic remark, I assume that almost everyone who has such a small business is likely to vote for the noble Lord's party, not mine, so I am clearly not electioneering, I do not see these as natural constituents. But nonetheless, small businesses are dear to the heart of the Government and it was only yesterday that in the Budget we were told so. In so far as they are important to the Government, why is a policy initiative being considered which, to put it at its mildest, is threatening to small businesses? Sub-post offices employ a total of 40,000 full and part-time workers. They have contact every week with 19 million people; their business, transacted largely in transfer payments, runs to nearly £70 million. We are talking about small businesses, businessmen and women who have a personal financial stake in their sub-post office. I do not have to emphasise to anyone who has any notion of rural England that these people are very much part of their community and they have a tradition of service to that community. Why are they being put at risk in this way? I repeat my question: what are the Government up to?

In that connection, I have consulted quite a number of noble Lords who have been interested in the matter —but not so interested as to be here tonight. Many of them are devoted to rural communities and believe that the sub-post offices are enormously important parts of rural communities. If they were to go, almost the only focus left in those communities would disappear.

I come finally to the other side. In so far as an alternative method of payment through the banks and building societies is being considered, first, may I ask whether those banks and building societies have been consulted and in what way? Are they enthusiastic about this? It is not obvious to me that it would be particularly profitable business. I ask the noble Lord whether there is any evidence that they want the business. More to the point, will they provide the service free? In other words, if it gradually happens that the sub-post offices disappear, payment will essentially have to be more and more through a bank or building society, often to people who do not have a bank or building society account and, for that matter, do not want one. Will it not add to the costs that those people incur?

It may be said that I have made an enormous point about what looks at first sight to be a rather minor matter. I can only say that for the three main types of people concerned it is not minor at all. For the business people who are involved with the sub-post offices, it is not minor. For the pensioners and recipients of the benefits, it is not minor. For the communities in which the sub-post offices exist, it is certainly not minor.

8.6 p.m.

Earl Russell

My Lords, I wish to thank the noble Lord, Lord Peston, for introducing a topic which as I have looked at it has come to seem more and more fascinating. It is a teaser of a problem. We have here a conflict of right and right; such conflicts always intrigue me. We also have an interdepartmental problem; those always intrigue me too. I cannot help thinking that somewhere in Whitehall there ought to be something nicknamed the "Howard's End Committee" because its motto is "Only Connect".

My noble kinsman knows that I am not likely to offer any criticism of the payment of benefit by automatic credit transfer because well before the department introduced it I asked the department whether it would make the facility available. I was speaking on that occasion on behalf of someone who spoke in the debate on disability at our Nottingham party conference in the spring of 1991. He made to me the reasonable point that being in a wheelchair he did not always find travel to the post office easy. There are quite a lot of people in that position. Thus we should remember that, apart from any savings to the department—and those of course are not negligible when there are other causes on which we wish to spend money—payment of benefit by automatic credit transfer may on occasion do much good. I am glad that the facility is available and I should like it to stay available.

However, when I say that I am in favour of benefits being paid by automatic credit transfer, I have not said that I am in favour of them being paid only by that method. My noble kinsman expressed agreement with that view during the autumn uprating Statement. I think we agree that we are in favour of choice; that people should be able to choose the method of getting their benefit paid which is most convenient to them. After all, in this country it is not compulsory to have a bank account. I was told over dinner about a group of people who paid subscriptions of 50p each into a bank account and paid bank charges of 60p per entry on those subscriptions.

There may be many people on benefit who find that it is not good value for money to have a bank account. Since people on benefit are often in debt, there may be a number whom the banks might not altogether welcome as customers. So any situation in which it is necessary for those on benefit to have a bank account could become rather awkward and give rise to a need for urgent consultations with banks. After all, banks are in business for profit and have to concern themselves with the creditworthiness of their customers.

I am glad that the noble Lord, Lord Peston, raised the question of the forms. I think we agree that there is a strong case for having a level playing field. I have no objection to people being asked which form of benefit they want, but the choice should be expressed in an equal way. I must confess that the phrase "by other means" caused me some anxiety and makes me think of Clausewitz. It is not quite as bad as that, but it suggests a certain amount of pressure.

The other problem is the question of sub-post offices. It is true that all government is a game of billiards. Everything we do cannons off onto something else. I admit that, because sub-post offices do not come within the social security brief, I have not given the thought that I should have to their future. I noticed the word "reassurance" in the uprating Statement and was glad to hear it. But I have not thought through the full implications.

It is of course true that a sub-post office, normally combined with a village shop, is absolutely vital in any rural community. It used to be said that there were only two meeting places in the normal English village—the Church and the ale house. The sub-post office now provides a third, and perhaps the most valuable of the three. It is a valuable part of a villager's pride.

Some time ago, before the ownership of Harrods was a controversial matter, its owner was holidaying in the Scottish Highlands. He went into the village shop and the shopkeeper started boasting to him about how splendid her shop was. She then asked, "What do you do?" He replied, "I have a shop too". She started asking a few questions about the range of goods it sold and as he went on her jaw dropped further and further. Then suddenly her face lit up and she said, "Och, but ye'll no have the post office"! Having the post office is often vital both to the economic survival of the shop and to the pride of the village. I once lived in a village that was 12 miles from the nearest bank. It was three miles from the nearest post office. But at least if one was determined the post office was within walking distance. It was capable of functioning as a village centre, acting as a distribution point for news and being part of what made a community a community.

But of course it is not only in rural areas that sub-post offices are vital. No one would venture to describe Kilburn as a rural area. But at the moment there is a considerable outcry going on in Kilburn against the proposal to close the sub-post office in Cricklewood. Many people, particularly pensioners and those who have heavy traffic on roads near them, do not feel inclined to go out and walk a couple of miles. But it matters rather a lot to them to get out of the house from time to time. A visit to a sub-post office can therefore be a vital part of life in an urban community as well as a rural one.

We therefore have a conflict of right and right. The survival of sub-post offices is vital. The payment of benefit by automatic credit transfer is good. So where do we go from here? This is where we need to think about whether there are alternative ways of looking at the problem. At present small post offices are in difficulty. ACRE has found that 42 per cent. are thinking of giving up. That would be a disaster. The trouble is that too much of their finance seems to depend on business done with the Government; 70 per cent. depends on government business of one sort or another and 34 per cent. on business done for the benefit office. I am inclined to suggest that we need to look at a system of remuneration for sub-post offices—whether there is a new way of rejigging the financing of sub-post offices that does not depend quite so heavily on payments of pensions and social security benefits.

One point that obviously calls for examination is the uniform business rate. Some of us may remember the noble Lord, Lord Pym, speaking on the Second Reading of the Local Government Finance Bill 1988 and warning the House very strongly that it was going to cause a considerable threat to the future of corner shops. That was a far-sighted speech.

There are technical changes that could be made to the uniform business rate, short of abolishing it. For example, something could be done in the way of concessions to those whose business premises are the same as their dwellinghouse. That would cover a great many of the cases with which we are concerned. A new form of contract could be drawn up with rural sub-post offices. It is possible to look at the rate of payment for other services, and, indeed, at the possibility of paying them a fee simply for operating a post office—perhaps something along the lines of the capitation fee paid to doctors. One could perhaps proportion it to the number of people for whom it is the nearest post office.

A sub-post office performs a vital service simply by being there. The Government therefore would not be wasting their money if they were to consider a scheme of payment in which that formed one element. After all, they should remember the point made by my right honourable friend Mr Tyler in another place—if a sub-post office network did not exist the Government would have to invent one. This Government, aware as they are of the difficulties of centralised planning, would probably agree that creating such a system from scratch would be a great deal harder than preserving the one which has grown up spontaneously.

8.17 p.m.

Lord Cocks of Hartcliffe

My Lords, I too thank my noble friend Lord Peston for introducing this subject and alerting the House. This trial —three separate forms to each of 8,000 people in the north west of England—gives me an appalling sense of déjà vu When I was a boy we were occasionally treated to a visit to the cinema. In those days there were continuous performances and one had to go in and hope one could catch the start of the film. Often we did not and would sit there watching the screen until the film came round again. We would turn to each other and say, "this is where we came in".

I have that dreadful feeling now and the déjà vu is well founded. I recently had the privilege of raising in your Lordships' House the whole question of water metering and whether it would be imposed on domestic consumers regardless of their wishes. The regulator of the water industry wishes domestic consumers to be metered and bases his evidence for that on two trials; one was a form sent out with water bills to each customer and the other was an in-depth questionnaire produced by the OPCS.

In your Lordships' House I pointed out statistical deficiencies in the form which went with the water bills. The regulator wrote to me and said that they realised the existence of those statistical deficiencies. One must therefore ask why the thing was sent out in the first place. There was a pitiful response to the survey. I believe that only 1.6 per cent. of the people who received the form with their bills responded. The regulator said that they placed more reliance on the OPCS survey. I am greatly indebted to Dr. Gaskell of the London School of Economics who, being more statistically minded than I, was able to point out the substantial deficiencies in that. Yet on the basis of these two samplings, the whole nation was going to be subjected to domestic water metering if the regulator had his way.

Here again we have trials going on. Are we going to have a situation, as my noble friend said, where the results are to be used for making changes on a national scale without further detailed conversations? As the noble Earl, Lord Russell, said, concern has been voiced about this in another place, not only by his colleagues who represent very far flung and widespread constituencies in the south west of England but also by colleagues of the noble Lord, Lord Peston, and myself, who represent urban areas. They realise the essential nature of the local post office as an integral part of life of an area.

Given that, one has to say that the feeling of déjà vu again sweeps over in waves when one considers what has happened to so many traditional public houses following the MMC report on the brewing industry and the way in which a number of areas have been deprived of the local hostelry—a place not only of refreshment but where people could meet, see their friends and enjoy a social life in a centre which otherwise would not have been available. So we have had the mess-up made by the MMC report and the brewers over public houses. Are we now faced with the same thing over post offices?

It has already been said that post offices are an integral part of people's lives. I have always believed that on this side of the House we are in business to look after people who find the most difficulty in looking after themselves. I have looked at these forms to which my noble friend referred. The form says "Phone freeline" and it gives the number to ring for more information. I phoned the number at 18.19 this evening and I was told that the office was closed but that if I left my name and daytime telephone number they would come back to me. They went on to point out that the office is open between 9 a.m. and 4.30 p.m., Monday to Friday.

That in itself is loaded against the least able in our society, because they do not have telephones and they cannot give daytime numbers. It is also loaded against people who have jobs where they cannot just lift up a phone on the desk or get out their mobile and ring up between the hours of 9 a.m. and 4.30 p.m. It may be said by the Minister that they represent a minority in our society, but I believe that it is up to people who have some sort of position to look after minorities, particularly in these circumstances.

I am unhappy about this. I regard it as ominous, and I follow up what was said by my noble friend about banks. Banks are undergoing something of a change at the moment, following a number of injudicious investments not only domestically, here in Britain, but also abroad. They are seeking ways of recouping losses, and individual bank accounts are now being looked at as fruitful sources of income in the future. There is also the question of extra charges, and we know their behaviour in regard to passing on reductions in interest rates to people who have borrowed from them—the whole sum has not been given to those people who have taken out loans.

I touch very briefly on an article which appeared in the Daily Telegraph last October which said: Pensions: payments in arrears are saving the DHSS £40 million a year"— a nice little earner for the Government.

Is this another aspect of people being paid in arrears instead of collecting the cash weekly? Is that featuring in the Treasury's calculations for saving money? If so, it is a reprehensible way of behaving.

I conclude by saying that I am suspicious. I am glad that my noble friends are alert as well. We require reassurance on this, because for many people the visit to the post office to collect a payment is part of their social life. It is an outing: not everybody enjoys the social whirl of the ballet or theatre. For many people a visit to the post office is an important part of their weekly round. The post offices themselves depend on the business which is generated by people going there to collect their payments and I can see a very serious threat to these local social centres if we are not extremely alert.

8.24 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Lord Henley)

My Lords, I think this has been a very interesting debate and has touched on a variety of different subjects and on two or three departments, as the noble Lord, Lord Peston, put it.

In passing, may I make one brief remark to the noble Lord, Lord Cocks. He complained about the lack of hostelries resulting from certain government policies. My comment may comfort him: that is, that if he read the speech of my honourable friend on the same subject in another place last December, when the subject was last debated, he would note that my honourable friend referred as an example to the pub known as the "Swan With Two Necks" in Pendleton in Lancashire, which also doubled up as a community post office. The two problems can be dealt with as one.

My only regret is that the assurances which we have already given, for example, in that debate on the same subject in another place last December have not yet had their effect. I propose to repeat those assurances and to give the noble Lord, Lord Cocks, and others the reassurances they are looking for.

May I begin by explaining what is happening as regards the method of payment of benefits? At present, social security benefits are paid to beneficiaries by a variety of means. Some are paid by order book, cashable at a post office. Some are paid by Girocheque, or by a payable order, and some are paid by automatic credit transfer into the beneficiary's bank, building society or Girobank account. For some benefits, the beneficiary has the choice of method between, say, an order book and an automated credit transfer, which I shall refer to from now on as ACT. But for some benefits, ACT has not until now been available. My noble kinsman Lord Russell has expressed concern about this in the past and I think he will remember that I wrote to him in June 1991 outlining some of our proposals to extend ACT to other benefits. I explained why problems had arisen over certain things and why we should like to extend them, particularly to those who are disabled.

The Government consider that ACT offers substantial advantages to the recipient, compared with other methods of payment. I should like to stress to the noble Lord, Lord Peston, who I thought seemed to be under the impression that we were bringing in something totally new here, that ACT does already extend to a great many benefits and it has a fairly high take-up with some of those benefits. Perhaps I may give him one or two examples. As regards pensions and widow's benefit, already some 25 per cent. are paid by ACT. Of new customers in receipt of such benefits, the recent figure of take-up is 41 per cent. With child benefit, the general figure is 22 per cent. and with new customers 34 per cent. To take another fairly small example, 30 per cent. of war pensions are paid by ACT, and with new customers the figure rises to 39 per cent.

There is obviously a considerable degree of growth in the ACT world and we consider that there are many advantages in that. I should like to spell out some of the disadvantages of order books. An order book, for example, can generally be cashed at just one single nominated post office, whereas recipients of ACT may draw money out of any branch of their bank or building society anywhere in the country, or out of any post office if they have a Girobank account, so the use of the post office is still available. In addition, ACT could be paid into an interest-bearing account. Cashpoint facilities mean that beneficiaries can withdraw their money at any hour of the day or night, and they do not need to queue at the post office.

Fears have been expressed during the debate about the possibility of bank charges. We are at the moment only offering claimants the opportunity to use ACT or the opportunity to use the post office if they wish, so claimants who do not have a bank account clearly cannot use ACT and therefore bank charges simply do not arise in those cases. The banks have not yet introduced charges, and indeed some of them have recently said they do not intend to do so. Many claimants, as I have said, already prefer to use ACT because of its greater convenience.

There are other advantages in ACT. I regret to have to say that there is a considerable amount of organised fraud against the social security system, and the theft of order books is a particular example of that. We are cracking down on it, but it would be rash to say that we could ever eliminate it entirely.

There is also the administrative cost of different methods of payment, a point touched upon by one or two noble Lords. The administrative cost of ACT is far less than the cost of payment by order books. Perhaps I may give three figures. The cost for each payment by ACT is 3p. I stress that most payments by ACT are for four weeks. The cost for each payment by order book, where one is generally paying weekly and, therefore, theoretically, one ought to multiply this, is some 44p. The cost of paying by giro, which is largely for unemployment benefit and therefore outside the scope of the Question, is some 119p. It is very important that we use taxpayers' money as wisely as possible. I should like to stress that the savings simply from a greater take-up of ACT could be very large indeed.

For all these reasons the Government decided to extend the availability of ACT to cover those benefits —or most of them, as I told my noble kinsman Lord Russell which are at present payable only by other means. We promised that in the Citizen's Charter, and the necessary regulations will shortly be laid. In addition, my right honourable friend the Secretary of State for Social Security announced last autumn that the Government would be encouraging the greater use of ACT.

For that purpose, the Benefits Agency of the Department of Social Security has, as the noble Lord, Lord Peston, correctly told the House, been testing in trials some revised forms for sending to people who are shortly to become eligible for retirement pensions. The noble Lord asked for greater details of the trials. He mentioned the three forms. He seemed to be saying that this investigation was not statistically valid and that it was a biased test. The simple aim behind what we are doing is to test the effect of each of those forms. We are not saying that form A, form B or form C will be the one that is used. We are trying to see how comprehensible that form can be and what the behavioural results on the individuals will be. Again I must stress the figure that I quoted earlier. Already with the existing form, which very much stresses the order book rather than the possibility of ACT, which is rather left to one side, we have 41 per cent. take-up of ACT. But it will be very interesting to see what the effects of those forms will be.

The Post Office was informed of our proposal to test new types of form. We did not consult the National Federation of Sub-Postmasters, but that is a matter for the post offices themselves, since we had informed them about our plans. They have since written directly to a number of my colleagues and we will be replying to them in due course. The result of that trial will certainly inform our decision on what kind of form to use in the future, and that form will be published in due course.

I will return to the subject of the Post Office in a moment but I should like to explain and stress again that the purpose of the form is simply to encourage the use of ACT. I would reject any suggestion that any of the forms suppresses the information that there are other methods of payment available. I should be prepared to accept that they highlight ACT in different ways but all of them provide sufficient information about how to ask for other methods. The noble Lord, Lord Cocks, suggested that very few pensioners have telephones. I should like to remind him that the latest figures show that something of the order of 89 per cent. of pensioner households have telephones. I imagine that the figure for new pensioners will be even greater.

I return to the Post Office itself. As my honourable friend the Minister for Trade explained in another place last December, the Government will ensure that a national network of post offices remains. I repeat that commitment. That of course does not mean that every sub-post office everywhere will stay open for ever. There are changes in populations and in customers' requirements which make that both unnecessary and undesirable.

I noted the comments of my noble kinsman Lord Russell and his views on how post offices, particularly rural post offices, should be kept open. I am sure that my right honourable and honourable friends in the Department of Trade and Industry will take note of what he said. My noble kinsman was broadly right when he talked about business for Post Office Counters Limited, which is responsible for rural post offices, largely being about one-third from the Benefits Agency of the DSS, with a further 21 per cent. from the Royal Mail, 21 per cent. from Girobank, about 5 per cent. from the DVLA, 5 per cent. from National Savings, 5 per cent. from BT, 4 per cent. from the BBC and so on. Their sources of income are very diverse but I accept that a very large part comes from the Department of Social Security. Therefore it is very important that the effects on post offices and rural post offices of any decisions we take are taken into account. I assure my noble kinsman that they will be.

Like the noble Lord, Lord Peston, I can only stress that the Government value highly the service given by sub-postmasters, whether in the country or in urban areas. And a nationwide network, including that rural network, will remain. I repeat the commitment made in our manifesto and repeated by my honourable friend in December. But that does not preclude the Department of Social Security looking at the most efficient, and for that matter the cheapest, way of delivering benefit.

Lord Peston

My Lords, before the noble Lord sits down, as he sounded as if he has virtually ended his speech, can he give me an assurance that when the trials are finished and his department has gathered together whatever information it feels it is getting from the trials, a report will be written and that he will at least make some effort to see whether that report can be placed in the public domain so that those of us who are interested can learn a little about what the department has learnt?

Lord Henley

My Lords, I cannot give the noble Lord that assurance. There are two questions here. The first is how we are going to press ahead with encouraging the take-up of ACT. That will depend on these trials. The second question is how my colleagues in the Department of Trade and Industry see the post office network review. That goes beyond the question of the trials on these forms. The results of the trials will inform our decision on what kind of form we will use in the future. We shall certainly publish that form—we shall have to because obviously that form will have to be made available to the public.