HL Deb 21 January 1999 vol 596 cc752-70

7.30 p.m.

The Parliamentary Under-Secretary of State, Department of Social Security (Baroness Hollis of Heigham) rose to move, That the draft order laid before the House on 13th January be approved [5th Report from the Joint Committee].

The noble Baroness said: My Lords, as your Lordships are aware, this annual order and the others standing in my name on the Order Paper are an important part of the routine business of the DSS. The uprating order will increase most rates of social security benefits from this April. Most national insurance and non-contributory benefits will increase by an RPI of 3.2 per cent. Most income-related benefits will increase by the Rossi index of 2.1 per cent. As is usual, the increases are based on the change to the retail prices index from September to September, with the increase for the income-related benefits adjusted to remove the element of housing costs. As your Lordships know, housing costs for those on the income-related benefits are met separately through housing benefit, council tax benefit and income support mortgage interest and the Rossi index reflects more appropriately the spending of those claiming income-related benefits.

I must first ask for the indulgence of the House. I draw your Lordships' attention to the fact that we discovered only late this afternoon that during the drafting of the uprating order a transcription error meant that on page 17 of the uprating statement, item 11, the amount of benefit for widowers' pensions in industrial injuries benefits is shown as £66.25 whereas the actual uprated amount equals £66.75. The error will be remedied as quickly as possible and will not affect the benefit paid to claimants. None the less I wish to apologise to the House.

Lord Higgins

My Lords, the noble Baroness was good enough to alert me a short time ago to the fact that a mistake had been made. Clearly, it is better that it is discovered now rather than later when pensioners would either have been paid 50p less than they should have been or the right amount without appropriate parliamentary authority. It is right that that should be corrected as soon as possible. Had the mistake been the other way round and the Government were paying more, I should have been in a more difficult position. Perhaps the Minister will indicate how she proposes to correct that. I believe that the order comes before the Commons next week.

Baroness Hollis of Heigham

My Lords, unless I am misinformed—I shall write to the noble Lord—I understand that there will be a correction when the matter comes to the Commons. We have made the matter clear now. When the Statement is before the Commons it will have the correct figure. Does that answer the noble Lord's question?

Lord Higgins

My Lords, I doubt it. I presume the matter needs to be corrected in this House too. The noble Baroness clearly cannot amend the order at this moment. I presume the noble Baroness will either lay a new order—I understand that that is not what she intends; we should have to debate the whole matter again—or she will simply carry this order, and a second order will correct the figure.

I may be wrong but I do not believe she can simply correct the order in another place and not in this House.

Baroness Hollis of Heigham

My Lords, apparently it is not unprecedented. Section 152 of the Administration Act explicitly allows for the laying of subsequent affirmative regulations to put right mistakes. The error has now been referred to. We shall be remedying it. No claimants will be affected. A similar reference will be required for the Commons debate. Subject to agreement with the business managers, it is proposed that an amended order be laid and debated in March as part of a package of affirmative orders and regulations.

Lord Higgins

My Lords, I am anxious to facilitate the matter for the reasons I mentioned. I was surprised that the Minister seemed to indicate that the matter would be corrected in the Commons and not in this House.

Baroness Hollis of Heigham

My Lords, no. The situation will become clear because of the correction in the Commons. The matter will obviously have to come back to us. I apologise to the House.

The Guaranteed Minimum Pensions Increase Order is a consequence of Section 109 of the Pensions Schemes Act 1993 which requires that salary-related schemes contracted out of SERPS increase that part of the GMP earned since April 1988 by RPI or 3 per cent., whichever is less. So this year the increase will be 3 per cent. with the balance of inflation proofing provided through SERPS. This arrangement means that the burden of inflation proofing the post-1988 GMPs in payment is spread between the state and occupational pension schemes.

The national insurance re-rating order will increase the rates of class 2 national insurance contributions paid by self-employed people and of class 3 voluntary contributions broadly in line with the increase in the basic state retirement pension. Class 2 contributions will go up by 20 pence from £6.35 a week currently to £6.55 a week from April 1999. Class 3 contributions also go up by 20 pence a week from £6.25 to £6.45.

The order increases the small earnings exemption limit for class 2 contributions from £3,590 a year currently to £3,770 a year from April 1999. Self-employed people who expect to have annual profits or gains below that limit can apply to be excepted from payment of class 2 contributions. The order also increases the lower and upper profits limits for class 4 contributions paid by self-employed people on their annual profits and gains which are chargeable to income tax under Schedule D. The lower profits limit will go up from £7,310 a year to £7,530 a year. The upper profits limit will increase from £25,220 a year to £26,000 a year.

There will be no increase in the rate of class 4 contributions. This remains at 6 per cent. of annual profits and gains between the lower and upper profits limits. Nor will there be any increase in the rate of class 1 contributions paid by employees on the portion of their earnings that exceed lower earnings limit but do not exceed the upper earnings limit. This rate remains at 10 per cent. The rate of employers' class 1 contributions was set at 12.2 per cent. by the Social Security Act 1998 as part of the radical simplification of employers' and employees' contributions which comes into effect from April 1999. This simplification replaces the present multiplicity of employers' contribution rates with the single 12.2 per cent. rate in respect of non-contracted out employees, raises the point at which employers start to pay contributions to a new earnings threshold and abolishes the 2 per cent. "entry fee" contributions currently paid by employees on the portion of their earnings below the lower earnings limit.

Regulations will be laid next month to increase the lower earnings limit for employees' contributions from £64 a week currently to £66 a week from April 1999, to increase the upper earnings limit for employees' contributions from £485 a week currently to £500 a week from April 1999 and to set the earnings threshold for employers' contributions at £83 a week from April 1999.

These orders are laid with a report from the Government Actuary's Office on the National Insurance Fund. The Deputy Government Actuary estimates that the fund will not require a treasury grant in 1999–2000 in order to meet its estimated expenditure commitments and achieve an end of year balance of at least the minimum level recommended by the Government Actuary. However, in order to safeguard management of the fund's finances in the event that contributions revenues are lower than expected or benefit expenditure is higher than currently forecast, the contributions re-rating order provides that the maximum amount of Treasury grant which could be made available to the fund in 1999–2000—subject to parliamentary approval of a supplementary estimate—is set at 2 per cent. of annual benefit expenditure from the fund, some £930 million.

I turn to the costs of the uprating. The total additional cost of the uprating for the year 1999–2000 is estimated to be £3.7 billion. This will mean that the total estimate of DSS benefit expenditure for that year will be over £95 billion. Around half of this expenditure will go to pensioners, a quarter to sick and disabled people, with around 20 per cent spent on families. Over the period 1998–1999 to 2001–20, the period covering the settlement of the comprehensive spending review, cumulative DSS expenditure in cash terms will increase by £24 billion. The main beneficiaries of this significant increase will be pensioners who will gain some £12 billion, disabled people and carers some £7 billion, and £3 billion on child benefit. This last increase partly reflects the increase in child benefit for the eldest child by a record amount of £2.95 a week.

I must reassure your Lordships that this increased provision, most of which is targeted on the most vulnerable in our society, is within our spending capacity. We expect that the average real growth in DSS benefit spending, including the working families tax credit, is forecast to be under 2 per cent. a year over this Parliament. This compares to to 4 per cent. a year during the last Parliament, and an average of 3.4 per cent. a year for the period 1978–79 to 1996–97. I must also reassure your Lordships that our expenditure plans are affordable. This Government have consistently taken a responsible approach to the public finances and the plans include cautious forecasts of growth in the economy and include margins to cover uncertainties. The result is that social security spending is now growing more slowly than the long-term trend for the economy as a whole.

It is important to focus on spending patterns and projections in a debate which calls for an increase in public spending of £3.7 million. It is also important, as these orders are debated in both Houses, to demonstrate that this total of social security expenditure, over 10 per cent. of GDP, provides the taxpayer with value for money. These are difficult equations. A business case which provides for cash transfers from one group to another and which involve issues like decency, security and the nature of a civic society, are difficult to construct. But while it is difficult ever to know that you have got it just right, it is plainly obvious when you have got it wrong. Between 1979 and 1997, the amount spent on social security increased in real terms by £43 billion. But during that period poverty, inequality, dependency and social exclusion increased dramatically. That was plainly and badly wrong.

How did it go so wrong? At the root of it was a failure to understand the extent to which society had changed. Just as fundamentally, it was a failure to use the great machinery of welfare which had developed in Britain since Beveridge to encourage and enable people to live to their full potential and make the best of their lives. Our task as we tackle the issue of welfare reform is to get it right, to ensure that the vast sums of money which are the essence of the orders today are used as an investment.

We have set about the task with some urgency. Our first priority was to help people of working age back into work, changing the culture of social security, no longer a bank of last resort but an active partner in providing people with greater employment opportunities. Thus our New Deals are already making a real difference to the lives of thousands of people, providing them with training, new skills and the springboard for participation in the labour market. We wanted to raise our horizons. Rightly, in the first wave, we focused on the young unemployed and those who had lived with the misery of long-term unemployment. But we also recognise that those who need additional help to participate, or those who want to participate but can only do so to a limited degree, by reasons of health or domestic responsibility, require different services and support. The New Deals for lone parents and for disabled people are providing that support by matching service to needs.

But no matter how big the hand-up, we can only change people's perception of work, especially those who are entrenched in social exclusion, if we ensure that work pays, if it is truly a pathway out of poverty. The national minimum wage to be introduced in April will make a significant contribution. As important are our plans for helping families and the disable to stay in employment. The working families tax credit will guarantee an income of at least £180 a week for every working family in full-time work. Families with earnings of less than half average, £220 per week, will not pay income tax. The childcare tax credit will also provide significant support to single and two-parent families. This credit will provide help of 70 per cent. of eligible childcare costs up to a weekly limit of £100 for families with one child and up to £150 for families with two or more children. Underpinning the childcare tax credit will be a coherent childcare strategy with an aim of encouraging good quality, affordable and flexible childcare to be widely available.

We will also make work pay for those disabled people who want more out of life than being set-aside to depend entirely on out-of-work benefits. They tell us that they want to work. We are seeking to help them to work through our New Deals. The disabled persons' tax credit will increase the rewards of working for those people who have only limited earnings capacity.

This is just the first stage of getting it right on social policy, and I look forward to developing our reform agenda over the coming months. But social security expenditure is not just about covering the costs of benefit rates. We need to ensure that we achieve maximum value for money in terms of service delivery. Our objectives are a system for delivering welfare that is flexible, efficient and accessible. But welfare is more than just delivering benefits. We are working to change the environment and culture of claiming benefit. Crucial to this is active management of individuals by trained personal advisers geared to help and encourage people of working age to develop their potential. When people have been out of the labour market for some time or have special needs such as caring responsibilities or want to better themselves by maximising their employability, they need ongoing help, a proper skills analysis, help in overcoming skills deficiencies and practical advice on overcoming barriers to work. In short, we believe that obtaining value for money in service delivery terms is by recognising the needs and aspirations of our clients.

I mentioned earlier the difficulties of building business cases where social policy is involved. But clearly our approach of using the social security budget as an investment in people, as an instrument of change, is based on our principle of work for those who can. Security for those who cannot is the other side of that coin and an essential element of a decent society.

While our approach to work for those who can has been to reject the past, our approach to security for those who cannot work is to take direct government action. For instance, an extra £1.25 billion a year will help all families with children. Similarly, the substantial increase in benefit for the poorest pensioners included in this uprating order is part of a £2.5 billion package of measures to give help among the most vulnerable in our society. Our approach is about delivering more help to those who need it most.

Our reform of the severe disablement allowance will target extra help on people who become disabled early in life and do not have the opportunity to work. Parents of severely disabled children will be able to plan for the future in the knowledge that their child will have a secure non-means tested income. People who become disable early in life and claim benefit before the age of 20 will have access to incapacity benefit. After a year on benefit, they will receive the long-term rate of incapacity benefit—as much as £25 a week extra for some claimants, a significantly higher level of guaranteed support without means testing. The vast majority will be floated off income support.

The disability income guarantee will provide a new enhanced premium in the income-related benefits for severely disabled people aged under 60 with the highest care needs. A similar new premium is provided for families with severely disabled children with the highest care needs. It means an extra £5.75 a week for a single person or a child, £8.30 for a couple, at April 1998 rates. To meet a longstanding gap in the system of support for severely disabled young children, the DLA higher rate mobility component worth £35.83 a week, will be extended to children aged three and four, something that I know your Lordships welcome.

At the heart of our approach to getting it right is making effective change by taking practical measures. We are not burdened by dogma. This is reflected in our attitude to means tested, contributory and universal benefits. In my mind there is no one right method. Since the election we have heavily endorsed the universal benefits by increasing child benefit to its highest ever amount. We will extend contributory widow's benefit to bereaved men. We are extending needs-based disability benefits for people disabled early in life and severely disabled young children. Other changes, such as working families tax credit, will increase means testing but will help to make sure that work pays for up to 1.5 million families who will be better off as a result. We want to promote fairness and opportunity, and partnerships between public and private provision. We will face these challenges with all the tools at our disposal, including a full range of benefit structures.

I look forward to the debate with interest. Precedent allows for a wide-ranging debate on social security. While I believe that under this Administration we can, for the first time in many years, give an assurance that social security spending is increasingly providing added value out of total government spending, I always welcome your Lordships' informed views on the matter. This Government set a very clear agenda for welfare reform. For most people of working age the promotion of social inclusion is the promotion of employability and the promotion of personal responsibility. The responsibility for the security for those who cannot work falls to society. The instruments before us are part of that process. For example, the changes to national insurance are just a component of substantial changes to national insurance for April which will help ensure that work pays. The uprating order, by providing price protection, ensures continuing security and for some groups such as parents and the poorest pensioners ensures more security. I therefore commend the order to the House.

Moved, That the draft order laid before the House on 13th January be approved [5th Report from the Joint Committ].—(Baroness Hollis of Heigham.)

7.52 p.m.

Lord Higgins

My Lords, though I have been here for little more than a year, I still have a slight sense of culture shock. I had not fully anticipated the extent to which this debate would be wide ranging. If the Minister's speech is repeated in the other place, I suspect that there may be some trouble with the Speaker.

Be that as it may, when we debated this issue last year, it was preceded by a Statement on the uprating order which I had understood would be one of the few fixed points in the annual financial timetable. I believe I am right in saying that that has not happened this year and I am not at all clear why that is so. Perhaps the Minister will enlighten us.

As the noble Baroness rightly points out, the total of social security spending is around 10 per cent. of GNP—an enormous amount. She raised a large number of issues which we have debated on former occasions and is aware that there are great disputes between us; for example, with regard to the working family tax credit there is a clear division between the two sides of the House. There is also a difference in the view we take with regard to means testing, the contributory principle and so forth. It is not my intention to rehearse those arguments this evening, but there are a number of specific points which it may be helpful to make.

As I understand it, we are debating all three orders together. In that context there is scope for a certain amount of confusion between the minimum pension guarantee and the guaranteed minimum pension. One order deals with one and another with the other. The distinction is substantial. One relates to the national insurance pension and the other to corporate pensions.

I turn immediately to some of the arithmetic, though I do not propose to concentrate too much on this. Given what the Minister said about the total social security and welfare expenditure, I am a little puzzled as to why—if I understand it correctly—the uprating orders this year will cost £3.7 billion for 1999–2000 whereas last year it was only £2.45 billion. Perhaps the Minister will indicate exactly what is the situation with regard to those figures.

Having said that, I turn to the question of the minimum income guarantee. As the Minister will well know from our previous exchanges, we are concerned about this in as much as it contributes to the undermining of the contributory principle—one of a number of measures which have that effect. As we understand it, some people will receive benefits to which they have not contributed, even though that specific benefit was previously regarded as one which could be obtained only if one had satisfied the contributory conditions.

In that regard a specific point arises. We understood that one of the main reasons the Government felt that there was a case for a minimum income guarantee was the fact that there is a lower takeup of income-related means-tested benefits than one would wish. The impression was created that in future there would be a minimum income guarantee and that the arrangements which were going to be made would ensure that the take-up was greater at the bottom end of the scale. I was therefore surprised to note what I had not previously understood from a representation made by the citizens advice bureau; that is, that the expression "minimum income guarantee" which was being used by Ministers when introducing the increased benefits, though it was reassuring, did not make clear that it related to means-tested benefits. It will not automatically be paid into a retirement pension; it will have to be claimed separately as income support. It would seem therefore that this change, which has the disadvantage I mentioned a moment or two ago, would not have the advantage we had previously understood was one of the main reasons, if not the main reason, why the Government believed it right to introduce it. It seems to undermine to some extent the whole exercise.

I turn now to a question which arose at the Committee stage of the social security contributions Bill last week and is likely to arise again on the Bill's Report stage next week; namely, the situation which has arisen with regard to the breakdown (if that is the right word) of the national insurance computer. I indicated to Ministers that I felt that it would be helpful to pursue that when we come to Report stage next week. It is also relevant to these orders since there is no point in increasing the extent of the pensions and so forth if they are not going to be paid. I thought therefore it would be helpful for me to pose some questions to the Minister. I imagine that, with her great expertise, she will be able to answer some right away, but I shall fully understand if she cannot answer them all. I give her notice that I hope to raise them next Monday at Report stage but, as I say, they are entirely relevant to these orders.

I am nowhere near as expert as the noble Baroness and my first question relates to whether it is just one computer which is the problem or whether there are several related computers, including the ones run by the Inland Revenue, which will be affected if the transfer of the Contributions Agency from the Department of Social Security to the Inland Revenue takes place. Secondly, is it the case that the computer went down last June? If so, when is it expected to become fully operational again? It is said to be next April. Is that too pessimistic or too optimistic an estimate? It is clearly a disastrous situation if it has been down from June to April.

Clearly a significant number of pensioners are affected by the breakdown. My understanding is that a number of them have received no communication whatever from the department telling them what the situation is. One would have thought at the very least that that might have been done, though I understand from one person who inquired why he had not been told, that the answer came back, "Because it has all been computerised and we would have to do it manually".

It is all very well to laugh now, but it is not very funny if one receives the answer another person had; that is, "I have now to write a considerable amount of correspondence on this matter as to what people should do if they were expecting to receive their pension and did not. The answer is that they should go on income support". Whether the computer is capable of coping with that, I am not sure. Perhaps the Minister can tell us whether the computer deals with both income support and pensions. She indicates that it does not. At least if people are not receiving their pension, they can claim income support. I do not find that very comforting, but it could be worse.

I am not clear also about the exact scope of the orders. As I say, I do not expect the Minister to answer all my questions tonight but if she can at least answer some of them, it will help to clarify what is obviously a serious situation.

I am not clear whether the provisions refer only to a limited number of people, particularly those who have deferred claiming their pension in order to obtain the higher amount. If you defer claiming your national insurance pension, you get a certain amount—not necessarily uprated—but with a notional rate of interest added to it. In that context, if people have not yet been paid their pension, having now claimed it, but not having claimed it previously, will they receive this uprating? Let me put it more clearly. If such people were expecting to receive their pension last June but now find that they will not receive it until after April, will they receive both the uprating and the increased allowance normally made by way of an interest calculation?

Perhaps the Minister will tell us how many people are affected by that change and something about the situation as regards tax? The Government, in their wisdom, have introduced a system of self-assessment which involves very heavy penalties. Some 20 years ago, I opposed that. How are those people to complete their self-assessment forms? If they do not do so by the end of this month, they will incur heavy interest penalties.

One could go on longer, but perhaps I may add one more point. I understand that it is proposed that, because of the delay, the Government will pay a degree of compensation. I understand that something like 0.5 per cent. a month will be paid. Will that be taxable? How does that compare with the interest charged to people who do not pay their tax on time? One would think that there should be a correlation between the two. We can pursue this further on Monday. However, it would be helpful to have a ground-clearing exercise at this stage.

The Minister has made great play of the overall effect of the Government's policy and seeks to present it in a favourable light. Perhaps I may quote her. She said that the Government want to give help, to those who need it most". On previous occasions we have spent a lot of time debating the effect on pension funds generally of the Chancellor's first Budget and the fact that something like £5 billion a year was extracted from that. I do not want to pursue that point further this evening.

What received much less attention at that time, although it was included in the same Budget, was the fact that there would be a withdrawal of dividend tax credits for individual non-taxpayers, clearly the poorest in society. Such people pay no tax whatever although they may top up their meagre income with income from savings invested one way or another. Clearly, those amounts are not very large. Nonetheless, the effect of withdrawing the dividend tax credit from them is that the lowest paid—those who do not even pay tax—find that their incomes have been reduced as a result of the Government's Budget. How is that compatible with the clear statement made by the Minister this evening that the Government want to give help, to those who need it most"? I understand that the Government reviewed the situation. Hopes were raised that they might see sense on the issue. However, I understand that, having reviewed it, they still concluded that that group of people should be penalised in the way that I have described. Why are the Government maintaining their attitude, which is clearly inconsistent with the position that the Minister set out this evening?

Two other orders are on the Order Paper, both fairly technical. One relates to the guaranteed minimum pension which, of course, is a piece of jargon used to relate it to individual company pensions. As on former occasions, I must declare an interest as chairman of a company pension fund—although one not, I suspect, affected by the provisions. That may or may not be so; I think not; but I should declare it. I am unclear as to why the figure in that order is 3 per cent. It seems to relate to the retail prices index. I am not clear why it is not related to earnings. Perhaps the Minister will clarify that point.

My final point relates to the second order regarding national insurance contributions and the Treasury subvention. The other day we discussed the fact that the payments into what I have described as a "tank" rather than a "pipe"—I refer to the National Insurance Fund—have to be at least one-sixth of the expected annual expenditure for the following year. Therefore, as the Government Actuary has decided that no further contributions are necessary—instead of being only 16 per cent. or so, it is more than 20 per cent.—I am unclear why the Government have taken the precaution of saying that there might be a further payment during the year of 2 per cent. of the estimated benefits, which is a substantial sum. Is it really the case that the margin of error in the Government's forecast is that great?

As I have said, the orders raise several points, but I do not want to go into the wide issues which the Minister raised. However, I hope that I can receive some clarification and that we can pursue some of the matters further when we meet next Monday.

8.6 p.m.

Earl Russell

My Lords, I want to express sympathy with the Minister for her misfortune with the printers. It reminded me of John Locke's remarks when he saw the proofs of his Second Treatise of Civil Government that printers have ways all their own, not united by the general fairness which cements mankind. However, the Minister may be comforted to reflect that when the courts construe legislation, they construe the intention of Parliament, and, as far as I can understand, she has made the intention of Parliament crystal clear. There are precedents for that and I think that they are being observed.

I listened with interest to the Minister's speech. I was particularly glad to hear that there is no one right method between means-based, needs-based and universal benefits. That is a good basis for discussion and I am in entire agreement with it.

The Minister is now well played into office. She has many distinguished achievements behind her, mostly in the field of disability, including the unravelling of the problem of the benefits integrity programme. I am glad to hear that saga can finally be laid to rest.

In a sense, this is the wrong moment for a review of social security because the Bill on welfare reform is not yet on the field of play. I feel a little like Geoff Boycott poking at the pitch before there are any players on it. It is not a part in which I am particularly expert.

One can look with some satisfaction at the report of the Government Actuary. The noble Lord, Lord Higgins, expressed some surprise at the Government's forecast being so far out. Instead of a deficit of £425 million we have instead the very welcome development of a surplus of £2.6 billion. That is largely due to an increase in the number of national insurance payouts. It seems to be one of the lessons of recent economic cycles that the variation in tax receipts on the up and down stages of the cycle is much greater than one used to think. That confirms what I once said, that when I consider the interests of taxpayers what I want most is for there to be more of us.

That brings me to my main general criticism of the Government's approach to the issue of welfare reform, which is, as I am sure the Minister knows, that I believe that they have started from a wrong diagnosis. They are blaming the social security system for the failure to alleviate poverty. Last October, Angela Eagle, commenting on the statistics on households with below average incomes, said: The figures show that the ever increasing social security bill has had little impact on reducing inequality. This confirms our approach that welfare reform is required". I believe that she was putting the blame in the wrong place. The job of the social security system is to keep people going through periods of poverty; it is the job of the wider economy to prevent poverty. In fact, the Minister illustrated that theme in her speech. When referring to the increase in social security spending under the previous government she asked: "How did it go wrong?" What she should have been asking was: "Where did it go wrong?"

Without meaning to endorse the social security policy of the previous government the noble Baroness might consider the view that a great deal of it went wrong in areas that were not within the responsibility of the Department of Social Security: in the overall level of employment in the economy; in the fact, to which the Acheson Report drew attention very usefully, that the decrease in mortality has not been accompanied by any corresponding decrease in morbidity—something which those considering NHS priorities might take into account—and in the increasing troubles of matrimony, which I am sure were not caused primarily by the activities of the DSS.

If the Government were to look at that wider canvas for problems of poverty they might be rather less inclined to blame the system of social security. In fact, when we come to debate the Acheson Report, which I hope we will be able to do, I hope that we will be able to take it not just as a report on health (because it is far more than that) but also as a report on poverty. It raises the question: does poverty breed poverty? That is an area to which I hope we shall return.

While the Government are missing the impact of the wider canvas on poverty, they are also sometimes missing those few and limited areas where policy pursued within the DSS may have the effect either of creating poverty or of failing to alleviate it. I hope that the Government will be paying attention to the remarks made in the Acheson Report on benefit levels. Of course I understand the overwhelming problems involved in dealing with the latter, but I should like at least to hear their admission that there is a problem. If indeed benefit levels are causing malnutrition they may also be creating expenditure, even while saving is the apparent aim.

I should like the Government to think further about disentitlement. Perhaps they could apply to disentitlements to benefit the recommendation of the Acheson Report that all policies liable to increase poverty should be evaluated for their impact on ill-health. If benefit levels can cause malnutrition, what can absence of any benefit cause? That is a point to which I have always wanted the Government to pay attention. They should ask themselves whether they are trying to cure social exclusion with one hand, while, through disentitlement, they are creating it with the other.

I also hope that the Government will look at the extended payments rule for housing benefit where claimants have eight days to make a claim. It is not always made clear to them within those eight days that the claim has to be made in so short a time. Many people are missing out in that respect. As a result, what looked like a very welcome change is not achieving the benefit that it should.

Perhaps the Government will also look again at a number of problems involving poverty among pensioners. I am struck to discover that our pension levels are right down at the bottom of the scale; indeed, they are above only those in Ireland. The myth that we have very generous social security benefits by international comparison is one which I think ought to be changed. The much-trumpeted minimum income guarantee, passing under the slightly unfortunate acronym of MIG—a hostile acronym I should have thought—was described in another place last Monday by my honourable friend Mr. Davey as an Arthur Daley guarantee because, being delivered through income support, it applies only to those on income support. Much though I know the Minister cares about take-up, I am not yet convinced that adequate methods have been found to get all those pensioners who do not take up income support to do so.

Moreover, a great many pensioners are missing out because they are above the savings level. Once again, the savings level has not been uprated. I am sure that the Minister can hear me in her sleep complaining that savings levels have not been uprated. However, that is a point which gains in force rather than diminishing by repetition. I ask the Government to remember the misfortunes that overtook Harold Wilson in office through the failure to uprate the dog licence. We are in danger of getting to that point. Of course, one might have hoped that anything that discouraged saving would be contrary to Government policy.

I should like to second what the noble Lord, Lord Higgins, said about the dividend tax credit. It is a subject upon which our two parties co-operated very amicably last Monday. We are always ready to co-operate with another party where we agree with it. When I do so with the party of the noble Lord, Lord Higgins—and I will give way to him in a moment—I hope that he will recognise that, when I do so to our mutual benefit, he cannot blame me if I also co-operate with another party. I give way to the noble Lord.

Lord Higgins

My Lords, that rather makes the point on which I was about to intervene. I understand that it was not only my party nor, indeed, just the party of the noble Earl. I believe that a significant number of Labour Members in the other place also supported the Early Day Motion. It was an all-party agreement, not the Government's.

Earl Russell

My Lords, I am grateful to the noble Lord for making that point. That is very true. There were several interventions from Labour Members and a good deal of support in the background. Therefore, I believe that no one party would wish to take credit for what happened.

My honourable friend Mr. Webb has discovered that the winter fuel payment of £20 costs £12 million a year to administer, whereas if it had been paid as a weekly increase in the pension the extra administrative cost would have been nothing. Indeed, £12 million is an awfully expensive price for a headline. I did not think that even the most expensive newspapers in the country charged that much for advertising space. The Government do not seem to have any clear answer to the really big problem of pensioner poverty, which is defective contribution records. If the Minister has an answer to that I shall listen to it with great pleasure. In particular, they do not seem to have an answer for the problem which will become more common with the growth of the single market; namely, people whose contribution records are defective because of the amount of time that they have worked outside this country.

Therefore, despite the best efforts of the Department of Social Security and the rest of the Government, inequality is not diminishing. I have been very struck by the information from Households Below Average Income that 70 per cent. of Pakistani and Bangladeshi families come in the bottom 20 per cent. of income distribution. That is something which should not be. The progress towards equal pay is very nearly stalled. I hope that we will be thinking again about a new equal pay Act.

There are many fields in which there is a great deal more work to be done. In the future, therefore, instead of barking up the wrong tree I hope that we may see the Government beginning to bark up some of the right ones.

8.20 p.m.

Baroness Hollis of Heigham

My Lords, I should like to thank both noble Lords for their contribution to this evening's debate on the up-rating order. It did not entirely surprise me that the noble Lord, Lord Higgins, asked a series of questions which would not have been inappropriate to some degree in a National Audit Office committee or Treasury committee, nor that the noble Earl, Lord Russell, raised areas of social policy which he and I have discussed on many an occasion. As I say, I think these roles into which we have fallen may persist.

I shall do my best to answer some of the questions that have been raised. As regards some of the questions the noble Lord, Lord Higgins, asked on NIRS 2, I shall write to the noble Lord because issues of commercial confidentiality are involved. The noble Lord will understand that. He asked whether it was usual to have an uprating not preceded by a Statement. As I recall I read out a Statement on this issue and welfare reform last autumn. I remember that the noble Baroness, Lady Castle, tackled those issues in feisty form. We dealt with the two issues together as it seemed appropriate to do so. I accept that that was an unusual way of tackling the matter. However, it is not every year that we set out our stall in terms of a major welfare reform Bill.

I know that the noble Lord will return to issues of working families' tax credit, means testing, the contributory principle and so on. The noble Lord raised a point which was also emphasised by the noble Earl, Lord Russell. He referred to pensioner poverty, minimum income guarantee and take up. The noble Lord said that according to the CAB people had thought that the minimum income guarantee was somehow an increase in their basic state pension as opposed to an increase in the income support related element, as the state retirement pension is below income support levels.

The following matter has been raised in this House on many occasions. There is a real problem as regards identifying the pensioners who are entitled to claim income support but are not doing so, and encouraging them to claim it. We originally estimated that about 1 million pensioners—mainly elderly single women over 75 who do not have contributory pensions in their own right—are entitled to income support who fail to claim it. That figure may be a little high as it is now clear that one of the main reasons those people fail to claim income support—or are ineligible if they do so—is that although their income may be below income support levels, their capital floats them above income support. Many of those pensioners were raised in a culture of keeping £5,000 or £10,000 in the bank to pay for their funeral or to leave to their children. That prevents them from drawing down that income. Therefore they live on an income which is below income support levels but they do not qualify for income support because of their capital. However, as I say, they are not willing to draw down that capital.

Of the 600,000 pensioners who are disqualified from the minimum income guarantee, we estimate that more than half have excess capital of over £20,000. Of those, some 190,000 people have capital of over £50,000. Nevertheless their income can be below income support levels. That forms a major part of the dilemma. That is not to say that the Government are not considering the capital rules. Nonetheless the spread of income on capital is as wide as the spread of income—

Earl Russell

My Lords, when the Minister considers the reluctance of pensioners to spend their savings, will she remember the rapid escalation in funeral costs?

Baroness Hollis of Heigham

My Lords, I entirely take that point. That is why the social fund now identifies reasonable costs for a funeral that will enable the pensioner or the pensioner's family members to afford a funeral with help from the social fund if they do not have sufficient savings to cover that. The point I sought to establish was that the disqualification of pensioners from income support was affected by capital which in many cases constitutes a sizeable sum.

Lord Higgins

My Lords, the sums may be sizeable but that was not my experience when I was an MP and dealt with constituents. Are not these the very people who will be hit by the tax credit problem which I mentioned?

Baroness Hollis of Heigham

My Lords, it depends how that £50,000 is converted into income. The broader question that was asked concerned why pensioners were failing to claim the minimum income guarantee to which they were entitled. As I said, one of the main reasons for that is the capital rules. We need to consider whether the existing capital rules are appropriate. We are now receiving feedback from our nine or so pilot schemes which indicate that pensioners feel there is a stigma attached to claiming this benefit and pensioners are ignorant of their entitlement to benefit. A slightly worrying feature is that a person may have applied for income support or a benefit in the past to which he was not entitled. That person was rebuffed and deterred from making subsequent applications. Having said that, I do not in any sense underestimate the difficulty—having identified the people who are entitled to the money—of persuading people to claim the benefit. That generation of older people comprises people who are extremely reluctant to claim a means tested benefit which in the past was associated with national assistance and all that that entailed. I believe noble Lords will understand what I mean.

As I said, the noble Lord referred to the CAB. However, he may have also noted that the CAB supports the steps the Government are taking to increase the take up of income-related benefits by pensioners. The CAB states that extra publicity will be necessary to ensure that all pensioners are aware of how they are to be provided with a guaranteed minimum income. We entirely accept that point. Obviously the longer term response must be to ensure that pensioners have access to a decent second pension. The problem with the guaranteed minimum income concerns those pensioners who have not been able to build up a decent second pension in their own right, whether through SERPS or through occupational pensions.

One of the important elements in our pensions proposals is the proposals for the new second state pension. As your Lordships will be aware, those on modest incomes who may be in and out of work and who earn between, say, £3,500 and £9,000 will in future be entitled to a pension as though they were earning £9,000 a year. That is a massive redistribution for some of the lowest paid. That will benefit women. One must take account of the implications for carers who will effectively obtain a £1 a week's worth of pension for every year of caring. That also applies to those caring for children. I think your Lordships will accept that we have a twofold problem with pensions. There is the immediate problem of the poverty of existing older pensioners and the longer term problem of ensuring that we float pensioners off poverty by giving them access to a decent second pension. That is the basis of our proposals.

The noble Lord, Lord Higgins, raised a whole set of connected issues about NIRS. I believe I have noted most of the questions asked about this. However, if I have missed any of the more technical points I shall write to noble Lords as these are technical issues. I do not think anyone would deny that there have been real and serious problems with NIRS 2. However, they should not be exaggerated as they are being overcome. There is a stabilisation and recovery plan which has been developed jointly by the Contributions Agency, Andersen Consulting, the Benefits Agency and the Employment Service, with input from the Inland Revenue. NIRS 2 is basically a computer system which does not affect the Inland Revenue. Therefore some of the noble Lord's concerns are not, fortunately, justified. NIRS 2 does not affect any of the income-related benefits, or any of the universal benefits such as severe disablement allowance, ICA, disability living allowance, DWA, income support, income-related jobseeker's allowance, child benefit, family credit, housing benefit or council tax benefit. Those account for about half of all our benefit expenditure. However, NIRS affects benefits which are dependent upon the payment of national insurance contributions; namely, retirement pensions, incapacity benefit and contributions-based jobseeker's allowance. Also affected—as the noble Lord noted—are rebates paid into approved personal pension schemes. As I say, there is a problem here and we are not trying to suggest otherwise. However the two areas which I think give rise to the need for an alternative path of income support are retirement pension and widows' benefit. Since 6th January of this year NIRS is on-stream to provide long-term benefit calculations in respect of retirement pension and widows' benefit.

The noble Lord asked a series of connected questions about compensation and the like. This is an extremely large system which handles about 65 million accounts. It is the largest in Europe. No records have been destroyed during the conversion, or as a result of live processing. All benefits are currently either unaffected or are using standard or interim procedures during transition. After transition any interim payments will be retrospectively adjusted and appropriate compensation on retrospective payments will be made accordingly. I hope that deals with the bulk of the noble Lord's points on that issue.

Lord Higgins

My Lords, we shall return to this on Monday, but perhaps I may just ask one question. To what extent have the pensioners and others involved been told what is going on?

Baroness Hollis of Heigham

My Lords, the noble Lord was right in his initial remarks. That sort of information tends to be generated by the very same computer which is unable to handle it. In that sense, that is true. However, in terms of the benefit helpline, the advice at local DSS offices, the voluntary agencies, from Age Concern through to CAB, there is ample information on this. We should not forget that people continue to receive an old benefit if they are not eligible through the faltering of NIRS to receive their up-rated benefit. If there are any individual cases that the noble Lord has in mind, obviously we shall look at them for him. We have got a fair amount of information. Having said that, at the end of December something like 60 per cent. of the age-related rebates that went with personal pensions were being paid compared with the previous year's records.

We are hoping that it will be on track. It was a contract established by the previous administration; it has taken a long time to bed down. We received it, with caveats, in 1998 and the problems associated with NIRS have continued to come through. We hope, having established a stabilisation programme between all the four parties—the Contributions Agency, DSS, the Employment Service and Andersen Consulting—that we shall now be on track. As I say, if the noble Lord wishes to come back to me on any of those detailed points, I shall be happy to try to answer him.

The noble Lord raised a point about the Government Actuary. He asked why, if the report said that the Treasury grant is not needed, as indeed it does, we are we making one. The contributions re-rating order provides that the maximum amount of Treasury grant which could be made available to the fund is set at 2 per cent. of annual benefit expenditure. This is a prudent and practical way of managing our finances. It means that the Secretary of State has further resources, agreed with the Treasury which he can draw on if necessary. It is not new. At this time last year the maximum estimated grant of £900 million was made available for 1998–1999, even though the Government Actuary did not estimate that we would require any such grant. That indeed proved to be the case. It is a well-established precedent of fall back.

I turn now to some of the wider points raised by the noble Earl, Lord Russell. He asked me first about BIP. We expect to see the end of the present system by the end of the financial year; that is, the beginning of April. Clearly the details of what exactly will be replacing it are still being discussed with the Disability Benefit Forum.

Secondly, the noble Lord said that we expected the social security system to carry the responsibility for poverty whereas that was the responsibility of the wider economy. I entirely agree. It was easy enough when most of the social security system was a contributory system based on 40 hour, 50 year jobs. What we now see is that one family in five is without work; three million children are in families without work; and we have work rich and work poor households. That is why we have support in the House for emphasising that the best pathway out of poverty is access to work. That is why we are combining that with new deals, personal advisors, minimum wage and the like in order to make work pay.

As to those unable to work, I should have thought that tonight's uprating statement which shows that pensioners will have a minimum income of £75 a week, that there will be a minimum income for disabled people and a record increase in child benefit should address the problems facing those unable to enter the labour market.

I think and hope that most of the rest of the noble Earl's discussion overlapped with that of the noble Lord, Lord Higgins on pensioner poverty, capital ceilings and how we are attempting to increase the take up of income support. I hope and believe that I have addressed most of those concerns and I hope, as a result that your Lordships will be able to accept the three uprating statements tonight.

On Question, Motion agreed to.