Pension Increase: Basis of Calculation (Hansard, 21 June 2000)

§ Lord McIntosh of Haringey
My Lords, the increase in prices in the year to September is used as the basis for the inflation increase in both excise duties and pensions. Exactly the same methodology has been used this year as in previous years. Next year we shall index pensions by the out-turn for September 2000 RPI, which we forecast at 3.4 per cent.

§ Lord Brabazon of Tara
My Lords, I am grateful to the Minister for that reply. However, in his Budget Statement the Chancellor said that he was raising both pensions and petrol tax in line with inflation. Why did he not go on to say that he was using two completely different measures of inflation; that is, petrol at 3.3 per cent and pensions at 1.1 per cent? How can he possibly justify using two completely different measures in one Budget Statement? Is that not a scam of epic proportions, even for this Chancellor? Is the Minister aware that, had pensions been increased by the same rate as petrol, they would now by rising by £2.25 per week instead of a measly 75 pence per week?

§ Lord McIntosh of Haringey
My Lords, pensions have always been raised on the basis of the out-turn in September figures. Excise duties were raised in the July 1997 Budget, which we had to introduce when we came into office, on the basis of the forecast. In order not to count the same year twice, we continued with the forecast base, which explains the difference. However, the noble Lord refers to this year's figures. He should recognise that these matters balance out. Last year, the excise duties were indexed by 1.3 per cent and personal allowances by 3.2 per cent. Next year, we shall index pensions by the out-turn for the September 2000 RPI, which we forecast at 3.4 per cent. On the whole, over the years the Treasury loses out and pensioners gain.

§ Lord Mackay of Ardbrecknish
My Lords, has the Minister told the Bank of England that inflation will rise by well over 3 per cent? According to the rules laid down in the Act of Parliament which set up the Monetary Policy Committee, I should have thought 255 that that would put the jobs of its members at risk. However, leaving aside that interesting answer from the Minister, does he believe that it is a good defence to say that when the Chancellor suggested using the same rate of inflation, he then went on to use two rates? Is that not a case of double standards? Those are not my words. It was the Daily Record, the determinedly Labour paper in Scotland, read by all the Chancellor's constituents in Dunfermline, which accused the Chancellor of double standards. Is the Daily Record right or wrong?

§ Lord McIntosh of Haringey
My Lords, when the noble Lord asks me a question and then proposes to leave it on one side, I am not sure whether or not he wishes me to answer. I shall answer, because I always answer his questions when they are serious. As he very well knows, the figure of 3.4 per cent which appears in the Red Book was announced at the time of the Budget. The answer to the second question is that I am not responsible for the Daily Record. I have explained exactly and precisely on what basis the September figures are calculated for each of the two purposes.

§ Lord Goodhart
My Lords, is it not the case that perhaps the main reason why the pension increase last year came out at such an appallingly, ridiculously low figure was that the index on which the increase was based included mortgage interest? Given that very few pensioners have mortgages and that, on the other hand, cuts in interest rates harm pensioners because the income from their savings is reduced, would it not be desirable, once pensioners have had a chance to catch up from the effects of last year, to base pension increases on an index which does not include mortgage interest?

§ Lord McIntosh of Haringey
My Lords, there are several different bases for calculating inflation. Some of them are unfair to some people and some are unfair to others. The RPIX version is used widely for a variety of purposes.

§ Baroness Hogg
My Lords, in the light of that answer, can the Minister explain why the Government have refused to subject their calculations of inflation to the independent scrutiny of the new statistics commission?

§ Lord McIntosh of Haringey
My Lords, I am not aware that that is the case. The new statistics commission is barely in existence. When it is, it will no doubt ask for the figures that it wants.

§ Lord Davies of Oldham
My Lords, does my noble friend recall whether, when they introduced the fuel escalator, the last Conservative government believed that pensions should be accelerated by the same amount?

§ Lord McIntosh of Haringey
My Lords, my noble friend points to the fact that it was the previous government who withdrew the earnings link and 256 replaced it with a prices link for pensions. My noble friend is also aware that the full benefit of the provisions that have, and are being, made for pensioners in this Parliament amount to £6.5 billion whereas restoration of the earnings link would cost only £4.5 billion.

§ Lord Clark of Kempston
My Lords, surely the Minister agrees that the public, pensioners and motorists were misled by the Statement of the Chancellor of the Exchequer. It was a shabby trick to play on pensioners and motorists. Does the Minister agree that it is high time that Statements from whichever government department should be unassailably true?

§ Lord McIntosh of Haringey
My Lords, unless the noble Lord is saying that something that I have said this afternoon is not unassailably true, I believe that he should be careful about the words he uses.