HL Deb 24 January 2002 vol 630 cc1663-90

House again in Committee on Clause 3.

8.30 p.m.

Baroness Noakes moved Amendment No. 29: Page 3, line 4, leave out "qualifying The noble Baroness said: In moving Amendment No. 29, I shall speak also to Amendments Nos. 33 and 37. We have already looked today at some examples of the complexity of the Bill. This was a theme among many of those who responded to the Government's consultation document. One of the complexities is the treatment of income in the calculation of the components of the pension credit. The guaranteed credit uses the word "income" and we must look for the definition of that in Clause 15, which we shall come to in due course.

The savings credit is calculated using the claimant's "qualifying income". Of course, we do not know what is in that because it is to be dealt with by regulations under Clause 3(6). The concept of income is further complicated later in the Bill by something called "retirement provision", which is another shot at defining income.

So we have three separate concepts of income in the Bill. If that is not complicated, I do not know what is. Even if noble Lords think that they understand the differences between the concepts, does any noble Lord think that the average pensioner will understand them? The way in which the Bill is currently drafted places barriers to comprehension.

My amendments seek to cut through this complexity and to insert one definition of "income" for both the guaranteed credit and the savings credit, both looking to the definitions in Clause 15. As there is no concept of qualifying income, subsection (6) becomes unnecessary and can be removed from the Bill, which is what Amendment No. 37 seeks to achieve.

I hope that this further attempt at simplification commends itself to the Minister. If it does not, I hope that she will explain why this multiplicity of income concepts is necessary and what differences the Government envisage between the different types of income. I beg to move.

Baroness Hollis of Heigham

Perhaps the noble Baroness can help me. Which amendment has she moved?

Baroness Noakes

I moved Amendment No. 29. I have spoken to Amendments Nos. 33 and 37.

Baroness Hollis of Heigham

And Amendment No. 36?

Baroness Noakes

No. Amendment No. 36 is not in this group. We will come to it later on. I have not spoken to Amendment No. 36.

Baroness Hollis of Heigham

It is another amendment that has been ungrouped—inadvisedly in my case. I had two spheres—one in which it was grouped and one in which it was not. I believe that it should be grouped but the Opposition Benches, in their wisdom, have decided against that.

Amendments Nos. 29, 37 and 33 seek to remove the concept of qualifying income from the savings credit calculation at Clause 3. It also removes our ability to prescribe in regulations what is and is not qualifying income.

I believe that the noble Baroness's intention is that she wishes to include all of a pensioner's income, as defined in Clause 15, in calculating the savings credit and to remove the notion of qualifying income from the calculation of "amount A" within the savings credit. On first sight, this seems a rather technical matter, but the notion of qualifying income is very important to the working of the savings credit and the principles that lie behind it.

We are attempting something radical with the savings credit. We are seeking to reward savings or modest flows of appropriate income in retirement. Qualifying income establishes an important principle within the savings credit as we are here saying that we want specifically to reward savings for retirement, such as second pensions and capital. This is because, as part of our wider pensions strategy, we believe that second pensions are the best way to provide for retirement. We also recognise that some people may choose other investment vehicles, such as shares, PEPs, ISAs, or that these savings vehicles may be more suitable for some and that they should also be rewarded. Probably on the next day in Committee we shall examine individual streams of income flow in much greater detail.

That is why these are the things that we want to reward through the savings credit. Our intention is that under Clause 3(6) regulations will list the sources of income that we want to reward and class as qualifying income where they exceed the savings credit threshold. This is the definition that would then apply when using the term "qualifying income" throughout the calculation in Clause 3.

We intend that these should be all income defined in this Bill as "retirement pension income" at Clause 16. Qualifying income—this comes to the heart of the noble Baroness's question about what is the difference between the various labels, a question I, too, have asked on more than one occasion—will therefore include, for example, all second pensions, including SERPS, state second pensions, occupational pensions, personal pensions and retirement annuity contracts. It will also include income from capital and annuities as defined in regulations under Clause 15. This is because these income streams either represent a pensioner's savings through their working lives, or other income—for example, DLA—which is appropriately disregarded and exempt from the calculation of qualifying income.

In practice, pensioners may have many and varied income streams, including, for example, social security benefits and war disablement benefits. These may be paid to individuals who, through no fault of their own, have not had opportunities to build up second pensions or other investments. However, other pensioners may have younger partners who, by their nature, are likely to have different income streams. These are few in number and we need to consider further whether we should make rules to cover exceptions—for instance, by not rewarding the contribution a younger partner may make.

I am sure the Committee will recognise the important step forward that we are proposing through the savings credit. I hope that noble Lords will wish to support those who have worked hard and saved hard. Qualifying income does just that. I hope that the Committee will recognise the advantage of being able to define qualifying income in regulations.

I repeat: qualifying income is the income to be rewarded in savings credit. It will include second pensions, rent from lodgers and so on. Disregarded income is income which is exempt from being either qualifying or not qualifying; DLA, AA, money from charities and so on is exempt and not taken into account. There are other incomes—earnings is one such—on which we have to seek further advice finally to determine the position. But qualifying income is the basis on which pension credit will be returned.

There are concerns about other kinds of income—for example, where a claimant's wife is on IB—and whether we reward them. Incapacity benefit is itself a benefit. Do we reprivilege a benefit and reward it, effectively, twice over? Issues such as that will be picked up and further explored in regulations.

There are only about 50,000 cases where quite small benefits—incapacity benefit, contributory JSA, WTC—are affected. The dilemma that faces us is whether it is sensible to treat those benefits as qualifying income on the ground that it is not worth the hassle, or whether anomalies will be created by rewarding some income twice.

Basically, qualifying income is the income on which the assessment is made; a tranche of income—DLA, AA, charity and so on—which is disregarded entirely; and we are still taking advice and consulting with organisations about some other kinds of income. These will be specified in regulations.

With that explanation—I have tried to be frank—I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Noakes

I thank the Minister for that explanation. I am still mystified. I can understand why some benefits may need to be taken out of the calculation for arriving at qualifying income in order not to reward benefits received from another source—I had not appreciated that point—but I do not see any reason for the difference between the income definition in any other respect.

Can the Minister say when we will be able to see the draft regulations setting out precisely what the department intends to do in this area so that we may consider this further? I repeat: having these different concepts of income in different parts of the Bill is one of the major complications to have been introduced. We on these Benches will certainly seek a way of simplifying this and I hope that the Minister will also.

Baroness Hollis of Heigham

I cannot help the noble Baroness as to when draft regulations will be available. I do not know. However, we will be debating many of these issues—benefits and the like—during the second day of Committee and we will be able to explore them further. The "biggie", on which we have not yet fully resolved our position, is that there are a lot of colliding considerations, if I can put it that way—for example, earnings. Most of the other benefits concerned involve small numbers. The biggest problem concerns earnings, about which there are pros and cons. and we are seeking to resolve it.

It is perhaps worth saying that we cannot produce draft regulations until both Houses of Parliament have determined what will be in the Bill. Anything I can give to the noble Baroness at this moment has to come with very strong health warnings attached—it may be addressed and amended in another place. But certainly, at present, there is a distinction between "qualifying income" and "income". "Income" can include attendance allowance and disability living allowance, for example. The noble Baroness will understand that that is exempt as an extra cost benefit. It may exclude some of the other benefits for which, otherwise, as she recognises, there would be double provision.

The third category is earnings, in relation to which we are still seeking advice as to the best way forward. It is a case of "on the one hand" and "on the other". We are seeking to go for simplicity where we can, while being fair to as many people as possible. I do not think that I can help the noble Baroness much beyond that. The two big flows of income that we have been talking about are obviously the second pension in its various forms and the flow of putative income from savings.

That is made very clear in the Bill. The rest are relatively small items, apart from earnings, which I am sure we shall explore at a later stage.

Baroness Noakes

I thank the Minister for that response. I wonder whether it would help our consideration on Report if we could have a list of the matters that will be included in draft guidelines when the department is in a position to produce them. I accept that, technically, that is not until the Bill has been through both Houses. However, the Government should have some idea as to what will definitely be included in one category and what will be included in another, and possibly an idea of where the difficult areas are.

The issues relating to earnings will be explored in later amendments. Clearly, this is a difficult matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 30 not moved.]

Baroness Noakes moved Amendment No. 31: Page 3, line 13, at beginning insert "the amount equal to The noble Baroness said: In moving this amendment, with the leave of the Committee I shall speak also to Amendments Nos. 34 and 44.

The amendments are intended as helpful technical amendments. Amendment No. 34 concerns the calculation of "amount A" in Clause 3—much loved by those who look at the clause—and the amount which must be ascertained in calculating the savings credit. Those who are familiar with the provision will know that "amount A" is the smaller of two figures: first, the maximum savings credit; and, secondly, a prescribed percentage of the amount by which qualifying income exceeds the credit threshold. This is where the Government intend to calculate 40 per cent of a claimant's income above the minimum guarantee.

However, Clause 3(4) compares an "amount" in paragraph (a) with a "percentage" in paragraph (b). That will not achieve the Government's aim, because the calculation cannot be performed. A similar confusion exists in respect of "amount B" in subsection (4) and in respect of "the maximum savings credit" in subsection (7).

If a court ever had to construe this, it would doubtless seek to give practical effect to the drafting. However, I hope that the Committee would not want to present the courts with such a problem. Therefore, the amendments seek to replace "percentage" with "the amount equal to" a percentage, so that the result of the calculation replaces an element of the calculation. So, taking "amount A", if the percentage is 40 per cent, and the amount of a claimant's income is £10, the result would be £4, and that rather than 40 per cent., would be used in the calculations. I hope that the amendments will be regarded as helpful and that the Minister will be able to accept them. I beg to move.

Baroness Hollis of Heigham

Amendments Nos. 31, 34 and 44 propose refining the drafting of Clause 3— Amendment No. 31 at "amount A" in Clause 3(4)(b); Amendment No. 34 at "amount B" at Clause 3(4)(a); and Amendment No. 44 at "the maximum savings credit" at Clause 3(7)—to include the wording "the amount equal to".

We welcome the opportunity to improve the drafting of the Bill during its progress through the House. One of the many accomplishments of the noble Lord, Lord Goodhart, when he was pensions spokesman, was finding, as he liked to think, at least one drafting error by parliamentary counsel in a pensions Bill. So if the noble Baroness is correct, she will be following an admirable precedent. I am sure that the amendments seek to be helpful in this regard.

I recognise that Clause 3 may appear complicated. But in essence, it defines the calculation of the savings credit by reference to a single calculation. In effect, it comes down to the amount by which "amount A" exceeds "amount B". That is the basis of the calculation.

Although the clause could work equally well with the addition of the words inserted by the amendments, the effect of doing so is the same as the current drafting and I believe that they would make no difference to the operation of the clause. Neither do I believe that the amendments would increase transparency or understanding of how we want to calculate the savings credit. They seek to add extra words to a clause that is already precise. I suggest that the changes are not necessary to deliver pension credit successfully, and that they do not add to or alter our understanding of intent.

I am happy to examine the noble Baroness's point about an "amount" as opposed to a percentage. I shall discuss the matter with officials and see whether the amendment does what she believes it does. They do not believe it to be the case. However, I am happy to scrutinise the wording to see whether it is. If so, I shall either write to the noble Baroness or return to the matter during the course of the Bill. My present understanding is that this proposal would not improve the drafting of the Bill, but I am happy to scrutinise it. The noble Lord, Lord Goodhart, was invariably right and it may well be that on this occasion the noble Baroness is right—I rather doubt it, but she may be. Let us have a look at the wording. After all, that is the point of a Committee stage. I hope that with those offers, the noble Baroness will feel able to withdraw her amendment.

8.45 p.m.

Baroness Noakes

I thank the Minister for that response. To reiterate the point, in the calculation of the savings credit, 'amount A' is the smaller of … the maximum savings credit"— which is an "amount", and, a prescribed percentage of the amount". That drafting does not work. I mentioned earlier in Committee that parliamentary draftsmen are not always very good at drafting for financial calculations. However, I was pleased to hear what the Minister said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Turner of Camden moved Amendment No. 32: Page 3, line 13, leave out "a prescribed percentage" and insert "60 per cent. The noble Baroness said: This is a probing amendment. The savings credit is a prescribed percentage of qualifying income above the savings credit threshold. Initially, as we know, the percentage will be 60 per cent. But if the threshold remains tied to the basic pension, which rises in line with prices, while the minimum guarantee rises in line with earnings, the cost of the savings credit is likely to rise steeply. The Government may decide to contain the cost by reducing the percentage.

The November 2000 consultation paper stated that the initial rate would be 60 per cent. We have already been over this course to some extent. However, I should be grateful if the Minister would state the Government's intention. I suspect that she is likely to tell the Committee that the Government are not prepared to tie future governments. However, I should be obliged if she would say what precisely is the Government's view in relation to this amendment. I beg to move.

Baroness Hollis of Heigham

Again, this is a "good try" by my noble friend. I should like to put two points on the record. First, we have made our policy intentions clear in our consultation document. There has never been any suggestion that the Government would adopt anything other than 60p in the pound, or 60 per cent, reward for savings. That is our policy intent. However, the general point remains that you do not bind future governments and you try to keep the figures out of the way in regulation.

The commitment is for the lifetime of this Government, and that is precisely why we have committed ourselves to the policy of uprating the guarantee credit in line with earnings for the duration of this Parliament. However, I do not believe that we can bind the hands of subsequent administrations, given the discussions we had earlier about what may happen to the balance of public funds.

We expect the structure of pension credit to endure. The principles have wide support on all sides of the Committee. That is not to say that in future it may not need tweaking in various ways. Fine-tuning may be necessary in future months and years.

My noble friend may also be worried that this provision may never face proper scrutiny. But, again, the regulations setting the amount will be subject to affirmative resolution. Needless to say, any change that she fears would have to be brought before the House in an affirmative resolution. It is certainly not our intention to depart from the provision, but experience has taught governments to be wary of enshrining such matters in case the situation may need to change. For example, it is conceivable that in future years a government might seek to disaggregate or reaggregate the concept of "household" as a social security basis. That might have knock-on implications for percentages and the like. It is therefore not unreasonable to keep flexibility.

I cannot be clearer than I have been: I have set out the Government's intention and said that we expect it to endure. However, we need flexibility should circumstances change or should subsequent pension developments mean that there are interlocking consequences that may lead us to revisit the issue. With that assurance, I hope that my noble friend will withdraw her amendment.

Lord Higgins

The Minister pointed out earlier that the present Government cannot bind future governments, for which we must be grateful. However, on a related matter she was also prepared to give an undertaking that a certain assurance would persist for the rest of this Parliament. Will she give a similar assurance on the point that has just been made? If she cannot do that in terms of 60 per cent, will she at least promise that the withdrawal rate will not rise above the top rate of income tax under this Government?

Baroness Hollis of Heigham

On the second point, the noble Lord is simply wrong, if he will forgive me. The withdrawal rate for pension credit cannot be separated out from the withdrawal rate for other benefits. That takes us back to our debate about MDRs. However, on the first point I assure my noble friend that for the life of this Parliament, the reward for savings—which pensioners have never had the luxury of experiencing—will be enjoyed at a rate of 60p in the pound if as a result they stay under the £100 threshold.

Baroness Turner of Camden

I am grateful to my noble friend the Minister for those assurances. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 33 and 34 not moved.]

Baroness Barker moved Amendment No. 34A: Page 3, line 19, at end insert— ( ) In relation to amount A, the prescribed percentage shall be 100 per cent. less the basic rate of income tax. ( ) In relation to amount B, the prescribed percentage shall be the basic rate of income tax. The noble Baroness said: I apologise for the amendment not appearing on the Marshalled List. We tried to table our amendments as early as possible. I thought that his one had been submitted, but there was a slight problem.

Throughout the Committee people are making valiant attempts to deal with Clause 3—not only to understand it, but to improve it. The amendment would not change the structure of the pension credit, but would deal with the principle. In her reply to the last amendment, the Minister talked about the structure and the principles of the pension credit being established.

As was said on Second Reading, one principle appears to be enshrined: although there may be a reward for pensioners for the first time, their savings will still, in effect, be taxed at 40 per cent. That is extraordinary when we are talking about people who, to repeat the phrase used by the Minister on Second Reading, are not poor, but are nearly poor. We are talking about people with very low incomes.

On an earlier amendment dealing with the withdrawal rate, the noble Lord, Lord Higgins, pointed out that people with very low incomes are being subjected to a taper rate that would normally apply only to people with earnings of more than approximately £35,000 a year.

The amendment would not change the structure or the workings of the savings credit. I am sure that by now we all have the diagram in our heads explaining how the system will work. However, the amendment would introduce the principle that the taper rate should not be more than the basic rate of income tax. I hope that it is as simple and as clear as that. I look forward to the Minister's response. I beg to move.

Baroness Hollis of Heigham

I am amazed that the noble Lord, Lord Higgins, has withstood the opportunity to say that this is not a tax credit. Can I not tempt him? Go on, cheer us up. Going, going, gone.

Amendment No. 34A would substantively change Clause 3 by substituting a revised calculation for the savings credit, linking the amount payable to the basic rate of income tax—22 per cent. It would reward savings up to the level of the guarantee at 78p in the pound. For those with income above the guarantee, the savings credit would be reduced by 22p in the pound.

At best, the amendment is misdirected. It would reward not only modest savings, but also pensioners with much higher incomes. At worst, the cost would be seriously substantial.

As drafted, the Bill ensures that entitlement to the pension credit guarantee is based on pensioners' personal needs, taking account of their resources. The savings credit builds on that by rewarding those who have made some provision for their retirement but who find themselves penalised by a system that reduces benefit entitlement by £1 for every £1 that they have saved, if it is not sufficient to float them off MIG altogether.

Clause 3 introduces fairness where there was precious little, ensuring that those who are likely to have only a modest retirement income are rewarded for their thrift. That is why we intend to reward savings up to the level of the guarantee at 60p in the pound, pace my noble friend Lady Turner, who moved her amendment a few minutes ago, and reduce the savings credit by 40p in the pound for those with income above that level.

The amendment would make the savings reward far more generous. An additional I million pensioners would be entitled, including many comparatively wealthy pensioners for whom the pension credit is not designed. Single pensioners with incomes up to £181 a week and couples with incomes up to £263 a week would be entitled to the savings credit as described by the noble Baroness. The cost would he fairly substantial—an extra £1 billion.

I was expecting the noble Lord, Lord Higgins, to intervene on the amendment. I thought that it would be interesting to see what would happen if we aligned the withdrawal of pension credit with all the rates in the tax system—not just the 22p rate, but the 10p rate and all the others. That would taper it out for pensioner couples when they reached an income of £45,000 a year, at a cost to us all of getting on for £30 billion. If we went for 22p in the pound, I suspect that we could not justify not extrapolating all the tax rates.

Lord Higgins

I have always been reluctant to promote amendments that cost £35 billion. The Minister has made the important point that the withdrawal rates, and eventually the taxation rates, vary a great deal as one goes up the income scale. In the light of the Bill, they seem to go rather erratically. As the noble Baroness, Lady Barker, pointed out, at the bottom end of the scale there are some very poor people. Then we go to another band where the withdrawal rate or the tax rate is much less than 40 per cent. It then goes up again to 40 per cent. Perhaps we could have a note some time on exactly how the marginal rate goes up, depending on individual circumstances. Perhaps the Minister could take some typical examples. That would be interesting. When we legislate with one Bill after another, there is always a danger that the tapers will not work out and no one will sit down and calculate all the marginal rates at various levels of income.

Baroness Hollis of Heigham

I am happy to revisit some of the discussions that we had earlier. The noble Lord is talking about marginal deduction rates as regards the interlocking of the three different benefits—pension credit, housing benefit and council tax benefit. We saw that up to an income of £100, the marginal deduction is 100 per cent. Between £100 and £135 it comes down to 91 per cent for the 8 per cent of pensioners who also have housing benefit. At £135, it reduces to 85 per cent with a tapering of housing benefit, which itself is based on rent. Pensioners above that level begin to be covered by the ordinary tax rates and we begin to see the interlocking of taxes.

If the noble Lord is asking me a second question—what happens to the benefit tapers when they are overlaid by the tax system, which is a perfectly reasonable question—I shall write to him on it. I think that such a discussion would be helpful. However, I believe he will find that, given that pensioners' personal allowance is, I think, about £5,000, there is very little overlap between those on £100 to £135 and those paying taxes. The overlap begins to knock-in only when one is losing the pension credit but is on fairly high benefit rates. I should be very happy to have those calculations worked out, and agree with the noble Lord that it will make an interesting investigation. One needs to see the total picture. However, as pensioners have benefited so widely from the generous increases created by lifting pensioners' tax rates, I am sure that he will be deeply impressed by the result.

9 p.m.

Baroness Barker

As I had hoped, the amendment has sparked a debate which has been fairly informative. I, too, look forward to seeing the information that the Minister has promised.

For some of us, it is difficult to accept the disproportionate effects on people at the levels described by the noble Lord, Lord Higgins. Not only is it difficult to work out the effect of benefits, it is difficult to work out the effect of the tax system on other groups. This debate has been helpful to the extent that it has fleshed out that issue.

We should also make it clear that, although the Bill may be passed, some of us object to the principle of taxing the income of comparatively poor people at the higher rate.

Baroness Hollis of Heigham

I take issue with the noble Baroness; perhaps I should have spent more time replying to her.

We are not taxing people, as she said, at 40 per cent. We are, for the first time, allowing pensioners who would otherwise not see any benefit from their hard-earned savings—precisely because we have established a decent, if not generous, basic income level for all pensioners; that is the trap and problem for us—to keep 60 per cent of their income. I will not accept suggestions that they are being taxed at a 40p rate; they are currently not receiving a penny of that money. We are enabling them to keep 60p in the pound both as an incentive and as a recognition of their efforts to provide for themselves. It is also fair. They are currently losing pound for pound; they will in future keep 60 per cent.

I think that that is the generous and decent thing to do. We have a problem only because we have a decent MIG level. The problem would not arise if we had a low level, as we had under the previous administration. We have the problem of seeking to be fair to those who have sought to help themselves because we are seeking to alleviate poverty. I shall therefore not accept statements that we are seeking to tax people at 40 per cent. We are returning to people, and allowing them to enjoy, the rewards of their own thrift, which hitherto they have not been able to enjoy.

Baroness Barker

I accept the Minister's point that my terminology was wrong. However, we still do not want to establish such a 40 per cent taper as a principle. The Minister has spoken consistently about not wishing to tie the hands of a future government. However, we also should not seek to tie the hands of a future government who have the resources to be more generous in the taper. Although we appreciate that the provision will be in force for this Parliament, we do not think that it should be established as a principle. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 35 not moved.]

Lord Higgins moved Amendment No. 36: Page 3, line 25, leave out subsection (6). The noble Lord said: The amendment is concerned with definitions of income. However, I should like first to say that I very much welcome the Minister's offer on investigating the issue of marginal rates as one goes up the income scale. The point is relevant if we are really going to work towards what used to be called a negative income tax. As I think I have said before, back in the 1970s we had legislation on a genuinely negative income tax which sought to smooth out the marginal rates. Alas, in 1974, when the Labour government unfortunately came into power, the whole idea was clobbered by a committee consisting of the now noble Baroness, Lady Castle, the now noble Lord, Lord Barnett, and one other person whose name I forget. Nowadays, the noble Baroness, Lady Castle, and I are more in agreement.

As I said, this amendment is concerned with the regulations deciding what is qualifying income. It relates to the provision that my noble friend Lady Noakes spoke to a short time ago and the fact that we are landed with at least three definitions of income. Different definitions of income apply to different sections of the Bill, inevitably leading to considerable confusion. One might think it appropriate to use the same definition throughout the Bill.

A moment or so ago, in reply to try noble friend Lady Noakes, the Minister said that the Government cannot produce the regulations now. We understand the problems of producing regulations. However—as the Minister is always helpful on these matters and as we are all in a sense on the same side on these matters—it would be very helpful if we could have a list of the items that the Government propose should be included in each definition of income and then at the end a list of the items about which they have not made up their minds.

It is true that eventually, when a Bill is passed, such items are embodied in regulation. The trouble with that is that we have no opportunity to amend them as regulations are not amendable. Therefore, if we could have a list of the three definitions of income—or more, if there are more—the House would be able to express a view on whether we think the list is appropriate. Given that we will be deprived of amending the eventual outcome in regulations, that may be helpful.

That point arises on this amendment, which suggests that we knock out the power to make regulations. If the noble Baroness can respond helpfully on that point, it would be easy to withdraw the amendment. I beg to move.

The Chairman of Committees

I should have said to the Committee that if this amendment were to be agreed to, it would pre-empt Amendment No. 38.

Baroness Hollis of Heigham

What the noble Lord asks for is entirely reasonable. I shall seek to write to him and share the information with the House. For reasons he will understand, some of the points may take longer to determine. But at least I could identify the areas on which we are clear and those areas on which we are still consulting. If Members of the Committee wish to give a view on those areas, that will be helpful.

Lord Higgins

I am grateful to the noble Baroness. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 37 not moved.]

Baroness Turner of Camden moved Amendment No. 38: Page 3, line 25, after first "income" insert "including earnings The noble Baroness said: Amendment No. 38 is another probing amendment. If it were accepted, subsection (6) would read: Regulations may make provision as to income [including earnings], which is not to be treated as qualifying income for the purposes of this section". The White Paper originally said that consideration was still being given to the treatment of earnings in the pension credit. At present, pensioners can normally earn only £5 a week without loss of income support. The amendment would ensure that earnings are counted as qualifying income for the purposes of subsection (6). I am wondering, therefore, whether the Minister will be kind enough to say whether the Government have concluded their consideration of earnings in relation to pensions credit and, if so, with what result. I beg to move.

Lord Higgins

In the light of the discussion we had a moment ago I am a little uncertain how to respond to Amendment No. 38. I was inclined to take the view that it would be better to consider the question of what is and what is not earnings under Clause 15 of the Bill. But I suddenly realised that the earnings in this section may not be the same as the earnings in the later section.

Important issues arise as to what the situation is in relation to disregards for part-time earnings, both as to standard credit and savings credit. However, I am inclined to defer my remarks until we come to Clause 15. If I have made a mistake we can return to this matter on Report.

Baroness Hollis of Heigham

My noble friend seeks an assurance from us that earnings taken into account in the pensions credit calculation are always rewarded.

It has always been our intention that those who continue to work after age 65 are rewarded for their efforts. I hope Members of the Committee will appreciate my dilemma. We are still considering how best to do that. For example—a point I made at Second Reading—we need to consider the relationship between pension credit and working tax credit; or, as my noble friend suggested, whether the small earnings disregard still suits our purposes. So issues do arise here. We are trying to seek the best way forward.

We are not dealing with an inconsiderable number of people. Around 450,000 people have earnings which could affect pension credit. But, equally, we want to encourage them to work where they can do so. How best to do it, and whether it is best done through the vehicle of working tax credit, through earnings disregard or through allowing earnings to be regarded as qualifying income for pension credit purposes, we are still consulting on and considering. I hope the Committee will tolerate that. That is probably as much as I can say as to how things are going at the moment. Obviously we will be revisiting this matter.

Baroness Turner of Camden

I am grateful to my noble friend for that explanation. It was in order to find out what the present score was that the amendment was tabled in the first place. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 39: Page 3, line 26, at end insert— ( ) Regulations made under this section may not specify as qualifying income for the purposes of this section any item of income relating to earnings which has been prescribed to be disregarded under section 15(6)(b). The noble Lord said: Amendment No. 39 is an attempt to try to bring in some consistency between the various parts of the Bill given, as we now discover, there are various definitions of "income". I thought initially it was merely tidying up the drafting and making sure the various parts were consistent. In the light of the earlier discussion, I am not at all sure that that is all that arises on this amendment.

It may be that some items will be disregarded in this part of the Bill which are not disregarded under Clause 15. No doubt the Minister can enlighten us as to whether or not that is the case. Each of the amendments interlock to some extent. I pick up the point the noble Baroness made on the previous amendment; that is, that the Government were unsure what to do about the additional pension received if people defer drawing their basic state pension.

Noble Lords


Lord Higgins

I thought that was what the noble Baroness said. In that case I am stimulated to think about that point even though she did not say that.

9.15 p.m.

Baroness Hollis of Heigham

I do not always give the noble Lord all the words of everything I am thinking all the time. He might not want that.

Lord Higgins

I am making a serious point; namely, that we shall have to consider among the items which should or should not be included in income the additional income which pensioners get if they defer their retirement age in order to get a higher basic state pension. That is a pretty meagre increment at the moment. I am bound to say that the ability of the department to pay it dead on time when it is subsequently drawn has been pretty lamentable in the past. I see that the noble Baroness, Lady Gibson of Market Rasen, nods in support. We need to consider that matter because the Government pay a little extra if people defer their retirement. People are increasingly doing so. It is important to relate the extra amount which the Government pay to the effects of the Bill upon the eventual net amount.

Baroness Hollis of Heigham

Again I have some difficulty here because my understanding of the amendment bears no relationship to what the noble Lord has said. It is equally clear that he decided that his own amendment did not bear much relationship to what he originally intended to say and he added to it interestingly in good House of Commons style as his speech proceeded.

The Chairman of Committees

I hope the noble Baroness will forgive me if I put the amendment to the Committee. Amendment proposed, Page 3, line 26, at end insert— ( ) Regulations made under this section may not specify as qualifying income for the purposes of this section any item of income relating to earnings which has been prescribed to be disregarded under section 15(6)(b).

Baroness Hollis of Heigham

I have never done that twice before on a Bill and certainly not with one Chairman of Committees. I seek the Committee's apology.

I shall respond first to the amendment as drafted. The amendment as drafted seeks to ensure that any earnings which are disregarded in the income assessment are not rewarded. The truth of the matter is that no income, including earnings, which is disregarded in the income assessment will be rewarded. This is achieved in Clause 15(6)(b) which allows in prescribed circumstances for capital or income which is possessed by a pensioner to be disregarded. Disregarded means exactly what it means. No account will be taken of that money in calculating an individual's entitlement to the guarantee. DLA or AA are the obvious examples.

By the same token no reward will be payable in respect of that money through the savings credit. It is simply outside the calculations in a kind of "suspense" account. It may be that the noble Lord's intention in proposing the amendment was to ensure that apart from disregarded earnings any other disregarded income should attract the savings reward. However, that would mean that people would get a double advantage of not having the money count against their guarantee credit while at the same time receiving a 60p in the pound reward for it. That is certainly not our intention and, I suspect, is not the noble Lord's either.

I am not sure about the noble Lord's approach here. However, he then turned his comments into an introduction on an issue which is certainly important and interesting; namely, the increment question. However, that is nowhere indicated or reflected in the amendment. I shall have a go at it all the same. My understanding is—I shall write to the noble Lord if I am wrong about it—that if someone chooses to defer his or her pension to get a higher increment later, possibly because they are earning now, we shall assume none the less that they are receiving the state retirement pension. Otherwise, people could get, so to speak, a double payment for not drawing down that which they could. We have to deem them, you like, to be drawing down the retirement pension to which they are entitled and then building the pension credit around that. As I say, if any of what I have just said needs adapting, revising or revisiting, I shall write to the noble Lord. However, it is my understanding that a retirement pension that has been postponed so to speak will none the less be taken into account notionally.

Lord Higgins

I am grateful to the noble Baroness for clarifying that point. I obviously misheard what she originally said. None the less, an important and interesting discussion was stimulated. Tomorrow we can read exactly what was said in Hansard.

The noble Baroness has made two false starts. When I used to run, that would have disqualified runners. However, that did not apply in the case of the noble Lord, Lord Archer, who got away with it several times, and that was the least of his crimes. Even so, he never managed to beat me over 100 yards, or metres as it would be nowadays. I am most grateful for the noble Baroness's comments. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 40 to 44 not moved.]

Lord Higgins moved Amendment No. 45: Page 3, line 33, leave out subsection (8). The noble Lord said: Subsection (8) states: Regulations may prescribe descriptions of persons in whose case the maximum savings credit shall be taken to be nil". I should have thought that the Government were fairly clear by now about which "descriptions of persons" would not be entitled to any maximum—or even any minimum—savings credit. I am not quite clear why the Bill cannot state who those interesting if somewhat hard-done-by people are. I beg to move.

Baroness Hollis of Heigham

One can tell that the noble Lord was a sprinter. I used to run relay races, and I never had to worry about false starts—just about where the end of the line was. It may be at 10 p.m. or 11 p.m.

The amendment would remove the proposed power to prescribe cases in which the savings credit will be set at nil. The policy intention behind the subsection is to complement Clauses 2(6) and 2(9). The intention is that, taken together, those clauses will provide powers to ensure that prisoners and members of religious orders who are fully maintained by their order will be excluded from entitlement to pension credit.

We intend that prisoners and members of religious orders who are fully maintained by their order will be excluded. That is because the cost of maintaining those groups is met by other organisations. The reason for seeking to exclude those groups in regulations instead of in the Bill is simple. That approach affords us flexibility to reflect future changes: for example, we may need to adjust our treatment should the Home Office make changes in the categorisation of prisoners.

The proposed treatment of prisoners in pension credit is consistent with the approach taken in other benefits. For example, prisoners are excluded in working families and disabled person's tax credits and attendance allowance, and the basic state pension payment is suspended for the duration of the sentence. The latest Home Office data showed that in November 2001, 1,385 prisoners were aged 60 and over and 651 prisoners were aged 65 and over.

We intend to provide in pension credit for the housing costs of prisoners held on remand or awaiting trial or sentencing to continue to be met for up to 52 weeks. Similarly, where prisoners are hospitalised under the Mental Health Act 1983, they will be entitled to pension credit in the same way as other long-term hospital in-patients.

I am glad that the amendment was moved—it is useful to put the position on the record; that will help people to advise families in particular in stressful situations. For completeness, I am sure that the noble Lord will want to know how we intend to respond to the situation involving prisoners' families. Where the pension credit recipient is detained in custody, the partner may claim in their own right; however, a new claim would be required. There will be a facility in pension credit for the customer to opt for the claim to be made from "as early as possible". That would allow the decision-maker to consider entitlement for up to three months earlier than the initial date of contact—that is almost like a form of back-dating—provided that the conditions of entitlement are satisfied for that period. Where the partner is imprisoned the decision-maker would want to supersede the existing award to exclude the partner from the day following imprisonment.

I do not know whether that meets enough of the noble Lord's concerns. I could add further details on religious orders, whose members are also fully maintained. These are important issues, although they apply to only a very small group of people. I am glad to have had an opportunity to respond to the issue.

Lord Higgins

I am most grateful to the Minister for that explanation. It is helpful to have this rather esoteric point on the record; it is obviously of considerable importance to those concerned. No doubt those involved with these groups of people will read Hansard and find a clear explanation of the Government's intentions. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 46: Page 3, line 34, at end insert— (9) When benefits are reduced under the provisions of the Social Security Hospital—Inpatients Regulations (S.I.1975/555) they shall be restored within one week of the patient being discharged from hospital. (10) In the event that benefits are not restored within the period mentioned in subsection (9), payment shall be made as soon as possible at twice the normal amount for the period from one week after the patient is discharged until the date that payment is received by the patient. The noble Lord said: This amendment is concerned with the situation regarding people affected by the Social Security Hospital—Inpatients Regulations. That matter has caused considerable concern. It relates to the way in which a large number of benefits are withdrawn from an individual who is in hospital. I believe that the Government estimate that around 31,000 retirement pensioners are affected by those reductions. As a result, there is a saving in public expenditure of some £60 million per year. That is so far as concerns the retirement pension. I do not believe that figures are available for other benefits. Perhaps the noble Baroness can help us in that regard.

I stress that there is much concern about this matter. As the noble Baroness pointed out on a former occasion, it relates to a provision on double-counting which goes back to the beginning of the national insurance scheme. That is understandable, and sufficient remains of my Treasury halo for me not to question the principle. However, two points give cause for concern. One is that considerable doubts have been expressed recently about whether the extent of the reduction is in line with the savings made by the individual concerned. The noble Baroness may wish to comment on that, although it is not the point with which the amendment is concerned.

The issue on which I have received most representations—I used to receive them from my former constituents—is the long delay that occurs after a person is discharged from hospital before benefit payments are resumed. I see that I have a lot of support on that issue from the Back Benches opposite. It is obviously a matter of great concern. People who have just been discharged from hospital may typically return to their homes alone or, even if other people give them assistance, they may be in a very bad way and unable to cope well with an immediate crisis. If they suddenly find that they are discharged but no longer have the benefits which they received before going into hospital—benefits to which they are none the less entitled once they are discharged—understandably they may feel, or indeed be, distressed.

Therefore, the amendment seeks to impose a limit whereby the benefits should be resumed, at any rate, within one week of their being discharged from hospital. I realise that technical problems are involved. However, by way of incentive—this is perhaps a rather crude way of doing it; I understand that—some form of sanction should be imposed on the benefit-paying organisations. Such organisations are of course varied because they cover a wide range of benefits, but an incentive or sanction should be imposed on those who fail to resume payment with a week. For a person who has just come out of hospital and finds that he is not receiving his benefits, even a week can be long enough to cause considerable concern.

This is a probing amendment. I do not necessarily wish to press it in every respect, but I believe that an important issue is involved and somehow we must deal with it. One way in which to do so—again, I am not sure that it is by any means the ideal solution—would be for the benefit to be paid throughout the period. Then, the amount which is deducted because the person in question is said not to have incurred so many costs in hospital could be collected subsequently. The noble Baroness grimaces, if I may use that expression, and I understand that. None the less, such a solution may cause rather less distress than the present situation, which can be quite fraught.

I believe that this is an important matter. Concern is now growing that the amounts deducted are not appropriate and that the system does not provide adequate arrangements for resuming payment the moment the person is expelled—not "expelled"; I am not going to become involved in yesterday's controversy—discharged from hospital. Again, perhaps better arrangements can he made with regard to the procedure for discharge.

These issues are important to those who are affected. They may well be among the poorest of our people and, in any case, may be among those who are least well and least able to cope when eventually they emerge from the hospital environment. I beg to move.

9.30 p.m.

Baroness Greengross

Some important points have been raised by the noble Lord. In October last year I raised this issue in a Starred Question. It is time for a policy that was designed so long ago—in the 1940s—to be updated. We are now in the 21st century. People do not live in hospital any more. They stay in hospital while they arc ill and, assuming that they have somewhere to go, they are discharged from hospital. The old geriatric wards have gone.

The situation is very different from the one to which this rule was designed to apply. If frail elderly people do not require intensive medical treatment, they are transferred to care homes. The process of intermediate care should be better and smoother. Often, if such a move does not take place within six weeks, it is not the patient's fault; we know that it is the failure of the authorities concerned to find a suitable place and that leads to bed-blocking. This has been under review since 1948, but I believe that the Government should conduct a genuine review. The current system of taking money away from inpatients is complicated and bureaucratic.

My last point is that there is an anomaly. The five-year period of assessment, that I welcome, does not apply if one has had a stay in hospital. That has to be reported. I believe that if one is ill, one has to report that to the social security department.

Baroness Barker

I, too, support the amendment. This is one of the most timely revisions that there could be. I hear all that the noble Lord, Lord Higgins, and the noble Baroness, Lady Greengross, have said about the time when this rule was introduced. I was not alive in 1948 and I do not know whether there was an equivalent system of housing benefit at that time. No one could have foreseen then the misery into which many pensioners are forced today by the operation of this rule.

This rule has a bearing on the lives of pensioners in two ways. First, it makes an assumption that there is double funding, but an increasing amount of research suggests that there is little double funding. When this rule came into effect there was an assumption that if someone was in hospital they would have no heating charges at home, but today pensioners have standing charges to pay.

A couple of weeks ago in response to a Question, the Minister responsible for pensions said that this downrating was about board and lodging. I believe that board and lodging, in the context of a hospital, means food. The most recent figures from the Government that I have been able to find from the Library suggest that on average the amount of money spent on food is £1.67 per day for every person in hospital. That is worked out from an overall amount of the numbers of patients and the cost of food. There is a flaw in the way in which this rule operates in that it makes assumptions about double funding that are not true.

Secondly, it does not recognise the increased costs to older people of being in hospital. In my work with Age Concern London last year I was involved in the production of a report on hospital transport entitled A helicopter would he nice. That was what an older person said to us about hospital transport. I offer this observation. One is more likely to have free parking at Sainsbury's than at a hospital. For the spouses or partners of older people, there are a number of increased costs as a result of being in hospital.

Perhaps more important is the point to which the noble Lord, Lord Higgins, referred: the huge disruption to housing benefit and council tax benefit. The noble Lord questioned the Minister—she did not respond—about the review of housing benefit having been put back. We know that there are enormous problems with housing benefit administration. Those are acute in London. If Members of the Committee want evidence of that, they should drive through Brixton at about 7.30 in the morning, before the benefit office opens, to see the queue of older people who wait for several hours before they are due to be seen. In many parts of the capital, housing benefit administration is a disgrace which drives pensioners to distraction. I do not believe that anyone would wish that on any pensioner, far less on one who has been ill enough to be in hospital.

The noble Baroness, Lady Greengross, rightly indicates why we should now review the situation. The new arrangements for intermediate care lack clarity about who will be deemed to be having hospital care. That is why we need to probe what is happening. At Second Reading the Minister said that the circumstances of pensioners do not change that much. That was the reasoning on which she based periods of assessed income. For some pensioners going into hospital is a precursor to great change, but for most it is not. If the Government are confident that the circumstances of pensioners do not change in the longer term, it is right to consider benefit for what may be short periods in hospital.

I have not received an answer to my Written Question to the Minister about the cost to the department of making changes. I hope to receive an answer during these debates. If there is change when a pensioner goes into hospital, there is another change when he or she comes out. So there are two costs. The Government receive back about £57 million a year as a result of hospital downrating. I shall be interested to know the cost to the Government of implementing the rule. I look forward to the Minister's response.

Baroness Hollis of Heigham

The amendment is more narrowly focused than the discussion. Perhaps I may say a few words about the broader issue and come back to the amendment.

The amendment would impose an obligation on the department to restore a person's pension credit within one week of his discharge from hospital, presumably at the pre-admission rate of payment, and proposes that the person be compensated for any delay in the payment of such an increase. The noble Lord was understandably quite explicit that it was the intention to put pressure on the competence of the department to reinstate benefits where delay would otherwise cause stress.

Perhaps I may just step back for a second and talk about the wider issue. We propose that for hospital inpatients receiving pension credit a single person would have their standard minimum guarantee replaced with a lower amount. The reduction in such cases would be equivalent to about £28 or so of the basic state retirement pension after six weeks in hospital, with a further reduction to 20 per cent of the basic state retirement pension following an extended stay of longer than 52 weeks. At that point essentially there is a read-across between the amount remaining to a long stay hospital patient and someone in a local authority home who is receiving, so to speak, pocket money after their costs have been met.

Baroness Barker

I rise to make one point. In the past the noble Baroness has, very rightly, taken Members of the Committee to task for using wrong terms about benefits such as MoT tests. The term "pocket money" is offensive to older people. We are not talking about children with small amounts of money for sweets. We are talking about adults and a personal allowance, which they have the right and the dignity to choose how to spend.

Furthermore, to talk about pocket money is misleading. It gives the impression that this is some additional extra—some indulgence. For many older people it is not. It is about buying the necessities for the circumstances in which they find themselves. Rather worryingly, the social policy ageing information network is beginning to tell us about instances where people in residential and nursing homes are being asked to contribute that money towards their fees.

I wanted to make that point to all Members of the Committee. It seemed appropriate to do so now. To talk about this as a personal allowance as opposed to pocket money is important. It is a principle on which the noble Baroness has previously picked up other Members of the Committee. I hope that she will accept that.

Baroness Hollis of Heigham

I used to call it "personal allowance" to my children. They called it "pocket money". But I am very happy to use that term if the noble Baroness feels more comfortable with it. I do not have any problems with it. The point which I was making was not a language point, but actually the substantive point, which I am sorry the noble Baroness did not come back or challenge me on. That is that after 52 weeks the residual monies, or personal allowance or whatever she wishes to call it, for a person in a long-stay hospital has a read-across to the local authority situation, which is why it takes that particular form.

In the case of couples, the reduction would be equivalent to about £14.50 off the basic state pension after six weeks in hospital and 39 per cent of the basic state retirement pension after 52 weeks. However, any savings credit, as opposed to retirement pension, will continue to be paid regardless of the length of stay in hospital.

Not to accept the principle that there should be no double payment would mean that a person in hospital is put on exactly the same footing as a person living in their own home. I think that noble Lords have always accepted that there should be no double payment of benefits. For example, if one gets a widow's pension one does not often get ICA and the like. Food, laundry and heating, particularly if one is a single person, are expenses that are reduced from one's retirement pension if one is in hospital because those items are provided by the hospital, compared to the situation of living in one's home. That is the basis of the Government's position.

Perhaps I may now turn to Amendment No. 46. Members of the Committee will be aware that currently a person is required to notify the department of periods of in-patient treatment and will be required to do so under pension credit. That allows the department to make the necessary adjustments following admissions or discharge. As noble Lords will appreciate, the department can act only upon the information within its knowledge. When a person is discharged from hospital their pension credit entitlement would be restored to the pre-admission rate of payment. Where a person's pension credit entitlement ceases as a result of the interaction between his income and the application of the downrating provisions, a new claim to pension credit would be required upon discharge from hospital. This is to ensure that the correct rates of benefit are paid and that all changes in a person's circumstances are recorded.

The noble Lord, Lord Higgins, rightly pressed me on the clearance times and, therefore, the delay in reinstatement of benefit. It may help the Committee if I were to indicate the Government's target figure and the actual level of our performance. Obviously, the averages that I give are just averages, so there may be a lot of variations around the mean. As for new or repeat claims in terms of the income-related benefits—income support and MIG, as well as JSA—our target is 12 days. The actual performance for IS and MIG is 9.4 days. Our target in respect of a change of circumstances is to have that benefit reflect such a change within four days; our actual performance is 2.5 days, which is quite impressive.

I understand the noble Lord's wish to encourage us to improve those performances from the department that differ very widely from the rather satisfying averages that I have given. However, there is a difficulty with the noble Lord's proposal. If every week of delay would result in a customer being paid double the benefit, we would be offering people an incentive not to report their discharge from hospital on time. It is a two-way process: it is when the customer reports to us, as well as when we can reinstate benefit. We need to be exemplary in our performance. I believe that the averages that I have given indicate that the performance is really rather good. We are also dependent on the former patient notifying us of the situation. As such former patients are convalescing, it may take them some time for them to do so; and we cannot act until we have that information.

However, the department will be providing full training to the staff who will be administering pension credit to ensure that claims and changes in circumstances are processed as quickly as possible. We shall be making significant improvements to service delivery. The introduction of the Pension Service will make it easier for customers to contact us. Over time, the Pension Service will provide former hospital patients, as well as all other pensioners, with a wide range of contact channels through improved modern technology, including telephony, digital television and Internet technology. Call and contact centres will be open longer than current office hours to allow pensioners to contact the service when it is convenient for them to do so.

In cases where we have delayed unreasonably, the department already has a special payment scheme that provides compensation. We use the average retail shares and deposits rate supplied by the Building Societies Commission to calculate compensation payments for delay. However, the noble Lord's amendment would provide compensation to pensioners at 100 per cent, which is an unrealistic rate. Moreover, we would have to extend it to all other benefits; indeed, in all justice, we could not limit it to pensioners. The noble Lord will have to accept that fact.

Finally, I was asked what the cost of administration would be under the current system. As a matter of information, I can tell the Committee that we are talking about a figure, on average, of about £4.5 million. It is absolutely right that the noble Lord should put pressure upon us to speed up our reinstatement process. However, if he shares with us a recognition that, to some extent, it all depends on when the information is supplied to us by the former patient or his or her family, I am sure that he will realise that his way of making us respond is inappropriate. Our performance has improved. Our targets are quite challenging, but we are meeting them. Indeed, we are doing better than our target in some cases; for example, as I mentioned earlier, 2.5 days.

The Pension Service will seek to improve our performance still further, but unacceptable delays remain unacceptable. If the noble Lord has other ways of meeting his objective without going down this path, which, as I said, would produce perverse incentives, I shall be very happy for him to share them with us in due course. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Baroness Barker

The Minister mentioned the figure of £4.5 million. Can she give details of how that figure has been arrived at? The Minister may wish to write to me. The hour is late.

Baroness Hollis of Heigham

I gave the figure of £4.5 million in respect of staff, costs and the rest of it over the table. I believe that it is appropriate for me to write to the noble Baroness if she wishes for further information on this matter.

Lord Higgins

I am most grateful to the Minister for that very helpful reply. I need to consider the points that she made. Perhaps I may take up two points and a suggestion. First, is it the case, as I believe the noble Baroness, Lady Greengross, said, that if someone goes into hospital the five-year period runs afresh? Secondly, the noble Baroness has given the figures for the average, but that is not the problem: it is the dispersal around the average. While some people may receive fairly immediate resumption of their benefits, others may have to wait a great deal longer than was revealed by the figures which the Minister gave.

Perhaps I may make one suggestion. This matter has been in existence for so long that it has probably not been considered in any depth until quite recently. One way around the problem of the resumption of benefits would be to continue them all the way through, but to charge the individual for rent, accommodation and so forth. That might be more acceptable to them in the sense that they are paying for something and receiving something in return. I merely put forward that suggestion. We may well wish to return to this point on Report.

Baroness Hollis of Heigham

I am grateful to the noble Lord for triggering my memory. As I understand it—I shall qualify it in writing if I need to—reduction alone in the retirement pension through being a hospital patient for more than six weeks will not of itself end the assessment period. The assessment period would not have ended for those purposes. One would have to start after 52 weeks when changes in the household composition would effectively turn it into a disaggregated claim. I believe Members of the Committee will understand that.

The noble Lord made a second point about averages. He is right in saying that it is the aberrant cases, not the averages, which are the problem. We have a compensation system and the noble Lord is right to press us about it. He suggested that we might wish to recover the costs subsequently, and that payment would continue while in hospital. That would be worse from his point of view than the current situation.

The notion that someone could be charged and be told, "Here is your retirement pension, but we are going to take away 'X' for this and that" comes perilously close to a charging system which would have to include people not on benefit. Is the noble Lord suggesting that it should apply to people on benefit? Otherwise, there would be no justification for someone not on benefit with several times the income being charged for their food, laundry or heating. I do not believe that we can go down that path.

The problem here is double provision in that people are receiving a retirement pension which is expected to cover their food, laundry and heating. I believe that most people would accept that when one goes into hospital some costs are reduced but some may increase. None the less, there is double provision. Some costs certainly do reduce and that is why this situation has existed for many years. I believe that the noble Lord's suggestion could not be applied simply to pensioners: if we are to have that form of payment it would have to be applied to those receiving wages and earnings. I am very happy for the noble Lord to return to the matter if he wishes, but I still believe that his solution is worse than the dilemma which currently faces patients who go into hospital.

Lord Higgins

I am most grateful for the clarification of the various points. Before asking for leave to withdraw the amendment, perhaps I might just clarify what I was saying. I was not suggesting that they should pay subsequently; I was suggesting that payments to them would continue throughout their period in hospital and beyond, but that they would then be charged while in hospital. They would then have no problem on discharge.

The noble Baroness said in that respect that other people in hospital not receiving benefit would have to be put in the same position by charging them, as if it were not the case that we were charging those on benefit now. It is simply that the matter is stopped rather than charged. However, at all events, we are making some progress, and we can return to the matter on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 3 agreed to.

Clause 4 [Exclusions]:

Baroness Greengross moved Amendment No. 47: Page 3, line 36, leave out subsection (1). The noble Baroness said: This is also a probing amendment. It may be somewhat badly drafted—on the back of an envelope, literally. I expect that the Minister's brief has already indicated that.

The amendment would allow members of married or unmarried couples to claim the state pension credit, each in their own right. I understand why subsection (1) has been included. If it were not, the cost of the state pension credit would be much higher and would allow all kinds of incentives for well informed couples to shift their resources around to maximise their entitlement. However, there is a serious point behind my probing amendment and I referred to it at Second Reading in relation to tax credits.

I am disappointed that the Government have not had the courage at least to begin to chip away at benefit rules that still assess a couple's income together, rather than individually. Only when that is tackled will we see the beginning of the genuine integration of tax and benefits. I strongly favour that, not least because it would benefit women significantly. However, it would also be to the benefit of older people generally, in particular poorer older people, the very people whom the Bill seeks to help. A genuine integration of tax and benefits would be the best way to tackle take-up, so that, as the Minister explained at Second Reading, we move away from the language of means testing to the language of entitlement. We would all appreciate that.

Everyone understands that above a certain income one pays tax, usually automatically, via PAYE, or by being taxed at source on savings. If benefits were integrated with that basic and accepted principle, the opposite would apply. Below a certain income, the state would automatically pay money back to people to top up their income.

In the case of the State Pension Credit Bill, I was encouraged to read in the November 2000 pension credit consultation document that, over time, the Government wants to take tax and benefit integration further … ultimately to create a seamless and integrated system of support". As I said, that can work only if the tax system and the benefit system both assess people individually. I move my probing amendment to ask the Minister why has that has not happened more with the Bill. Is it the Government's intention to integrate the state pension credit with the tax system in the longer run? I beg to move.

The Chairman of Committees

I should draw the Committee's attention to the fact that if the amendment were to be agreed to, it would pre-empt Amendment No. 49.

Baroness Noakes

I spoke earlier about married and unmarried couples and some of the related problems. Treating married couples as one unit, rather than two individual units, may have been appropriate for a different age, when the husband worked most of his life as a breadwinner, providing for his wife and himself in their retirement. However, the world is changing, and increasing numbers of women are in receipt of their own retirement pension by dint of their own contributions. The figure was 53 per cent for 1997, according to a Written Answer given on 16th January by the Minister's right honourable friend in another place. That is forecast to rise to 68 per cent, comprising almost 5 million women, by 2006–07.

This issue is coming up and is ripe for the noble Baroness, Lady Greengross, to raise. I suspect that the problem lies in its public expenditure implications. I should be interested to learn what the Minister has to say with regard to the costs. From my perspective, it is clear in which direction we should travel, but I am less than clear that we could afford the bill.

10 p.m.

Lord Hodgson of Astley Abbotts

The hour is late and so I shall be brief. I very much support the thoughts and philosophy driving the proposer of the amendment. The separation of the taxation system and the possibility offered here for integrating taxation and benefits and all that that would mean seems to me to be an objective worth pursuing. It is something which perhaps we have passed by too lightly amid the many other complexities of the legislation before the Committee. I hope that the Minister will be able to take up, explore and think about the points made by the noble Baroness.

Baroness Hollis of Heigham

Pension credit is a household-based, income-related assessment. It is not a tax system based on the individual assessment of income. It could mean that, for example, the wife or partner of a wealthy husband with very little money held in her own name would be entitled to the pension credit, despite her wealthy partner. That may be the situation with regard to a tax—if you do not aggregate, you separate—but it does not strike me as a suitable or appropriate basis for a pension credit. A non-working spouse, or someone working only part-time, or perhaps with only modest savings or £5,000 or £7,000 in a building society who none the less had an extremely wealthy husband, would be entitled to claim pension credit. I cannot believe that that would be a sensible use of public money. Indeed, it would be similar to introducing a policy pursuing the route of "wages for housework".

There are other and better ways of addressing the problem identified by the noble Baroness. We shall do that through the state second pension. The fact is that the majority of beneficiaries of the state pension credit will be women when they find themselves in a position, perhaps through the death of a partner or spouse, where they are required to support themselves, if they have not already been doing so.

We shall not go down the path of disaggregation. We cannot do so because this is a household-based, income-related benefit. It is not like a tax and thus based on individual assessment. Furthermore, it is not like a tax and thus based on an annual assessment of the previous year. It is also not like a tax based on actual income as opposed to a notional income based on capital. For all those reasons, I hope that the noble Baroness will accept that we are not going to disaggregate in that way.

I do not believe that the noble Baroness would wish to advocate some of the more bizarre possible interpretations of her amendment. With regard to the substance of the proposal—whether we are going to disaggregate—the answer to that is no. We shall not do so in the case of pensioners, most of whom in any case are not taxpayers. We are seeking here to establish a right and decent way to respond to pensioners' needs. Their needs are household based and their ability to meet those needs will be met by household-based income. That is why we think that it is right and proper that pension credit should be based on households rather than on individual disaggregation.

Even if the noble Baroness does not agree with my comments I hope that, with my explanation, she will feel able to withdraw her amendment.

Baroness Greengross

I am grateful to the noble Baroness for her response. I remain disappointed that any opportunity to move a little way towards integration, on which the noble Baroness herself commented a little while ago, could not be taken just a shade further each time. I imagine that my efforts to make these points will have to be resumed on future occasions.

Any opportunity to begin to achieve the long-term goal of integration, which in my view is related to full citizenship, is worth pursuing. The amendment provided a small opportunity to highlight the issue. I appreciate the response made by the Minister and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Farrington of Ribbleton

I beg to move that the House do now resume.

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

House resumed.