§ 7.29 p.m.
§ The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)
rose to move, That the draft order laid before the House on 6th February be approved [19th Report from the Joint Committee].
The noble Baroness said: My Lords, it may also be convenient if I speak to the Guaranteed Minimum Pensions Increase Order 2002. I shall move both orders separately, and if noble Lords wish to speak just to one or the other, that is their entitlement.
As the House will be aware, the draft uprating order and the draft guaranteed minimum pensions order are an important part of DWP business. The uprating order will increase most benefits from April in the normal way in line with the RPI for national insurance benefits and the Rossi index for income-related benefits. For the 12 months ending in September, both of those price indicators were 1.7 per cent. The other order will increase guaranteed minimum pensions by 1.7 per cent in line with the RPI. However, as in every year since 1998, there are some benefits that we want to increase by more than inflation.
I deal first with carers and the disabled. We know that it is particularly hard for families on low incomes who are bringing up children with disabilities. Indeed, children with disabilities or children in families with a disabled person are some of the poorest children in the country. Again, we want to provide substantial extra help for disabled children. We are raising the disabled child premium to £035.50 per week, giving an additional £;p5 on top of normal uprating, which will benefit around 80,000 children in the neediest families.
463 We also want to help remove the barriers to work for people with severe disabilities and make sure that work pays. Two years ago we substantially increased maximum payments and earnings disregards in the Independent Living Fund. I am sorry that my noble friend Lady Wilkins is not here. She was one of those who pressed that most urgently, and rightly so. We are abolishing the ILF earnings limits altogether, both for those severely disabled people and their partners. That will be worth an average £130 per week to those families. That means that there is now no disincentive to work for disabled people who are currently being supported in independent living by the Independent Living Fund. We shall also extend help to people with savings of up to £18,500 by increasing capital limits in relation to the fund. Since 1996–97, ILF provision has gone up from £109.6 million to the £150.5 million provided in 2001–02.
We have already announced a package of help for carers worth £500 million over three years. Carers will also benefit from the increase in the invalid care allowance earnings limit, which increases in line with the lower earnings limit. From next April, carers will be able to earn £75 per week after allowable expenses without their invalid care allowance being affected. Again, that is an encouragement to keep them in touch with the labour market. We know that the average period of caring is between two and three years.
We are doing more than ever to help families to balance their work and home lives. We are raising the standard rate of maternity allowance and statutory maternity pay from £62.20 to £75 per week. That will benefit around 340,000 families per year and is the largest weekly increase in the benefit since February 1958. I do not know what happened in January 1958 but I shall seek to find out. Additionally, the Sure Start maternity grant will rise from £300 to £500, giving a further substantial increase to mothers on low income when they most need it.
When we discussed that on an earlier occasion, the noble Earl, Lord Russell, pressed me on what happened to those who failed to qualify. We were worried that they might slip through the net. I was able to reassure him. After a quick "tracker" exercise, we found that in the case of almost everyone who was refused the first time round, it was because, for example, they had applied too early, and they subsequently received the benefit. The increase to £500 at the point at which a pregnancy is confirmed is a key initiative in ensuring that children have the best chance of coming into a secure life.
Again, we want to do more for pensioners and give significant help to the elderly. That is an issue which has occupied your Lordships' House over the past few weeks. Measures in the order show our continuing commitment to tackle pensioner poverty and to ensure that our pensioners directly benefit from the growing prosperity of the country.
We shall, as promised, increase the minimum income guarantee in line with earnings to £98.15 for a single person and to just under £150, £149.80, for a couple. As a direct result of MIG, a single person will 464 be at least £15 per week better off and a pensioner couple £23 per week better off than I hey were in 1997. In conjunction with winter fuel payments and free TV licences, we see that a single pensioner is at least £18 per week better off and a pensioner couple will have gained more than £27 per week.
The pension credit, which we recently debated, will boost significantly the incomes of low income and modest income pensioners by directly rewarding their savings. As I have said on many occasions, a pensioner, possibly a widow, 'with a modest occupational pension of £100 per month at present sees no benefit from that because MIG is of sufficient decency to float them above it. In future under pension credit, a pensioner with an occupational pension of £100 per month will keep £60 of it and be £60 per month better off.
Between now and the introduction of the credit we shall continue to ensure that those on low and modest incomes can also share in our growing prosperity. The transitional arrangements introduced in last year's order and continued in the order that we shall debate tonight allow for that. We shall, as promised, increase the basic state pension by £3 to £75.50 per week for single pensioners and by £4.80 to £120.70 for couples. Widows' benefits and bereavement benefits will rise in line with the amount for single pensioners.
The state second pension being introduced this April will, as it builds up, give more help to those on lower earnings or with broken work records such as carers and disabled people and, above all, women with interrupted earnings, while those on moderate and higher incomes will be encouraged to save through occupational and other funded pensions. Stakeholder pensions will fill a gap for low cost and more portable pensions.
I am delighted to see that the noble Baroness, Lady Greengross, is in her place. As I announced in the debate following Third Reading of the State Pension Credit Bill, we have reviewed the rules governing the reduction in benefit when one of our clients goes into hospital. Alongside the introduction of the credit in April 2003, we shall ease the current rules so that relevant income maintenance benefits are no longer downrated—whether for pensioners or other clients on benefits--after recipients have been in hospital for six weeks. We have effectively doubled the six-week rule so that benefit will remain in payment in full for 13 weeks. As most hospital stays, including those of pensioners, are shorter than 13 weeks, I am happy to say that most people will not see a reduction in their weekly income. An estimated 26,000 of the 35,000 people who currently have their benefit reduced—that 26,000 includes 20,000 pensioners—will benefit at a cost of around £40 million per year. I well recall the warm welcome that was given to those proposals in the House.
To conclude, we are continuing to target more money on families and people with disabilities as well as continuing our action to tackle pensioner poverty and end child poverty. We are able to do that because of our success in building a strong economy and 465 reducing the costs of failure; that is the payment spent on unemployment benefit when people would rather be in work. We have seen the results. The latest figures show more people in work than ever before, with employment up by over 1.3 million since 1997. Unemployment remains at levels not seen since the 1970s. For example, when we came to office around 250,000 youngsters were unemployed. That is now down to around 32,000.
As I said, the latest figures show more people in work than ever before. Our fundamental overhaul is transforming the welfare system from a passive organisation paying out benefits to an active system which fights poverty, creates opportunity and helps people become self-sufficient and independent by helping those of working age into work.
A combination of the national minimum wage, which again largely benefits women, of tax credits, which largely benefit women, and changes to national insurance, including raising the point at which one pays national insurance while protecting one's benefit entitlement on the LEL, which again largely benefits women, as well as changes to the tax system, all ensure that work pays. The new deals make work possible and have so far helped well over 600,000 people into jobs. We are taking a single approach to work and benefits delivered through Jobcentre Plus. It will no longer be, "Here is the benefit office, a la 'The Full Monty', and there is the employment office". There will be an integrated service. We know that sometimes people move in and out of work. We want an integrated service so that we can offer help to everyone of working age for the first time. The measures we are taking all help to shift that culture.
We believe that this uprating order further delivers on our promises. Many points raised by your Lordships were aired at the time that the uprating statement was made. However, I shall do my best to follow up any of your Lordships' concerns during tonight's debate. I beg to move.
§ Moved, That the draft order laid before the House on 6th February be approved [19th Report from the Joint Committee].—(Baroness Hollis of Heigham.)
§ Lord Higgins
My Lords, I declare an interest as the chairman of a company pension fund.
Moving these Motions in another place, the Secretary of State began by saying:this year I am able to increase some benefits by more than the rate of inflation. We are able to do that because of our success in helping people into work".—(Official Report, Commons, 25/2/ 2002; col. 500.]That was an unexpected remark by the Secretary of State. The implication would appear to be that if unemployment goes down, pension increases go up—not an argument normally deployed. It is true that both affect the National Insurance Fund but if that argument is made, what would happen if unemployment were to rise? Would pensions then go down? That seems an odd correlation to draw.
466 One problem has been the substantial fluctuation in the uprating of pensions. One year we saw the notorious 75p increase. The following year, ahead of a general election, there was suddenly a £5 increase. This year the increase is to be £3. If we understand the last Budget correctly, in future the increase will be no less than 2.5 per cent—but this year the figure is only 1.7 per cent.
We join in welcoming the various changes that the noble Baroness has announced, such as the ILF earnings limit, maternity benefits, support for children age two and three who are disabled, and earnings relief for the severely disabled. They are greater, as the noble Baroness rightly stressed, than the RPI increase. Benefits generally under the RPI and the Rossi index are 1.7 per cent. We need to put that in the context of the position generally with regard to pensions.
First, I want to comment on hospital downrating. On Third Reading of the State Pension Credit Bill on 25th February, there was widespread welcome in all parts of the House for the Government's proposal to extend from six weeks to 13 weeks the period before an individual's benefits are downrated. On that occasion the noble Baroness did not mention—neither did the Secretary of State in the other place—that change would not be happening until autumn 2003. Between now and then, people who are in hospital for more than six weeks will have their benefits down rated. It was a little ingenuous of the noble Baroness not to mention that point. Our welcome would clearly be more enthusiastic if that improvement were to take effect immediately.
§ Baroness Hollis of Heigham
My Lords, that is a little ungallant of the noble Lord. That whole debate took place in the context of the State Pension Credit Bill and the timing of that associated with hospital downrating. It never occurred to me that an announcement about what we were going to do on the State Pension Credit Bill and hospital downrating in that context in February would be assumed to be coming into effect six weeks later.
§ 7.45 p.m.
§ Lord Higgins
My Lords, when the noble Baroness replies, perhaps she will explain why it is necessary to delay the change until autumn 2003. It would be better if the change could be made before then. If there are good reasons for not doing so, we will consider them. In any event, people in hospital during the intervening period will not enjoy the benefit of the change until autumn 2003.
Other points raised during the downrating debate related to whether the figures were updated to allow for changes in circumstances. It is common ground in all parts of the House that household expenditure now is very different from when the system was originally introduced. The noble Baroness suggested that should raise that matter in this debate.
I looked for some clue in the orders. All I could find was the note from the Joint Committee on Statutory Instruments, which refers to Article 19 and Schedules 467 6 and 7, which set out the amount by which housing benefit entitlement is reduced for a period in hospital. I understand that those reductions will be increased between now and when the underlying change comes into effect, and then increased thereafter for people who are in hospital for more than 13 weeks. Why are those increases to take place?
We asked 10 days ago how up to date are the deductions now being made and which will continue to be made. I suggested that there ought to be regular updating, to take into account—as is done with the RPI—changes in household expenditure. When was the pattern of expenditure that is taken into account for the downrating rules last reviewed, revised and brought up to date? Perhaps the Minister could explain also why there does not appear to be any downrating change except in relation to council tax and housing benefit.
As to setting the upratings in the broader context of pensions provision, the Government hope that over time, the proportion of pensions met by funded schemes will increase to 60 per cent, with only 40 per cent from the state. The changes since 1997 give cause for concern. We—I refer to the usual suspects, who are in their places—spent many hours considering the stakeholder pensions Bill. That legislation, I say with regret, has proved disappointing inasmuch as many stakeholder pensions seem to be replacements for existing arrangements and many of the people entering into them are not those originally targeted.
Doubts are increasingly being expressed in the press about the state second pension, which we also spent several hours debating on a separate, large chunk of legislation. A leader in the .Financial Times on 4th March commented:The current plan for a combination of the two state pensions—that is, the basic state pension and the second state pension—is likely to provide only the rough equivalent of what the old basic state pension provided at its peak—a little above 20% of average earnings".That will not be a helpful level of benefit on which to rely. The article goes on, predictably, to draw attention to the fact that anyway, the amounts are likely to be overtaken by the increase in the minimum income guarantee.
As we see more and more increases in means testing, can the Minister tell us what percentage of pensioners are now subject to means test and what forecasts have been made for 2010 and 2020? There are mounting concerns about the matter. Reports have been produced by the Institute of Fiscal Studies suggesting that someone retiring in 2050 will need a pension pot of some £100,000 just to buy an annuity equal to the minimum income guarantee; in short, a pensioner will get nothing for the fact that he has accumulated that pot. The institute also found that MIG is unambiguously discouraging savings. Again, against the background of these orders, the declining savings ratio that more than halved between the third quarter of 1997 to the third quarter of 2001 is worrying. Perhaps the noble Baroness can tell us what is the savings ratio at present.
468 The other general points in this context relate to the fact that we are really concerned with inter-generational transfers. That is a crucial point. The more one looks at the way in which things are developing, the more one begins to wonder whether the pay-as-you-go system, with all the changes that appear fairly predictable now, will be met in reality when, in political terms, claims are made. That is particularly so if the present generation does not make adequate provision for its own retirement in due course. We do not have any figure for the present value of future pension payments. I tried to get this established when we discussed the government accountancy legislation sonic two years ago.
I believe it is right to say that, at long last, it appears that the Government will shortly be responding to the Sharman report on these matters. As regards the state system, can the Minister say whether that report will give us an idea of what the overall situation is likely to be with regard to those future pension liabilities'? Clearly it is a massive figure. Can the noble Baroness give us the figure on the government balance sheet that will show the present value of future pension liabilities? At present the Government do not produce such a figure—
§ Baroness Hollis of Heigham
My Lords, perhaps the noble Lord can help me a little. I do not actually understand his question. Is he referring to the liability to state public revenues to be financed by taxpayers, is he referring to the savings ratio to be held b) individual people through money purchase schemes or is he talking about the cumulative sum—the £600 billion or the £900 billion—that are currently in private funds? Alternatively, is he talking about the percentage of GDP compared to Italy, Denmark or Belgium? I should be happy to give him those figures.
§ Lord Higgins
My Lords, the short answer to that multiple choice of questions is that I was referring to none of those figures. In the national accounts and on the national balance sheet that we now have, I was suggesting that we ought to have a figure for the present value of the Government's future pension liabilities.
§ Lord Higgins
No, my Lords; it is nothing to do with FRS17. I shall repeat what I said. I have in mind the discounted value of future pension liabilities. Clearly that is a liability on the Government's balance sheet but at present we have no information in that respect.
I have spoken for much longer than I intended, but perhaps I may say a few words about occupational pensions. This matter has suddenly become headline news. Attention has been drawn to the problems faced by occupational pension schemes, which the Government say that they are anxious to foster, as far as concerns the decline in the stock market and longer life expectancy. In addition, there was the Chancellor's action on advance corporation tax back in l997–98.
469 As the Minister will know, concerns have also been expressed on the subject of FRS17. Perhaps I may spend a few moments on the issue. I understand that the Secretary of State held consultations a few days ago on the subject. If we are to achieve the Government's objective of a high percentage of funded pensions, it is important for us to encourage occupational schemes as far as we can. The move from final salary schemes to defined contribution schemes is of concern. The argument is that the FRS17 proposal merely anticipates the European standard that will be introduced. I find that surprising. We well know that the amount in UK pension funds is more than the pension funds in the whole of the rest of the European Union. So the idea that they would have a tougher standard than ours seems rather surprising.
In that context, perhaps the Minister can tell us whether she thinks that the European standard, which is supposed to be developed in the next few years, will actually be tougher than the proposals in FRS17. It is very worrying that so many company schemes have tended to change from a defined benefit scheme to a defined contribution scheme, most notably yesterday with Marks and Spencer, which has an enormous reputation for being good as regards pension provision. If no comments are made in this respect, I am worried that there will be something of a fashionable, or panic, reaction to change in a way that will seriously affect the pensions of everyone in the country for many years to come. It will place an increasing burden on the items that are dealt with in this uprating order and on the requirement of the state to make provision instead, when it would be much better dealt with on a funded basis.
I have no particular points to make on the second order. However, its Explanatory Memorandum states:This Order does not impose any new costs on business".I am not entirely clear as to why that is so. If there is to be an increase of£1.7 per cent on the minimum pension requirement, I do not understand how there can be no extra cost to business. Perhaps the Minister can explain.
The issues before us are fashionable and extremely important. If we are to appraise them correctly, the orders under discussion need to be put in that broader context.
§ Earl Russell
My Lords, I should like to begin by thanking the Minister for making available to us the Explanatory Memorandum provided for the Joint Committee on Statutory Instruments. While I am on the subject, I should also like to thank the Minister for the Explanatory Memorandum that accompanies the affirmative instrument under the Social Security Administration (Fraud) Act 1997, which is a welcome innovation. It is the sort of document that comes out of a well-run department.
On hospital downrating, I wish to join my noble friend Lady Barker in the welcome that she warmly extended to it on the previous occasion. I take the Minister's point about the commencement date of the 470 Act. However, our amendment contained no proposal to change that date. I do not know whether the Minister was aware at that time of the outturn of the National Insurance Fund for the year just completed, but I certainly was not aware of it. That outturn shows an excess over the Government Actuary's forecast of 2.5 billion in one year, which is a fair amount of money. It is a situation in which the Government could afford, if they chose ex gratia, to have anticipated the date contained in the legislation. I share the regret of my honourable friend Mr Webb that they did not choose to do so. However, that does not in any way diminish my gratitude for what they have done about the downrating from 2003.
On FRS 17, I must declare an interest as one who is due to retire within the year on a final salary scheme. For that reason I shall say only that I very much share the curiosity of the noble Lord, Lord Higgins, about what exactly is going on and why. If the Minister is able to enlighten us further on that subject, I shall be grateful.
One omission from this uprating statement—I know that it is not normally uprated but it might be a good idea if it were included in mandatory uprating—is the Government's winter fuel payments. It is not my business to teach the Government how to win votes, but I can tell them in retrospect that in the Romsey by-election the winter fuel payment, rather than an increase in the basic pension, would have shifted far fewer votes out of the Government's column if it had been covered by mandatory uprating, as is the basic pension. It is a point that I had made to me on the doorstep on a large number of occasions. It is one that the Government might have found worth listening to.
I must on the other hand welcome the increase in the statutory maternity payments above inflation and the increase in the earnings limits of the ILA. I am sorry though that nothing is done to narrow the gap between the levels of income support for the over and the under 25s. Of course a long succession of percentage changes has the effect of making the numerical gap even wider than it was before. That is a matter which I must confess I regret.
By general convention, this debate is treated as an opportunity for a general discussion of the state of the field of social security. I have decided that I shall not do it that way this time. The Minister knows my general views about the Government's basic principles and approach to social security. I know her views on those views. In fact, I reckon that we could both repeat that debate in our sleep. So I shall not do it, except to refer to a small amount of new material that has become available since last we discussed the matter.
One is always tempted, in going over orders such as this, to pick out some often unexpected fact and demand an explanation of it—for example, the cases where the invalid care allowance is arranged by the Secretary of State to be paid on a Wednesday. I shall not do that because, as the Minister illustrated just now, she is perfectly capable of dealing with any such queries. In the memorable words of Dame Helen Gardiner in the Lady Chatterley trial:You wouldn't want me to explain that. I could".471 So I have decided not to go down that road either.
However, I want to raise the question of the National Audit Office report on the New Deal for Young People. I was a little disconcerned to hear the Minister repeat, yet again, that over 200,000 people had found work because of the New Deal. The National Audit Office, in paragraph 8 of the report, states:But the economic impact of the programme cannot be measured simply in terms of the number of young people placed into jobs. For example, many of them would have found a job anyway because of natural labour market turnover and the general expansion of the economy".Its estimate is that in the first two years of the programme's operation, the deal reduced youth unemployment by 35,000 and increased youth employment by 15,000.
Any increase is welcome. But these are figures of a very different order from the ones which the Government have been quoting and from the one the Minister quoted tonight. I should be glad to know whether the discrepancy is because the Government have not yet taken the report on board or because they disagree with the report. If they disagree with the report, for precisely what reason do they?
The report also draws attention—as my party has done for quite a long time—to the number of people leaving the New Deal to no known destination. It says that it is about a further 30 per cent of leavers from the programme.
The Minister will undoubtedly reply with the information which the report has at paragraph 2.13. It states:Research commissioned by the Employment Service suggests that 56 per cent of these people had in fact entered employment, including sustained employment".That is a very guardedly worded paragraph, is it not? "Research suggests that" is a formula which, when I employ it, indicates a very low degree of certainty about the point I am discussing. The reference to "employment, including sustained employment" would be satisfied if only I per cent of it were sustained. Indeed, it would if only 0.1 per cent of it were sustained.
I should like to know more about the research which is there referred to. I appreciate that I have not given the Minister notice of this point and she will not have it at her fingertips tonight; although one never knows with the Minister, she always might. But if on some occasion or other I were able to see some of this research and see what it contains I should be extremely interested.
That raises the more general question of whether the Government have placed comparatively too much emphasis on the New Deal and too little on the job of sustaining benefit levels. The campaign for food poverty is coming up with fairly considerable bodies of evidence of people who are actually short of food. Malnutrition among those admitted to hospital has been a matter of general concern since the noble Baroness, Lady Cumberlege, was Minister. It remains so.
472 One should also take account of the fact that in purchase of food many people on benefit are paying prices which are greater than the indices would indicate; especially those who are not able to walk to the nearest supermarket and do not possess a car. The cost of food to those who do not possess a car is, in real terms, a good deal higher than the cost of food to those who do. If one lives either in remote rural Wales or on the 21st floor of a council flat where the lifts have been out of action for six weeks—that is an actual example from the ward next door to my own—then one's shopping is very much restricted to what is in the immediate neighbourhood.
Deterioration of health as a result of malnutrition does not increase employablity. We do not have any research on minimum income levels necessary to sustain good health. My party has called for such research on many occasions. I should like to take this as one more occasion on which to do so.
§ Baroness Greengross
My Lords, first. I express my thanks to the Minister for her announcement in response to my amendment to the State Pension Credit Bill about the hospital downrating rule. I am sorry that I was not able to be in the House last week to hear the announcement.
Obviously, it was high time that that rule was reviewed. It had been in existence for 54 years without any real change. Thirteen weeks is a much better cut off point than six weeks. Obviously, my former colleagues at Age Concern will be looking carefully at the operation of the rule on those still affected and would have much preferred a cut off at 26 weeks or six months rather than 13 weeks. But I am pleased that only 9,000 people will now be affected. I share many of the other concerns eloquently expressed by the noble Earl, Lord Russell, and the noble Lord. Lord Higgins.
I want only to mention a couple of points. As to when the change is introduced in autumn of 2003, while understanding absolutely the reasons for that. as explained by the Minister, we have to remember that if one is very old, then time is of the essence. That is quite a long time to wait. The Government have said on many occasions that they are firmly committed to the state pension forming the foundation of pensioner incomes. I am pleased that it will be increased above inflation this year. But people now need and demand a lot of information that they have not yet received. It would be most helpful if, through research, we had a real estimate of pensioners' budget needs. We have never really had that; we have had to depend on the voluntary sector to make the sort of estimates that the family expenditure survey—the shopping basket assessment of need—does not achieve for older people, whose priorities are quite different from those of families with young children. I wish that we had a pensioners' budget assessment every year, which would give us a good indication of what is needed.
Turning to other issues, I very much welcome the improvements to maternity benefit and the incomes of people trying hard to balance family life and work. Those employers that are family friendly need encouragement. That is an important step in our 473 changing society. Our ageing demography does not mean that those with families and young people are unaffected. I very much welcome efforts to tackle child poverty and discrimination against people with disabilities, especially disabled children, and to help those families included in the Sure Start initiative, to which I am personally committed.
§ 8.15 p.m.
§ Baroness Hollis of Heigham
My Lords, I shall do my best to answer your Lordships' questions. If there are questions that I am unable to answer because of a lack of precise information or that I simply overlook, I hope that your Lordships will forgive me and I shall certainly do my best to respond in writing.
I turn first to the comments, questions, propositions, assertions or, on a good day, statements made by the noble Lord, Lord Higgins. He began by asking whether, because we were stating that as unemployment was down, pensions were going up, the reverse was also the case. In other words, were the two tied? He knows perfectly well that that is not the case. State pensions are paid from general taxation, although attributed to the National Insurance Fund, on a pay-as-you-go system, as are unemployment payments.
The substantive point being made by my right honourable friend the Secretary of State—certainly the point that I would wish to make—is that it is precisely the prudent management of the economy—I know that the noble Lord will wince at those words—and the resulting reduction in unemployment that allows us to ensure that pensioner incomes, including state provision of pensions incomes, have since 1997 not merely increased by inflation but have kept pace with the overall incomes and earnings in this country, which of course have increased in excess of the retail prices index. Whether the noble Lord chooses to track that in the statistics for households with below average incomes, or whatever, I am sure that he will accept my assertion. That is the point: there is head space, given growth, for the Government to be more generous in a redistributive sense than might otherwise have been the case.
I turn to the noble Lord's second point about hospital downrating. I was delighted to see the noble Baroness, Lady Greengross, present to welcome the orders. I apologise if any noble Lord misunderstood anything about the timing. The reason for the timing is that it is associated with the introduction of pension credit and the information technology systems being developed for that. Therefore, the change from the six-week to the 13-week rule will be part of that package. Noble Lords will recall that we started by talking about the savings element of pension credit being protected from hospital downrating. That was in the original IT package. That was extended according to the timetable; that is why it is associated with the October introduction.
The noble Lord asked me whether the elements within that were reviewed in uprating terms. The process is not like a family budget assessment. We do 474 not work out individual lines. Pensioners, or anyone else in hospital, will have very different patterns of expenditure according to their housing situation, whether they run a car, what are their month-by-month overheads, and the like.
We have never tied hospital downrating to explicit expenditure. As the noble Lord will know, as a general principle we have said that we do not believe that the state should be paying twice for the same contingency. We therefore currently introduce a modest reduction after six weeks, but in future it will be after 13 weeks, and a much fuller reduction after 52 weeks. As far as I am aware, the percentage reduction has remained fairly constant over the years, including under the previous administration. But I will check to see whether it has changed considerably. It is a percentage reduction, which therefore varies according to the total level of retirement pension. If retirement pension changes, so must the amount being deducted from it.
That has never been attached to individual assessments of income. There may at some point be a statement to be made; there may be a change in policy on capital limits, or whatever. But that has never been done in the way that the noble Lord suggests.
§ Lord Higgins
My Lords, why is it necessary to link the rule on downrating to the pension credit Bill? Why cannot that be done in some other way? Of course, that Bill is now going to another place, so it can be amended if need be. On the Minister's point about uprating, surely the amount deducted to avoid double counting ought to bear some relationship to the amount of money that the person is alleged to have saved as a result of going into hospital. Some estimate must be made of that.
§ Baroness Hollis of Heigham
Yes, my Lords, there was an initial calculation that has been sustained. I am puzzled by that point because most government upratings, whether of capital limits or whatever, are not calculated on a family budget unit assessment; they never have been. They are a determination by a government as to what they believe to be appropriate, given the information that they have and extrapolation from past patterns. This instance is no different. As far as I am aware, the percentage reduction has remained broadly in line for many years. A future government may consider that a different percentage should be deducted, but this is not an item that is attached to a bundle of goods. As far as I am aware, it never has been.
§ Earl Russell
My Lords, I wonder whether the Minister realises what a big gate she has opened by saying that the doctrine of double provision is not attached to actual cost. Has she made it as abstract as the Trinitarian doctrine of the double procession, which finally divided the Greek and Latin churches?
§ Baroness Hollis of Heigham
No, my Lords, I must say that that comparison had not occurred to me. My point is that the doctrine of double provision means that if, for example, someone has been caring for an 475 invalid son, is married and in receipt of invalid care allowance and then becomes a widow, she does not receive double provision—both the widow's benefit and the ICA—even though her pattern of expenditure, given her son's disability, may be very different indeed, on a bundle of goods assessment, from that of someone else in a similar position. No one in receipt of carer's allowance is assessed for how much carer's allowance they should receive according to housing costs, heating costs and so on. They receive a determinate sum.
The noble Earl may call it arbitrary, but that has been the policy of all governments. They determine the amount that they think appropriate and that is what they pay. Occasionally, it may be revisited—in terms of capital limits, every five years or so. Basic income levels may be linked to RPI but that is the determination. That is no different in this case from any other area of government policy. I am surprised that the noble Earl is pressing me on that. The RPI goes up, the proportion taken for hospital downrating remains the same, therefore the relationship between the two figures continues. I am puzzled that the noble Earl should think that it should be based on anything else. If it were to be based on individual cost assessment, every pensioner would have to be individually means-tested to assess what were their expenditure patterns. I cannot believe that the noble Earl wants to go that way, especially given his remarks on means testing.
The noble Lord, Lord Higgins then spoke about stakeholder pensions. He regards them as having failed to make an impact. About 700,000 have now been sold and about 85 per cent of all employers—the key test is whether it is meeting the employment gap rather than, as the noble Lord rightly said, being recycled to help others, although that is not necessarily a bad thing—are now complying by making available stakeholder pensions. It will take time to build. Some stakeholder pensions are being bought for nonworking people, including children and non-working spouses, but that is not a bad thing either, given the resources that people will need to build up a secure retirement.
§ Baroness Barker
My Lords, the Minister did not respond to the point made by the noble Lord, Lord Higgins, about the relationship of hospital downrating payment to pension credit. I would like to follow that up.
The Minister talked about the introduction of computer systems and the fact that it would take 18 months to change the computer system for pension credit. I am sure that that is right, but there must be existing computer systems for calculation of hospital downrating. Why can they not take on board a simple change?
§ Baroness Hollis of Heigham
My Lords, I repeat: the Government will not introduce the downrating ahead of the proposed time. The fact that the noble Baroness may wish to see it is not on the Government's agenda. It was not part of the original statement last 476 November; it has come about as a result of representations and the development of the Government's thinking.
As the noble Lord, Lord Higgins, said, the Bill must still go through Parliament, and I would have thought that most people would recognise that, with such major changes, there is normally at least 12 months' play before the changes are introduced. It is no different, in that sense, from the usual advance notice of what we propose to do. That is a reasonable policy, and it is intrinsically connected with the developments in pension credit, particularly because the savings element of pension credit is protected. It seems sensible to brigade the changes that will result in that process. At the moment, the hospital downrating administration costs are something like £4 million to £5 million a year. That software will have to be rewritten and reworked. It is reasonable that it should be associated with the development of the pension service and the introduction of pension credit.
I cannot recall in my time in government and opposition any significant change of that sort that did not have a run-in period of 12 months or so. I am surprised that your Lordships think that it will be introduced in the next three weeks or so.
The noble Lord, Lord Higgins, talked about stakeholders and the state second pension. He thought that that might also be redundant. I think that the Financial Times may have understood; I am not sure whether the noble Lord quoted it inaccurately or whether the paper itself had misunderstood the nature of the S2P. As the noble Lord will know, the state second pension allows carers on incomes below £10,000 a year, as well as disabled people, to get a pension that, for a carer, would be worth about £40, after 40 years' caring. What is more—this is the misunderstanding about the connection with MIG— with pension credit, for someone who has been contributing to such a pension as a low earner, it will be wrapped around in the pension credit formula, so that they will be a gainer. That is perhaps what the Financial Times has misunderstood.
The noble Lord, Lord Higgins, pressed me on means testing, as he often does. I simply do not accept that vocabulary. With the pension credit people will receive a review every five years to map their income and give them a reliable means of financial support for the next five years, under which they can plan their lives. Incidentally, that mapping disregards all sorts of modest extraneous moneys such as voluntary and charitable contributions. That cannot be called means testing. It is far less a means testing system than any taxation system, and I do not think that it helps to encourage pensioners to think of it as an entitlement— the words that the noble Baroness, Lads Barker, rightly used—to keep labelling it as means testing. If there are ways of further reducing intrusion, I am sure that the pension service will do so. A five-year assessment of income, based on a telephone service., in which we help somebody to fill in the forms so that they will have a reliable income seems far removed from the 1930s concept of means testing, which is too easily bandied around in the House.
477 I shall write to the noble Lord, Lord Higgins, about the future discounted liabilities of pension funds. I need to read his words carefully and make sure that I understand him. I have had four goes; perhaps I will get it right on the fifth.
I share the noble Lord's concern about FRS17. We should not impose a standard that could be tougher than international standards. As the noble Lord recognised, the Secretary of State has discussed the matter with the independent Accounting Standards Board—not a government body—and has made the same points as the noble Lord made tonight. The standard in the UK is different from the international accounting standard, and that allows for more of a smoothing effect.
Having said that, I think that it would he wrong to blame FRS17 for what has happened in the move from defined benefit to defined contribution schemes. I was shocked to realise that the amount of money that had not gone into pension schemes because during the 1990s employers could, perfectly legally, take pension holidays is £11.5 billion. From the report on the funding of defined benefit schemes, it would seem that employers seemed willing to sign up to defined benefit schemes when they did not have to pay for them. As soon as they were expected to deliver on their pensions promise, they opted out of defined benefit schemes and hastened into defined contribution schemes, whereupon they halved, on average, the employer's contribution. That is the problem.
I had some work done on the matter in case I had misunderstood the statistics, and it was clear that, if employers and employees on average salaries continued to contribute to defined contribution schemes in the same proportion as for defined benefit schemes, the outcome over a long enough period should be the same. For example, we estimated that, for someone with an income of £300 a week, 10 per cent contributions between employer and employee would produce a pension of £100 a week. If the contributions were 15 per cent, they would get a pension of £150 a week over a 35-year saving period.
The difference in value between a DB and a DC scheme hinges almost entirely on the willingness of employers to maintain the same level of contribution. I fear that they will not, because that has been the basic reason why they have left the schemes, but if they did, the outcome over a period of time should be broadly similar. The defined contribution can have other advantages, including portability and transferability. The answer is to try to ensure that employers observe their pension promise, even though the format of the pension will have changed.
The noble Earl, Lord Russell, asked why we were not uprating winter fuel payments. Given that in 1997 they were £20, they would be about £27 now had we uprated them. In fact, they are £200. It is a little churlish to accuse us of not having uprated them when we have increased them from £20 to £200.
§ Earl Russell
My Lords, I took some care to work my remarks in order to avoid that particular reply. I 478 asked the Minister why she had not included the principle of statutory uprating. I was well aware of that increase and of its generosity, as were the pensioners with whom I talked. However, they were also aware that the statutory principle which would continue it in future had not been laid down. That point remains.
§ Baroness Hollis of Heigham
My Lords, the pensioners who made those remarks to the noble Earl were rather churlish. They have seen increases of £50 from a base of £150 in the past year or so. If their notion of uprating is to increase that sum by £50 each year, it is unreasonable. The Government have never laid it down that that or other sorts of payments should be RPI-ed. Had it been RPI-ed back in 1997, pensioners would have been so much the poorer.
The final major point made tonight was about the new deals. The noble Lord, Lord Higgins, asked me about the research behind the NAO report. NAO reports are published as agreed reports. A formal government response will be published following the PAC report later in the year. Looking at the report by the Industrial Society and some of the policy studies that have come out, as well as the NAO report, I think that it is worth emphasising that several hundred thousand youngsters have gone through the New Deal. Obviously and inevitably there will be dead weight. It is an ugly phrase, but there will be. Many young people would have got jobs anyway, but we do not know in advance who will get the jobs without our help and who needs our help, without which they will not get the job. If the noble Lord has a formula for that, that would be helpful: we could target it. The evidence shows the value of the New Deal even to those youngsters who might well have got jobs without the New Deal.
Before I finish I shall give some statistics. Already the value to the social economy is in the region of £500 million for the £140 million that we have expended. It is clear that three-quarters of the youngsters have gone into sustained jobs. Those who have become unemployed have gone into proper jobs much more quickly than they would otherwise compared to those who have not gone through the New Deal. We also know that the net hourly wages when those youngsters have come off the New Deal has increased by an average of 20 per cent; and that whereas in 1997 200,000 young people had been unemployed for more than six months, the figure is now down to 39,000. A major component of that has been the New Deal.
I have dealt with most of the questions. The noble Earl, Lord Russell, queried the failure of benefit levels to be associated with the equivalent of family budget unit and real cost of living assessments. I mentioned on a previous occasion my delight that, for example, a lone parent with two children is already receiving a level of benefit which at least matches—and in some cases even exceeds—the estimated figures that the research bodies were putting forward as a minimum acceptable income.
479 More to the point, the noble Earl knows, as I know, that those lone parents and their children will be lifted out of inter-generational poverty only by being encouraged into work. The New Deal for lone parents—200,000 lone parents have come through and the vast majority have gone into work—means that a lone parent with children on a minimum wage of £4.10 per hour, working 16 hours per week, will actually get paid a wage equivalent to about £12 per hour. A lone parent gets paid a man's wage by virtue of the combination of the New Deal, the minimum wage and the tax credits. That is what will lift her and her children out of poverty for the future. I commend the order to the House.
§ On Question, Motion agreed to.