HC Deb 25 February 2003 vol 400 cc491-3W
Mr. Webb

To ask the Secretary of State for Work and Pensions if he will estimate the cost to the Exchequer, net of savings in means-tested benefits and of additional income tax revenue, of an increase of £5 per week in the basic state pension together with the introduction of age additions of £5 per week at age 75–79 and £10 per week at age 80 years and over, on the basis that the age additions for those aged 75 to 79 and 80 years and over are paid in full, regardless of contribution record. [92156]

Mr. McCartney

Our priority is to target help on those current pensioners who have the lowest incomes. While it is true that older pensioners tend to be poorer on average, income inequality is far more pronounced across the whole pensioner population than between pensioners of different ages. For example, the median net income of the richest fifth of pensioner couples is around four times that of the poorest fifth.

Age additions are not the most effective way to target those pensioners with the lowest incomes. For example, just under half of all minimum income guarantee claimants are aged under 75.

As a result of the minimum income guarantee, no pensioner need live on less than £102.10 a week and a couple on less than £155.80 per week from April 2003. All pensioners receiving MIG will be at least 21 per cent. better off in real terms as a result of MIG rises compared to 1997, with the youngest households gaining as much as one third. Following the introduction of pension credit, the average pensioner household will be over £1,150 per year better off due to Government measures introduced since 1997 and the poorest third of pensioners will be over £1,500 per year better off.

In addition to extra help for the poorest pensioners, the Government is committed to providing support for all pensioners throughout retirement. From April 2003 the full basic state pension will increase to £77.45 a week—an increase of 7 per cent. in real terms since 1997. Since 1997 the Government has also doubled winter fuel payments to £200, guaranteeing this for the rest of this Parliament, and has introduced free TV licences for those aged 75 and over. Both of these measures are helping pensioners regardless of their income.

If the maximum rate payable of the basic state pension was increased by £5 per week and weekly age additions of £5 were introduced for people aged 75–79 and £10 for people aged 80 and over in 2003–04, we estimate that the increase in public expenditure could be around £2.6 billion. This is calculated on the generous assumption that consequent savings in other benefits and any additional tax yield are channelled back into the basic state pension.

Notes:

  1. 1. Estimates are in cash terms for Great Britain and are rounded to the nearest £100 million.
  2. 2. The estimate takes account of offsetting savings in income related benefits and additional tax yield. Income related benefit offsets are calculated using the Department for Work and Pensions Policy Simulation Model for 2003–04. Additional tax yield is calculated by the Inland Revenue based upon the Survey of Personal Incomes 2000–01, projected to 2003–04.
  3. 3. Calculations assume the maximum rate payable of the basic state pension is increased by £5 per week and all other payments proportionately and that age additions of £5 per week are paid to all those aged 75–79 and £10 per week to those aged 80 and over.
  4. 4. For modelling purposes, pension credit is assumed to be in place throughout 2003–04. In fact, pension credit will begin in October 2003.

Source:

Department for Work and Pensions calculations.

Mr. Webb

To ask the Secretary of State for Work and Pensions if he will estimate by how much it would be possible to raise the basic State Pension for the over-75s on a revenue neutral basis, and taking account of offsetting savings in expenditure on means-tested benefits and enhanced income tax revenue, if he were not to introduce the pension credit and were instead to spend the money on the state pension for the over-75s. [92153]

Mr. McCartney

Increasing the basic State Pension for those aged 75 and over would not target resources on those who are most in need. While it is true that older pensioners tend to be poorer on average, income inequality is far more pronounced across the whole pensioner population than between pensioners of different ages. For example, the median net income of the richest fifth of pensioner couples is around four times that of the poorest fifth.

If Pension Credit was not introduced and expenditure re-directed into the basic State Pension for those aged 75 and over in 2004–05, the maximum rate payable of the basic State Pension for those aged 75 and over could be increased from around £79 per week to around £98 per week and all other payments increased proportionately. This increase would only be possible on the generous assumption that savings from other benefits and any additional tax yield were channelled back into the basic State Pension for those aged 75 and over.

We estimate that the poorest third of pensioners could be around £130 a year better off under Pension Credit than if the maximum rate payable of the basic State Pension was increased to £98 per week for those aged 75 and over and Pension Credit abolished in 2004–05.

In this scenario, the only gainers from increasing the maximum rate payable of the basic State Pension and abolishing Pension Credit would be pensioners aged 75 and over. Among those aged 75 and over, the biggest gainers would be those higher up the income distribution.

Pension Credit has been designed to be simpler, fairer and less intrusive for pensioners than the Minimum Income Guarantee. We are designing the application process to be simpler including the use of the telephone for most applications. The capital rules excluding pensioners with savings of £12,000 or more from any help have been removed. Pensioners will have to report fewer changes to their circumstances and most will have their Pension Credit award fixed for five years.

Notes:

1. Figures are for Great Britain and are rounded to the nearest £1.

2. The Basic State Pension is assumed to rise by 2.5 per cent. in April 2004, reflecting the commitment given by the Government to increase the Basic State Pension by 2.5 per cent. or the September Retail Prices Index, whichever is higher.

3. The estimate takes account of offsetting savings in income related benefits and additional tax yield. Income related benefit offsets are calculated using the Department for Work and Pensions Policy Simulation Model for 2004–05. Additional tax yield is calculated by the Inland Revenue based on the Survey of Personal Incomes 2000–01, projected to 2004–05.

4. The estimate has been produced for 2004–05, the first full financial year of Pension Credit.

5. Projections of distributional consequences for 2004–05 are subject to a variety of assumptions and should be treated with caution.

Source:

Department for Work and Pensions calculations