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Social Security

We welcome the debate, and recognise its importance for welfare and social justice, and I am grateful to the Minister for setting out the Government’s proposals on uprating social security benefits and the basic state pension. The level of benefits, which is the subject of the order before us, is just part of the national debate about poverty in the UK. It is a debate that my right hon. Friend the Member for Witney (Mr. Cameron) has helped to open up in the past 12 months, through a refreshed and renewed commitment to social justice on the part of Conservative Members. Recently, the Department has responded to the policy challenge delivered by the Leader of the Opposition and other Conservative Members with a series of ministerial briefings, and sometimes even with speeches, on the record, on the subject of welfare reform. We await with interest the fruits of the short inquiry led by the Minister for Employment and Welfare Reform, who is not in the Chamber today, and Mr. David Freud. I understand that that report may be published as early as this week. The order will deliver an increase in benefits, and we Opposition Members support that. It provides for most of the increases to take effect in the week commencing 9 April this year. However, the order specifies that, for statutory sick pay, maternity pay, paternity pay, and adoption pay, and for housing benefit, council tax benefit and the earnings limits in respect of child dependency, the increased rates will take effect at an earlier date in April. The increases take effect on different dates because of the difference in the prescribed pay days of the benefits, but we have no difficulty with those procedures. I would like to talk about how the rate of the increases is determined. Depending on the benefit, either the retail prices index or the Rossi index is used. Before we decide on the order’s merit, it is worth trying to understand which inflation measure is applied to each benefit and why. It is important to air those issues because they open up important questions about whether different groups in our society suffer from different inflationary pressures. The benefits that people will access, as a result of the order being made, will differ depending on the inflation measure that is applied to the benefit. The question that we have to ask when considering the merits of the order is whether the uprating will cover the increased cost of living which any particular group drawing that benefit is subject to. The retail prices index is applied to uprate contribution-based jobseeker’s allowance, child benefit, incapacity benefit, carer’s allowance and disability living allowance. Those are the main benefits. The RPI is calculated by the Office for National Statistics each month by collecting about 110,000 prices of about 650 goods and services in about 150 locations and on the internet. These goods include the obvious ones—bread, cereal, furniture and clothing, as well as water, gas and electricity. With that information, the ONS uses data from the Department’s family expenditure survey and other detailed expenditure analyses put together by market research companies and trade reports, and arrives at a representative shopping basket. The changes in prices of the goods in the basket are used to produce a headline figure which is intended to be broadly representative of the cost of living. With reference to the RPI, which is the subject of the order, it is worth pointing out that the patterns of pensioner expenditure are not explicitly factored into the representative shopping basket. The ONS explains that that pattern of demand is probably atypical and would distort the average. Pensioner households, which on average derive about three quarters of their income from the state one way or the other, are having some of their benefits uprated by the order according to an inflation index which does not explicitly acknowledge or comprehend how they spend their money. That is worth considering. I am not for a moment suggesting to the Minister that previous Governments made the calculations in any other way—[Interruption.] The Under-Secretary of State for Work and Pensions, the hon. Member for Warwick and Leamington (Mr. Plaskitt), is always quick to make a sneering party political point, but I will not be tempted. In a spirit of honest inquiry, I am not suggesting that the matter was fully considered by any Conservative Administration in the past. I simply wondered what the Minister’s views were. Why do I ask that? Because the question is endlessly put by so many of the hard-working lobby and interest groups that work on behalf of their customers, those who are of pensionable age. The Minister knows as well as I do who I am talking about. They make some very good points, and it would be useful to get an idea of the Minister’s thinking about why no Government have so far explicitly recognised the much higher inflation levels that pensioners experience—much higher than the RPI measure which is the subject of the order. The other index that is the subject of the order is the Rossi index, which is used to uprate different allowances and benefits, which are listed in the order—jobseeker’s allowance, council tax benefit, housing benefit and income support. It is compiled in the same way as the RPI, except that it excludes rent, mortgage interest payments and housing depreciation costs. Parenthetically, and to provide context for the two separate inflation measures that are the subject of the order, it is worth reminding ourselves that both those indices are different from the consumer price index, which is the measure now used by the Bank of England to calculate bank rate. The CPI is similar to the RPI in so far as it uses a basket of allegedly everyday goods to compare how prices have changed over the period, but it also excludes council tax, mortgage interest payments and other major housing costs. With the RPI in September 2006 standing at 3.6 per cent. and the Rossi at 3 per cent., these represent nine-year September highs, and the order contains one of the biggest upratings since 1997. With the exception of contribution-based jobseeker’s allowance, non-income-related benefits, including incapacity benefit, child benefit and disability living allowance, will all be uprated by 3.6 per cent., which was the RPI figure in the year to September 2006. To demonstrate the magnitude of the proposals, the long-term rate for incapacity benefit will rise from £78.50 to £81.35. The highest level of care component in the DLA will increase on average from £62.25 to £64.50. We support those increases. Housing benefit, income support and other income-related benefits to which I have referred will be uprated not by RPI but by the Rossi figure of 3 per cent. To give an example from the real world, housing benefit for a single 25 year-old, all things being equal, will rise from an average of £57.45 to £59.15. Income support will rise from £57.45 to £59.15. We welcome those modest increases—[Interruption.] Yes, we welcome them. The September 2006 RPI is used, too, to calculate the annual increase in the basic state pension. The minimum guaranteed pension credit is linked to the higher level of earnings. But the 2004 Budget report specified that the basic state pension would continue to rise each April by 2.5 per cent., or the increase in RPI in the 12 months to the preceding September, whichever is higher. In September 2006, RPI was 3.6 per cent., and thus higher than 2.5 per cent., so it forms the basis for the uprating of the basic state pension, which will rise by just over £3 for a single pensioner, to £87.30. Again, we welcome that increase, but I urge the Minister not only to reflect on the nature of those increases but to comment on them. The representative basket of goods for the RPI and the Rossi methodology contains an incredible array—