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Benefits Uprating

Mr Speaker, with permission I should like to make a statement about the uprating of social security pensions and benefits for 2012-13. I shall place in the Vote Office full details of the new rates that are due to come into force from the week of 9 April 2012 for each pension and benefit, and arrange for the figures to be published in the Official Report. As part of his autumn statement last week, my right hon. Friend the Chancellor of the Exchequer announced the rates of tax credits for 2012-13, and today I am announcing the uprating of those social security pensions and benefits for which my Department is responsible. As my right hon. Friend Chancellor pointed out in his statement, uprating in 2012-13 would protect"““those who have worked hard all their lives…poorer pensioners…those who are not able to work because of their disabilities…those who, through no fault of their own have lost their jobs and are trying to find work.””—[Official Report, 29 November 2011; Vol. 536, c. 802.]" Starting with those who have worked hard all their lives, I should like to turn to one of the early actions of the coalition Government: the restoration of the earnings link for the basic state pension. This Government not only made good on the pre-election promises to restore the link with earnings, we went one step further by protecting the future value of the basic state pension with a triple guarantee—that the basic state pension will rise each year by the highest of growth in earnings, prices or 2.5%. The triple guarantee means that even in times of slow earnings growth, we will not see a repeat of small rises such as, for example, 75p in 2000. The new rate for the basic state pension will be £107.45 for a single person, an increase of £5.30 a week. I can announce, therefore, that from April 2012, the basic state pension is forecast to be 17.1% of average earnings, a higher share of average earnings than in any year of the Labour Government since 1997. I turn now to additional state pensions, commonly referred to as SERPS—the state earnings-related pensions scheme. In April 2010, one of the last acts of the previous Government was to freeze SERPS pensions. This was in the apparent belief that pensioners had not experienced any inflation in the preceding year. That was solely because the retail prices index was negative in the year to September 2009, with the rising cost of goods and services swamped by falling mortgage rates. However, in April 2011 we increased SERPS pensions by 3.1% and I am pleased to confirm that this year SERPS pensions will also rise by 5.2%. That means that the total state pension increase for someone with a full basic pension and average additional pension will be around £6.70 a week or £348 a year. The standard minimum guarantee in pension credit must be increased each year at least in line with earnings. However, this would have implied an increase of just 2.8%; in other words, the poorest pensioners would have got the smallest increase. We judged that unacceptable, so instead, from April next year, the single person rate of the guarantee credit will rise by £5.35, taking their weekly income to £142.70. For couples, the increase will be £8.20, taking their new total to £217.90 a week. To help manage expenditure, we shall be funding that above-earnings increase to the standard minimum guarantee by increasing the savings credit threshold, which means that those with higher levels of income will see less of an increase. In his autumn statement, the Chancellor told the House that we will uprate the standard minimum guarantee by £5.35 and that we would meet the cost of the over-indexation by increasing the threshold for the savings credit. That plan was correctly reflected in line 30 of table 2.1 on page 46 of the autumn statement, and it is indeed our plan. Unfortunately, the precise thresholds, which were calculated by our Department and appear at paragraphs 1.143 and 2.24, were incorrect. I apologise to the House for this error, which I am now in a position to correct. The correct thresholds for savings credit from April 2012 will be £111.80 for single pensioners and £178.35 for couples. As many hon. Members will know, an important component of our plans for uprating pensions and benefits last year was the move to the consumer prices index— CPI. We believe that the CPI is a superior measure of inflation for benefits and pensions uprating. That is because the basket of goods on which it is based is a better match for the spending patterns of pensioners and others on a low income, and because it takes better account of the way in which lower income households respond to price changes. It is also the headline measure of inflation in the UK, the target measure of inflation used by the Bank of England, and internationally recognised. I am pleased to say that last week the High Court upheld the Government's position that the CPI can be used for pensions and benefits uprating. The coalition will ensure that the value of other social security benefits is maintained through a rise of 5.2%, even in these tough economic times. This means for disabled people, above and below pension age, through disability living allowance and attendance allowance, an increase of 5.2%; for people of working age who are not fit for work, through employment and support allowance, an increase of 5.2%; and for people who have lost their jobs, through no fault of their own, through jobseeker's allowance, an increase of 5.2%. On local housing allowance, at the emergency Budget in June 2010, the Government announced that from 2013, local housing allowance rates will be calculated annually by using the lower of the rent at the 30th percentile of local rents or the previous year's rate uprated by reference to CPI. This will end the monthly uprating of LHA rates and bring the system into line with the uprating of other pensions and benefits. As part of the preparation for this change, we need to fix LHA rates, to establish a baseline from which they will be uprated in future. As the new cycle for uprating LHA will be annual, we have decided that the baseline should be one year ahead of the first uprating event. Therefore, LHA rates will be fixed from April 2012. This approach means that there will be no reductions in ongoing awards as a result of this change. So at a time when the nation's finances are under severe pressure, this Government will be spending an extra £6.6 billion in 2012-13 to ensure that people are protected against cost of living increases: no less than £4.5 billion extra on state pensions; over £1 billion extra on disabled people and their carers; and over £1 billion extra on people who are unable to work through sickness or unemployment. We protected the triple lock, securing the largest ever cash rise in the basic state pension. We have uprated the pension credit as well, so that the poorest pensioners benefit in full from the triple lock. We have uprated working age benefits by 5.2%, protecting the real incomes of the poorest. Through this statement, I have outlined our firm commitment to ensure that even in these difficult times, no one is left behind. I commend this statement to the House.