Social Security (Contributions) (Re-rating and National Insurance Funds Payments) Order 2007

My Lords, I am pleased to follow the noble Lord, Lord Taylor, and I concur with much of what he has said. Our uprating system is a quintessentially important part of the process for delivering benefits. These are important orders, and I am grateful to the Minister for introducing them so eloquently. There is a sense that people get frightened by the technicalities in some of these orders and pay less attention than maybe they would because they are overwhelmed by those technicalities. In a sense these are very technical orders. However, the Minister will agree that there are some very big principles and sums of money involved in what the House is considering this afternoon. I want to look at some overarching principles, which I think are important, and I want to look at some of the technical details. This is an important annual occasion, which gives us a chance to look at how the Government are reviewing the relative values and benefits in front of us. It also gives us a chance to look at the coherence and complexity behind the system. Finally, it does and should give us a chance to look at what is happening in the long term because I believe that there is a predisposition—it is perfectly natural—to think, ““Well, the change from last year is pretty understandable; it is related to prices”” or to some other factors. So, from year to year there is not very much change. But the House should look very carefully at the change that happens over years. You do not need to be an economist to understand that if the main mechanism for uprating is always anchored to prices, and earnings are going ahead thanks to the wonderful way the Government are discharging their duties in relation to the economy, there is a differential that is a built-in gap which is exacerbated as we go forward. Therefore, every year, although we look at the perhaps relatively individually small increases, we have to look back over the period since these benefits were put in place—they were all put into place for very good purposes—and ask ourselves whether over that period the balance is correctly kept in place as we go forward. My first question for the Minister, although I do not expect him to spend a lot of time at this stage of the day explaining this in his reply, concerns the process of review. Under the Social Security Administration Act 1992, the Government have a duty to review. I suspect that a bit of a desktop exercise goes on. A bit of computer software is plugged into a machine. You insert the RPI, prices, earnings or something and the figures come out the other end. That is presented to Ministers, who then sign it off, and that is the result that appears in front of us this afternoon. I have been trying for nearly 20 years to find out exactly what is involved in that duty to review. How much ministerial involvement is there? Are there meetings? Are there papers? I am not looking for state secrets—well, actually, I am always looking for state secrets, but not necessarily in this instance. It would give me more confidence to know a little more about the process that goes on. I am being a little facetious; I am sure that it is not done casually. But I would feel better if people were really spending some quality time thinking about the consequences. Obviously there is a large number of benefits and that cannot be done for every benefit every year but there are some very high-quality people in the Treasury and in the Department for Work and Pensions who know about these things. If I could be given some assurance that a meaningful deliberative process goes on year by year, I would sleep easier in my bed. For example, is differential inflation considered? As we all know, inflation affects different groups of claimants, or customers—whatever we like to call them—differently. Is that looked at annually carefully before the final benefit uprating is decided? The UNICEF report was obviously too late to be considered for this year’s uprating, because it was only released in the past week or so, but are such external reports considered year by year? I say that particularly because, as the House will know, the Treasury extracted, for some daft reason that I do not understand, important benefits, such as child benefit, from the grasp of the DWP and thereby, at a stroke, took them out of the purview of the Social Security Advisory Committee. That committee is a confidence-building measure. It looks at these things from an independent and very expert point of view and can give an independent assessment of what the Government are doing on benefits administered by the Department for Work and Pensions. None of the benefits that the Minister has brought before the House this afternoon has been subject to that rigorous scrutiny. That is a worrying fact that we need to bear in mind. The duty on Treasury Ministers to give an explanation and detailed background when dealing with such benefits is perhaps greater than it is for the social security uprating order coming next week, which will be presented by DWP Ministers. Finally, on whether the process considers different factors, the whole question of fiscal drag has a profound effect over the longer term on how benefits are deployed and how their relative value changes over time. I hope that the process before the laying of the orders has also taken that into account. There are a couple of technical things that I genuinely do not understand. I cannot understand why the guardian's allowance order that has been laid is necessary. It is necessary only because the guardian's allowance is in the wrong part of an Act of Parliament. It used to be a contributory benefit. For the life of me, I cannot see why it is necessary to single out this benefit. Actually, I think I know that the reason is that it used to be a contributory benefit and so it has to be uprated especially by itself. According to the order, the cost is negligible. The important point was made by the noble Lord, Lord Taylor, that the simplification of benefits unit, if it is doing anything, should be finding ways to move the guardian's allowance from one part of a previous statute to another. I shall make him an offer, which I hope he thinks is generous. The next time a social security Bill comes through this House, I will move an amendment myself to relocate the benefit in the statutory process. Then he will not need to move these orders in future. I cannot say fairer than that; I am doing the Minister’s job for him. If it is a negligible amount of money and an historic anomaly, simply systematically going on because it has aye been, as they say in Scotland, is not a big enough justification for bringing it before the House. Perhaps the Minister will look at that. I absolutely concur with what the noble Lord, Lord Taylor, said about child benefit. I absolutely accept that the Government have done a huge amount to increase child benefit levels although, as the noble Lord, Lord Taylor, reminded the House, they missed the targets just recently. I bet a monkey to a mousetrap that they will miss the 2010 targets by a much bigger amount unless these uprating orders for child benefit do not improve in forthcoming Budgets. You do not need to be an economist to do the extrapolation. Child benefit must reflect the Government’s own policy intentions and ambitions. Of course it has been uprated by prices. That is great, but it is not enough to meet the Government’s own targets. The Government are running out of time to meet the 2010 targets because these amounts of money take time to feed through and make a difference to the children in families who are in poverty. It is acknowledged that this is an improvement, but it is not good enough in terms of the Government’s own measures. Therefore, the House needs to ask the Government to think about that again. On the social security contributions order, I do not know, and I cannot understand, why provision is made for a 2 per cent Treasury grant. The Minister said that it was a kind of safety measure and that we needed 2 per cent of the benefit spend just in case we needed it. That is great, except that the Government Actuary report that accompanies the orders makes the apposite point that, "““no Treasury grant will be needed in the period to 31 March 2012””." The Government Actuary advises the Government to keep 16 per cent of benefit spend as a safety measure. I forget what the actual percentage of the benefit spend is now, but the Government Actuary says that we do not need this money. We have always had this provision for a government grant of 2 per cent, but if the Government Actuary is telling us that we do not need this money until 2012, why do we need this paragraph at all? It might be money for a rainy day. I do not know, but 2 per cent of the benefit spend is a huge amount of money. I cannot remember the last time it was used. There is a table at the back of the Government Actuary report, which noble Lords might like to look at, which shows that the fund is in substantial balance. Indeed, in 2011-12, there will be an end-of-year balance of 91.8 per cent of the benefit spend. The Minister does not need his 2 per cent. If he does not need it, he should not have it in his order. I have two other quick points to make. Again, I concur with the important points made by the noble Lord, Lord Taylor, that the administration of tax credits needs a serious amount of work. I do not know how the maladministration affects the ability to keep the accounts properly in order year on year, but it is completely incoherent to have the child element of the child tax credit increased by earnings at the same time as we freeze the family element of the tax credit system. There is no rhyme or reason to this, and it makes the complexity much worse if we use differential rates of benefit increase in a way that simply baffles me. I can see why the Government did this at the beginning, but I see no justification for their continuing to do so. Finally, the orders are welcome and are important to the families that they serve. I recognise the work that the Government have been doing. Perhaps the Minister should go back to the department and look at the value of benefits as a percentage of GDP or any other relative merit measure. These have been changing over the past 25 years. On looking at such periods, some of these benefits are eroding in value substantially, which is often hidden by the fact that we look at these uprating orders year by year. You do not see it happening year by year, but if you look over a period, the evidence is staring Ministers in the face. If we do not do more, not only will the Government miss their targets, families who are in abject poverty—there still are some in this country—will continue to suffer because these upratings are not sufficient for the purpose.