Social Security (Up-rating of Benefits) Bill: Briefing for Lords stages

In Focus

Published Wednesday, 07 October, 2020

• In Focus
• Welfare & Pensions

• Russell Taylor

The Social Security (Up-rating of Benefits) Bill is due to be considered in the House of Lords on 13 October 2020. It allows for particular state pension benefits to be reviewed and potentially increased, despite an expected fall in average earnings due to the coronavirus pandemic. The bill received cross-party support in the House of Commons, where it passed all its stages on 1 October 2020.

The Social Security (Up-rating of Benefits) Bill 2019–21 would allow the Government to review and potentially increase the rates of particular pension benefits for the 2021/22 financial year. Without this bill, any potential uprating would not be allowed if average earnings do not increase. This would be the case even if prices increase. It is expected that the rate of earnings will fall due to the coronavirus pandemic.

It is due to have second reading in the House of Lords on 13 October 2020. It completed all its stages in the House of Commons on 1 October 2020.

What is the purpose of the bill?

The bill would allow the Government to uprate certain pension benefits in the 2021/22 tax year, even if earnings do not increase. These benefits are:

• the basic state pension;
• the full rate of the new state pension;
• the standard minimum guarantee in pension credit; and
• survivors’ benefits in industrial death benefit.

Uprating is described in the bill’s explanatory notes as:

the annual mechanism by which the secretary of state is required by law to conduct a review of applicable benefit and pension rates each year to determine whether they have retained their value in relation to the general level of prices or earnings. Where the relevant benefit or pension rates have not retained their value, legislation provides that the secretary of state is required to (or in some instances may) uprate their value.

The main legislation applying to the uprating of the benefits listed above is the Social Security Administration Act 1992. The act does not allow the secretary of state to uprate these benefits if earnings or prices are negative. The Government believes that, due to the impact of the coronavirus pandemic, there may be no increase in earnings over the review period and therefore no uprating would be allowed if earnings are static.

The bill would allow the Government to maintain its commitment to the state pension triple lock. First introduced by the Coalition Government at the beginning of the 2011/12 financial year, the triple lock guarantees state pensions increase each year by whichever is the highest of:

• the rate of inflation (using consumer prices index (CPI) measures);
• the rate of earnings; or
• 2.5%.

What does the bill do?

The bill has one substantive clause. This would insert a new subsection into section 150A of the 1992 act. The new subsection would allow the secretary of state to lay a draft uprating order increasing the pension benefit rates “above by such a percentage as the secretary of state thinks fit”, even if there had been no increase in earnings during the relevant review period. The secretary of state could lay this order if they considered it “appropriate” in respect of the national economic situation and any other matters they considered “relevant”. This power would only be applicable to the 2021/22 financial year.

The legislation would apply to England, Wales and Scotland and would come into force on the day it is passed.

House of Commons scrutiny

Second reading

Introducing the bill at second reading in the House of Commons, the Secretary of State for Work and Pensions, Dr Thérèse Coffey, described it as a “technical but important bill”.

She stated that the Government had worked hard to protect people during the pandemic, and that this also needed to extend to pensioners. She said it would give pensioners peace of mind and the bill allowed the Government to maintain its commitment to the triple lock. She added that it would also allow for “potential increases for the poorest pensioners who are in receipt of pension credit, as well as uprating widows’ and widowers’ benefit in industrial death benefit”.

Dr Coffey highlighted initial predictions of a possible 1% decline in total earnings due to the economic impact of the coronavirus pandemic. She explained that, under the legislation as it stands, the Government’s regular review of social security rates could not recommend an increase in pension benefits if earnings had not increased:

In accordance with the usual process, I will undertake that review of social security rates shortly and will report to Parliament on the outcome of the review in November. However, if there has been no increase in the general level of earnings, there are currently no legal powers for the Government to bring forward an uprating order.

She also explained that the bill was being fast-tracked through Parliament because royal assent was needed before mid-November to allow the benefit review period to be completed. She explained:

If the bill does not receive royal assent ahead of this deadline, the current legislation will apply, and state pensions will almost certainly remain frozen.

The Shadow Secretary of State for Work and Pensions, Jonathan Reynolds, welcomed the action being taken. He believed the legislation was in the national interest and noted that Labour had introduced similar provisions in the late 2000s during the financial crisis. However, he did question how the Government would react to a possible jump in earnings in following years and what plans there were for uprating other social security benefits. The Government responded that the secretary of state would be considering whether changes needed to be made to other benefit levels.

The bill was also supported by the SNP spokesperson, Chris Stephens, who outlined the importance of retaining the triple lock. However, he also wanted the Government to take more action to increase the number of people claiming pension credits. He stated that not enough people were claiming the benefit and that improving take up could reduce pensioner poverty.

Committee stage

No amendments were made to the bill at committee stage. Five SNP amendments were debated, but none of these were agreed or moved to a division. The SNP described these as “probing amendments”, asking the Government:

• To legislate for the triple lock, so that the commitment to it in coming years is made more explicit.
• For an assessment of poverty levels as part of the uprating decision.
• To ensure the uprating applies to pensioners living abroad, or for there to be an assessment of the impact on it not applying to them.
• For an assessment of the impact on those born in the 1950s, such as the Women Against State Pension Inequality campaigners, who have been affected by the changes in state pension age.

The Government rejected the need for these amendments. It believed that the current legislative arrangements were appropriate and that the requested assessments would be difficult or unfeasible. It argued the assessments would not be able to give an accurate reflection on the impact on poverty levels and that the delays caused by carrying them out may instead result in pension rates being frozen.

Report stage and third reading were agreed without debate.

Further material

Statistics

Summary statistics relating to the subject can be found in the House of Commons Library briefing, Social Security (Uprating of Benefits) Bill 2019–21 (25 September 2020). This includes information on:

• Numbers of pension benefit claimants.
• Changes in pension rates.
• Expenditure on pension benefits.
• CPI and earnings increases over recent years.

Further statistics can be found in the following Office for National Statistics sources:

• ‘Consumer price inflation, UK: August 2020’, 16 September 2020
• ‘Average weekly earnings in Great Britain: September 2020’, 13 October 2020

Other commentary

• Financial Adviser, ‘Government confirms triple lock boost despite scepticism’, 23 September 2020
• House of Commons Library, State Pension Triple Lock, 25 June 2020