The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, with the leave of the House, I shall repeat a Statement on welfare reform made earlier today in the other place by the Secretary of State, Iain Duncan Smith. The statement is as follows.
“In this House, in October, I set out our resolve to secure a welfare system fit for the 21st century, where work always pays and is seen to pay.
Following consultation, a broad positive consensus has emerged—from Citizens Advice to the Institute for Fiscal Studies, and across the political divide. The White Paper that we are publishing sets out reforms to ensure that people will be consistently and transparently better off for each hour they work and every pound they earn. We will cut through complexity to make it easier for people to access benefits. We will cut costs, reduce error and do better at tackling fraud. The detail is published today and the White Paper is available in the Library. Let me take this opportunity to thank all who have helped build and write these reforms.
Let me remind the House of the problem that we are trying to solve: 5 million people of working age are on out-of-work benefits; 1.4 million people have been on out-of-work benefits for nine of the past 10 years; 2.6 million working-age people are claiming incapacity benefits, of which about 1 million have been claiming for a decade; and almost 2 million children are growing up in workless households—one of the worst rates in Europe.
Some have said recently that it is jobs—not reform—that is important, but in doing so, they miss the point. This is a long-standing problem in this country. We have a group of people who have been left behind, even in periods of high growth. Even as 4 million jobs were created over 63 quarters of consecutive growth, millions of people in Britain remained detached from the labour market. Four and a half million people were on out-of-work benefits even before this recession started. These reforms are about bringing them back in. I want them to be supported and ready to take up the 450,000 vacancies that are currently available in our economy. If we solve this problem, we begin to solve the wider social problems associated with worklessness.
The measures in the White Paper get this process under way. They are the first key strand of our welfare reform. By creating a simpler benefits system, we will make sure that work always pays more than benefits. By reducing complexity, we will reduce the opportunities for fraud and error, which currently cost the taxpayer more than £5 billion a year.
Work is the best route out of poverty. At present, some of the poorest who take modestly-paid jobs can risk losing £9 or more out of every £10 extra they earn. The universal credit puts an end to some of those perverse disincentives that make it so risky for the poorest to move into work. The highest marginal deduction rates for in-work households will fall from 95.8 per cent to 76.2 per cent. That is the absolute maximum, incorporating both tax and the withdrawal of benefits. There will be a single taper rate of about 65 per cent before tax. That means that about 1.3 million households facing the choice to move into work for 10 hours a week will see a virtual elimination of participation tax rates of more than 70 per cent. With single tapers and higher disregards, the system will be simpler and easier, and people will keep far more cash in their pockets when they move into work.
Our guarantee is crystal clear: if you take a job, you will receive more income. Some 2.5 million households will get higher entitlements as a result of the move to universal credit. The new transparency in the system will also produce a substantial increase in the take-up of benefits and tax credits. Taken together, we estimate that these effects will help lift as many as 350,000 children and 500,000 adults out of poverty. That is our analysis of just the static effects of reform. Analysing the dynamic effects is not easy, but we estimate that the reforms could reduce the number of workless households by about 300,000. Let me also provide assurance about the transition. We will financially protect those who move across to the universal credit system. There will be no losers.
A far simpler system that operates on the basis of real-time earnings will also reduce the scope for underpayments and overpayments, which we all know can create anxiety and disruption and can prove very difficult to correct. This simplification and reform will help end that problem. As well as reducing official error, these changes will also make life far more difficult for those who set out to defraud the system—they are a small group, but nevertheless they are there. The system will be simpler, safer, more secure, fairer and more effective.
That will require investment, with £2.1 billion being set aside to fund the implementation of the universal credit over the spending review period. I have been assisted in this work by my right honourable friend the Chancellor, who has agreed to this investment programme. This is not just expenditure but investment, and investing to break the cycle of welfare dependency is a price worth paying. The universal credit will provide a huge boost to the individuals who are stuck in the benefit trap by reducing the risk of taking work and lifting 850,000 out of poverty in the process.
This investment will produce a flow of savings, as a simpler system helps drive out over £1 billion of losses due to fraud, error and overpayments each year. In the wider economy, dynamic labour supply effects will produce net benefits for the country as greater flexibility helps business and fuels growth, particularly in the high street. We are investing £2.1 billion in spending review 2010, and we are seeking a multibillion pound return.
That is how we will make work pay, but that is not enough on its own as we also have to support people as they make their move back to work—the two issues cannot be separated. That is why we are moving ahead with our new work programme, which will provide integrated back-to-work support, and that is why we have already started a three-year programme to reassess 1.5 million people who have been abandoned for years on incapacity benefit—something that the Opposition started before the election for the flow of new claims. We are now trialling that programme in two cities in the UK.
This is our contract: we will make work pay and support you through the work programme to find a job, but in return we expect you to co-operate. That is why we are developing sanctions for those who refuse to play by the rules as well as targeted work activity for those who need to get used to the habits of work. This work activity will be targeted at those who need it most: those who face the most significant challenges engaging with the labour market. Furthermore, evidence from the work capability assessment—36 per cent of people have withdrawn their application before reaching the stage where they are assessed—underlines the effect this could have on those currently working while claiming benefits.
This new contract represents a fair deal for the taxpayer and a fair deal for those who need our help. I commend these reforms and this White Paper to the House”.
My Lords, that concludes the Statement.
Lord Freud
My Lords, I thank the noble Lord, Lord McKenzie, for his gracious speech. I welcome his overview that this transformation is going in the right strategic direction and that he and his party are prepared to make sure that we get the very best out of it. There is much consensus around this issue and, as anyone who has looked at my career over the past few years will recognise, it may be that I almost personalise some elements of that consensus. I do acknowledge, as the Secretary of State has acknowledged, that we are building on elements, but we are making them truly transformational by ensuring that people will be able to understand that it is always worth working in a way that, because of the complexity of the current system, it has been impossible for them to do.
The noble Lord put a series of questions to me and I shall do my best to answer all or virtually all of them. He queried the obligation, as he put it, in the contract to grow employment at the same time. I want to make it clear that two separate things are happening here. In the 16 or 17 years to 2008 we had the longest boom in growth that this country, in common with the rest of the western world, has seen. However, we still ended up with a lot of people trapped on out-of-work benefits. What is key here is to untrap them because during the boom we were sucking in labour from abroad which proved to be much more flexible. Before we worry about anything else, we must unlock the people who are living here so that they can play their part in the workplace. That is what these reforms are about.
On the noble Lord’s question about lone parent conditionality, we will of course maintain the good cause provisions that are agreed. We are very sensitive to the school hours measures and so forth, and they will be taken through. Hardship payments will be available, and the exact levels will have to be determined. He made the point that people need self-confidence and good self-esteem to be able to get back into work. The whole point of the work programme is to put in place a structure where providers are incentivised to get people back into the workplace whatever it takes. My own expectation, for what it is worth, is that one of the things that work providers will spend a lot of time on is rebuilding the self-confidence that people need to get back into work. So I expect that to be happening.
We have talked about mandatory placements. They are not a punishment, but are to be used for those for whom working for four weeks will be transformational in how they interrelate with work and in getting used to the basic disciplines of work. The placements will be designed for those people for whom we think they will be of the most value. Clearly there is a secondary issue, which is that making people do something for four weeks when they actually have another job anyway is a useful winnowing tool.
The noble Lord queried the costs and mentioned stories about an extra £2 billion in the next Parliament or at the next spending review. Frankly, we are talking about a very complicated series of movements, and any figures at this stage would be simplistic. The point is that by the next Parliament, the new system will be locked in, so that in the next spending review we will have to take account of what that system is, along with its costs.
I am not sure whether we will be running ahead with the “better off in work” credit because there is so much to do in bringing forward the universal credit. We need to concentrate on the big picture rather than amelioration of bits and pieces of the existing system. The plan is to bring in the universal credit from October 2013 and then start to move as soon as we possibly can the people for whom those incentive effects will work the best. They will be the earliest people to move across.
I can assure the noble Lord that the disability living allowance is out of the universal credit because we accept the reason for the allowance, which is to provide for all people with disabilities who need help with the costs involved in their support, whether they are in work or out of work. Those costs do not change in line with levels of wealth. They represent a basic strapline of expenditure according to an individual’s disability, so we have decided to leave DLA out. On council tax benefit or rebate, depending on what we call it, we are looking to devolve this so that local authorities can start to shape where it goes. We are also determined to make sure that it works with the incentive structure of our taper on the universal credit. This will ensure that we do not have something working against that set of incentives.
I turn to housing benefit, which is effectively one element of the universal credit. We have some work to do on exactly how it will go in and at what rate, but in practice the universal credit is a basic credit with disability add-ons, child add-ons, housing add-ons and so forth. We aim to see the portfolio of an individual’s universal credit build up depending on who they are. On the question of direct payments to RSLs, we will make sure that the risks to RSLs in terms of getting payments are not increased. Their anxiety is that their ability to finance will be undermined, but we are determined to ensure that, whatever we do with this, it does not undermine that ability. We are looking at quite a few options where we can achieve our aim without necessarily having direct payments.
Is child benefit included? No, it is not. As to the noble Lord’s concern about wallet and purse, which would apply also to the universal credit—he did not ask the question but I am happy to answer a question he did not ask but should have—we want to ensure that the credit gets paid to one member of the household, although we will explore ways of dividing it. One hundred per cent may well go to the purse or to the wallet, but we need to consider the middle and whether we should make special arrangements for those people who would like it there.
The noble Lord asked me to take more time. This is a big project and we are doing it at the speed we can. Nevertheless, it will take a long time. We will have the system ready to roll in October 2013 and people will migrate steadily on to it; we will not throw everyone in at the same time. Up to half of the people involved—particularly those who are most incentivised by being in the system—will be in the system by April/May 2015, and the remainder in the next two years. It is a longish process.
I welcome the noble Lord’s closing words—that this will go beyond a second Parliament—but one never knows what will happen in an election. I welcome the fact that the party opposite has indicated that it will be supportive and co-operative because you never know who will be in charge in 2016.
Lord German
I congratulate the Minister on the Statement, particularly on him and his team securing £2.1 billion of expenditure to overhaul a system that has had many epithets, including “complex”, “cumbersome” and “inefficient”. I am sure that if we wrote a dictionary of the problems of the current system, we would see the need for making progress towards change.
I am keen to explore the key area of the Statement—that 850,000 people in our land will be lifted out of poverty as a result of these measures. That would be a tremendous achievement for the Government, one which we have not seen in the past. Can the Minister explain how that figure is arrived at and the Government’s direction of travel? It is an aim worth achieving in itself, although it is not the only ambition they have.
Given that there will be a long period of transition, how will the existing benefit structure begin to look to the new benefit structure? Clearly you do not want to continue the old system and change rapidly; you will need to ensure that the sense of direction is towards the new structure. I am sure the House will wish the Government every good speed in doing this, but “crawling” is not the epithet that I would use at the moment.
Lord Freud
I thank my noble friend Lord German for raising the issue of the impact on poverty. I have a much shorter word on record: it is not “complex”, “cumbersome” or “inefficient”; I call it a mess.
How will this work? In effect, by having more generous tapers and disregards we are putting money into the pockets of people doing small amounts of work. So there is the direct economic impact of that money going in. There will be a second order impact, which will be twice as large because we will simplify the system and have only one form. This will encourage a much higher take-up rate and, in practice, will almost eliminate the scourge of in-work poverty. So that is where the figure of 850,000 comes from.
There will also be the dynamic or incentive effect of always knowing that it is worth working, and being incentivised to work will reduce the number of workless households by about 300,000. We have not put that poverty impact in the Statement; it is in addition to it. Some households will be pulled above the artificial 60 per cent median line, and we expect the poverty impact to be even greater than the 850,000 we have referred to. These are big figures. I remind the House that, on conventional analysis, the reduction in child poverty during the 13 years of the previous Government was about 600,000 children, so we are looking at making a big relative effect in one go.
Lord Clinton-Davis
I wish I could share the Minister’s optimism. I believe that immense difficulties will arise in practice.
I wish to ask about handicapped people. Are any changes envisaged in this approach in regard to those claiming to be handicapped? Will they have a right of appeal if they are turned down—after all, experts can be wrong—and will legal aid be available in the vast majority of cases? If it is denied, that will not be fair—and, after all, fairness goes to the heart of what we are talking about.
Lord Freud
I thank the noble Lord, Lord Clinton-Davis, for his question. I hope I am not being too optimistic. On the handicapped issue, there are a few concepts buried in the question and I shall try to disentangle them.
First, how does the universal credit look to a disabled person? In the present system we have a conflation between disability and inactivity in the labour market. It is one or the other; you can do a little work, but not much. The beauty of the universal credit is that people on disability benefit will be on the same taper as others, with generous disregards, so that they are not in the desperate position of being inactive on disability benefit or working. We should remember that 40 per cent of people with disabilities are in the workforce—they want to be in the workforce—and that some of the most heavily disabled people want to work. We want to build up a system to help them to do so.
The second element of the noble Lord’s question deals with the work capability assessment process that we are now trialling. There will be an independent and elaborate tribunal process through which people can go. They can bring in legal support if they want but, in reality, most people do not need it because it has been accepted as a relatively balanced process, and robust systems will be in place to make sure that people do not get put into the wrong category. However, putting the money aside for one minute—clearly one likes to have more money than less and to be on a higher rather than a lower benefit—the reform will unlock the inactivity that we are in effect forcing on too many disabled people.
Lord Bilimoria
My Lords, I served on the New Deal taskforce for many years and then on the National Employment Panel for seven years. I am delighted and heartened by many of the initiatives in the Government’s programme for welfare-to-work reform, in particular tackling the benefits trap.
We used to talk about the Australian experience. I spoke to John Howard after he stepped down as Prime Minister and asked him about Australia’s welfare-to-work experience, which we used to look to as a great success. He said that he did not want to remove the safety net but to get people back to work. One way in which his Government had sought to do that was a programme whereby people were made to do some community service. He thought that it would be a very unpopular move; it turned out to be very popular, because people who worked and paid taxes did not like to see people, quite a few of whom could have worked, not working. As a result, the Australian Government got public support for it. Have the Government looked at the Australian experience? Have they learnt from it? Do they think that it was a good and effective scheme, and will their scheme be as effective?
Lord Freud
My Lords, I thank the noble Lord, Lord Bilimoria, for that question. We have spent a lot of time looking at the lessons from abroad. When I was doing an independent report three and a half years or so ago, Australia was one of the places that I looked at very closely. I had someone who had been working there to inform me about what was happening. Australia and Holland are two places from which we learn a lot of lessons. There is a debate about whether action should be mandatory or voluntary. Voluntary action works if people have the self-confidence to say, “Yes, I want to try something”, but when you have been out of work for a long time, one of the first things that goes is your self-confidence. That is why mandatory action is not cruel. You need to pick people up and make them do things, because they do not have the self-confidence otherwise. That is one of the main lessons to be learnt from the Australian experience.
Lord Mawhinney
My Lords, perhaps I may say how many of us appreciate the fact that, in trying to unlock lives and aspirations, the Minister is focusing on allowing people to keep more of what they earn and trying to build self-confidence. There may be two other locks that he needs to unpick. The longer someone has not been in employment, the more inadequate or perhaps absent altogether will be their education and training. It would be my guess that those locks will need to be unpicked for very many people. Does he share that view? If so, who will have responsibility for addressing proven lack of education and training, and who will pay for it?
Lord Freud
My Lords, I thank the noble Lord for that question. I not only share his concern but am very firmly on the record as being very concerned about the division between the Work First strategies that we have been adopting in this country and skills and training. One of the mainstream drivers of the work programme philosophy is an attempt to pull training and employment strategies together. It does that partly by price differentiation, so as people become tougher to put into work, the price goes up. We need to find the right mechanisms to make sure that we price up. It does it also by ensuring that the payments system in the work programme is based on sustainment in work, which can be for one, two or three years. You do not sustain someone in work for a long time unless you pull in the whole training and education element. That kind of change should be going through.
Lord Young of Norwood Green
My Lords, I, too, welcome the direction of travel of the Government. If there is a doubt, it is about whether, after the comprehensive spending review, their growth strategy is coherent. The Statement referred to 450,000 vacancies, but that is before we have seen the impact of the comprehensive spending review. The Minister has just mentioned skills. We have concern about the Government’s abolition of the Train to Gain programme and the funded NVQ programme.
I shall focus on two areas on which I would welcome some further explanation. As I think the Minister would readily acknowledge, matching people to jobs will in some cases require an awful lot of support. In the other place, the Secretary of State talked of mentoring, not only to get people into work but to provide support when they are in work. The Minister has spoken of integrated back-to-work support. Who will provide this support and will it be resourced and properly costed?
The Secretary of State denied in the other place that the Access to Work grants had been cut, saying that they had just been refocused on larger employers. However, on other occasions, the Minister has stated that job growth will come from SMEs. That is a contradiction. If the Government want people with disabilities to get back into work, Access to Work grants are an important part of creating employment opportunities.
Lord Freud
My Lords, I thank the noble Lord, Lord Young, for that question. We have an integrated strategy. Measures in the CSR will ensure that mentoring takes place; there is also the new enterprise allowance and so on. We are building those packages and will announce details in due course. Our main change to Access to Work is to make sure that when someone goes for a job they have the funding required. No one will take someone if they do not know whether they will receive Access to Work. That is the main way in which we are refocusing Access to Work, which we think is a good programme.
Baroness Thomas of Winchester
My Lords, I, too, warmly welcome my noble friend’s repeated Statement today. I have one very simple, fundamental question to which I do not know the answer. How much discretion will decision-makers at Jobcentre Plus have about the sorts of work that jobseekers will be compelled to take? We hear that the conditionality rules will be tougher than those set by the previous Government. Let us suppose that a graduate or a highly qualified person can find only a cleaning job. Will they be compelled to take it and does the decision-maker have any discretion about that?
Lord Freud
My Lords, I thank the noble Baroness, Lady Thomas, who has been incredibly involved and interested in the development of the universal credit. Jobcentre Plus is structured in such a way that there is a very light touch in the early months which becomes gradually firmer and starts being a heavy hand on the shoulder after six months. There is a reality period. Most people look after themselves and find a job, but some need to have the reality of their position in the marketplace brought home to them, so that they match what work they can realistically expect to do with what is out there. You are much better off being in work and looking for a better job from an in-work position than from an ever longer period of inactivity.
Baroness Afshar
Thank you very much. I am very grateful that you allowed me in. I have two related points. First, the welfare legislation that did not get final approval put the welfare of children at its centre. It was the first thing that was stated. Can we hope that the current measures will begin with that statement?
Secondly, there are minority women, particularly Muslim women, who would find it very hard to front up and be consulted by a man who told them what to do. We need to have much more appropriate arrangements, because jobcentres have targets to meet. A specific woman may not want a job that staff think is appropriate. We need leeway and I wonder whether there will be room.
Lord Freud
I thank the noble Baroness, Lady Afshar. Children are at the heart of this. In our view, intergenerational poverty and joblessness are the basic reasons for the much too great child poverty that we have. This measure is designed with children in mind—right at the heart.
I take the noble Baroness’s point about cultural differences. One of the things I expect to see in the work programme—I know it is not in Jobcentre Plus—is quite sophisticated addressing of particular cultures. It is designed to force individualisation. In the work programme at least we will see start the kind of responses the noble Baroness is looking for.
Lord Christopher
I am not giving away after the 19th minute. I have tried four times.
Following the question asked by the noble Lord, Lord Mawhinney, will the Government produce proposals to deal with the situation that is bound to arise where the number of unemployed far outstrips the number of jobs available, which is particularly the case in the north? Will the Minister confirm that the Government have carefully considered ILO Convention No. 29, which Governments of this country have supported for 80 years? Is what the Government doing in accordance with that?
Lord Freud
My Lords, what we are announcing today is a structure that will encourage people to take the jobs that there are. A snapshot figure of 450,000 vacancies in Jobcentre Plus does not show the whole picture. There were 1 million vacancies in jobcentres in the past three months. In devising this strategy we will have looked at all conventions to make sure that we comply with them.