The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I do not think that a single Member of this Chamber could stand up and say they truly believe that the welfare system is working. Personally, over the course of the past four years, I have been struck time and again by the sheer scale of the system, and therein the task we face bringing forth these reforms. Today’s benefits balance sheet tells a story of unfairness, dependency, and waste.
There are nearly 5 million people on out-of-work benefits. In 2010-11, the Government spent £201 billion on welfare and pension payments, compared to £38 billion on defence, £91 billion on education and £121 billion on health. Within that we spend £22 billion on the key out-of-work benefits and the same again on housing benefit. Working-age welfare spending has increased by over 40 per cent over the past decade, Housing benefit spend is up almost 50 per cent.
Of the 2.6 million people claiming incapacity benefits, over half have been on benefit for at least five years, and a third have been on benefit for 10 years or more. Spending on welfare has been allowed to get out of control. This Government have taken some tough decisions to restore affordability to the benefits budgets for both now and the future. Of course, welfare is about more than just numbers. Ineffective management of the benefits system has not just led to ever-increasing spending. It has also affected people’s lives. So, there are people who want to work but find they are better off on benefits, people who want to work but do not get the specialist support they need, and people who want to work but are actually hindered from doing so by the current rules. In the mean time it is the poorest and most vulnerable who suffer.
Welfare reform is first and foremost about refocusing the resources we have to help the people who need it most. This Bill contains a number of measures to address specific problems within the welfare system, to end benefit dependency and redress the balance by restoring fairness and affordability. These measures lay the groundwork for the main purpose of this Bill, the creation of universal credit, the most radical reform of the welfare system since its invention. With the creation of universal credit this Bill does not just allow for the development of a new benefit, it creates the conditions for attitudinal and behavioural change. It bridges the gulf that has opened up between unemployment and work, and delivers a benefits system that is about people not process, one that is flexible and responsive. As we debate this Bill today and in Committee over the coming weeks, we may disagree on the detail, but we must all agree on the need for reform. I know that noble Lords have a great deal of interest in these reforms. Many have been to briefing sessions on specific policies contained within this Bill and I hope this can continue throughout the Committee stage.
I shall also be publishing a great deal of detailed information provided for the Committee stage in the other place. This will include one-page notes relating to every regulation-making power in the Bill, illustrative draft regulations for some areas, and policy briefing notes. Some of these, as noble Lords may have seen, were published only yesterday. To inform our discussions, I also expect to publish updated impact assessments to reflect various announcements that have been made during the course of the Bill’s passage through Parliament.
Following further work my department has done, and the helpful report from the Delegated Powers and Regulatory Reform Committee, I am planning to bring a number of technical amendments during the Committee stage. I will ensure that noble Lords are made aware of these in good time to prepare for the debate. Today, I wish to set out for you some of the principles behind our approach and the rationale for some of the key measures included in this Bill.
At the heart of our reforms, indeed at the heart of this Bill, is the creation of universal credit. This will be a single income replacement benefit for working-age adults. It will be simple to understand and access, and crucially it will bring together in and out of work support, simplifying the current system of benefit payments and tax credits into a single payment for those out of work or on low pay. Universal credit will provide a more consistent system of support. For example, under universal credit, people remain registered with the system for two years after their claim has ended. So, someone can get a full-time job and leave universal credit completely, but if they lose their job or perhaps cannot work for a period because of a health condition, they will be able to start payments again almost instantly, ensuring that they do not have to wait for vital support.
Universal credit will also provide a more responsive system of support, because as part of these reforms we are developing a real-time tax and benefit system. Access to real time information means that we can deliver a more responsive system based on actual earnings, making the transition between benefits and work much easier. By basing support on financial need, not crude measures of employment status, we will remove some of the barriers preventing people returning to work and will provide the security of a minimum income while retaining and in fact, for many, restoring the financial incentive to work. Real-time information means that universal credit payments can be gradually reduced as earnings increase. Even for those at the bottom end of the pay scale looking to take on extra hours or a modestly paid job, there will be real financial gain. This is an important point; under the current benefits system some people can experience an immediate and almost total loss of benefits for working just a couple of extra hours a week. Under the old system, some households could lose as much as 96 pence for every extra pound they earned. Universal credit reduces this to around 76 pence for modest earners and 65 pence for low earners. This directly improves work incentives for around 700,000 people by putting extra money in their pockets if they do extra work.
The broader impacts of introducing universal credit make the argument for reform even more compelling. The original impact assessments published alongside the Bill suggested that around 2.7 million households will have higher benefit entitlements under the new regime—for over 1 million households, this will amount to more than £25 a week. These numbers remain our best estimate and will be updated in a revised impact assessment in light of the localisation of council tax benefits. Because universal credit is properly focused, 85 per cent of this increase will be in the poorest 40 per cent of households, and the commitment to transitional protection means there will be no cash losers at the point of transition, all other things being equal.
We anticipate that more people will take up benefits once the system is simplified, with the combined impact of take-up and entitlement potentially lifting 600,000 adults and 350,000 children out of poverty. The combined effects of welfare reform could lead to up to 300,000 fewer workless households. Taken together, these changes will help to end benefit dependency by creating a more active regime, which encourages people into work by making the financial gains clear and real for hundreds of thousands of people. The introduction of universal credit will restore affordability by creating a simpler benefits system, focused on those in the greatest need; and it will restore fairness for both taxpayer and claimant. A more transparent system will be more accountable to the public. A more effective system will deliver more for those who need it most.
This Welfare Reform Bill is not just about those who are claiming benefits, it is also about those who are paying into the system. We know that taxpayers want a benefits system that is fair. They want a system that does not abandon those at the bottom and a system that they can turn to if they need it. However, taxpayers also want a system that is not wasteful; a system that does not pay benefits to those who can work but choose not to; a system that is not open to abuse; and a system that is affordable and effective.
I believe this Welfare Reform Bill will deliver that system. Universal credit will generally be just one monthly payment per household, making it easier for people to understand what they are entitled to and manage their own finances. This is an important point. Currently, the experiences of unemployed people in this regard, particularly for the long-term unemployed, are very different from those of people in work. We must ensure that as many people as possible are empowered to manage their own finances and make the choices that people in work must make. We must close the gap between being out of work and having a job, so it is not such a major shift for people leaving benefits. Payments to tenants must be the default position under universal credit. That said, I am alert to the sensitivities that exist in relation to the supply of affordable housing and in particular for the social rented sector and its lenders. I am prepared to explore options that will provide some protection for this industry and I shall announce how I plan to do this in due course.
For the moment, let me say this: I am convinced that we can deliver a system that puts the full universal credit payment into a claimant's hands, empowering them to manage their own budgets and narrowing that gap between the experience of being in and out of work. At the same time, I believe we can build safeguards into the system to minimise the impact on social landlords’ incomes and reassure lenders. Universal credit payments will include additional elements for housing and childcare costs. However, as I am sure noble Lords are aware, the Government have made a decision to localise council tax support, and a consultation on the detail of this is currently under way. Much was made of this decision in the other place, so I will make a point for the record. Council tax benefit currently sits across the portfolios of two different departments. Ministers from both are determined to protect the positive work incentives and distributional impacts of universal credit and we continue to work very closely on the detail of these reforms. We have already indicated to the House that we may be minded to make some changes to universal credit design in light of this decision and we shall provide further detail in due course.
With the passing of this Bill, we anticipate the first new claims for universal credit will start in October 2013, with all existing customers moved to the new system by 2017. In the meantime, this Bill also includes some reforms to the current system. These changes will amend some of the existing rules and regulations and start to bring them into line with universal credit. One such change is the proposal to time limit employment and support allowance—ESA—to one year, paid on the basis of national insurance contributions, to people in the work-related activity group.
The basis for this change is to bring ESA rules closer to the contributory jobseeker’s allowance rules, which currently pay six months’ jobseeker’s allowance on the basis of national insurance payments. This change also supports the intention that ESA should be a temporary benefit for the vast majority of people—which indeed it is. This is particularly true of those in the work-related activity group, who are assessed as likely to recover and make an eventual return to work. There remain a number of options for the minority of people who do reach the time limit: a return to work if able; a move to income-based benefits if appropriate; and for those whose condition worsens, potentially continuing payments through the support element of contributory ESA. This is a change of principle more than convenience. Allowing people to become dependent on benefits when they do not need to be is neither fair to them nor to the taxpayer, and it is no longer affordable. This is not about removing support; it is about making sure people get the right kind of support.
This is also the case for people who have cancer. We have already amended the rules, put in place by the previous Government, so that people awaiting or in between certain chemotherapy treatments receive the support they need, and we have specifically asked Professor Harrington to look at this issue in his next review, which he has done in partnership with Macmillan Cancer Support. I know that many noble Lords are particularly interested in this subject and I can tell the House today that we have received Professor Harrington’s second report and we are considering it carefully. I will update noble Lords again in due course.
We do not underestimate the impact that this change will have on claimants. As a result, we have asked Jobcentre Plus to send out a letter to all ESA customers who could be affected by the change. The letter will be sent out over a four-week period starting on 19 September. We appreciate that it is unusual to alert customers before the Bill has been passed by Parliament, so we have been very careful about the wording of the letter, but we think it is important to provide as much information and reassurance as we can at this stage.
We must apply the same principles of fairness, affordability and ending benefit dependency across the welfare spectrum. This is why we must reform support for disabled people. Current provision of disability living allowance, or DLA, is confusing and inconsistent. Too many people think of DLA as an out-of-work benefit. In fact, DLA’s purpose is to provide financial support to contribute towards the extra costs incurred by disabled people as a result of their disability, irrespective of whether they are in or out of work. DLA awards have become inconsistent and subjective, and spending on this benefit has started to spiral out of control.
More than two-thirds of claimants receive one or both of the two DLA components indefinitely, with no systematic checks to see if their condition has changed. This is no longer acceptable. We must support people properly and that means more accurate and more regular assessments to see if their condition has changed and ensure they are receiving the right level of benefit. This means being prepared to pay more for those whose needs have increased as well as reducing the benefits of those who no longer need them. To that end, this Bill allows for the abolition of DLA and its replacement with the personal independence payment, which like DLA will be available to disabled people both in and out of work and will be non-taxable.
The key changes will be an end to automatic entitlements based on having a certain health condition or impairment, a more objective assessment, and the introduction of more regular check-ups. These reforms are designed to deliver a more responsive and sustainable benefit and to ensure support is focused on those who face the greatest challenges to take part in everyday life. They are not about taking support away from those who truly need it.
Many of you have raised with me the issue of DLA mobility payments to care home residents. We have listened to the concerns raised about mobility provision in care homes and will consider the needs of disabled people living in residential care and receiving DLA as we develop personal independence payment for introduction in 2013. Our aim is to treat disabled people fairly, regardless of their place of residence, not to reduce their ability to get out and about. We will continue to gather and consider the evidence about existing provision as we develop our plans.
The introduction of personal independence payment will restore fairness in disability benefit provision by providing support on the basis of ongoing need, and replacing DLA will bring spending in this area under control, making sure the system is affordable both now and in the future. But this is not about cutting spending. The funding for all DLA, in real terms on 2011-12 figures, was £12.1 billion in 2009-10. At the end of this Parliament in 2015-16, the funding will be slightly higher at £12.3 billion. The talk of cuts relates to projections on a benefit that was rising sharply. What we are doing is bringing it under control.
I hope that noble Lords can agree today that the spirit of these reforms is right: that it is right that we do not put people on any benefit and just leave them there, as has so often been the case with DLA; that it is right that we design a more objective assessment, one which can better take account of those with mental health conditions and learning disabilities who may also incur extra costs but which DLA is so ill designed to support; and, wider, taking this package of reforms as a whole, that it is right that we act now to reform the benefits system, restore fairness and affordability in welfare and end benefit dependency.
The reforms contained within this Bill will mean some of the poorest people in the country will benefit from more than £4 billion in welfare payments, as set out in the previous impact assessment, through increased entitlement and take-up. These reforms will lift as many as 950,000 individuals out of poverty, help 700,000 households keep more of the money they earn and cut the number of workless households by up to 300,000. These reforms will bring real change in both attitude and behaviour. This Bill marks the end of the something-for-nothing culture we have seen so recently on our streets. It is a new dawn for welfare—one of fairness, responsibility and effective support. This is something I believe we should all welcome and I commend this Bill to the House. I beg to move.
Lord Freud
My Lords, I thank everybody who has spoken today. There have been some truly excellent contributions. I need to congratulate my noble friend Lord Feldman on his remarkable maiden speech, which I think we all enjoyed. We look forward to many more equivalent contributions.
The Bill deals with some really important matters and I am extremely pleased that the debate has been both informed and committed. I may not have enjoyed some of the things I heard but it has certainly been extraordinarily well considered. I think I can claim that we share a consensus on the need for reform and that there has been a great deal of general support for the principles underpinning the Bill. We all believe that the welfare system should be fair; we all agree that it should be affordable; and we all share the aspiration of a welfare system that incentivises people to work, releases people from the net of benefit dependency and ensures that work pays. There has been a little debate about the order of priority from the noble Lord, Lord Knight, among others, but I think that we can all agree with those main principles.
The discussion is about how we get from here to there and I know that the detail of that will be heavily scrutinised in Committee, which is absolutely right. I also expect that our debates in Committee will be just as informed as they have been today, and I assure noble Lords right around the House that I will be listening with extraordinary care to the informed views of its Members. I have had a large number of specific questions relating to particular clauses and scenarios. There is no way that I can deal with them all in the time that I have today but clearly we will have ample opportunity to go into great depth in all those areas, so to the extent that I do not deal with an issue now I know that we will come back to it.
Perhaps I may remind the House of the commitment that I made in my opening remarks. Over the next few weeks I shall publish a great deal of detailed information which was previously provided in Committee in another place. It will include notes on every regulation-making power in the Bill, full policy briefing notes and, where possible, illustrative draft regulations which will go into considerably more detail than has previously been published. In addition, as we approach each section of debate in Committee I will ensure that officials from the Department for Work and Pensions are available to host briefing meetings for noble Lords. These sessions will be a further opportunity to go over the detail of each clause before it is debated in Committee. I hope that both these sessions and the additional information that will be published will be of use to the House and will go a reasonable way to answering many of the questions and specific points raised today. Clearly, we will pick up the outstanding issues in Committee.
Let me try now to summarise in my closing remarks some of the identifiable themes that emerged this evening. The most disturbing thing that I heard today was the concerns of many noble Lords about the anxiety of disabled people. The noble Baronesses, Lady Murphy and Lady Gale, talked about how people were terrified, or petrified, and that worries me more than anything I heard. We are committed to supporting disabled people to exercise choice and control and to lead independent lives. There has been a growing consensus that the disability living allowance has not been delivering and, as I said in my opening remarks—actually, I think that I said it yesterday—it is inconsistent and confusing and does not reflect, in particular, the needs of people with non-physical impairments, such as mental health conditions. Our intention is that the personal independence payment will focus support on those individuals who experience the greatest barriers to remaining independent and leading full, active and independent lives. The intention of the reforms is to ensure that the benefit is sustainable for the longer term, with a more objective assessment of individual need, and that it will be responsive to changes in people’s conditions.
In answer to the question that was raised by a number of noble Lords, including the noble Baroness, Lady Finlay, and the noble Lord, Lord McKenzie, about the relationship with the carer’s allowance, I can reassure the House that the personal independence payment’s daily living component will be part of the gateway for receipt of carer’s allowance, but only when we have completed the modelling and testing of the assessment criteria will we be able to update the impact of the new PIP assessment on carer’s allowance recipients and the rate of daily living allowance to be actually used. We published the initial draft of those assessment criteria in May. These were developed in collaboration with a group of independent specialists in health, social care and disability and we drew on a wide range of relevant expertise. The aim of the criteria was to look at the ability of individuals to carry out a range of everyday activities. I think that there are currently 11 separate criteria and, for example, the introduction of communication will ensure that we take the effect of impairment of hearing, speech and language comprehension into account much better.
My noble friend Lady Thomas asked what account the assessment criteria will take of the successful use of aids and appliances. We recognise that aids do not remove an individual’s disability and that there may be ongoing costs. We know that it is vital to get these assessment criteria right. Over the summer we heard the views of disabled people and organisations. We met with around 60 organisations and received about 170 other written responses. We tested the draft criteria by reviewing them with 1,000 people who are on DLA to see how they worked. The findings and the testing will be used to produce a second draft of the assessment criteria and the regulations later in the autumn in time for us to use them when we consider the relevant clauses in Committee.
The noble Baroness, Lady Meacher, asked who will make the final decision on the assessment. I can confirm that that will be the DWP decision-maker and not the medical assessor. I can also confirm that all claimants, particularly those with mental health conditions, can be accompanied at the face-to-face assessment. As I have said in the past, the default position is a face-to-face assessment but I am conscious that in some circumstances that is counterproductive. A number of Peers are worried about autism and how that will be handled.
Several noble Lords have commented on the extension of the qualifying period of PIP to six months. While there has been reasonable support for the principle of an overall qualifying period of 12 months, there is concern that a longer qualifying period will adversely affect certain groups of disabled people, particularly people who have had strokes and those with a recent diagnosis of cancer. My honourable friend the Minister for Disabled People and officials have engaged with disability groups during the summer and the Government are continuing to look closely at the issues they have raised in regard to this change.
The other issue that is of great concern to noble Lords is the time limiting of ESA for those in a WRAG, particularly for cancer patients. The noble Lord, Lord Patel, with his direct experience of this issue, made a moving speech on it. The contributory ESA was always intended to be a benefit which provided temporary support for those in work-related activity. With the right support it is reasonable to expect people in this group to return to work; that is what this definition aims to do. In our view a time limit of one year strikes the right balance between the need to restrict access to contributory benefits for those under pension age while allowing those with longer term illnesses to adjust to their health condition. It is, of course, double the length of time for which the contributory JSA applies. I must emphasise that severely ill or disabled people in the support group, which includes many people with cancer, are fully protected and will continue to receive contributory ESA indefinitely. Income-related ESA will also be available for those with little or no alternative resources. My department has been working with Macmillan Cancer Support and others to ensure that we support people who are diagnosed with cancer in the most sensitive, fair and appropriate way.
A number of noble Lords raised deliverability and IT—I am thinking in particular of my noble friends Lord German, Lord Kirkwood and Lord Brooke, and the noble Lord, Lord Knight. I am aiming as soon as I can to give a much more extensive demonstration of the IT, because what is happening is very interesting—it will not be in the Chamber because a lot of graphics are involved. Our aim is to process and implement the majority of claims automatically. By pulling the benefits and credits together, we break the factor of so many different organisations delivering them. It will not require large-scale IT, and it is absolutely not an IT development on the scale of that the NHS, which was cited by a number of noble Lords. We are already under way on the design and development. The agile process means that, rather than delivering the system in one go and then testing it, we are constantly testing how it works. The scale of the IT is similar to that for the ESA, which was successfully delivered by the previous Government on time and on budget in October 2008. We will not rely on last-minute testing. It is a fascinating area, and I commit to doing something quite elaborate on it.
Another area that received considerable attention today was the benefit cap. Powerful contributions were made by the noble Baronesses, Lady King and Lady Lister, and my noble friend Lord Kirkwood, who is amazingly still in his place tonight despite his bad back. Let me be clear: the cap is being introduced for a number of reasons. It will address some of the problems of welfare dependency, add to the incentives to move into work and promote fairness between those people who are out of work and rely on the benefits system and taxpayers in work who pay for it. There is an important principle here: people should not expect a life on benefits getting more money from the state than people in similar circumstances could earn in work. This is the legacy of a system where people are not always better off when they get a job, which is one of the fundamental problems that we are trying to fix with the universal credit. The introduction of a benefit cap will mean that households on out-of-work benefits will have to make the same decisions as families in work with regard to the lives they lead and the areas they can live in. People will have to take responsibility for their decisions in the light of what they can afford. We have said that we will consider ways of easing the transition for families on existing benefits and are looking at exactly what might be needed. In doing so, we shall be mindful of the points that have been made on this issue today and throughout the passage of the Bill to date.
Housing has provoked much more interest around the House than is normally the case, possibly to the slight surprise of specialists such as the noble Lord, Lord Best, who is one of the gurus on the topic. Over the past 10 years, housing benefit expenditure has roughly doubled in cash terms. The Government are convinced that it is absolutely necessary to take steps to manage this expenditure. We have already introduced legislation to ensure that people who make new claims for housing benefit in the private rented sector are prevented from claiming excessive rates of local housing allowance. The Welfare Reform Bill introduces further measures to control expenditure and to ensure that housing benefit is fair and affordable.
Noble Lords have spoken about the changes that we are making to housing benefit in the social rented sector. In England alone, around 5 million people are on the social housing waiting list and over a quarter of a million households are in overcrowded conditions within the social rented sector. Yet at the same time, something approaching nearly 1 million extra bedrooms are being paid for by housing benefit. That is simply a luxury that we can no longer afford.
It is not fair to the taxpayer and not fair to those in housing need. The demand is such that we must do all that we can to make better use of our limited social housing stock. We need to do more to tackle the high rate of under-occupation, encourage more people to move as well as help those who want to move but have so far been unable to do so. If people continue to live in a property larger than they need, we will expect them to make a reasonable contribution to its cost through a reduction in housing benefit.
On the connection between the CPI and the LHA uprates, I must point out that we are committed to that measure for two years; 2013-14 and 2014-15. If it then becomes apparent that local housing allowance rates and rents are out of step, they can be reconsidered.
Many noble Lords including my noble friends Lady Stedman-Scott and Lord Ahmad, the noble Baroness, Lady Hollis, and the right reverend Prelate the Bishop of Leicester, raised concerns about childcare and how it fitted with the universal credit. It is a critical issue and we are taking the time to ensure that we get it right. The impact assessment showed that an average family with children is more likely to have a higher entitlement under universal credit, and the combination of higher disregards and a single taper will make work pay. If childcare costs are taken into account, some families may face a higher effective marginal deduction rate, but that is the same as happens in the existing system. It is not because of the universal credit. But I absolutely accept the point that noble Lords have made right around the House that we need to get this right and make sure that the way that we structure and fit in childcare is absolutely optimised.
The impact of this Welfare Reform Bill will be greater than the sum of its parts. The introduction of the universal credit will mean around 2.7 million households will have a higher benefit entitlement. For more than 1 million households, that will amount to more than £25 per week. We anticipate that introducing a simplified welfare system will lead to greater take-up of benefits, potentially lifting 600,000 adults and 350,000 children out of poverty. The combined effects of welfare reform could mean up to 300,000 fewer workless households. That is at the core. The reason for this is as the noble Baroness, Lady Hollis, said so eloquently: we are de-risking being out of work compared with being in work.
A point that I think noble Lords still have not really accepted—or perhaps not on the other Benches—is that when the pure universal credit comes in, in its entirety, it will put more than £4 billion each year into the pockets of the poorest people in this country. I know that there are other cuts which noble Lords do not like, but on the universal credit, we have had to invest a lot of money each year and the Treasury has supported that to make the system work.
The welfare reform and the contents of this Bill are about much more than money. The reform is aimed at changing the state of our nation. Taken together, these measures will radically alter the mindset of dependency. They will create work incentives to drive positive behaviour. They will deliver a welfare system that is fair, flexible and firm. In essence, it will bring real, lasting change by directly affecting attitudes and behaviour. This Bill is a real opportunity to make a difference to the lives of some of the poorest, the neediest and the most vulnerable people in our society. It is an important and necessary piece of legislation. I commend the Bill to the House and ask for it to be given a Second Reading.