House of Lords

Thursday 17th January 2013 Lords Chamber

Thursday, 17 January 2013.

11:00

Prayers—read by the Lord Bishop of Exeter.

Electoral Register: Young People

Thursday 17th January 2013 Lords Chamber

Question

11:07

Asked by

[Lord Roberts of Llandudno]

To ask Her Majesty’s Government what specific measures they are taking to ensure that the maximum number of young people are enrolled on the electoral register.

[Lord Roberts of Llandudno]

My Lords, on this historic day, when we celebrate the 150th anniversary of the birth of David Lloyd George, I beg leave to ask the Question standing in my name on the Order Paper.

[Lord Wallace of Saltaire]

My Lords, I have to add that my father met Lloyd George. We have a photograph somewhere of my father with him—there are about 3,000 people in the picture, but never mind, it is still historic.

Government, politicians, political parties, electoral administrators and others in society all have a role to play in encouraging people to register to vote. As we have made clear throughout the ERA Bill’s consideration, the Government are committed to doing all they can to maximise registration, including among young people. They are looking at ways to modernise the system to make it as easy and convenient as possible for everyone to register to vote.

[Lord Roberts of Llandudno]

I thank the Minister for his reply. I declare an interest as president of Bite the Ballot, the youth democracy movement. I am not only president, but I think great-grandfather of that movement. Is there not an opportunity for us to give young people when they reach the age of 16, possibly 17, an electoral registration form in their schools so they can sign up then? We could even give them an electoral registration form when they go to university, say in freshers’ week when they get their pack of information. We might be able to sign up a large number of people in those two possible ways.

[Lord Wallace of Saltaire]

That is an interesting consideration. I will take it back to the Cabinet Office and discuss it with the Department for Education. I talked to several head teachers in Westmorland on Friday afternoon about citizenship education and how we involve young people in politics. Part of the problem we face is churn. Young people move, so even if they are put on the register when they are 17, they may well be off it—or be in the wrong place—by the time they are 20. So there are some real problems with keeping young people on the register as well as getting them on it.

[Lord Elton]

My Lords, if the noble Lord were to accept my noble friend’s suggestion, would he make sure that the opportunity to enrol in schools takes place after suitable instruction in the functioning of this country’s politics and constitution? While he should be on his guard against undue political influence from the teachers, he will be pleased to know that in my experience on all but very rare occasions when a teacher advises supporting one party, the class always follows the other.

[Lord Wallace of Saltaire]

My Lords, I can remember the history sixth form when I was at school. As we got closer to the coming general election, the history teacher’s interpretation of the characters of Mr Disraeli and Mr Gladstone moved towards Mr Disraeli being better and better and Mr Gladstone being more wicked than he had been before. The idea of neutral school teaching is not one that is very easy. Citizenship education is important. The national curriculum is currently being reviewed and the issue of what role citizenship education plays both in the national curriculum and in sixth-form activity in schools throughout the country is one that clearly we need to consider further.

[Lord Maxton]

My Lords, given the advances in smartcard technology in recent years, is it not time that we looked again at the idea of compulsory registration of all children from the age of nought, to ensure that everyone is automatically on the register from the age of 18 without filling in forms or anything else?

[Lord Wallace of Saltaire]

My Lords, the Government intend to introduce the option of online registration as from 2014. How far we go towards what would in effect be a sort of ID card for each child born is a matter on which we will have to have further debate. The noble Lord will of course have seen the discussion in some of the press about whether parents wish to put microchips in their children, so that they know where they are all the time.

[Baroness Trumpington]

My Lords, is the Minister aware that I not only knew Lloyd George but I was his land girl? [Laughter.] Shut up, everybody. Does the Minister share my view that it is unfair that students at university, who are birds of passage, should have the right to vote in Cambridge and other university cities in general elections, thus deciding—due to the power of their numbers—the political future of the town where they are students but not permanent residents?

[Lord Wallace of Saltaire]

My Lords, the question of where young people between the ages of 19 and 25 are permanent residents is one of our problems. They are very often transient, given the nature of what they do. I am not quite sure how long my children remained permanent residents at home after the age of 18; they were more often at their college or university than at home.

[Lord West of Spithead]

My Lords, can the Minister clarify whether young Scottish men and women in the Armed Forces will be disfranchised in the context of the vote for the separation of Scotland from the United Kingdom?

[Lord Wallace of Saltaire]

My Lords, I understand that that question is under active consideration.

[Lord Phillips of Sudbury]

My Lords, is my noble friend, having twice rightly mentioned the importance of citizenship education, aware that it is currently part of the core curriculum but on present reckoning will be taken out? Is that not lunatic in light of the declining democratic adhesion of so many young people?

[Lord Wallace of Saltaire]

My Lords, my understanding is that we have not yet entirely decided the full spread of the core national curriculum. Of course, not everything that schools do is part of the national curriculum, as the head teachers explained to me on Friday afternoon. There is a whole range of other activities, including visits to local courts, the local council and the whole business of self-government within the sixth form. That is part of a broader citizenship curriculum, which is the sort of thing that good secondary schools should do.

[Baroness McIntosh of Hudnall]

Does the noble Lord agree that the most important thing that we have to establish in young people is an understanding of how important it is that they should vote—not just that they be on the register but that they use the opportunity? Does he further agree that in a small way the ongoing work from within the Palace of Westminster by the Education Service and, if I may say, the Lord Speaker’s Peers in Schools programme is contributing to getting that message across?

[Lord Wallace of Saltaire]

My Lords, I am happy to agree with that. In the recent report on electoral registration in Northern Ireland, one of the points made is:

“Interest in politics is an important driver of registration and declining estimates for accuracy and completeness are set against a declining interest in politics”.

We must all take that on board and work to increase interest in and commitment to politics among the broader public, including young people.

Severn Barrage

Thursday 17th January 2013 Lords Chamber

Question

11:15

Asked by

[Lord Hylton]

To ask Her Majesty’s Government when they expect to announce a decision on the latest plan for a major Severn barrage.

[The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma)]

My Lords, we recognise the potential benefits of the barrage after looking at this carefully in a two-year cross-government feasibility study that was completed in October 2010. Before the current proposal can be subject to further consideration, it will need to be developed in considerably more detail to demonstrate, in particular, robust environmental mitigation plans, evidence of the low-head turbine impact, evidence of net regional and national job benefits and affordability for consumers. The Government remain open to hearing about well developed proposals for harnessing energy from the Severn and elsewhere.

[Lord Hylton]

My Lords, I thank the noble Baroness for her reply. Does she agree that uncertainty is bad for everyone? If it went ahead, would a big scheme not replace several new nuclear power stations? However, if there is no big scheme it would give us the opportunity to design smaller schemes—for example, at the English Stones or by means of tidal canals. Will the Government at least update and amplify their earlier study so that the earliest possible decision can be reached?

[Baroness Verma]

My Lords, I understand the noble Lord’s concerns. The consortium to which he refers submitted a business case to DECC in November 2011. In 2012 we asked for some supplementary information and we have had a series of meetings with the consortium at ministerial and official level, but none of these satisfies having enough of the detailed evidence on the economic and environmental impacts of the scheme that we require. The noble Lord will understand that until we get more detail about the plans it will be difficult to make a decision.

[Lord Anderson of Swansea]

My Lords, would the noble Baroness put the Hafren Power proposal within her category of well developed proposals? From the viewpoint of south Wales, it would be a tragedy if we did not look seriously at this—the biggest renewable energy project in Europe, which would harvest the natural powers of the Severn—and missed the opportunity. It would generate 50,000 jobs and improve flood protection. Most importantly, it could be developed without any contribution from public funds. Is the noble Baroness aware that there is considerable support in Wales for this project, and are the Government giving it a fair wind? What is the Government’s preliminary response to the Hafren Power proposal?

[Baroness Verma]

My Lords, in my Answer to the noble Lord, Lord Hylton, I laid out that we are taking all proposals very seriously. However, as the noble Lord will be aware, it would not be right for the Government to take a decision until they are completely satisfied that the mitigation plans against environmental impacts that need to be in place are in place. We have made it clear to all consortia that we are interested in looking at how we can harness energy. We need a good mixture of energy but we also need to ensure that it is viable economically and environmentally.

[Lord Crickhowell]

My Lords, is my noble friend aware that I have studied the latest proposals for the scheme extremely carefully? I agree that they are at the most rudimentary stage. The only positive feature that I could find in them is that the noble Lord, Lord Rowe-Beddoe, is a non-executive director.

[Baroness Verma]

I am extremely grateful for my noble friend’s support for my Answer. I reiterate that it is incumbent on all Governments to make sure that whatever projects they agree to have looked at all the detail. Thus far, we are not satisfied that we have had enough detail from the consortium on this.

[Lord Wigley]

My Lords, subject to the environmental conditions that the Minister mentioned being met, given that the project could generate 5% of the UK’s energy needs, and in view of the Welsh economy’s need for a kick-start of this sort, will she give an assurance that the Government will support this project?

[Baroness Verma]

I cannot say that the Government will support this project until we are satisfied that all the details that are needed to ensure that it is environmentally and economically viable are met. Those conditions have not yet been met.

[Lord German]

My Lords, the proposal currently before the Government is not for a Severn barrage, it is for a Bristol Channel barrage. As such, it is a very large scheme indeed and has enormous environmental, physical and economic costs. Have the Government made an assessment of the costs to energy consumers—in household energy bills—of this proposal compared to other forms of low-carbon energy, such as offshore wind?

[Baroness Verma]

My noble friend raises an important point. Until we have a more detailed plan, we are unable, on the information we have at the moment, to make a complete assessment of the impact on consumers. We do know that alternative energy is providing us with good value at the moment, and offshore wind is one of those energies.

[Lord Howarth of Newport]

My Lords—

[Lord Cope of Berkeley]

My Lords—

[Lord Howarth of Newport]

Developing the important questions just asked by my noble friend Lord Anderson and the noble Lord, Lord Wigley, and accepting the importance of the environmental considerations that the Minister has rightly mentioned, will she bear in mind that this project is convincingly financeable at present and prospective rates of interest? That is an important reason for a quick decision. Effectively, it would be a free gift of an enormous increase in renewable energy in Britain. It would also be of great benefit to reviving the economy and employment in south-east Wales.

[Baroness Verma]

I come back to my original point, which I have stated a number of times. I understand where the noble Lord is coming from in his commentary. However, given that the consortium will no doubt look for subsidies for the contract from energy bills for this particular energy as well, it is incumbent on the Government to make sure that they deliver best value to the British public. At this time, we are working with the consortium on a much more detailed plan. We have not ruled it out, but we want more detail about what it proposes to do. At the moment we are not satisfied on that.

EU: Budget

Thursday 17th January 2013 Lords Chamber

Question

11:23

Asked by

[Lord McConnell of Glenscorrodale]

To ask Her Majesty’s Government what position they will take on the European Development Fund and other European Union aid budgets in the current negotiations on future European Union funding.

[Baroness Northover]

My Lords, the UK’s top priority in negotiations for the EU budget for 2014-20 is budgetary restraint. We oppose increases beyond inflation in any area of EU expenditure, including the European Development Fund. However, it is important at least to maintain or increase the proportion of official development assistance within restrained EDF and overall EU budgets.

[Lord McConnell of Glenscorrodale]

I thank the Minister for her Answer. It would be an absolute scandal if those who lived in the poorest countries in the world were made to pay for the deficits that exist in the richest part of the world. In addition, will the Government address this technical point? Any reductions in the EU aid budget will simply have to be made up again in the national aid budgets of the member states. In the United Kingdom, where we have agreed to meet the 0.7% international target, that will mean that any reduction in the EU aid budget is simply transferred to the DfID budget because the EU aid budget contributes to that 0.7% target. The only countries that will benefit from a reduction in the EU aid budget will be those that wish to reduce their aid contributions by the back door and do not replace that money in their national budgets. Will the Government look again at this issue and ensure that the EU aid budget is preserved so that those countries that wish to reduce their aid contributions by the back door are not allowed to do so, and ensure that we make a contribution to that multilateral development assistance?

[Baroness Northover]

I thank the noble Lord for his question. He is well aware that the United Kingdom is increasing its own spending because it recognises the importance of supporting the poorest in the world, even when we are in financial difficulties. As far as the EDF and the EU budget are concerned, we scrutinise them very carefully for their poverty focus. We are encouraged by the direction they are heading in, so perhaps I can reassure the noble Lord in that regard. However, we will continue to keep up the pressure, as it needs to be poverty-focused. I point out that we are fifth in the league, as it were, in terms of ODA in the EU, behind Sweden, Luxembourg, Denmark and the Netherlands, all of which have gone beyond the 0.7%. The evidence is not quite as he indicated in terms of other countries. For example, there are increases from Germany, Italy and Sweden, so the picture here is not quite as he portrays it.

[Lord Chidgey]

Is my noble friend aware that the European Court of Auditors has just reported on its study of 48 EDF schemes—road transport programmes totalling over something like 2,500 kilometres—in the Sahel? It shows that, while it is by far the European Commission’s financially most important sector, it has been only partially effective in promoting policy reform that would ensure the sustainability of this massive road infrastructure investment. What is the Government’s response to the court’s recommendations that the European Commission should better focus European Development Fund resources and make better use of the conditions that it attaches to the programmes?

[Baroness Northover]

This report was published a couple of days ago, on Tuesday. DfID will produce a considered response, which will be scrutinised by Parliament. It is worth flagging up that, as my noble friend rightly points out, this looks at aid since 1995 in terms of road building and at whether the balance between road maintenance and road building has been sustained as it should have been. In the United Kingdom we know that when you are in constrained financial circumstances a balance must be struck between those two areas. I am sure that we can learn many lessons; nevertheless, it is not as though the balance between those issues is not also felt in other countries.

[Lord Pearson of Rannoch]

My Lords—

[Baroness Kinnock of Holyhead]

My Lords, is the Minister aware that if current proposals made by the President of the European Council to freeze the levels of spending on EU development aid are implemented, aid will suffer a larger reduction than absolutely any other area of the EU budget and that the UK will see a decrease in its current contribution to the European Development Fund? These are two very important factors. Would it not be perverse if the effect of a commendably ring-fenced UK development budget was diminished by a huge 11% cut in the EU development budget?

[Baroness Northover]

As I said to the noble Baroness’s noble friend, the noble Lord, Lord McConnell, the EDF has clearly been a very effective measure in this regard. DfID is extremely keen to make sure that that is protected and that the EU’s aid contributions are poverty-focused. Within the EU budget there is clearly also a focus on near neighbours. We need only look at what has happened across the Middle East and north Africa to see how the security, stability and economic progress of those near neighbours are important. The new accession countries are also important. However, we are keenly aware of the importance of the EDF and its poverty focus, and we are seeking to increase its focus on the poorest.

[Lord Collins of Highbury]

My Lords—

[Lord Pearson of Rannoch]

My Lords—

[The Chancellor of the Duchy of Lancaster (Lord Hill of Oareford)]

My Lords, I think that the House would like to hear from the noble Lord, Lord Pearson, first.

[Lord Pearson of Rannoch]

My Lords, I am grateful to the noble Lord. Do the Government agree with the think tank, Open Europe, that only 46% of EU aid reaches really poor countries compared with 74% of our own aid? Have the Government worked out the cost of churning our aid through Brussels? Are we really incapable of controlling it all ourselves?

[Baroness Northover]

I have just given an answer saying that the EDF is very poverty-focused. What the EU is doing is looking somewhat wider, but that is a worthwhile project as well.

[Lord Collins of Highbury]

My Lords, DfID’s own multilateral aid review published in March last year rated the European Development Fund and ECHO among the top performers. It also identified clear reform priorities in order to demonstrate results and deliver greater value for money from the UK aid that is channelled through the EU. Can the Minister provide an update of the department’s assessment of the EU’s progress on achieving those reforms?

[Baroness Northover]

DfID is closely engaged in this area and I have met Commissioner Piebalgs a number of times. We are sure that they are heading in the right direction.

Food: Waste

Thursday 17th January 2013 Lords Chamber

Question

11:31

Asked by

[Lord Greaves]

To ask Her Majesty’s Government what is their response to the Institute of Mechanical Engineers report Global Food: Waste Not, Want Not.

[The Parliamentary Under-Secretary of State, Department for Environment, Food and Rural Affairs (Lord De Mauley)]

My Lords, we are grateful for this contribution to the debate on food waste and agree that too much food is wasted. The waste review sets food waste as a priority, giving the Government’s commitment to tackle it by focusing on waste prevention. The Government are working through agreements with food retailers, manufacturers and the hospitality sector to reduce food waste, and we are helping households waste less and save money through the Waste and Resources Action Programme’s “Love Food, Hate Waste” campaign.

[Lord Greaves]

My Lords, this excellent report highlights the fact that around the world, somewhere between a third and a half of the food that is produced is not eaten. Is that not a shocking example of inefficiency within the capitalist free market system? Is it not time that the Government took the issue far more seriously by getting together with producers, distributors and retailers in this country so that we do not just hope that consumers will behave better, but actually do something about it?

[Lord De Mauley]

My Lords, my noble friend would not necessarily expect me to agree with every word he has said. Our key tool for diverting waste, particularly food waste, from landfill is the landfill tax. On top of that we have the “Love Food, Hate Waste” campaign aimed at households, the Courthauld commitment, and the Hospitality and Food Service Voluntary Agreement that is operating successfully with retailers, manufacturers and caterers. We have the AD Loan Fund, and WRAP provides evidence and advice on food waste. Under the waste review in which we have committed to move food waste up the hierarchy and away from landfill, with waste prevention a priority, we are exploring incentive arrangements and working with local authorities, businesses and others to make it easier for businesses and households to manage their food waste better.

[The Countess of Mar]

My Lords, most food waste is generated by households. Does the noble Lord agree that food is too cheap in this country? If it cost the price of production in most cases and thus gave farmers a bit more of a profit, householders—housewives, perhaps—who prepare food would be more careful about wasting it.

[Lord De Mauley]

My Lords, I would not wish to see anything in the way of increases in food prices for consumers. I think that that would be going too far.

[Baroness Jenkin of Kennington]

My Lords, what are the Government’s plans for phase 3 of the Courthauld commitment, given that Courthauld 2 expired in December? Will phase 3 learn from the phase 2 target of a 5% reduction in supermarket food waste, which was exceeded after only the second year, indicating that the initial target was somewhat unambitious?

[Lord De Mauley]

My Lords, the waste review commits us to exploring the potential for a successor to Courthauld 2. The UK Government are working with WRAP and current Courthauld signatories and trade bodies to determine the best way forward following the completion of the second phase of the Courthauld commitment and the agreed outcome will aim to build on the significant progress made so far. As I say, the agreed outcome will build on progress and it is anticipated that we will launch Courthauld 3 in the spring of this year.

[Lord Grantchester]

My Lords, under the Waste Strategy 2000, the Government have strict targets for recycling household waste. By 2020 the amount of biodegradable municipal waste for landfill must be reduced by 35% of the amount produced in 1995. Do the Government have plans to go further, such as a ban on all food waste to landfill?

[Lord De Mauley]

No, my Lords. We do not plan to ban all food waste to landfill. However, we are making significant progress and we will continue to make significant progress—building, I may say, in a spirit of friendliness, on progress made by the previous Government.

[Baroness Knight of Collingtree]

My Lords, do these strictures apply to horse meat?

[Lord De Mauley]

My Lords, that is a bit wide of the Question. However, on the subject of horse meat, consumers should have confidence that food is exactly what it says on the label. There are strict rules requiring products to be labelled accurately.

[Lord McConnell of Glenscorrodale]

Surely the most significant impact that could be made here is not through regulation or changing the capitalist system, but by changing the behaviour of consumers. The ridiculous overuse of “best before” dates and the ridiculous dominance of almost perfect-looking potatoes, apples and other forms of vegetables and fruit in our shops, make the most significant contribution to the waste in every home in the country on an everyday basis, at a time when people are starving elsewhere in the world.

[Lord De Mauley]

I find myself in almost complete agreement with the noble Lord. First, I agree with him that compulsion is not the sensible way forward. On the specific issue of sell-by dates, on 15 September 2011 we published date-marking guidance that will help ensure that dates are applied consistently, making it easier for consumers to understand. “Use by” or “sell by”, labels should be used only where the safety of food cannot be guaranteed after that date. Most other foods should have a “best before” date only to indicate when the food is no longer at its best but is still safe to eat. We are seeing date-marking meet the guidance; for example, more labels are starting to drop the confusing “display until” dates that are only for stock rotation.

Business of the House

Thursday 17th January 2013 Lords Chamber

Timing of Debates

11:37

Moved by

[Lord Hill of Oareford]

That the debate on the motion in the name of Baroness Hollis of Heigham set down for today shall be limited to three hours and that in the name of Lord Smith of Leigh to two hours.

Motion agreed.

Standing Orders (Public Business)

Thursday 17th January 2013 Lords Chamber

Motion to Approve

11:37

Moved by

[Lord Hill of Oareford]

That the standing orders relating to public business be amended as follows:

Standing Order 73 (Joint Committee on Statutory Instruments)

In Standing Order 73(1), after “Human Rights Act 1998”, leave out “and”; and after “Regulatory Reform Act 2001” insert “, any draft order laid under or by virtue of section 7 or section 19 of the Localism Act 2011, and any draft order laid under or by virtue of section 5E of the Fire and Rescue Services Act 2004”.

Motion agreed.

Electoral Registration and Administration Bill

Thursday 17th January 2013 Lords Chamber

Order of Consideration Motion

11:38

Moved by

[Lord Wallace of Saltaire]

That the amendments for the Report stage be marshalled and considered in the following order:

Clause 1, Schedule 1, Clause 2, Schedule 2 Clauses 3 to 5, Schedule 3, Clauses 6 to 13, Schedules 4 and 5, Clauses 14 to 27.

[Lord Wallace of Saltaire]

My Lords, I beg to move the Motion standing in my name on the Order Paper.

[Lord Forsyth of Drumlean]

My Lords, I know that the House has agreed to consider the Report stage and Third Reading on the same day, but could I ask my noble friend why it is assumed that no Peer will have anything to say which requires consideration by Ministers during the moving of these amendments? Could he tell us what is the urgency that has required both remaining stages to be carried out on the same day?

[Lord Wallace of Saltaire]

My Lords, the Electoral Commission is anxious to have sufficient time to make sure that the transition to the new electoral system takes place on the set date. We are all of us, on all Benches in this House and in the other place, I think, concerned to make sure that the transition to individual electoral registration results in as complete and accurate a register as possible. For that purpose, the sooner this Bill passes and becomes an Act, the better.

[Baroness O'Cathain]

My Lords, does that mean that the demands of time for the Electoral Commission are more important than the demands of time for us to make sure that what we decide on is the right way of tackling this Bill?

[Lord Cormack]

Further to that, my Lords, could the Electoral Commission be gently told that it itself should not procrastinate as much? We were debating an issue yesterday where the Electoral Commission has taken so much time that we were not able to consider its recommendations on the Scottish referendum question because those have not yet been made. What is sauce for the goose is sauce for the gander.

[Lord Wallace of Saltaire]

My Lords, in the process of considering this Bill I have met quite a large number of electoral registration officers. They are a subculture that works incredibly hard during electoral campaigns. I have real respect for what they do and how hard they work at the local level. We all have to recognise that getting this right, and improving the declining accuracy and the incompleteness of the current register as we move towards a different one, is a very important goal which we share across all political parties and Benches in this House.

Motion agreed.

Taxation: Families

Thursday 17th January 2013 Lords Chamber

Motion to Take Note

11:41

Moved by

[Baroness Hollis of Heigham]

That this House takes note of the impact on families of changes to tax and benefits.

[Baroness Hollis of Heigham]

My Lords, when in the 1830s the Tory, Lord Shaftesbury, sought to limit child labour, mill owners insisted it was essential to the economy. Shaftesbury said that he refused to accept that the prosperity of Britain must depend on the labour and pain of its poorest children. The last Government lifted more than 1 million children out of poverty. With these cuts, some 300,000 to 400,000 children by 2015, and up to 1 million children by 2020, will now slide back down the snake into absolute poverty. I refuse to accept—the whole House will refuse to accept—that poor children must be made poorer still, so that the rest of us can, in time, become more prosperous.

Individual cuts seem modest, until you add them up. Can the noble Lord, Lord Freud, tell us whether the Government have published a cumulative analysis of the cuts since 2010? In its absence, I have tried. I especially thank Sue Royston of Citizens Advice and Howard Reed of Landman Economics for working through the statistics and the weekends, although any errors are of course my own. Let us remind ourselves that the Government froze the value of tax credits and child benefit, changed the taper rate, reduced the childcare component and, for some 200,000 families, increased working tax credit hours, which may cost them £40 to £50 a week on top. Next came the benefit cap, which hit families, especially in London, although my city of Norwich has 100 families affected by it. Housing benefit was reduced from 50% to 30% of private sector rents, so many now face serious shortfalls in local housing allowance; as do those facing the bedroom tax on alleged underoccupancy. From April, perhaps a quarter to one-fifth of working-age tenants of the housing association that I chair face HB cuts of £12 to £15 a week, as they have nowhere else to go.

Also in April come the localised council tax benefit cuts. Families who had not expected to pay council tax now face a poll tax of £5 or more a week. Benefit rises are to be capped at 1%. The bottom one-third of households will lose almost £5 a week as well as £15 per week, effectively, by 2015. The change from DLA to PIP will probably remove the lower-rate care element, worth around £20 a week, as well as making changes to carers’ benefits—all this before the arrival of universal credit, which will cut disabled children’s benefit from £58 a week to £27 a week. I could go on.

What is the overall impact? In my city of Norwich, which has a population of 135,000, these cuts will take £35 million a year from our poorest citizens and out of our local economy. What is the impact on families? By 2015, the poorest one-fifth of our people will have lost up to £2,000 a year. The more vulnerable families—those with younger children, or three or more children, in poor health, in poor housing or with disabilities—will suffer even greater cuts, of £40 to £60 a week, alongside, of course, severe cuts in public services. Take a working husband—a security guard on minimum wage—his wife, two children of three and six, living in, and now defined as underoccupying, a three-bedroom, £100-a-week council house. Citizens Advice calculates that whether he is in full-time work with in-work benefits, or loses his job and is fully reliant on benefits, either way that family will, by 2015, be losing £30 to £35 a week, even taking into account the tax changes. If the younger child, say, is disabled, they will lose £40 a week by 2015. If, however, by 2015 that family is on universal credit, they will be losing £50 a week if in work, and nearer £65 a week—unbelievably—if he is unemployed.

Why are the Government doing this? The Tories think it necessary and perhaps desirable. The Liberal Democrats, I think, find it necessary but perhaps regrettable. Their argument goes—I will list it and try to address these points—first, the welfare cost is unsustainable; secondly, it is creating welfare dependency; thirdly, welfare has to be cut if we are to cut the deficit; fourthly, it is not right that pay be limited to 1% while benefits rise at CPI; and finally, in any case, the rise in tax allowances offsets all this.

A fair summary, I hope, of Government views. Every point is false; every one. First, the welfare bill is not unsustainable. According to the DWP’s former chief economist, benefits took 12.5% of GDP under John Major in 1994, with 8% going to working age households. As of January 2012, benefit spend fell to 10.5% of GDP with only 5% going to working-age people. The driver of benefit spend is simply more pensioners getting better pensions. I welcome that, but poor children should not be made poorer to pay for it.

Next, in the Telegraph a fortnight ago Mr Duncan Smith asserted that tax credits and benefits created welfare dependency, when he knows that they make it possible for families to live on the same wage as that paid to a single man. A single parent, a Telegraph reader from Amersham in Buckinghamshire, wrote back on 3 January that she had brought up 3 sons while working part-time. Two are now at university and she is about to go into full-time work. She concluded:

“I object to Iain Duncan Smith’s suggestion that tax credits have made people lazy dependants who rely on hand-outs ... the tax credit has been a life saver”.

His welfare dependency; her life saver. His smear; her experience. I know whom I believe.

Next, the Government tell us that we have to cut welfare to cut the deficit, otherwise, it will be nurses and teachers—the usual rhetorical flourish. It is a matter of policy choices. It always has been and always will be. I will offer mine, although they are not necessarily those of the Labour party. While private pensioners enjoy more than £30 billion a year of tax relief, two-thirds of which goes to the better-off, while we cap the upper earnings limit, which saves higher rate taxpayers £11 billion a year, while we refuse—as my noble friend Lord Campbell-Savours has reminded me—an ad hoc Lords committee, urged by my noble friend Lord Myners, on tax-avoiding personal service companies, and while millionaire earners see their tax rate fall to 45p at a cost of £3 billion, I think that there is money from those who can afford to pay.

Fourthly, we are told that as pay is limited to 1% so must benefits, which since 2007 are outpacing pay. Until 2007, earnings outpaced RPI benefits. Why else did pensioners demand that the state pension be linked to earnings not prices? Yes, since 2007, during the recession earnings have fallen behind inflation. Does that mean that we reduce benefits so that they do not keep pace with inflation either? In any case, it is a false contrast because many families with 1% pay increases also rely on tax credits, housing benefit or council tax benefit for a living income.

As the Child Poverty Action Group has said, this child is poor not because its mother is a lone parent but because she is a cleaner; this child is poor not because its father abuses drugs but because he is a security guard. Five million people are paid less than the living wage. Two-thirds of those benefits cited by Mr Duncan Smith go to households in work to ensure that work pays, as we all wish to see. However, to make the unemployed poorer, the Government will make all the working poor receiving benefit poorer as well. One despairs.

Finally, the Minister may say that raising the tax threshold significantly is the best way to support low-income working people—except that it really is not. Very many of the working poor are below the tax threshold, and others—the full-time cleaner or the security guard on the minimum wage—keep only 15% of that alleged gain because means-tested housing benefit and council tax benefit taper away 85% of the increase in tax allowance, and then the other cuts pile in.

Every justification used by the Government for these benefit cuts is untrue—every single one. If, in a final throw, the Government say that the public support them, that is because the Government, with the aid of some of the press—none of whom, I suspect, will experience these benefit cuts themselves—have peddled the view that the poor must become poorer to save the rest of us.

Do the Government know or care what damage they are doing as they finger the vulnerable, the fragile, the poor, the soon to be underemployed, the soon to be unemployed, the soon to be in severe debt, the soon to be evicted—and, yes, the soon to be hungry—and encourage those who are themselves just a rung or two up the ladder, also struggling, to blame not those above them, bankers and the like, but those below them for their struggle? That is ugly, cynical, and utterly indecent.

We must all refuse to use this language of welfare, with its dark shadows of handouts and dependency, stigma and scroungers, failure and fault. When we founded the NHS we also built social security—the roots of which go back to Lloyd George—the insurance of the social contract we make each with each other; a network of mutual social obligation. We pay in, and in need, we take out, as is our right.

It is social security. I calculate that two-thirds of our £205 billion social security spending is likely to come back to each of us in our own lifetime: when we have children, when we are sick and, above all, when we draw our state pension. It smoothes the volatility of our working lives, as it should.

Only a third of social security spending goes in means-tested benefits, perhaps to relieve other people’s hardship; two-thirds will come back to us, as payments on our insurance paid—exactly as you would hope and expect from a contributory social security system based on entitlement, alongside a decent safety net for those in hardship, which could so easily have been any of us in the past.

Let us reframe the debate: it should not be about welfare and dependency, strivers and shirkers—such morally ugly language. It is about social security, contribution and entitlement. When I look around my former council ward in Norwich I see children unable to go on school trips, mothers missing lunch to feed their children an evening meal, women pawning their engagement ring to pay for school shoes. I see a middle-aged couple who have not eaten for two days arriving at my local food bank. I see families fearful that as they cannot afford the rent of their council home from April they may become homeless—and the worst cuts are yet to arrive.

I ask this House today, how many of us here have suffered any cuts? As a comfortably-off pensioner I have not suffered a penny of cuts—and so I will not accept that it is right that poor children should be plunged deeper into poverty to spare all of us; that middle-aged couples should resort to food banks to spare us; that families unable to pay their rent because of underoccupancy should face eviction to spare us. We are not entitled to ask the poor and their children to carry these cuts for our benefit. It is profoundly wrong and I am ashamed.

11:55

[Baroness Jenkin of Kennington]

My Lords, rising to speak after the noble Baroness, Lady Hollis, who is so well known for her knowledge, expertise and experience in this area, I feel a bit like a young and very inexperienced First World War pilot up against the Red Baron, or perhaps the Red Baroness in this case. However, like other noble Lords, I am of course grateful to her for the opportunity to participate in this debate.

Let us take a moment to look at why the Government are having to take these steps. When the coalition came into office in 2010, the country’s tax and benefit system urgently needed reform precisely because it was failing families, especially families headed by couples, and let us remember that such families are still in the majority.

I will start by putting my remarks in context with that great reformer of the mid-20th century, the architect of the welfare state itself, William Beveridge. His blueprint for social reform anticipated the enormity of the post-war social challenges and showed a reforming Government how they could rise to them even in the hardest economic times—then, as now. It is worth remembering that his appeal to conservatives and other sceptics was to argue that welfare institutions would increase the competitiveness of British industry in the post-war period, not only by shifting labour costs like healthcare and pensions out of corporate ledgers and onto the public accounts, but also by producing healthier, wealthier and thus more motivated and productive workers who would also serve as a great source of demand for British goods.

Yet by the end of the first decade of the 21st century we had become a nation that was dependent on benefits to a degree that would have astonished and possibly horrified Beveridge, so concerned was he in his later life that the state might have replaced the welfare society where people anticipated, gave, and received mutual help. We had created a veritable tax credit culture that had been fostered by the party renowned for tax and spend. By 2011, nine out of 10 families were receiving some form of subsidy from government over and above child benefit. Families earning over £50,000 a year were able to apply for a top-up in the form of child tax credits, yet even the most numerate stock broker or accountant found themselves unable to work out exactly how they were calculated. For those families, that might have meant a degree of uncertainty about whether it was worth while for a second earner to pursue a part-time job which in turn might have meant the tax credits were all tapered away. But that is nothing in comparison to the abject fear in much lower-earning families that changes to earnings might lead to demands for massive repayments.

Our benefits system was at breaking point under the weight of the confusing complexity of 51 different benefits, withdrawn at different levels. At the end of many years of economic growth, prior to the recession, 5.4 million people were claiming out of work benefits. Many had done the sums and did not consider it worth their while to work as they would struggle to earn as much as they were entitled to on benefits. DWP figures from 2010 show that despite 2.4 million households receiving working tax credit, 35% of families stayed in poverty when a parent entered work.

A significant couple penalty was also a feature, making it much harder for single-earner couples, who might have several young children, to work their way above a somewhat arbitrary poverty line than a single parent. The level of fraud was such that lone-parent claimants exceeded actual numbers in the country by an estimated 200,000. Fathers facing a general slump in blue collar wages, a situation exacerbated by many employers understanding that the Government would top up the little they were willing to pay, often perceived that the mothers of their children would be better off living separately from them.

Researchers at the University of Essex found a spike in the divorce rate of a staggering 160% among families where working families tax credit made it distinctly financially advantageous for a woman to part company with a low-earning or non-earning husband. That is why universal credit has been designed to ensure that people will be better off in work, to make work pay, to simplify an eye-wateringly complex system and reward responsibility, with couples raising children together and sharing the daily load, fathers and mothers willing to work extra hours to improve their families’ lives, not expecting the taxpayer to do that for them. Let us face it, in most cases, they were and are the taxpayer.

Turning to the tax system, I strongly support my party’s pro-marriage credentials and the introduction of the transferable tax allowance for married couples. This would be a popular first step towards rebalancing our tax system so that it is fairer to single-earner families. The organisation Care found that the tax burden on one earner couples with two children is a staggering 42% higher than the OECD average. We are among a small minority of countries in Europe which do not recognise interdependence within families but instead tax on an individual basis.

The tax burden on couple families is why the respected Institute for Fiscal Studies found that increasing the personal tax allowance helps richer families most, where both parents are more likely to have jobs that enable them to take full advantage of tax-free earnings, while transferable tax particularly benefits families at the poorest 20% level. Enabling a low-earning or non-earning spouse to transfer some or all of their personal allowance to their other half sends the vital signal that this Government understand that it is not always desirous or in the best interests of families for both parents to be working. It is not only Conservatives who believe this. Towards the end of her time as Trade and Industry Secretary, Patricia Hewitt admitted in an interview to the Daily Telegraph that new Labour had done a disservice to families by assuming that having both parents in continuous work should be the goal. She said they had belatedly recognised that inadequate recognition had been given to what matters to people most—their families and relationships. She said:

“If I look back over the last six years I do think that we have given the impression that we think all mothers should be out to work, preferably full time as soon as their children are a few months old … We have got to move to a position where as a society and as a Government we recognise and we value the unpaid work that people do within their families. That’s mothers but also fathers and people looking after elderly relatives or people with disabilities”.

I do not suppose that my noble friend the Minister could have put it better himself.

In summing up, I must reiterate that while those who need it should of course continue to receive support, welfare reform is vital for this country so that we stay competitive and support and encourage people’s aspirations to work, setting the right example to their children by paying their own way and avoiding dependency. This Government have grasped the nettle, not despite economic hardship but because our financial circumstances highlighted how urgent was the need for reform.

Child benefit changes have not been carried out in a seamless and sensible way—there is no getting away from that charge—but again we have to face up to the realities. We are in an economic quagmire. Giving more than £1,000 to every family, however wealthy—and that is just for a first child—is unsupportable. However, it is also untenable that single-earner families on incomes a little over the threshold set by the Government quickly lose everything when they are already being hammered through the tax system.

If we really want to support families in need, we must prioritise the most vulnerable, particularly the disabled, as the Secretary of State and my noble friend the Minister have pledged to do. We should do absolutely everything possible to make work pay, recognising that, if wages are not rising, it cannot be right to keep pumping in government subsidy in a way that will let employers off the hook and make it even more difficult to imagine life without benefits.

12:04

[Lord German]

My Lords, I pay tribute to the noble Baroness, Lady Hollis, for securing this debate today. I do not think anyone in your Lordships’ House does not understand her dedication to these issues. Without wanting to trade figures with her—which is obviously a dangerous trade and I will not upset some of the interpretations she places on those figures—it is, of course, important that your Lordships hear the sort of scrutiny that she brings to these issues. The noble Baroness has secured a full debate on a very important matter for the House to consider.

I am pleased to have this debate, especially as it ranges over the benefits and tax systems together. They are inseparable in any discussion of welfare issues in our country. This Government’s actions in this area have been a mix of major policy changes—some on a very large scale—coupled with the need to reduce the budget. That is a difficult balancing act, but the Government have done well to shift the policy agenda at the same time as having to make sharp reductions in public expenditure. It is worth remembering that if you take the relevant tax and benefits expenditure together, the total welfare bill of this country represents nearly £1 in every £3 of public expenditure. That is more than the total expenditure on health, education and defence added together across the whole of our country. Therefore, it is impossible to escape the need for cost reduction in the welfare bill in our deficit-burdened country.

I wish there was greater political honesty around this matter. It was certainly not helpful when, a couple of weeks ago, the Labour Front Bench in the House of Commons outlined a new idea to divert funds from pension tax relief to a jobs guarantee. In an earlier announcement, Labour had already allocated that same money to reversing changes to tax credits. This does no credit to politicians in general or to debates on these issues. The fiscal burden is a reality that cannot be escaped.

Nevertheless, it is pleasing to note that in the Autumn Statement we were able to reduce the hit on the overall welfare bill. There was much talk of the need to make a reduction of £10 billion; indeed, it was frequently talked about in debates in your Lordships’ House. The eventual reduction figure announced was much less: £3.8 billion. Even so, it still requires tough and difficult decisions. Any reductions in the welfare bill have to be fair and proportionate. When money is tight, spreading the impact over a large number of people who lose a small amount of money is fairer than targeting specific groups for larger cuts. The average loss from the changes made in the Autumn Statement will be in the region of £3 a week.

I am pleased that the Government have reduced the hit on the bill and, in particular, avoided some of the more unpleasant proposals put forward in the lead-up to the Autumn Statement. Those aged under 25 will still be eligible for housing benefit, benefits will not be frozen and families will not have their child benefit capped if they have more than two children. It is also clear that the 1% cap is a temporary measure. However, the most beneficial change, which comes in from April this year, is the increase in the personal tax allowance. The amount earned before paying tax increases from £8,105 to £9,440. That is the largest real-terms increase in the personal allowance for 30 years. It will give the average worker an increase in their pay of nearly £600, and—of particular relevance to this debate—59% of the 2.2 million people taken out of tax altogether from April will be women. This is a much more effective and efficient way of putting money into people’s pockets than the hand-back system of tax credits.

The tax credits system is so complex that it led to more than £10 billion in fraud and error. From this April, the changes will benefit 23 million workers in our country but not the 1.8 million of our richest people who will pay more as a result of the changes. Someone working full-time on the minimum wage will see their income tax bill cut in half compared to what it was under the previous Government. It is getting fairer but I hope the Government’s ambition is that no one on the minimum wage should pay income tax at all. I very much hope that the Government will go further in this direction.

Our welfare system provides the safety net. Any decent society must do this but I believe that it should do more. It should help those people who are able to improve their lives and their life chances. Giving people a helping hand to do better is also a key role for a modern welfare system. That is why trapping people in a benefits culture is a bad idea. It offers no solutions and no way out for those who are able. The hand-back tax credit system has had the impact of increasing reliance on state support instead of providing an increase in personal confidence and self-reliance. Taking away tax first is the way that we should proceed, which is what this Government have been doing. People will not have to hand it back; they will see their money in their pocket.

The complex mix of benefits and tax credits created by the previous Government has meant that far too many people are not better off in work. Changing that aspiration and making sure that people are better off in work is the great hope that I am sure your Lordships’ House shares for universal credit. Working for just a few hours a week will mean that you are better off. I should be grateful if the Minister would give this House an update on progress towards implementation of universal credit so that we can see how all this will come into effect this year.

One of the tricky issues that universal credit brought forward was that of childcare under a universal credit system. Since universal credit will give an opportunity to bring more people into a system of balancing their tax and benefits together, it will obviously be received by more people. Spreading the same amount of money across more people could mean a reduction in the amount of childcare funding that would be provided. I was very pleased that the Government managed to find an extra £300 million in order to bridge some of that gap.

The difficulties that we face with funding mean that the levers within the future system should allow for more incentive to be provided within it. I know that the Minister shares the ambition that the taper rates should be such that people should be able to keep more in years to come. I hope that he might also comment on that when he responds to this debate.

I very much agree with the noble Baroness, Lady Hollis, about language. Care must be taken over the language that we use in all these issues. Stigmatising people by language and by the difference and distinction between those in work and those out of work does not aid encouragement and support for improvement in people’s quality of life. The fact is that the vast majority of people want to work and are working hard in order to do so. More than half the people who claim jobseeker’s allowance do so for six months or less. I am afraid that both sides of the political divide have been guilty of this sort of rhetoric. I hope today that your Lordships can agree that this distasteful practice must end.

In conclusion, I give two examples of how, if the universal credit system works as we all hope it will, it will lead to change for families in our country. A typical one-earner couple with two children who are renting will be £761 better off under universal credit if they come into the system this year. I wonder whether that is a sign that the change we bring will support families. A one-earner family with an income of £20,000 and two children will gain £223 from the personal allowance increase. They will obviously lose tax credits of £150 and child benefits of £39, but under universal credit they will still make a net gain of £34. When my noble friend sums up on the ambitions for universal credit, could he support these examples and show us that universal credit will make sure that work will always pay and families will always be better off?

12:15

[Baroness Pitkeathley]

My Lords, I feel privileged to speak in this debate introduced by my noble friend Lady Hollis, who, in a very fine speech, spoke with her customary forensic skill and passion. I am very glad to have the opportunity to focus on those families who have caring responsibilities. I believe that the cumulative impact of the changes to social security, taken together with the cuts in social care services, has not been adequately assessed.

Let us look, first, at the number of caring families. The census statistics published last week show that the number of carers has risen by 11% since the last census in 2001, bringing the total in England and Wales to 5.8 million—a rise of nearly 600,000 carers. That means that across the United Kingdom there are now an estimated 6.5 million carers, and the value of the carers’ support has been estimated by Carers UK as being £119 billion every year. I make no apology for quoting that statistic for the second time this week in this Chamber.

Carer’s allowance, the main carer’s benefit, is already the lowest of its kind. At £58.45 a week, it leaves many carers in financial hardship as a result of the reduced earning power and higher living costs associated with disability and ill-health. A survey of more than 4,000 carers in 2011 showed that 45% of carers are cutting back on essentials such as heating or food; four in 10 are in debt as a result of caring; and the stress of money worries and other stresses associated with caring mean that the health of one in two carers is severely affected. I quote one carer:

“We have suffered financial hardship so bad it is unreal. Before I became a carer I worked for many years. I believe that I paid all my dues. Today a carer is made to look like a scrounger. I feel every time you speak to one of the agencies that are supposed to help us and be understanding they somehow try to make you feel ashamed of yourself”.

According to new government impact assessments, while 510,000 people will receive a higher award following the introduction of the personal independence payment, by 2018 an estimated 607,000 fewer disabled people will be entitled to support. Given the link between carer’s allowance and DLA and the PIP, this risks a knock-on impact of 23,000 fewer carers being entitled to receive the carer’s allowance. DLA acts as a gateway to carer’s allowance but this will not be replicated in the PIP. The government impact assessment shows that by 2018 there will be a 10% reduction in the number of disabled people in the groups which act as a gateway to carer’s allowance.

The impact assessment in May 2012 said that the reforms would,

“not affect the overall size of the Carer’s Allowance population or the level of expenditure on the benefit”.

However, this appears to be inconsistent with such a substantial reduction—as I have quoted—in the number of disabled people in the carer’s allowance gateway groups concerned with the PIP and the DLA. A third of people entitled to carer’s allowance are entitled to the benefit because they care for someone on middle or higher-rate DLA.

Should the carer’s allowance caseload follow the pattern of reduction in PIP spending, we would perhaps expect to see a fall of 34,600 in the total caseload of those entitled to carer’s allowance and a fall of 23,800 in the number of those in receipt. It is very frustrating that the lack of a full impact assessment means that we cannot reconcile the apparent inconsistency between the projected fall in the DLA and PIP caseload and the suggestion by the Minister and others that the carer’s allowance will be unaffected. The latest impact assessment, I am sorry to say, simply states that the Government are,

“continuing to analyse the impact on certain passported benefits and schemes, including Carer’s Allowance”.

This is quite unacceptable given that implementation will be with us in April this year. Therefore, I must ask the Minister: when will the Government publish a full assessment of the impact on carers of the introduction of the PIP, including an assessment of the impact on the projected carer’s allowance claimant count compared with projections if DLA were to continue? This seems to be inconsistent with government policy on the benefit cap. The Government have said that the cap is intended to improve work incentives, yet carers in receipt of carer’s allowance are already caring for a minimum of 35 hours a week—many of them for 50 hours or more—so it would be impossible for many to juggle work with heavy caring responsibilities.

The benefit cap is also meant to promote behaviour change and discourage long-term benefit claims. However, in his response to an amendment at Report stage of the Bill in the Lords, the Minister said that,

“one thing we are not looking to encourage is a change in the carer's behaviour so that they stop caring. That is absolutely not where we want to go”.—[Official Report, 23/1/12; col. 892.]

I think that most of us would say amen to that.

The Secretary of State for Work and Pensions stated, when he introduced the Bill in the Commons, that the benefit cap was,

“a matter of fairness, so that those who are working hard and paying their taxes do not feel that someone else will benefit more by not playing a full part in society”.—[Official Report, Commons, 9/3/11; col. 922.]

I suggest that if this cap is designed to be fair to individuals who are working hard and playing a full part in society, it cannot be right that it applies to carers—the very epitome of the big society.

The cap is also designed to apply to workless households, a description which carers would find insulting, given the level of their workload, and inaccurate, given that carers in receipt of carer’s allowance are, as I have said, already providing a minimum of 35 hours’ care a week. Each one is saving the state an average of more than £18,000 a year with the unpaid care they provide for loved ones. Surely it is deeply unfair to apply the cap to carers, given their contribution to society. It seems to me that doing so sends out a very negative message about the value that the Government place on caring. Indeed, the cap may ultimately act to disincentivise those who willingly and lovingly take up caring for their families, and it may in the future lead to family finances collapsing and caring becoming financially untenable. It is a great pity that, in spite of the valiant efforts of many of my colleagues, the Government did not accept the amendments on this issue tabled on Report and at other stages of the Welfare Reform Bill.

I turn to the bedroom tax, which will also have a severe impact on certain groups of carers. They may be unable to cover the shortfall and be forced to move—for example, where one member of a couple has a disability and the couple cannot sleep in the same bedroom or where an extra room is needed for equipment. Families who have spent considerable amounts of their own money making suitable adaptations to their homes may also be forced to move. This would not only be distressing for families and disruptive to care arrangements but could risk a greater long-term cost as adaptations will then be needed in their new homes.

As regards changes to council tax benefit, carers will be affected differently depending on the scheme adopted by their local authority. I am happy to say that some councils are proposing to recognise carers as a vulnerable group but others are not. Carers may face substantial reductions in the support that is available to help meet council tax bills. This, again, is inconsistent with the aims of the policy to improve work incentives. The Government have made it clear that they do not wish to force carers to give up caring and return to work. I have already quoted the Minister on that. However, if carers are unable to increase their income through work, reductions in support with council tax bills will only put them under further financial pressure.

In summary, I very much fear that all the changes will seriously undermine carers’ ability to care for older and disabled loved ones and will push families to breaking point, with serious long-term consequences for family life, health and social care services and, indeed, for our wider society. That makes neither moral nor economic sense.

12:24

[The Lord Bishop of Exeter]

My Lords, I too thank the noble Baroness for securing this important debate. There is much I could say, but in the time available I shall look particularly at the experience of one-earner couple families in the context of recent child benefit changes and our tax system in general. Before doing so, I make two crucial points about one-earner families in general.

First, one-earner families are often families where a couple has made a deliberate decision to sacrifice having a second salary so that one parent can be at home for the children. The stay-at-home parent in such a family performs an important job, investing in their children’s development which can save the state significant amounts of money to the extent that it helps the children in question develop into adults who are more likely to fulfil their potential and make a net contribution to society. The social science evidence is very clear about beneficial child development outcomes by every benchmark. In the context of all the concerns about “Broken Britain”, this is an important consideration. Such families should be valued and supported rather than penalised.

Secondly, the DWP’s own figures show that most one-earner families have good reason for being one-earner couple families. Figures derived from the 2010-11 DWP family resource survey demonstrate that well over half—61%—of all one-earner couple families have either a child below five, someone who is disabled or someone with caring responsibilities. So the majority of one-earner families are one-earners out of necessity rather than by choice. This is extremely important because, as we have already heard, there are those who give the clear impression that one-earner families should not be helped because all stay-at-home parents should get paid employment. This is a deeply misguided view that has no regard for the constraints that one-earner families operate in, the sacrifices they make and their significant contribution to the national well-being.

I now turn to the recent child benefit changes that took effect last week. While no one wants to pay tax, we accept that it is necessary for the common good. For any tax to be sustainable, it is vital that it is fair and is seen to be fair. However, that is not the effect of the higher-income child benefit charge. Under the charge, a one-earner couple begins to lose its child benefit at £50,000 and loses it completely at £60,000, while the two-earner family next door has the potential to earn up to £100,000, so long as neither income rises above £50,000, and keeps all its child benefit up to nearly £120,000, so long as neither income reaches £60,000, before losing it completely. This is not a small unfairness. It is very significant.

On 6 January the Prime Minister argued on the “Andrew Marr Show” that the higher-income child benefit charge was fair because it is right to ask the top 15% of the country to make a greater contribution during difficult financial times. That would be entirely defensible if the higher income child benefit charge really were to have this impact but it does not. The social policy charity CARE has released figures that help to put the problem in focus. A one-earner couple with four children on £50,000 is already in the least well-off half of the population, with a higher net income than only 45% of the population. The removal of child benefit will push it even further down the income distribution. A one-earner couple with three children on £60,000 and in receipt of child benefit is just in the seventh decile, but will drop well into the sixth decile if child benefit is removed. Meanwhile, a two-earner couple with two children on the same wage will be well up in the eighth decile and keep its child benefit. Thus, not only will the higher income child benefit charge impact one-earner families in the lower half of the income distribution, two-earner families right towards the top of the income distribution—in the eighth decile—will keep their child benefit. If this is fair, it is a very odd definition of fairness.

The unfortunate impact of the higher income child benefit charge must also be seen in the context of an appreciation that even before the charge took effect our tax system already gave one-earner couples a very rough ride and continues to do so. As the noble Baroness, Lady Jenkin, has pointed out, the latest available OECD figures demonstrate that the tax burden on one-earner married couples on an average wage in the UK and with two children is 42% greater than the OECD average. In this context the higher income child benefit charge is particularly unfortunate. Once again, CARE has released figures that illustrate the problem. At the moment one-earner couples already pay far more tax than two-earner couples with the same income, largely because they access only one tax allowance rather than two. A one-earner couple with two children with an income of £60,000 pays income tax of £13,950. A comparable two-earner couple, each earning £30,000, pays £8,768. After the HICBC is added, the one-earner couple’s tax bill rises to £15,667. This is £6,899 more than that of the two-earner couple. Put another way, a one-earner family with two children and on an income of £60,000 already pays 60% more tax than a comparable two-earner couple, each earning £30,000. With the introduction of the HICBC, the one-earner couple will pay 80% more tax. The charge will increase the one-earner two-child family’s annual tax bill by £1,717. Over the lifetime of the children, if child benefit is claimed for each child up to the age of 18, this represents a £30,000 increase in the family’s tax bills.

There is an extraordinary irony in all this. Prior to the general election, the then Leader of the Opposition talked at great length about his commitment to helping one-earner married couples by giving them a transferable allowance. This commitment was a key part of the “Broken Britain” narrative that made it into the coalition agreement, and yet, to date, the only thing the Government have done is actually to make life much harder for one-earner couples. Some might say, “Well perhaps there has been no action because there is no money”. But that does not make sense because the Government have found literally billions of pounds to fund a huge increase in the personal allowance that the Institute for Fiscal Studies has demonstrated disproportionately benefits those in the top half of the income distribution. The transferable allowance is far more progressive as it has been shown disproportionately to benefit those in the bottom half of the income distribution.

Of course, to the extent that the introduction of transferable allowance was made as a commitment to recognise marriage, albeit only in a one-earner context, the Government’s failure to act has been rendered even more perplexing by the fact that this marriage commitment in the Prime Minister’s manifesto has received no attention, while proposals to redefine marriage that were not in any party’s manifesto are proceeding with undue haste.

I recognise that the Government’s transferable allowance commitment still stands. Given, however, that the coalition agreement pertains only to the period 2010-15, time is running out. Transferable allowances can be introduced only through Budget resolutions and it is widely appreciated that the next Budget, on 20 March, just over two months away, is the last opportunity that the Government will have to introduce a transferable allowance and have any chance of it becoming operational before the next election. I firmly hope that the Chancellor will listen and make this a priority on 20 March. I also hope that he will reflect on reforming the higher income child benefit charge so that it does indeed target only families in the top 15% of the country and that it does not discriminate against one-earner families. As I said earlier, let us not forget that most one-earner families do not have the option of becoming two-earner families, and that they make an incredibly important contribution to our national wellbeing and should not be penalised for doing so.

On 11 February 2009, Philip Hammond, the then shadow Chief Secretary to the Treasury, spoke to the Daily Express about,

“the continuing bias in the tax system against two parent families where only one adult works. No other European country penalises families in this way. If we want to end child poverty we must end this discrimination”.

12:34

[Lord Bates]

My Lords, it is a privilege to speak in this debate and I congratulate the noble Baroness, Lady Hollis, on securing it. She has an acknowledged expertise and a well deserved reputation in this area. One of the things that has been most healthy about the political debate over the past 10 years is that sometimes the debate on this whole area of welfare reform had been taking place on the left of British politics. However, the work of my right honourable friend Iain Duncan Smith, Philippa Stroud and my noble friend Lord Freud, has started a debate about a compassionate view of how welfare reform could be undertaken on the right and centre-right of British politics. That informed level of debate is overwhelmingly healthy as we wrestle with these important issues.

My first point is that the 1% benefit increase limit is the result of a desperately difficult choice that the Government have had to make in light of the macroeconomic circumstances in which we find ourselves. Had we inherited the type of economic legacy that a Government coming into office in, say, 1997, would have had, there would be absolutely no question about having this debate or being forced into a position of having to consider the types of situations that I have absolutely no doubt will bring hardship to many of the most vulnerable and poorest people in our society. Nor do I deny the veracity of the statement made by my right honourable friend the Secretary of State for Work and Pensions in the foreword to his, State of the Nation Report: Worklessness and Welfare Dependency in the UK. He said:

“Addressing poverty and inequality in Britain is at the heart of our agenda for government. It is unacceptable that, in one of the wealthiest nations in the world, millions of adults and children are living in poverty. Whole communities are existing at the margins of society, trapped in dependency and unable to progress. In these areas, aspiration and social mobility disappear, leaving disadvantaged children to become disadvantaged adults”.

That was a clear and true statement of where this Government are going. It is evidenced by one or two things.

Mention has been made by my noble friend Lord German of the macroeconomic situation. That is what is driving this review and rethinking. It is not possible for the Opposition to say with credibility that this measure is absolutely wrong when we know that welfare accounts for roughly £1 in every £3, or a third, of revenue raised. They claim that they have a credible plan for reducing borrowing and yet cannot say what they would do to reduce that level of borrowing. The noble Baroness, Lady Sherlock, is chipping in. I greatly respect her and I welcome her to her position on the Front Bench. I hope that when she responds she can give us an insight as to where in the Opposition’s view the fair way would be to apply savings to the welfare budget. We would all be interested to hear that. The veracity of the argument presented would be much stronger if those points were put forward.

It was with a great sense of irony that the current work and pensions spokesman in the other place, Liam Byrne, famously left a note on his desk in 2010, saying, “Sorry, I am afraid to say that there is nothing left”. That may well be the case. If you have nothing left, you have to make very tough choices about where savings have to be made.

There is another view that I want to challenge and that is that somehow these changes are being made in a capricious and arbitrary rather than considered way. There is no room in a society in what is one of the wealthiest nations on earth for there ever to be that type of charge levelled against a civilised government; it does not stack up. The reason is that pensions are exempt from these changes. Those pensions will be increased in line with inflation, taking the single person’s state pension to about £110 per week, which is up from about £97. We inherited that. That was a clear statement of intent. Mention has been made of carers and the importance of people who look after children, or elderly relatives. The announcement last week that there is going to be a reduction of a flat-rate state pension, at about £144 per week, is tremendously good news for those people. It is based on the principle that if people can work, they should work. In the past it has not always been the case, but it is a clear-cut choice.

A charity that I work with in the north-east of England deals with young, hard-to-reach, unemployed people. People make a calculation about benefit entitlement and whether employment will pay. Benefits may be well meant but on the matter of the cap on benefits, coming in at about £26,000 for a couple, that would require them to have an income in the region of £45,000 to be able to exist without those benefits. If that does not create dependency, I do not know what does. To say to somebody with no qualifications whatever that they ought to be able to seek a job at the level of deputy head teacher is clearly nonsense.

We must be careful about how we go about this and in saying that we do not want to create dependency. We must always make sure that work pays. That is where universal credit comes in. That says that no matter what the salary of the job that you are taking is, with a straight-line taper of 65p in the pound, you will always be better off when you work. That is a basic principle and seems to me to be good. Work is the best route out of poverty. What is most difficult in the charity is for people to get their first employment on their CV. Once they have a job they can more easily find another one and progress out of poverty. Education is a key to that and that is why education reforms are key to our drive to reduce to child poverty. These general steps can be widely welcomed.

There is room for further work to be done. This is an ongoing debate. We understand the difficult choices that have to be made, the challenges in the market and the importance of raising tax thresholds. That is another important element in making work attractive, particularly at the lowest levels—not so that people stay there but that they progress from there. Page 13, table 2A of a helpful briefing for this debate from the Institute of Fiscal Studies and provided by the Library looks at average earnings growth. Reference has been made to the historic figures, so I will not repeat them. The institute forecasts that average earnings will increase by 2% in 2012, by 3.1% in 2013, by 4.3% in 2014 and by 4.5% in 2015. That tells us that you need to make every possible effort to ensure that people get into work in order to benefit from those increases.

I leave two final thoughts for my noble friend to ponder. First, I endorse what my noble friend Lady Jenkin and the right reverend Prelate have said about recognising the importance of marriage in the tax system through a system of transferable allowances. Secondly, I remember having debates about the minimum wage. I argued vigorously that it would never work. I was absolutely wrong. The minimum wage does work. It is a very important safeguard in our society that people have a basic wage. The fact that we accept the Low Pay Commission’s increase of 1.8% is also right. When winding up, would my noble friend consider the argument that in reducing welfare dependency we need to move progressively from a minimum wage towards a living wage?

12:45

[Baroness Donaghy]

My Lords, I thank my noble friend Lady Hollis for introducing this debate and for her leadership. She keeps us all on our toes. Equally, I would like to say how pleased I am that the noble Lord, Lord Freud, is still in his place. It is nice to know that there is somebody there who understands what we are talking about, even if we do not always agree with what he says. I want to deal with the self-employed and the impact on them of draft Universal Credit Regulations 57 to 59 and 62 to 64.

Many self-employed people will not become IT moguls, business entrepreneurs or worldwide rock stars. Many are self-employed because they cannot find secure employment. They are often self-employed on building sites, because the choice is either that or no job at all. They are “white van man”. They are those who, 50 years ago, would have worked in large factories, utilities or local authorities, doing manual or craft jobs. Often, they have been failed by our education system; they are important. Many such people prefer to be independent and would never assume that they would have to turn to the state for help. It is against their natural inclinations. However, sometimes they need assistance, particularly if they have a family to support in hard times. They should be able to expect a state system that responds to their needs. I am grateful to the Low Incomes Tax Reform Group for its briefing on this subject. There have been some improvements to the rules for the deduction of expenses but the most serious objections that were raised last summer remain.

The monthly assessment requirement will mean that small businesses will draw up accounts not once but 12 times a year. The absence of any carry-forward rule will result in genuine trading losses going unrecognised. In addition, the minimum income floor does not allow enough time for a business to grow and develop. It gives no help when a business is experiencing a temporary dip in profits. It also prevents pension contributions and legitimate business expenses being fully recognised.

Under generally accepted accounting principles, a true and far statement of how a business is doing involves accounting for business receipts and expenditure over the period to which they relate. If a business buys stock for resale, it will account for the purchase price over the period in which the stock is expected to be sold. A tax bill, referable to a tax year, may be paid in two instalments but accounted for over the whole year. An insurance premium, paid in one instalment, will be spread over the period of the insurance cover, which is usually a year. Investment in essential equipment will be written down over the equipment’s expected life. If there is a deficit in one accounting period, it can be set against surpluses in other periods which give a true and fair picture of the state of the business.

This method of accounting is also followed for working tax credit, enabling claimants to draw up one set of accounts that keeps administration costs down and matches the support given by the welfare system to the actual state of the business. The universal credit regulations depart completely from these generally accepted principles. Under Regulations 57 to 59, businesses will account to the DWP month by month on the basis of amounts received in the month, minus business expenditure paid out in the month. If that produces a loss for the month, it may be not be carried forward to subsequent months. It is simply disregarded.

If it produces a result lower than the minimum income floor, or MIF, Regulation 62 will substitute a minimum income floor equal in most cases to the national minimum wage for a 35-hour working week, less a deemed amount of tax and national insurance on that level of earnings. It is almost as though someone has drafted these regulations with no experience of the fluctuations of running a business.

Although I was not self-employed myself, I ran a student union for 16 years with a turnover of about £750,000 a year. You learnt that, to get a true picture of March and April, it was better to take the figures together because Easter came at different times each year. You learnt that because of a large booking in July, you made more profit than during the rest of the year. The following month, because it was the only chance for major refurbishment projects and major expenditure, the figures would look pretty dreadful, but I still collected my salary. Unlike a person running their own business under these regulations, it did not have any consequences.

The real objections to this method of accounting are that one month is an artificially short period over which to draw up a set of accounts, and that cash-in, cash-out does not present a true and fair view as it does not relate receipts and expenses to the period over which they accrue. The failure to recognise losses further distorts the economic picture, and imposing a minimum income floor does not allow for events beyond the claimant’s control.

This particularly applies to farmers. It does not take account of the ups and downs in a normal trading cycle that are part and parcel of any self-employed business. Legitimate business expenditure is doubly limited by the denial of any carry-forward relief and by substituting the minimum income floor for the net profit figure for any month in which the net profit figure is lower.

The accounting method imposed by the regulations presents a wholly distorted picture of how the business is doing and ignores the economic reality. The minimum income floor will apply to most businesses after a start-up period of 12 months. Originally, each claimant was to be allowed one start-up period in their lifetime. Since the consultation in the summer, that has been relaxed in that a start-up period may be permitted once in every five years to accommodate a claimant who did not succeed in their first attempt at running their own business but wants to try again. This is a small improvement and should be acknowledged.

After the start-up period, the minimum income floor will apply to every claimant who is “gainfully self-employed” unless they are subject to no work-related requirements, a work-focused interview requirement or a work preparation requirement. A claimant is gainfully self-employed if the business is their main employment and is,

“organised, developed, regular and carried on in expectation of profit”.

If the claimant is not gainfully self-employed, they are not subject to the minimum income floor. Instead, they will face work-search or other requirements imposed by jobcentre staff and sanctions for non-compliance.

One change since the summer is that in calculating the minimum income floor there will be deducted,

“an amount that the Secretary of State considers appropriate to take account of any income tax or national insurance contributions for which the person would be liable in respect of the assessment period if they had earned income of that amount”.

Whether this change is good news or not will depend on what amount the Secretary of State considers appropriate for the purpose. There is a risk that the Secretary of State will assume that a self-employed person pays the same amount of tax and national insurance, over the same period, as an employed person.

In reality, the self-employed pay tax and national insurance in two instalments, in January and July, based on their earnings in the previous period. If the Secretary of State considers it appropriate to take account of the tax and national insurance actually paid by the self-employed claimant, at the time they pay it, that will give at least some measure of relief when the business needs it. Otherwise, the self-employed claimant would be earning less than an employed claimant, yet receive less by way of universal credit because of the distorting effect of the minimum income floor.

On pensions, the self-employed are responsible for their own pension provision, but they will receive no recognition for it under the minimum income floor. They will be at a disadvantage over the employed claimant, whose pension contributions will be relieved in full as and when they are paid.

I raised the issue in November 2011 about what happens when a business suffers a downturn or undergoes a period of economic difficulty. I think I used the example of a farmer who was affected by foot and mouth disease in neighbouring stock and was working twice as hard but could not move his stock for sale. I hoped that the minimum income floor could be suspended during periods when the business suffered in such a way. Assurances were given in the debate that these were,

“issues that we are looking at very closely”.—[Official Report, 1/11/11; col. GC 453.]

However, no such provision has been made by the regulations. There is no recognition in the regulations that a business may experience low or no profits.

The absence of any facility for carrying forward a loss made in one month to subsequent months remains a fundamental flaw in the design of universal credit for the self-employed. In discussion, the Government have appeared to see the need for this facility but have not made any changes because the IT system has not been designed to allow carry-forward.

The burdens that the proposed regulations impose on the smallest businesses and the disregard for the most basic principles of accountancy will seriously hamper claimants who wish to enter work via the self-employed route. In many cases, they would find themselves better off on benefits than in work, which is plainly contrary to the Government’s intention.

There are 4.5 million self-employed people in this country, any of whom may at some point need to claim universal credit due to the risk and uncertainties inherent in running one’s own business. Self-employment is a viable route out of welfare and into work. I hope that the Government will reconsider the regulations and create a system that is as responsive to the self-employed as it is to the employed and unemployed.

12:56

[Lord Greaves]

My Lords, I feel out of place on this speakers list. I looked at it and thought that almost everyone on it apart from me is an expert and they will be bandying figures and statistics around that will send my brain numb by the time I stand up to speak. That is true: they have sent my brain numb. The debate is full of experts, not least the noble Baroness, Lady Hollis, who introduced the debate, and my noble friend Lord German. I have to say that I thought the noble Baroness was kinder to the Government than I would have been had I been making her speech.

I congratulate my noble friend Lord German on introducing a number of things into his speech that would not have been there if it had not been for the presence of the Liberal Democrats in the Government. If things are bad, they are nothing like as bad as they would have been had we just had the Conservatives.

The reason why I thought that I should take part comes from my work as a local councillor, where I represent one of the poorest areas in east Lancashire. Last week, I was watching the television at home. The BBC in the north-west was doing a week-long series on food banks in the region. I thought, “Has it really come to this?”. This country is something like the sixth richest in the world. It is richer than it has ever been apart from a slight sag in the past five years—it really is slight in historical terms. Has it really come to food banks now being part of the mainstream culture of this country? I find it extraordinary.

I had made a list in preparation of all the problems that we are experiencing at the moment, but the noble Baroness, Lady Hollis, dealt with them all in far more detail and far more expertly, so I will not read them out. But I have one or two points to make. The changes can all be individually justified, particularly against the need that the Government see to cut spending, but put together the position is horrific for many people. When that is combined with benefits in kind provided by local services through local authorities and other bodies, it is made even worse.

I think that it was the noble Baroness who said that if you cut people’s benefits, there are serious effects on local economies. The fact is that benefits, as a side-effect, are an efficient way in which the Government can put money into the economy. Most of the money that people get in benefits is spent. As that money is spent, it has a direct positive impact on local economies. On the one hand we have the Government, with Mary Portas and all the rest of them, saying “Town centres are in trouble—let’s have initiatives to help them”. On the other hand, they are taking money away from the very people—certainly in small and medium-sized towns—who use the town centres most, because many of them do not have their own transport to go to the out-of-town or edge-of-town supermarkets and so on. The poorest people spend their money and so, simply from an economic point of view, it is a good idea to give more money to them.

I concur with everything that has been said about some of the quite appalling attacks on poor people that have been made, such as the comparison between strivers and skivers, which the noble Baroness, Lady Hollis, called ugly, cynical and indecent. I congratulate her on finding words for that which are appropriate to use in the House of Lords. I tried to think of words but thought that I had better not mention them, because any that I would use would be out of order.

I recommend to anybody who thinks that the answer is that people who do not have jobs should just get them that they go down to their local Jobcentre Plus, have a look at what jobs are on offer and how many of them there are. They will very quickly come to the view that that is not the immediate answer.

It is fairly clear that somewhere between 10% and 20% of the poorest people in this country are quite deliberately being made poorer by the policies of this Government. If they are not in work, their benefits are being cut; if they are in work, they are too poor to benefit from the cuts in income tax, because they do not pay it, and their benefits are also being cut.

I rely a lot on the work of Professor Danny Dorling, an incredibly energetic geographer who seems to produce a book every three weeks. He is not one of those typical geographers who simply stroll around the countryside looking at the scenery. It is fairly clear, from work that he and others have done, that the levels of economic inequality in this country declined year on year from some time shortly after the end of the Great War into the late 1970s—inequality being the spread between the richest groups of people and the poorest groups. In the 1980s it got worse; it got steadily worse during the years of Conservative government from 1979 to 1997 and it continued to get worse, year on year, through the Labour years until 2010. That is clearly still happening, partly because people at the top are getting much richer, but also because people at the bottom have not been keeping up with everybody else and are now quite clearly falling behind. We are told that the answer lies in social mobility, which I am in favour of. However, you can have social mobility in a more equal society and economy and in a less equal economy. On its own it does not alter the basic facts.

As a Liberal, I go back to William Beveridge and try to put things in the context of what he said back in the 1940s. As we all know, he put forward his five giant evils: want, disease, squalor, ignorance and idleness from lack of work, which perhaps we would now call worklessness. His remedies are interesting to read today. Everybody now says that what they want to do—wherever they stand on this argument—is based on what Beveridge thought.

Beveridge proposed that people in work pay a standard weekly payment into the social insurance fund and suggested unemployment payments for people for as long as they have not got a job. He also proposed benefits for pensioners, maternity grants, widows’ pensions, pensions for people injured at work, and so on. What was crucial was his proposal of what he called child allowances, which became family allowances and which have now mutated into child benefit. They were at a very much higher level than child benefit has now become. As part and parcel of that, he advocated the creation of a National Health Service, so that when you were poorly you got treated for free at the point of need.

The crucial part of all Beveridge’s proposals was that payments in all these cases should be at a standard, flat rate, depending on contributions, with no means tests, which he was opposed to. So many of the problems that we now have in what people call the welfare benefit system—the tax allowances and all the rest—have come about because people have tried to be too clever by means-testing this, that and the other, with all the unfortunate side-effects that means tests have. The cleverer people get, the more they try to finesse the system; the more detail they put into it, the more problems they create.

I will give two examples. Instead of subsidising property, which is what used to happen until about 20 or 30 years ago, we now have the mantra that in the area of housing the people in the houses should be subsidised. The effect of this is the present crazy housing benefit system, which takes up so much of the welfare benefit budget and yet is no more than old-fashioned out-relief for landlords. We also have the working tax credit, which is no more than a subsidy to employers who pay low wages. This is the fact of the matter and the situation that we have got into. I do not know how we will get out of it. I am quite sure, however, that we will not get out of it by making the poorest 10% or 20% of people in this country even poorer today.

13:07

[Baroness Massey of Darwen]

My Lords, I thank my noble friend Lady Hollis for securing this important and stimulating debate and for introducing it with her usual immense knowledge and commitment.

I should like to focus today on the impact of changes to tax and benefits on children. As my noble friend said in her opening remarks, government policy is likely to be detrimental to children. It is obvious to say that children are our future, but if we neglect children we will surely be burdened later with possible criminality, drug-taking, other risks and social unrest. All that is important, quite apart from the vital humane impetus to protect children and advance their well-being and educational opportunities, particularly children who are vulnerable or deprived.

I declare an interest as chair of the All-Party Parliamentary Group for Children. This year we are conducting an inquiry into what opportunities there are for children to achieve their potential and into how children see their needs. We listened to a number of children, and it is striking how so many of them place a huge emphasis on the importance of parents and families in their lives, including those children who have challenging family circumstances.

What happens to those parents and families in times of austerity must be considered, and I am dismayed at the potential disruption and depression that may be caused by government policies. Is it not surprising that Save the Children is, for the first time, focusing some efforts on children in the UK, or that, as the noble Lord, Lord Greaves, said, we are seeing food banks in unexpected places such as Guildford and, as my noble friend Lady Pitkeathley tells me, in Ross-on-Wye?

It is easy to portray people in unfortunate terms using easy soundbites which appeal to popular prejudices and which are so often inaccurate, and it is interesting to note that many of us think that 27% of all welfare is claimed fraudulently. However, the Government’s figure is 0.7%, worth around £1 billion as opposed to the £70 billion lost in tax evasion. Further, most welfare payments go to pensioners. Unemployment benefit has fallen to 11% of average earnings compared with 22% in 1979. Therefore, myths abound. The fact is that since 2010 long-term unemployment has increased by 146% and I am told that there are plans to cut local authority budgets by 30%, to the dismay of those working to deliver services. All this will impact on families and children, and the poorest will be hit the hardest.

Perhaps I may give some examples that reflect the concerns of groups in the voluntary sector which are working with children and families. They include Barnardo’s, the Children’s Society, Working Families, CARE and Save the Children. Contrary to the Government’s ambition, levels of childcare funding may lead to disincentives to work. Under universal credit, lone parents with more than one pre-school child could face losing a significant amount of any extra money they earn. I was impressed by the speech of the right reverend Prelate the Bishop of Exeter on this issue. There may well also be an impact on the provision of free school meals, which is sometimes the only good meal that a child will have in a day. Some 1.2 million children living in poverty in England miss out on free school meals. The Government seem to be set on proposing that, under universal credit, families will be entitled to free school meals only if they earn less than a certain amount, which is another disincentive to earning more. I take the point made by the noble Lord, Lord Greaves, about the administrative costs of means-testing.

The plan to cap the uprating of key benefits and tax credits for the next three years will mean that almost 20 million adults with children and 11.5 million children will be affected. This will hurt millions of families who are already finding it difficult to meet the costs of food, rent and other basic necessities. For example, by 2015, a lone parent of two young children working as a nurse and earning £530 a week will lose £424 a year. Primary and nursery schoolteachers have an average weekly income of £600. Some 150,000 of them will be affected by the cap. The charity Working Families estimates that around 205 of the 3,000 calls made to its helpline in 2012 were on the issue of benefits and tax credits. Some 41% of parents in severe poverty said that they would consider giving up work and 25% would consider reducing their hours as a result of cuts in the level of support. In times of austerity it can be difficult for parents to find extra hours of work as employers cannot afford it. This means that up to 210,000 families with 475,000 children may lose out on tax credits. Does the Minister not think that the Government’s policy is producing a negative rebound?

Parents with disabled children report difficulties due to the high cost of specialist or one-to-one care because there is no extra support in the system for the childcare costs for a disabled child. Paying for such childcare is turning out to be a huge barrier to parents going into paid work. There is also disappointment that the principle of universal child benefit has been undermined. Child benefit has been simple to administer, has a high take-up and carries no stigmas, and by and large ensures that the money reaches the right people. Some families are now going to lose out and the system has been made more complex. It would be interesting to know the administrative costs associated with the new system.

Maternity and paternity pay in real terms may encourage parents on low incomes to cut short that important time with a new baby because they cannot afford it. This may affect early bonding, which is considered by experts to be very important in child development. The 1% uprating will impact on those claiming statutory maternity and paternity pay, which is well below the national minimum wage of £135.45 a week. The benefit cap may also apply until a parent reaches the wages level set out in their claimant contract. I am aware that there are some exceptions, but it may force parents who are currently working part time on low wages to seek longer hours, thus affecting family life. The prediction is that the median income in households with children is set to fall and that child poverty is set to increase.

The tax and benefit changes are significant factors in these trends. The introduction of universal credit may offset them in some cases—for example, it has advantages for those without children and for a couple who are both seeking paid work. I again cite CARE, which has challenged the Prime Minister’s statement that the child benefit charge will apply only to the top 15% of the country. As the right reverend Prelate pointed out, the charity has figures to show that the charge is not targeted at the top 15% and will impact on many families in the middle income distribution. The policy takes child benefit from those in the lower half of income distribution while not taking it from two-earner families which are considerably richer.

I return to my original concern that the inequity in tax and benefits that makes children and families suffer is morally indefensible and may have long-term consequences that affect not only children but society. I look forward to the Minister’s response.

13:16

[Lord Alton of Liverpool]

My Lords, the noble Baroness, Lady Hollis, has a long-standing and well deserved reputation as someone who, both in office and out of office, has championed the cause of disadvantaged people. I share her basic proposition that the Welfare Benefits Up-rating Bill, to which she referred, is both poverty-producing and risks increasing both absolute and relative child poverty. I strongly believe that the Government need to become far more focused on the root causes of social security and tax credit demand and that their priority should be to make progress on full employment, living wages, affordable housing and support for children.

They also need to be much more aware of the impact of their policies on the vulnerable—a point that has been alluded to by virtually everyone who has spoken in this debate—and especially, I would argue, on people with disabilities. The Government should note a report that has been released today, The other care crisis: Making social care funding work for disabled adults in England, published jointly by Leonard Cheshire Disability, Mencap, Scope, the National Autistic Society and Sense. I would particularly refer them to the chapter headed “Turning back the clock on disabled people’s independence”.

When the Welfare Benefits Up-rating Bill was considered in another place, Sarah Teather MP, the former Minister for Children and Families, was courageous and right to vote against it. She was also right to say that it is the politics of the playground to paint a picture of scroungers versus strivers. Rather than caricatures, we need to ask how it can be right to promote policies that will lead to a couple with two children earning £26,000 a year losing more than £12 a week while 8,000 millionaires will be better off by an average of £2,000 a week. It is neither fair nor just, or equality of sacrifice or an equitable sharing of austerity, that, according to the Institute for Fiscal Studies, referred to by the right reverend Prelate in his excellent speech, some 7 million working families will be on average £165 a year poorer, while another 2.5 million families with no one in work will be £215 worse off. In this context, the new legislation is the last straw on top of escalating inflationary increases in the costs of food, travel, fuel and heating, and comes on the back of changes to housing benefit regulations, the Welfare Reform Act 2012 and the Local Government Finance Act 2012—all thrown at the poor like a series of hand grenades.

Two nights ago I chaired a Roscoe Lecture at Liverpool John Moores University, and I declare my interest as I hold a chair there. I had invited John Bird MBE, the founder and editor-in-chief of the Big Issue, to deliver the lecture. At the heart of his remarks on Tuesday was the proposition that the creation of a dependency culture has not helped the poor, but quite the reverse. He said that the Government have,

“created a new class of people who are outside society: workless, broken, and lost to ambition and social improvement”.

But he was not suggesting that the way to tackle this culture is to cut benefits before we have tackled the fundamental cause. Mr Bird suggested that 450,000 families are on long-term benefits. I invite the Minister to comment upon a statistic he gave, that only half of 1% of those on long-term benefits go to university or into higher education. If that is so, what can we do about it? Certainly, the disincentive of phenomenal indebtedness from student loans is a major disincentive for poorer families, kicking aside the ladder of educational advancement, with all the concomitant effects that has on social mobility.

Having been the first from my own family to experience higher education and having grown up in a home without a bathroom, and then a council flat—and then, as a student, being elected to represent a disadvantaged community in the heart of Liverpool, where half the homes had no inside sanitation or bathrooms—I have noticed some fundamental changes in the intervening 40 years. One is the disappearance of fathers from the lives of children and having any involvement in their upbringing. Some 800,000 children have no contact with their father, a point referred by the noble Baroness, Lady Massey of Darwen, in her excellent remarks a few moments ago. Many drift into gangs and drug culture. The Government need to take parenting much more seriously. I support entirely the recommendations made by CARE and referred to by the right reverend Prelate and by the noble Lord, Lord Bates.

The second change that I have seen concerns benefits. Before the 1980s very few people were on benefits. Working class families, like the one I came from, saw them as the Beveridge safety net. The 1980s and mass de-industrialisation changed all that, turning the working classes into workless classes and, all too often, into benefit-dependent classes—which is why, with 2.5 million unemployed and 958,000 NEETs in this country, people without opportunities for education, employment or training, job creation is crucial.

Where is the present approach taking us? Last year, the implementation of the Government’s policies saw a 44% rise in the number of families relying on emergency bed and breakfast accommodation after losing their homes, bringing the total to almost 4,000 people, and a staggering 79% increase in the number of people visiting volunteer-run food banks—we heard this referred to earlier on—with some 230,000 expected by the end of 2013.

This spectre should concentrate all our minds. It represents not only a catastrophic human cost but also stands to create profoundly negative economic and social effects in the long run. Considering the numerous studies linking unmanageable debt to crime, family breakdown, alcohol abuse and mental health difficulties, there are clear dangers stemming from the fact that more than one million people now rely upon payday loans to cover essential outgoings such as utility bills. Similarly, the hundreds of thousands of children growing up in overcrowded homes or going to school hungry face significantly increased risks of education and health problems, presenting obvious challenges further down the line.

In this context it is unsurprising that so many organisations working to support poor families have expressed deep concern at the virtually unprecedented set of restrictions on the welfare system, which threatens further to weaken the safety net, which has been badly holed. The chief executive of the Cardinal Hume Centre, which provides a vital lifeline to Londoners in poverty, recently said:

“Breaking the link between inflation and benefits before the effects of these changes”—

to the welfare system—

“have even been assessed, is a potentially disastrous move that could cause unsustainable hardship for many people who are already struggling to get by”.

I particularly want to ask the Minister about the effects on disabled people. The Welfare Benefits Up-rating Bill alone stands to impact upon the lives of some 1 million disabled people, adding to the pressures already generated by the Welfare Reform Act and associated cuts. One third of disabled people are living in poverty in the UK and the new legislation simply seems to add to their impoverishment. I particularly want to ask about the new personal independence payment, especially as it relates to mobility issues, about which I have a Question down for a reply during Oral Questions next Thursday. An alliance of disabled people’s organisations is extremely concerned about its effects. Can the Minister confirm the Government’s own prediction, made earlier this month, that 27% fewer working-age people will be eligible for the Motability scheme once PIP is fully rolled out? Disability organisations say that the new proposal means that 42% fewer disabled people of working age will be eligible—an average of 200 people in every constituency.

By changing the criteria for the “enhanced mobility rate” from 50 metres to 20 metres, many will lose a vital lifeline. Cars will simply be taken away, while those who are unable to drive, and use their mobility allowance for other means of transport, will be without the wherewithal to fund privately owned cars or taxis. It is sheer Janus-faced double-speak to tell disabled people to bring their gifts to society and to contribute by working, volunteering or being part of their community, and to take away their means of doing so.

I would also like to ask about the new regulations and the failure to include the existing qualifying phrase,

“reliably, repeatedly, safely, and in a timely manner”,

the criteria used to decide whether a person can carry out essential activities. Without those words, these guidelines will not be worth the paper they are written on when it comes to tribunals or appeals. I hope that the Minister will give this urgent reconsideration.

To conclude, overall, the impact on vulnerable people of many of these changes is going to be devastating. These changes are too deep, they are coming too fast and they are already undermining the most fundamental safety net through which no one should fall. It is unacceptable that through job loss, disability, illness or low pay, parents and children are going hungry and becoming homeless. But the facts speak for themselves and that is the reality for a rapidly growing number. With food banks and shelters increasingly overburdened, it is now urgent that we repair the damage being caused to families and to our society. That is why it was so right for the noble Baroness, Lady Hollis, to put this Motion before your Lordships’ House today. We are all indebted to her for doing so.

13:26

[Baroness Prosser]

My Lords, I join others in thanking the noble Baroness, Lady Hollis, for tabling this debate. I particularly thank her for her excellent opening speech.

I will direct my remarks towards the situation of the working poor. Back in the 1980s, at the height of Margaret Thatcher’s Government’s attack on the funding of public services, a journalist whose name I have forgotten coined the phrase, “private wealth and public squalor”. Fast-forward 30 years, and we are facing the same situation, although somehow worse. It is worse because over that period the gap between rich and poor has grown exponentially, so that we now have private wealth, public squalor, and private poverty.

Downward pressure on wages has come about for a variety of reasons. First, there is the reduced ability of trade unions to maintain, on behalf of their members, wage levels which give workers a fair share of the financial cake, which in turn in the past has provided pressure on the labour market as a whole, lifting up the pay of those at the bottom end of the scale. Organised labour reduces and low-paid, unrepresented work opportunities increase: the balance shifts towards an inexorable decline overall. The continuing use of technological solutions, and the consequent reduction in workforce numbers, within certain sectors of the economy—together with the globalisation of huge swathes of manufacturing—have also played a major part in keeping down the costs of labour.

To add insult to injury, along come the Government with the bright idea that reducing people’s incomes even further will, first, somehow help to solve the debt crisis—I am not sure how taking away the ability of large swathes of the population to have enough money to spend, even on essentials, will put money in the Government’s coffers, but that may be another story—and, secondly, will encourage lazy scroungers to get out of bed in the morning, when in fact two-thirds of the people affected by these cuts are already in work.

Those affected most by the very wide-ranging changes and reductions to benefits are working parents with dependent children. What kind of Government decide to target the poorest in society—people struggling to keep their heads above water, balancing the payment of the electricity bill against the cost of the supermarket shop? Parents are having constantly to tell their children, “No, we can’t go to the football match” or, “No, we can’t go on holiday like your friends do”. Do Ministers have any idea how soul-destroying it is never to be away from the fear of not having a penny piece, and always having to make do and mend, although you are going out to work and trying your hardest? Do the Government seriously think that the children of those families, starved as they are of the opportunity to flourish and grow, are being given the start in life that will enable them to become tomorrow’s committed and fully rounded citizens?

Noble Lords should look at the array of changes taking place. Working families are being bombarded with requirements to reduce their expenditure and/or to increase the number of hours worked each week. How easy is it for a mother, for example, to find an extra eight hours’ work each week and what does that mean for childcare arrangements and costs? These households, which are at the bottom end of the income scale, lose out particularly badly by the use of the CPI for uprating purposes, from cash freezes to child benefit and working tax credit. When replying, can the Minister please not say that it is all right because of the changes to the tax system for lower earners? Many of these families will have had an income below the personal allowance anyway.

The demonisation of the recipients of welfare has been particularly upsetting. I firmly believe that the vast majority of individuals would much prefer to be able to earn sufficient so that they do not have to get involved with “the social”, as it is known. Most folk want financial independence and want their children to have a better life than they have had. There will of course always be a small minority—the workshy and the idle. That has always been an issue, but it must be kept in perspective. They are a tiny minority. We cannot have a low-wage economy and a social system which then blames the low-paid for their own misfortune.

Finally, I think that I am probably the only Member of this House who has spent a long time reliant on welfare benefits. My husband became paralysed at the age of 28, and I spent eight and a half years looking after him and my three young children. I can tell the House that relying on welfare is not a lifestyle choice. We were what is known as “the deserving poor” and were therefore treated with a measure of respect, and probably sympathy. I also had a supportive, although far from well-off, family. However, it should be borne in mind that welfare payments are calculated to leave no space in the personal budget, so that the smallest incident becomes a crisis: the lost school coat, the broken kettle or the worn-out bed linen. How are these things dealt with when there has been no opportunity to set money aside?

The reductions in value now being proposed to the weekly incomes of both the working poor and those who have fallen on hard times through ill health, et cetera, will indeed cause a crisis—and all the rhetoric will be that it is their own fault. We need a strategy for growth, with a well educated and trained workforce and high-quality employment opportunities. That is what will deal with the country’s debt and the deficit.

13:33

[Lord Touhig]

My Lords, I join all noble Lords in thanking my noble friend Lady Hollis for securing this debate. No matter where we sit in this House or what our political affiliations are—or if we have none—I think we all agree that the noble Baroness, Lady Hollis, brings huge background knowledge and commitment to trying to solve some of the problems that we are talking about today.

On Monday, I asked the Government,

“what is their estimate of the saving to public funds as a result of the work of unpaid carers in the United Kingdom”.

In answering, the noble Earl, Lord Howe, said:

“the Government themselves have not estimated savings to public funds as a result of unpaid carers’ contribution to care and support”;

but he added that,

“there can be no doubt about its huge value to those who receive care and to the wider community”.—[Official Report, 14/1/13; col. 470.]

Why, then, when a disabled youngster in the care of his or her family becomes a disabled adult, is he or she considered a separate household from the caring parents with whom they live, making the parents subject to the housing benefit cap?

The Government have said that a family with a disabled youngster and in receipt of disability living allowance would not be subject to the cap, and to me that seems right and just. But for the life of me I cannot understand why this situation changes when the self-same disabled child becomes a disabled adult. On the Government’s own admission, around 5,000 carers in the United Kingdom will see their housing benefit capped. It will mean that the average affected caring family will see its financial support cut by £87 a week. The Work and Pensions Minister, Esther McVey, said in the other place on 10 December that families that would be exempt from the cap would be,

“those on working tax credit, all households with someone who is in receipt of a disability-related benefit, war widows and widowers, and those in receipt of war disablement pensions”.—[Official Report, Commons, 10/12/12; col. 15.]

I praise the Government for that—I think it is fair and reasonable. That is why I cannot believe that the Government really intended to penalise some 5,000 families in the way that they will do with the regulations that have been published. I urge the Minister to look again at this and accept the view from Carers UK, which says that it is,

“simply unfair to protect some carers and not others”.

I again refer the Minister to the comments from Esther McVey on 10 December, when she said:

“I will reiterate what a household is: a household is a basic family unit, and for the purposes of paying out-of-work benefits that will be a single adult or a couple and children”.

However, she added that,

“once another adult is in the house, that is a separate household”.—[Official Report, Commons, 10/12/12; cols. 15-16.]

When that adult is the disabled child whom they have cared for since birth, it is plain daft to treat that person as a separate household—frankly, it is barmy, and it is an insult. As this stands, a caring family is being penalised simply because the disabled child grows up into adulthood. That cannot be right. In fact, I believe it is a tax on disabled people growing up.

I should declare an interest as a vice-president of the National Autistic Society. Families affected by autism will be hit particularly severely because, according to National Autistic Society research, they spend longer caring and therefore have less time for employment. Across the United Kingdom, 21% of all carers spend more than 50 hours a week caring, but of those caring for someone with autism, 83% say they spend at least 50 hours caring. This was highlighted in Who Cares for the Carers?, a National Autistic Society document published in 2009. Caring for someone with autism is therefore disproportionately intense in terms of hours. In return, if the carer spends at least 35 hours a week caring, they receive the princely sum of £58.45 a week carer’s allowance. This cap will therefore disadvantage carers who spend at least as many hours caring as many people work in a week and are therefore themselves unlikely to find employment. That illustrates the reality of caring for an autistic child or adult.

Perhaps I may briefly touch on two case studies. Ann and Laurence have four sons. Two of them—Peter, 31, and Stephen, 21—have Asperger’s syndrome and ADHD and live at home with their parents. Although highly intelligent and educated to MSc level, Peter struggled for three years to get a job until his mother helped him find one as a teaching assistant. Stephen is less able to succeed academically and will never be able to live independently. His mother describes the challenge:

“When you have your children you think you will nurture them and teach them to become independent like my parents did with me. But that’s not the case.

I wouldn’t expect to be doing the things for my adult children that I’m doing. That’s a carer’s role ... My fear is that one of us will get ill and we’ll have to care for that person plus the two boys, and that will be difficult”.

Mark and Cathy have a six year-old called Malachy, who has classic autism. He is non-verbal and communicates through his own invented sign language. Caring for Malachy is exhausting and relentless. Mark often goes to work having had just three or four hours sleep. He and Cathy rarely have time to do the normal things that couples do, such as go out for an evening. Mark describes the challenge as follows:

“Malachy’s autism and difficulties [are] like a time bomb within your family. He completely dominates everyday life. It permeates my employment. Cathy had to give up work. It permeates the situation with the two younger children … he gets a lot of one-to-one attention”.

Things are already difficult for carers. A National Autistic Society survey last year showed that 74% of carers do not receive any support at all, and one in three carers under the age of 40 said that they would like to work, but cannot do so because of their caring role. Many more have had to give up paid work, reduce hours, work part-time or take lower paid jobs in order to care for someone with autism.

I think that, at this time, it is also worth remembering that with local authorities raising eligibility thresholds for social care support, and many services such as day centres closing down, many carers are likely to find themselves missing out on the services they need. Let us make sure that we do not make life even harder for family carers who, in fact, are the backbone of care in this country.

13:40

[Lord Stoneham of Droxford]

My Lords, I join in the congratulations for the noble Baroness, Lady Hollis, not only on this debate but on the leadership that she provides the House on forensic analysis and social concern. I am sad that I cannot be completely alongside her today on the issue before us. I would like to follow by setting some sort of economic and social context, following in the footsteps of my noble friend Lord Bates.

Although government is never easy, it is always exceptionally difficult when the economy is bordering on recession and there is an overspending deficit to clear up at the same time. We will never really know, but I suspect that without the formation of the coalition and a deficit-reduction strategy we could well have had turmoil in the markets and the IMF knocking on our door. Interestingly, that was precisely the scenario that our opponents in the general election said would happen with a coalition—but it has not happened.

As we look at the impact of tax and benefits changes on families, we therefore need an economic context for all the decisions being made—and the economic context has been dire. There has been a huge adjustment in living standards, with a fall of more than 7% overall since 2009. In fact there has been no growth in real income for the median income earners for a decade. This was inevitable when economic growth has been subzero. Households have not only had to bear the burden of the national debt reduction; they have also had to reduce their own personal household debt, following a decade of economic growth built on the shaky foundations provided by unsustainable huge growth in personal credit and debt.

The European meltdown and rising commodity prices, particularly energy, have compounded the economic impact of the UK recession. This has undoubtedly led to an adjustment of the Government’s deficit strategy—not to plan B, but actually to one which closely follows the strategy set out by the Labour Chancellor Alistair Darling. We will be very keen today to hear the views of the noble Baroness, Lady Sherlock, telling us where she will make the savings to replace the cuts that they oppose.

Two other points need to be made about the economic context, the first of which is on mortgages. The confidence in the Government’s deficit reduction strategy has led to the continuation of low interest rates. This has been critical to those families who otherwise would have been embroiled in debt repayment problems, negative equity and very severe impacts on family budgets. That was the scenario in the last recession in the early 1990s and it could easily have happened again if interest rates had moved up to 5% or 7%. Those with mortgages—and they are not simply the well off—have benefitted from those low interest rates. That should not be forgotten, and low interest rates must remain an important objective.

The second issue is employment. Growing unemployment is always the great fear associated with recession. We can look at the impact of benefits on family incomes but this assumes a static situation. In reality, the situation is very fluid. People move in and out of the labour market. Unemployment figures used to be explained to me as being like a bath: unemployment figures rise like water in a bath when the flow into unemployment continues; but the flow out of unemployment is plugged because the vacancies disappear in weak economic conditions.

This recession has been marked by a much better performance on employment at a time when the working age population has increased by 350,000 a year, more than we could have ever anticipated. There is nothing worse for an individual’s psyche than losing their job. Self-respect and purpose go with being in work. There will be arguments about the type of jobs being created. However, the figures show that there are 1 million more jobs in the private sector and the possibility of these jobs—whether full or part-time, permanent or agency—is encouraging and vital for families up and down the country, north as well as south.

This growth reflects incredibly well on our flexible labour markets. It has allowed adjustments to be made to keep people in jobs. It has created many new opportunities which otherwise would have been denied to people on the fringes of the labour market. It also undermines the arguments that say that our labour market is not sufficiently flexible and that there should be more attempts to increase flexibility, thereby undermining basic protection rights.

This leads to another point—that recessions are always bad things. It is why boom and bust is so damaging to the poorest and most vulnerable. They are the ones who suffer when the flows into and out of the unemployment bath move adversely. The poorest and less skilled and those who are less mobile will always bear the heaviest burden. That is fundamentally why putting the national economy on a secure path of growth is so important, and important to them. That is why sustainable growth must now be the overriding priority for the coalition.

However, despite the difficulties and the economic constraints that the coalition Government are facing they are also confounding their sceptics by a massive programme of social reform that will benefit vulnerable families. We are being, and will be, criticised for the tough decisions that we have had to make on work-related benefits. However, this criticism ignores the relative rise of benefits compared to the position for those who are reliant on earnings over recent years when real incomes have been falling. At some stage an adjustment was going to be on the agenda.

This action, however, is matched by action that will assist families. As we have heard today, the rise in the basic tax allowance by 45% in three years is unprecedented. Anyone on the minimum wage has seen their tax bill halved. The Labour Government gave a high priority to families through the growth of family credits. The coalition has prioritised pensioners, who would otherwise have been very vulnerable to energy prices going up, and whose incomes have fallen behind income growth. The triple lock meant that, last year, pensions went up by 5.2%, and will go up in April by 2.5%. It would have been much less under the previous Labour regime.

Action on current pensions is being matched by fundamental reforms on the single-tier pension and, in due course, in seeking to resolve the social care issue for the elderly which was left hanging by the previous Government. It has been a major worry and concern for growing numbers of families with elderly relatives that these issues have not been resolved. The wholesale reform of the welfare system will follow with the reform of universal credit. Who would have thought that a coalition could take on this issue—which James Purnell failed to persuade Gordon Brown’s Government to tackle because there were thought to be too many more losers than winners in a reform needed to simplify, target resources on the poor and reduce disincentives to work?

The noble Baroness, Lady Jenkin, mentioned William Beveridge. Today is the birthday of Lloyd George. I think that they would be justly proud of the scale of the reform that the coalition Government are undertaking at this very difficult time. Reform and change are always difficult. It is made even more difficult when money is short and there are insufficient funds to help oil the wheels of change. However, no one can say that the coalition Government are not seeking to combine economic competence with a social concern for fairness which is aimed at improving the outlook, security and well-being of families up and down this land.

13:49

[Lord Graham of Edmonton]

My Lords, it is a privilege and a pleasure to take part in this debate, which was so well introduced for our benefit by my noble friend Lady Hollis. I have known Patricia for many years. She is well—if not uniquely—qualified because in her city of Norwich she was the leader of the group. When we had a Labour Government she was a prominent Minister. It is the way of this House to bring together men and women who can speak from the heart. I cannot believe there is a person on the other side of the Chamber who heard the noble Baroness, Lady Hollis, who did not agree with much of what she said.

The problem is, we are where we are now and how do we get out of it, from the point of view of families? I cannot possibly enter into the finite arguments about which policies are right or wrong. I have an inclination as to where I stand, as does everyone in this House. Since we are talking about families, I thought I would mention that I am the eldest of five children. In 1930 my father was made unemployed and he did not get another job until the war started in 1939. It was tough. In 1937 he had 37 shillings a week to feed the seven of us.

When it comes to a level of poverty, it is very difficult for someone like me to believe that people are in poverty with a capital P now. Everything is relative. There are people sitting on both sides of the House who have been Members of Parliament and know what I mean when I talk about surgeries. When I attended my surgeries in Edmonton, I would meet people who had big problems, mainly to do with housing but also to do with work. Twice in my time I left the surgery, went to my car and cried because I could do nothing about it.

I very much hope that we are moving towards a stage in this argument where calling the other side names is not the solution. We are all politicians and we all have a point of view but we will not solve the problem if we build up resentment. I was born in Newcastle-upon-Tyne, not far from Jarrow, where the marchers came from. That was how they manifested themselves. We all know that at the end of the day it did not do very much to change the Government.

I say to this Government that, of course, most of the time they are the masters, but not all the time. I sense that there is resentment with a capital R building up among more and more people, many of whom voted for this Government and are now suffering from the actions they are taking. I am not even arguing about the actions because if there was a Labour Government we may very well have carried out some of the policies.

When I was a boy, I came home from school and said to my parents, “Look what I’ve got”. It was a pair of boots. My dad said, “How did you get those?”. I said, “Earlier today two policemen came into the classroom. They whispered to the teacher and the teacher called us out: Tommy, Teddy, Billy, Wilfie”. On Tyneside, you did not say Wilf or Tom; it was Wilfie and Tommy. So I went out and there were two policemen with a great big wicker basket. In the wicker basket were pairs of boots. The policeman threw a pair to me and said, “Try these on”. On Tyneside, in my station in life, your footwear was what we called sandshoes—other noble Lords might call them plimsolls. They were sixpence a pair from Woolworths and when they wore out you put a piece of cardboard in the bottom. When the cardboard wore out, you put another piece of cardboard in, until your mam could find sixpence.

So I brought the boots home and my dad said, “Where have you pinched them from?”. I said, “I haven’t pinched them, Dad, I was given them”. He hit me again and said, “Tell the truth”. Finally they realised I was telling the truth. My dad smiled; my mam cried. Years later, when I was in the Royal Marines, I came home and said to Mam, “Remember the time I brought the boots home and you cried?”. She said, “Yes”. I said, “Why did you cry, Mam?”. She said, “Because I knew that the teacher had been asked to send out of the room the children that she knew were from poor families”, and that she had cried from shame.

If anyone wants to ask me why I am Labour, why I am a socialist, it is because we lived in a society that might have done something but did not care. It is about time all the parties recognised that it is a big problem. I am not blaming one or the other, but the solution that we have had from the noble Baroness, Lady Hollis, is well worth studying.

When I was working for the Co-op, I was paying out the dividend and there was a big queue. I looked up and there was Jackie Milburn, the hero of Tyneside. He said, “Can I have some money from this passbook?”. I said, “I’m sorry, you can’t”. He said, “Why not?”. I said, “Because it is in your wife’s name. You take this form, get her to fill it in, come back and I will pay you”. He came back the next day and said, “How much can I get?”. I said, “There’s £7 and 17 shillings in the book; I can pay you £7 and 14 shillings because you must leave three shillings in the book”. He said, “That’s a week’s wages”. Playing for England and Newcastle in 1948-49, he was on the princely sum of £8 a week. We all have to try to take account of comparisons.

I mentioned the Co-op because the Co-operative movement deserves a lot of credit for starting self-help. Most people who worked in the Co-op were members of the Co-op. They would leave their dividend in the book until they had £4 or £5 and that was their nest egg. I think that the Government could do more to energise ordinary people to use the argument and the instrument of mutuality, credit unions and things of that kind. I hope the Minister will be able to recognise that there is a job of work to be done there.

In conclusion, there is no complete answer to this problem. I can understand people who think one way or the other, but in my view we should be past blaming the other side for what happened. All Governments find things that need to be done. The problem for this Government is that they are not doing what they said they were going to do. I rest my case.

13:59

[Baroness Sherlock]

My Lords, what a wonderful place to start. I would certainly not want to go back to when my noble friend Lord Graham or the children of today would have no boots, but maybe a place where Wayne Rooney got £7 a week would be a country I would think about living in.

Like other noble Lords, I am most grateful to my noble friend Lady Hollis for introducing this debate so powerfully. If I were the Minister I would be getting anxious already about how I would respond to that rather forensic opening statement. I congratulate her, too, on choosing the topic and expressing it in a way that has drawn so many powerful speeches from around the House. In a debate such as this, I am proud to be a Member of this House. I have learnt something from every speaker and having the opportunity to come into the debate at the end is really a privilege.

It is clear that there is widespread concern about the impact of tax and benefit changes on families. Given the rather forensic opening assault by my noble friend Lady Hollis, the Minister has some rather big questions to address. I was impressed that my noble friend had done so much spade work in trying to dig out the cumulative impact on families of successive tax and benefit changes since 2010. She mentioned a whole number of cuts that have been made but there are more. As well as those changes she mentioned, the Government have abolished the health in pregnancy grant and the baby element of child tax credit; they have cancelled the planned toddler element of child tax credit; the government contribution to the child trust fund has gone; the Sure Start maternity grant is not there for second and subsequent children; and the Government are introducing hefty charges for using the Child Support Agency.

All of that makes me worry about the extent of the burden being borne by women and children. This was highlighted very well by my noble friend Lady Massey of Darwen. If I were a mum of young kids, out there on a modest income, I would be starting to wonder what David Cameron thought about me and why so much of this burden seems to be borne by people like me. This is before we discuss the move to uprate benefits by just 1% for the next three years. Would the Minister like to comment on Tuesday’s admission by the Government in another place that that 1% change would increase child poverty by 200,000 more than would have been the case if benefits were uprated by CPI?

What is the Government’s strategy on tax and benefits for families? The Chancellor of the Exchequer, Mr Osborne, explained this very well. Introducing the Autumn Statement in another place on 5 December, he said:

“Those with the most should contribute the most, and they will, but fairness is also about being fair to the person who leaves home every morning to go out to work and sees that their neighbour is still asleep, living a life on benefits. As well as a tax system where the richest pay their fair share, we have to have a welfare system that is fair to the working people who pay for it”.—[Official Report, Commons, 5/12/12; col. 877.]

Let us test the Government’s record against that statement. First, will those who have the most contribute the most? The Government decided to reduce the top rate of income tax from 50% to 45%, a move that will give a major tax break to high earners including, as the noble Lord, Lord Alton, explained very clearly, giving 8,000 people an average tax cut of £2,000 a week. This is at the same time as introducing a Bill that would give someone on jobseeker’s allowance an increase of just 71p a week for three years.

What, then, of the personal tax allowance increase that was advocated so ably by the noble Lord, Lord German? Does that help the poor? Sadly, it does not. The nature of tax allowances is that everybody who pays tax benefits from them and the poorest do not, a point clearly made by the right reverend Prelate the Bishop of Exeter and the noble Baroness, Lady Jenkin. The Child Poverty Action Group calculated that a working family eligible for both housing and council tax benefits will gain just 13p a week from the extended personal allowances. The much quoted Institute for Fiscal Studies noted that households towards the bottom of the income distribution,

“benefit relatively little from the increase in the income tax personal allowance, as many individuals in these households would have had a personal income below the allowance (i.e. they would have paid no income tax)”.

The IFS continued,

“Households in the middle and upper-middle of the income distribution benefit the most as a percentage of income from the increase in the personal allowance”.

So, that is not so good on those with the most paying the most.

What, then, of the opportunity to consider how the Government make sure that the system is,

“fair to the working people who pay for it”?

Tax credits, and all those payments I listed at the beginning of my speech, are or were available to working parents. The Minister may argue that surely the Welfare Benefits Up-rating Bill will rebalance things by giving people on benefits only a 1% increase. Again, no. As the noble Lord, Lord Alton, noticed, although it is true that some 2.5 million workless households will find their entitlements reduced by an average of £215 a year, 7 million households, about half of those with somebody in work, will lose an average of £165 a year. As a number of noble Lords have commented, I am sure we have all seen the report from the Children’s Society which describes the kind of losses that occur. A second lieutenant loses £552 a year; a nurse or a primary school teacher lone parent loses £424. These people are not sleeping off a life on benefits but they will really pay the price.

As we heard from my noble friend Lady Hollis, in the case she cited of a Daily Telegraph reader, tax credits have made a real difference, in particular to enable people with children to move into low-paid work. Not only do they help those who cannot work full-time, they have also helped households where only one member of a couple is in work—the groups of concern to the right reverend Prelate the Bishop of Exeter and to the noble Baroness, Lady Jenkin. The Government have taken the decision to move across to universal credit, to replace all these benefits. I see the noble Lord, Lord German, has confidence that all will be well in those days and I very much hope so, although I confess that I am getting worried about the repeated reports of delays and the constant snipping away at the support within universal credit—not as worried as the Minister, perhaps, but he can tell us more of that later.

If the Government are confident and want to invest in universal credit because it will help people to move between welfare and work, why are they doing so much to undermine work incentives and cut the payments to low-income families in work? How can that make sense? When Ministers say, as they often do, that social security spending is unsustainably high but fail to be honest about the drivers for that spending, not only is that bad politics but it will cause them to make the wrong policy choices, which is even worse. One reason spending on out-of-work benefits is higher than the Government want it to be is that unemployment is higher than the Government predicted, and pursuing economic policies that make the recession worse or longer and do not promote growth are likely to make that situation worse.

The Government have made some decisions about their work programmes. They abolished Labour’s successful Future Jobs Fund and their own Work Programme has been shown to be worse than doing nothing. I regret to say that I read in the Guardian this week that the Government’s much vaunted unemployment figures include some 20% of people who are in fact on job training schemes, most of them still claiming jobseeker’s allowance. The Government need a strategy other than simply blaming people for the fact they have lost their jobs. As a country, we need a strategy to go out there to pursue growth and create jobs, as was so well described by my noble friend Lady Prosser. We also need measures to support those who are long-term unemployed. There are currently more than 130,000 adults over the age of 25 who have been out of work for two years or more. I share the view of the noble Lord, Lord Bates, that people who can work should work. Labour had said that if it was in government now, it would introduce a two-year compulsory programme; when someone had been on jobseeker’s allowance for two years, they would be in a compulsory job. That would have tackled the question of long-term youth unemployment.

I have focused on working families not because I want to demonise or marginalise those who are not in work, but to try to point out that the tendency to imply that the entire social security bill is spent on a bunch of idle layabouts and is paid for by hard-working people is at best disingenuous and at worst playing politics with the lives of struggling families who are already finding it very hard to make ends meet. My noble friends Lady Prosser and Lady Donaghy have explained how tough life can be for struggling, low-income workers, either in employment or self-employment. The last thing these people need at the moment is for the state to take away from them some of the bit of help they have which is just about helping them to make that transition.

Statements such as that from the Chancellor fail to acknowledge that when unemployment is high there are people claiming benefits who, before they were made redundant, were paying tax to fund them and will do so again. It also fails to acknowledge the disabled people who will clearly struggle, a point made very well by my noble friends Lord Touhig and Lady Pitkeathley and by the noble Lord, Lord Alton. I would be grateful if the Minister could confirm what will happen to disabled people who, even if they receive protected benefits, often get 70% of their income from benefits which will be hit by the 1% limit.

I finish where this debate started. The analysis of my noble friend Lady Hollis was very powerful. I urge the Minister to tell the House today whether he accepts her figures for the impact of the Government’s changes to tax and benefits. If he does not, will he tell us when the Government will publish their own analysis of all they have done to families in Britain? In Britain today it seems that we can afford tax breaks for millionaires but a food bank is opening every three days and a million people have resorted to a payday loan just to pay their rent or mortgage. I invite the Minister to explain those priorities to the House.

14:10

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, this has been an interesting and important debate, and I am grateful to all those who have contributed. The noble Baroness, Lady Sherlock, referred to the quality of the debate; there was something interesting in all the speeches, which is not always the case. I therefore thank the noble Baroness, Lady Hollis, for securing the debate.

I shall set some context for the debate before I try to deal with as many of the points raised as possible. The arguments for our programme of tax and welfare reform are well rehearsed. We have heard much discussion in the media, in Parliament and elsewhere on the welfare and tax policies that the Government have planned. However, I think that it is worth me touching on the rationale for our programme of reform.

We have already made significant progress in tackling the fiscal challenge that we faced when we came into office. We inherited the largest deficit in more than 60 years and, since then, welfare spending has risen from 11% of GDP in 2007-08 to more than 13% today, including pensions and working-age payments. In a constrained fiscal climate, this puts real pressure on key public services and is unsustainable. The deficit has now been reduced by a quarter, and we have created more than 1.2 million private sector jobs. Even if we play around with the small anomaly of those who are on skills training, there has been a huge increase in private sector jobs.

The noble Baroness, Lady Hollis, raised a question about cumulative impacts, and I was fascinated by her sums on this. However, I need to point out that this Government publish impacts of benefit and tax changes alongside each Budget and Autumn Statement. That is something that previous Governments did not do.

[Baroness Hollis of Heigham]

Is the Minister acknowledging that the Government have not published a cumulative analysis of the cuts, benefits and tax changes since 2010? If he is so doing, which I think is what he has said, it is still done slice by slice. Can we hope that he will do so—will he give a commitment to do so in future?

[Lord Freud]

My Lords, it is bluntly impossible to do a total cumulative assessment. I have looked at doing it, and you do not know what to put in and what to leave out. No one has done it in the past; it is not possible. Doing it year by year, as we do, is the best we can do—and it gives a fair view of what happens in a particular year.

I shall continue. While we are taking action to reduce the deficit, we have continued to support families by cutting tax for more than 24 million working people, lifting 2 million of the lowest-paid workers out of income tax altogether. Further freezes in council tax this year will help families with the cost of living by keeping the cost of council tax bills down. Here I pick up the point made by the noble Baroness, Lady Pitkeathley, about localising council tax support. That is being done because it is at the local level where the need for particular support is best understood, and we have announced additional funding of £100 million to support that process. More widely, we are investing heavily in low-income families by supporting the most disadvantaged through every stage of their education.

On the question raised by my noble friend Lady Jenkin, the right reverend Prelate the Bishop of Exeter, and my noble friend Lord Bates, the Government remain committed to recognising marriage in the tax and benefits system. That is as far as I can go today. On the point raised by the right reverend Prelate on child benefit, it will be completely removed only from families that include someone earning over £60,000, and 90% of families will continue to receive child benefit.

It is clear that decisive action is needed to control the damaged and hugely expensive welfare system that we inherited. Labour increased spending on benefits and tax credits by £75 billion and, in real terms, expenditure on all working-age benefits increased from £59 billion in 1997-98 to almost £95 billion in 2010-11, in today’s money. These increases are simply unsustainable. In tax credits, spending increased by £23 billion in real terms between the same two dates, which meant that nine out of 10 families with children became eligible for tax credits—a point made by my noble friend Lady Jenkin. In some cases, families could receive more than £70,000 in earnings and still be entitled. It is clear that, given this level of generosity, we could not protect child benefit and tax credits from the need to make welfare savings.

The Government have not shied away from acknowledging that tough decisions are needed, and we are committed to ensuring that savings measures are taken in the fairest possible way. That is why the 10% richest households will contribute most as a result of the tax and benefit changes that we are making. My noble friend Lord German inquired about that. Overall, as a result of recent changes, we may have reduced the marginal rate from 50% to 45%, but everyone in this House will be familiar with the impact of the Laffer curve. What really counts is how much total tax is taken from the richest; a quarter of all income tax is paid by the top 1% of earners, and the top 5% pay about £50,000. In practice, our changes mean that, overall, the richest will pay £1,000 a year each more in tax, not less, as has been claimed.

It is reasonable to expect the richest to pay their fair share, and it was equally important that we took action to ensure that people on benefits did not receive support that far outweighed the income received by many families who do not rely on benefits to get by. We have, for example, done away with the frighteningly high rates of housing benefit in the private rented sector, and from April this year we are applying an overall benefit cap so that households on out-of-work benefits no longer receive more in welfare payments than the average weekly wage for working households.

The year 2013 is pivotal for welfare reform. The introduction of universal credit and the personal independence payment in April will kick off the most fundamental reforms of working-age benefits for generations. I am pleased to tell my noble friend Lord German that we aim, still on time, to start universal credit on 29 April as a pilot, moving to a national basis in October. The universal credit system creates a seamless system of support to make work pay. People will be able to keep more of their income as they move into work, and it delivers a smoother and more transparent scheme that does away with the administrative difficulties created by switching between benefits and tax credits.

The noble Baroness, Lady Donaghy, made a particular point on universal credit and the self-employed. She made a point about the carry-forward, and I can tell her that I am aiming to introduce something for that to work efficiently; that will be in time for when the people who need it will be using it, so I hope that I can reassure her on that important point.

In the Autumn Statement, the Chancellor announced measures to tackle the rise in spending on benefits and tax credits by increasing the majority of working-age benefits by 1% for the next three years. The savings in that Statement amount to £2.8 billion in 2015-16. We are aiming here to strike the right balance between the support we provide and the need to tackle the spiralling cost of the welfare bill. Picking up the point made by the noble Lord, Lord Alton, on disabled people, we are protecting those elements of ESA support, the disability elements of tax credits and the main disability benefits—DLA, carer’s allowance, attendance allowance and incapacity benefit. While I am discussing the points made by the noble Lord, Lord Alton, about disability—picking up his query on PIP—I suspect we will have a chance to talk about that more next week. There is not a difference: the 50 metre to 20 metre change does not create any substantial difference in entitlement. I will be able to go into that in some more detail.

Although the Government are committed to supporting working families, it would be unrealistic to exclude that group entirely from our savings measures. Although some families will be affected by the tax credit and child benefit changes, we need to put this into context: working households will gain by an average of £125 in 2013-14. Households will, on average, gain—no matter where they sit in the income distribution.

A lot has been made of the suggestion that 81% of the £1 billion or so raised by the tax and benefit changes will come from women. However, the analysis underpinning the 81% figure misrepresents the true impact of welfare reforms on women. It assumes that because the payment of child benefit is to women, its restriction hits women; but the reality is that in many cases it goes into households. The real figure, if you do that analysis, moves from the 80% or so figure to the 60% or so figure. The Government continue to support women and their families through their tax; 80% of households with children will see their tax credits increase. The across-the-board freeze in council tax bills will help families with the cost of living.

Picking up the point made by the noble Baroness, Lady Pitkeathley, on PIP for carers, I remind her that we are committed to linking carers to receipt of either rate of the daily living component of PIP. That is the underlying reason why the impact assessment published in May 2012 showed that broadly the same number would be entitled to the carer’s allowance. Of course, continuing on her theme, where a carer lives in the same household as someone who is disabled, the benefit cap will not apply anyway, because that is one of the exclusions.

On childcare, we are spending an additional £200 million on universal credit and the focus of that is on families who work fewer than 16 hours a week. This investment will mean that 100,000 more families will be helped as they move into work. The Childcare Commission has been considering the cost of childcare in England and we expect its report to be published soon, so there will be further developments on that.

Turning to child poverty, by the relative income measure, the previous Government may have made some progress in moving children from out-of-work households out of poverty, but the effect on children from in-work families was considerably less. As my noble friend Lord Bates pointed out, work is the best route out of poverty. However, only 13% of the reduction in child poverty between 1998 and 2010, came from this fundamental route of families moving into work. That is where universal credit is so important: our estimates are that up to 300,000 more people will enter work as a result of the introduction of universal credit through improved financial incentives alone; 75% of the gainers from universal credit are in the bottom 40% of the income distribution.

Universal credit will make it easier for people to understand the level of benefit to which they are entitled—compared to the current complex system of benefits and tax credits—and significantly improve the take-up of unclaimed entitlements. That is a powerful tool in tackling poverty, because in 2009 it was estimated that 400,000 of the people living in relative income poverty were doing so because their families were not receiving all the benefits to which they were entitled.

I need to point out the importance of our White Paper on pensions, published earlier this week. The reforms will give a boost to the people who lost out on the additional state pension in the past, such as low earners and self-employed people. About 750,000 women who reach state pension age in the first 10 years after the single-tier pension is introduced will receive an average of £9 a week more in state pension because of the single-tier valuation. In response to the noble Baroness, Lady Hollis, this Government are committed to protecting pensioners—much though she may resent it. We have legislated to restore the link to earnings for the basic state pension, and are committed to the triple lock.

On the point raised by the noble Baroness, Lady Sherlock, about relative beneficiaries, the people in the middle have been squeezed quite savagely in recent years overall. I refer her to the interesting article in the Financial Times suggesting that those brackets were back at the levels of 2002-03, whereas the bottom 30% had increased their income in real terms by 3% or 4%.

Our fundamental welfare reforms will transform the welfare system by 2017. The replacement of many of the current suite of income-related benefits and tax credits with our flagship reform—universal credit—will provide a streamlined and transparent scheme that will mean that 3 million families will be better off, on average, by about £168 a month. In April this year, the largest ever increase to personal allowances will benefit 24 million people and lift 1.1 million people out of income tax altogether. Our tax measures, coupled with a modern benefit system, will demonstrate that supporting families remains an absolute priority for this Government.

14:29

[Baroness Hollis of Heigham]

My Lords, first, I thank all noble Lords who have taken part in the debate. In particular, I should like to congratulate my noble friend Lady Sherlock on her very impressive and superb debut on the Front Bench. It was an admirable wind-up speech and we are indebted to her. All our congratulations go to her. She absolutely rightly drew on the speeches of my noble friends who talked about carers, the self-employed and low earners, as well as disabled children and their families who are worried as their children become adults. My noble friends will allow me therefore not to repeat what she has already said. I want to take one or two minutes—I promise not to take any longer—to pick up on one or two points made by those sitting on Benches other than my own.

I welcome the speech of the noble Baroness, Lady Jenkin. Like her, I support universal credit and, like her, I prioritise the support that we need to give to families. I was sorry that she reiterated the point that tax credits had created welfare dependency. As my noble friend Lady Sherlock said, the whole push of tax credits was to make work pay—a philosophy that goes straight through from tax credits into universal credit. I hope we do not get that argument repeated again.

As I expected, the noble Lord, Lord German, emphasised the value of the tax allowance rise. Of course, I am pleased about that. However, I remind the House of the effect on someone working full time on a minimum wage—the security guard I quoted. That tax allowance increase is worth £1.71 a week. That is before the £30 of other benefit cuts kick in. The noble Lord, Lord Bates, drew on the argument that the economy is in such a state and the deficit is so high that poor children must be made poorer so that the rest of us can be made more prosperous. He failed to address the point that the big increase in benefit expenditure—which, pace the noble Lord, Lord Freud, I welcomed—has been driven by the increase in pensions spending, and that the amount of GDP going to those of working age on social security benefits has fallen since 1994 from 8% to 5%. It is simply false to say that that expenditure is unsustainable. It is about political and moral choices. However, he is right, and I am delighted to hear him say this, that a living wage would reduce the welfare bill. I hope that we can count on his active support for that in future.

I especially thank not only my noble friends but also the noble Lord, Lord Greaves, who made a brave, splendid and first-rate speech. He made points that I wish I had had the wit to make myself. I also thank the noble Lord, Lord Alton, from the Cross Benches, for his powerful, moral critique, which again reminded us of where our moral priorities should lie when we make these policy decisions.

The noble Lord, Lord Freud, referred to cumulative assessment. With the help of Citizens Advice and Landman Economics, we were able to work out pretty precisely—to within 10p or so—the total cumulative effect, since 2010, of the benefit cuts and tax changes. I did it for one family type—the security guard with a wife and two children. If we can do it over a weekend with wet towels and half a bottle of gin, I am quite sure that the Government can do it with the numbers of staff that they have in the Treasury. The answer is that the Government are not choosing to do it. They do not want to be shamed by us and others as to the effect of what they have done over time. There cannot be any other reason why the noble Lord, of all people, who has the utmost respect from the House for his integrity on these issues, and the Government continue to duck the consequences of their action by giving us the cumulative statistics today.

The noble Lord, Lord Freud, also mentioned the Laffer curve. At that point, the noble Lord, Lord Skidelsky, muttered into my ear, as others have done, that the Laffer curve, which says that the lower the tax rate the more you collect, has been discredited by almost every reputable economist in this country and in the United States. I am sure that the noble Lord, Lord Freud, knows that.

As to the noble Lord’s point about pensions, it is simply inappropriate of him to accuse me of not welcoming what is happening on the single state pension when before the general election I was one of those who wrote a pamphlet calling for it, in which I was fortunate enough to corral the willing consent of his right honourable friend Steve Webb to contributing for it and calling for it. I am absolutely delighted. The point I was making was not that I do not welcome the improvement in pensioner benefits. Of course, I do. I argued that it should not be paid for by making poor children poorer. That is the shame on this House.

Finally, the noble Lord, Lord Freud, sheltered behind averages, which of course fall in the middle of the third quintile. I was trying to describe the effects on the poorest quintile, particularly the poorest decile. He did not rebut one of those statistics.

A long time ago, the Reverend Thomas Chalmers, a Scottish Malthusian in 1819, said that character is the cause, comfort is the result. He had the excuse of not being able to read the early effects of an industrialising society and its profound effects on the poorest and the most vulnerable, and its children. What is our excuse? I beg to move.

Motion agreed.

Local Government: Finance Settlement

Thursday 17th January 2013 Lords Chamber

Motion to Take Note

14:36

Moved by

[Lord Smith of Leigh]

This House takes note of the Local Government Finance Settlement.

[Lord Smith of Leigh]

My Lords, I am grateful to have the opportunity to raise the issues created by the local government settlement for 2013-14 and for the wealth of talent from local government who will contribute to the debate. I look forward to that. I confess that I presented my first budget in 1983-84, 30 years ago. Those were tough times in the era of the Thatcher Government but not as tough as we have today. Last week, in Wigan, we agreed our next year’s budget proposals with some £18.9 million of cuts on top of £43 million achieved over the past two years.

I declare my interests: I am leader of Wigan Council, chair of the Greater Manchester Combined Authority, vice-chair of SIGOMA and one of the many vice-presidents of the LGA in this House. This year’s settlement was announced on 19 December but it was no Christmas present for local authorities. It is by far the most complex settlement ever—certainly, in my memory—and included the new system of local government finance, which was agreed during the autumn of last year and moved funding towards support from business rates. Of course, we do not understand the impact of the current rating appeals. As regards moving council tax benefit support to local authorities, I think that in the debates on the Bill, we talked about a 10% reduction for local authorities. For my authority, it will be just over 15%, so we have that to cope with. We have got changes to specific grants, such as the funding for academies. A local authority near me, Trafford, has lost about £5.1 million from this change but its total budget was only £3.3 million.

The new homes bonus has been cut. We have got new capping rules, which will allow local authorities to increase council tax by 2%. Unusually, this year we can add precepts, as well as levies, from transport authorities and others. Perhaps it is surprising that public health money allocated to local government was not included in the settlement although it has come through. Those are some of the changes but we have not mentioned the effect of the public spending review and the reduction in grants to local authorities.

During the passage of the Local Government Finance Bill, I made the point that we are transferring greater risks to local authorities with this settlement. Business rates are going to go to local authorities, as will the impact of business rate losses. A major supermarket catching fire could lead to the closure of that supermarket and, therefore, there will be no business rates. That cost will be on the local authority. We also debated for some time what the collection of council tax would be under the new arrangements. I do not think any of us expect that to be anywhere near 100%. There are one or two smaller local authorities which I think in future are financially vulnerable. We certainly need to keep a watch on that.

“Local government has borne the brunt of cuts to public spending and the settlement announced confirms that this will continue to be the case until 2015”.

Not my words, but words that I can agree with, in which local authorities have taken some 28% reductions while Whitehall departments have only taken an 8% reduction. Those words were stated by Sir Merrick Cockell, chair of the LGA, and I understand that he is leader of a local authority in London with which the Minister may well be familiar.

Despite the Government’s mantra about fairness—part of which I caught at the end of the previous debate—the cuts have different impacts in different parts of the country. Over the past two years, under the Government’s new measure called Spending Power—unknown two years ago—the average reduction for local authorities has been £91, but in Dorset the average reduction has been only £8.50. In Knowsley, it has been £229 and in the current settlement—I apologise to my noble friend on the Front Bench for making this comment—Luton has gained by £12.40 whereas Rochdale has lost by £57.50.

What is fair about a distribution that is treating local authorities so differently that they are having to cope with similar problems in different ways? How is local government coping with the scale of cuts that is forced on them? The answer is that they are actually coping a lot better than many central government departments, and achieving some of these savings largely on target. As a practitioner, I am the first to admit that there are still significant efficiency gains which local authorities can and must pursue. To give evidence for this, in my recent budget we were able to take £1 million off our IT services because we had gone out for a joint procurement with a neighbouring authority which saved that amount. There can be efficiency savings, but the scale of what is demanded of local authorities cannot be achieved.

The Secretary of State has recommended to local authorities that they should use balances. At best, this is only putting off the evil day. Towards the end of last year, I was acquainted with one local authority which, because it had been a hung council, had dithered for two years without making any cuts. They had used all the balances in making the budgets balance. However, come the third year balances have gone. They now have to get back on track and are in the process of making savings of £100 million in one year. As I mentioned, the risks for local authorities have risen because of the new funding regime and risks need to be protected by local authorities so inevitably will be to be a high level of reserves to cope with that.

In my own authority, I use reserves in the concept of invest to save, that is to spend money upfront now which will lead to savings elsewhere. We have got a significant capital programme to improve the basic quality of our road network, which is enabling us to save roughly £1.5 million a year on highways maintenance and the day-to-day repairs of patching up and so on. If you improve the fabric of the road, you can make savings. That is how we are using reserves.

We can try to make the savings by putting the cost upon our employees. For the past two years, we have had a pay freeze in local government. We have now reached the end of that road. It is time in the forthcoming year that local authority workers, like other workers, have some compensation for the impacts of inflation and other things. When we have done all those things, we are still left with reducing the services provided directly by local authorities. If we are lucky, some of these services may be taken up by community groups. We have been successful in transferring a small library to a community group, but that is a small library in a small location. Clearly it could not happen with a major library and that is only going to happen in one or two cases. In most cases, we will start to cut and reduce; services will disappear. Due to the scale of the cuts, no area of local authority spending can be exempt. The impact on individuals and communities will be severe.

Those who have seen the news today may have seen the report of the Coalition of Disabled talking about the impact of local authority cuts on people with disabilities. It says that a £1 billion shortfall will affect disabled people across the country. Some of the cuts that we have decided to make in our adult services and in our local authorities will reduce the cost to us in local government, but they will simply shunt costs across to the NHS. In a sense it is not a real cut in public spending, it is simply moving it from one area to another.

With the additional redundancies that we are creating we are doing damage to local economies and to local people in communities. I think that we are becoming a less civilised place. We are seeing a reduction in provision for the most disadvantaged and vulnerable in our society; we are seeing a reduction in provision of the arts; we are seeing a reduction in the provision of the local library service. The House has debated on numerous occasions—so I do not want to get into the detail of it—the forthcoming crisis in the provision of social care, simply illustrated I think by the so-called Barnet graph of doom. These looming pressures will and are already beginning to affect local authorities, but I want to remind Members that this is not a cost which will affect just social care. During the past few months, I have been scrutinising the budget for Greater Manchester transport to make sure that it has kept within its budget limits. It told us that the prospect of more pensioners coming through with free travel—not national but local travel—will have a significant impact on its budgets over the next couple of years.

We cannot simply continue with these slash-and-burn tactics that the Government are applying to local authorities. The cumulative, year-on-year, effect of cuts will and is having serious effects on services. Most of all, and perhaps worst of all, it is not working in what the Government want to achieve in cutting the public deficit. We estimate in Greater Manchester that the impact of the Government’s policies has been to cut about £1 billion off direct services, but because of the rise in unemployment, we are paying out more in welfare payments. Health costs have gone up, so public spending has gone up in Greater Manchester, not down.

There is a better way: the way of public service reform. Most public spending is still coping with the symptoms of problems rather than the cause. If we began a proper, full collaboration of services in an area, as shown by the community budget pilots, we could save—according to estimates verified by Ernst & Young—up to £22 billion over five years. Not only would we be saving public money but we would be improving the local economy, because the impact would be to get more people back into work. We would reduce dependency and improve outcomes for individuals and communities.

I recently visited a project for troubled families in my borough and was moved by the outcomes of, that project and by the extent to which those families lives had been turned round by the adoption of a different approach that looked to find ways to solve their problems rather than just assuming that the way to deal with them was to take the kids away.

Some parts of government get sufficient support, but clearly not all do so. The settlement also contained a significant reduction in the early intervention grant. My authority received a grant of £4 million. This was money to help children’s development in the crucial early years and is a way of reducing dependency, but the money disappeared.

I would like the Minister, in replying to the debate, to say that she will tear up the 2013-14 settlement, but I do not expect that she will. However, there are three things that I hope she will consider seriously when replying. First, it is a new system, so let us see whether we cannot carefully monitor the impact that this complex settlement is having and show willingness, if it is necessary—I think that it probably will be—to intervene in-year if the consequences for individual local authorities demand it. Secondly, let us begin an early dialogue with local authorities on the forthcoming settlement for 2014-15, which will, following the autumn spending review, result in more misery for local authorities. We will need to think about that. Thirdly, I hope that we can have serious conversations with willing local authorities on the reform of public services, which will produce better results for everyone.

14:51

[Lord Tope]

My Lords, I begin, as I always have to do in these debates, by declaring my interest as a councillor in the London Borough of Sutton. Given the subject matter under debate, I now have to add that I am a very recent member of its pension scheme and am therefore entitled eventually to receive a tiny pension.

The noble Lord, Lord Smith, began with his confessions. If it is something to confess, then I confess to moving my first budget as a council leader back in 1987, although for the previous 12 years I had explained to the Conservative authority how it could do better; indeed, ever since Anthony Crosland declared, within months of my election, that I had missed the party.

I thank the noble Lord, Lord Smith, for today’s debate and for the rather measured way in which he introduced it, although his unprovoked attack on Luton was a little unjustified. I agree with the comments he made towards the end of his speech concerning the need for public sector reform, and most particularly the opportunities that must exist not only for budget savings but for much better and more efficient working from what is now known as community budgeting. I wish that we could move a lot faster than seems to be the case thus far. That offers considerable opportunities.

While I thank the noble Lord for the debate and well understand why the Opposition chose to highlight this subject, the timing is a little unfortunate in that the consultation has just ended. If the Government already have a settled view, it is certainly not one that the Minister will be in any position to give us today; nor, therefore, do I imagine that she is likely to give us many clues as to what will be in the final settlement announcement when it is made. However, I hope that she will be able to respond to some of the points that will be made today.

As the noble Lord, Lord Smith, said, this was the latest ever settlement announcement on record, having been announced just before Christmas. Indeed, some necessary information was still awaited only a few days ago, not least the public health funding announcement, which was made just days ago. It is hard enough in a normal year—if there ever is a normal year—but this is a particularly bad year for this to be happening given the scale of change that has to take place in local government. Local government has to deal with the effects of previous years’ budget reductions, which are still working their way through the system, although the localisation of business rates was a very radical and welcome change, and we spent many happy hours debating in this Chamber the changes in the council tax support scheme. All this is coming at once and having to be coped with by local authorities, most particularly by staff in their finance departments. I hope that the Minister will pay tribute to their work and to the achievement of local authorities generally, councillors and particularly staff, and most especially staff in the finance departments. I am fairly confident that she will do so, given her background. That would make a very welcome change, not on the part of the Minister but as regards some comments made in the other place, which, frankly, make people in local government feel even more misunderstood and unappreciated. Kind words cost nothing but sometimes reap considerable benefits.

I think we all recognise that the late settlement to which I have referred was beyond the control of DCLG Ministers. Nevertheless, it was imposed and it has made life more difficult. However, the greatest innovation occurs in difficult times. I often wish that that were not so. Probably the greatest time for innovation is wartime. None of us would wish to experience that again, although sometimes it feels a little like that for local authorities. I wish that we could achieve that innovation in a rather more measured way and with a lot less pain than is being inflicted on us now. Nevertheless, we should recognise that, largely as a result of the unwelcome budget reductions and the scale and speed of those reductions, greater innovation is emerging.

We also see at this time of the year what I regard as the annual ritual of the local government finance settlement. It seems to bring out not only the best in some but the worst in everyone. For as long as I can remember, Ministers in all Governments have always claimed that the settlement was very much better than it ever turned out to be. I have been watching this ritual every year over 40 years. Local government always claims that it is the end of the world as we know it, but the world is still here and we still survive. Councils then enter into a bitter battle. Wigan attacks Luton, the north attacks the south, we argue with each other as to who is worse off, and urban authorities attack rural authorities. All this is done to get a larger slice of a cake, the size of which is never going to change. In doing that, we know that one authority’s gain will inevitably be others’ loss. What made this worse—this is perhaps one of the reasons why some northern authorities feel that they are getting a worse deal—was the very large share of local authority funding that came from central government and local authorities’ dependence on that. Too many local authorities all over the country—I suggest that this applied to a greater extent in the north than generally in the south, excluding some in London—were heavily dependent on central government funding. Inevitably when that funding is reduced, as it has to be, they feel the effects rather more. I hope that that will start to change as local authorities become increasingly able to raise a greater proportion of their budgets.

The noble Lord, Lord Smith, referred to a 28% reduction. That was, indeed, the figure from the DCLG for the reduction in the local government finance settlement. However, as we know, other departments have also required local authorities to implement their budget cuts. I have seen estimates of the actual reduction in local authority budgets ranging certainly between 32% and 35%, and in some cases the reduction is higher than that. As we all know, as the public sector funding cuts begin to bite, local authorities will inevitably have to curtail the expectations and needs of their staff.

I have stated that I am a London councillor and therefore I want to conclude with some issues of particular concern to London councils, although they have a wider application. The first is the results of business rate revaluation appeals. According to Valuation Office Agency data at April 2012, 24% of all appeals are in London and they represent 28% of the total rateable value of the local list in England. This must mean that the value of appeals in London is likely to represent much more than 24% of the England total. However, because the Government have used an England average to adjust the estimated business rates aggregate downwards, the adjustment is not enough to reflect accurately the size of appeals that London boroughs are likely to face. In other words, London boroughs’ baselines are likely to be artificially high, thereby leaving them more vulnerable to funding shortfalls.

London Councils has asked the Government to monitor the adequacy of that sum and I hope that the Minister will at least confirm that that will happen. Of course, London Councils is also urging the Government to address any such shortfall under the new burdens procedure. I suspect that the Minister will feel unable to give that commitment today but I hope that she will take it away and argue for it elsewhere. Finally on this subject, will the Minister confirm that, if appeals are successful, local authorities will have to reimburse businesses straight away but will only get reimbursement from government over a five-year period?

Another concern for Londoners is the proposed transfer of £150 million of undamped grant from urban to rural areas. The impact of this change will fall disproportionately on London. On London Councils’ analysis, this suggests an overall funding loss of around £75 million in undamped grant for London. I know that the Minister cannot make any substantive comment on this today, but I hope she will confirm that any such changes in the final settlement will be accompanied by robust factual analysis to support them. I know that London councils have made their own representations individually and collectively to Ministers and I have no further time to add to those.

I echo the words of the noble Lord, Lord Smith, in introducing this debate. Local government generally has performed exceptionally well under exceptionally difficult circumstances. It is widely recognised as the most effective and efficient part of the public sector, and it may be that local government should be giving 50 top tips for saving money to the Secretary of State rather than the other way round.

15:02

[Lord Beecham]

My Lords, last week the Government published their mid-term review. It was not so much a candid assessment of their first two-and a-half years as a Candide assessment, where everything is for the best in the best of all possible worlds. We read in the document that the “shared instinct for decentralisation” on the part of Tories and Lib Dems has apparently become “an organising principle”, with,

“an historic shift of power ... to put our counties, cities and citizens … in control of their own affairs”,

with,

“sweeping reforms to increase local authority freedom,

and,

“the ability for councils to finance themselves independently through retaining 50 per cent of the business rate”.

The latter, of course, is determined by the Government. Yet Eric Pickles was the first Cabinet Minister to offer up cuts, in his case of 30%, to the Chancellor after the election—nearly four times the scale of cuts suffered by other central government departments. He continues to preside over a massive reduction in resources on a scale unprecedented even by the standards of the Thatcher years. Characteristically the finance statement and its accompanying documents were riddled with inaccuracies, so that the website had to be taken down after representations from council treasurers. Equally characteristically, the Secretary of State not only underestimates the scale of next year’s cuts, he said next to nothing about the even bigger cuts to follow in 2014-15, which for many authorities are likely to be in the region of 7% to 8%. Perhaps he had in mind consideration of the forthcoming county council elections. The pain would to some degree therefore be deferred until the following year.

The Government seem determined to move inexorably away from a needs-based system which, for all its unevenness, at least sought to address the disparities between more and less prosperous areas, to one based on crude numbers. However, there are matters of general application and I will return later to the issue of distribution. These are matters which have occasioned profound concern across the local government family and the political divide within it. For example, the Local Government Association—yet again I declare my interest as an honorary vice-president and as a member of Newcastle City Council—draws attention to what is a real cash cut in services for all councils so that a few might be permitted to capitalise up to £100 million of redundancy costs from capital receipts or borrowing. No proper explanation has been given for this cut, apparently made for “accounting reasons”. Perhaps the Minister will give us the reason—if not today, then subsequently. Perhaps he will also explain where the £100 million of local government cash has gone.

Similarly, as the noble Lord, Lord Tope, has pointed out, many councils will face problems over rating appeals, many going back several years. It would appear that they face the risk of having to fund 50% of the backdated costs of successful appeals, even though the money will already have been paid into the national pool. That risk should ideally stay with DCLG. I understand that the department is providing funding to cover this for a period, but what are the Government doing to secure the expediting of hearing appeals by the Valuation Office? I illustrate the problem by referring to my own authority, where there are outstanding appeals against the valuations on the 2005 basis on 100 properties with a rateable value of £30 million—that is just for one local authority—and the DWP has made the largest claim, which goes back over six years. What action will be taken to deal with that?

There are other common issues, for example a further cut of 30% nationally in core services such as childcare, cuts in support for concessionary travel, and youth and education services, and the holdback of £150 million of early intervention grant which also comes with a 28% reduction compared to the present year. In addition to these significant issues there are huge problems around issues of distribution. It is here that the seismic shift from a needs-based approach would be most keenly felt. This is not a simple north/south issue. Inner London boroughs, coastal towns such as Great Yarmouth and other communities—some urban, some rural—with significant economic and social problems in different parts of the country all suffer, although if you look at the regional map, there are marked regional differences.

Consider the new homes bonus, largely financed by top-slicing money which would have come to local government anyway—a fact often forgotten. The effect is to divert resources from the less prosperous areas to the more prosperous, where the housing market is more buoyant. Newcastle will admittedly benefit from the bonus, to the extent of a little over £3 million. The problem is, we lose nearly £6.5 million as our share of the top-slice grant, so we are nearly £3.5 million worse off, despite making significant efforts under councils of both political persuasions to facilitate new homes building. Note too the perverse effect of the damping regime, which funnels moneys from authorities losing significantly more spending power per head than some of those who receive it. I referred in a previous debate to the £40 million that Surrey received last year, which went straight into its reserves. This apparently will increase to £63 million next year and will be built into the base thereafter.

Next year Wokingham, which Ministers perversely cite as a comparator to Newcastle—although I have not heard the noble Baroness do that yet—will receive £204 funding per dwelling in damping grant. That is three times the amount for Newcastle, which has had much larger grant cuts per dwelling in recent years. This comparison is wholly invalid. The Government have cited a difference in spending power—that is to say council tax, business rate and grant—of £700 per dwelling, but half of that is due to the higher costs of adult and social care in a much poorer and less healthy population, one-sixth to council tax support, another sixth to grant for homelessness, £95 of the £700 for children’s social care—and we have proportionately four times as many children in our care as Wokingham.

The Minister recently wrote to my noble friend Lord McKenzie with some information about the Social Fund allocations. It is very illuminating, because it emerges that the Social Fund allocation to Newcastle, which must surely be a critical measure of deprivation, is 15 times the size of that for Wokingham. Even allowing for some adjustment for population there clearly is a huge disparity in need, yet the current system does not reflect it and is decreasingly reflecting that. It wholly invalidates the comparisons that Ministers are drawing.

Another instance is the funding for concessionary travel. We receive four times Wokingham’s funding for that but our costs are nine times greater. What is true of Newcastle is true of much of the north-east and other hard-pressed regions. The north-east as a whole will lose £275 million under the new homes bonus schemes by 2018. There are real concerns about a cut in resource equalisation and the 30% cut in support for looked-after children, where the numbers and costs are increasing by 26% in the north-east compared with 10% nationally—a function of the region’s economic plight.

In Northumberland, a county with the second longest road mileage in the country, apparently with the same area as Cyprus and much of it exposed to extremes of bad weather, government funding for highway repairs will fall by more than 40% by 2014. My city faces a yawning gap of £100 million a year by 2015-16 on a current net budget of £266 million. The closure of the gap will require cuts of unprecedented magnitude. In the ward that I represent, which is among the 10% most deprived wards in the country, we expect there to be the closure of community buildings and a playcentre, and a reduction in standards of maintenance of open space, before one takes into account the significant loss of income that many constituents will incur as a result of the benefits changes. Other councils in the region face similarly appalling prospects as the relative needs assessment reduces by £573 million, compared with an increase in the central share of £871 million—and that is just for next year.

What does the Secretary of State have to offer? Fifty shades of Pickles, it seems. He provides a patronising list of possible savings, from the stultifyingly banal, such as not providing mineral water for council meetings, to the patently obvious, such as increasing council tax collection—although that will not be easy in light of the council tax benefit cuts. It will become uneconomic to collect tiny amounts from people who can barely afford to pay and who did not have to pay in the past. I say nothing about the bill for biscuits in the Department for Communities and Local Government, which apparently increased by £10,000 last year. The Secretary of State ignores local government’s record in driving through efficiencies for many years—to which the noble Lord, Lord Tope, referred—leading the way for the public sector, just as he ignores the damage to local services and the communities they serve in the damage this Government are wilfully inflicting, especially on those areas and their people who can least bear it.

My noble friend Lord Smith and the noble Lord, Lord Tope, referred to public service reform. It is right that councils should do more to collaborate and make savings, not merely among themselves but across the whole public sector. I recently asked a Question about that. I look for collaboration between the Government and local government across the whole range of the public sector to engender savings that might, to some degree, mitigate the disaster that is about to strike our communities.

15:13

[Baroness Smith of Basildon]

My Lords, I am grateful to my noble friend Lord Smith of Leigh for providing the opportunity to have this debate about the local government settlement. It is clear from the speakers’ list and from what we have already heard that there is a huge amount of experience in your Lordships’ House. I suspect that across the Chamber our reasons for taking part in this debate are similar—we value and support local government, not as an entity in itself but for what it can achieve. I spent eight years as a county councillor in Essex, my degree is in public administration, I have worked in local government and was a Local Government Minister here and in Northern Ireland. There were times as Minister when I felt that I was a poacher turned gamekeeper, turned quarry—as I am sure the Minister will understand. I am also a vice-president of the LGA.

We have heard details of level of cuts and I want to focus on the impact of the financial settlement. My noble friend Lord Smith was clear; we are not against efficiencies or genuine savings, but this settlement goes way beyond that in its expectations. In 2011, Secretary of State Eric Pickles, in his inimitable style, told his party conference that local government could, “do more for less”. This financial settlement is certainly testing that premise. Joanna Killian, who chairs the Society of Local Government Chief Executives and is the chief executive of Essex County Council, expressed her concerns that the,

“local government settlement confirms that local government will continue to bear the brunt of public sector cuts”.

She warned:

“This settlement will increase the risk of more councils being financially unviable”.

That view is supported by a recent report by the Audit Commission—soon to be abolished by the Government —which states that auditors consider 43% of larger single-tier councils and 34% of district councils to be at short-term or medium-term risk. There is no party-political divide on how dangerous the situation has become. That is a professional assessment from auditors, councillors and officials. The leader of Kent County Council, Conservative councillor Paul Carter, warned,

“the tank is running on empty”.

Sir Merrick Cockrell, the Conservative chair of the LGA, called the cuts unsustainable. The notion of making changes at the margins, cutting back on some services, and increasing or introducing reasonable charges has gone. We now face a fundamental re-evaluation of what local government is able to do.

While the Government talk of localism, every action they take removes not just money from local authorities but the power to tackle those very problems in society that the Government are exacerbating. I accuse Ministers of misleading local government about their intentions regarding what local government can and should do. When the Localism Bill received Royal Assent, Ministers hailed the legislation as,

“the biggest transfer of power in a generation, releasing councils and communities from the grip of central government”.

When Eric Pickles became Secretary of State, there was a view that as a former council leader he knew the value of local government. He even spoke of the “power shift” from national to local. A hugely entertaining read, in retrospect, is his speech from the Conservative Party conference in 2011. He said that in comparison to Whitehall local government has been the most “efficient part” of the public sector. “My friends”, he said,

“you can feel that power is shifting … from Whitehall to councils … Together we will shake off the shackles of Labour and Britain will become great again”.

I allow some leeway for conference rhetoric but Ministers perpetuated this myth as they pushed the Localism Bill through Parliament.

We often hear talk of power without responsibility but the way in which this Government are treating local authorities is the reverse. This is passing on responsibility without power. Ministers repeatedly state that budget decisions are the responsibility of local councils and that they should decide where the axe will fall. But it is central government—despite warm, meaningless words from Eric Pickles that local government is the most efficient part of the public sector—that hands down the budget on which councillors have to balance the books.

If central government decides the funding levels it holds the power and all that local government is left with is the responsibility—responsibility for trying to manage cuts to have the least impact. This is passing the buck. While local councils are trying to provide services, most of them statutory ones that the Government say that they must provide, the Government are removing the resources that allow them to do so.

Here are some examples. Labour-controlled Thurrock Council, which is a unitary council, is seeking to manage cuts of £13 million this year. One of its difficulties has been the relatively new government concept of “spending power” that assumes councils are able to raise the same level of council tax next year as they are this year. The new local council tax support scheme that replaces council tax benefit means that there is a significant difference. In Thurrock that will be a reduction of more than £8 million. I wonder if the Government really understand the impact of their policies.

Conservative-controlled Southend Council, along with many other councils, 10 of which are Conservative, has rejected the Government’s plans for a further freeze on council tax as being unworkable, despite having to make significant and damaging cuts. Recently, Southend Council leader Nigel Holdcroft said:

“We no longer have any leeway and we have to make real cuts to services … to balance our books—and that involves making some very hard choices”.

Even Conservative councils, which clearly do their best to support their Government, find the Government’s financial settlement unworkable. Southend is not alone. A number of other Conservative councils have not taken the Government freeze this year.

Earlier this week at the council of my home town, Basildon, virtually every member of staff was handed a personal letter headed, “Transformation programme: collective redundancy consultation”. In all my years involved in local government I have never seen anything like it. I quote:

“The reduction in resources and the expectation of localism means the council needs to work together with partners and local people to create an environment where everyone can thrive ... The role of the council is changing from simply doing things for people to one of working with them to do more things for themselves”.

That may be worthy of “Yes Minister” but it goes on to promise,

“a varying degree of change for all of us”.

Not quite all, as I shall come on to. The real purpose of the redundancy consultation is to warn staff that,

“there is a risk that the council will be unable to continue to provide work for all its employees”.

In other words, not a single member of staff, other than the most senior, I understand, has job security. Everyone who has received that letter is being made aware that their job is at risk. Why otherwise would they be sent the letter? The deputy leader of the council has already said that he expects up to 200 redundancies in the next few months. And there will be more to follow. How did those staff, many long term and not on high salaries, feel when they went home that night—numb, scared? They were certainly demoralised. As I have mentioned before in your Lordships’ House, this is the same council which, apparently against advice from the Secretary of State, will pay a part-time executive director £100,000 a year and according to reports from council documents paid its top 12 earners £200,000 more than in the previous year, 2011.

The council refuses to release information to the public to confirm and explain this arrangement, despite having received a letter from the Secretary of State that ordered it and every other local authority to release details of salary and perks paid to senior executives. Is it a coincidence that a council that behaves in this way to its staff has seen long-term sickness almost double? In six months from April to September 2012, mental health has been the main cause of long-term sickness absence and has risen from fewer than 100 days to more than 200. That information comes from a publicly available council document.

There is a serious implication here for administration. Cuts in staff have an impact on the scrutiny of the administration. Last week, when Councillor Gavin Callaghan received an inadequate response to an inquiry regarding unused and vacant buildings locally, he was told that it would do its best to provide information but that it was “quite short staffed”. The information was required for a meeting last night. He asked for the information more than a week before. However much they wanted to, the staff was unable to help. Effective governance needs effective scrutiny. Opposition councillors can fulfil their scrutiny role only if they have the information to do so.

My final point on Basildon Council regards apprenticeships. Yesterday the council issued a press release congratulating itself on participating in a careers convention for schools and its offer of apprenticeships. I am hugely supportive of apprenticeships but I am very concerned at reports that as staff numbers are reduced apprentices are moved into their desks to undertake some of their work. This of course is much cheaper.

My last comment on the settlement is to remind ourselves that police and fire services are also affected by these cuts. I am appalled that Essex no longer has a single 24-hour police station. Only yesterday, we saw the London police and fire and rescue services respond so quickly to the dreadful helicopter crash at Vauxhall Cross. London fire services are facing the loss of 12 fire stations, two of which attended Vauxhall, 18 fire appliances and around 520 staff.

Some weeks ago I met representatives of the Metropolitan Fire Authorities about the budgetary pressures that they face. They were pragmatic and professional but clearly very concerned. Ministers will have to be very confident indeed that there are no public safety implications if they go ahead with these significant cuts to the fire service. To find a way forward, a representative of the Metropolitan Fire Authorities has asked the Minister whether the discretion afforded to the eight fire and rescue authorities to raise council tax precept by just £5 can be extended to all fire and rescue authorities, given that their precept levels are relatively low. I hope that the Minister understands their anxiety and can give a response.

Local government services range from the major life-changing and enhancing to the mundane but include those services that bind and connect communities and make a difference to their way of life. I am known to be pragmatic and practical, so I am not exaggerating when I say that this Government are putting too much of that at risk. I hope that the Minister can reassure me that that is not the case.

[Baroness Garden of Frognal]

My Lords, I remind noble Lords that timing is very tight. I ask noble Lords to sit down as soon as the Clock hits 10 minutes.

15:24

[Lord Greaves]

My Lords, I, too, had to present council budgets a quarter of a century or so ago. The one that I particularly remember was in 1990, which was the poll tax budget. Pendle was particularly badly hit. The then director of finance and I kept reminding ourselves of what happened to Wat Tyler after he organised poll tax riots 500 or 600 years earlier. The result of it all was that the electors decided to remove me from the council and the director of finance became the chief executive. He is still there and the electors have recanted. Therefore, I declare my interest as a member of Pendle Council, a member of the executive and a vice-president of the LGA.

I want to talk about a group of councils that I think was alluded to by the noble Lord, Lord Smith of Leigh, which I call the sorry seven. They are seven ordinary shire district councils that are being clobbered even harder than everybody else by this settlement. They are Hastings, Great Yarmouth, Barrow-in-Furness, Bolsover, Hyndburn, Burnley and Pendle. They are two seaside towns, with all the problems of declining seaside towns over the decades, and five former industrial areas in the north of England, if Bolsover is in the north of England. I cannot speak in detail on all of them but they are all very similar and I can certainly speak about Pendle, which is a district of 90,000.

The first problem with districts such as this, typified by Pendle, is that 70% of our houses are band A for council tax, so there is no great resource that we can rely on compared with other councils. The problem with business rates is that they have been declining in many parts of the borough over the years because they were based on old mills, many of which have gone and are still being removed. Indeed, the owners of old mills are still demolishing them in order to avoid paying business rates. We need an expansion of our industrial and commercial base. Achieving that in areas such as ours requires public sector investment—not completely public sector but with partnerships and all the rest. At the very least, it requires public sector seed corn and assistance. If councils have no money, they will not be able to do this and the result will be that the business rate base will decline.

The sorry seven councils, because of the lobbying that they have done and the problems that have been pointed out, are now eligible for something called the efficiency grant, whereby Ministers will try to micromanage them in a number of different ways that they think are desirable. Why Ministers such as Brandon Lewis or Eric Pickles should want to micromanage Hastings, Pendle or even Great Yarmouth is a mystery, but there we go.

The Government say that the top cuts for any council are 8.5%, but if you do the sums for councils such as Hastings and Pendle in cash, the cut in cash grant this year is 17%. Even if you include the small amount that these places get for the new homes bonus, the cut is still 15%. It will be even worse in 2014-16.

I have some projections of the total core revenue funding that has been available over the years to my council and is now projected. The total funding for 2009-10 was £13,186,000. Some noble Lords will think that these are tinpot little places but they are shire districts. They are not bad places but we do not have as much money as big councils. The projection for 2014-15, which is five years later, is £6.9 million. When my noble friend said that some councils might have a 30% cut over that period, we are talking about a 50% cut, more or less. That is the scale of the disaster that is affecting the sorry seven—this small group of small councils, whose problems could be solved by the Government with relatively little money but they are not doing so.

As far as we are concerned, we have done everything that they wanted us to do— or almost everything because we have not abolished our chief executive. We cannot understand how you can run a council without one and a half chief officers and directors, which is what it will become. We have an arm’s-length leisure trust and we have stock transferred our council housing at the behest of the previous Labour Government because they were bribing us with vast amounts of money to do that. We have outsourced many back-room services and a front-counter service and got the private sector partner to build new offices in the middle of Nelson. We have a highly successful joint venture with a local development company, whereby it raises two-thirds of the finance, the council raises a third, and most of that is put into land, buildings and so on. However, without any money you cannot go on doing things like that for ever.

We have had a radical stripping-out of top officers. We are supposed to be in the top 10 most efficient councils in the country—I do not know how people work that out, but that is what is said—and we have apparently had more awards than any other council this year. However, it makes no difference. We have to subject ourselves to this extraordinary procedure, whereby Ministers in the DCLG will assess whether we have qualified for this new efficiency grant. Of course, we have to assume that we will get it in order to make any sort of sensible budget. If we did not assume that the £1 million or so in efficiency grant that is being offered will come, we would be in even worse straits—and yet, how do we know that we will get it? The whole system that is set up for this small group of councils is absolutely crazy; nobody could dream it up.

I will say a few words about the new homes bonus, which other noble Lords have mentioned. According to our chief executive, who spoke to me this morning, the new homes bonus is “at the heart of what will kill Pendle and councils like it” in the next two or three years, and that applies not only to the sorry seven. As has been pointed out, the new homes bonus is topsliced; it is taken out of the general fund for local authority spending from the Government. It is then paid to councils where houses are built and occupied. In other words, it is a transfer of funds from areas where housing is not being built to growing areas, where it is. On the face of it that seems quite reasonable, so why not do it?

The first reason is that whether you are able to build and occupy houses in your area is not under local control. Even with social housing we have problems making the figures stack up with the rules laid down by the Government and the Homes and Communities Agency. However, for commercial housing you have to have people who are prepared and want to build houses in a sensible way in sensible places in your area. If you are not in a booming or growing area, that is not very easy. The new homes bonuses that have been allocated so far have not been on the basis of recent decisions anyway, but on the basis of historic actions and decisions—what people put in local plans three, four or five years ago—that bear no relation at all to present policies. There is no damping mechanism on the new homes bonus as there is on the change in business rate system, so it is simply taken away and handed out to other places.

If I understand the figures correctly, the new homes bonus in 2013-14 for new properties—the rest make only a slight difference—will be: £116 million for the south-east councils; £144 million for London; £57 million for the north-west; £21 million for the north-east; and £53 million for Yorkshire and Humberside. In other words, London and the south-east will receive £260 million and the three northern regions will altogether receive £131 million.

I will not say that there are no places in London and the south-east that have needs similar to those of much of the north of England. However, that allocation, on the face of it, seems to amount to a redistribution of funding and resources from the north of England to London and the south-east of England. The Government need to answer the question of how that can be justified on any basis that is in any way related to actual needs and what people do on the ground, and I seriously wonder if the Government will be able to do so.

15:35

[Baroness Armstrong of Hill Top]

My Lords, first, I apologise for being late and I thank Members on the Front Bench opposite for their indulgence. I got to Durham station in good time following a meeting in County Hall first thing this morning, only to find that the train I was due to catch had been cancelled because of a body on the line, and the next train was half an hour late, so I am afraid that I missed the beginning of my noble friend’s speech. I want to intervene only briefly, I hope.

Despite all the rhetoric, I am concerned that this year’s settlement is far more complex than previous ones and that therefore it is much more difficult for authorities to work out precisely what they will be getting. Indeed, certain grants have not yet been announced, but here we are at the end of the formal consultation period and at the point where, by law, local authorities must make their decisions. I had hoped that the impact of localism would mean that the settlement would be much more simple and straightforward, but in fact the opposite has happened. It means that localism is not yet a reality. Elements of the settlement are being tied in for a long period, which goes against the principle of fairness. Local authorities largely now try to plan over a three-year period but, because of the lateness of the settlement, they are not in a position to do that with confidence. They now rightly consult their local council tax payers and residents much more than they ever did, but that is being made more difficult when they do not have clear figures with which to work.

I come from the voluntary sector and I declare my interests in all the charities that I am involved with in the north-east that inevitably work with local authorities. They do not know what their allocation for next year will be, so many of them are having to put workers on 90-day redundancy notices in the hope that it will not be necessary but, none the less, they are having to do so in order to comply with the law. That causes great unrest in those charities.

The settlement this year has come inordinately late. Only last Friday did authorities learn about their public health settlement, while many other aspects have not yet been decided. I do not think that that is acceptable to authorities, so I would beg the Government to improve their performance next year. As my noble friend Lord Beecham said, on top of the settlement arriving only on 19 December, which is very late—in the department I used to try to insist that it was delivered during the last week of November at the latest; that deadline subsequently slipped but I think it is what central government should go back to—it is also true to say that there were a lot of mistakes in it. Even the overall amounts in terms of spending power were quite wrong when the settlement was first made in December. It has been incredibly difficult for local authorities to work out with their partners and stakeholders just what the impact is going to be. My noble friend Lord Beecham also pointed out that this has had a real effect on the distribution of the settlement.

I am at a loss to understand why deprivation has so little impact on the decisions being made around the settlement. I wish to goodness that we did not have to say in the north-east that we continue to have more people unemployed, more people on low wages and therefore more people on benefit than in other parts of the country, but we do. That is the reality. That reality means that the needs which local government has to respond to are greater.

On top of that, the Government have set the damping arrangements in stone until, I understand, something like 2020, which I find inexplicable. In my era, damping always caused us enormous problems. Nobody liked it and everybody asked why it was necessary. I used to spend my time explaining that, if you are losing a lot of money, you need a bit of time to adjust. This year, however, damping is working the other way. In Durham, although we are losing, on current projections, over £200 million during the period to 2018, this year we will have to contribute over £9 million to the damping grant, whereas—as my noble friend says—Surrey will receive £59 million. In fact, Surrey is getting an increase in its settlement, whereas Durham is getting substantial decreases in the basic settlement, yet it still has to contribute to the damping, which will give Surrey even more money to distribute to its less deprived population. This seems inexplicable, and I have had difficulty in trying to rationalise it with people, particularly councillors in the locality.

Deprivation raises its head very quickly in all sorts of ways. In Durham this year, we have to make available services for the homeless for the first time ever. The charity that I am involved in has just entered into a contract with Durham County Council to offer services to rough sleepers. There have been homeless in the city, but rough sleepers have never been found there before. That is a consequence of deprivation and of the changes that are going on at the moment, and the local authority has responsibility for it. I would be having a go at the authority if it did not accept that it has a responsibility to respond to this. However, it costs money. Although it is not a massive amount in terms of the overall budget, it is a reflection of that deprivation, and we fear that the changes in benefits on 1 April will bring further challenges. There are huge challenges to local government. I have a rule in the charity that we do not whinge. We are not whingeing; we are asking for timely, proper announcements, and for recognition of deprivation and the cost that that deprivation implies.

15:43

[Lord Shipley]

My Lords, I declare my interest as vice-president of the Local Government Association. I thank the noble Lord, Lord Smith of Leigh, for initiating this debate, which gives us an opportunity to contribute to the national debate on the settlement.

The funding cuts for local authorities are worse than expected. It is not clear to me why local government has had to absorb such large reductions, nor do I think it is right that the 28% reduction in government support funding over the four years of the current spending period is now, in practice, nearly 33%. The pressure on services, particularly adult services, is very great and the extra 2% cut now planned for 2014-15 is a step too far—not least because cuts in government support impact particularly hard on those councils more dependent on government grant. In terms of the outcomes from the consultation I hope that the Minister, together with her colleagues, will bear this in mind.

In this debate I want to concentrate on council tax: the levels of council tax charged by local authorities in England and the consequences of a year-on-year freeze. In too much of the public discussion about the cuts and the fairness of them, the role played by council tax in alleviating some of those cuts has been strangely absent.

The public debate over the settlement has been dominated by those trying to persuade the Government to adopt their definition of fairness. Never in the history of local government settlements have the words “fair” and “fairness” been used as much as they have in recent weeks. The Government claim that the settlement is fair to everyone. In the settlement announcement on 19 December, the Secretary of State said:

“This is a fair settlement, fair to north and south, fair to rural and urban areas and fair to shires and metropolitan England”.—[Official Report, 19/12/12; col. 1604.]

Northern councils argue, correctly, that they face much bigger cuts than councils in the south and say that this is unfair. Some councils in London face much bigger cuts than elsewhere in the south too. Overall, the reductions in the more deprived areas are twice the average reductions across the country. However, councils in the south counter that the level of support per head in the north will still be much higher than in the south even after the latest round of reductions in government support.

Rural councils complained in late December that the spending settlement hits rural areas harder than urban ones. In the summer, south-east councils published a report claiming that a fairer deal was needed for the south-east, because south-east residents faced unfairly high levels of council tax as a direct result of low central funding for south-east authorities. They pointed out that per capita grant allocations in the south-east outside London were half the level of London and of the metropolitan areas.

So, perceptions of fairness vary. Equalising resources through government funding is surely fair, as a principle, but is it not also fair that levels of council tax charged should be more equal between different councils? Some councils charge more than others despite being in the same part of the country. Similar properties, with householders on similar income levels and with similar household costs, can pay widely different amounts of council tax.

As an example, the average council tax this current year in my home city of Newcastle upon Tyne is £1,039, which is the third-lowest in the north-east and which, incidentally, is £540 lower than Wokingham. The lowest average council tax in the north-east is £904 in Sunderland and the highest is Redcar at £1,166—a difference of £262. At band D, the highest in the north-east is £1,681 in Hartlepool and the lowest is Sunderland at £1,343—a difference of £338. However, household incomes, housing costs and the general cost of living are not that different across the north-east. So why is there a demand that only the Government should solve the funding gap for a council which charges lower council tax than its neighbours when it could raise extra income by charging a council tax closer to their level?

I will go a little closer to home. On average, a Newcastle household pays £1,039, which is £20 less than a Gateshead household, which pays £1,059. At band D the difference is greater: Newcastle charges £1,512 but Gateshead charges £1,600—£88 more. If we compare Newcastle to Northumberland, with which it shares a boundary, we find that although Northumberland charges broadly the same as Newcastle at band D, at £1,504, the average household in Northumberland pays £1,155, which is £116 more than the average payment in Newcastle. I am puzzled by why these differences are not being publicly discussed. Simple arithmetic tells us that a small rise in council tax to the level of a neighbouring council could generate significant sums to alleviate, for example, proposed library closures and cuts in cultural support over the next three years.

This takes me to the issue of whether council tax should be frozen. When the new Government proposed a zero council tax rise in their first year of office and gave councils an equivalent grant to cover the cost, I was in agreement with that freeze, having in previous years supported raising council tax by the rate of inflation and dealing with other rising costs through driving major efficiency measures. However, since the first year of the council tax freeze, despite the offer of time-limited freeze grants, councils have had options. In the current financial year, four north-east councils, all in the Tees Valley, raised council tax by 3.5%. They were prudent.

This year’s offer of a 1% freeze grant when costs are rising higher than 1%, and when councils could raise council tax by up to 2% without calling a referendum, needs to be thought about very carefully. Councils which continue to freeze council tax, possibly for two further years, making five in total, will end up in even greater dependency on the Government for their income. I think that this is a very dangerous strategy. Councils need greater control of their own finances by generating a stronger local tax base, which will in future, of course, include building business rate growth in which they will share financially.

The Secretary of State has said recently that councils have a “moral duty” not to increase council tax. I would not have put it like that. Surely the moral duty of councils is to deliver services needed by their residents, particularly those who are less well off. Councils could, of course, help themselves more by driving greater efficiencies in the way that they work. As an example, in his settlement announcement the Secretary of State said that if councils merged their back offices like the tri-borough initiative in London, they could save £2 billion. If those figure proved to be true, it would mean that there is potential for saving more than £20 million in Tyne and Wear—money that could be redirected into service provision.

I understand from the press that more than 20 councils in England are reported to have considered their financial position in the context of whether council tax should be frozen, and they have rejected this option and are planning to raise council tax by up to 2%. Of these, 10 are Conservative run. I think that they are right to choose to do this if they see it as being in the long-term interests of their residents. This is localism in action. It reduces dependency on central government and can avoid cuts to services. Crucially, it provides greater financial stability.

However, what if councils think they should raise council tax by more than 2%? The Secretary of State said in his settlement announcement that holding a referendum would be,

“democracy in action: if you want to hike taxes, put it to the people.”—[Official Report, 19 December 2012; col. 1603.]

Yet, apparently, none plans to do so. So, why do councils shy away from holding referendums? I am regularly told that it is not worth doing because there would be a no vote if a council went to a referendum. I doubt that that would always be true. Are those councils really saying that they are so detached from their voters that even a reasoned case would be rejected?

I think that councils need to show much greater leadership and self-confidence rather than putting all their efforts into trying to persuade everyone that this is only a matter for the Government to address. If they genuinely believe they cannot drive further efficiencies, why do they not put their case to their voters? If it is really true that libraries have to close, swimming pools are at risk and that cultural budgets have to be abolished, surely the public should be given the right to vote on the option of paying a little bit more to prevent this happening.

I agree entirely with the noble Lord, Lord Smith of Leigh, who asked for there now to be a discussion about the way forward, particularly in view of 2014-15. I would welcome the consultation and further discussion that he has called for.

15:53

[Baroness Donaghy]

My Lords, I thank the noble Lord, Lord Smith of Leigh, for initiating this debate, although there is an element of sadomasochism in having to go through this again when we went through it on 19 December. I wish I had had the time to do some research into how often members of the coalition Front Bench have said from the Dispatch Box “That’s a matter for local councils to decide.” Closing libraries; a matter for councils. Shrinking sports facilities; a matter for councils. Closing Sure Start centres; local government. Cutting bus services; that is up to councils.

In her letter to the noble Lord, Lord McKenzie, following the debate on the provisional local government finance settlement for 2013-14, the Minister wrote:

“It is entirely for local authorities to decide how much they are prepared to spend on council tax support”.

We have an “entirely” now. We should state quite clearly that the Government are responsible for what is happening to local authorities. I firmly believe that the population at large, when the impact of these announcements is finally felt, will know that it is the Government who are responsible, not local government. Historically, hand-washing in public has a very bad record.

As has already been said, the Audit Commission has found that the most deprived areas have seen substantially greater reductions in government funding as a share of revenue expenditure, compared with councils in less deprived areas. That says it all. I will not repeat examples that others have given in this debate. My noble friend Lady Smith referred to Joanna Killian, the chair of SOLACE, the Society of Local Authority Chief Executives and Senior Managers. Ms Killian said:

“This settlement will increase the risk of more councils being financially unviable and focus needs to be given to how this market failure is managed”.

How chilling a statement is that?

The single most important reason why I think the Government will be blamed is the localisation of council tax benefit. No Conservative partners in the coalition are participating in this debate, apart from the Minister, of course. So I will try to inject a Conservative view. The noble Lord, Lord Jenkin, said:

“The poll tax was introduced with the proposition that everyone should pay something … We got it wrong. The same factor will apply here, that there will be large numbers of fairly poor households who have hitherto been protected from council tax, who are going to be asked to pay small sums”.

Families already facing difficult choices between heating and food bills will receive a bill for council tax for the first time in March-April. Figures from the Institute for Fiscal Studies show that the average working family will lose £165 per year, while the average non-working family will lose £215. How many will be willing to pay council tax for the first time? One journalist has described this coalition government policy as a “death wish”.

I want to deal with the issue of council reserves. The Secretary of State has accused some councils of,

“stashing away billions, turning town halls into Fort Knox, whilst at the same time threatening to cut frontline services”.

This was in response to the Audit Commission’s report that English councils’ tax reserves stood at £12.9 billion in 2012, £4.5 billion more than in 2007. The Audit Commission considers that the building up of reserves is praiseworthy. Councils increased their reserves by £1.3 billion in 2011-12, despite budgeting to reduce them, and this has been a consistent trend over recent years.

The Audit Commission identified two factors that appear to have driven that growth. Some councils were highly effective in meeting their savings targets, creating underspends, which could be added to reserves. For instance, in 2011-12 the total service spend, excluding education, fell by 7.4% against a target of 6% in single tier and county councils and by 8.9% against a target of 9% in district councils. The second factor identified was that councils were,

“putting money aside to mitigate the risks of the ongoing cuts programme and changes to council funding from April 2013”.

That is all very sensible stuff, I would have thought.

The biggest concern expressed by auditors about the financial problems was that councils might try to address their 2011-12 problems through capitalisation requested under exceptional circumstances or unplanned use of reserves. It seems that councils cannot win, whatever they do. Does the Minister have any tips—perhaps one of the 50—about what is a reasonable level of reserve for a council, and would that be about the same level as the then Councillor Pickles stashed away when he was leader of Bradford Council?

We should not forget the impact on jobs in local government. Thousands have already gone and many more people will lose their jobs in the future. Thousands of years of collective experience will be lost.

Local authorities have had their improved efficiencies thrown in their face. They are subject to needless media attacks from the Secretary of State and at the same time they are to be given the dirty job of sending out council tax bills for the first time to people who can least afford it. I was trying to think of an appropriate song for local authorities to illustrate how unloved they must feel by the coalition Government. The only one I could think of was “Nobody Likes Me (Guess I’ll Go Eat Worms)”. That was not quite right. There was another one, however, an old Gracie Fields song, which was “I’m A Lonely Little Petunia In An Onion Patch, Oh Won’t Someone Come And Play With Me?” Perhaps they are a little twee for such a serious subject; other suggestions would be welcome.

16:00

[Lord McKenzie of Luton]

My Lords, I thank my noble friend Lord Smith for initiating and leading this debate today and acknowledge his record as a responsible and progressive leader of a local authority. I should make clear the position of Luton, so that it is on the record. Like lots of other authorities, we have had to face significant redundancy programmes, tens of millions of pounds of cuts, we now share a chief executive with two other authorities and we increased council tax last year. I said to the current leader of Luton Council, Councillor Hazel Simmons, that I would hate to have to face the problems that she has to tackle. In my day we may have agonised over a million pounds here or there, but nothing like the scale of things which councils are facing today—councils such as Luton, Wigan, Newcastle, Basildon, Durham, Pendle, and many more. I express my admiration, therefore, to those such as Councillor Simmons and my noble friend Lord Smith who stay at the helm and do their best to cope with the challenges that this Government confront them with and who use their democratic mandate to seek to protect the most vulnerable.

Our main focus today has been on the local government finance settlement, in the words of my noble friend Lord Smith, “the most complex ever”. My noble friend Lady Armstrong highlighted difficulties with the complexity, information still to come through and the tardiness of it and how difficult that made it to consult meaningfully with local communities and the voluntary sector. The settlement follows on from the first two years of the current spending round, and to see this in context, we should reflect on those first two years, in particular the report of the Audit Commission, Tough Times 2012, which is stark. Over the two years ending March 2013, councils will have had a cut in their funding equivalent to 9.3% of their 2010-11 revenue spending. This amounts to £5 billion. Looking at these two years as a whole, the deprived areas of the north of England, the Midlands and inner London have seen the highest cuts. For the 20 most deprived areas, revenue spending has fallen by 14%; in the 20% least deprived by 4.4%. The juxtaposition of this debate with that led by my noble friend Lady Hollis reminds us that unfairness in distribution of resources is not limited to local government.

We see this also in the latest proposals covering 2013-14 and 2014-15. The 20 most deprived authorities will have their spending power cut by an average of 8%; the least deprived by 0.7%. Once again, the most deprived authorities are to be hit the hardest. The Prime Minister’s local authority will gain 1.1%; Manchester will lose 8.2%. Total central government funding for all local authorities in England will fall by 3.9% in 2013-14, but there will be a swingeing 8.6% reduction in the subsequent year. We must add to that the cuts in the two preceding years and acknowledge that, from the Autumn Statement, we know that this pattern is set to continue to 2018. An efficiency support grant will come as limited welcome news to those few who receive it, Pendle included, but the settlement means that local government will continue to bear the brunt of public spending cuts. It is clear from what the noble Lord, Lord Greaves, said, that access to that efficiency support grant is not going to solve the problems of Pendle. The fact that it could have been even worse, with some of the top-slicing for academies and the safety net less than feared, appeals reflected in business rates aggregate, although perhaps not effectively enough for London, with no extra 2% cut in 2014-15, is cold comfort to those faced with having to grapple with the consequences of the settlement.

What will councils do in these circumstances? Of course, for the Secretary of State this should all be easy—just follow the great man’s 50 tips, and all will be well. It is as though councils had not endeavoured to pursue many of the ideas set out and, indeed, initiated some of them. Perhaps we can review the relevance of some of the suggestions. For example, on the proposition to improve council tax collection rates, can the Minister give us a view on the likely impact on collection rates of the new system of council tax support? Sir Merrick Cockell, chair of the LGA and referred to by other noble Lords, offered the view that most councils will have to ask people on lower incomes, including the working poor, to pay more council tax than currently. What is the Government’s assessment of how many councils will not have a scheme that is either the default scheme or equivalent to it? Research by the New Policy Institute suggests that of the first 130 schemes that it has reviewed, only 38 councils have opted to absorb the reduction in support; more than 90 will pass on the cut to poorer residents. It estimates that some 670,000 working age claimants, including 162,000 low income workers, will face an average bill of £156 a year. What is the Government’s estimate?

The Minister was kind enough to write yesterday, following our debate on 19 December. In that letter, she refers to the basis on which local council tax support funding is to be distributed, which is to be OBR forecasts for 2013-14. However, there is a phrase which states:

“An adjustment was made to mitigate very high budget pressure”.

Can the Minister explain what that adjustment is? We really are about to enter the age of poll tax mark 2.

On council reserves, the Government’s own policies are driving councils’ need for prudence by transferring risk to them. Council tax collection risks are made more difficult by reduced support for the poorest, and business rate collection risks are now to be shared with government. We are at the start of a new system which the Government say that, left to them, they would not wish to see reset until 2020. This is made worse by embedding the disproportionately high cuts that have been weighted against many of the poorer and most deprived areas in the funding baseline from 2013-14. Matters are not helped, of course by, the provisional settlement figures coming later than usual—the noble Lord, Lord Tope, made that point—when they were riddled with errors that necessitated corrections within days.

To date, councils have coped with the cuts by maximising efficiencies and redesigning services, shedding hundreds of thousands of jobs in the process. But, as the LGA and others point out, this will be impossible to do for ever. These cuts will reach, and are reaching, front-line services; there will no longer just be salami-slicing efficiencies, whole services will go. My noble friend Lady Smith made that point with some force. The pressures on councils will get worse, as the need for statutory services, particularly adult services, grows, and resources decline. Council tax freezes are all very well, but even Tory councils, as the noble Lord, Lord Shipley, said, are beginning to realise that they erode the tax base in real terms for subsequent years.

Of course, we hear the mantra that salvation for local councils lies in their own hands, because if they grow their business rate base they will retain half the increase—notwithstanding, of course, that the Government seem intent on applying some of the increase in the local share to reduce revenue support grant. If they build new homes, they will garner the new homes bonus. But as we debated when the Local Government Finance Bill was under consideration, not all councils have an equal ability to do this. Tight urban areas may simply not have the land to expand the business base, and the general squeezing of budgets, with the inevitable focus on statutory services, reduces discretionary spend on councils’ economic development services.

In any event, local councils are not totally masters of their own destiny in this regard. The Financial Times today carried an article about the tightening of capital rules for banks by the FSA, which could cause the scrapping of property developments outside London. There is not much that councillors can do about that.

There are, of course, some interesting messages in the recent report of the noble Lord, Lord Heseltine, No Stone Unturned in Pursuit of Growth, where he espouses the benefits of unleashing the entrepreneurial spirit of local areas; we agree. However, government itself has to have a strategy for growth if this is to be meaningful.

There has been much discussion about the consequences of the settlement for local councils and for taxpayers—and also for the challenges facing councillors. The real victims, however, are not the institutions or even the elected members: they are the individuals and families who rely on the services that the councils provide. These are vital services which, in some cases, keep people alive, and which ensure that individuals can have a decent quality of life. They are services which give a meaning to community and a sense of belonging. We lose all this capacity at our peril.

16:10

[The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)]

My Lords, along with other noble Lords, I thank the noble Lord, Lord Smith, for generating this debate. It has not been very long since we had a previous discussion about the local government finance settlement just before Christmas, and here we are again. None the less, I also want to thank the noble Lord for the measured way in which he introduced the debate. He has a lot of common sense and experience, which comes out in the way he speaks.

I was asked, by the noble Baroness, Lady Armstrong, most particularly, about the delay in the provisional settlement. It was later than we would have wished and we appreciate that that has caused a great deal of late assessment. As the noble Baroness and others will know, the annual Autumn Statement was late this year, so we could not get out the provisional settlements any time before that was done. However, I reassure her that we are working to publish the final settlement as early as possible in February. We have made clear to other departments that local government needs all funding allocations—£150 million for the early intervention grant topslice, for example, and the public health grant that has now been announced—as soon as possible. In the interim, noble Lords will know that we have each year been receiving local authorities that have come to discuss their own settlements; no decisions have yet been made on what they have put forward, but they are in the process of being considered. As a department, we have not been sitting back just letting things happen; nor are we unaware of the difficulties that this has caused.

Sometimes, I think we look at this from different ends of the telescope, but I want to say that I appreciate that local government is in a changing situation. It is required to make major decisions as the financial position has moved us into having to reduce its grant. I do not want anybody to think that the department itself is sitting in luxury. It is not: we have lost nearly 30% of the grant that is given to local government, and if we do not have that, we cannot pass it on. We are feeling the pinch as well; the noble Baroness, Lady Armstrong, will know that there has been a huge reduction in the number of staff.

Councils account for a quarter of all public spending. This year, they will spend more than £114.5 billion. That is larger than the budget of the National Health Service, and twice the entire defence budget. It is also more than double the debt interest, so we are not talking about peanuts here. We are talking about a very substantial slice of the nation’s budget. It is vital that local authorities continue to play their part in tackling the inherited budget deficit. They have to make sensible savings and deliver value for money for the taxpayer.

I know that no noble Lord who has spoken will agree with the following statement but we believe that local government has been given a good deal in 2013-14. It is worth noting that it was exempt from further reductions in the Autumn Statement. We could have lost another 1%, which did not happen. The important protection that this provides will give local authorities time, I hope, to look at where they can change services and manage savings, bearing in mind that next year will probably not be any better.

This is the beginning of a new settlement. It is a fundamental change from the old ways of working. Councils will be expected to make changes, which I appreciate is not always easy. The accusation has been made that this budget or settlement is not fair but I disagree. We think that it is fair. Of course, because of the way in which the formula works, there are differences in certain areas. Northern councils have not come off worse than anyone else. We understand that some areas got less than they anticipated but the north-south split was not part of a formula. We have retained the four floor dampings and the protection that they offer most councils. This year, we have gone further and stretched the banded damping floors so that they give more weight to the councils that are most dependent. At the same time, the Government have introduced banded floors for fire and rescue services.

We also have restored the level of the relative resource amount to that for 2010-11 to help authorities with a low council tax base. We have introduced a safety net to provide additional protection where councils are likely to lose resources. Noble Lords will know that, between the top-up and tariffs, no one will be worse off than having 92.7%. There will be a safety net on the business rate to help provide that, which will help to ensure that service provision does not suffer as a result of volatility in the council’s business rates. The noble Lord, Lord Smith, referred to the reduction in the business rate and what would happen if there was a big drop because, say, a business went out of business. The answer is that the safety net would pick that up and there would be a within-year settlement. There would not be a big problem.

Next year, councils will host new financial incentives to increase their income. If they build more homes—we have heard a lot about the new homes bonus—they will benefit. There was a suggestion that the new homes bonus would be cut. The new homes bonus is as it was expected to be. There was to be topslicing next year but local authorities have asked that most of that new homes bonus should go into the settlement, which has happened. The new homes bonus is already contributing to the budget. It also is worth noting that the new homes bonus does the job it is meant to do. It pays for, and helps to pay for, the development of new homes. Empty homes also benefit from the new homes bonus. While it is not ring-fenced, it supports local authorities in providing infrastructure that will support homes.

There is also up to £1 billion in community infrastructure levy. I was rather taken aback to hear a noble Lord say that councils could not do what they want. The general power of competence is a very fundamental part of giving councils responsibility for all their own decisions and for what they can do. There is the benefit from the £2.4 billion Regional Growth Fund and the £770 million Growing Places Fund, so there are other sources of money coming to local councils.

The noble Lord, Lord Smith, acknowledged that councils will have to achieve savings and I acknowledge that they are doing so. The noble Lord, Lord Tope, asked me to say thank you to local government, which I have no hesitation in doing. As a former part of local government, I know and I appreciate what it does and I know that councils have an enormous amount to do in supporting their local communities. That is the view across the department and of our Ministers. We appreciate that that is so. If it was not so, we would not be passing any of the additional powers or responsibilities that we are to local government. I hope that will underline a little how the noble Lord, Lord Tope, and we feel about local government.

Returning to the noble Lord, Lord Smith, and others, he was gracious enough to accept that local government was going to have to achieve savings and everybody has known that. There has also been a huge amount of advice as to how those savings might come about and a great many local authorities are already following that. They are sharing chief executives, back-office services and contracts for open spaces and waste management, but not all of them are doing that. Those that are behind need to learn from those that are doing it. The Local Government Association—to give it its due—has some very powerful peer help for local authorities. Those that are not doing it and do not understand it need to ask for that help, which I know is there.

The noble Lord, Lord Smith, who made all the major points, also mentioned the collaboration between public bodies. Community budgets are great and the four whole-place budgets will now be extended out. They are demonstrating very clearly that where public bodies get together, they can pool their funding and work together to help individuals. Troubled Families is a good example of co-operative work where not everyone is tootling off, doing the same thing for the same family, but one person has responsibility. This is beginning to work and beginning not only to save money—that is not the only purpose of this—but to set those families on a road which will, we hope, lead them to jobs and their children into education, away from all those things that were holding them back.

Community budgets are not as specific as the whole-place budgets but they also demonstrate that you can bring public bodies together to manage their budgets better. When I was a leader of a council, you could not do that. I often said it was like being in a little kingdom with a wall around you. You could not share budgets so this is a great move forward.

The other thing that was brought up in particular was the business rate appeal. Room has been made within all the settlements to allow for appeals. There is headroom now—I think of about 8%—to settle these problems. The Local Government Association and the department have spent a long time agitating together to see if this could be done on a more individual basis, but it just is not possible because the number of outstanding appeals is not known. The support has been given and is there so I hope that that will be understood.

There was some concern about rural local authorities getting more than other authorities. In fact, rural authorities are a bit peeved as they feel that they are getting less than others. One needs a balanced understanding of who is getting what. The noble Lord, Lord Greaves, suggested that the shire district councils were worse off and said that Pendle, Hastings and Great Yarmouth councils could bid for an efficiency support grant. He will know that the efficiency support grant is allocated to seven councils so that their spending power is not reduced by more than 8.8%, which is the level for all local authorities. Anybody who has studied the figures will know perfectly well that there is a range here. Some local authorities do better than others as regards spending power but the relevant councils stood out as being ones that were very much losing out.

The retention of the business rate will, of course, have different effects in different parts of the country. The noble Lord, Lord Greaves, was right to point out that it will be easier to retain it in some places than in others. We will need to monitor how that works. However, local authorities have asked repeatedly to retain the business rate. Although they clearly cannot keep all of it, this is a good step in the right direction. As we have made clear, we hope to raise the 50% figure slightly as the financial situation improves. I make no promises in that regard but I hope that that will happen in due course.

A number of specific questions were asked, which I will need to look at to see whether there is anything further that we need to take on board. I wish to finish my speech by commenting on the council tax freeze. That issue is very important as it has meant that local taxpayers have been protected from large council tax increases. The noble Lord, Lord Shipley, said that it was up to councils to decide the level of council tax that they needed to levy and that they should be able to impose it. However, that was the old position and it caused a great deal of angst and upset. For that reason it was decided to limit council tax increases. Local councils can increase their tax this year by up to 2%. If they feel strongly that they need to go above that level, they have to put their case to their local residents and ask them whether they are happy for that to be done. Therefore, rather than just being faced with a rise in council tax, residents will be asked whether they think that it is appropriate. That seems to me not an unfair way to proceed.

I will draw my remarks to a close before I run out of breath and can no longer speak. I thank all noble Lords who have contributed to this interesting debate, in which some looked at this issue through a different end of the telescope from me. However, that does not surprise me.

16:28

[Lord Smith of Leigh]

I thank all noble Lords for their contributions to this debate, particularly the two who were so keen to contribute that they found the stamina to participate in two debates today.

The general theme that emerged in the debate concerned what the basis of funding for local authorities should be and whether it should be based on the ability to raise revenue or on need and deprivation. We shall need to come back to that theme. Noble Lords talked about the complexities and difficulties of the new system. A number of noble Lords, including myself, mentioned the problems associated with valuation appeals and the impact that that might well have in some areas. The noble Lord, Lord Tope, mentioned that issue and I agree with his comments in that regard. The provision will cause difficulties in lots of areas and London may be worst affected.

My noble friend Lord Beecham concentrated on needs. Clearly, coming from the north-east and Newcastle, that is something that he understands. None of us wants to be in an authority that is dependent and has high deprivation. We want to work to get rid of deprivation but we will not do so without support.

The interesting part of the contribution from my noble friend Lady Smith of Basildon was the Basildon letter. Presumably that letter is going to local authorities across the country and is obviously making many people worry about their jobs. It is a very difficult matter. I have been undertaking an exercise in my authority where we have been talking to front-line staff. It is not easy when you know that, as you explain the issues in local government, particularly funding, some of the people you are talking to may not be there come 1 April.

As usual, the contribution of the noble Lord, Lord Greaves, was interesting. When he talked about his seven authorities, it illustrated his point about how settlements these days seem to be skewed, as it were, towards success. Authorities that have the ability to raise business rates or get new homes or whatever will benefit, whereas areas such as his own in Pendle will have much more difficulty and will suffer. He illustrated that very well. My noble friend Lady Armstrong talked about complexity and made the point that it is not just local authorities that are impacted by the local authority settlement but the voluntary sector, which relies on local authority funding. Obviously, if local authorities are taking cuts, there will be cuts in the voluntary sector and, if we get settlements late, they will get them late too.

There was an interesting contribution from the noble Lord, Lord Shipley. He talked about fairness and raised the issue of council tax. If I understood him correctly, the problem with council tax averages—as the noble Lord, Lord Greaves, said—is that it all depends on the banding. If an authority has a huge proportion of band A properties, then its average is much lower than other areas, so maybe raising bands would be quite difficult. My authority rejected the less than generous offer from the Secretary of State to freeze council tax this year. It would have cost about £1.5 million to do it this year and would have deferred the cost into next year. I admired the courage of the noble Lord, Lord Shipley, when he suggested a referendum on increasing the council tax. I proposed in Greater Manchester that we had a congestion charge, which went to a referendum. I still have the scars, so I am not too keen on that.

My noble friend Lady Donaghy took a very brave line when she tried to take a Conservative view of what might have been said, given the absence of contributions from that side. She then spoke about reserves and at the end tried to come up with a song. Whatever song it is, I am sure it will be the blues.

My noble friend from the Front Bench, Lord McKenzie of Luton, obviously defended his own authority, quite rightly. However, I thought there was an anomaly there that I had to mention. With his experience and expertise he raised issues which we had rehearsed during the passage of the Local Government Bill and which we need to think about. He stressed—as many of us did—that we are talking not just about the impact on institutions such as councils, which is mostly ongoing, but about the impact that these cuts will have on individuals and communities.

Finally, the Minister, in her usual charming and informed response, replied as best she could about the issues raised. She talked about the role and size of local authorities. We agree that, if there needs to be a reduction in public spending, part of it will have to come from local authorities, but it should not be disproportionate. That is the issue. We will obviously disagree about whether it is a good deal or not. The good news is that we are exempted from the Autumn Statement this year, although we may not be in future. The Minister tried to explain the concept of fairness by saying that she had been attacked by all sides. Of the three points that she raised, she probably accepted that we will have more collaboration and that we will monitor what is happening in the settlement, so perhaps two out of three is not bad. It is a better strike rate than most strikers in the Premier League, other than van Persie.

Motion agreed.

Unemployment: Young People

Thursday 17th January 2013 Lords Chamber

Question for Short Debate

16:35

Asked by

[Lord Chadlington]

To ask Her Majesty’s Government what is their assessment of the use of online tools, including social media, to combat youth unemployment.

[Lord Chadlington]

My Lords, there will be no argument in this House that to have 945,000 16 to 24 year-olds—roughly six times the population of Oxford—out of work in the United Kingdom is a blight on our society. Youth unemployment is 20.3%: 100,000 of these young people have been out of work for more than two years; 266,000 for more than 12 months; and 436,000 for more than six months. One new graduate in every five available for work is unemployed and 36% of recent graduates are employed in lower skilled jobs. A YouGov poll commissioned by the independent Million Jobs campaign, with which I am involved—and I declare the interest—revealed that voters considered youth unemployment, behind the economy and immigration, to be the third most important issue facing the country, and 80% consider government policy to be ineffective.

Work builds families, affirms personal values and binds communities together. Being out of work for long periods impacts health and well-being. Youth unemployment cost the Exchequer more last year than the entire further education budget for 16 to 19 year-olds in England. The digital world, particularly the social media, seems to be an ideal platform to reach out to these young people in their own language and medium, motivating and informing them about employment opportunities. Online tools are how 16 to 24 year-olds communicate and keep abreast of events: 82% of young people use the internet to look for advice and information, and 95% of 16 to 20 year-olds and 74% of 21 to 24 year-olds have used Facebook in the past four weeks.

The digital economy, with which these young people have such facility, is what many businesses, particularly SMEs, are demanding—20% want a web designer, 12% see e-marketing as key to growth and 10% want help with customer management systems. More than three-quarters of businesses acknowledge that young people have these digital skills in abundance. Some 90% of the young unemployed tell us that they can use social media to promote an idea or cause. Nearly 70% can design a web page, 20% develop an app, and many are confident at coding or working with databases. Yet less than 25% of businesses will offer these young people a first-time job or training opportunity. O2 estimates that the unused digital skills of the young unemployed are worth some £6.7 billion to the British economy. Can it really be beyond the wit of government and man to bring together these skills with the digital needs of business?

However, many young unemployed have no skills to apply for work. Jobs Network—a site which colleagues and I have developed; again, I declare my interest—enables those leaving an individual school or university to access advice and help from alumni and from local businesses providing work experience. It provides help in preparing a CV, interview techniques, practical mentoring and career advice. Schemes such as this have real scalability and could be rolled out across schools throughout the United Kingdom.

The Government recognise the importance of online communications. Gov.uk is an excellent source of general information; Universal Jobmatch is the Jobcentre Plus online service; and Plotr and FutureYou are excellent first steps. However, despite this, we are not maximising online potential. Most government-run and funded initiatives are patchy, ill co-ordinated and not geared to what young people want, but rather geared to what government wants to provide.

At Million Jobs, the unemployed tell us that they want an online one-stop jobs shop that provides a complete service, including mentoring. They are looking for a national equivalent to our Jobs Network. Plotr shows some promise of providing this but does not have mentoring and networking capabilities. Research suggests that this and other government-funded sites appear to be too patronising in tone and too basic in content. Every government employment initiative has its own website but they are not co-ordinated, one is not linked to another and they are boring and lack focus. The coalition Government inherited 750 public sector websites, which demonstrates the extent of waste and confusion when it comes to an online co-ordination strategy.

Lessons can be learnt by considering successful initiatives in the private sector. O2’s online campaign, Think Big, has been a success because from the first visit it is fun and engaging, and its success shows the benefit of sustained and integrated promotion, with 4,200 Twitter followers and an ongoing editorial press campaign. Similarly, Livity, a youth-engagement agency, works with young people to create innovative new campaigns. Clients such as Google, Roundhouse and the NHS receive a unique insight into young minds, and in return Livity’s young people get excellent training and employment opportunities.

Some of the government-run sites are impossible to use. Fewer than 10% of student-loan applications are fully transacted online because of the complexity and frustration involved.

The private sector also recognises that there is an inherent contradiction in the way that social media work. Most people use social media to communicate and engage with and mobilise each other. It is therefore very much a bottom-up way of communicating. Anything that suggests top-down control will, by its very nature, deter already disillusioned young people. In a recent discussion about this anomaly with the Department for Work and Pensions this difficulty was confirmed. It has piloted 10 Facebook pages that have not met expectations.

There is a need for the social-media drive to be co-ordinated, and to interact with young people through channels that they use and have established themselves. Real attention must be paid to mentoring. Of course, that is where Jobs Network succeeds, by linking school leavers and university graduates to mentors in their local communities. This approach is supported by a recent report on youth unemployment. Compared with young people who sought no career advice, those who had discussed job opportunities with four or more employers were almost twice as likely to report having a good idea of the knowledge and skills needed to do a job, and they are more than twice as confident about their ability to find a good job too.

Over the past 30 years the UK has had an average of some 500,000 young unemployed people. Online and social networking provides a unique avenue by which we can reduce this horrendous waste of human talent and energy. So I have two big questions for the Government. First, how do they expect to link the online skills of the young to the needs of business?

Secondly, how can the Government develop a coherent online strategy that achieves at least five things? The first is a recognition that online communications require a bottom-up and not a top-down structure. Secondly, the tone of online communications, if they are not to be ridiculed or ineffective, cannot be patronising. Thirdly, with so many government initiatives being taken, they need to be co-ordinated and focused. Fourthly, there is much to be learnt from the way that the private sector has developed its own initiatives in this area. Finally, investing real money in getting the young into work will save the Exchequer billions of pounds, help keep our families and local communities together, and prevent this young generation being a lost generation. Can the Minister please take each of these points in turn and outline the Government’s attitude and policy towards them?

16:44

[Lord Ramsbotham]

My Lords, I congratulate the noble Lord, Lord Chadlington, on obtaining this debate and on his masterly survey of the current situation. I hope that he will forgive me if, before focusing on combating unemployment among youth in contact with the criminal justice system, I take noble Lords on an indirect approach to my conclusion about the context in which online strategies can be employed, inspired by two sentences in the UK Commissioner for Employment and Skills, Valerie Todd’s, foreword to her report, The Youth Employment Challenge, published in July last year:

“Lack of experience combined with a lack of social contacts in a labour market which still relies heavily on informal methods of recruitment makes it increasingly difficult for young people to get a foot on the ladder”.

Secondly,

“Commissioners are committed to encouraging and incentivising UK employers to embed a culture of developing and recruiting young people into routine business practice. It is in all our interests to rise to this challenge”.

I am one of those who believe that the only raw material that every nation has in common is its people. Woe betide it if it does not do everything that it can to identify, nurture and develop the talents of its people—all its people. If it does not do that, it has only itself to blame if it fails.

I declare another interest in youth development as a past member of the City and Guilds strategy board at the time of what I regard as one of the most disastrous political decisions ever made. It was the refusal by the then Secretary of State for Education and Skills, Ruth Kelly, to accept the recommendations about raising the status of vocational education made by Mike Tomlinson in 2004. It has resulted in far too many young people being forced to go down academic routes to which they are entirely unsuited rather than having an early introduction to vocational courses and so suitable placements in the labour market.

The lack of vocational training has had another unfortunate result. At a time when the country is crying out for growth, employers are complaining bitterly about the skills shortage that is preventing them from being able to expand and develop their businesses. This is coupled with attitudes to work in general, which include a refusal to consider menial jobs because they are what some term “immigrant work” and an inability to turn up on time.

These attitudes would have come as no surprise to Glubb Pasha, whom noble Lords will remember as the commander of the Arab Legion until 1956. He wrote a monograph about empires which, he said, lasted for 250 years or 10 generations. The British Empire, according to him, lasted from 1700 to 1950. In characterising their rise and fall, he catalogued the drive and ambition of their early generations, followed by the high but turning point marked by universal access to higher education, followed by decline, encouraged by lethargy and lack of ambition, marked by people thinking that their education entitled them to a living.

That may or may not be true, but what is undoubtedly true is the confused state of our world, which is in the midst of an information technology revolution that nobody knows how to control, and whose impact on government, economies and how people live is imperfectly understood. This confusion includes the changing role of people, as labour-saving devices take over, making it difficult to determine how many people are needed and in what jobs to make the world go round and what skills they need in order to earn a living wage.

This is of course simplistic, but it provides a backdrop to the circumstances of the group of people to whose needs I wish to draw attention. It includes the appalling lack of education and job skills in young offenders, which is an indictment of our educational system. I admit that I cringe whenever I hear political parties talking competitively about their “virtual” employment schemes—virtual because they do not in fact offer either real employment or the prospects of such—or putting people back to work, when they know, and I know, that the work that they are promising simply is not there. There is a clear disconnect between the number of jobs available, the skills needed to perform them and the skills base of the potential workforce. I fear that until and unless that fact is recognised and appropriate remedial action taken, the situation can only get worse.

I once had a conversation with the head of education and skills at a young offender institution, who told me that her first task was to motivate young people to want to learn. She also wished that she had vocational training classrooms so that she could motivate them to want to work. She welcomed the aptitude tests introduced by the previous Government under its new deal, because they gave such a clear indication of individual talent and potential, but she could not exploit that knowledge because of the lack of facilities to enable young people to develop their skills.

In parallel, I have also come to the conclusion that the inability of young people to communicate verbally is the scourge of the 21st century. However able they are at digital communication, they cannot communicate either with each other or with their teachers. That is largely due to the absence of what used to be regarded as normal aspects of family life such as eating meals together. The chaotic and dysfunctional lifestyles they live are, almost from birth, dominated by the television screen, computer games and social media.

I accept that that this could be seen as helping them to prepare for life in today and tomorrow’s world by familiarising them with the tools of emerging society. However, there is what is termed a digital divide between those who have access to and can use online tools and the social media, and those who have not and/or cannot. That is why, when considering youth employment, it is important to strike a balance between reliance on these tools, and on the social contacts and informal methods of recruitment that are deemed by employers to be such an essential part of the process of getting on the employment ladder. That leads me to hope that the Government will not put all their youth employment-finding eggs in one digital basket.

That is the end of my indirect approach to the subject of this debate; I will now concentrate on my direct approach. The noble Lord, Lord Chadlington, has already mentioned Plotr, the Government initiative launched by the Prime Minister last year to help young people to plot their careers online. Nick Hurd, Minister for Civil Society, said recently that Plotr had the broad aim of,

“inspiring young people and connecting them to all the opportunities available to them to make the most of their lives”.

That is very worthy and praiseworthy for the digital haves, who have access to online tools and social media, but not so good for the have-nots, who include the 8,862 between the ages of 15 and 20 held in young offender institutions, who face the double whammy of also being denied access to the work experience and social contact that is deemed so essential by employers.

The Justice Secretary, launching his rehabilitation revolution, announced his determination to reduce reoffending, to achieve which a home, a job and a stable relationship are said to be the three most important contributory factors. I expect that the Minister, in her summing up, will commend the use of online tools and the social media to combat youth unemployment, with all the advantages trumpeted by Nick Hurd. However, I hope that she will also encourage the Justice Secretary to ensure that young offenders, for whom everything possible must be done to deter them from a life of crime, are given access to the online and social media tools, if not individually because of security reasons, then at least in learning and skills departments in establishments.

16:53

[Lord Mitchell]

My Lords, I, too, will start by thanking the noble Lord, Lord Chadlington, for securing this debate. Youth unemployment is an incredibly important issue, and it is to his great credit that he raises it today and has spoken so knowledgeably and passionately on this subject. I will also pay tribute to the work he has done in equipping school leavers for the jobs market.

I would like to set out my own background in this area because it is pertinent to what I have to say. I have been involved in information technology for most of my adult life. I started my business career in an environment where data were stored on punch cards and massive mainframe computers were water-cooled. Today, this iPad that I am reading from at this very moment has many thousand times the power and internal storage memory of those massive machines—and I can fit it into my briefcase.

In 2000, when I was first introduced into your Lordships’ House, I founded a charity called the e-Learning Foundation. Its remit was to ensure that every school child in this country had their very own computing device which they could use at school as well as at home. We thought then that the computer should be as ubiquitous as the pencil and we recognised that, in the 21st century, IT skills were critical. Most of all, we were concerned about the problems associated with the digital divide, which the noble Lord, Lord Ramsbotham, has just mentioned, that occurs when the population is segmented into those who are IT literate and those who are not. The devices we first used were laptops and even desktops. They were heavy, expensive and, in the case of the desktop, clearly not mobile. Today we have a new world. Again, the iPad in front of me demonstrates how it has all changed and how the technology today fulfils the criteria we were seeking: powerful, small and mobile. When I read that over the Christmas period, iPads and other tablets were the hottest consumer presents, it comforts me that the objectives we set at the e-Learning Foundation are now close to being met. In a few years’ time, no young person will be without a tablet, much the same as very few are without their smartphones.

When we come to youth unemployment, it seems that there are two sides to the picture. First, as the noble Lord, Lord Chadlington, has already stated, it is an extremely discouraging situation. But the other side is slightly more reassuring. A whole generation has grown up with the skills needed in the 21st century. What we need now is to channel those skills. I contend that with better recruiting methods, the young unemployed can be matched with dynamic companies, particularly smaller ones.

I turn, first, to the challenge. Currently, almost 1 million young people are unemployed in the UK, with 430,000 claiming jobseeker’s allowance. Of particular concern is the number of young people who are finding themselves in the very difficult position of being unemployed for a long period of time. Almost a quarter of a million are currently among the long-term unemployed, which is at its highest level since 1994. Given that long-term unemployment for the whole population stands at 1.3 million, we need to do everything we can to ensure that our unemployed young do not find themselves out of work for extended periods or even for the rest of their lives. The demise of the Future Jobs Fund is to be regretted, especially since the DWP impact analysis showed that for each person it contributed £8,000 to the economy. The Work Programme, which was designed by this Government to replace the Future Jobs Fund, appears to have been rather badly named because it is not a programme and it does not create very much work. Of the 785,000 people who have been referred to the programme, only 18,000 have achieved what could be a called a job outcome. Essentially, in its first 12 months, the Work Programme has placed only two in every 100 participants into work. That is not very impressive. I shall put it more strongly. The Government have a habit of announcing shiny new policies, each of which grabs a quick headline, but because they have been ill thought through they wither on their implementation. This is just another example.

I must emphasise to your Lordships that, for my party, youth unemployment is very high up on the agenda. My right honourable friend Ed Miliband has said that the real jobs guarantee would give six months of paid work to anyone aged under 25 who has been out of work for more than a year, and that it would be paid for by a tax on bank employment.

Social media provide opportunities for us to help find jobs for more young people. In today’s world, young people no longer get their news from print, but from their screens. There are downsides to this, of course, but there are also benefits. Equipped with digital skills, young people are in a better position to help companies, many of which are falling behind in their adoption of digital technology. One programme started last November in the United States catches the eye. It is called the Social Jobs Partnership, a collaboration between Facebook, the US Department of Labor and the National Association of Colleges and Employers. It uses five of the biggest job-listing sites in the United States to gain access to 1.7 million vacancies on Facebook and builds upon research from the National Association of Colleges and Employers which shows that companies want to use social media better to contact potential recruits. Some 87% of those surveyed suggested that candidates “like” a Facebook page of companies that they are interested in.

I listened with interest to what the noble Lord, Lord Chadlington, said about his work on programmes to give school leavers the skills they need to go out and find a job. One area that needs to be addressed is personal presentation and interview technique. I know it seems old-fashioned, but too many young people do not have a clue how to present themselves. Even in the digital age, this matters. Maybe peer-to-peer contact would help. I want to address some of this as I proceed.

My mantra on job applications is that you never have a second chance to make a first impression: so make a first impression. I know it seems blindingly obvious, but those looking for a job need to know that they must turn up on time—indeed, before time—for an interview. To be five minutes late and flustered is unacceptable. They should look attentive and dress appropriately. Young people need social skills that may not come easily to them: how to present themselves and how to speak on the telephone. Most of all, they need to do their homework. In a world where information is so easy to come by, why is it that some interviewees do not research the organisation they are hoping to join? In my view, it is because the education system has failed them. Schools and universities need to do more in instructing young people how to prepare for job-seeking and interview technique.

Young people also need to be aware of the perils of the digital world. Digital presence is very important, from the wording used in an e-mail to what they put on their Facebook page. Employers look on Facebook and it is not helpful if silly videos, or worse, are on their sites. CVs need to be better. I am associated with a wonderful organisation called the Amos Bursary, set up by my noble friend Lady Amos and her sister. This charity helps young black men find their way to full-time employment. For some of these young men, university can be very daunting, and for one reason or another they lack personal networks. Mentors can help.

Social networking sites offer young people the opportunity to link in with the outside world. I believe that much more can be done. LinkedIn is a good example. Many of us use it and it seems to be geared to the professional classes, but why should it be just them? It is free, so why is it not used by more young unemployed people?

In my family two young people have set up companies, by coincidence, in the graduate recruitment sector. I need to declare this interest. First, my own nephew, Keren Mitchell, is a founder of the JobCrowd, and my son, Felix Mitchell, is a founder of Instant Impact. Both are relevant to these points. Sometimes family gatherings are interesting.

The JobCrowd is the graduate recruitment equivalent of TripAdvisor, which provides anonymous references for hotels and restaurants. In this case, the site enables job applicants to get inside information from their peers who already have jobs. They answer questions such as, “What is it really like?” and, “Can I believe what I’m being told?” Instant Impact places graduates with small and medium-sized companies—in particular, paid interns. I want to say a little about this before I finish.

Competition for jobs is very high and every applicant is doing his or her best to make their CVs seem as interesting as possible. Internships really matter and the sad fact is that many young people believe that it is necessary to take unpaid positions just to show that they have a track record. Students doing holiday jobs are one thing, but people having to work for nothing is simply wrong. Many of the worst offenders are in the NGO or charitable sector. To be honest, charities that I have personally been involved in have also done this, so I am not without guilt. Companies do it, particularly those in media and marketing, where young people are willing to sacrifice their pay just for the glamour. It also exists here, in this Westminster village. How many MPs and members of your Lordship’s House have unpaid young people working for them just so that they can put this placing on their CVs? It is wrong; it must change, and change quickly; and we should set the example.

This digital age is presenting new opportunities in so many ways, but the most successful of all has been social networking. If we can use this technology to help solve the iniquity of youth unemployment, we will have achieved a lot.

17:05

[Baroness Stowell of Beeston]

My Lords, I am very grateful to my noble friend Lord Chadlington for securing this debate. I feel as strongly about youth unemployment as everyone else who has spoken today. First, I associate myself with the comments made by the noble Lord, Lord Mitchell, about presentation and the importance of communication. Like the noble Lord, I believe it is essential that people get it right because there is only one chance to make a first impression.

I also very much share the views of the noble Lord, Lord Ramsbotham, about the importance of vocational education and of people having a clear route to success via that road if an academic route is not right for them. It may interest noble Lords to know that I was a teenager in the early 1980s and did not go to university. I do not remember anybody encouraging me to go but that may have been because I desperately wanted to go to work. I was very fortunate to have two wonderful parents, who said to me that getting a job, being dedicated to it and doing it to the best of my ability would be a route to success. I will leave others to judge whether I have achieved success so far but I very much understand how important it is for those who do not naturally want to follow an academic route to have other clear options available to them.

Youth unemployment is still too high in this country, as my noble friend Lord Chadlington made clear. However, the levels of worklessness among some young people cannot simply be put down to the present state of the economy. The problem we face, as noble Lords have indicated in their comments today, is much more entrenched than that. For the past decade and longer, too many of our young people have been trapped on the margins, some of them growing up without positive role models or in families where no one has ever held a job, failed by underperforming schools or dropping out of education without any qualifications, and ending up in the jobcentre at 18, unready for the world of work.

Even before the recession, youth unemployment had started to rise. In 2001, just over half a million young people were unemployed. By 2007, that number had already increased to just over 700,000. As all noble Lords agree, we cannot afford to neglect the next generation. Whether it be keeping them in school or vocational training, or helping them into work, this Government are committed to supporting young people, ensuring that they realise their potential.

Even in these tough economic times, we have seen that it is possible to make some progress. Youth unemployment is down by 72,000 in this quarter alone. If you take out those in full-time education, that fall is even greater—down 90,000 to 626,000, the lowest figure since the beginning of 2009. However, we are not complacent, and I am not here to talk down the situation. There are promising signs that the steps we are taking to tackle youth unemployment are having an effect but, clearly, we need to do more.

I will come to online issues in a moment but will first say something about investment and how we have radically changed the way we are approaching the issue of youth unemployment in this coalition Government. Through the £1 billion Youth Contract, this Government have brought together previously piecemeal provision and underpinned it by greater funding, scope and ambition. With the DWP, the DfE and BIS working together, the contract offers intensive employment support for young people, targeted at addressing the particular barriers they face.

We know that a lack of experience often proves a problem, so we are creating an extra 250,000 work experience places over the next three years. Of 65,000 young people who have started work experience already, nearly half are off benefits 21 weeks later. We know that for businesses, employing a young person comes with both a cost and a risk attached, which is why we are offering 20,000 new apprenticeship grants and 160,000 wage incentives to encourage employers to take on young people. By easing the costs, it becomes more straightforward to give young people a chance. However, we are also emphasising the potential benefits to employers, which is incredibly important—a point made most forcefully by my noble friend Lord Chadlington. As he said, young people are what is known now as “digitally native” and can offer skills that are valuable to businesses, certainly to small and medium-sized businesses that might not naturally have those skills already available to them in their existing workforce.

In the DWP, alongside these valuable interventions, we are harnessing online tools and channels ensuring that our employment services reflect how claimants—and young people in particular—choose to interact. I have given a range of examples but the most recent and significant is the Universal Jobmatch; an online service which has transformed the way people look for and find work. It is simpler and quicker for jobseekers to use, with alerts when new jobs are posted. It provides a free service for employers, and the service also benefits Jobcentre Plus advisers by modernising how they review claimants’ work search activity.

However, as the noble Lord, Lord Ramsbotham, said, we must recognise that not all people have access to the internet, and that not everybody has the skills to be able to use these kinds of services. I would say to the noble Lord that even the most basic jobs these days do require some form of digital skill, even if it is just data-entry in a warehouse. We must recognise that if someone is not able to use some of our online services to find jobs, it is our responsibility to make sure that they are trained so that they can use those services, because they will need those skills once they arrive at work. I was interested to hear that the initiative that the noble Lord, Lord Mitchell, said that he launched when he first entered the House of the Lords was his e-learning foundation and the provision of devices. I wish him continued success with that.

I turn now to what we are doing for those still in school and the points made by my noble friend Lord Chadlington about online communication to promote opportunities—all of which I agree with. I believe that the bottom-up approach and co-ordinating our effort are not mutually exclusive—neither is his point about tone. We need to do all these things, as well as learn from what works in the private sector and be open to new initiatives that we do not run ourselves.

One national service that is available is the National Careers Service, which was launched in April last year. It supports young people in making training and career choices. I note what my noble friend said about some of the services available, but I am sure that a service that is less than a year old is seeking to improve what it offers continually, learning from the experiences of those who use it.

UCAS is independent of government and provides an online application service for those wanting to pursue further and higher education. Picking up one of the points that my noble friend made about ensuring that there is co-ordination of services, it is worth reminding ourselves that one of the advantages of the digital and online world is that users like to be able to access data and adapt it—to use it in ways that best suit their needs. That lends itself to—and points towards—not necessarily having a single shop that is nationwide and available, but making something accessible so that people can adapt it.

The Government have recently made data available that compares university courses—this is on a website that we run called Unistats—but we are also making that data widely available. The consumer service Which? has taken advantage of this and has already adapted that material into its website, which is available to those who want to be able to see and compare directly how different courses might provide the kind of training and education that they want.

The National Apprenticeship Service provides information on a nationwide basis, but we know that there is more we can do to promote the schemes available. We think that the idea set out by the noble Lord, Lord Adonis, in his article in the Financial Times earlier this week—that UCAS should become an integrated higher education and apprenticeships service—is a great one. We have noticed that UCAS is enthusiastic about this as well and David Willetts is already pursuing this.

All these national services are tweeting and using social media to communicate what they are doing. I myself have retweeted things in the past to promote what they are doing. But we must be careful that we do not try to control too much from the centre. As with the great initiative that the noble Lord, Lord Mitchell, referred to, TheJobCrowd, if something is working and people are using it, far be it from us to seek to control it.

As my noble friend said, plotr.co.uk is a new website arising from a partnership of businesses in response to the Prime Minister’s direct challenge to find new ways to inspire young people to broaden their horizons. That is something that we want to see continue. However, as and when new local schemes, such as the Jobs Network, which my noble friend mentioned, get off the ground and achieve results, we want to hear about them so that we can promote them to other schools for heads to consider. Earlier I talked about today’s debate to my honourable friend Matthew Hancock, the Minister for Skills, who works out of both BIS and the Department for Education. He asked me to inform my noble friend that he would welcome learning more about the Jobs Network.

The noble Lord, Lord Ramsbotham, pointed to the risk to young offenders of long-term unemployment. It is worth pointing out that when young offenders are released they are referred directly to the Work Programme at the start of their claim. This provides intensive support and providers are incentivised to support this group as being in need of particular support. Perhaps the noble Lord is aware that there was a debate earlier this week specifically about support and training for young offenders. If he has not had an opportunity to read that debate in Hansard, he might be interested in the response that my noble friend Lord Ahmad gave to that debate.

In conclusion, we cannot underestimate the challenge of youth unemployment, especially in an uncertain economy, nor the damage we would do if we did not support our young people to be ambitious for success. By providing more training, work experience and opportunities for young people via the online channels that they use readily and often, we are giving individuals a chance to prove themselves and to secure a better future, which everyone here today wants to achieve. From a personal point of view, we must ensure that we do not define success too narrowly. For me, success is doing what you do as best as you can, and I want all young people to be able to experience that.

House adjourned at 5.18 pm.