Lord Freud
That the draft regulations laid before the House on 10 December 2012 be approved.
Relevant documents: 15th Report from the Joint Committee on Statutory Instruments, 24th Report from the Secondary Legislation Scrutiny Committee.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights. These regulations are designed to work alongside the introduction of universal credit by removing all the existing income-related provisions from jobseeker’s allowance. They also work alongside the Welfare Reform Act 2012, which removed the existing income-related provisions from other Acts.
Under JSA, there are currently two elements—namely, a contribution-based element and an income-based element. The first element is for people who have paid sufficient national insurance contributions. The second element is for people who have low or no incomes. From this April, the income-related elements of JSA will gradually be phased out for any cases where universal credit has been rolled out. The new regulations will remove the income-related elements and make provision for an award of JSA based solely on national insurance contributions.
In addition, to further align with universal credit, the regulations will introduce revised conditionality and sanctions regimes into JSA. We have of course already largely aligned the JSA sanctions regime with the universal credit sanctions model. Noble Lords will recall that last October, we introduced a number of changes to JSA, including sanctions of up to three years for those who persistently fail to comply with the most important job-search requirements. The changes we made last year have helped staff and claimants to prepare for the introduction of UC and for the revised JSA regime. These regulations now complete the alignment with universal credit.
However, beyond these changes people will find that the effect of the existing JSA benefit regime is unaltered. Noble Lords may find it helpful if I provide more detail on how these changes will be applied. As noble Lords will know, JSA is a benefit payable to people who are out of work and seeking employment. The work-related requirements in these regulations will apply where the claimant claims only jobseeker’s allowance. Where a claimant receives both jobseeker’s allowance under these regulations and universal credit, the work-related requirements provided under the universal credit regulations will apply. That will ensure that even where a claimant is in receipt of the two benefits, they will have only one clear set of requirements placed on them at any time. As these regulations align JSA to UC, there will be little difference between the respective conditionality regimes if they move between the two benefits.
People claiming JSA under these regulations will, as with UC claimants, generally be expected to be available for full-time work immediately, depending on their commitments and capabilities, and to treat their day-to-day work search as if it were a full-time job. This means that they will be expected normally to demonstrate that they are spending 35 hours per week finding a job. However, requirements can be tailored to meet a wide range of circumstances. For example, their requirements can be reduced if the claimant is a carer or disabled, or has recently been a victim of domestic violence.
Under these regulations there will be three levels of sanctions in the JSA regime—high, medium and low level. These sanctions will broadly work in the same way as equivalent sanctions within the universal credit regime. The universal credit sanctions regime, which is mirrored in these JSA provisions, is designed to provide greater clarity for claimants and to ensure that there are proportionate consequences for failing to meet requirements, especially repeat failures. For example, to act as a deterrent, the sanction periods escalate where a claimant repeatedly fails without good reason to comply with a reasonable requirement. This more robust but proportionate model is designed to be more effective in encouraging claimants to engage with the requirements which help them to move into or to prepare for work.
It is important to remember that our focus will not be on imposing sanctions but on ensuring that claimants meet the requirements that will support them into or towards work. The requirements expected of claimants should be reasonable and will help claimants to understand and meet the requirements so that they can move into work as soon as they are able to do so. Using the claimant commitment, we will clearly communicate both requirements and the sanction consequences of not meeting them. Only if they fail to meet a suitable requirement without good reason will a sanction be imposed.
These regulations were subject to statutory formal consideration by the Social Security Advisory Committee. The committee decided that formal referral was not necessary but raised a number of points, all of which were considered, and changes were made where appropriate. As the sanctions and conditionality rules for JSA were being brought broadly into line with universal credit, these regulations were included as part of the Social Security Advisory Committee’s wider universal credit consultation exercise.
Therefore, the views expressed during the consultation period regarding the proposals for the universal credit conditionality and sanctions regime also applied to the reform of JSA. Those views were considered and changes were made. For example, we decided to remove a reference to long-term impairments in Regulation 9 of the JSA regulations. This change takes into account a range of physical and mental impairments that a claimant may have when considering any limitations that may be placed on a JSA claimant’s work-related requirements.
I should also like to thank the Secondary Legislation Scrutiny Committee for its earlier consideration and analysis of these regulations. As noble Lords will be aware, the committee drew attention to the importance of guidance for our staff in operating a fair and effective conditionality and sanctions policy. Therefore, we have placed in the House Library copies in draft of key chapters of the guidance covering approaches, including that for good reason for sanctions. Today we have published a draft of the claimant commitment.
In conclusion, I can assure noble Lords that, beyond the changes I have outlined, the rules for the new-style JSA will be very similar to the existing rules for the contributory element of JSA. In particular, there have been no changes to the national insurance contribution conditions which need to be satisfied to qualify for entitlement and the fundamental structure of JSA remains untouched. I seek noble Lords’ approval of the regulations and commend them to the House.
Baroness Donaghy
The Minister will remember that I raised a number of issues in the debate on 17 January concerning the self-employed and the quasi self-employed. These were mainly around the requirement for monthly reporting, the burden of different systems being applied for tax and benefit purposes, and the need to recognise that not all self-employed people were in a position to choose their employment status. If I had had time, I also would have raised the problems caused by the different criteria used by HMRC and the DWP for claiming reasonable expenses, as well as the need to recognise seasonal variations for those working in agriculture and preparation periods for freelance writers.
I made the point that under generally accepted accounting principles, a true and fair statement of how a business is doing involves accounting for business receipts and expenditure over a period to which they relate. The huge advantage of working tax credits was that this principle was also adopted, enabling claimants to draw up one set of accounts that keeps administration costs down and matches the support given by the benefits system to the actual state of the business. The universal credit regulations have departed completely from these generally accepted principles by requiring a month by month reporting system and not allowing any carryover of a previous month’s loss. This artificially short period does not present a true and fair picture and does not allow for events beyond the claimant’s control.
No provisions have been made in the regulations for seasonal gains and losses or periods of economic difficulty, and there is no recognition that a business may experience low or no profits. Added to this, there is no facility for carrying forward a loss made in one month to subsequent months. This is a fundamental flaw in the design of the regulations for the self-employed. The Government see the need for this facility, but have not made any changes, because the IT system has not been designed to allow carry-forward. In reply to the point about carryover in January, the noble Lord, Lord Freud, assured the House 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”.—[Official Report, 17/01/13; col. 832.]
The noble Lord made a similar remark earlier this evening. I believe that the Minister is looking for a solution, but it is not yet there and I have a number of real concerns.
My first concern is the Minister’s statement that, “It will be in time for when the people who need it will be using it”. I am not so sure that the Government have the luxury of the six months’ grace or the year’s lag. What happens if the wife or husband of the self-employed person puts in a claim for universal credit first? Surely the information on the self-employed person’s earnings will be required straight away. Secondly, the regulations could have a damaging impact on particular industries. I use the example of farmers and the farm industry, although other examples could be writers and actors. A farm could have a negative cash flow for eight or nine months a year, as cited in the Social Security Advisory Committee’s recent report, and its entire income could be concentrated in a three or four-month period when the farm’s produce is sold. Even a quarterly reconciliation would not work in these cases, let alone monthly assessment.
There are also a range of factors beyond the farmer’s control, such as the weather and inability to move stock, which would affect the profitability of a farm. In answer to a Parliamentary Question on 28 February last year, we find that in excess of 90% of farmers in England and Wales are self-employed; and between 31% and 43% of all farmers earned less than the national minimum wage over the past five years. Imagine the scene at the assessment interview, where there is a framed motto on the wall which reads:
“Universal Credit should support people to be self-employed but only insofar as self-employment is the best route for them to become financially self-sufficient”.
This is a point that the Minister has already raised. I realise that it is a long motto to have on the wall, but it is important to quote the Government’s response to the Social Security Advisory Committee in full.
So the farm worker, possibly self-employed or technically self-employed, is sitting there and told by the assessor that his way of life is not “the best route for them to become self-sufficient” and that he should go back and look for work. Remember that 60% of farmers’ income already comes from taxpayer subsidies. That is the self-employed in the farming industry down the pan for starters. Obviously we should not accept that a third of all farmers should seek alternative work without considering a number of factors, many of which I have mentioned. How qualified will the assessors be in making these judgments, and how detailed will the guidelines need to be to ensure consistent standards of application? The Government have apparently turned their back on a pilot scheme, which is regrettable.
A third concern is the construction industry, where bogus or quasi self-employment is anything from 40% to 90%. It suits the contractor because it gives flexibility to hire and fire and it sometimes suits the individual for tax reasons. Other workers accept self-employed status as the only way to get a job. Contractors must submit monthly returns detailing all their subcontractors’ pay during the tax month and certifying that none of them is an employee. The view of the Business, Innovation and Skills Committee in 2008 was that,
“the questions asked of a contractor to establish whether any of their sub-contractors are self-employed, are remarkably similar to the criteria used for identifying direct employment”.
As I said in my report on the underlying causes of fatal accidents in construction, the current system,
“relies too much on HMRC monitoring and enforcement resources which are likely to come under pressure in any economic down-turn”.
Lord Freud
My Lords, I again thank noble Lords for a somewhat briefer debate although the quality remained high. Clearly, I do not have to remind the House what these regulations do. They remove the income-related element and make provision for an award of JSA based solely on national insurance contributions.
I will touch on some of the questions that were raised. I start with the issues raised by the noble Baroness, Lady Donaghy. She brought some matters to the discussion which are entirely irrelevant to this set of regulations, thereby rather skilfully avoiding the shorter answers that I suspect would have been given in the previous debate, given the pressure of time. I therefore take my hat off to her. She made one or two very valuable suggestions, which I have stolen from her, as she knows. I shall go on doing that. There are some interesting issues on timing. For example, do we have the luxury of time with the self-employed? I am very conscious that we may get the odd one or two people coming in, who I suspect are probably not on the pathfinder, because one of the things that the noble Baroness, Lady Sherlock, teased me on as regards our exclusions was that they made this provision difficult for a self-employed couple to obtain. We therefore have a little time plus the six-months’ grace. Given that we are starting with people probably even in the next phase who are coming in and will find a self-employed job, we would give them the year. All I am saying is that I am absolutely conscious of the noble Baroness’s main point relating to the one-month period and the need for a carryover. I have been looking at that closely, and what she said gave me a good hint about how long that carryover should last, which in her view should be a year. Noble Lords will be pleased to know that that is the kind of period that I am currently exploring.
I am talking to Defra, which is working with the NFU, on how all this works for farmers generally, and so I am very conscious of that issue. As regards the point on the construction industry, which is one of the more interesting industries, what I heard from the noble Baroness was, “Don’t get a Catch-22 situation here about people because of the way we define things”. That is a good point and one of the benefits of guidance is that we can quite flexibly get that in. I commit here to making sure that in that guidance we do not have a Catch-22 situation for this industry which I know has some odd things. If you are working, it should not matter how the position is actually defined if people are making the effort. I will look at that matter seriously.
We have dealt with the irrelevant stuff and I will now move on to the points made by my noble friend Lord Kirkwood. It is interesting, when you look at the figures, that of the approximately 1.5 million on income-related JSA or UC, only 200,000 receive the contracted amount that we are talking about, based on their contributions. Of those, only 70,000 receive it on its own, without a UC or income-related top-up. We have therefore moved a long way into means-testing, as my noble friend observed.
My noble friend’s point about feeling in control was smack right. You do not get a response of the kind that you want if people do not feel part of it. If they do not understand and have not been part of the process that has generated it, the sanction will not work as well and create the right behavioural response. That is what the claimant commitment is doing. Interestingly, the early trials of the claimant commitment are finding that it is working much better than our existing contract.
The noble Baroness, Lady Lister, asked me for another guarantee. I will give the noble Baroness a guarantee that any changes to the ESA and JSA as part of UC would require regulations. There will therefore be a chance to debate that. As to the point about having a contributor on a different platform, the reality is that any Government looking ahead would want to have as few platforms as possible. One will probably end up with the same platform but approval of the process of who gets paid and how would have to go through this House.
In response to the question of the noble Lord, Lord McKenzie, the two areas that were not carried forward were those where the time allowance to attend an interview was moved from seven days to 48 hours. Claimants with children over the age of 13 are expected to show that they have reasonable prospects of getting a job, but they can still have tailored requirements in line with their caring responsibilities. Those are the two specific changes. Regarding the point about national insurance credits, everyone on universal credit will have national insurance credits that count towards the state pension. The difference is that there are class 3 credits for UC, whereas JSA claimants currently get class 1 credits.
Lord McKenzie of Luton
Will the Minister drop me a line on the point he made about class 1 and class 3 contributions? I should like to reflect on it because I am not sure that I understood the import of it.
Lord Freud
Yes, I would be pleased to provide a letter laying that out for the noble Lord to consider in depth.
We started last year to align the JSA regime and universal credit with the sanctions model. These changes pull them even closer together. We will thereby have a clearer system of requirements and sanctions that are robust and appropriate, underpinned by safeguards for claimants. I seek approval of the regulations and commend them to the House.