Social Security (Payments on Account of Benefit) Regulations 2013
(Limited Text - Ministerial Extracts only)
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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 support the powers introduced by Section 101(1) of the Welfare Reform Act 2012 to make payments on account of benefit. Two new types of payment on account are introduced by these regulations. First, short-term advances of benefit for universal credit and legacy benefit claimants will replace interim payments and social fund crisis loan alignment payments from 1 April 2013 for legacy benefits and 29 April for universal credit. Secondly, budgeting advances will replace Social Fund budgeting loans for eligible universal credit claimants from 29 April 2013. Short-term advances will provide an advance of benefit against a new claim or a change of circumstances which significantly increases the amount of the benefit award. Budgeting advances will help finance intermittent or unforeseen expenses, such as essential household items or expenses related to maternity or obtaining or retaining employment. These are advances of a claimant’s benefit. They are not additional money provided through a budget-capped scheme as is the case with the existing Social Fund.
I turn to some of the reasons for these changes. The existing Social Fund has been part of the benefit system since 1988. The fund was designed to help people meet exceptional costs that were difficult to budget for out of mainstream benefits. However, it has not kept pace with wider welfare reform which has led to complex administration. Parts of the scheme are poorly targeted and open to misuse. In future, claimants will have access to financial support through advances of benefit and local provision.
Social Fund reform, of which the introduction of short-term and budgeting advances are a key part, was partly in response to various comments and criticisms of the current Social Fund, including from the National Audit Office, the Public Accounts Committee, the Commons Work and Pensions Select Committee, the Social Fund commissioner, and customer representative and other stakeholder groups. As noble Lords know, crisis loans and community care grants are being abolished from April 2013 as part of the reform of the Social Fund. I know that there has been some interest in the progress being made by local authorities and the devolved Administrations in putting their new arrangements in place.
We know from the detailed work being carried out at a local level by Jobcentre Plus that English local authorities are at various stages of readiness. At this point in time we are not aware of any that will not be providing some form of local welfare provision from 1 April. The Scottish and Welsh Governments are both delivering their own national models from 1 April.
Returning to advances of benefit, our core aim remains to provide essential support targeted at people on the lowest incomes, whether in low-paid work or out of work, to manage the demands on their budgets that cannot be addressed through their regular benefit payments. Financial capability plays an important role in helping people to enter the world of work and in enabling self-sufficiency in budgeting and financial management. The Government want people to be able to manage their affairs in a manner that best reflects the demands of modern life, whether in or out of work.
Universal credit will provide a range of financial support to help people achieve financial independence and rely less on government to manage their money. Improving financial responsibility will allow households increased access to affordable credit, will reduce reliance on borrowing from government and will encourage households to take advantage of cheaper tariffs for essential costs such as utility bills.
We recognise that some claimants will need support at the start of their claim when they are waiting for their first payment of benefit, or during their claim when they have a one-off expense for which they have been unable to budget. The new system of advances of benefit will be much simpler to understand and to administer. We will ensure that those in financial need have access to support when they need it.
I want to draw a couple of aspects of the regulations to the attention of the House. For short-term advances, claimants have to be in financial need in order to receive an advance. Regulation 7 defines this as a serious risk of damage to the health or safety of the claimant or a member of their family. This is a high bar to pass but rightly so considering that these advances are paid using public funds. However, it is not a new test within the benefits system. This has been the test in Social Fund crisis loans for the past 25 years or so, so it is one that our staff are used to operating.
Claimants cannot receive a second budgeting advance if they have an existing one which has not yet been fully recovered. This means that they can have only one budgeting advance at a time. This is set out in Regulation 14. I know that this is one element of the new arrangements that has caused some concern.
Baroness Sherlock
My Lords, I thank the Minister for introducing these regulations and explaining how they would work; and my noble friend Lady Lister for her characteristically incisive questions. For this one moment only, I am glad that I am standing here and not sitting in the Minister’s seat. As has been explained, these regulations come in two parts. I will first look briefly at the payments on account. The Minister has explained the circumstances in which these will operate and my noble friend Lady Lister has already tried to tease out the reason why the Government have gone for this strict test of being available only to those in financial need. It is even slightly stricter than that. They will be available only for those in financial need as a result of having applied for a benefit, but not yet received a payment, when it seems likely that they will do; or when an award of benefit has been made, but the date on which it would be paid has not yet been reached.
That last one is likely to be of particular interest to millions of people who will find themselves being moved from weekly or fortnightly to monthly payments. Recent research commissioned by DWP, Work and the Welfare System: a survey of benefits and tax credits recipients, by Tu and Ginnis in 2012, found that 42% of potential universal credit claimants said they would find it harder to budget with monthly payments; 80% of these said that they were likely to run out of money before the end of the month. As I understand it, they will not all be entitled to budgeting advances, only those who find themselves in this stiff test of financial need, as a result of the circumstances I have described.
I would be grateful if the Minister would explain what he understands as being a “serious risk”. Would running out of food or cooking facilities constitute that, as my noble friend Lady Lister mentioned? Food banks already see significant numbers of people turning up because their benefit payments have been delayed. I suggest that this is likely to become much more significant in future with the move to monthly payments. Even if the test is the same as now, will the Minister concede that there may be a different set of needs resulting from a change in the circumstances because all these people are moving into monthly payments? Has he considered that aspect of it?
Regulations 11 to 15 cover budgeting advances. My noble friend Lady Lister has gone through the reduction in the maximum amount available, so I do not need to revisit that but I will be interested to hear the Minister’s answer. I would be interested, though, in the following information, if the Minister can provide it. His department has inquired about what has been happening with regard to the replacement for the Social Fund in different parts of the country. How many of those schemes will offer cash to claimants? What has his department found out about that? That will be important since they will replace a system whereby claimants can access cash at the moment. What research has the department done to establish the alternatives to which claimants are likely to turn? Since many claimants will not be able to access mainstream credit, it must be feared that they will turn at best to expensive legal credit, home credit or retailer financing, or at worst to illegal loan sharks.
I would be grateful if the Minister could explain again why he thinks it is important that claimants should be able to have only one loan at a time, even when it is a very small loan. A family may have borrowed £150 to buy a bed for a child but then a disaster strikes: for example, their washing machine breaks down, there is a flood or the bicycle which the mum is going to use to get to a job interview is stolen. They then need a significantly larger loan. What is the rationale for their not being allowed to take out more than one loan even if the total of the loans is well below the ceiling?
Will the Minister address the interaction between the new low ceiling, the fact that the adviser will be required to establish that the claimant can afford to repay the loan and the fact that the maximum period over which it can be borrowed has been reduced from two years to one year? Therefore, somebody taking out the maximum loan will have to contend with a tighter borrowing period and will have to prove that he or she can afford to repay it. Is there not a danger that that will make it even harder to get the loan in the first place?
These regulations may seem minor and technical but we will see millions of people face changes in their payment patterns because the decisions the Government have taken—in the face of widespread dismay and advice to the contrary—to move to a single payment, including amounts for rent, children as well as work, and to pay it monthly in arrears, are likely to be the cause of significant difficulty for a great many claimants. The least they deserve is a generous, open, accessible system of payments on account to ease the regulations’ passage.
Lord Freud
My Lords, again, lots of punchy points have been made. I think that the noble Baroness, Lady Lister, is under a misunderstanding—this rarely happens—as regards the serious risk test. This is applied only to short-term advances. It does not apply to the budgeting advances. I reassure her that not having access to heating would clearly be considered a risk to health. The budgeting advances are exactly the same as for the current budgeting loans in terms of the maximum. The current budgeting loan is lower than the available maximums because that counts for the whole of the Social Fund debt—the £1,500 figure—which includes budgeting loans and crisis loans. Because the Social Fund will no longer exist and we are sending elements of it to the regions and the devolved areas, we are not comparing like with like. The actual maximums as regards the like-for-like components have not changed.
As regards mental health issues, the test is whether the claimant or a member of their family would face a serious risk to health or safety. Clearly, savings are a factor, as are other sources of income, but health, including mental health issues, will be considered.
The context here is to widen the source of funding for families, which is why we are looking to deliver a further £38 million investment into the credit union movement, thereby aiming to make sure that it becomes a viable industry that is able to support families. I am looking forward to making more announcements about that in the not-to-distant future.
Baroness Hollis of Heigham
I am now completely baffled by the approach that the department is taking. On the one hand, the money-lending teams, which are obviously doing well, are seeking to exterminate illegal loan sharks and so on, but they exist because there is a demand for cheap credit, otherwise they would not be in business at all. We obviously respect what the Minister is trying to do with credit unions, which are an appropriate alternative—if, of course, you have first saved—but given that he has now agreed that the maximum figure for single people is £348, £464 for couples and £812 for families with children, why not use those figures as the maximum cap that people can borrow against for their payments on account, rather than be confined to one loan? Thereby, if you have taken out £70 or £120, you cannot take any more until you have paid that back. If you are going to have those caps, regard them as the caps against which money can be borrowed on several occasions and you will therefore teach people how to manage credit as well as income. I suggest that that would be much more appropriate, given the Minister’s other objectives, which we entirely share.
Lord Freud
This is a fascinating area because, following the growth of the micro-loan industry particularly in Bangladesh, where it started—it has spread all around the world—the lessons on helping people to learn how to budget are very much along the lines of giving someone a loan which they pay back before they get the next loan. There is therefore a real learning process. In our approach, we are picking up this global phenomenon, whereby we will provide credit—in practice, free credit behind which there is a discipline—which has to be repaid before the next loan is available. It is very much the same thinking as that which we see globally.
Baroness Lister of Burtersett
If people know they can get only that amount, they will borrow more than they need at that point, knowing that that is it, whereas, as both of my noble friends are suggesting, you could have £100 here and £100 there, as you need it. I suggest that it would be good to look at this again.
Baroness Hollis of Heigham
I would artificially inflate my bid, knowing what you are doing to me. That would be a very foolish way to encourage me to learn how to manage credit.
Lord Freud
I can see that I am in the presence of experts—in an observatory context—on how people manipulate any system at all. I shall take away your thoughts, as always, about the fact that some gamesmanship may be going on.
It is getting very late so I shall wrap up. When you look at local authority provision, there are clearly opportunities. It is for each local authority to consider its own local circumstances. We are in the process of getting information about the details of those schemes, which will perhaps provide goods or services and some will provide cash. Then we shall be able to report back at the appropriate time when we have some more information.
I hope I have dealt with the questions. Clearly there will be teething problems, as there is with anything new, but we will monitor this very closely as part of our evaluation programme, and that will cover the introduction of universal credit. In addition, the intention is to review specifically universal credit advances and budgeting advances in 2017. Short-term advances for those on legacy benefits will also be monitored and evaluated. I commend the regulations to the House.