16:14 - Division on Amendment 1 - Ayes: 206 / Noes: 275 - Amendment 1 disagreed.
17:20 - Division on Amendment 2 - Ayes: 221 / Noes: 261 - Amendment 2 disagreed.
18:12 - Division on Amendment 3 - Ayes: 198 / Noes: 253 - Amendment 3 disagreed.
19:17 - Division on Amendment 4 - Ayes: 173 / Noes: 220 - Amendment 4 disagreed.
Baroness Stowell of Beeston
My Lords, there have been some very powerful speeches in this debate. I am very grateful to all my noble friends for their contributions and for laying out so clearly and eloquently the economic case for this Bill and for what we seek to achieve. As they have been so clear, I will not repeat much of what they have said. However, I will start by making clear to your Lordships’ House that the amendments before us would, in simple terms, remove the commitment to a 1% uprating from the Bill. The noble Lord, Lord McKenzie, said in Committee:
“We fully intend these amendments to undermine and negate the purpose of the Bill”.—[Official Report, 25/2/13; col. 855.]
My noble friend Lord Newby said in reply that these are the sort of amendments that equate to,
“a vote against the Bill at Second Reading”.—[Official Report, 25/2/13; col. 866.].
It is important that we understand what these amendments seek to do.
As has been made clear by my noble friends, these are not decisions that we take lightly. I do not deny that they will have impacts on those who receive the benefits in question or that those impacts will not be easy. However, we have made a conscious decision to protect those benefits which reflect the additional costs that disabled people face, while also protecting pensioners through our commitment to the triple lock.
The right reverend Prelate the Bishop of Leicester is right to highlight those in need and I am glad that he does. It is important that we all remember and are conscious of the people affected by some of these changes. However, I ask him and all noble Lords not to forget that, as part of the Government’s wider reforms, we are prioritising resources towards measures and reforms that support families and help to change lives.
Let me name just a few of those measures. We are expanding early-years education to ensure that children have access to early education and to support parents in work. We are attaching additional funding to disadvantaged pupils through the pupil premium, which will rise to £2.5 billion a year by 2014-15. We have protected the schools and NHS budgets to ensure that these vital services continue to support families. More than £1 billion of investment will go into schools. We are introducing universal credit—a new, radically simpler benefit payment designed to ensure that work pays.
As my noble friend Lord Bates already has acknowledged, this last change is about transforming our welfare system. It will significantly increase the incentive that people have to work. Indeed, we estimate that it will lead to up to 300,000 more people moving into work. It is important that we focus on that point for a moment. As my noble friends have already indicated in their speeches, we must not look at the changes that we are discussing today in isolation; we must see them in the wider context of the changes that the Government are making. They reflect the fact that this Government’s focus is on how to help people off benefits and into work.
We need to be aware of the level of support that people can receive while they are on out-of-work benefits. For many, this is supposed to be a temporary state—an interruption between periods of work. By making the system simpler, by reducing the risks from people moving into work and by making work pay, we can reinforce that temporary nature and ensure that more and more people are moving into work. That is what we are seeking to achieve through universal credit and, as I have said, I ask noble Lords to bear these wider changes in mind when considering this Bill and all the amendments that we will debate today.
This Bill is a short-term change, made at a desperately difficult time, as we seek to rebalance the public finances. However, in our other reforms we have made a huge commitment to the long term, a commitment to changing lives through helping people back to work. Although we still have challenges in the labour market, the fact is that more people are moving into work already. Unemployment is falling. Private sector employment is up by more than 1 million since the election and the number of people employed is at its highest level ever.
We are continuing to provide for a 1% increase in these benefit rates. As my noble friends have said, this will mean that the value falls in real terms, which is not a decision that we take lightly, but it is an increase and we must compare this, as some of my noble friends already have, with what is happening elsewhere. Ireland has cut unemployment benefit by 4% a year for two years since 2010. Portugal has cut unemployment benefit by 6%. Spain has cut payments to people who are unemployed for more than six months by 10%. Let me remind noble Lords that the UK’s deficit in 2010 was larger—I repeat, larger—than the latter two countries. I am not saying that that justifies the measures we are discussing today; they are justified by the need to rebalance the public finances. However, it is, I hope, a reminder that these are very difficult times. The actions this Government have taken and continue to take to reduce the deficit are helping to secure economic recovery, but there are still tough decisions to make.
While this group of amendments seeks in simple terms to remove the 1% figure from the Bill, as many of my noble friends have already pointed out, it does not suggest an alternative. It should be noted that if the amendments before us were to pass, they would make it possible for the Government to increase benefits by any amount that they wanted in the years in question, without reference to prices or any specified factors, including uprating by less than 1%. Let us assume that the intention would be to upgrade in line with CPI. That would mean that the £3 billion in savings from the Bill would not be delivered. I appreciate that the decisions we have made in the Bill are not easy. We never claimed that they were. However, they are absolutely necessary. This was made clear by my noble friends, who made contributions that were much more powerful than I could have made.
Let us not forget that the central purpose of the Bill is to set out clear plans on uprating that deliver significant and vital savings that will help us on the road to economic recovery, along which we simply must travel if we are to preserve for the future the kinds of things that we value and from which we will all benefit: a stable economy, a growing labour market and opportunities for the next generation.
When the noble Lord, Lord McKenzie, moved the amendment, he said that all the amendments in the group were linked and were consequential one on another. Perhaps it is premature for me to make this point, but I will make it clear that in the Government’s view the amendments are not consequential one on another. If Amendment 1 is agreed, the Government will not oppose Amendment 5. However, we will oppose Amendment 7. It is important to make that clear.
I have made the case for seeing these changes in a wider context, and my noble friends have made powerful contributions about the wider economic context. It is clear that the changes, while painful, are necessary. Therefore I urge the noble Lord to withdraw his amendment.
Lord McKenzie of Luton
My Lords, I start by thanking the noble Lord, Lord Low, for his support for the amendments in this group. He made the very important point that we are potentially moving into a period of greater inflation. This point was made last week by the FT, which talked about the risks of stagflation in this country. I also thank the right reverend Prelate the Bishop of Leicester for his support. He posed the key question: how will making these people poorer help the national interest? What we heard from noble Lords who oppose the amendment did not help us on that point.
I say to the Minister and to the noble Lord, Lord Bates, who prayed in aid universal credit, that it would be good to know that universal credit is on track because from everything we hear it is not. Even with universal credit as proposed, we know that something like 1.8 million people will have their benefits from work reduced in comparison to their current position.
I stress that the amendment challenges the locking-in over a three-year period of the restrictions on uprating. Uprating by less than the rate of inflation is a real-terms cut. We should recognise that it is a cut in people’s benefits. The fundamental proposition in the amendment is that these things should be looked at in the normal way on an annual basis by reference to what is happening to prices.
The noble Lord, Lord King, and the Minister said that other countries are cutting benefits. Benefits have been cut in this country, too. Council tax benefit, housing benefit, DLA, ESA and tax credits have been cut by something like £18 billion to date.
Lord Newby
Will the noble Lord confirm that no benefits in this country have been cut in cash terms, as they have widely been in the rest of Europe?
Lord McKenzie of Luton
Housing benefit is one such benefit. Council tax benefit has been dumped on local authorities with a 10% restriction on funding, which means that people’s support will be cut in cash terms. That is absolutely happening.
I say to the noble Lords, Lord King and Lord Forsyth, that it seemed that the mention of Cyprus was meant to lead us to a conclusion that bears no relation to reality. We are not dealing with a situation here that would take us anywhere close to the situation in Cyprus. We are talking about restrictions on uprating which, on the Government’s own figures, would amount to something like £1.9 billion.
Lord Newby
My Lords, the whole House can agree on one thing. We all want to support families with children and ensure that children in this country have the opportunity to fulfil their potential. We have been discussing how we attempt to achieve that in the extremely difficult economic times in which we live.
I will spare noble Lords my speaking notes on the economic context, as we have already had a full debate on that. The only point I make in passing, in respect of the Opposition’s policies on deficit reduction, is that they passed legislation saying that by the forthcoming financial year it would be illegal not to have halved the deficit. It is therefore particularly surprising that they seem to have had no plan at the time to do it and have given no indication since of how they might have done it.
However, I must remind noble Lords again of the baseline from which these savings are being made. Tax credit expenditure increased by 340% under the previous Government compared to the benefits they replaced. Eligibility for tax credits was extended to nine out of 10 families with children and tax credits and child benefit accounted for £42 billion this year, which is over 40% of working-age welfare expenditure.
I will give noble Lords one other piece of context. The latest OECD figures show that of all the developed countries the UK, along with Ireland, spends the highest proportion of its national income on family benefits. We are not a country that takes these things lightly or a country that has not given very high priority to supporting families. We believe that that is absolutely a right priority and we support families with children as much as we can in the circumstances. Child benefit and tax credits exist to do that. However, as we have said, we have to focus resources where they are needed most.
A number of noble Lords, including the right reverend Prelate the Bishop of Leicester and the noble Lord, Lord Bates, have mentioned that this Bill is only one of a large number of measures that the Government are taking which affect families with children, in particular poor families with children. The noble Lord, Lord Bates, referred to the pupil premium, which will cost the Government £2.5 billion by next year. This will be worth £900 per disadvantaged child—and that is £900 in hard times. We are extending flexible support for early education. Since 2010, all three and four year-olds have been entitled to 15 hours of free childcare and we are extending this to 260,000 disadvantaged two year-olds from this year. This is immensely important to these families and it will be worth around £2,900 a year for the poorest families who benefit—£2,900 extra per family. We have found these hugely significant sums of money by making reductions elsewhere, because we place such a large priority on the poorest families.
As the noble Lord, Lord Bates, said, we protected the schools budget and the NHS budget. We are spending £1.2 billion on capital expenditure in schools. However, as the noble Lord, Lord Forsyth, has said, one of the most important things we have to do is leave our children and grandchildren with a lack of deficit or a deficit that they can manage. The savings in the Bill attempt to begin to do that.
The first group of amendments would remove child benefit, child tax credit and the lower rate of disabled child addition in universal credit from the Bill. This would remove nearly half the savings from the Bill, which is around £900 million in 2015-16. I should like to make a further point on universal credit, although it has not been the subject of much debate in this group of amendments. I am sure we will be dealing with this important issue in more detail when we debate Amendment 3, to which my noble friend Lady Stowell will respond. Suffice it to say that part of the principle underlying the decisions we have taken on disability and universal credit is the need for simplicity and our desire to target support to the most severely disabled children.
The right reverend Prelate the Bishop of Ripon and Leeds referred to child benefit and expressed his concern that it had been frozen or taken away from the highest earners. What he did not say was that the Government have increased child tax credit by £180—more than inflation—to more than cover, in the first few years, the reduction in child benefit. Taking child benefit and child tax credit together, we have tilted the expenditure away from affluent families and put more of the cash into poorer ones. I think that is a sensible priority and I am surprised that he appears not to agree.
A number of noble Lords have talked about the impact of the Bill on child poverty. As has been pointed out, the Bill is forecast to increase the number of children in absolute poverty by 200,000 and the number in relative poverty by 200,000. For the avoidance of doubt and in answer to the point made by the noble Baroness, Lady Sherlock, my noble friend Lady Stowell wrote to the noble Lord, Lord McKenzie, copied to other noble Lords, on 13 March. Her letter contained the figure about absolute poverty so, far from seeking to avoid mentioning it, we chose to circulate it. I am not saying that absolute poverty is not something we should be extremely concerned about but the term does not mean what most people think of as absolute poverty. The definition of absolute poverty is 60% of the median income in 2010-11 uprated to take account of inflation. The 200,000 children mentioned in respect of absolute poverty are very largely the same as the 200,000 who are mentioned in terms of relative poverty. You certainly cannot add those two numbers together.
At previous stages of the Bill, we have discussed the definition of child poverty and the importance of tackling child poverty. We know that if we focus on the relative income line we get some very odd results. We have pointed out previously that in 2010 300,000 fewer children were said to have moved out of poverty, not because anything changed in their lives but because the rest of society got poorer. The estimate on the impact of this Bill does not take account of policies which would cause child poverty figures to move in the other direction, such as universal credit which is expected to lift up to 250,000 children out of poverty, depending on the effect of the minimum income floor. We take the issues of cash and poverty, as currently defined, very seriously, but we also think that we need a broader definition of child poverty. That is why the Government are currently consulting on a wider definition. As I set out two weeks ago, and repeat today, this Government remain committed to eradicating child poverty. We believe that income will remain an important part of any new measure on child poverty, but focusing our resources on benefits alone is not enough. We have to take action to tackle the root causes of poverty, some of which I have described today.
I also take this opportunity to mention, as an example of what the Government are doing to support children and families in work with children, the announcement made today by the Prime Minister and Deputy Prime Minister concerning increasing eligibility for support to five times as many families as is currently the case through a new tax-free childcare scheme. Families where the parents are in work will be able to claim 20% of their childcare costs—equal to the basic rate of income tax—up to £6,000. The scheme will be phased in from the autumn of 2015. More than 2.5 million hard-working families will be eligible to benefit from these new proposals, compared with existing schemes offered by fewer than 5% of employers. Families on tax credits will be eligible to receive support for 70% of their childcare costs, and we have already committed an additional £200 million in universal credit, helping 100,000 more working families.
Today’s announcement of that further £200 million of additional support in universal credit will provide working families with the equivalent of 85% of their childcare costs where the lone parent or both parents pay income tax. That additional support will improve incentives to work and ensure that it is worth while for low and middle-income parents to work up to full-time hours. It will be phased in from April 2016 when childcare support moves from tax credits to universal credit. Together, these proposals will help to ensure that working families are not held back by the costs of childcare. They will remove disincentives to work for many mothers and provide flexibility and support for businesses to generate employment.
I hope I have been able to provide some reassurance that, although we are taking difficult decisions on welfare, they are necessary decisions. We are prioritising limited resources so that they go to measures that help families with children as well as those who aspire to work hard and get on. I therefore ask the right reverend Prelate to withdraw his amendment.
The Lord Bishop of Ripon and Leeds
My Lords, I am grateful to all those who have taken part in this debate and, indeed, to the Minister for his extended response to the discussion. I am grateful to the noble Baroness, Lady Sherlock, for her support and for the information that 200,000 children will be in absolute poverty as a result of the Bill. We have also recently had information from the Trussell Trust about the number of children who are now being fed through food banks.
I thank the noble Lord, Lord Forsyth, for his contribution, but this is not simply a variation on the previous amendment. For one thing, it would cost only half as much at £0.9 billion, rather than the £2 billion to £3 billion which has been mentioned in relation to the whole Bill.
There have been a number of suggestions—not just from me but from a collection of other people—as to how this money could be raised. At an earlier stage in our discussions on the Bill, I made suggestions and the noble Lord, Lord Newby, responded that they were indeed possibilities but not ones that fitted in with the Government’s current priorities. That is a perfectly fair response but it is not fair to say that taxing the winter fuel allowance or dealing differently with things such as free television licences, tax relief on pension contributions, national insurance contributions or employer pension costs and so on are not possible. They are possibilities. I was not quite sure what—
Lord McKenzie of Luton
It depends on what the alternative proposition would be. I have tried to stress that this amendment takes ESA outside this 1% fixed uprating—outside that collar—so we would have to judge the impact at each uprating period thereafter. A judgment would have to be made in the light of inflation and general economic circumstances at that point in time. That seems a very clear proposition, is it not? It is certainly a basis on which we are very happy to support this amendment.
Baroness Stowell of Beeston
My Lords, all of us want to protect those who are furthest from the labour market or who have additional costs because of disability, and I think that all of us who have contributed to this debate so far and all of us in the Chamber today share that view. There is no disagreement among us on that.
That is what the Government are doing. We have not included key disability benefits, including disability living allowance and attendance allowance in the 1% annual uprating decision in the Bill. Nor have we included the disability premiums in working age benefits or the disability elements of tax credits in the Bill. We have also excluded the support group component of employment and support allowance and the higher of the universal credit disabled child additions. All these benefits will continue to be uprated by CPI. We have protected them because they help support those who are furthest from the labour market or who have additional costs because of disability.
In one of the exchanges that has just taken place, the noble Lord, Lord McKenzie, referred to cancer sufferers and made the point that we want to make sure that we provide them with the support that they need. It is worth reminding noble Lords that earlier this year, in January in fact, we introduced changes that will mean that more people with cancer will now qualify for the support group, which is protected, whereas before they might have been placed in the work-related activity group. We have taken on board the concerns in that area. They were valid concerns, and we were glad to be able to act on them.
Lord McKenzie of Luton
My Lords, we are debating a different Bill. If the noble Lord wants to debate a proposition about public sector pay, let us have some propositions and we can consider that. The noble Lord knows full well that he is trying to lead the Opposition in a particular direction.
I come back to the point that the amendment of the noble Lord, Lord Kirkwood, is very straightforward. It just says that an automatic 1% uprating would not apply automatically if inflation reached a certain level. That seems entirely unobjectionable and I cannot see why the Government cannot accept it. If the Government do not accept it, they have to say what level of inflation, what level of real decrease in people’s circumstances, they would find acceptable, because that would be the consequence of rejecting the amendment. This is a very modest proposition. I really am surprised at the trouble that the Government are having with accepting it. I would hope at least that the noble Lord’s colleagues would stick with him on this issue as the arguments that we have heard against it are quite spurious.
Lord Newby
My Lords, the first amendment in this group in the name of my noble friend Lord Kirkwood would mean that the Bill would apply only if inflation was below 3% for the purposes of uprating in that year.
I shall provide a reminder of what the official inflation forecasts currently show. While inflation is forecast to be above target—that is, 2% in the near term—it will fall back towards the target in the medium term. In the final year of the Bill, the current forecasts show that inflation for the purposes of uprating in that year will be 2.2%. That was the view of the Office for Budget Responsibility at the time of the Autumn Statement. The OBR produces independent and authoritative forecasts for the economy and public finances and we take decisions based on them.
However, the OBR is not alone in forecasting that inflation will fall back to target in the medium term. That is also the view of other major economic forecasters. I refer to the IMF, the OECD and the Bank of England. Indeed, the latest assessment of independent forecasters in February was that UK inflation would be 2.2% in the 12 months to quarter 1 of 2014 and in the 12 months to quarter 1 of 2015. That is an average assessment of people who make their living by doing this job.
The noble Lord, Lord Kirkwood, said that he thought there was a 50% chance of inflation being over 3% in the period covered by the Bill. I remind the House that that means a 50% chance that inflation will be over 3% by September 2014, because that is the last point at which the Bill has an effect in terms of benefit uprating. All I can say to my noble friend, for whom I have the greatest regard, is that his view is just not shared by any reputable international or national body that is making forecasts about inflation.
Baroness Hollis of Heigham
In that case, why do the Government have any problem in accepting this amendment?
Lord Newby
I am coming on to that. In fact, I will deal with it now. It is relevant to the point that was made by my noble friend Lord Forsyth. The purpose of the Bill, as we have debated about 20 times since Second Reading, is to give some certainty to the Government’s fiscal plans. The reason we are doing that is that a number of international bodies and rating agencies have said that this has a specific and significant impact on the way that they view the UK’s prospects. Entrenching something in a Bill has the effect of giving a degree of certainty, which is immensely useful with regard to the markets.
As my noble friend Lord Forsyth has said, there seems to be a sense that the markets think that we in the UK are in a very good position and that a little tweak here and there in terms of borrowing will make no difference. That is not the way the markets work. It starts off with a little tweak and then the markets feel that something is going wrong. Once that feeling takes hold, the markets can move very quickly.
As we have debated many times in your Lordships’ House, it does not need much of an increase in inflation to make a huge difference to the Government’s finances and the lives of ordinary people.
Lord McKenzie of Luton
Can the noble Lord tell me how the markets have moved in response to the Government borrowing £200 billion more than originally planned?
Lord Newby
The reason why they have not moved is that the Government have not changed our underlying policy.
The effect of a 1% increase in inflation on someone with a £100,000 mortgage is £1,000. These are big differences and a 1% increase in the interest rate is by no means out of line with the interest rates being paid by a raft of European countries whose borrowing as a percentage of GDP is significantly less than ours. The risk in terms of interest rates is real and present. It is not some airy-fairy possibility that would come into play only if the Government were suddenly to go mad and spend huge amounts of money. It can happen with a relatively small change.
The Government remain committed to low and stable inflation. As we have said umpteen times, it is good for individuals and for business and is a prerequisite for economic prosperity. That is why the Government set the remit for the independent Monetary Policy Committee to target inflation. The Chancellor will set the remit at Budget tomorrow, as usual. I do not know what the remit will be but I know it will not be, to quote my noble friend Lord Kirkwood, to loosen the constraints so that inflation rips. I am confident that the Government’s commitment to low inflation will remain.
My noble friend Lord Kirkwood and the noble Lord, Lord McKenzie, said, “What happens if, contrary to what the Government have said, inflation does rip? Suppose we have a circumstance that we don’t believe is going to happen”. If Governments legislated for every circumstance that they did not believe was going to happen, we would have Bills thousands of pages long. The Government can legislate and act only on the basis of a central assumption of what the future, in respect of the particular area of public policy they are dealing with, is going to be like, and that is what we have done here.
I turn to the issue that many people have faced and in many cases continue to face—real-terms reductions in pay. Inflation risk is something that everyone has to face in everyday life. We have been taking about public servants but let us just talk about them a bit more. Public servants have seen their pay frozen and then increased by 1%. When inflation rose to 5.2% in September 2011, many public servants were in the middle of a pay freeze. The Opposition supported that policy and there was no inflation guarantee within it. This includes, for example, many hard-pressed personal advisers in jobcentres who are on modest incomes and are having to see restraint in their pay in these very tough times. That is the right policy. However, the consequences have been that many out-of-work benefit recipients have seen higher cash—yes, cash—increases in their benefits payments over the past three years than many Jobcentre Plus personal advisers have seen in their salaries.
These are difficult but necessary decisions. We must remember the tough circumstances that many people in work have faced and continue to face across the country as we deal with the effects of the economic crisis. As I have said, we believe that this Bill is necessary to set out a clear and credible plan to make savings from welfare, help reduce the deficit and restore economic recovery. We are taking the tough decisions because it is necessary to give confidence to the markets. Adding to the Bill conditions such as those proposed by my noble friend Lord Kirkwood would diminish the confidence that we require.
I now turn to Amendment 12, in the name of the noble Baroness, Lady Morgan of Drefelin. This amendment would place a duty on the Secretary of State to instruct the Social Security Advisory Committee to commence a review of the level of uprating if inflation reaches 3.2% in any of the relevant periods as defined in the amendment. I hope that during this and previous debates both I and my noble friend Lady Stowell have been able to convey to the House that we understand and share noble Lords’ concerns about measuring the impacts of the Bill and all our reforms on individuals. However, as the noble Baroness slightly suggested in her speech, we believe that the amendment is unnecessary.
Noble Lords will be aware that we already have comprehensive arrangements in place to report on the impacts of government policy. First, we have already published a full account of the impacts of this Bill based on the forecast set out by the OBR. Again, these forecasts are broadly shared by the other main economic forecasters. Noble Lords will be aware that we have also published the child poverty impacts of the Bill. The Government already have a suite of ongoing reporting mechanisms in place and report on the levels of poverty every year in the households below average income series. It is only by looking at poverty issues in the round that we can have a meaningful debate about poverty. Noble Lords will be aware that the Government are currently analysing responses to their consultation on new measures of child poverty, measures that will attempt to capture the wider reality of poverty in the UK today.
Later this year we shall see the first of what will become an annual report from the Social Mobility and Child Poverty Commission, which will report on the Government’s progress towards reducing child poverty, in particular meeting the targets in the Act and implementing the most recent UK strategy. This commission, chaired by Alan Milburn, will report to Parliament and will enable detailed scrutiny of the Government’s work to eradicate child poverty.
Finally, the Government regularly produce an analysis of the cumulative impact of changes on households across the income distribution. This information is published by the Treasury at every Budget and other major fiscal events. This analysis will use updated inflation projections. We believe that it is a better approach than that in the amendment as it looks at the cumulative impacts of all changes rather than artificially isolating just one policy. The publication of cumulative impacts is a coalition initiative and was not produced by the previous Administration.
The Government have taken unprecedented steps to increase transparency and enable effective scrutiny of policy-making by publishing detailed distributional analysis of the impacts of their reforms on households. Our published distributional analysis goes further than that of any previous Government. Having these mechanisms in place means that we are confident that the Government will be able to scrutinise the effects of this Bill and of our whole suite of welfare reforms. I therefore ask the noble Baroness to withdraw her amendment.