Welfare Benefits Up-rating Bill

Monday 25th March 2013 Lords Chamber

Third Reading

15:09

Amendment

Moved by

[Lord Kirkwood of Kirkhope]

After Clause 2, insert the following new Clause—
“Annual report to Parliament—
(1) Within a year of the passing of this Act, and annually thereafter, the Secretary of State shall publish and lay before both Houses of Parliament a report on the costs to the Exchequer arising from the provisions of this Act. (2) A report under this section shall include a comparison of the costs to the Exchequer arising from the provisions of this Act against the costs that would have arisen had each of the individual relevant sums and relevant amounts, as defined in the Schedule to this Act, been increased by a sum equivalent to the change in the general level of prices, measured by the Consumer Price Index.(3) A comparison shall include an analysis of the effect of the provisions in this Act on each of the relevant sums and relevant amounts in the Schedule.”

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to move the amendment on the Order Paper to insert a new clause after Clause 2, entitled “Annual report to Parliament”. It will give my noble friends on the Front Bench some comfort, perhaps, if I tell them that this is a probing amendment. This is a case of once bitten, twice shy.

However, it is important to spend some time reviewing the context in which the Third Reading of this important Bill takes place, particularly against the background of our not having had the advantage of having the Budget Statement available to us when we were on Report. We are now better informed in terms of the updated projections that have been done by the Office for Budget Responsibility, which inform this debate directly. I cannot resist the temptation to say to my noble friend that we are also better informed on CPI in that, as we were speaking on Report last week, the BBC was reporting that the February monthly figure for inflation had ticked up by 0.1% from 2.7% to 2.8%. Admittedly, that is two points away from the magic 3% that I was using in an amendment—as it happens, unsuccessfully—to try to get some inflation protection for people on benefits.

I mention that merely in passing. I will not go back to discussing what we did on Report because I would be out of order to do so, but it illustrates the point that inflation can be capricious. It is a difficult thing to forecast. Some commentators who know more about it than I do were saying that, for example, the recent weakness of sterling, which has dropped by 7% in recent days, increases the risk of inflation, and so does the new monetary policy framework that Mark Carney, the Governor-designate of the Bank of England, is going to work with. We therefore need to look at the Bill carefully.

This amendment is a rather clichéd parliamentary device, as an annual report to Parliament is the last thing I could get the clerks to accept as being in order. However, it gives us time to reflect on the full-blown consequences of this Bill as we launch it on to the statute book. I still have some deep concerns, which are not merely around the question of the reduced household budgets of low-income working-age families. As I said in Committee, the Bill sets a very dangerous precedent for future Governments. If you believe, as I do, in the value of social protection then implicit in that is your understanding that temporary or maybe even long-term benefit recipients are also entitled, over the longer term, to have a share in the national wealth of the country. We all know that that national wealth is stagnating and we are in difficult times; I understand that perfectly well. However, since 1992—and I stress that date, which is a long time ago—we have had the absolutely implicit foundation of an understanding across party divides: an acceptance that the uprating formula would be sacrosanct.

These are exceptional times. Certainly, if the Government had said, “For the forthcoming 12-month period, 1% is all we can afford”, as they did, I am perfectly willing to consider that. I am sure that other noble Lords are, too. On the savings in this Bill, colleagues may have an advantage over me because I am just off a train from the Siberian north and I have not had a chance to look at the new impact assessment—I assume that one exists—on the new costs of the Bill. Obviously the OBR’s estimates for inflation have changed from 2.6% and 2.2% to 2.8% and 2.4%. Again, there is an inflation uplift, which will adjust, in the Treasury’s favour, the savings that the Bill will make. The Bill covers two years of uprating but not this immediate year’s uprating, so an extra £500 million will be saved in the coming year. Of course, housing allowance, which is a different category of benefit, is not covered in the Bill so the totality of the savings is not reflected in the impact assessment, and last week’s impact assessment has been adjusted because of the OBR’s more recent and accurate estimates of inflation.

15:15

My first reason for suggesting an annual report to Parliament is that this Bill is different. It interrupts a well established tradition of how we deal with uprating benefits. If we start to consider this as a conventional way of doing things, it will be very tempting for future Treasury and DWP Ministers to look in this direction for savings. Again in passing, we learnt from the Budget last week that the Treasury—lo and behold—is beginning to look at annually managed expenditure, which is the demand-led part of the benefit system. How you put an envelope around a demand-led service is a complete mystery to me. Between now and the July comprehensive spending review announcements, we will look to the Government Front Bench—either the Treasury or the DWP, or both in concert—to assuage the fears that some of us have about the announcement that we had the advantage of hearing in the Budget last week.

We need to be very careful about the Bill and to study its effects. Subsection (3) of the proposed new clause suggests studying the effects individually, benefit by benefit. It will otherwise be difficult to be confident that we know what the consequences really are. Again, I say in passing that I regret that there is no inflation protection in the Bill. The amendment seeks merely to monitor the impact of the Bill. What I am looking for from the ministerial Front Bench is, at the very least, some rock-hard assurances that this will be very carefully studied. I understand that everything is kept under review all the time, but this falls between two stools. I would have a lot more confidence if somebody took responsibility for the short-term and long-term monitoring of the Bill. Should it be a Treasury Minister, a DWP Minister or a joint Cabinet committee? Who or what will have the responsibility for getting up in the morning to check the consequences of the Bill carefully, month in and month out over the rest of the Parliament and the CSR period, and all the way through to 2020?

If you alter the baseline for an uprating system, as we have done in the Bill, you do it in perpetuity. There is no way in which the money can be won back, because the baseline is reduced and all the arithmetic is then calculated from a lower starting level. Over the next 10, 15, 20 and 50 years, the effects of this uprating will be felt. That is something about which we should be very careful.

The first period that I am concerned about is between now and the comprehensive spending review Statement that will be made in June or July. I think that we have a date for it. I hope that between now and then we will be able to think carefully about the consequences of the Bill. These things are difficult to see when you are up close and they are happening in front of you in real time. It is clear to me that, over this Parliament, one of the biggest differences that there will be between the previous Administration and this one by the time we get to 2015 is in the incidence of cuts on the working-age part of the benefit caseload. The previous Government invested quite a lot of money—some might say too much—on tax credits in order to try and make work pay. One can argue about that. However, what one cannot argue about is that by the time we get to 2015, one of the biggest changes that I anticipate seeing to the profile of public expenditure will be the relative reduction in the money that we are devoting to supporting working-age families. I have looked carefully at some of the Office for Budget Responsibility figures.

There is, of course, the very welcome policy of taking people out of tax. I agree with and can see the force of that. However, that does not help the lower two deciles of the household income distribution; people who are not getting into taxation levels with their annual household income or, indeed, people who are getting cycled into the threshold of income tax levels. If their household income increases and they get housing benefit, the income tax savings that they make for the household increases their income and they get penalised in their housing benefit. That will change when universal credit comes in. However, I do not think universal credit will start carrying the weight that some of us hoped it would as soon as we expected. I think that will be in 2017-18, which is a long time coming for those in the bottom two deciles of the household income distribution. Therefore, I am concerned about people in poverty—the people who are cycling in and out of part-time agency and temporary jobs. They are doing the best they can. The Work Programme is not picking them up yet. There is a potential problem that we need to monitor very carefully, as the amendment tries to do.

One point I make in passing concerns the reconsideration of measures of baseline poverty. I want to make a case for the Government to encourage in any way they can the continuation of the concept of minimum income standards, which are very important for two reasons. They are not levels of benefit that Governments can expect to pay to low-income households. They do two things. First, they measure the difference between what people take into their households by way of income, month in and month out, as against what the general public believe households of that composition need to live on a modest but adequate income. That tests public opinion about what people need to live on much more accurately than some opinion poll questions about whether people are strivers or skivers, or any of the other emotional language that is used. Having minimum income standards is an important concept. Even if it is only through the academic work that has been valuably done by Jonathan Bradshaw and his colleagues in the past, I hope that minimum income standards will be part of the background to the annual report which the amendment seeks to introduce.

We need to look at and use some of the other evidence that we will get about households below average income, which will be published in June or July. I hope that that evidence will inform the discussion that will happen on the comprehensive spending review to make sure that we are making sensible arrangements and decisions for the following CSR period from 2015 to 2018. In addition, we should use an annual report to Parliament to work with our local authority colleagues, as this amendment suggests, to learn what they are doing by way of services for working-age families in their areas. My intelligence from local authorities is that they are already struggling to provide services in that department, and we need to rely on them, particularly in relation to changes in community tax benefit and the abolition of discretionary grants under the Social Fund, which was abolished, as noble Lords know—

[The Countess of Mar]

We are at Third Reading, and the noble Lord has spoken for 16 minutes. He might believe that we have actually got the point. Is he going to be very much longer?

[Lord Kirkwood of Kirkhope]

No. I have two remaining points to make before I sit down. First, we have learnt over the past few days that Mr Alan Milburn, the chairman of the Social Mobility and Child Poverty Commission, has made it clear that he thinks that income is important for low-income families when trying to deal with child poverty. Finally, we need to invite the Social Security Advisory Committee to look at all this between now and July.

A lot of work needs to be done, and an annual report would help to inform that work. It is not safe to allow this Bill to continue into its later stages until we are sure that we have some way in which to track its progress and can ensure that those at the bottom of the low-income scales do not get hurt as a result of its provisions. I beg to move.

[Lord King of Bridgwater]

I shall intervene very briefly, supporting the point made by the noble Countess, Lady Mar. My noble friend Lord Kirkwood and I had an exchange last time on this matter, and he has made it clear once again that he does not like this Bill. I do not like it either. I do not think that any Member of this House would like to have this Bill at all, were things more normal and better than we actually find.

Since we have debated the Bill we have had a Budget and we have had Cyprus. If anyone wants to think that the situation is improving, the most significant thing in the Budget was the absolutely frank admission by the Chancellor of the very serious debt situation that we face. We now realise that it will be extremely tough to turn the ship round. Since then, we have had the comments from the rating agencies, and my noble friend may recall an intervention that he allowed me to make in his previous speech that we had better watch out for the rating agencies.

We have already heard that we are on negative watch by the other rating agencies, and that is even in our present situation. If we ally to that some recognition that this Government are not going to be able to stick even to the programme that they have proposed, if we faced a further downgrade from the rating agencies we might start to move into territory where the Government have to borrow to meet our debt at interest rates that are significantly higher. It will not then be a question of benefits being uprated by only 1%; there could be, as in other countries, significant cuts. If we get higher interest rates as well, with the impact on a huge raft of people who depend on their mortgages and who are finding it an extremely tough battle to maintain them, and with the risk of a significant increase in repossessions around the country, we will be in a very tough situation indeed.

To summarise, the purpose of my noble friend’s amendment is simply that at the end of the year we should discover how much we have saved and what the impact has been. If the Treasury is not going to do that anyway, I do not think that we need to spend a lot more time on this amendment, writing complicated additional amendments into a Bill on a matter that will surely be part of the normal purpose of government.

15:29

[Lord McKenzie of Luton]

My Lords, like the noble Lord, Lord Kirkwood, we have deep concerns about the Bill, certainly that it may be a precedent. We have made clear our opposition to it throughout its various stages. We believe that it is unnecessary and that it hits the poor, both those in and out of work, and will certainly increase child poverty. Sadly, the amendment before us will do nothing to help that. We could have a repeat of the debate that we have had at earlier stages, but I simply say to the noble Lord, Lord King, that one of the problems is that some of the austerity measures the Government are introducing are making debt worse, not better. To pray in aid Cyprus when talking about our situation seems extremely far-fetched.

The noble Lord, Lord Kirkwood, said that introducing such an amendment at Third Reading is a clichéd device. However, an annual review gives the Government of the day, and indeed the Opposition, a chance to take stock of how measures are working. In this case, the problem is that a 1% cut has been locked in without knowing what the effect will be. The noble Lord is right: inflation is ticking up. Therefore, even if we knew the amount that the Government will spend as a result of this measure, the locking-in will mean that it makes no difference. That is why the proposed review differs from a review, annual or otherwise, that we would normally have. We have debated this matter extensively and I have made our position very clear. However, I recognise that the House has spoken on this matter.

[Lord Newby]

My Lords, this amendment would require the Government to produce revised costings of this policy annually. I fully understand the inflation risk about which the noble Lord, Lord Kirkwood, is concerned. However, as I said last week, while I share his concerns about measuring the impact of government policies, I believe that additional reports on the Bill are simply not necessary. As I said last week, the Government already have comprehensive arrangements in place to report on the impacts of government policy. We publish impact assessments of every Bill, including the Exchequer impacts. These are based on the OBR forecasts available at the time.

At Budget, we publish an updated account of the Exchequer impact of any government policy that has changed due to modelling or forecast changes and has not yet been implemented. The DWP publishes benefit rates and expenditure tables of all its benefits, and we produce analysis of the cumulative impact of government policies on changes to households across the income distribution at every major fiscal event. This analysis will use updated inflation projections and will look at the cumulative impacts of all changes, rather than artificially isolating just one policy. These mechanisms go further than any Government have gone before in increasing transparency and enabling the effective scrutiny of policy-making.

Since we previously debated this matter, we have had a Budget. As the noble Lord, Lord Kirkwood, said, at Budget last week the OBR revised its forecasts for inflation slightly upwards. The forecasts increased by 0.3 percentage points for the purpose of uprating in 2014-15, and by 0.1 percentage points in 2015-16. As I said last week, it was always a possibility that the forecasts would change. Similarly, they can change again at the Autumn Statement, and again at Budget 2014. These forecasts could go up as well as down. However, Governments must make decisions based on the best forecasts available at the time. The OBR’s forecast at the Autumn Statement showed that while inflation is forecast to be above 2% in the near term, it is then forecast to fall back towards the target in the medium term. This has not changed. As I set out last week, the OBR is not alone in taking this view. The IMF, the OECD and the Bank of England all show inflation falling back to target in the medium term. Nor has the inflation target changed: it remains at 2%.

One thing that has changed since we were last in this House is the Budget announcement on public sector pay. The Budget announced that public sector pay awards will be limited to an average of up to 1% in 2015-16. This will be on top of four years of pay being either frozen or capped at 1%, which included the period when inflation was at 5.2%, far above the forecasts for the periods covered in the Bill. This is not a justification for the Bill, but it is a reminder that people face inflation risk in everyday life. The decision that the public sector should continue to face a further year of pay restraint was a difficult, but necessary, decision to support fiscal consolidation.

It is against this background that I repeat what I have said many times on the Bill: that this Government do not take decisions to find savings from welfare lightly. However, this Bill is necessary to make vital savings from welfare, to help reduce the deficit and to restore economic recovery. The Government have set out their plans for spending in advance to give confidence to the markets that we are taking the necessary tough decisions. We can do that only by using the best forecasts available at the time. These forecasts have changed, but they continue to show inflation falling back to target in the medium term. I hope I have reassured the noble Lord that the amendment is simply not necessary, and I beg him to withdraw it.

[Lord Kirkwood of Kirkhope]

My Lords, the House has a busy schedule for the rest of the day and, as I said earlier, I am happy to withdraw the amendment. I am grateful to colleagues who have contributed. We are all of the same mind that we need to be very careful and monitor the consequences of these Bills. The noble Lord, Lord King, is correct that the Treasury does that annually, but I will make it my own business to make sure that working-age, low-income families do not suffer more than the Government feel they will in the course of the next five years as a result of this Bill. I beg leave to withdraw the amendment.

Amendment withdrawn.

Bill passed.