Capping Welfare Spending

Wednesday 10th July 2013 Westminster Hall

16:00

[Charlie Elphicke (Dover) (Con)]

I am delighted to have secured the debate. The level of welfare spending and whether it should be capped have been the subject of great public interest but have not been discussed much in Parliament, so this is a good opportunity to give the issue a short airing.

Even before the crash, the cost of welfare spending rose by 50% under the previous Government. All sides agree that when the good times rolled, too little action was taken, in the famous words of the Chancellor, to fix the roof while the sun was shining. The current Government have had little choice but to take necessary but tough decisions. We must live within our means, and welfare reform and capping welfare are key parts of that. It is a question of fairness. In my constituency and up and down the land, people go out, work hard and try to do the right thing for their families, spouses, children and loved ones, to make ends meet in difficult times. They look around and they tell me, “It’s simply not fair that there are people living on benefits who are better off than we are. Why do we go out to work? Why do we bother? Why not just live a life on benefits and be better off?” It is wrong that people who do not work enjoy a higher standard of living than people who go out to work and do the best they can.

[Gavin Barwell (Croydon Central) (Con)]

Does my hon. Friend agree that the vast majority of those who are on benefit do not choose to live that lifestyle, but the previous Government designed a system that traps them, because they receive more in benefits than they are ever likely to get through work? The system traps people in that condition.

[Charlie Elphicke]

I completely agree with the powerful point that my hon. Friend makes. The number of households in which no member has ever worked doubled under the previous Government. As he says, we cannot stand by and allow social failure on such a grand scale to continue for a moment longer. That is why no family who are out of work should be better off on benefits; why a benefit cap is right; and why it is set at £26,000 a year.

[Julian Smith (Skipton and Ripon) (Con)]

Does my hon. Friend agree that, from the perspective of a Yorkshire MP or an MP from another part of the country, the benefit cap could be much lower in certain areas, which would be much fairer to working people in those areas?

[Charlie Elphicke]

My hon. Friend makes an interesting point, which is certainly a topic for debate, so I hope that the Minister will address it when he responds. The Government have sent a positive social signal that work is a force for social good. Capping the amount of benefit that any one family can receive is right and has been met with great approval in my constituency. My constituents raised the issue time and again.

[Mr Jim Cunningham (Coventry South) (Lab)]

I thank the hon. Gentleman for securing the debate and for giving way. At the beginning of his speech, he mentioned that the current Government had inherited debt from the previous Government. I remind him that after 18 years of the Conservative party being in power, that previous Labour Government found in ’97 that, for every pound levied in tax, 50p went to pay off debt. They eliminated a lot of inherited debt, but that is not my main point. When I was a Member under previous Conservative Governments, people were trapped in housing estates. The hon. Gentleman wants to call it the system that we inherited or whatever, but whatever system we bring in, there are going to be people trapped in certain estates—they used to be called Thatcher’s children.

[Charlie Elphicke]

I thank the hon. Gentleman for that interesting intervention, but I cannot agree with him. When the current Government came to office, the interest bill was the same as the entire education budget—I think that I am right in saying that. It was a very substantial amount. That is not a great showcase for fine administration of the public finances. It is well understood that the country’s debt was entirely out of control. I take his important point about social mobility and helping people to get out of the traps of poverty. Universal credit will make work pay, incentivise work and encourage people to do well, and that lies at the heart of much what the Government are doing. I approve of that approach. We need to build in incentives, by on the one hand limiting the amount of benefit and on the other hand encouraging work and making it pay.

[Penny Mordaunt (Portsmouth North) (Con)]

For too long, people in my constituency who were out of work for considerable periods, because they had challenges that needed to be overcome, did not get the proper, expensive advice and support that they needed to get back into the workplace or into it for the first time. Does my hon. Friend agree that in these difficult times, with a limited pot of money, we are better off spending money on top-quality advice, rather than increasing the welfare budget?

[Charlie Elphicke]

Absolutely, and a lot of Government policy has been about that. The Work programme is a key part of giving people the tools, education and support to get back into the world of work and understand the rhythm of a working day.

[Glyn Davies (Montgomeryshire) (Con)]

I thank my hon. Friend for taking my intervention. The Government are trying to ensure that the whole welfare system is perceived as fair. In a very low-pay constituency such as mine, the vast majority of people believe that the welfare cap is crucial if the system is to be fair and seen to be fair.

[Charlie Elphicke]

Absolutely. The system needs to be fair, and I hope that in his response Minister will address the important issue my hon. Friend raises.

The average pay packet has not increased much in recent years. The recession was serious and the recovery has been long, hard and extremely choppy, so it is right that welfare benefits should not increase faster than pay packets. It is unfair that benefits have risen twice as fast as average earnings since the financial crisis, which is why the Government are right to introduce a 1% uprating limit. My constituents have told me that that is an important signal about fairness and the fact that work is good. The Government are also right to make work pay, with universal credit and by increasing the income tax personal allowance. At the same time, the Government have sought to be fair and protect the most vulnerable—the disabled, the elderly and the incapacitated.

Benefit capping is about not only fairness, but money. We should remember the country’s debt crisis. Savings of £4.4 billion by 2017 are not trivial, so it is small wonder that more than 60% of people have told pollsters that they support the Government’s measures to restore fairness on benefit uprating. The Government have been prepared to make the most difficult decisions—I will not shirk that issue. Capping housing benefit, so that it is most aligned to housing need, has not been easy. It was a difficult decision. People do want to be told that they will have to pay more for their spare room, but that cap is also about fairness, which is why a clear majority of people tell pollsters that they support the difficult decisions that the Government have taken. There are 1.8 million households on the housing waiting list and 249,000 households live in overcrowded social housing, yet 386,000 households in the social sector are under-occupied. It is important that we take measures to restore the balance, so capping housing benefit is right and fair.

I would like to press the Minister slightly. Will he consider extending the principle of tackling the spare room subsidy, so that the social housing provider takes the burden? I am concerned that too many social housing providers think that they can simply pass the buck when it comes to managing their housing stock fairly and appropriately and making fair allocations. The spare room does not affect them, so why should they care? Too often, they are content to do little or nothing about fair housing allocation. The best incentive to get them to clean up their acts would be for social housing providers to take some or all of the burden for their incompetence in the management of housing allocations over such a long time. I hope that the Minister will consider that proposal, because it is right to send a strong message to social housing providers that indolence in housing management is not an excuse.

[Jonathan Lord (Woking) (Con)]

I congratulate my hon. Friend on securing this important debate. Would he particularly welcome the fact that, as of today, 2,500 out-of-work households in London can no longer claim more than the average working family earns? In London, where I was a senior councillor for several years, we have seen some particularly egregious cases of people in houses with equivalent rents of more than £100,000. I agree that that involved a few isolated cases, but it was a real slap in the face for hardworking people in London trying to get by on £10,000, £15,000 or even £20,000. A bit like with Abu Qatada and the human rights law, it crystallised for so many people the inequity and unfairness of things.

[Charlie Elphicke]

I completely agree with my hon. Friend. He made that same good point earlier today, in questions to the Prime Minister if I recall rightly. It is a serious point. We need to get a balance of fairness.

If we want to know whether people are affected, we need just to look at the local authority discretionary payments budget. Members can correct me if I am wrong—I am sure that the Minister will—but I believe that the budget has been under-spent, which indicates that the impact has perhaps been understated by some for political purposes, rather than their dealing with the practical effects of restoring fairness. Most of my constituents say, “It’s just not acceptable that anyone should have something for nothing, given the difficult times we live in.”

The Government have raised the issue of the overall cap, which is something I welcome strongly. It needs to be a serious cap, not the sort of nonsense that we have been hearing from the shadow Secretary of State for Work and Pensions. He does not seem able to say what his cap would be or how he would set it. Labour cannot say what would happen if the cap was breached; all the party seems able to say is that it wants to include the state pension and pensioners in it. We need to limit welfare spending, but it is not right to do it at the expenses of pensioners who have worked hard for so many years and have contributed to the system. It would not be right for any Government to start beating pensioners up and taking their pensions away, considering how much they have put into the system, so Labour is wrong on that. The party is in a total muddle and confusion. It has opposed each of our welfare reforms, which have saved some £83 billion.

When might the Minister be able to set out further details of the Government’s plan for how the welfare cap will work? Labour’s proposals are muddled and confused, and it is right that the Government should take time to get the fine detail of the plan right, rather than shooting from the hip like Labour. Does the Minister agree that it is important to limit the cost of welfare and to build on the measures that the Government are taking to do more to make work pay? I ask him to confirm that this Government will not punish pensioners for having done the right thing in years past by contributing to the system and will not take away or limit the state pension, as the Opposition seem to plan to do.

With your leave, Mr Rosindell, I will end there and allow my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) to take up the cudgels.

16:09

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

It is a pleasure to serve under your chairmanship, Mr Rosindell, in this very important debate. I congratulate my hon. Friend the Member for Dover (Charlie Elphicke) on securing the debate. I am sure that we are both disappointed that no one from the Opposition is here to state their point of view, since they have opposed every benefit change we have put through.

I do not propose to speak for long because we want to leave plenty of time for the Minister to respond to the important points that my hon. Friend raised, but I want to share with hon. Members my recent experience of the benefit cap. As part of my duties in my constituency, I visited my local jobcentre to hear about the impact the benefit changes were having and to understand what actions were being taken there to help people to deal with the changes, and I was surprised to hear some positive news. One of the most positive things was that the jobcentre had appointed a social justice adviser, whose role is to work inside the centre with the people affected, helping them to understand where they might be able to make savings and what benefits they are entitled to. Their role is also to work with those who have been affected by the benefit cap.

The newly appointed social justice adviser talked to me with great pride about a case he had recently dealt with. He had invited in a person who was getting £700 a week in benefits for her and her family, and they had sat down and reviewed all the benefits she was receiving and all the money she was spending. What came out of all that was that she was paying £1,200 a month in rent. When they looked a little closer, they discovered that the property was substandard and was massively over the market value for a property on that estate. With a little bit of work and some involvement from the council, instead of her paying approximately £300 a week in rent, she now pays £85, which brings her below the benefit cap. She and her family are now in better accommodation and on the right track. The other advantage is that because she now falls below the cap she can afford to look for work.

The one thing that the cap has done is to make us all look again at who is in receipt of benefits, and rather than just abandoning them into the benefits trap we are bringing them out, to the jobcentres, and helping them to get their lives back on track. That woman’s life has been turned around purely and simply because the benefit cap was introduced. She is now looking for work because she can afford to, and she has escaped the trap.

I said I would be brief, so I shall draw to a close. We should not allow the Opposition to tell us that the things we are doing are terrible and have a dreadful impact on everyone. While we have to accept that there will be an impact, we must work with those who have been affected to help them see the benefits, and to see that work will pay and that we will make it pay for them. The changes that the Government have introduced are a genuine opportunity for people, and I was delighted to be able to see and hear about that at first hand on that recent visit.

The Government should be congratulated and, as I said right at the beginning, I am just disappointed that someone from the Opposition is not here to listen to this important debate and to congratulate the Minister before he sums up. I am thankful for having been given the opportunity to say a few words, and I again thank my hon. Friend for introducing this very important debate.

16:09

[The Minister of State, Department for Work and Pensions (Mr Mark Hoban)]

I congratulate my hon. Friend the Member for Dover (Charlie Elphicke) on securing the debate. It has clearly created a great deal of interest among Conservative colleagues and it is a pity, as my hon. Friend the Member for South Basildon and East Thurrock (Stephen Metcalfe) said, that no Opposition Members are here, because they have a lot of questions to answer when it comes to welfare reform, the benefit cap and the welfare cap. I shall now deal with those three areas.

It is absolutely right that we reform the welfare state and ensure that we have a fair and affordable system that provides incentives for work. Both my hon. Friends referred in their speeches to the benefit cap, which is a good example of our ensuring that there is fairness in the benefit system. It is absurd to have people on benefits taking home more than the average wage, and it is absolutely right that we tackle that through the work we are doing. Earlier this year, we rolled out the benefit cap in four areas across London, and this month we are moving to a wider national roll-out. The example cited by my hon. Friend the Member for South Basildon and East Thurrock is a powerful testament to the transformational effect that the cap can have on people’s lives.

I visited the London Bridge jobcentre in the run-up to the roll-out of the London pilots, and I am sure that my hon. Friend the Member for Croydon Central (Gavin Barwell) is aware of the work being carried out in his borough in the pilot stage. What struck me during that visit was the amount of support that was going in to help people, either to move accommodation or to find work as a way of avoiding the impact of the benefit cap. The link between fairness and incentivising work is embedded in the benefit cap, because if someone gets 16 hours’ work a week the cap does not apply to them, so there is a real incentive there for someone who has perhaps been out of work for some time and has depended on benefits to move into employment.

I pay tribute to Jobcentre Plus advisers who have worked with people to get them closer to the labour market to tackle the problem, and to the co-operation between Jobcentre Plus and local authorities in relation to the implementation of the benefit cap.

My hon. Friend the Member for Dover made a powerful point about the relationship between landlords and their tenants. There are many good examples of housing associations and local councils that work holistically with their tenants. They are concerned not only about whether they get the rent on time, but about their tenants’ health and employment prospects, as well as a range of issues, such as antisocial behaviour. The benefit cap and the roll-out of universal credit will drive that further forward. The move away from direct payment in universal credit requires landlords to take a much greater supportive interest in their tenants—to get them into work so that they can pay their rent. Our reforms are therefore working.

[Julian Smith]

May I tempt the Minister to comment on the idea of a regional benefit cap?

[Mr Hoban]

My hon. Friend may tempt me, although I do not want to be distracted from moving on to the welfare cap. Particularly given regional wage rates, what is set at a fair level in London appears to be higher in other parts of other country, but that is a debate for another day.

Since coming into office, we have sought to put the public finances on a more stable footing across the board. It is notable that this Government, unlike previous ones, have sought to find savings in the benefit bill. We must ensure that we do not repeat past mistakes—for example, the fact that the amount of money spent on tax credits and on housing benefit almost doubled under the previous Government. We need to have a system that is affordable in the long term and enables us to manage the welfare bill in a way that is sensible, reflects economic conditions and provides much greater discipline about how we spend our money.

That is why my right hon. Friend the Chancellor announced a welfare cap in his spending review. The cap covers more than £100 billion of welfare expenditure that has not been managed until now: because it is classified as annually managed expenditure, it was considered to be largely outside Government control, but that is not sustainable and it is not right. We are in a global race in which we must ensure that our tax rates are competitive and that we can control our benefit spending.

The Government can and should take action to control expenditure. The introduction of a cap will improve spending control, support fiscal consolidation and ensure that the welfare system remains affordable. Housing benefit, tax credits, disability benefits and pensioner benefits will all be included, but some benefits will be excluded, including the basic state pension and the additional state pension.

There are better ways to control expenditure on pensions, such as increasing the state pension age, and we have already announced plans to bring forward a state pension age of 67 by 2028. We are committed to introducing a regular and structured method for considering future changes in the state pension age, with the first five-year review taking place in the next Parliament.

We have received representations, such as those from the shadow Chancellor, the right hon. Member for Morley and Outwood (Ed Balls), about including the state pension in the Opposition’s version of the welfare cap, meaning that a future Government could offset a rise in working-age benefits by cutting the pensions of older people. I understand that some in the Labour party oppose the increase in the state pension age, but that would mean a reduction in state pensions under its version of the cap. I thought that the shadow Chancellor’s intervention showed that he had not properly thought that through and indicated that the Opposition’s target is really to cut the pensions of older people who have contributed to society and worked hard all their lives. Cutting pensions to pay for working-age benefits or to reduce the state retirement age are choices that this Government are certainly not prepared to make.

We will exclude also expenditure on automatic stabilisers, which are those areas of welfare expenditure that rise and fall with the economic cycle and dampen the effects of fluctuations in the country’s economic output. That will mean excluding from the cap a small number of the most cyclical benefits, such as jobseeker’s allowance and spending that is passported from jobseeker’s allowance.

My hon. Friends asked for more details about the cap. A nominal cap will be set from 2015-16 that will support the delivery of fiscal consolidation during the spending round period and beyond. It will be set over a five-year forecast period, starting in the second fiscal year from the date of the forecast, to allow policy changes to be developed and to take effect, if necessary. As the cap’s purpose is to manage structural increases in welfare spending, a margin above the cap will ensure that policy action is not triggered by small fluctuations in the forecast.

The Government will set the cap for 2015 in the Budget, alongside the Office for Budget Responsibility’s fiscal forecast, and we will publish further technical details in advance. To ensure that there is real challenge, the independent OBR will judge the Government’s performance against the cap. In future, when a Government look likely to breach the cap because they are failing to control welfare spending, the OBR will issue a public warning and the Government will be forced to take action to cut welfare costs or publicly to explain why they are breaching the cap.

The measures announced by my right hon. Friend in the spending review make a major contribution towards the control of long-term welfare spending, and they rightly recognise the contribution that older people have made to their pensions through saving. The Labour party did not recognise that contribution in its alternative proposals. To go back to my hon. Friends’ comments, we need to take difficult decisions on welfare and on how we spend taxpayers’ money, and we need to make sure that we have a system that is fair and affordable, so there is a real challenge.

People who criticise the reforms, as Labour Members do, need to tell us what they would do: would they reverse the cuts or accept them? Too often, we have heard mealy-mouthed statements from Labour Members, who say that they are against the cuts, but cannot say whether they will reverse them or stick to them. We know that our reforms are the right ones.

My hon. Friend the Member for Croydon Central made a helpful statement, in that the system too often stops people from working, as does the uncertainty that comes from people not knowing whether they are better off in or out of work and whether or not they earn more money. The major reforms that we are introducing—universal credit, the benefit cap and considering how to get more people out of welfare into work—are aimed at ensuring that our welfare state is fair, affordable and incentivises work. Today’s debate is an important contribution to making that argument. My hon. Friends’ interventions have made clear the scale of the change we are making.

I hope that this is not the last time that we debate this subject, and that next time someone from the Opposition might stand up and tell us what they believe in and are going to do, so that they can be pushed on that. I will not tempt any hon. Members to take part in the debate, but one, the hon. Member for Barrow and Furness (John Woodcock), has just entered the Chamber—not quite the 8th Cavalry come to rescue the situation. We should now hold the Opposition to account by finding out what they would do to tackle the long-term challenges to our spending and to ensure that we have a fair and affordable welfare system that encourages and incentivises people into work.