House of Lords
Introduction: Lord Balfe
Introduction: Lord Palumbo of Southwark
Railways: Passenger Demand
(11 years, 1 month ago)
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Lord Faulkner of Worcester
To ask Her Majesty’s Government what estimates they have made of the cost of upgrading the West Coast and East Coast main railway lines to bring them up to the standard likely to be required to meet passenger demand after 2020.
The Minister of State, Department for Transport (Baroness Kramer) (LD)
My Lords, the only viable option for solving problems on the west and east coast main lines beyond 2020 is HS2. The Government have looked at alternatives, including upgrading these routes. The lead alternative looks to enhance all three existing north-south main lines at a cost of £19.2 billion, £2.5 billion of which is required for the west coast and £11.5 billion for the east coast. None of these alternatives delivers the scale of benefits of HS2.
Lord Faulkner of Worcester (Lab)
My Lords, I welcome the Minister to the Dispatch Box for her first Oral Question and warmly congratulate her on that Answer. With the number of people travelling by train now higher than at any time in the history of Britain’s railways, with growth over the past five years running at 5%, does she agree with Network Rail’s assessment that a make-do-and-mend approach to the main lines built by our Victorian ancestors would require 2,770 weekend closures, endless bus substitutions and increased journey times over 14 years, and do little for economic growth for our great cities outside London?
Baroness Kramer
My Lords, I could not agree more with the noble Lord. I would also say that the benefit-cost ratio for HS2 assumes a growth in rail demand of 2.2% while, as he has said, the actual growth in demand over recent years has been much closer to 5%, which would significantly increase that cost-benefit case. Capacity is the issue; the alternatives just do not offer the scale. For example, HS2 will deliver over 13,000 peak hour seats to west coast destinations compared to just 3,000 for the alternatives.
Lord Berkeley (Lab)
My Lords, how many years of closure at weekends or at other times of the three main lines going north from London would be required to meet the demand of passengers and freight—and freight will double in the next 20 years—if that was to be a substitute for HS2? I declare an interest as chairman of the Rail Freight Group.
Baroness Kramer
My Lords, we would be looking at something like 14 years of weekend closures, which is extraordinary disruption. That assumes a very aggressive construction schedule of two simultaneous schemes on each route at any one time. If it was done in a more usual pattern, there would be even more weekends of closures. The question of freight is a serious one, because the alternatives would not add a single additional freight path on the southern section of the west coast main line, whereas, by transferring long distance passengers to HS2, there is a possibility of up to 20 additional freight paths on that same congested set of lines.
Lord Palmer (CB)
Could the Minister explain why the Government are so keen to denationalise the east coast main line when it is performing so well and contributing so generously to Treasury funds? I declare an interest as a frequent traveller on that line.
Baroness Kramer
My Lords, I shall reply only briefly, because this wanders away from the topic of the Question. The important issue is that we need significant investment in the east coast main line. The Government and DOR have done an excellent job of stabilising the service; we look to the future and to investment and growth. That is why the Government are making the decision to move ahead with the franchise, to provide a far better and improved service in future.
Lord Bradshaw (LD)
Did the Minister see the report in the Evening Standard yesterday that the noble Lord, Lord Sugar, has spent £24 million in acquiring a property the value of which is expected to rise when Crossrail is opened? The HS2 route will see significant rises in value but these are neither credited to the scheme in the economic assessment nor captured by the public purse. Is any work going on to secure some credit for such effects of these large infrastructure schemes?
Baroness Kramer
My noble friend Lord Bradshaw is right that the economic case is looked at within fairly tightly defined contours. There are many additional benefits. My noble friend Lord Deighton is working on making sure that the growth potential of HS2 is absolutely maximised. My noble friend made the point that there is an uplift in value. My goodness, we have seen that around places like King’s Cross/St Pancras, at the stations on the Jubilee line and in the benefits to Canary Wharf. That economic uplift has not traditionally been captured to help fund infrastructure. We will look closely at ways to do that in future.
Lord Snape (Lab)
My Lords, does the Minister accept that the problems on the east coast main line are due to the shoddy way in which electrification took place in the 1980s, a fact that Ministers at the time boasted about? Electrification masts were more widely spaced, and the catenary of lightweight construction means that it blows down in anything above a summer breeze. These matters have nothing to do with the train-operating companies. The Minister’s welcome response about the future of HS2 today ought to be answered by those in my own party, some of whom appear to be more interested in playing politics than worrying about the future of our railway industry.
Baroness Kramer
Again, I am afraid that the noble Lord, Lord Snape, wanders away from the subject of today, but it is crucial to understand that when HS2 goes forward, it does not mean we are stopping other transport investment on crucial lines. As he will know, in the next Parliament £73 billion has been committed to transport improvements and only £17 billion of that goes on HS2. Definite improvements are scheduled for the east coast. Since that is away from the topic, I will not pursue those today—and I cannot find them under my tab. I will write to the noble Lord in detail.
Lord Cormack (Con)
Is my noble friend aware that many do not share her enthusiasm for HS2, and believe that the points made by the noble Lord, Lord Mandelson, deserve real consideration and that the environmental cost that this nation will have to pay is really disproportionate to the benefits that might be achieved? We hope very much, even at this late stage, that common sense will prevail.
Baroness Kramer
My Lords, the Government—and I—regard HS2 as a vital project. As I said, the underlying rationale is capacity. We are out of capacity on critical lines going north out of London and those are essential for the economy. We must also continue to build the economy of the north of England rather than just constantly focus on the south. I believe that the project has found a good balance between the environmental challenges—of course, they are many—and value for money. This is an absolutely essential project and most of those in this House who specialise and focus on transport and rail will confirm the view I have just expressed.
Lord Davies of Oldham (Lab)
My Lords, why is the public operation of the east coast main line not allowed to continue or bid for the franchise when bids from the German and French state railways appear to be welcome?
Baroness Kramer
My Lords, I am delighted to find that HS2 has now become so uncontroversial that questions on other topics enter into this brief exchange. I just repeat what I said on the future of the east coast main line. It has gone through a period of being stabilised by the Government. That has meant that new investment has not come in on the scale that passengers on that route require. We wish to see a strong future for the east coast main line.
Housing: New-build Homes
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con)
My Lords, this Government are building more affordable homes, helping people to buy new homes and reforming the planning system to make it easier for developers to build new homes of all types. Housing supply is at its highest since the end of the unsustainable boom in 2008, with 334,000 new homes built over the past three years. Housing starts and loans to first-time buyers are up by a third on last year.
Lord Dubs (Lab)
Will the Minister comment on two propositions? First, I am bound to say in all humility that my figures do not agree with hers. Since the coalition took office, housebuilding has been lower than under the previous years of the Labour Government. Further, if, as under the Help to Buy home ownership scheme, money is to be made more easily available for purchases but there is no significant increase in supply, prices are bound to go up without anyone benefiting. Is that not nonsense?
Baroness Stowell of Beeston
It is worth making the point in response to the noble Lord that, despite the Labour Government having a target of 240,000 new dwellings a year in England when they were in power, housebuilding across England and Wales under his Government fell to its lowest peacetime rate since 1924 by 2009-10. As for his point about the Help to Buy mortgage guarantee scheme, it is ensuring that people who are unable to fund the high deposit rates are able to buy property. Once you take out London and the south-east, house prices in most places around the UK are going down.
Baroness Gardner of Parkes (Con)
My Lords, although I welcome the Help to Buy scheme for first-time buyers, is the Minister aware that there is a great need for small units—ideally one-bedroomed units designed for people who want to leave large homes—whether they are built privately or by local authorities? It would free up a huge number of properties if more accommodation of that type was developed. Will be Government do something to encourage such development?
Baroness Stowell of Beeston
The Government’s approach is driven by need and by local communities being in charge of deciding what is built in their areas, rather than the top-down approach that has been taken in the past. During the past few years, we have been ensuring that any new development that may have been stalled but which can provide the kind of new accommodation to which my noble friend refers receives support to get that new construction under way.
Lord West of Spithead (Lab)
Is the Minister content that there are sufficient married quarters in the right places for our military? If not, are we building new ones?
Baroness Stowell of Beeston
The noble Lord moves to a specific area on which I do not have information, so I will have to write to him.
Baroness Maddock (LD)
My Lords, my noble friend will be aware that the borrowing restrictions on local authorities in the United Kingdom are far more stringent than those on local authorities in many of our neighbouring north European countries. When will the Government look seriously at altering the public sector borrowing requirement, because changes could be made that would greatly assist our local authorities in building more new affordable homes?
Baroness Stowell of Beeston
We certainly encourage local authorities to use their assets and the borrowing power that they already have. Not all councils are borrowing up to their cap, but the cap is important because it is part of our larger strategic objective, which is reducing the overall deficit, so it is not possible at this time for us to lift the cap on local authorities.
Lord McKenzie of Luton (Lab)
My Lords, the Minister will be aware of an NAO report on the new homes bonus that found that the Government had got their sums wrong. Assumptions were unreliable, unrealistic and contained a substantial arithmetical error. It found little evidence that the bonus is increasing approvals for housing. It said that the Government were not monitoring the impact of £1.3 billion of taxpayers’ money and that the new homes bonus was unfair in its distribution. The PAC has called for an urgent review of the new homes bonus. Will the Minister support that?
Baroness Stowell of Beeston
As we made clear yesterday, and as was always the case, we are already reviewing the new homes bonus scheme; that report will be published next Easter. The most important thing to say to the noble Lord is that we are disappointed in the NAO’s report because it seems to miss the point of the new homes bonus. It is there to do what is says on the tin: to reward councils that help to build more new houses. That is what we are trying to do. We want to make sure that those local areas that build more houses attract and receive the benefit of doing so in their area.
Lord Forsyth of Drumlean (Con)
My Lords, will my noble friend make sure that for those taking part in Help to Buy, particularly young people, strict criteria are applied on the affordability of the mortgages? When interest rates go up to their normal level, there is a chance not only that the value of properties will fall but that payments will rise spectacularly. Is she sure that the scheme is being run in a way that will not force youngsters into negative equity, with mortgages that they cannot pay?
Baroness Stowell of Beeston
I am very sure, as the arrangements in place are very rigorous. As my noble friend will be aware, the Bank of England will monitor the scheme and, importantly, the criteria used to judge whether somebody can afford their mortgage will be as robust as they need to be. This is an opportunity presented to people who do not have access to the bank of their parents or family and who, if they could have more help putting down a deposit, would be able to own their own homes. That is a good thing.
Ian Brady
(11 years, 1 month ago)
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Lord Campbell-Savours
To ask Her Majesty’s Government whether, in the light of the amounts paid in respect of the mental health tribunal for Ian Brady, they will review the amounts payable from public funds in such cases.
The Minister of State, Ministry of Justice (Lord McNally) (LD)
My Lords, the Government currently have no plans to review the amount payable in these types of cases.
Lord Campbell-Savours (Lab)
My Lords, is it fair that in the case of Moors murderer Ian Brady, Mersey Care—in other words, the hospitals on Merseyside—had to spend £181,000 in a mental health tribunal? A further £92,000 then went to Brady’s lawyers, RMNJ Solicitors, along with thousands more to Scott-Moncrieff—more defence lawyers. Why should the taxpayer pay these exorbitant fees on a pointless appeal when law centres all over the country are being run down and CABs are being starved of resources? What are these lawyers doing for all this money?
Lord McNally
In this particular case, the entire process took almost three years and culminated in an eight-day tribunal hearing. This is a legal process and the trust had no option other than to comply; neither did the Legal Aid Agency.
Lord Thomas of Gresford (LD)
My Lords, I was present at the trial of Brady at Chester Assizes in 1966, where he was represented by my noble friend the late Lord Hooson. He did not plead insanity at his trial. Indeed, he served some 19 years in an ordinary prison. It was a decision of the prison authorities to send him to Ashworth hospital, where he tried to commit suicide by starving himself to death. He was force-fed, and the purpose of his application to be transferred back to an ordinary prison was so that he could starve himself to death without being force-fed. Since the cost in Ashworth was well over £250,000 a year, was not the money well spent even if the decision went the other way?
Lord McNally
My Lords, it is very difficult to find much sympathy for Mr Brady, although it has to be said that he has been judged to be medically ill. Our law says that in those cases the mental health review tribunal is part of the process of our legal system and that a patient is entitled to a tribunal hearing, as set out in Part V of the Mental Health Act 1983. We cannot have one law for those we find worthy and another law for those we do not like. In some ways, it is the fact that Mr Brady has the protection of the law that should give reassurance to the rest of us.
Lord Hunt of Kings Heath (Lab)
My Lords, to go back to my noble friend’s point, surely, given the size of the cost to the local mental health service, it ought to be helped out by the Department of Health.
Lord McNally
My Lords, I asked that question during the briefing. It is an almost unique case. I think that there have been only two such cases in recent times. I am speaking off brief at the moment, but it seems unfair that a single health authority should take such a disproportionate hit on something that is really a national matter. However, the rules as they now apply are that the Ministry of Justice takes the state costs through the Legal Aid Agency and the health authority concerned takes the hit with regard to costs. The noble Lord makes a valid point and I will take it back to a probably not overenthusiastic Health Minister.
Lord Patel of Bradford (Lab)
My Lords, will the Minister take another suggestion back with him as well? We have three special health authorities of which Ashworth in Merseyside is just one; we also have Rampton and Broadmoor. The potential for high-profile cases in any one of those hospitals to impact on local health trusts is enormous. It would be really helpful if there were a way for a special allocation of funding to be made that did not impact on those mental health patients who do need care and attention.
Lord McNally
That is the value of this exchange. I will take that suggestion back. This is not a responsibility of the Ministry of Justice—as I say, the Legal Aid Agency is responsible for the legal costs on that side—but, as it now stands, those three health trusts are liable. I will report back to the Health Secretary and see whether this could be looked at. I hope that this will remain an almost unique case but, as the noble Lord indicates, there is a possibility that another such case will arise so we should look at this.
Baroness Trumpington (Con)
My Lords, does the mental health review tribunal come into this picture? I was proud to be a member of that tribunal, serving regularly in sessions at Broadmoor. Surely the tribunal should come into the picture, including the financial side of things. Examining Brady could come under its financial services.
Lord McNally
I shall look at that point. However, as the rules now stand, it is the responsibility of the health authority looking after that patient. As I say, though, this exchange reveals that that may put too much of a burden on a single authority, and I shall certainly ask my right honourable friend to look at the matter.
Probation Services: Privatisation
(11 years, 1 month ago)
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Lord Ramsbotham
To ask Her Majesty’s Government what is their response to the request of the Chief Executives of Probation Trusts to delay the proposed privatisation of probation services for six months in the interests of public safety.
The Minister of State, Ministry of Justice (Lord McNally) (LD)
My Lords, there is a pressing need to drive down reoffending rates, which is why we are reforming the system for the rehabilitation of offenders. Public safety is always our top priority, and the department is working closely with trusts to minimise any disruption to the work that they do to protect the public.
Lord Ramsbotham (CB)
My Lords, I thank the Minister for that reply, but letters from experienced chief executives of probation trusts directly to a Secretary of State suggest a worrying lack of trust in the system between them. Behind those letters is an understandable concern about the current timetable in which chief executives were required to start work on 28 October, three days ago, on a realignment process for their staff that has to be completed by 31 January 2014, including the confirmation of outcomes for all their staff. However, despite frequent requests, as of yesterday they had not been provided with any details of the number of posts, the workload or the resources on which they can base any assessment, let alone allocation. Apparently, much depends on a risk assessment process that has yet to be resolved. When will these details be available, and why will the Secretary of State not agree to a reasonable and sensible request for delay?
Lord McNally
Any transformation programme is difficult, and keeping to a timetable is always challenging, but I do not believe that a six-month delay would promote better or more efficient work than is now being done. Of course we will keep these matters under review and check how progress is being made. There is a campaign in some quarters against the idea of these proposals but, in the main, we are having very constructive discussions with the trusts. I am confident that we will be able to keep to the tight but achievable timetable that we have set.
Lord Beecham (Lab)
Does the Minister think that the rushed changes to the probation service, before the House of Commons has even discussed the amendment passed by this House to the Offender Rehabilitation Bill requiring parliamentary approval for such changes, will prove less of an omnishambles than NHS reorganisation, the 111 helpline, universal credit, personal independence payments, legal aid or the sale of Royal Mail?
Lord McNally
As for the idea that this is a rush, we are using 2007 legislation brought in by the last Administration and basing much our approach on the pilots in Peterborough and Doncaster which were brought in by the last Administration, so the idea that involving the private, charitable and voluntary sectors in probation work was thought up on the back of an envelope and is being pushed through in a few weeks is simply not true. We are moving in a direction that the previous Administration had already set in line. Admittedly we are making some radical changes, including bringing in a National Probation Service, which will give probation an authority and status which it has long lacked under previous schemes.
Lord Dholakia (LD)
My Lords, does my noble friend accept that in the short term there will be a considerable impact on the employment and retention prospects of probation officers? In the light of that, will he ensure that probation services are informed about job opportunities in the private sector and that the private sector gives priority to the employment of people from the probation service so that their experience is not lost to the criminal justice system?
Lord McNally
I have great confidence in the human resources work that is being done to make sure that, where work is transferred across to the private and voluntary sector, existing probation officers get good opportunities for employment. My view is that many of the new entrants into this market will want to grab the experience of existing probation officers. I also hope that we can push forward with the idea of a chartered institute of probation, which again would give probation and probation officers the status that they previously lacked in our system.
Lord Marks of Henley-on-Thames (LD)
Can my noble friend say what steps the Government are taking to ensure that the new owners of the community rehabilitation companies, when they are sold by the Ministry of Justice in the second stage of this process, will represent the diverse range of providers that he described and which the Government seek, rather than just a handful of large commercial organisations?
Lord McNally
This also is work in progress and where we have learnt, including from some past mistakes. We have put aside money to allow would-be entrants, particularly in the voluntary sector, to prepare for bids. My impression is that we are tapping into a large unused resource. Let us never lose sight of what we are bringing forward. The part of the bargain that really excites me is that we are going to be able to give help, support and rehabilitation measures to those who are sentenced to less than 12 months, the very sector which includes some of the most prolific reoffenders. This is a rehabilitation revolution. Although transfer and change are always difficult, we have this on track. However, in answer to the original Question asked by the noble Lord, Lord Ramsbotham—and I know the care with which he takes an interest in this—we will be keeping these matters under constant review and, as always, I am willing to meet him on these matters.
Lord Rooker (Lab)
On the original Question to which the Minister just referred—and I have listened with care to his answers—the noble Lord, Lord Ramsbotham, made it specifically clear that the starting gun was to be fired on 28 October. It is now 31 October. We are already three days late at the beginning. So what is the answer? When will that date and that target be met?
Lord McNally
The Question implies a kind of sprint race where there is the firing of a gun. Some of these things have been in track for months and indeed years, and will continue in progress after October, after next April and after the October after that. We are managing change in a very important sector, whereas the Question implies that public safety must be paramount. The idea that we are somehow firing a gun and everybody rushes off ignores the reality of some careful preparation which is under way.
Business of the House
(11 years, 1 month ago)
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Lord Hill of Oareford
That the debate on the motion in the name of Baroness Quin set down for today shall be limited to three hours and that in the name of Baroness Prosser to two hours.
Housing: Affordability and the Underoccupancy Charge
Baroness Quin
That this House takes note of the availability of affordable housing in the United Kingdom and the impact of the underoccupancy charge.
Baroness Quin (Lab)
My Lords, I am pleased to be introducing this debate and delighted that it has attracted a good number of speakers. I am delighted but not surprised because the crisis in housing and the effects of the bedroom tax in particular have been raised repeatedly in this House in recent weeks and months, showing the deep concern that your Lordships feel about these issues. I very much look forward to listening to the maiden speech of the noble Baroness, Lady Bakewell of Hardington Mandeville—I hope that I have got that right—and of course I wish her well in her new role as a Member of your Lordships’ House.
I also add my congratulations to the Minister on her recent well deserved promotion. I am only sorry that she will no doubt be put in the position today of defending an indefensible policy, the bedroom tax, which is a policy not of her making and, indeed, one which only partly falls within her departmental responsibilities, although I recognise that many of the wider housing issues raised today fall within her remit.
Although I am the opening speaker, the themes of the debate were suggested by both me and my noble friend Lord Whitty. We were both keen to use opposition time to highlight these issues, and I therefore very much look forward to his contribution later in the debate.
My remarks will focus mainly on the bedroom tax which I have raised through Oral and Written Questions previously but which, given its pernicious effects, needs to be aired at every opportunity until, hopefully, the Government see the error of their ways. However it is important to set the bedroom tax within the wider housing and economic context, and this debate gives us the opportunity to do so. For example, it needs to be set against the overall and desperate shortage of affordable homes, which was referred to in Oral Questions today. It also needs to be set against the problems in the private rented sector at a time when private rents are soaring and there is a crying need for the sector to be better regulated, something which I know my noble friend on the Front Bench has raised on a number of occasions.
That needs to be set against the fact, recently highlighted by Shelter, that the number of families who live in emergency bed-and-breakfast accommodation is now at its highest for nearly 10 years. We have all become aware of the huge increase in homelessness and rough sleeping in recent months. We also have to consider the overall context of welfare reform and, in particular, of the cuts to local authorities and council tax increases. Finally, perhaps this debate should also be seen in the wider context of issues such as the rise in fuel costs and the difficulty so many people find in simply making ends meet. That, of course, links in to the second debate today, on the cost of living and its impact on family budgets, which my noble friend Lady Prosser will lead.
The bedroom tax has now been in operation for more than six months. This is, therefore, a good opportunity to examine, as far as we can tell, what its effects have been. Some problems with the policy were apparent from the start, but others have emerged more clearly over time. For a start, we know that the Government’s thinking behind introducing the tax was the need, as they saw it, to free up housing to allow those in overcrowded accommodation to find suitable homes. The Government made much of the figure that overall a quarter of a million people lived in overcrowded accommodation, and contrasted this with the estimated million so-called spare bedrooms. However, the problem was that there was a complete mismatch between the areas of the country where there was overcrowding and those areas where there was underoccupancy, so that this often quoted overall figure was largely meaningless and misleading. For example, the National Housing Federation pointed out from the outset that in the north of England—in the regions of the north-east, Yorkshire and Humberside, and the north-west—families affected by the bedroom tax outnumbered overcrowded families by 3:1.
Examples have flooded in from around the country about the lack of smaller properties available to those who, designated as underoccupying, signified their willingness to move. In this House the right reverend Prelate the Bishop of Ripon and Leeds quoted the example of Hull, where 6,000 people were affected by the bedroom tax while only 70 properties were available to move into. I could quote many other examples from around the UK because this is a UK issue; the situation in Scotland and Wales has been repeatedly referred to in this House. Certainly the mismatch between types of accommodation is very clear, whether you are talking about Aberdeenshire, Swansea or Birmingham, Norfolk, North Tyneside or Cornwall. No part of the UK is exempt from this mismatch, although some areas are much worse affected than others.
The lack of alternative accommodation is therefore still a key issue after six months of the tax. Of course, there is the clear unjustness of a situation where people who are willing to downsize but cannot find alternative accommodation still have to pay the tax. It is interesting—perhaps one can make an ironic comparison—that if you are a jobseeker and you show that you are available and willing to work, you get benefit. However, if you are available and willing to downsize, your benefit gets cut all the same.
There is much distressing evidence of those in arrears for the first time as a result of the introduction of the bedroom tax. Many of those people, who have previously been able to meet their bills, are I think horrified and traumatised to find themselves in an upsetting and unfamiliar situation. The sum involved in the reduction in benefit can mean the difference between keeping your head above water and sinking below the poverty line.
One striking feature of the tax as it is operated is that many of those affected are in employment. That has once again highlighted the problem of low wages and such things as zero-hours contracts. Again, it is tragic that this tax hurts the very people the Government say they want to support: those people who want to get into and stay in work. However, as a result of this charge they cannot make up the income shortfall they face and again, end up sinking into debt.
I also believe that the disabled have not been adequately protected in this legislation. Considerable efforts were made in your Lordships’ House to amend the legislation when it was going through to provide better protection for disabled people and, indeed, even to consider exempting them from the tax in the way that pensioners are exempted. In the course of conducting research for this debate I have come across many examples of disabled people who have found themselves penalised considerably as a result of the tax. I hope that the Minister will look at some of these instances.
All benefit and welfare changes are complicated, as we know, simply because of the variety of individual circumstances involved, but in this case the complexity seems to have turned into a nightmare. There are myriad personal circumstances and many particularly difficult and heartbreaking situations have arisen since the imposition of this tax. For example, children who have grown up and moved out of home, having found employment and accommodation elsewhere, but who have subsequently lost that employment then need, and want, to move back home but find that they cannot because of the bedroom tax.
As we know, couples often split up and sometimes one parent will have custody of the children but the other parent may have partial custody and will understandably want the children to stay with him or her. Such families can easily fall foul of the bedroom tax rules. Another category I have come across is that of young grandparents who are not pensioners and therefore not exempt but who play a part in looking after the family and have the grandchildren to stay with them, although not all the time. These grandparents can fall foul of the bedroom tax and its rules.
All these situations can break up families and damage community cohesion. The complexity of this issue is also adding to the costs and burdens on local authorities which are struggling to cope with it. Crucially, I believe that the tax is not saving as much money as the Government claim. Recent evidence compiled as a result of research undertaken by the University of York and a number of housing associations seemed to suggest this. I also understand that the National Housing Federation is compiling statistics on this issue. What is the Government’s current estimate of savings as a result of this measure?
Will the Minister give more details of how the Government are monitoring this situation? I was concerned by the reply I received from the Minister’s predecessor to a Question for Written Answer that I tabled. I asked what information the Government had about those who had gone into arrears for the first time since April, and what proportion of those were subject to the bedroom tax. I received this not very reassuring reply:
“The Department does not collect official statistics on how many social housing tenants were in arrears for the first time nor on any notional sub-classification based on welfare reform”.—[Official Report, 23/9/13; col. WA 450.]
It is vital for the Government to get as much information as possible from local authorities and others to see what the evidence is regarding people who have gone into arrears for the first time as a result of this measure.
The noble Lord, Lord Freud, in replying to an Oral Question, spoke of the choices people could make as a result of being affected by the tax. However, these are very unenviable choices for many people, such as trading down or “pulling in lodgers”. I do not know whether the Government have any information about how many people have taken in lodgers following the introduction of this tax but I would imagine that, for someone living on their own in accommodation that they have occupied for a very long time, taking in a complete stranger to share that home could be a daunting and upsetting experience.
A lot of people have chosen to stay put following the introduction of the measure, but their ways of doing so have often involved simply getting financial support from family or friends or cutting back, in many cases to living on the poverty line. Not surprisingly, people do not want to move away from areas where they are part of a social network, where there are support systems and where there may be valued childcare facilities or reliable friends and neighbours. Even when people agree to move, transition can take a long time and transition costs for the tenants and the local authorities, such as in reletting costs, can be considerable. So downsizing is not a cost-free option.
Something that I hope will sway the Government is the fact that according to recent polls the underoccupancy charge or bedroom tax is deeply unpopular. Although the Government may hope that some of their welfare reform measures are popular, that certainly does not seem to be the case in this instance.
In preparing for this debate I was helped by a number of organisations: the National Housing Federation, Shelter and church charities, which make grants for those in dire need and are particularly aware of the hardship that is being caused in particular parishes and communities. I am also very grateful to the council with which I have had the honour of being associated throughout my time in both Houses of Parliament, Gateshead Council, which has told me of its findings after six months of the charge. It says that the amount of the penalty applied for underoccupation of one room in a council tenancy in Gateshead is almost double the additional housing benefit that would have been paid. The impact of this weekly penalty on many tenants has been immense and has contributed to a large increase in tenancy turnover, vacant property costs and rent arrears. The impact on the council’s housing revenue account is also considerable because of the additional rent arrears, additional expenditure on relet work and the loss of rent because of vacant property.
I am running out of time and would have liked to refer to many specific instances. Perhaps I may send some of these details to the Minister. In conclusion, I should say that of course the Government have to look at ways of saving money, but not by cruelly mistreating vulnerable people who were in no way the cause of the global financial crisis and should not be penalised as a result. Just last week we heard an entertaining spat between the former Prime Minister Sir John Major and the current Secretary of State for Work and Pensions. Sir John put it well and very tellingly when he referred to the plight of the “silent have-nots” and talked of the painful choice between heating and eating. Given this debate, he might have said heating, eating and keeping a roof over your head. I was delighted when my party’s leadership gave a firm commitment to repealing this tax. I call on the Government now to follow suit before even more hardship and misery are caused as a result.
Baroness Seccombe (Con)
My Lords, I congratulate the noble Baroness, Lady Quin, and thank her for giving us the opportunity to debate this important issue today.
Any change in the law will doubtless cause concerns to those people who stand to be affected. However, I hope that this debate provides us with an opportunity to better understand the proposals. There are many issues surrounding the area of welfare. Not least is the responsibility of government to ensure that all benefits are dispensed in a way that is fair to both the taxpayer and the recipients. We can all understand the frustrations of those who rise early, work all day and find that some of their neighbours on benefits appear to live a comparatively comfortable life without any of the hassle. Any welfare system should therefore be equally fair to those who pay into it and those who receive it. The principal aim should always be to help those who are able back into work. At the moment we can all agree that this has not been working.
However, I want to concentrate on just one small point. With life expectancy increasing, many elderly, and indeed very elderly, people live alone and are able to live independent lives. This is certainly the case for many women who are more often than not the ones left behind. They have raised their families in the same home and then, when their children have flown and the hustle and bustle gone, they can find themselves living alone in a property too large for their needs. This happened to me and I was then able to buy a smaller property, cut down on bills and “downsize”. For anyone living in social housing, this can be much more difficult and the choice has simply not been there.
I want to encourage choice and I was therefore pleased to see that pensioners are not subject to the spare room charge. So, if it is their wish to continue to live in their accommodation, they may do so. However, should they prefer, councils will support social tenants who wish to downsize. There continues to be funding for an action team within the Chartered Institute of Housing, which works with all social landlords to help them to promote moves. It seems to me that for an elderly person struggling with the upkeep of surplus rooms, that could be hugely welcome. Such a scheme would not only encourage choice and make it possible for a person to move to a smaller home but it would release a property for a large family with all its needs.
I was interested to see that in action with the introduction of HomeSwap Direct, which has made it possible for councils and housing associations to tackle underoccupation. The Seaside and Country scheme is another option. It offers social housing outside London to elderly tenants living in Greater London in family-sized properties, and this must present an attractive proposition to some who are looking to get away from the mad rush of city life.
Life can be very lonely for older people. I believe that we, in this House particularly, have a duty to make the later years as enjoyable as we can. I commend the Government for ensuring that those who wish to do so are able to stay in the accommodation that they know as their precious castle but also for alerting them to other opportunities.
Baroness Hollis of Heigham (Lab)
My Lords, I thank my noble friend Lady Quin for introducing this vital debate. Like her, I will speak about the bedroom tax. I do not blame the Minister, whom we welcome to her brief; the DCLG has sensible underoccupancy standards. I blame Sir George Young. In the 1990s, as Housing Minister, he said that we should subsidise people, not property. Housing benefit, he assured us, would take the strain: too true. Housing benefit soared, social housing collapsed and the bedroom tax is the result.
The Government claim that the housing benefit bill is high because tenants occupy over-large property that should instead go to families who are overcrowded or on the waiting list, thus saving £490 million a year. That is not true—none of it. Let us unpick it. Families are overcrowded because other tenants do not trade down? False. As my noble friend said, outside London that is not a problem. The DCLG’s own statistics show that there are far fewer overcrowded families than underoccupying families by a ratio of about 1:6. The Government do not need to do this. Helping pensioners who want to downsize, but now will not be able to, would sort it.
The next claim is that the bedroom tax will help waiting lists—false. Some 80% of those on waiting lists are single people or young couples without children also requiring one-bedroomed flats. However, they will now, as the Scottish report showed, wait twice as long because underoccupiers will take priority for that accommodation. This applies similarly to the homeless—mostly single vulnerable people—and, as the noble Baroness, Lady Seccombe, rightly mentioned, pensioners. They, too, need and want the smaller properties that will be made artificially scarce because of the bedroom tax, and it will be harder to help them.
We simply do not have single-bedroomed properties, as two-bedroomed homes are far more flexible. Earlier this summer, Wolverhampton had 118 one-bedroomed properties to let but 2,500 tenants underoccupying and nearly 7,000 households on the waiting list for a one-bedroomed property. A similar situation applies in Leicester. Reports from Scotland and Wales show that it will take years for underoccupiers to trade down within the social sector. Three-bedroomed homes are now standing empty, taking 50% longer to let, and some in the north may be boarded up, while families with children or disabled families who want to live in them are forced into scarce smaller property that other people—pensioners, those on the waiting list and the homeless—want and now will not get.
“Well”, says Esther McVey brightly, “Convert three-bedroomed houses into two flats”. Double up kitchens and bathrooms, build external staircases, increase sound insulation, and provide car parking and external storage, and the cost of £70,000 or more, excluding land, outside London actually builds a new home. Further, you cannot adapt mid-terrace houses, you cannot adapt post-1960s houses as their rooms end up too small by DCLG standards, and many built before 1960s have been sold. As a policy it is, frankly, absurd.
Two-thirds of those affected, as my noble friend said, are disabled families. There are people with epilepsy, Huntington’s, Parkinson’s, severe asthma, who as couples need separate bedrooms. Their letters would break your heart. Now their carer partners will be denied an adequate night’s sleep, which will break their health as well. They have committed no offence. They have lived difficult lives, yet we are now punishing some of the poorest and most afflicted families in the land for the sin of occupying a house that their social landlord, years earlier in good faith, allocated to them.
“Oh!”, says the DWP, brightly, “Discretionary housing payments will help them”. False again. The impact analysis shows that only 40,000 of the 660,000 affected by the bedroom tax may end up on DHPs. The extra money found by the department might extend to just 60,000 or 10%. The Government insist that tenants downsize to make way for people who do not want the larger homes they have left. However, at the same time the Government hypocritically expect to make their savings precisely because 90% of underoccupying tenants do not do what the Government state—move—but do what the Government actually want: stay put and take the hit if they can, to make the savings. Make the savings, and you do not deliver the policy; deliver the policy and you do not make the savings.
The recent ALMO survey finds a 24% increase in empty property and that 65% of underoccupying tenants are in arrears, which have doubled. Many have been sent eviction notices and just 8% qualify for DHPs—so now what? I declare an interest as chair of a housing association. If we as social landlords do not evict, arrears soar, and the social landlord goes into the red and into special measures. If we do evict, where do tenants go—into our smaller accommodation? We do not have it. Perhaps into the private rented sector, where the rent of one-bedroomed flats is higher than that of the two-bedroomed flats they have left. That is if a landlord will take them, if they have the money for deposits, and the money for moving costs. With children, they may go into B&B at huge cost and distress, or if single, sofa-surf until they end up on the streets. Some tenants may return as vulnerable into hard-to-let, unwanted—guess what—three-bedroomed properties, perhaps even as squatters because that is the only property available, and the sorry cycle starts all over again.
None the less, the Government insist that the bedroom tax will produce savings of £490 million to outweigh all this misery: false again. Let us do the sums. The Government modelling for savings assume that 90% will stay and take the hit and that just 10% will move. The ALMO survey shows instead that only 60%, not 90% want to stay and pay. Let us assume that 70% stay—between the two figures, I think that that is realistic—and that 30% go, most going into higher-cost private renting. Add in the cost of voids, arrears, B&B and DHPs, and the public purse—I have done the stats—far from making savings, makes a significant loss.
Tenants, far now from enjoying a settled home, will face a “snakes and ladders” of moving up, down and across, from one-bedroomed to two-bedroomed, perhaps to three-bedroomed, properties, all in different places, and then down the snake again according to the age and gender of their children, each move bringing huge moving costs, stress and dislocation, especially to disabled families, their children and the local communities that support them. All this misery, all this cruelty, all this distress to meet housing pressures that will now worsen and to make savings that now will not happen—and we call this a housing policy. It is strong language, but I call it contemptible.
Lord Shipley (LD)
My Lords, I thank the noble Baroness, Lady Quin, for initiating this debate. I declare an interest as vice-president of the Local Government Association. I look forward particularly to the maiden speech of my noble friend Lady Bakewell of Hardington Mandeville, whose expertise will prove of enormous value to the House.
This debate is important and timely. We now have a great deal of evidence as to what is happening in house building, the affordability of housing and the impact of welfare changes. More evidence will emerge over the coming weeks and I hope that the Government will prove sufficiently fleet of foot to adapt their policies to reflect what is happening on the ground.
In summary, we have not been building enough homes for years and prices are consequently higher than they might have been. If we do not increase supply, the private rented sector will see higher rents, which are clearly rising anyway in many parts of the country. Not enough social homes for rent have been built and the impact of welfare changes, particularly the underoccupancy charge, has led to rising demand for smaller units when smaller units do not exist.
Last year saw the lowest house completion rate since 1923. In fact, since 1990 annual housing completions have never exceeded 170,000 and they have averaged 140,000, in which four out of five homes have been for owner occupation. The failure of successive Governments to replace stock sold under the right to buy has led to a lack of affordable housing for rent and we are now seeing the consequences.
There has rightly been specific criticism of the previous Government for reducing the stock of social housing by 420,000 units. This is because it is for Governments to intervene to reduce social inequalities, not the markets, which is why much of my contribution today is to urge the Government to build more homes more quickly for social rent and to think again about how the underoccupancy charge is being applied.
As to affordability, house prices are rising again and we may be at the start of yet another housing bubble in some parts of the country. Funding for lending and help to buy provides cheaper credit to boost sales, but the underlying problem is lack of supply. House building is half of what it needs to be to match the rate of household formation and this imbalance now seems likely to continue for three years at least because of the time it takes to get schemes into the ground.
In addition, important as Help to Buy is, unless the supply is increased, prices will rise further, putting home ownership out of reach of even more young people. We should be very concerned that the ratio between house prices and local earnings has returned to very high historic levels. With 1.8 million families on social housing waiting lists, it is undeniable that we need more homes for rent. Large numbers of people are not in a position to take out a mortgage nor ever will be. If interest rates rise, even fewer will.
I will now say something about the underoccupancy charge. I have always felt that it was a bad policy and nothing I have seen since April has changed my mind. The evidence of impact is now available from a variety of sources, all of it expert.
It seems that around half of all tenants are paying the increase, a quarter are paying something, and a quarter may not be paying at all. Of those paying, some may be doing so by reducing their spending on food or heating, so we should not assume that because they pay, it means that their household finances are in good shape. Of those not paying, many are simply unable to do so. We should not make poor people poorer. Yes, we should encourage people into work where there is work to do and they can do it, but if there is not, poor people should not be penalised.
We should all thank the housing associations, arm’s-length management organisations and councils, where they have retained their housing stock, for their work in helping people affected by the charge. A lot of unseen effort is going on at the individual level in supporting tenants to manage their finances more effectively and so as to keep rent arrears to a minimum. Since two-thirds of tenants want to stay in their homes and are trying to pay, every method of support should be made available to them.
That takes me on to discretionary housing payments. They are being made available, but will they suffice? Two-thirds of housing associations and ALMOs say that they will not. I hope the Government will ensure that, as we progress into 2014, they will watch very carefully what is happening to demand on the funds and take action as necessary. Many tenants who are subject to the new underoccupancy rules want to move to a smaller home, but they cannot do so because the smaller home does not exist. In my view, the charge should not apply where there is nowhere to move to.
One way forward is to give local councils greater flexibility to meet demand for smaller accommodation in their areas. To do this, the Government should see councils as part of the solution and progressively remove the housing borrowing cap imposed on local councils, relying instead on the existing prudential borrowing code under the Local Government Act 2003, which guarantees that only sustainable housing investment would get the go-ahead. Councils could raise a further £4.2 billion above their current £2.8 billion borrowing headroom and they could build up to 60,000 more homes over the next five years. It will not be enough if the only action the Government take is to give permission to pool the existing £2.8 billion headroom to make sure that it all gets spent.
Since last year, April 2012, council housing has been self-financing. The average debt on a council home is only £17,000, so there is plenty of scope for safe additional borrowing against the asset of the existing stock. In addition, we should note that across Europe, trading accounts such as these are not seen as part of a Government’s borrowing. They are not related to the deficit or to debt. The UK, for reasons that are never satisfactorily explained, uses a much wider definition of public debt than any other country in Europe. The consequence is that we are not building as much social housing as we could. The aim of making better use of the existing social housing stock, which is the aim of the Government, can be done only if sufficient numbers of smaller properties are made available for those affected to move into. ALMOs in particular are in a good position to develop small plots for one- and two-bedroomed accommodation.
Research is to be undertaken into the impact of the underoccupancy charge. I understand that it is to be done by Ipsos MORI, along with the Cambridge Centre for Housing and Planning Research and the Institute for Fiscal Studies. They will all be assessing independently what is happening with the underoccupany charge. Initial findings will be made available in 2014, although I do not know which end of 2014 that might be; earlier rather than later, I hope. There is then to be a final report late in 2015, which means that we are two years away from the final report actually being produced. I hope sincerely that we are not expected to wait for two years before anything is changed because there is enough evidence now, and into the early months of 2014 there will be even more. The picture will have become very obvious.
We want to build a stronger economy and a fairer society, enabling everyone to have a good education and get a secure job. However, that is only part of what is needed to strengthen equalities, social inclusion and that fairer society. A decent, affordable home is just as important as education and a job because they are all linked. In conclusion, I hope that the Government will start to see local councils as part of the solution in building more social homes for rent.
Lord Whitty (Lab)
My Lords, I thank my noble friend Lady Quin for initiating this debate. I will dwell largely on the broader housing side, as did the noble Lord, Lord Shipley, but wanted to say something first about the bedroom tax, spare room charge or whatever we care to call it. Some evidence that I do not think has yet been cited comes from the National Federation of ALMOs, which has done a survey of council and ALMO-run properties. It found that arrears among those affected have already almost doubled—there has been an increase of almost 27 percentage points in the numbers in arrears. Of those affected, only 13% were prepared to consider moving and only 2% have actually done so. In other words, for a policy that is supposed to free up property for more appropriate use, a very low level of achievement has been recorded. As other noble Lords have said, and as the noble Baroness, Lady Maddock, said during Question Time—I am afraid that the Minister did not give her an adequate reply—the reality is that there is no alternative accommodation for these people to move into in most parts of our country. Of those surveyed by the federation, some said it would take up to 14 years to put people in appropriate housing.
However, this is not only about the nonsense of the bedroom tax. Behind all this, there are chronic problems with housing and with affordable housing in particular. The term “affordable” is of course difficult to define. I declare an interest in that, last year, I chaired an inquiry for an organisation called Housing Voice, which produced a report to try to push housing up the political agenda. I think that we, along with others, have succeeded in doing that. The definition that we used then was,
“comfortable, secure homes in sound condition that are available to rent or buy without leaving households unable to afford their other basic needs”.
Others have been more specific, saying that it should not cost the household on median earnings more than one-third of their income.
However, the Government and the powers that be have used the word “affordable” in an entirely different way. In an affront to the meaning of the English language, the term “affordable housing” in the social housing sector is used, in Newspeak, to mean charging what are, for many social tenants, totally unaffordable rents. In more general usage, there is a chronic lack of affordability not just in the social housing sector but across all tenures of housing. Rents and prices are rising in all housing sectors and in all parts of the country—the issue affects our inner cities and our rural areas, young families seeking a mortgage for the first time, leaseholders, private tenants and those in social housing. Above all, it affects the young and those who are in the wrong kind of housing because of family circumstances.
The situation reflects a long-term failure to build housing, which as the noble Lord, Lord Shipley, said, has continued under successive Governments for many years, with new housebuilding running at less than half the rate of household formation. It is particularly acute towards the affordable end of the market and was, I am afraid to say, greatly aggravated in the early days of the coalition Government when they deliberately slashed government support for affordable social housing by nearly two-thirds. They have belatedly introduced policies to offset that, but it was a severe blow, which has meant that recovery and improvement in the total level of housebuilding is even further off.
I have to say to noble Lords opposite that, to some extent, among their ranks and in some of the coverage in the newspapers that support them, there is a deep prejudice against tenants of social housing. That has led to measures that are hitting social housing and, in particular but not exclusively, those who are on benefits. That has been compounded by aggravating and detailed interventions such as the bedroom tax. This combination of factors has already led, as noble Lords have said, to severe distress and threatens serious social and communal dislocation. Other things have affected the situation and will, in future, affect it even more, such as the move to the default position of payment to tenants rather than to landlords. Although there is some justification for that, particularly in the private rented sector, it means that housing associations’ income and creditworthiness is less assured and they are therefore less able to raise money to build new homes. In the private rented sector, the refusal to regulate private landlords is leading to soaring rents and inadequate conditions in large parts of the burgeoning private rented sector, not least here in London.
All this is, naturally, leading more people to claim housing benefit and more people to claim a larger amount of housing benefit, reflecting their housing costs. The Government are right to point to this escalating cost of housing benefit as being a major problem in the welfare bill. However, that has led them to the wrong conclusion. Instead of tackling the increase in housing benefit expenditure as a reflection of dysfunction in the housing market, they have treated it as a dysfunction of the welfare system. That has led them down exactly the opposite road to the one which they should be going down. Part of the real solution, which I have been advocating for some time in this House and elsewhere, would be for housing in central government to be placed in the hands of one Minister and the resources available for housing benefit to be put together with those available in CLG. That way, we could have a strategic approach to housing demand and supply and match them more substantially. As the noble Lord, Lord Shipley, said, the other part of this would be to give councils and local authorities the responsibility for strategic delivery of housing right across the board in their areas.
Although the Government have recognised the need to build more houses and have introduced some policies that they say are going to lead to that, nothing has yet been seen. The Public Accounts Committee, in its assessment of the new homes bonus, effectively said, “Case completely unproven”. In its actual text, there are harsher words than that. Although the Help to Buy policy has helped a number of people into the housing market, and has undoubtedly had the political effect of reassuring existing homeowners that the market value of their property is going up and giving them a warm feeling about that, there is no point pouring money into the demand side if you do not match it with policies to deliver the supply to meet that demand. All that will happen—particularly in the high-stress areas, but right across the country, as we have already seen—is that house prices will increase but there will not be an increase of any great significance in housebuilding.
Those measures are probably misplaced and they are certainly not working. We need further measures. On the planning side, we need to ensure that new housing developments include a minimum proportion of affordable housing, in whatever form of tenancy we decide should apply. Instead, councils are having their arms twisted by developers and going back on the previous policy. We must ensure, in so far as there are new right-to-buy deals, that there is a genuine one-for-one replacement of anything that goes out of the social housing system. The arithmetic that the Government have come up with on that is completely phoney.
Above all, we need to ensure, as the noble Lord, Lord Shipley, said, that housing associations and councils are able to go to the market and obtain money to build and improve housing, whether through traditional council housing, housing association stock or joint ventures with the private sector. As the noble Lord said, we are the only country in the world, or at least in Europe, which counts expenditure by municipalities and provinces to buy housing—a clear asset—as part of public expenditure generally and puts a cap on it. If that cap were raised, and preferably removed entirely, councils’ ability to borrow would go some considerable way, even if it takes us 10 years to get there, to replacing and improving the amount of housing stock available to our people. I hope that the Government take a grip on this area and come up with a strategy which will deliver just that.
Lord Howard of Rising (Con)
My Lords, I thank the noble Baroness, Lady Quin, for introducing this debate. I declare an interest as a member of a district council.
No one can possibly argue the principle that housing should be provided for those who cannot afford it. In this day and age it would be inconceivable that we should not have people housed properly and adequately. But where a house or flat is provided by taxpayers, it is clearly unfair that those who receive this benefit should be given more than they need or require. I find it inconceivable that anyone should argue against this. Why should taxpayers—many of whom are not well off, many of whom have seen a horrible drop in their standard of living, many of whom are obliged to share bedrooms—contribute to the benefit of spare rooms for those in housing that they, the taxpayers, are paying for in addition to paying for their own housing?
Where housing allowance, introduced by Labour, is given to enable those on benefits to rent accommodation in the private sector, no allowance is made for rooms over and above what is strictly necessary. You get sufficient funds to pay for what you need and no more. Yet this very fair principle—as I said, introduced by Labour—is demonised when it comes to housing provided by the state. My noble friend Lady Seccombe has already commented on the exemption for the elderly and the disabled. If the beneficiary of the spare room wishes to stay where they are presently living, they can pay for that—that is a choice. If they feel they cannot pay for it, they can take in a lodger to help. That might not be ideal but where others are subsidising, it cannot be right that they should be subsidising a surplus. I find it curious that some Members of this House have been speaking in favour of that.
Of course, the real culprit where housing is concerned is interference by government. There are planning difficulties. I know of one housebuilder that reckons on 10 years between identifying and purchasing a site and building houses. I know of another housebuilder where the planning application was half a million pages long. There are building regulations and so on and so forth. If the same government interference in housing had continued in the motor industry, we would all now be driving Allegros and Marinas. Add to that the explosion in immigration promoted by Labour, it is hardly surprising that there are housing problems.
Baroness Blackstone (Lab)
My Lords, I declare an interest as the chairman of the Orbit Group, a large housing association. Like others, I am very grateful to my noble friend Lady Quin for introducing this debate.
There can be few people in this country today who do not believe that we face a serious housing crisis, which is blighting the lives of a growing proportion of our people. The causes of the crisis are complex and previous Labour Governments must take some share of the responsibility for not addressing them adequately. Nevertheless, the present Government’s policies are actually exacerbating the situation, not improving it.
I am especially puzzled as to why the Government have attached so little priority to providing the capital for a large housebuilding programme. I very much endorse what the noble Lord, Lord Shipley, and my noble friend Lord Whitty said about this. It is particularly bewildering in a context where such an investment would help to kick-start the economy and promote the increase in economic growth that we so desperately need. Perhaps the Minister can explain why the Government have done so little in this respect.
Some key statistics illustrate the extent of the housing crisis we are experiencing and demonstrate the wider problems of affordability that many people are facing, which my noble friend Lord Whitty commented on. I will turn later to the bedroom tax but must say that I find it curious—to use the phrase of the noble Lord, Lord Howard—that he has so little sympathy with those who have been affected by it, which in some cases amounts to cruelty.
If food prices had risen at the same rate as house prices since the 1970s, the average weekly shop for a family of four would now cost £453. House prices increased from 3.6 times to 6.5 times the average salary between 1997 and 2011. The affordability problem is most pronounced in the capital. Figures from the Land Registry show that house prices in London increased by 9.3% in the 12 months to September, meaning that the average house price is now £343,000 in London—more than double the average house price for England and Wales. Taking a 3.5 house price to income ratio, a household would need to earn almost £100,000 a year to buy in London.
Home ownership is in decline. It now takes 22 years for the average low to middle-income family to save for a deposit. Most people dream of owning their own house but are denied the opportunity to do so; 1.3 million families are struggling to pay their mortgage or rent, spending more than 35% of their net income on housing costs. This number is likely to grow as average rents in the private sector are increasing four times faster than renters’ wages. In addition, 13% of people have resorted to borrowing on a credit card to help pay for their housing costs.
There are 1.8 million families on waiting lists for social housing. During the financial year 2012-13, nearly 113,000 households in England applied to their local authority for homelessness assistance—an increase of 4% on the previous year. Last autumn there were nearly 2,500 rough sleepers on any one night in England—a rise of 31% from autumn 2010.
In spite of all this evidence of housing need, housebuilding has dropped to its lowest levels since the 1920s. Housing completions in England fell from 170,610 in 2007-08 to 107,820 last year—a 37% drop. Against this, around 221,000 new households are forming annually, yet in the 12 months to June of this year housing starts totalled 110,530, only half of what is needed.
In 1975 more than 80% of public spending on housing was spent on supply-side capital funding. The composition of spending has changed greatly since then. At present, for every £1 spent on housing only 5p is spent on capital funding while 95p goes on housing benefit. This is a truly grotesque statistic and I would be grateful if the Minister would tell the House why no capital programme of any size has been put forward to reverse it.
The impact of higher housing costs is spreading to a much wider group than those who find themselves completely priced out of a home: 22% of 18 to 34 year-olds—2.9 million people—live with their parents, and 17.8 million people believe that their children or future children will not be able to afford a decent home, dashing their aspirations for a decent quality of life for their children when they grow up.
I turn to the underoccupancy charge, known as the bedroom tax. I could produce many case studies revealing the problems that this has given individual people, but I shall give only one or two. They come from the Orbit Group. Miss B had been living in her home since 1992. Because she was unable to make up the shortfall in her housing benefit as a result of the bedroom tax, she had to leave her home, in which she had raised her children. She has mental health problems, which means that she needs the support of her family and friends, who would often stay the night to make sure that she was okay. She is now living in a one-bedroomed flat with no space for visitors and has moved to an area that she does not know and where she has no support network around her.
I take a second case. Mr and Mrs M have lived in their home for nearly 20 years, but were told last year that they were underoccupying and have had their housing benefit cut. Four years ago, they both had serious health problems, which had a big impact on their daily lives. Because of their health conditions, both rely heavily on the support of their children, who live on the same street. They were initially awarded discretionary housing payment by their council, but this has now stopped, and the council has told them that they will receive no further assistance because they are not considering moving to another area. Unsurprisingly, this has caused them an enormous amount of stress, and means that they are heavily reliant on their children for financial support.
A survey of 51 housing associations conducted by the National Housing Federation found that more than one-half of the tenants affected by the underoccupation charge were pushed into arrears in the first three months of the policy. One-quarter of those affected are in arrears for the first time. This is a very unfortunate outcome of the Government’s policy. According to its own impact assessment, the DWP estimates that two-thirds of those affected by the underoccupancy charge are disabled; 100,000 of these are living in adapted properties. Many of these people, if they move, will then require adaptations to be made in a new property, which will be very costly for the taxpayer. Perhaps the Minister would like to comment on that.
The Government’s discretionary housing payment pot, designed to protect the most vulnerable, is insufficient. The Papworth Trust report showed that three in 10 disabled people are being refused a DHP; 90% of them are having to cut back on food or utility bills, and one-quarter are cutting back on medical expenses. As my noble friends Lady Quin and Lady Hollis and the noble Lord, Lord Shipley, have said, there is an enormous shortage of smaller properties for people to downsize to. Across 60 councils, a total of nearly 170,000 households are affected by the policy, while there are only 9,000 one or two-bedroomed properties available in the local authority housing stock in those areas. If all the families hit by the measure wish to move into these one and two-bedroomed homes, only 5.6% would actually be able to do so. How absurd that is.
I conclude by asking the Minister, first, whether the Government will urgently undertake a re-evaluation of this policy, and will also have the courage to abolish it in the light of the evidence that it is failing. Will the Government halt the decline in social housing and help the 5 million people on local authority waiting lists to obtain a house that they can afford with the security that they need by having a major housebuilding programme? Without this, they will not be able to obtain in the privately rented sector either security or a property that they can afford.
Baroness Bakewell of Hardington Mandeville (LD)
My Lords, it is a privilege to be able to address your Lordships’ House on a subject so dear to my heart, and I thank the noble Baroness, Lady Quin, for presenting us with the opportunity. Like many before me, I suspect, I am somewhat surprised to be here at all in the first place. I thank my sponsors, my noble friends Lady Brinton and Lord Ashdown, whom I worked with for 10 years, for their patience and continued support in helping me to settle in. Everyone who has entered this noble House in the past has commented on the warm welcome they have received and the help and directions given by the staff. I add my name to that list. I also want to place on record my gratitude to my husband, daughter and son for their tremendous support and encouragement throughout my political career.
Next year is the 40th anniversary of when I joined the Liberal Party. During my political career I have been the leader of Somerset County Council and a vice-chair of the County Councils Network. I remain involved with the Local Government Association as a trustee of the leadership centre. I am now a councillor on South Somerset District Council, leading on troubled families, and chair its strategic partnership, so I am aware of the impact of the lack of affordable housing in rural areas.
I was born in a bomb-torn Bristol after the Second World War. Returning servicemen such as my father found that there were no homes for them to buy for their growing families. My parents, like others, lived with a parent, accumulating points to move up the list to buy a house. When I was three, we moved into a road of newly built houses taken entirely by young families. Today the issues are more complex and, in Somerset, the rising demand for housing and number of waiting applicants is growing. The average house price is many times the average wage. It would be extremely helpful if the Government saw fit to introduce an improved grant regime to support further investment for those unable to afford home ownership. It is important for the planning system to be pro-housing. The economic case is proven; the contribution, regionally and nationally, brought by housing associations building new affordable homes is £6 for every £1 of government grant. These developments create jobs, skills, apprentices and support local supply chains.
The consequential impact of the additional burden of ending the spare room subsidy may not have been adequately assessed before its introduction. There has been a disproportionate focus on the out of work, when the reality is that a high proportion of those affected work in low-wage economy areas, such as south Somerset, some in part-time employment, because full time is unavailable, or on zero-hours contracts, relying on housing benefit top-up to balance their budgets. The gap between the haves and have-nots has widened. This is unacceptable in Britain in 2013.
There appears to be a misconception around the difference between a house and a home. Creating a home requires effort and investment which will be made only if there is some certainty about the future. I am sure that the Government do not wish to destroy any idea of investing in homes or communities except for those able to afford a mortgage. In April, the number of households in arrears with one of our registered social landlords was 65. This has now risen to 397 for those affected by the charge. Most have managed to make some payment, but debt and arrears are rising, as, sadly, is the demand for emergency charitable food parcels.
It is important that the DWP considers whether there is a sufficient supply of appropriately sized properties available to those wishing to downsize. Those requesting to downsize have combined with those seeking to enter the affordable housing market, creating a high demand at one and two-bedroomed level. Meanwhile, families with a comparatively low-level need are being housed in three-bedroomed properties. Where no suitable property exists, there is the option of leaving affordable housing and moving to private rented property. However, rather than reducing the housing benefit bill, this is generally leading to an increase.
Rural exception housing in our smaller villages is largely two or three-bedroomed homes to ensure this meets the long-term needs of the community. Many communities make their homes in villages for life yet now some will be required to leave if they are unable to pay for underoccupancy as children leave home. Allocation of these houses is ring-fenced to those from the community or surrounding villages. Families with two children of different sexes, say aged seven and eight, will not be eligible for a three-bedroomed property in their village and may be forced out, while the three-bedroomed property they will require in two years’ time would be allocated to a family from outside the area.
Another impending contributing factor to the housing supply is the recent, welcome announcement on Hinkley Point C. According to EDF, the construction of Hinkley Point C will involve 5,600 construction workers and a further 20,000 to 25,000 support jobs over the seven years plus of the project. Of those, 5,000 jobs will be filled by existing Somerset residents. Beyond temporary accommodation for some construction workers, a high proportion will be housed within the existing rental market and through holiday accommodation. The impact across a 90-minute travel-to-work area will be marked, as the higher wages of EDF workers impact on the local housing market. EDF’s gain could mean the collapse of the private rented market for local people. Already, rents in this area are rising and will continue to rise as the low-wage economy of the region is priced out by the high-wage economy of Hinkley Point C. I look forward to speaking to my right honourable friends the Housing Minister, Stephen Williams MP—himself a Bristolian—and to the Secretary of State for DECC, Edward Davey, to see what solutions might be found to these local issues.
I fear that I have painted a somewhat gloomy picture but felt it wise not to underestimate the issue. It is only by realistically assessing the situation that we can find suitable solutions to take us forward.
Baroness Dean of Thornton-le-Fylde (Lab)
My Lords, I am delighted to congratulate the noble Baroness, Lady Bakewell of Hardington Mandeville, on her contribution, particularly as, like me, she has a home in the West Country. Her contribution this afternoon was very thoughtful, sensitive and realistic, knowing what is happening on the ground in so many parts of our country. I welcome her and look forward to listening to many of her speeches in future.
I thank my noble friend Lady Quin for obtaining what are in fact two major debates in this one three-hour debate. They are on very important areas. I welcome, too, the Minister to her new portfolio, though I doubt she will succeed in her continued search for a George Clooney in this area. She certainly has an extremely difficult and sensitive portfolio to deal with. The issue we are debating today will not go away. It will keep coming until we sort this out.
I declare two interests. I am the president of the Abbeyfield Association, which provides homes and residential accommodation for elderly people. I am also a very new member of the board of Places for People, a large registered social landlord but with a lot of commercial activities linked with that.
In the 12 months to June this year, 110,000 homes were started in Britain. That is 40% below the number started in 2006. We need about 250,000 homes per year and if we go on at the current rate we will be 750,000 homes short for our population by 2025. That is the size of the problem. Alongside that, we have the problem that many of us could not say what the Government’s policy is on housing. They do not appear to have either a medium or long-term policy on how we will address the housing shortage in this country.
We talk about affordable housing but the make-up of people who need it today is very different from what it was 15 years ago. Then, a young couple, whether single or getting married, who were in a profession such as nursing or teaching—that whole cadre—would have thought only of buying. Today we have two countries in England. We have London and the south-east, and we have the rest of the country with regards to the housing problem. Many of those young people who would have been able to buy can no longer afford to because of the cost of housing. The average age today of a first-time buyer is 37 years of age. The number of families living in bed and breakfasts is at a 10-year high. I was reminded of something as I thought about this debate: are we ready for another “Cathy Come Home” television programme? That seared this country into doing something about homelessness. We have 4.5 million people on the housing waiting list.
For the first time in 50 years, we have more people in privately rented accommodation than in what we call social housing—a dreadful term: it is the housing of local authorities or housing associations. Yet the average rent in the social sector is £83 a week while the average in the private sector is £164 a week and a typical mortgage outside London is £141 a week. If we are to tackle the cost of housing and support, we must do it in the private rented sector in particular. Part of the problem the Government have is that they do not seem to have a flexible policy at all. We need a policy on housing. How are we to address, in the medium and longer term, the basic housing shortage we have in this country?
A number of ways would contribute to that if the Government would but listen. For instance, they could form a national housing innovation fund which could be small, with small resources, but would encourage innovation and research. There is no doubt that the answer cannot be in one policy or through one channel alone. It can be supplied only by partnerships and consortiums, and by accepting and acknowledging that the private sector has a key role to play. Starts in the private building sector fell off a cliff in 2007. I know: I was at that time and until April this year a non-executive director in Taylor Wimpey housebuilders. We could see there what was happening and we knew that the impact would not just be then but would last for years and years. It takes time to buy land and get planning permission—although we never had anyone at any time who had to wait 10 years for planning permission. We need a policy on how we deal with this issue. That cannot be on just the purely rented sector; it must be different kinds of ownerships. People for Places, for instance, has 14 different schemes, including mortgage, shared ownership and a scheme I worked on some years ago when I was chairman of the Housing Corporation and was asked by my noble friend Lord Prescott to carry out some work.
A lot has been said about the underoccupancy charge. It is a cruel policy. I would accept totally that it makes sense for housing funded through the taxpayer to be used efficiently but you are dealing with people and their lives. Just to have one policy that is almost slash and burn, irrespective of circumstance, is so wrong. We were delighted at Abbeyfield that people in retirement were not affected by the underoccupancy rule. Could the Minister confirm that there is no intention to change that current situation? If it was extended to retired people, the problems we have now would look almost nothing to the real issues we would face.
I would like to talk about the impact of underoccupancy on registered social landlords. The policy only came in from April this year but arrears are going up substantially. There is no doubt about that. Underoccupancy of one bedroom cuts housing benefit by 14% and of two bedrooms by 25%. Where do those people get the money from to fund that? They cut back, obviously—they have to—but we also see an increase in loan sharks knocking on the door on Friday nights for their money. People are getting into personal debt that they cannot or are highly unlikely to meet. We have heard a contribution about the working poor. It is true that people in underoccupied houses are not just the unemployed. They are working people, trying to look after their families, whose pay does not give them enough. Why do not the Government get behind a living wage? That would help these people. They do not want benefit; they would prefer to pay for their own accommodation.
The long-term impact will be wider than the narrow band that we are seeing at the moment. For instance, it could affect the very viability of housing associations, because the level of their arrears is part of the consideration of their financial stability. They loan money in the private sector. They have to answer to the regulator. Rising arrears is one of the factors by which they will be judged.
That will impact on housing availability, because housing associations will retreat into what they have now. They will not expand; they will not need to. They will feel that they risk their balance sheet by expanding. That will substantially impact on our housing policy. Yes, associations are trying to help people with advice about budgeting and bank accounts. If only everyone could open a bank account. The banks need to know that people with a low income need to be able to open an account. How many banks actually go along with that and support those people?
This is a wide-ranging topic, and I look forward to the Minister’s answers on whether the underoccupancy payment is to be extended to the elderly, the retired—but, more importantly, just what is the Government’s housing policy to deal with this huge issue.
Lord True (Con)
My Lords, I declare an interest as leader of a London borough council and join others in thanking the noble Baroness, Lady Quin, for bringing what is a very important debate to this House. I add my congratulations to my noble friend Lady Bakewell of Hardington Mandeville on a very distinguished maiden speech. I look forward to working with her and my other noble friends on those Benches in supporting our coalition Government—sometimes with modified degrees of rapture, but we have managed.
Many factors contribute to housing pressures, and we have heard of many of them, including population growth, immigration, changing expectations about household formation, some related to past benefit policies, and factors limiting supply to the market. I should like to follow up a few of the points made by the noble Baroness, Lady Blackstone, about the London area. Heaven knows, in London, we understand the cry for affordable housing, whether for sale or rent. It may be that we have to ask ourselves whether we can overcome those difficulties without major policy changes. We all want to sustain mixed populations, but in many areas, embedded land values and limited development land mean that the prospect of providing large-scale affordable housing for sale or rent for all who might want it is slight. My local authority has raised affordable housing performance a little above that of our Liberal Democrat predecessors, but the numbers are still small, because of the factors that I described.
In some areas, we have to ask whether it is axiomatically correct that everyone should necessarily expect to find a home in the place in which they grew up. That may have been so in the past in, say, the close fishing communities, where my ancestors lived. They cast their nets on the cold North Sea and, many, sadly, drowned but, fortunately, not before producing children—at least, fortunate for me. However, in a more varied modern economy, that will not always be the case. Some areas will always be more accessible and affordable than others. In my case, I did not form a household in the place where I was brought up. Nor did my father; nor did my grandfather; nor, it seems, will my son. The same is true in the case of my wife’s family and, no doubt, that of many other families. It is a reality in a healthy economy that as localities evolve and change people will have to travel to find convenient homes that they can rent or afford to buy. This we should facilitate.
Too many policies work the other way. I should like to touch on something not yet referred to in this country, which is the cruel impact—we have heard the word cruel—of stamp duty in south-east England. That was something piled on by Gordon Brown from his very first Budget and not yet relieved by the coalition Government, although I welcome the action of the Chancellor to address the abuse of very expensive homes being bought by corporate bodies, which is distorting the London market. In London, and not just in the wealthier parts of London, a young, first-time buyer can be asked to pay close on £10,000 in stamp duty to buy a basement flat. I hope that my right honourable friend the Chancellor will find time when he can to address that.
Points have been made about the need for varying approaches in different areas. We may need in time to look at that. Like other noble Lords, I believe that local councils have a role in that. Lower tax is a good old-fashioned benefit, as the coalition Government showed by taking low-paid households out of the income tax that they used to pay under Labour. I would be looking to break down more of the barriers that cramp both construction and investment in the housing market.
Fewer people will downsize. We have heard about the importance of downsizing. I have to say that it is not only the fault of the Government if social landlords do not have smaller homes available. Investors must choose in what size of property to invest. In the private market, few will downsize electively, liberating more affordable homes to buy for growing families, when in many areas of the south-east, stamp duty will take £30,000 or £50,000 out of their accumulated capital. Few families will trade up to a larger home, liberating smaller homes, when the £60,000 or £70,000 they would have to pay in stamp duty could go on an extension. In some areas, the young family looking to move from a one-bedroomed home to a two or three-bedroomed home to buy finds nowhere to go. The behavioural impact of reducing stamp duty is clear from recent peaks and troughs in the statistics. Excessive taxation on housing transactions has an impact at every level, including a knock-on effect on the demand for social housing.
Turning to the social housing sector, it follows from what I have said about mobility that I welcome schemes supported by the Government, local councils, including Labour ones, and social landlords to promote the exchange of homes. I am glad that we have moved on from the initial dismissal of that by Mr Dromey. Indeed, I find much that is confusing about the Opposition’s position on the policy. They have admitted that they presided over an unsustainable growth in benefit. They claim to accept the need to address it, but, as we have heard today, they oppose the means, or at least this means.
No doubt the noble Lord, Lord McKenzie of Luton, who is always so admirably clear in his remarks in this House, will say in his wind-up whether a Labour Government would commit hundreds of millions of pounds to restoring the subsidies in housing benefit for spare rooms, which have been abated by this Government as part of one of their most popular programmes, tackling the benefit bill.
As others have said, through the local housing allowance and other policies, the previous Government were ready to attack underoccupancy in the private sector. Indeed, they took pride in the action that they were taking. Why should that be a taboo subject in the social sector? Much of the rhetoric about the spare room subsidy is, of course, based on genuine concerns—we have heard some good, strong arguments in this House—but some of it is also political rhetoric. It is called the bedroom tax, although it is neither a tax nor a levy specifically on bedrooms. My noble friends on the Front Bench should not neglect the battle of language that is always so well understood on the left in politics but less readily by my own party, as the rather terrible story of the community charge—aka poll tax—demonstrates.
It is agreed across the House that there are almost 1 million underoccupied rooms being paid for under housing benefit. Yet there are over a quarter of a million households living in overcrowded accommodation who need more space, and 1.8 million in England and Wales on the waiting list. Meanwhile, our country is still borrowing £13 million an hour and is short of public finance. Can underoccupancy be ignored in such circumstances?
Like most local authorities, my own has set up systems to monitor carefully the cumulative impact of benefit changes. So far, in our case, that impact is relatively small. Out of many hundreds of households which our officers contacted in a programme to help tenants, only 15 have so far left as a direct result of changes to the local housing allowance, although we will have to wait as tenancies run out to see the full effect. In terms of the underoccupancy rules, we were offered more than £400,000 to support discretionary payments. So far, we have had to pay down only £136,000, although the second six-monthly round will provide further evidence. The number of households in receipt of housing benefit remains almost constant.
To conclude, I accept that my authority is not a bog-standard authority and that we need to see more evidence but this does not bear out the more apocalyptic statements we have heard. The coalition Government are surely right to seek to bring fairness back to the system and make better use of social housing stock. I hope that my noble friend Lady Stowell, whom I, too, warmly welcome to debates on local government matters, will stick to her course.
Baroness Turner of Camden (Lab)
My Lords, I, too, would like to contribute to this debate. I thank my noble friend Lady Quin for introducing it and for the manner in which she did so. I also take this opportunity to thank the noble Baroness, Lady Bakewell, for a most interesting and expert speech on this subject.
We have often spoken about housing in this House and about the bedroom tax, which the Minister must know is deeply unpopular. Many vulnerable people have been distressed, particularly those who are disabled. The opposition to it is widespread, including in Scotland, where housing associations report that many people are already in arrears and fearing eviction. The same applies in Wales, where there are also problems. As we have heard during the discussion this afternoon, there are many instances of extreme distress, of which I hope that the Government will take note. It really is about time that the Government reconsidered this whole policy.
This is of course part of a wider discussion of housing in general, where I fear we have rather a crisis. This is particularly true of London and the south-east. We shall no doubt be told by the Government that one cannot talk about a housing crisis without reference to the economic situation, which they will claim is set to improve. It is true that the figures show that this is so for London and the south-east but I do not think it applies in the rest of the country. Indeed, manufacturing growth seems not to have improved in areas where it was hoped that the economy would be rebalanced.
In London and the south-east, everything is no doubt very good for those who are well off. For the remainder—the majority—that is not so. Housing costs have risen dramatically and are still rising, by more than 7% in the past year. People say that it is now even more than that. Things are particularly difficult for younger people, for whom unemployment figures are still high. The area in which I live was once regarded as one of the cheaper areas of Hampstead—it is adjacent to Kilburn—but no longer. It is now really expensive. The problem for younger people can be simply stated: private rents are too high and wages too low, while there is insufficient secular housing.
The Government will no doubt claim that they are attempting to deal with the cost of living and the housing crisis by introducing the so-called Help to Buy Scheme. Yet as many have pointed out, that could merely introduce a housing bubble like that which put housing out of the reach of many in the past. People are already struggling to make ends meet and are going to find it difficult to produce the requisite deposit. The scheme is likely to benefit those already in housing. It will enable people who are already not too badly off to climb further up the housing ladder by uprating. It will not help younger people, who are often in low-paid jobs, on to the housing ladder at all.
There is a further problem. Councils are having difficulty in coping with the lists of those who need social housing. Increasingly, they are having to look outside London and the south-east to access social housing for those who need it and who have not been able to be accommodated in that area. This means that the people so housed will have the expense of commuting, if they still have jobs in London, thus adding further to the expense involved. Moreover, it risks turning London and the south-east into an area where only the well off can afford to live. If you happen to be poor but hard-working, too bad—even if you have a job.
Previous generations have often faced housing crises. Just after the war, there was a shortage of housing. There had of course been the bombing and the destruction of large parts of London and the south-east. The Government of the day took very strong measures, with a lot of public support. They built the pre-fabs: small houses put up rapidly, which housed people very quickly and which still exist. The Government also took control of the housing market. While controls were placed on what could be charged by private landlords, there were rent tribunals which made decisions in line with what people were earning. So, despite the shortages and suffering caused by the war, people realised that everything possible was being done to help them. That is not the situation today.
It is only too clear that if you have the money, you are going to be okay. If not, well, join the queue for secular housing, where you will be very lucky if you are accommodated. This is a grave and serious situation, particularly in the London and south-east area. We all need policies for more secular housing, which we have been told is planned. On the other hand, that is for the future and we have a crisis now. Measures are therefore needed to cope with that crisis. I hope that the Government realise how very severe the situation is in the London area.
Lord Greaves (LD)
My Lords, I declare my interest as a member of Pendle Borough Council and as a vice-president of the Local Government Association. I, too, thank the noble Baroness, Lady Quin, for sponsoring this important debate, which has resulted in a number of extremely important speeches. I particularly associate myself with the remarks of my noble friends Lord Shipley and Lady Bakewell of Hardington Mandeville. I very much welcome her here as another local councillor, who I hope will continue to give us the benefit of her local experience in this great Chamber, which in my view too often behaves as if it were the Westminster parish council.
The noble Lord, Lord Whitty, put his finger on an important issue: that 30 or so years ago, there was a very significant change of policy, in which support for social housing and council housing, as it mainly was then, moved away from supporting what people then called bricks and mortar to supporting people. It all sounded right and there was a general political consensus in favour of it. When I did not agree I always thought that I was little Johnny out of step, but it has been disastrous. As the noble Lord said, housing benefit is a matter not really of benefit policy but of housing policy, and the sooner that we start to debate it on those grounds, the better.
The noble Lord, Lord True, who has just left for a moment, said that some of us would support the Government in various ways, with “modified degrees of rapture”. I have to say that my degree of rapture on this subject with regard to the Government is modified. Having said that, and in saying how much I support what was said by the noble Baronesses, Lady Quin and Lady Hollis, the noble Lord, Lord Whitty, and others on the Labour Benches, I say very gently that they should remember that we had the opportunity in this House to stop the bedroom tax when it was going through. The noble Lord, Lord Best, who is not here today, moved amendments to do away with it, and we could have stopped it. Between us, we failed, so we should all remember that. However, we are where we are.
I stand here fully in support of the policy of my party, the Liberal Democrats. I remind the House that we are still, and I hope will always be, a democratic party that meets twice a year and decides our policy in open debate in a democratic way. When we met this year in Glasgow, we passed almost unanimously a resolution that had the full support from all parts of the party, from top to bottom. It said that we were, effectively, against the bedroom tax. It supported the Scottish Liberal Democrats, who had passed a motion against it, and said it believed that:
“The majority of rural and urban areas outside large cities such as London have insufficiently large, diverse and dynamic social housing markets to make moving into a smaller property locally a viable option”,
and of course we know that is true in other areas, too. It continued:
“There is lack of appreciation of the housing requirements of children and adults with disabilities and care needs … Insufficient funds are allocated to Discretionary Housing Payment Funds of Local Authorities”,
and so on. I do not have time to read it all out, but noble Lords will get the gist that it was pretty critical. It welcomed:
“Scottish Liberal Democrats passing a motion against the policy”,
and,
“reports that some councils will not evict those in arrears”,
for that reason. It encouraged the Government to have a review of the whole policy, which I believe is now taking place as a result of pressure from the Deputy Prime Minister, and called for no withdrawal of housing benefit from those who are on the waiting list for social housing that fits the current guidelines within their local area, and no reduction in housing benefit from their projected housing need for those who, for a period of less than six months, temporarily have a small housing need due to a change in their circumstances but whose need will predictably return to a higher level—for example, children who pass the age limits for separate rooms within that period. There are quite a few ameliorating measures that the Government can and should take now in order to prevent some of the cruelty that is occurring as a result of this policy. Of course many of us would like them simply to abolish the policy, but I do not think they will do that in the short run.
The other part of the motion refers to affordable rents. The problem with affordable rents is that the words have an ordinary meaning that people will assume them to have, but the way in which they are now used by the Government and the Homes and Communities Agency is as a very specific technical phrase. As some noble Lords have already said, in many places they are not really affordable, so what they are called is not an accurate description of what they are.
I have some evidence for that from my own authority in Pendle. The HCA affordable homes framework covers the period 2011-15. It introduced a new affordable rent product that replaced the previous social rent model. Registered providers therefore cannot obtain funding to develop housing for social rent now; they have to go to affordable rents, and rents for these properties can be charged at up to 80% of market rates. What is called an “affordable” rent is related very closely to market rates. This approach is designed to give providers more income to build affordable housing, as the assumption is that market rents will be significantly higher than social rents, hence borrowing capacity will be increased.
The problem in areas like the one where I live and am a councillor is that housing is relatively cheap to buy, and levels of rent in the private sector are also therefore relatively cheap. For example, for a two-bedroomed flat where the social rent might be £65.06, in the example that I have been given by my officers, the affordable rent per week—that is, 80% of the average market rent in the private sector—is £83.07. For a three-bedroomed house, the affordable rent would be £87.69 per week. These are cheap rents relative to many parts of the country. Low differentials between market rent and social rent put registered providers developing in low-value areas at a disadvantage, because the figures basically do not add up.
Coupled with the change from social rent to affordable rent is a reduction in the grant level in the current HCA programme. The average grant for an affordable rent property is now around £22,000, but for a social rent property in the previous programme it was around £50,000.
When you take into account the cost of building the property, the revenue that comes in from rents over 30 years and the management costs and assumed refurbishment costs during that time, that simply does not add up for a lot of these properties. The council puts money in, in the sense of free land for sites for these properties, but it still does not add up. Up to now the council has been able to use right-to-buy receipts that it still has in the bank to subsidise this operation, but that will not be possible in future. For pieces of land that the council owns, which are perfectly remediated and ready to build on, the figures simply do not add up to build new properties, or they are very marginal.
I was asked today to give a quote for eight new properties that have just been built for affordable renting in my own ward, built by the council’s own company for the main housing association in the area, which runs a form of council housing. We think that eight properties is a great step forward, but we are not going to help the Government very much with their targets unless the basic rules behind what we are trying to do are changed and made more favourable to us.
Lord Morris of Handsworth (Lab)
My Lords, as we have heard, the House thanks the noble Baroness, Lady Quin, for her initiative in securing this important and timely debate. I declare an interest as chairman of Midland Heart Housing Association.
This debate is driven by two negative factors: the decreasing provision of affordable housing, measured against demand, and the impact of the spare room tax on both tenants and providers. It is common ground that in England the shortage of affordable housing is now over 100,000 per year, and at the current rate of growth will shortly exceed 150,000. Demand for extra homes in England is now estimated to be over 200,000 properties a year, which means that even if housebuilding output was increased by 4.5%, it would be 2022 before we got back to 2007 figures.
As we have heard, the issue of affordability is not confined to London and the south-east but is to be found across the length and breadth of the country. In 55% of local authority areas, fewer than one in 10 available properties are affordable to a working couple on average wages with, say, two children. The Help to Buy scheme is seen as an instrument that will fuel increased demand and put up house prices but not address the fundamental issue of lack of supply. It certainly is not doing that. That is a pretty unanimous view across the board. There is only one man in the United Kingdom who cannot see the problem and that is the Chancellor. Until recently, providers of affordable housing have been focusing on building family homes and moving away from smaller units, but the impact of the bedroom tax has now set that trend in reverse.
Let me now say a few words about the underoccupancy charge. It is fair to say that few policies have been more controversial in the current Parliament than the Government’s decision to reduce the amount of housing benefit available to social housing tenants who have one or more unoccupied bedrooms. Even the name invites controversy. Campaigners like me have labelled it the bedroom tax, which is what it is, while the Government have called it a spare room subsidy, which it is not.
One of the primary criticisms against this policy is that the measure will not achieve the so-called objective of freeing underoccupied properties. Tenants are downsizing in any event not because of the effectiveness of the policy but because of pure and simple unaffordability. Frankly, there is insufficient stock of the appropriate size in the social-rented sector to meet this demand. A survey of 51 housing associations around England, carried out by the National Housing Federation, found that 51% of residents affected by the bedroom tax have been unable to pay their rent between April and June. This situation is likely to get worse as discretionary payments provided to customers hit by large charges are withdrawn. There is concern among some of these groups, including those paying in full, as the impact on their ability to pay for other essentials, such as food and fuel, leaves them with the stark choice of eating or heating.
My organisation, Midland Heart, continues to see an increase in people leaving their homes following the introduction of the welfare reform programme. Demand for one-bedroomed homes has increased, and exceeded demand for two-bedroomed homes for the first time. It is now common to have more than 200 people applying for a one-bedroomed property in cities such as Birmingham in the West Midlands. There will be a price to be paid: families forced to live in overcrowded conditions with nowhere for children to do their homework and the dignity of family life undermined.
Clearly a tension arises as the current model for delivering new affordable homes is predicated on providers increasing rents to 80% of the market rate, and that in turn puts pressure on the housing benefit bill at a time when such charges are under huge pressures. Individuals face major difficulties as they seek to make the necessary underoccupancy adjustments. The challenge is therefore to fulfil the desire to provide much needed housing while ensuring that it is affordable to the most vulnerable in our society. That is a challenge to government and to society.
Lord Stoneham of Droxford (LD)
My Lords, I declare my interest as chair of Housing 21 and offer my congratulations to my noble friend Lady Bakewell on her maiden speech. I hope that it is the first of many contributions to housing debates in the House in future.
At this stage of the debate a lot of the points have already been made, and I do not think there is much point repeating them. I shall concentrate on a few issues. I think there is common agreement that no Government in the past 30 years have had a housing record that they could be really proud of. The housing sector has been dominated by catastrophic cycles of boom and bust. We all recognise that there is a need to build more than 200,000 units annually and consistently to meet the demands of household formation, and we have failed miserably. There has been a huge problem of selling off our social housing stock: 2 million homes since 1979. As we heard from the noble Lord, Lord Shipley, the previous Government saw a net loss of 400,000 units from our social housing stock. Now we are reaping the consequences.
I shall concentrate on supply issues but first I shall make two brief comments on the spare room subsidy clawback. I do not have a problem with the principle of the policy: there is an issue of equity with the private rented sector, and a problem with the imbalance between underoccupancy and huge demand for social accommodation. However, we have warned about the transition problem that results from retrospective implementation of the clawback without the availability of sufficient smaller accommodation. We need to concentrate on the transition, but the principle is right.
Secondly, I pay tribute to the staff in the social housing sector, particularly in housing associations and local councils, who have been grappling with the issue of tenants who have had to incur significant extra expenditure when their household budgets are already tight. The information I am getting is that efforts in that direction, and the extra resources provided for that sort of advice and assistance, are helping to keep arrears at lower levels than might otherwise have been expected. It is an area that we should learn from and concentrate extra resources on.
I turn now to the longer-term issue of housing supply. The issue is how we are going to build more affordable housing in future. If we are going to advocate that, we have to say how we are going to fund it and achieve it. This Government have had to face appalling problems in the housing sector. Let us remind ourselves—I do not think that we have done it much in this debate—that, arguably, the heart attack which our economy experienced was sourced from the overindulgence, credit expansion and speculation in the housing sector. It was inevitable, certainly for the first couple of years of this Government, that confidence, finance and capacity simply fled the housing sector.
In 2009, Tony Pidgley, group chairman of Berkeley Group Holdings, said to me, “Never forget that housing is a cyclical industry and you need two to three years’ cash up your sleeve to survive the years of famine that follow the years of plenty”. In 2009 he had £300 million in cash to keep going for three years with no house sales, if he needed to. In fact he did not need to use it but he had it there. The trouble was that many other developers did not have it and, as a result, capacity has suffered. There are now fewer larger developers and self-builders and thousands of skilled workers have simply left the industry.
Nobody has mentioned the fact that the housing sector is at last showing signs of life. In the past quarter there was a 25% increase in completions, housing starts were up by a third and stamp duty revenues were up. The Government have retained their target of building 170,000 extra affordable homes by 2015. I hope the Minister will tell us what progress the Government are making on that . It is clear that there will be terrific pressure in the next two years to meet that target after a slow start. There are signs of a pick-up, however, and it is still achievable.
How will we fund and build more affordable housing? That is the issue. The first priority in the current circumstances, as the market is beginning to pick up, is to beware of house price inflation. As we know, that is a sign that everything will eventually end in tears, with unfavourable consequences for new buyers and for the cost of building new affordable housing. The Government must watch the market like a hawk and should consider adopting a regional focus for the Help to Buy scheme if there is any sign that the London and south-east property prices are getting out of hand.
The noble Baroness, Lady Blackstone, who is sadly not in her seat, mentioned that 95% of the subsidy to housing is spent on the revenue side and only 5% on capital expenditure. The current government policy of using affordable rents to fund housing for the future is, of course, more expensive in the long term. It is understandable in the short term when there are problems with the borrowing requirement, but this is not a sustainable policy in the long term if we want to have more social housing while reducing the amount spent on housing benefit.
Housing associations have limited borrowing capacity. They certainly have enough, it is said, for the next four-year cycle. However, we will need additional funding beyond this capacity and it should be the role of government to help to find it. One of the areas mentioned in this debate, particularly by my noble friend Lord Shipley, is the borrowing potential of council revenue accounts to add to our funding capacity. I will not go into the detail as I think the arguments have been well made. We simply need a review, particularly with the economy improving, to look at whether this can be done in the near future. It is absolutely essential as we need that funding capacity.
The other thing that the Government have initiated, and on which I would like to hear a progress report from the Minister, is the matter of guaranteed bonds. The scheme has had little publicity but considerable sums have been put into it. It has the potential to achieve lending facilities with lower interest rates for both housing associations and the private rented sector and could be an important tool for funding affordable homes and housing generally in the future. I hope that my noble friend can tell us what extra capacity the Government believe the scheme can provide in the next two years.
Finally, one of the paramount needs is for a long-term and focused government housing strategy. That will depend on finding new funding facilities. We will need help in opening up complicated sites, finding extra sources of land and ensuring that our technical colleges turn out trainees with the skills that the construction industry needs. I have to ask why the Government have downgraded the role of housing in government—we no longer have a Minister of State with responsibility for the subject. Surely we need somebody higher than an Under-Secretary of State to lead in this important sector if we are to improve the performance in building new houses, particularly social housing. Consistency of delivery, a consistent medium-term policy and a strong Minister are the essential requirements for a successful housing strategy.
Lord Sawyer (Lab)
My Lords, I thank the noble Baroness, Lady Quin, for initiating this debate, along with the noble Lord, Lord Whitty. I also congratulate the noble Baroness, Lady Bakewell of Hardington Mandeville, on her maiden speech, and offer congratulations on her 40th anniversary as well.
I am the last Back-Bench speaker; many people will be pleased about that. This has been a good debate and people really understand this issue about tax. I was going to speak about the tax. I now do not intend to do so because it has been said so well so many times. Instead, I will offer a few reflections on how the issue makes me feel and how it affects the life I live in the community in which I live and which I care about. My overriding feeling about the housing issue is depression. The noble Baroness, Lady Bakewell, said that her contribution was slightly in that vein. I think it is almost impossible to see it any other way. The statistics, the evidence and the experience of people who care about and need housing has been quite unsatisfactory for many years.
In a way, my generation has let our children down. The noble Baroness, Lady Turner, spoke about what happened after the war. My parents’ generation really rolled their sleeves up and did something about the housing shortage, about the bomb damage and the slum clearance; they really tackled it. For many reasons which we have heard this afternoon, we have not been able to do that. We have left our children with some awful housing problems to face.
I listen to what has been said and I hear people with vast experience speak about policy, a critique of a policy, a new policy and so on, and I do not think that is what we need. Policies are no longer enough. We have heard this afternoon about poor-quality housing, overcrowding, homelessness, soaring prices, the private rented sector boom, extortionate rents, the buy-to-let boom, brownfield sites, green-belt sites, high-rise versus low-rise and funding issues. Is that an agenda that needs another policy? I do not think so—it needs something bigger than that. It needs a much bigger vision, a strategy. It needs a strategy which cannot be brought forward by this Government because it is too short term. We really need to be looking at the contenders for the next general election and for the London Mayor and to ask them, “What is your vision? What is your strategy? What have you got to say about solving this housing crisis?”. It is that big, and that is the sort of thing that it needs.
Then I look around me at where I live and the people I care about. Part of my family is living in London now. I look at what is happening in London and at the developments which have taken place. I look at the Shard and the price of flats there, the Cheesegrater, the Walkie-Talkie, the development in Vauxhall, and I think, “My goodness me. This city is on a real roll. It is undergoing a commercial, economic and business boom the likes of which none of us has seen in our lifetime”. Then I think, “What is happening to us?”—that is, what is happening to me? What is happening to my family and to people who do not actually live or work in these places and cannot afford to live there? What is going to happen to us? That is where we get back to the bigger picture of the strategy for housing people in London.
I do not know whether noble Lords read Michael Goldfarb on London in the Observer a couple of weekends ago. I thought it was a really powerful article. He said that the property market in London is no longer about people making long-term investments and owning their own home, but a place for the world’s richest people to get a return of about 10% at an annualised rate by buying houses there. In 2012, an extraordinary £83 billion of flats were purchased in London without mortgages and no financing. He also said that with extra foreign and domestic millionaires and billionaires, it is not just the rate of return but the coalition’s tax regime. Britain has a corporate tax rate of 23%, due to come down to 20% in 2015. In Germany it is 29%. Again, while the majority of London citizens pay up to 40% or more of their incomes to maintain services in London, the rich pay taxes in small change. His answer was a mansion tax.
I can certainly indentify with this. I can see a rich person’s London which does not affect me, my family or my neighbours. That has to be addressed. There must be a way of making sure that the same attention is given to ordinary people and their housing needs as is given to big business, capital and commerce. There has to be a way of doing that. As the noble Lord, Lord Shipley, said, the responsibility to make that case rests at the door of the politicians. It will not be made by business people or commercial people; we have to make the case for as much attention for the people that we want to house as business and commerce manage to make for the people that they represent.
Those, therefore, are my thoughts on the debate. I am glad that the noble Lord, Lord True, is back in his place. He said that nobody has a right to live where they were born, and I think that that is probably accepted. However, people have a right to a home in the place where they live and work. We are not talking about everyone staying where they were born but about being able to find a job and have a home where they can easily and without too much difficulty travel to the place where they work. That is what the aim of the big picture strategy needs to be.
I was not going to speak about the bedroom tax, because it has already been covered. However, the noble Lord, Lord True, provoked me into saying that everyone calls it a bedroom tax because it feels like a tax. The amount is taken out of your benefit at source and you are left with a rent bill that is beyond your means. The Government cynically believe that the poor will find the money, but of course many cannot or they find it only because they deny themselves other basic things such as heating and food, and they may get some way forward by asking their families for help.
Data from the Notting Hill Housing Trust show that about half its affected customers pay the shortfall in full, and only one in 10 makes no effort to pay. In reality, of course, the Treasury has already banked their money, contributing millions to the Government’s cuts programme. The local authorities and housing associations have to try to get this money from the tenants on benefits, who are by definition the poorest people in Britain. It is not easy, but as has already been said today, the shortfall will be borne by social landlords and it will no longer be the Government’s problem.
It is pretty brutal for the people who are having their benefits cut. I am on their side and I have no doubt about that or problem with saying it. I am on the side of the poor, the needy and all the people who legally come to work in this country, whatever their nationality. Those people have a right to live and to eat in the same way that I have—I do not see any distinction. If I have a home and job and the wherewithal to have a decent standard of living, I expect it for everyone in this community, regardless of their origin or their birth.
Finally, I am now looking ahead, to the next Government and the next Mayor of London, to give us some hope for the future. I have been here for only 15 years—other noble Lords have been here longer than me—and I must have taken part in about 12 to 15 debates on housing, maybe more. They have not made the slightest bit of difference and none of the policies that have been tried by any Government or party has solved the problems. I therefore look to the future for something much more imaginative and engaging, which can get this nation fired up to do something about housing needs and the young people we are letting down so badly.
Lord McKenzie of Luton (Lab)
My Lords, like other noble Lords I will start by thanking my noble friend Lady Quin for leading on this first-class debate, the focus of which is the availability of affordable housing and the impact of what—the noble Lord, Lord True, notwithstanding—I shall continue to call the bedroom tax. I offer my congratulations to the noble Baroness, Lady Bakewell of Hardington Mandeville, on a very impressive maiden speech and I have no doubt that her expertise in local government will be put to good use in this House. I am sure that she is disappointed at having just missed the Local Audit and Accountability Bill, but I can promise her much more excitement in the future.
We should acknowledge, as have most noble Lords today, that we face the biggest housing crisis in a generation because of the long-term failure of successive Governments to build enough housing to meet a growing need. That issue will not go away. For many, the desire to own their own home has shifted from being difficult to being frankly impossible, with home ownership falling for the first time in a century. There are now nearly 9 million people in private rented accommodation—a largely unregulated sector—who spend on average 41% of their income on rent. There are 5 million people on the list for social housing and we know that there is an increase in homelessness and rough sleeping.
We can only begin to tackle this crisis if we build more homes of all tenures. As the noble Lord, Lord Stoneham, said, this means a long-term effort. In the past three years the number of houses built has reached its lowest level in peacetime since the 1920s, but it is welcome news that new building is picking up, albeit from a low ebb. However, we are still starting to build less than half the number of homes we need to build each year. Can the Minister say whether the Government are still guided by the 2008 household projections, which imply an overall need for new homes—affordable or otherwise—of 230,000 each year until 2033? If not, what is the new projection and what level of annual new homes provision are the Government working to?
Given the demise of regional spatial strategies, the determination of housing needs is to be driven by a bottom-up approach. Can the Minister also say how current local plans underpin the Government’s affordable housing programme, and how many local authorities have in place a strategic housing market assessment and a strategic housing land availability assessment? How do these correspond to the overall numbers the Government propose for this and the next spending round?
As we have heard, the programme for affordable housing comprises some 170,000 new homes for the period to March 2015, although 70,000 of those were commissioned by the previous Government and 165,000 back-end loaded for the period to March 2018. We will have to see what gets delivered, but that is not a step change on what has gone before.
We have heard about the previous Government’s record. They were faced with significant competing priorities for housing investment. They had in particular to deal with the stock of social rented housing which had generally been starved of funding. Rotting windows, outside toilets and poor or non-existent insulation could not have been ignored. Had we done so, the consequences today, especially with soaring energy costs, would have been distressing indeed. In 1997 the Labour Government inherited a £19 billion backlog in repairs, but brought 1.5 million social homes up to a decent standard through the Decent Homes programme. Notwithstanding that, we still built 500,000 more affordable homes during our time in office and delivered 256,000 additional affordable homes in our last five years. Between 1997 and 2010, nearly 2 million more homes were built in England.
So far as this Government are concerned, we have seen the switch in the funding model—my noble friend Lord Whitty in particular referred to this—for the provision of affordable housing from capital to revenue with the halving of grant funding, and we heard about the initial negative impact of that on delivery. Can the Minister give us any information about the numbers and spread of properties now let at “affordable” or intermediate rents, and any figures for the estimated increase in housing benefit payable as a result of social rents being payable at this higher affordable rent level?
For us, Ed Miliband has set out the ambition of building 200,000 homes a year by the end of the next Parliament—which is just a start. He and Hilary Benn have asked Sir Michael Lyons, supported by a panel of experts, to lead a new housing commission to look at the policy solutions needed to deliver the step change required to close the gap between housing demand and current levels of delivery.
At present, we know that some areas want to grow to meet local housing need but do not have the land within their local authority boundary to do so. Neighbouring authorities too often block the building of badly needed homes, particularly affordable homes. That is why we propose that local authorities should have a new “right to grow”, with bids to the Planning Inspectorate leading to the requirement that neighbouring authorities are required to draw up a joint plan. We would also like to see local authorities given strengthened compulsory powers so they can buy and assemble land which is being hoarded and is holding back development. There should be powers to charge developers who sit on land with planning permission.
The last time we faced such a big need for housing, new towns and garden cities played a big part in meeting it. We need to build new institutions and incentives to help deliver this, and we look to local authorities to engage and take this forward. Given the need for more social housing, it is surely time to look again to local councils to play a larger role. Many would welcome this and some—mostly Labour—councils are already beginning to build on a scale not seen for a generation. Of course, that would involve looking at the financing arrangements for local authorities. There is much else to say on that but time does not permit me to go into it.
There must be a fair basis for supporting those who need help with housing obligations. At the very time when there is a switch to funding affordable housing by revenue support rather than capital, we see attempts to cut back housing benefit through the bedroom tax. Working-age renters of affordable housing are the direct targets of this draconian measure. Let me be clear: we consider this a cruel, misguided attempt at behavioural economics which has already caused great hardship and distress to the vulnerable and disabled. We have heard some individual stories today and there are doubtless many more. This measure is already putting people into debt and leaving them with impossible choices regarding how they spend meagre budgets. We know that it is distorting the allocation of properties, with larger properties lying empty and pressure on rents for single-bedroomed accommodation.
As usual, Ministers have sought to justify this policy by setting one group against another—underoccupiers against those who live in overcrowded accommodation and those in the private rented sector against those in social housing. Then we get the small pot of extra discretionary money, which is supposed to cover all the problems that might arise but, of course, never does—the “loaves and fishes” money in the terms of my noble friend Lady Lister.
Noble Lords will be aware that the Government expect to save some £450 million, gross of DHP, in the first year of this programme, but this is on the assumption that tenants caught by the provisions will generally sit tight and take the hit—a cynical approach to policy-making, as my noble friend Lady Hollis touched on. However, the Centre for Housing Policy, referred to by my noble friend Lady Quin, has worked with four significant housing providers, looking at the early data to test some of the DWP assumptions on savings, and has concluded that the suggested savings are likely to be substantially lower than the impact assessment suggests. In particular, it suggests there has been an underestimate of the proportion of those underoccupying by one bedroom who will move, and of the proportion of those who move who will go to the private sector. It suggests that for some who move to housing associations at so-called affordable rents the housing benefit bill will rise, and some vacated homes will be taken up by new households claiming housing benefit for the first time.
This early study suggests that savings might be between 26% and 39% less than originally predicted—a very substantial difference. This is before taking account of the additional challenges the policy presents to providers. RSLs will doubtless invest to support their tenants and will also carry an increased burden of tenant debt which they have to manage; and this at the same time that universal credit is coming down the track, albeit slowly.
We are absolutely clear that we will abolish the bedroom tax and have given detail of how we would fund that commitment. That includes taking away some tax breaks from hedge funds and the nonsense of selling employment rights for shares. If, in doing so, we are joined by the noble Lord, Lord Shipley, and other Liberal Democrats, we would very much welcome that. However, the challenge in the mean time, before we get to do this, is for providers, support services and families to help those affected through the misery it is creating.
Lord McKenzie of Luton
I think there is great confusion in that regard, although I am not sure that there is confusion in the noble Lord’s mind. However, confusion has been spread about trying to equate those two tenures. They are completely different so the argument does not follow through to the LHA arrangements.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Stowell of Beeston) (Con)
My Lords, I start by congratulating the noble Baroness, Lady Quin, on securing this debate. While we have differences of view, we all agree on the importance of affordable housing. I am grateful to the noble Baroness for giving us the opportunity to debate this important issue. I also welcome my noble friend Lady Bakewell of Hardington Mandeville and congratulate her on her maiden speech.
We have covered a huge amount of ground and I know that I will not be able to reply to all the questions that have been put to me, but I will ensure that, where I fail to do so, I follow them up in writing. I start by addressing the issue raised by my noble friend Lord Shipley, which was echoed by many noble Lords, including the noble Lords, Lord Whitty and Lord Sawyer, as regards the most important issue being that of increasing supply and the number of affordable homes available to everyone in England. That is why, because it is so important that we increase supply, we are building more of those homes. More than 150,000 new affordable homes have been delivered in England over the past three years.
Our Affordable Homes Programme is generating nearly £20 billion of public and private investment to deliver 170,000 new affordable homes between 2011 and 2015. I say to my noble friend Lord Stoneham that we have already delivered more than 80,000 of those, and around £23 billion of additional public and private funding will help deliver another 165,000 new homes over three years from 2015. All this adds up to being the fastest annual rate of building of affordable homes for at least 20 years. As the noble Lord, Lord McKenzie, and others have heard me say in other housing debates to which I have responded in the past couple of weeks, this compares with the figure under the previous Administration, where the number of affordable rented homes fell by 420,000.
I am grateful to the noble Baronesses, Lady Blackstone and Lady Dean, for their realistic assessment of the previous Government’s performance. However, the noble Baroness, Lady Blackstone, was wrong to claim that things are getting worse because if we focus specifically on council housing we see that more council housing has been built in the three years of this Government than in all the 13 years of the previous Labour Government combined. As regards the increase both in specific council housing and the affordable housing to which I have just referred, it is important to bear in mind two things. The lack of supply under the previous Government occurred during a boom period whereas we are trying to increase supply and tackle the deficit at the same time. That leads me to respond to the point which I think was first raised by the noble Lord, Lord Whitty, but was certainly echoed by the noble Baroness, Lady Blackstone, and the noble Lord, Lord McKenzie, in criticising our policies on affordable housing. It is because of them that less government capital grant is required in terms of building. This means that we can build more affordable homes for every pound of upfront government investment using affordable rent. My noble friend Lord Stoneham questioned whether this was a sustainable approach in the long term. I think that I am just over my three-week anniversary in the job so I do not feel qualified at the moment to get into a detailed debate on that. However, I say to all noble Lords that we are increasing the supply of affordable housing—all noble Lords in today’s debate seem to be united in that request—at a time when we are also dealing with the deficit, so we are having to balance those competing needs.
Noble Lords also asked whether we were using other measures to increase supply. I should say to my noble friend Lord Stoneham, who asked about guarantee bonds, that up to £3.5 billion in government-supported guarantees will be available in the affordable homes guarantees programmes, but we have yet to get the approval of the first of those.
My noble friend Lord Shipley and the noble Lord, Lord Whitty, asked about the capacity of councils to borrow more money to build more affordable housing and whether the Government could raise the borrowing cap. Because of the competing objectives of retaining or bringing down the deficit and trying to stimulate new builds in local areas we do not feel that it is right to lift that cap. However, it is important to note that not all councils are borrowing up to their cap and it is possible from self-financing for councils to have a new source of revenue that was not open to them previously.
The noble Baroness, Lady Dean, asked how innovative we are being. We are certainly looking at a range of options whereby we can provide grant funding towards building new homes, which would first be let at affordable rents but give those tenants the first option to buy. In all of this area we are trying hard to fulfil the absolutely important objective that we all share, which is increasing supply, and we are making positive inroads in that area.
I am not going to get into a lot of detail about the wider issue of housing supply beyond affordable housing, except to say that I disagree with the noble Baroness, Lady Blackstone, and others who said that our efforts are not bearing any results. Housing supply is at its highest since the end of the boom in 2008, with 334,000 new homes built over the past three years. Only last month the Chartered Institute of Purchasing and Supply said that houses are being built at the quickest rate for a decade. The latest GDP figures showed that 2.5% was from construction output and jobs in the construction industry are up 9,000 on last year. I therefore agree that this is an important area but progress is being made.
While there is pressure on us to deliver more new homes, we also have to make the most out of existing stock. We are giving landlords the freedom to do that. The noble Baroness, Lady Dean, was right to highlight how things have changed in terms of those who now need access to social housing than perhaps had been the case 15 or 20 years ago. Some people may need social housing for life but for many others it should act as a stepping stone or springboard that provides stability and support for only as long as it is needed. Councils and housing associations can now offer short, fixed-term tenancies as well as lifetime tenancies to new tenants where it makes more sense. We have made sure that councils can decide who qualifies for social housing in their area while finding alternative solutions for those who do not qualify. I was moved by what the noble Lord, Lord Sawyer, said about people having a right to a home where they work and live. I agree with him about that but our changes to the law via the Localism Act mean that councils have much greater flexibility than they had in the past in terms of their power to respond to the crucial issue that the noble Lord raised.
Before I move on I should mention something that no one has raised in this debate. An important point for us not to lose sight of is that the Audit Commission estimates that around 98,000 social homes in England are being unlawfully occupied and that social housing fraud is costing us an estimated £1.8 billion a year. To try to drive that down because we need to make strong inroads in this area we are giving £19 million over four years to local authorities to help them tackle fraud in social housing. We are also funding a team of experts at the Chartered Institute of Housing who offer free help to landlords on how to tackle fraud and underoccupation.
Let me move on to the other issue raised in our debate—the removal of the spare room subsidy. The first thing I would say is that we in this Government strongly believe that removing that subsidy returns fairness to housing benefit through levelling the playing field. People who receive housing benefit when renting privately, as we have just heard in the exchange between my noble friend Lord True and the noble Lord, Lord McKenzie, have long been entitled to benefit for the number of bedrooms that they need. The Opposition have said that they will reintroduce the spare room subsidy for social housing, but if I understood correctly the point that the noble Lord, Lord McKenzie, was making in his exchange with my noble friend it is the Opposition’s position that they will not extend the reintroduction of that subsidy to those who are in receipt of benefit but in the private rented sector.
Lord McKenzie of Luton
Usually the questions go the other way but let me be clear. We see these two types of tenure as being quite different. My noble friend Lady Hollis stressed this point. A person’s council house tenancy is allocated at the time on the basis of their needs. If their need changes over time a change is made. It is different from short-term tenancies in the private sector where there is a much higher turnover. We do not see the two as being the same.
Baroness Stowell of Beeston
I am grateful to the noble Lord for that clarification. I understand the point that he and the noble Baroness, Lady Hollis, have made, but what I have been trying to outline regarding the use of existing stock and more innovative ways to address the need for social housing of all kinds—particularly in relation to the point made by the noble Baroness, Lady Dean—is that we need to ensure there is a level playing field in the way we deal with different people.
Lord McKenzie of Luton
If that is the proposition, how is there a level playing field when someone who is supposedly underoccupying has no effective means of downsizing within any reasonable space of time or to any reasonable geographic location?
Baroness Stowell of Beeston
I will come on in a moment to transitional arrangements and what is in place to support people affected by the removal of the spare room subsidy.
As my noble friend Lady Seccombe reminded us, pensioners are not affected by this measure, and I am happy to reassure the noble Baroness, Lady Dean, that there is no question of that position changing. The focus is on working-age people who are better able to improve their financial position and make up any shortfalls, and there are a number of other exemptions in addition to pensioners.
Baroness Hollis of Heigham
The noble Baroness implied that working-age people are able to work but she will know that two-thirds of those affected are disabled families for whom the option of increasing their income is minimal.
Baroness Stowell of Beeston
If I may, I will move on in a moment to how we are helping those who require special support.
Removal of the spare room subsidy is also in part helping us get to grips with the housing benefit bill, which has grown to £24 billion this year and nearly doubled under the previous Government. I promise that I will come back to the remarks of the noble Baronesses, Lady Hollis and Lady Quin, on savings estimates. While it gives me no pleasure to say this, given the spiralling housing benefit bill it cannot be right, as my noble friend Lord Howard of Rising said, that the taxpayer should continue to pay for homes that are too large for the household’s needs. Before we made the change, up to 1 million spare bedrooms in working-age households in England were being paid for by housing benefit.
As I have acknowledged, we are in a transitional period, with both landlords and tenants facing change. The Government are investing heavily in new affordable homes and we have to get that supply coming through. Over time we think that there will be more efficient use of social homes, with the spread of accommodation being more appropriate for the area as a result of the measures we are introducing. However, getting there will take time, which is why we have made available £405 million of discretionary housing payments over this spending review period. The noble Baroness, Lady Blackstone, said that that is not enough, but we have trebled the DHP budget to £190 million this year. I think that it was my noble friend Lord True who talked about how his council is drawing on that fund and how other areas are adjusting to the new situation.
It is early days but I can report in general terms that councils are using the fund to give awards where it is clear that the claimant is unable to make up the shortfall. This includes longer-term awards, including, as the noble Baroness mentioned, to disabled claimants living in significantly adapted homes, and short-term support—for example, to help people who have been off work due to illness but are due to return soon, and people engaging with their landlord in attempting to downsize.
However, many people are of course already managing the change. Among those who are out of work, some are finding work for the first time, some people already in work are able to increase their hours and others are able to move to smaller accommodation. In the two and a half years between the policy being announced and it being implemented, local authorities, landlords and tenants in some areas started to prepare for this change. Because time is limited I shall not go into the detail but Westminster, for example, has used a scheme to ensure that support is available for those who want to downsize. Likewise, the council in Salford is running schemes to help to bring together tenants who may be interested in swapping their homes. My noble friend Lady Seccombe referred to HomeSwap Direct. Through this scheme, for the first time, social tenants who want to swap their homes can now see every available property, thus boosting their chances of moving. More than 10 million searches have been made on that website since it was launched a couple of years ago.
My noble friend Lady Seccombe mentioned some other schemes which support pensioners who, although they are not required to move, might want to downsize. My noble friend Lord Stoneham made an important point when he highlighted the effort made by some responsible local authorities and housing associations to advise tenants on financial management to avoid getting into arrears.
We are taking proper steps to make sure that we understand how the removal of the spare room subsidy is working. We have commissioned extensive research, which will provide evidence of how this and other welfare reforms are working in practice. I can reassure my noble friend Lord Shipley that the interim evidence on the removal of the spare room subsidy is due to be published next spring. In the mean time—I mean this absolutely sincerely—I acknowledge that it is inevitable that we will hear stories, which, albeit anecdotal, will be concerning and upsetting, about whether this is a policy that we support in principle or oppose. However, we believe that it is too early to draw conclusive evidence from the emerging data on how the policy is operating at the moment. We want to make sure that sufficient time is allowed to pass so that we can reach a fully informed view on the impacts on both landlords and claimants. As I have said already, I make it clear that we are committed to giving proper consideration to all that evidence. We will publish it, and be held to account for it, next year.
In conclusion, as I said at the start, this Government are committed to building more new affordable housing and we have made a strong start in putting right the previous decline. We are committed to making the best use of the existing stock of housing and have changed the law so that local authorities and housing associations have more freedom. We are also committed to supporting people who are not yet able to buy or rent on the open market but who, in time and with the kind of support that we are offering across the board, could realise their aspiration to do so.
As always, I have learnt a great deal today. The noble Lord is about to stand up and ask me a question, so before I sit down I shall give way.
Lord McKenzie of Luton
I have a very simple question. Obviously in the time available the Minister has not been able to answer all the questions that have been put to her. Will she undertake to look at the record and write to noble Lords where appropriate?
Baroness Stowell of Beeston
Absolutely. I said right at the beginning that I would do so and I am happy to repeat that. I shall ensure that I write as quickly as possible to all those who have contributed today and place a copy in the Library.
Baroness Quin
My Lords, given the list of speakers, I expected that we would have a well informed debate and I certainly have not been disappointed. Many important contributions have been made during the past three hours.
I add my own congratulations to the noble Baroness, Lady Bakewell, on her excellent maiden speech. It was very good that she chose to make it in this debate, where her experience at local government level was highly relevant.
A great deal has been said about the bedroom tax and what we should call it. The noble Lord, Lord Greaves, reminded us of earlier debates on the subject in this House, including the amendments put forward by the noble Lord, Lord Best, who I think is credited with coining the expression “bedroom tax”, so perhaps we can see this as a Cross-Bench initiative.
The impact of the tax has been referred to by many people and, not surprisingly, there have been different experiences. The noble Lord, Lord True, spoke of his experience in Richmond upon Thames, which, I think, after the City of London is the wealthiest area in London in terms of average household income. My noble friend Lady Turner also spoke, in a very interesting and well informed speech, about the London situation. She made points that we should certainly consider. However, other areas around the country were also mentioned: Birmingham; the north-east, which is my area along with the noble Lord, Lord Shipley; the south-west; and, indeed, East Anglia.
I am glad that issues wider than the bedroom tax were also raised, particularly by my noble friend on the Front Bench.
We expected the Minister to give a robust speech and she did. She said that the policy will be better evaluated over time. Even so, I would ask her to look very seriously at all the current evidence about the people who are obviously losing out in a very distressing way. I think that there is a lot of evidence and I hope that she will carry our concerns about this very important issue to her ministerial colleagues across government.
Meanwhile, once again, I thank everyone who has participated in this debate.
Armed Forces: Redundancies
(11 years, 1 month ago)
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Lord Touhig
To ask Her Majesty’s Government, in the light of the recent comments by General Sir Nick Houghton, Chief of the Defence Staff, what assessment they have made of the impact of redundancies on the armed forces.
Lord Touhig (Lab)
My Lords, recently General Sir Nick Houghton, the Chief of the Defence Staff, spoke of the huge challenges faced by our Armed Forces. Those challenges are being compounded by the Government’s policy of Armed Forces redundancies. The recent unjust treatment of soldiers made compulsorily redundant shortly before their full pension date is a reprehensible scandal. I raised this issue in the House on 22 July. In reply, the Minister declared:
“When selecting personnel of the Armed Forces for compulsory redundancy, no consideration was given to the proximity of the immediate pension point”.—[Official Report, 22/7/13; col. 1041.]
The Government’s lack of consideration has seen servicemen made redundant just short of qualifying for their full pension and consequently losing out on around £100,000 to £200,000 in income. Representations made by Pension Justice for Troops have revealed the shocking impact of this mean-spirited action on soldiers who are often called the “warrior generation”. One example is Major Braithwaite, who served in the Balkans, Iraq and Afghanistan and was made redundant just 87 days short of reaching his full pension. Another is Sergeant Anderson, who enlisted at the age of 16 and was made compulsorily redundant just three days short of reaching his full pension entitlement. They had completed 98% of their service contract, yet are now to receive just 40% of the value of their pensions. This is a gross injustice, which has fundamentally altered the futures of these men. Indeed, Sergeant Anderson’s wife, Jolene, has spoken about how they feel, and said that, “financial security has now been cruelly snatched away”.
The couple had planned to use the pension to secure a mortgage on leaving Army accommodation. The pension exists to help our brave soldiers move with dignity to civilian life and it is unfair when just a few extra days’ service would have resulted in a pension 50% higher. The shameful treatment is a dereliction of the military covenant. I have in my possession a Ministry of Defence memo, in which a number of questions about the compulsory selection process are asked and answered. Two questions jump off this piece of paper. The first is: “At what point in the redundancy selection process were the outcomes for service personnel and their families considered against the values and standards of the Army?”. The answer: “At no point”. Another question is: “At what point in the redundancy selection process were the outcomes for service personnel and their families considered against the letter and the spirit of the Armed Forces covenant?”. Again the answer is: “At no point”.
I understand that the standards and values of the Army and of the Armed Forces covenant must be taken into account in these circumstances. Indeed, Queen’s Regulations say that they should, yet the Government have ignored that. This piece of paper reveals a lack of consideration that effectively renders the covenant a toothless document, with no real value to servicemen when it comes to their terms and conditions of service.
Last December the external covenant reference group, consisting of highly respected veterans’ agencies commenting on the Government’s own first annual covenant report on soldiers made redundant days before they qualified for their full pension declared that it was a betrayal of the spirit of the covenant. It is even more appalling that out of 11,000 Armed Forces redundancies, only around 130 soldiers have been victims of this sleight of hand. Robbing these men of their full pension saves the Ministry of Defence an inconsequential sum of money, but the impact on the lives of those affected and those who serve or are considering serving in the Armed Forces, is dramatic. Not since the notorious crook, Robert Maxwell, plundered his employees’ pensions have we seen an employer—in this case Her Majesty’s Government—so contrive a redundancy package to deny a small group of people, who have put their lives on the line for Britain, their rightful pension.
Under the previous Government full pensions were protected. That was done by reducing the length of service required to gain a full pension by four years. I am sure that the whole House will join me in asking the Government to think again and to look again at what they have done to this small group of loyal men and pay them their full pension. I ask them not to shame our country any more by neglecting their duty to our soldiers. This treatment of long-serving soldiers is having an indisputably negative impact on the morale of the Armed Forces. According to the Armed Forces Continuous Attitude survey published in July, one in three—30%—said that morale was low. This figure is twice what it was when the Government came to power. The current policy of redundancies is having a highly damaging impact on the morale of those who so dutifully and selflessly devote their lives to the service of our country. Last December, General Sir Peter Wall, Chief of the General Staff, told the Defence Select Committee that the issue of redundancies close to qualification for full pension was having a “disproportionate impact” on morale. These recent redundancies have not simply had an adverse affect on today’s soldiers but have damaged recruitment.
A leaked Ministry of Defence report, dated 6 August this year, highlighted the serious difficulties being experienced in recruitment. It shows that the Army is on course to recruit only half the reservists in 2013-14 necessary to fulfil the Government’s target. The report declares that there currently exists a “hostile recruiting environment”. One of the chief reasons for this environment is, in the words of the report, “redundancy downsizing”. It is no wonder that people are unwilling to enter the Armed Forces if at the end of a long and dutiful service the Government abandon their commitment to care for them.
The entire policy of restructuring the Army was predicated on the reserves being able to complement the Regular Forces. It is becoming clear that the Government’s policy of redundancies is undermining this very ability to expand the Reserve Forces, and is jeopardising the Government’s entire approach towards the Armed Forces. This policy increasingly seems based on pleasing the Treasury. The extent of this capitulation has been revealed in recent reports in the Daily Telegraph in which senior officers and Ministry of Defence officials have revealed that the Ministry failed to spend £2 billion of its budget. The detail shows that £200 million, earmarked for wages, has gone unspent due to more servicemen than expected choosing to quit. This cash pile, amassed by the MoD could maintain six infantry battalions—3,900 soldiers—for an entire decade. In Opposition the Prime Minister told BBC Scotland that he wanted to see the British Army increase in size. It now appears that his policy is entirely contrary, based solely on the consideration of costs.
An ill conceived approach has resulted in the shameful treatment of soldiers, an abject failure to uphold the military covenant and serious damage to morale within the Armed Forces. The policy of redundancies appears crafted entirely by financial considerations and a desire to please the Treasury, not military strategy. The Government need seriously to look again at the implementation of redundancies, especially ahead of further redundancies expected in the new year, and before our Armed Forces are damaged even more.
Lord Palmer of Childs Hill (LD)
My Lords, I thank the noble Lord, Lord Touhig, for putting this important topical item down for debate. This is a subject that he and I have been raising for some time, and I will try not to repeat his words.
The Government’s defence review has been in place now for some three years, having been announced in October 2010. They are three years in which significant redundancies have taken place. Most have been voluntary redundancies. In fact the proportion of voluntary redundancies has been increasing over time. So as we look to the end of 2013, we will have seen more than 10,000 serving forces personnel ending their service careers. We debated back in June of this year the impact on those selected for redundancy who were close to pensionable age. Now the noble Lord, Lord Touhig, broadens and repeats questions that we raised at the time. He asks about the overall impact of the redundancies and in particular, what the Chief of Defence Staff considers the impact to be.
I will thus also return to a question that I have asked on earlier occasions in your Lordships’ House, which is whether the fact that redundancies are in many cases voluntary means a lowering of morale in our Armed Forces? I am also concerned as to whether those leaving the Army, navy and air force are the ones whom we want to leave. Are we losing the skills that are essential for any enterprise? Has the MoD assessed what trades and skills are going by voluntary and compulsory redundancies?
I welcome the words of the Chief of the Defence Staff, General Sir Nick Houghton, when he wrote about his vision for our Armed Forces as recently as August this year. His determination to lead our forces through these times of austerity demonstrates his clear commitment to professional, effective and more efficient forces. His realistic recognition of the challenge he faces in delivering the changes set out in the 2010 defence review should command respect across this House. He was again pressed more recently on the question of withdrawal from Afghanistan, redundancies and reservist recruitment. He seemed resolute in his mission when he said as recently as 21 October:
“In terms of morale, it’s not about individual happiness. It is about the ability to endure in times of real austerity, endure through times of hostility, in times of pressure ... And I think if anything has demonstrated the resilience of the morale of the British armed forces, it is the last couple of years—and the fact they still continue to perform, and are one of our nation’s unique selling points”.
I look forward to hearing from the Minister how he interprets the Chief of the Defence Staff’s words. Does it mean that our forces will have the resilience of their morale being severely tested?
There are additional points on which I hope the Minister might offer your Lordships’ House clarification. So far, there have been three tranches of redundancies and yet the total number of redundancies is only a little over half of that set out in the defence review. There is, I fear, uncertainty as to how the redundancy programme will proceed. What proportion will come from voluntary redundancy? What spread of skills and experience will be lost? Are those taking voluntary redundancy the people we want to lose? These are important questions, not least to enable the Government to demonstrate that our Armed Forces retain the necessary skills, experience and morale, but to clarify the question of recruitment to the Regular and Reserve Forces.
Turning to the Reserve Forces, those who have heard my thoughts on the defence review before will know that I have a real interest in ensuring that our Reserve Forces, newly expanded and updated, will be effective and able to fulfil the role the defence review set out for them. The increase from 19,000 to 30,000 reservists is a vital component of the review and essential in ensuring the overall capacity of the remaining 82,000 Army, RAF and Royal Navy Regular Forces that are planned.
There are continuing questions about this increase in the size of our reserves. How will we recruit the right people? Will there be sufficient numbers with the right skills and experience? How do we ensure that they see deployment that engages their talents and commands their loyalty? We must also give real thought to working with employers so that they both understand the importance of employees giving such service and are able to plan for sometimes lengthy absences of perhaps integral staff.
The issue on which I would press the Minister today is that of the success of recruitment to the reserves, a point touched on by the noble Lord, Lord Touhig. This key issue was put to the Chief of the Defence Staff. He seemed enthusiastic at the prospect of increased numbers of reserves when he said:
“We have produced a good offer. We’ve got to get out the message that people who join now are joining something that is exciting, will give them all sorts of rewards and has a very, very strong future”.
However, the question for me is whether this recruitment is working. We read that reserve recruitment is falling significantly below target—and that is before we begin to ask what vital skills and experiences are missing. If the overall targets are undershot, are we correct to close local TA centres? Is our new outsourced recruitment—again touched on by the noble Lord, Lord Touhig—the best way to fulfil our duty to defend the UK?
I shall not repeat the comments made by the noble Lord about people nearly reaching pensionable age and being made redundant but I have had correspondence with the Minister on the subject. As to the 1.2%, or approximately 130 soldiers, how much would it cost to play the decent Government by that number of people? The answer I got was, “Where do you draw the line?”. That is a problem. However, we know where the line has been drawn, and it affects 100 to 130 soldiers.
In conclusion, I welcome and commend the Chief of the Defence Staff for his determined and judicious language in assessing the progress of the defence review. I have no doubt that our reduced forces will cope in times of peace, but could they cope with another Afghanistan? Could they cope if there were two such conflicts at the same time?
Lord Ramsbotham (CB)
My Lords, I join others in thanking the noble Lord, Lord Touhig, for obtaining this important debate. I am sure that those thanks will be reflected by members of the Armed Forces because, like him, I deplore the stories I am hearing about people being discharged and made redundant before they achieve their pensionable age, sometimes by ridiculously small amounts of time.
I was the Adjutant-General, the director of personnel in the Army, at the time of the Options for Change exercise after the Cold War, when we were required to reduce the size and shape of the Army by a third over three years. Therefore, what I am about to say is inevitably coloured by that experience because that kind of reduction could not have been achieved without the redundancies that accompanied the number of people who left voluntarily.
At the time I was extremely fortunate that in the Treasury I was faced with a deputy secretary who was extremely tough but very fair—Mrs Jack Straw. I was always grateful to her, not only for her toughness and thoroughness, which meant that we had to do our sums in presenting cases, but for the humanity she showed when we suggested to her that among the casualties of this reduction were the children of people being declared redundant who were at school on boarding school allowance. She allowed boarding school allowance to be continued through until the next stage of a child’s schooling so that they could complete the examination on which they were currently embarked. The reason I mention that is because that good sense and humanity is in stark contrast to the way in which this current exercise is being conducted.
Inevitably, when you are looking at reductions in size—particularly of personnel—in the services, one word always dominates your thinking, and that is “sustainability”. Whatever you are going to do, you are bound to have to do it over a period of time and therefore the size and shape of the Armed Force—it does not matter whether it is Army, Navy or Air Force—must allow you to maintain whatever you have been required to do operationally for a period of time.
At the time we were conducting Options for Change, the aim was to make certain that people did not go on unaccompanied operational tours at an interval of less than once every two years so that they would have a chance to remain with their families and be trained to develop their service careers. At the time, because of the pressures, we were faced with the problem that some specialists had only 11 months between tours, which was ravaging their family lives, quite apart from their other development.
What worries me about what has been going on in the strategic defence review, followed by other reviews, followed by Army 2020, is that overall it is said that the proposals in the strategic defence review would be realisable only if the money was available in 2015. We know from looking at the books that the extra money to provide that will not be available in 2015, so there is more to come. The fact that there is more to come is obviously worrying to those who have done their sums to produce what they think is the sustainable Armed Force the country requires, but particularly worrying for the people in it.
It is here that I come to the word “trust”. The mutual trust between the top and the bottom of an organisation is absolutely crucial. The regiment that I joined, the Rifle Brigade, had the motto given to it by my ancestor, Sir John Moore, which was based on a mutual bond of trust and affection which the officers had to earn. I thought that they were wise words because there is no doubt that the trust of the Armed Forces in their political and military masters has to be earned; it is not automatic. What worries me about the impact was clearly put by the Chief of the General Staff last December and repeated by General Sir Nick Houghton: the trust has been damaged by the way this has been handled.
It is not only about the damage that has been done to the internal workings of the Armed Forces and their members, but to the families and on down to potential recruits. Armed Forces are living organisations, so that even while you are reducing in size you have to recruit to be certain that you will have that sustainability tomorrow. In 1990, I remember having great difficulty persuading civil servants that it was not like shutting a garage door. You could not just chop something off because you had to think about the future. Looking back on those years, I was hugely impressed by the care that was taken over every single redundancy. Each one was planned with care and pension issues were taken into account. That is why some people were put into tranches 2 and 3 as opposed to tranche 1. If it was possible then with the much larger numbers involved, I fail to see why it is not possible today.
If I was a member of the Government, I would be seriously worried about the damage that is being done to trust in the system which is responsible for committing our Armed Forces to war. I know that this may go beyond the immediate issue of redundancy, but redundancy is the cause of the distrust. The way in which a redundancy round is conducted is hugely important and I hope that more attention will be paid to the effects of not getting it right, as well as to the experience of doing it differently in the past.
Baroness Dean of Thornton-le-Fylde (Lab)
My Lords, I thank my noble friend Lord Touhig for tabling this debate. He has followed and pressed this issue assiduously and he is to be congratulated on that. It is not a closed book as far as he, and indeed a number of us, are concerned. I listened with shock to the two quotations he repeated from the memo from the Ministry of Defence, which I have not seen. However, equally shocking was a response given by the Minister on 22 July, a response that I would not normally associate with him, given his commitment to our Armed Forces. He said that no consideration was given to the proximity of the immediate pension point, as referred to by my noble friend Lord Touhig.
I worked in industrial relations for many years, and apart from Robert Maxwell, who I regarded as a crook—I certainly would not put the MoD in the same tent, I would hope—I never came across a situation of compulsory redundancy, as opposed to voluntary redundancy, where there was a complete disregard for the impact on the individual. That has not been taken into account and pragmatically applied. What makes it worse is that we are not talking about an individual employee in a company who can stay in their own home and who have not been prepared to give their life for their country. Armed Forces personnel generally do not own their homes and commit their lives to military service. What has been done by the MoD to a small number of people in this case has not been done in my name as a citizen of this country. It is not something that I can condone in any way.
It has been criticised by members of the coalition in both Houses and by the commission that reviewed the military covenant—a covenant that this House put into law not too long ago. Last December the commission, in looking at how the covenant was being applied, asked the Government to review their approach to compulsory redundancies and how they were treating the personnel who were affected. The words “a feeling of betrayal” were used by members of the Armed Forces, who also asked for a review. However, the Government chose to ignore that request.
Who speaks for Armed Forces personnel? They cannot join a trade union or federation that has any authority to negotiate for them. Although we have the Armed Forces Pay Review Body, it is not its position to deal with situations like this. It therefore has to come down to the Ministry of Defence and the Government. The Government have a responsibility in this. I want to ask the Minister: are the Government prepared to review their position? We have heard that more redundancies may be declared in January of next year. Will the Government’s position be the same as it was on this redundancy round? We are told that the new reserves need to be up to number by 2018 because it is a five-year policy, yet the redundancies will be completed by 2015. I accept that people have to be recruited into the Armed Forces even at a time when redundancies are being made because you want to be sure that you have people in place for the officer cadre at the appropriate time. In my view, you would not go about making a big change such as this in any business in Britain. First, you would not get away with it and, more importantly, you would want to make sure that you could deliver on your operational requirements, whether for a company making products or for the Armed Forces. This has not been staged in a way that you would expect: “We will make so many redundancies, then let’s get up to the requirement we need, and then take it to the next stage”.
The whole exercise will leave a very bad taste among members of the Armed Forces. It will affect recruitment and it will certainly affect morale. Last year, for the first time that I can remember, the Armed Forces Pay Review Body referred to the issue of low morale as a result of the questions that had been put to its members when it went out to meet personnel. I have the utmost respect for the Minister, but I ask him this: will the Government please review their position? It is not something that any of us who are concerned about this issue either feel contented about or are prepared to leave where it is.
Baroness Garden of Frognal (LD)
My Lords, I join in thanking the noble Lord, Lord Touhig, for introducing this debate. He has long been a doughty champion of the Armed Forces. All three services have experienced redundancies in recent months. The numbers within the Royal Navy and the Royal Air Force are considerably smaller than for the Army, but we should bear in mind that for each of the individuals involved, there will have been the stress and disturbance, and hopefully the excitement, of a fundamental change of lifestyle.
The Army redundancies are still ongoing, so this debate has focused on the Army, with its planned reduction of some 20,000 troops. The more limited the redundancy programme, the more feasible it is to tailor transition facilities for each individual to find new opportunities. But the impact of any redundancies has an unsettling effect far wider than for those directly affected. Uncertainty spreads among colleagues, families and friends. In any walk of life, the prospect of losing jobs is challenging. For the Armed Forces there are additional elements seldom present in civilian employment. Military service is not just a job, it is a way of life, as the noble Baroness, Lady Dean, has just indicated. Many of those facing redundancy will be living in service accommodation, which they will have to leave. At a difficult time in the market, they will face having to buy or rent scarce and expensive housing. In addition, it is a lifestyle where friends and social life often centre on military people and activities. Some of those who have signed up to put their life on the line in the service of their country may now be facing the loss of job, home and community.
I shall focus my remarks on the impact as it affects the welfare aspects of troop reductions and consider the measures being taken to help with those three elements: jobs, housing and community. Despite the reservations expressed by the noble Lord, Lord Touhig, the military covenant is a welcome development in raising the profile of the Government’s duty of care towards the Armed Forces. I start with employment. We have come a long way in recent years in enabling service people to be accredited with civilian qualifications that reflect their experience and competence. This was certainly not always the case. Indeed, sometimes it was positively the reverse as commanders did not wish their troops to be particularly well qualified lest they seek employment elsewhere. Luckily, our thoughts on that have now changed. Military personnel are now positively encouraged to work towards academic and vocational qualifications that will be recognised by civilian employers in their job applications.
We welcome the work of the Career Transition Partnership, the CTP, which offers training courses, careers advice and transition workshops as well as help with writing CVs—an art in itself—and with looking for suitable employment. Can the Minister update the House on how well that is working and what the CTP’s success rate is? The latest round of redundancies was oversubscribed, as my noble friend Lord Palmer indicated. Does that show that personnel are finding that the job market is offering attractive options outside the military?
What about housing? The nomadic military life does not lend itself to families identifying a part of the country as home or one where they would be considered to have a local entitlement to social housing. For those who already have a foot in the housing market, the problem will be less urgent than for those whose service lives have been spent entirely in service accommodation. Will the Minister indicate what sort of assistance is being offered to help with rehousing those who have to leave service accommodation on redundancy?
Finally, there is the impact of moving away from the camaraderie and social side of military life, with its own inbuilt systems of mutual support. A recent study by the Forces in Mind Trust has shown how difficulties in the transition to civilian life take their toll in alcohol abuse, mental illness and family breakdown. The study gives much food for thought. It estimates a cost to taxpayers and charities of £114 million in 2012 and an estimated rise to £122 million this year with the increase in those leaving under the Armed Forces redundancy programme. That makes sorry reading. I note that the noble and gallant Lord, Lord Craig of Radley, has a debate next week which will explore this report in more detail.
Inspiring and essential work is undertaken by military charities, welfare organisations and benevolent funds. At this time of year, we think particularly of the Royal British Legion. Combat Stress specialises in the treatment and support of British Armed Forces veterans who have mental health problems and has great expertise in the affliction of post-traumatic stress disorder. There are so many others. What preventive steps can be taken earlier in the process to ensure that those serving and those leaving service are made aware of all the organisations which can assist with welfare issues before they become problems?
There are many positive stories to be told of those who channel the skills and knowledge acquired in military service into much needed areas of civilian life. Teaching, training and working with young people—whether through the cadets, sporting activities, music or drama—can all give a new purpose and provide a new circle of friends. Membership of a church or other faith group, or the pursuit of a sporting interest or hobby, are also ways to become an integrated part of a community and to make civilian life more meaningful. We trust that the transition package will carry ideas and information to signpost those leaving the service to the various options that might suit them.
I hope that the Minister will be able to give assurances that the Government recognise that the impact of redundancies calls for enhanced measures to ease the transition into civilian life. Those with military experience have much to offer to society. We shall all benefit if the resources and support are in place to ensure that they are welcomed into new work, new homes and new communities.
Lord West of Spithead (Lab)
My Lords, I had not expected to speak today but, having heard some very good speeches and feeling as strongly about this issue as I do, I had to say something. Our men and women in the forces are amazingly resilient and strong, and put up with all sort of things being thrown at them. Morale in the front line is amazingly high when one bears in mind all the vicissitudes they suffer. There is a crucial element, which the noble Lord, Lord Ramsbotham, touched on: trust. I am sure that the Minister—for whom I have great respect—knows this and I am sure that when he was a subaltern, he would not have dreamt of not looking after his people first. It is imbued in all of us in the military that you look after your people first. That responsibility goes right to the top of the MoD or wherever.
I am afraid that this treatment—particularly of this small group but also more generally with some of these redundancies—is shabby and not what one expects of the MoD and our military. It will have an impact on people, which is extremely worrying. We cannot afford to have that impact put on our people when they are under so many other pressures. We have heard how good some people think the military covenant is, but it makes a nonsense of that covenant if we are willing to do something like this. I hope that the Minister will be able to come up with some form of words and say that something can be done to look at this. I am well aware of where you draw the line and all those difficulties. I have been involved in similar situations. We have done these things in the past and it really is too important just to brush under the carpet.
Lord Rosser (Lab)
My Lords, I congratulate my noble friend Lord Touhig on securing this debate on an issue that appears to be causing as much concern within our Armed Forces as it is in your Lordships’ House and elsewhere. Speaking for the Government, the Minister said in this Chamber on 22 July that there was,
“no evidence that morale in the Armed Forces has been adversely affected by the redundancy programme”.—[Official Report, 22/7/13; col. 1042.]
The Government’s view appears to be that despite the fact that the last round of redundancies was 84% voluntary and, unlike previous rounds, heavily oversubscribed, that was not an indicator of the state of morale because the Army had deliberately set out to maximise applications. I have to say that that assertion sounds just about as convincing as the claim once made by one of our major train operating companies that an increase in the number of complaints received did not indicate a rise in levels of dissatisfaction, because it had been encouraging its customers to make complaints.
I do not wish to suggest that the views of one or two individuals, however senior, are conclusive, but they rather call into question the Government’s assertion on 22 July that there was no evidence of morale being adversely affected by the redundancy programme. General Sir Nick Houghton, the Chief of the Defence Staff, was described by the Daily Telegraph in August as having told a Ministry of Defence in-house magazine that,
“one of his main concerns is that the ‘transformation’ of the Armed Forces has been poorly communicated to personnel, leaving many feeling left out and let down”.
The newspaper directly quoted him as having said:
“I think we’ve risked people becoming cynical and detached from what defence is trying to do”.
The Daily Telegraph article went on to say:
“Figures released last month showed the proportion of personnel rating overall morale as ‘low’ has risen from 24 per cent in 2010 to 55 per cent this year. The number of soldiers saying they are satisfied with service life has fallen from 62 per cent in 2010 to 48 per cent this year. The fall is steeper in the Army than in the Navy or RAF”.
Maybe the article is wrong; in which case, I am sure that is what the Minister will say when he responds. However, if it is at least broadly accurate, it certainly does not square with the Government’s assertion on 22 July about there being “no evidence”; nor does the Government’s assertion on 22 July square with a statement by a Ministry of Defence spokesman quoted in the Daily Telegraph four days later, who said:
“With any period of change there is bound to be uncertainty surrounding the future of personnel and their families which will inevitably have an impact on morale”.
My noble friend Lord Touhig referred to the Armed Forces Continuous Attitude Survey and quoted different figures on morale from those in the newspaper articles to which I have referred. But these survey figures again show a doubling since 2010 in the number of service personnel describing their morale as low, with the number of personnel stating their morale was high falling for a third successive year. What is of concern is that the Government do not appear willing to recognise that the way in which they have handled the redundancy situation and the changes in the structure of our Armed Forces has had an adverse impact on morale. After all, you cannot address a problem if you are in a state of denial that it even exists. The 2010 strategic defence and security review was rushed and a cost-cutting exercise, but morale was not helped when the reductions in personnel were subsequently substantially increased beyond those set out in the SDSR.
My noble friend Lord Touhig has been assiduous in raising the treatment of soldiers made compulsorily redundant shortly before reaching their immediate pension point. He has mentioned it again today, citing specific examples of where it has led to significant pension entitlement loss. He last raised it before today in this Chamber on 22 July. On that occasion the Government’s response was not well received and the Minister implied in his final response that he would ask his department to reflect on the unhappy reaction there had been. What further consideration have the Government given to this issue since 22 July, and has their position changed? Surely the Government recognise that this issue and the manner in which a relatively small number of people have been treated in a compulsory redundancy situation is hardly in line with the military covenant, does nothing to enhance morale and has an impact that extends way beyond the “only”—to use the Minister’s word—1.2% of those made redundant who are affected.
It appears that serious difficulties are being encountered in recruiting the significantly increased number of reservists, with a Ministry of Defence report referring to a “hostile recruiting environment” resulting from,
“redundancy downsizing, drawdown in Afghanistan and a reported (if unproven) increase in mental health issues”.
I hardly think that what is happening now over the recruitment or non-recruitment of reservists is exactly assisting morale. The morale of our Armed Forces can hardly be enhanced when the Government are in effect saying that while the policy—which we support—is for an expanded, more heavily integrated role for the reserves alongside regulars, the number of regulars will be reduced irrespective of whether we have recruited the many thousands of additional reservists who are needed to play a vital part in delivering our intended future defence capabilities.
Earlier this month the previous Defence Secretary, Dr Liam Fox, was quoted as saying:
“When I was secretary of state, I said we would only decrease the numbers of regulars when we had guarantees that we would be able to get the numbers—training and equipping up of the reserves—to match”.
That no longer appears to be the policy. When was the policy changed, by whom and for what reason? I hope the Minister will be able to give us answers because we still have not had a satisfactory answer from the Government as to why the rate of cuts in the Regular Army manpower is not dependent on the required projected rate of increase in the number of reservists being achieved. I again invite the Minister to give such a commitment. Apart from putting at risk our ability to deliver our future intended defence capabilities, failure to give such a commitment devalues the importance of the role that the reservists will play in future, which will have an impact on recruitment and in the way in which the role of reservists is regarded both by members of the Regular Armed Forces and the community at large.
This debate has drawn attention to how the Government’s approach to implementing policy, not least over the rundown in the size of our Regular Armed Forces and the associated redundancies, is contributing significantly to the downturn in morale registered in the Ministry of Defence’s own reports and surveys. What makes the situation even more difficult is the apparent government view that there is not even a problem. Our Armed Forces continue to put their lives on the line in defence of our country’s interests and on behalf of us all. The fact that they do so, and will continue to do so, with professionalism, courage and commitment should not obscure the issues over morale and trust that should now be properly addressed by the Government as a priority.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever) (Con)
My Lords, I add my congratulations to the noble Lord, Lord Touhig, on securing this short debate. I know that this is an emotive issue, about which the noble Lord is particularly well informed, having served as the Minister for Veterans in the previous Government. I agree with my noble friend Lady Garden that the noble Lord is a doughty fighter on behalf of the Armed Forces. It is clear that the whole House recognises the importance that we as a nation rightly continue to place on supporting and valuing the extraordinary service offered by our Armed Forces.
The redundancy programme is a consequence of the size of the Armed Forces being delivered under Future Force 2020 and, as such, there are no implications for the UK’s defence capabilities. However, we do not underestimate the task at hand, and the Chief of the Defence Staff was right to reiterate the scale and complexity of what we are asking of our Armed Forces. I do not need to remind this House that the MoD is engaged in the challenging task of reducing our Armed Forces by some 33,000, or 19%, by 2020 across the whole rank structure and, in tandem, reducing the civilian workforce by some 32,000, or 38%. Every single redundancy is regrettable.
I firmly believe we were right to step up to the plate to commission the long-overdue 2010 strategic defence and security review and to set about reconfiguring our Armed Forces to make them better able to meet the threats of the future. I am confident that our efforts to transform defence through the Future Force 2020 programme will deliver, within budget, the battle-winning forces that we need to reach across the world, operating across the full spectrum of defence activity.
There is no plan B. The redundancies are regrettable, but they are necessary. We have been clear all along that, to maintain balanced force structures for the future, an element of these reductions would need to be made through a redundancy programme. For some, they represent an opportunity. Selection principles through all three tranches of the redundancy programme have, therefore, sought to maximise the number of voluntary applications from all personnel who meet the published criteria. For others, I am fully aware that redundancy has been unwelcome news. In both cases, we have done, and will continue to do, all we can to manage the human element of these changes in the best possible way.
In the first instance, those selected for redundancy are encouraged to apply for a transfer to other areas of the Armed Forces, if they meet the selection criteria and a manning shortfall is forecast in the future. Of course, this is not always possible. All those who are ultimately selected for redundancy receive financial compensation and a comprehensive resettlement package to help them to find a job and transition to life outside the Armed Forces. This is the same resettlement package that they would have received had they completed the whole of their service commitment. In most cases, this will comprise a training grant; travel and subsistence; 35 days of paid resettlement training; career transition workshops; a job-finding service; curriculum vitae writing; interview skills; and access to training courses. Additionally, all redundees will have access to housing and financial management briefings and personal career consultancy for up to two years after leaving. Those who have enrolled for enhanced learning credits will have access to academic courses up to 10 years after leaving.
My noble friend Lady Garden asked me to provide an update on the work of the Career Transition Partnership, or CTP. The CTP is a partnering arrangement between the Ministry of Defence and Right Management Ltd, a leading outplacement company. It delivers the suite of training and employment support that I mentioned a moment ago, which is no small undertaking. In total, the number of Armed Forces personnel who have left service and taken part in the CTP programme over the last 24 months to the end of the first quarter of 2012-13 is some 20,800. Over this 24-month period, some 85% of former participants in the Career Transition Programme found employment within six months of leaving service. This is particularly notable when compared to an employment rate of 70% in the general UK population. I am clear that these measures to ensure a smooth transition to civilian life are working. Evidence provided by service leavers indicates that our resettlement provision is consistently to a high standard and that the services that they provide do assist with a successful transition to civilian life.
My noble friend also raised the matter of housing for those who leave service on redundancy terms. The Government are committed to ensuring that service personnel and their families have access to appropriate accommodation when they leave the Armed Forces. Protections have already been put in place through secondary legislation, which means that members of the Regular Armed Forces, their bereaved spouses and civil partners, and seriously injured reservists, must not be subject to disqualification through a requirement for a local connection. Additionally, following parliamentary approval, local authorities are required to frame their allocation schemes to give additional preference to service leavers who have urgent housing needs. When looking for civilian housing, personnel can take advice from the Joint Service Housing Advice Office, a dedicated team that provides advice on civilian housing options. This service also operates a referral scheme to place personnel in available housing association properties. Service leavers are entitled to remain in MoD accommodation initially for 93 days after the termination of their service, extended by a further 93 days when compassionate grounds require it. Where surplus accommodation is available, recently retired or redundant service personnel can also be offered accommodation for six months on payment of the market rate.
My noble friend Lord Palmer and the noble Lord, Lord Rosser, raised the very important issue of morale. It would be wrong of me to suggest that headcount reductions and pay restraint have not impacted adversely on morale. In quantitative terms, the principal means of monitoring changes in morale within the services is the Armed Forces Continuous Attitude Survey, AFCAS, which noble Lords mentioned. The findings of AFCAS are used extensively in shaping policy for terms and conditions of service. Although the 2013 survey shows that over 70% of military personnel described their morale as either “high” at 39% or “neutral” at 32%, the fact remains that 29% describe it as low. We are aware that we have work to do on that. The key point here is one made recently by the Chief of the Defence Staff: the Armed Forces have demonstrated extraordinary resilience and continued professionalism despite the understandable fall in morale in some quarters. That ability to set aside individual happiness and demonstrate true courage and endurance in times of real austerity is something that each and every person in this nation should be rightly thankful for.
The Government understand that there is concern about the reduction in numbers of regulars before we have recruited and trained the increased number of reserves we require—a point made by the noble Lord, Lord Rosser. However, I urge patience. The Future Reserve 2020 programme has created what we believe is a good offer, and, to paraphrase General Houghton, we have to get the message out that people who join the reserves now are joining something exciting and with a strong future. At the same time as growing and transforming the reserve, we are changing the way that we recruit for both regulars and reserve, which includes partners in commerce. These are two large-scale change programmes which are yet to reach full maturity. I assure the House that, at the highest level, the MoD is now working with the relevant contractors—Capita and ATLAS—and all MoD stakeholders to identify the growing pains, iron them out, mature the programmes and deliver as committed.
I must stress that we are now only four months into a five-year plan to grow the reserves and the recruitment campaigns only began in the autumn. The key target is an Army Reserve at a trained strength of 30,000 by the end of 2018. We must not lose sight of the fact that we already have around 19,000 trained, which means we are already two-thirds of the way there. We do not dispute that it is a challenging target, but the Government agree with the assessment of our senior military leaders: it is a plan that can work.
I understand that there is also concern that Armed Forces redundancies will result in a diminution of our ability to conduct operations. I can assure the House that the redundancy programme has not, and will not, impact adversely on current operations in Afghanistan. Throughout the process, we have been at pains to ensure that we preserve the capabilities that our Armed Forces require to meet the challenges of the future. Our commitments were re-evaluated during the strategic defence and security review and we have ensured that, as we build to our new force structure in 2020, we will retain the flexibility to meet them.
The noble Lords, Lord Touhig and Lord Ramsbotham, the noble Baroness, Lady Dean, and my noble friend Lord Palmer all raised the issue of personnel being made redundant before qualifying for the pension point. I want to assure the noble Lords and the House that we take this issue very seriously in the Ministry of Defence. I quote from the website of the Forces Pension Society:
“The view of the Ministry of Defence is that this is most unfortunate, but that any cut-off dates before IPP or EDPP would invariably leave some Service men and women just outside the bracket. This is unavoidable and adjusting the rules, after their agreement and promulgation would only cause further hardship. Any adjustment of the rules once the redundancies had started would have been very unfair to others who had gone before. After much discussion with the most senior Service authorities the Forces Pension Society reluctantly accepts that that is correct”.
To exempt individuals from redundancy solely to enable them to reach their immediate pension point, subsequently selecting other individuals in their stead, would undermine that principle and is not considered fair. The Ministry of Defence also worked hard to ensure that many more individuals received immediate income for which they would otherwise not have qualified. For other ranks on Armed Forces Pension Scheme 75, the normal requirement to serve for 22 years before receiving immediate income is reduced to 18 years on redundancy. That is a concession of four years. Other ranks made redundant just before the 18-year point are not considered to be pensionable, as they are in fact more than four years away from their original immediate pension point.
Officers on Armed Forces Pension Scheme 75 will still qualify for an immediate income after 16 years. Personnel on Armed Forces Pension Scheme 05 will continue to receive early departure payments after serving for 18 years, provided that they have reached the age of 40. The Armed Forces’ redundancy schemes recognise those who miss out immediate incomes by paying them specifically enhanced tax relief. Under redundancy compensation schemes, where people leave before the qualification point, any pension rights earned will also give them preserved pensions and future further tax-free lump sums, which they will receive at age 60 or 65, depending on the pension scheme they are on.
Finally, the noble Lord mentioned a memo from the Ministry of Defence. If he will let me have sight of it, I undertake to look into the matter.
Families: Cost of Living
(11 years, 1 month ago)
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Baroness Prosser
That this House takes note of the current cost of living and its impact on family budgets.
Baroness Prosser (Lab)
My Lords, I am privileged and pleased to be able to introduce this debate on the cost of living and its impact on family budgets. It would be disingenuous to pretend that the issues encompassed in the title are easy to deal with or to put right, but I will try to set out the ideas and proposals from these Benches which, we believe, would in the short term ease the pain currently suffered by so many ordinary, “get up and out in the morning” individuals and families and, in the longer term, strengthen our economy to the benefit of all players.
Let me start by setting out the major changes and events that have taken place in the UK in recent history which have contributed to today’s imbalance in our society. First, the world of work for many in this country has been turned on its head. An industrial revolution has taken place whereby thousands and thousands of decently paid but largely unskilled, mostly manual, full-time jobs mostly done by men have gone for good. They have been replaced with jobs in the service sector which are lower paid, requiring very different skills, and often part time. In part, that has come about because of the extraordinary and rapid growth in technology, often replacing many hands with one worker and a computer screen; but let us not forget that that change also came about because thousands of jobs went overseas in the 1980s chasing the cheapest dollar and encouraged by the Government of the day. Some may say that that is no longer relevant because it was a long time ago, but that decimation of our manufacturing base and the skilled workforce that went with it has had long-term deleterious effects on our economy and on the livelihoods of many working people, still felt to this day.
Secondly on the big picture, we must take account of the 2008 banking crisis, a global collapse of confidence in financial institutions and a requirement for the Labour Government of the day to use millions of pounds of government money to save us from complete and utter catastrophe. We are of course aware that those events have led to a very difficult financial situation, with the need to curtail capital expenditure. Whether or not that justifies the current austerity regime is a matter of political opinion and fierce debate, which will no doubt run and run. However, it has been well documented that those on the bottom rungs and those in the middle of society have been the hardest hit by the Government’s actions, leading to a widening of the gap between the haves and the have-nots.
The final big picture point which needs to be mentioned is the opening up of European borders to some of the new members of the EU, enabling their citizens to come here to live and work. Many employees rely on EU labour, and most speak highly of the work ethic which those workers bring with them. Some, however, have, frankly, abused European Union labour, taking advantage of workers’ lack of knowledge of the legal protection available to them and often paying them below the rate offered to the indigenous workforce. That is not only wrong in itself but has introduced a “them and us” culture into workplaces and local areas which is divisive and unhelpful.
What comes out of all this? What is needed to bring greater equality back to our society, so that people can feel that they have a stake in the future and that not all the rewards are reserved for those at the top? The coalition Government appear to have only one string to their collective bow when determining priorities for both expenditure and the cuts: more and more austerity and more and more in the name of “We can’t afford it”, to roll back the role of the state. I am not alone in thinking that the first point is there in large part to disguise the desire for the second. Is the Tea Party alive and well in No. 11?
I would argue, and I believe most of the general public would agree, that in a civilised society the role of the state in ensuring well-being and fairness, in providing essential services and physical infrastructure and in controlling the excesses of private companies and individuals is not only important but key to social cohesion and the long-term well-being of the nation as a whole. What we have at the moment is, of course, a disinclination on the part of the Government to do any of these things.
I start with incomes. According to the Government’s own Social Mobility and Child Poverty Commission, the UK has one of the highest rates of low pay in the developed world. The national minimum wage is now worth £1,000 less in real terms than in 2008. Average wages have fallen in 38 of the 39 months since David Cameron came to power and, only last week, official figures showed that working people are now £1,500 a year worse off since the 2010 general election. The Joseph Rowntree Foundation maintains that minimum income standards have been hit by 4% inflation; the Government declare that it is 2.4%, as measured by the CPI. Wages have risen by 1% overall; as Mr Micawber would say, “Misery”.
A future Labour Government will tackle low pay by strengthening the minimum wage. Moves are already afoot to investigate the role and powers of the Low Pay Commission to see that they are strengthened and extended, including consideration of where certain employers could pay more than the minimum. The Low Pay Commission will continue to make balanced decisions on these matters, taking into account the need for wage growth versus the possible impact on employment. Increasing pay would reduce the numbers of people reliant on benefit subsidies and therefore help the taxpayer and the nation’s coffers. It surely cannot be right that taxpayers generally are supporting low-paid workers while, in many cases, their employers make very large profits and often record their own accounts in such a way that reduces their corporate tax liability. The great British public are a bit fed up with that wheeze.
A future Labour Government will also be ready to help families back into work by assisting with the high cost of childcare. In particular, many women are deterred from participating in paid employment because the cost of childcare is far from affordable on the kinds of salaries that they can command. An extra 10 hours of free childcare will be available, on top of the 15 hours early years entitlement, and given to households with three and four year-olds where single parents or couple households are all in work. The cost of this extra provision will be met by increasing the bank levy rate to raise an extra £800 million a year.
I turn to housing, the costs of which are a reflection of supply and demand. Lack of supply has sent the cost rocketing. It is estimated that, today, it would take 22 years for the average family to save for a deposit. Effectively, that means no house. Rental prices have risen to an average of 41% of gross income for the 9 million people who rent privately. Our Prime Minister has presided over the lowest level of homebuilding of any PM in peacetime since the 1920s. The gimmick of providing guaranteed home loans will do nothing to increase the numbers of homes available and is therefore not capable of denting the current crisis. A Labour Government would provide a number of policy initiatives which will be key in helping to resolve this problem, including powers to tackle landholding; the development of new towns and garden cities; local authority access to fast-track planning processes to ease differences between neighbouring authorities; and ensuring that communities receive a greater share of the benefits of developments.
I turn to the major cost-of-living topic of our times: the rising cost of energy. What was supposed to be a move to install competition and efficiency—that is, the privatisation of the utilities back in the 1980s—has turned into what some of us always knew it would, a monopoly in all but name, with seriously hefty profits for those at the top and for dividend-holders. Just this week, Ofgem issued figures regarding the ups and downs of average wholesale electricity costs, showing categorically that the recently announced increases in consumer bills far outstrip anything that has had to be paid on the wholesale market.
A Guardian article on 29 October, a few days ago, cited Npower as having increased consumer prices by 7.2% and 9.1% in the years 2011 and 2012, despite the wholesale price reducing by 4% in 2011 and rising by less than 2% in 2012. As the article pointed out, running an electricity supply business is about more than wholesale and retail prices. However, complaints by the various companies that the network and environmental costs are a key factor appear to be rather dented by Ofgem’s assertions that network costs have risen by £10 in each of the past four years, with green costs rising by a similar amount.
The story of gas supply is a similar one, with recently announced gas prices ranging between 8.4% to about 10%. Meanwhile, the CEO of Centrica, owner of British Gas, enjoyed a pay packet last year of £4.97 million. He will not be turning down the thermostat or putting on an extra jumper.
This shameful state of affairs has even spurred Sir John Major to speak out, calling for the Government to recognise the unacceptably high profit margins by introducing a windfall tax on the industry. Neither the Prime Minister nor the Chancellor has responded positively to that proposal, preferring instead to continue their hopeless advice to be choosy and to change suppliers. Given that there is nothing to choose between suppliers, it is hard to know what benefit such an exercise would bring.
It is of course well known that the leader of the Labour Party, Ed Miliband, has committed to introducing a fuel price freeze, a proposal very much welcomed by the fuel-poor; when the choice is between heating and eating, any help is welcome. It is, I would say, a national disgrace that we have such a situation in this country. We may have something of a cash-flow problem at the moment but we cannot by any stretch of the imagination profess to be a poor country, and to have our citizens reduced to turning off the heating and/or lining up at food banks should be a matter of national embarrassment.
I started my contribution today by recognising that the financial difficulties that we face are very real and not easily overcome. I hope, however, that I have been able to persuade noble Lords that positive actions have to be taken if we are to get through this period with all our citizens on board. I hope also that I have been able to point out that it is unfair and unacceptable to expect those who have the least to carry the burden for those who have the most. I beg to move.
Baroness Dean of Thornton-le-Fylde (Lab)
My Lords, I thank my noble friend Lady Prosser for arranging this debate today and for the detail that she went into in her presentation. A recent YouGov poll reported that one-half of the working population believe that the coalition’s economic policies are making them feel less secure. That is not a revelation; I think that most of us would understand that from going around and reading the press. A Which? report this month says that consumers have less money to spend than they did a year ago; that more than one in four have cut back on essential spending; that women between 30 and 49, and those earning least, have been hardest hit by the austerity measures; and that basics such as the cost of fuel, energy and food were the biggest worry that households had—the three key factors that help keep a household together. One in five households had no savings at all to give them a barrier against these challenges. The Joseph Rowntree Foundation found that families with children were feeling particularly squeezed.
One of the areas they are squeezed on is related to the debate we had earlier on welfare cutbacks. If we look at the way the Government have applied housing policy—I do not expect the Minister to answer on this as it is not his portfolio—and consider underoccupancy, the Government have introduced the discretionary housing payment. That sounds good. The problem is that 200 local authorities are applying it in different ways. In one authority, you may get support for 12 months; in another, you may get it for three months. It is a postcode lottery. That is helping make people feel insecure.
Provident Financial, which is, I gather, the largest loan company in the country and is based in Leeds, said that rising food, fuel and utility bills are now the biggest reasons for people taking loans. It has 1.7 million customers, and debt levels are rising, which should concern us all. People are resorting to food banks. In April this year, we heard reports that the number doing so had trebled since last year. Last year, 113,000 people were relying on them; this year, there are 356,000 people, of whom 120,000 are children. I read in a newspaper—I cannot remember which—that one response was, “There are more food banks, so of course more people are using them”. What an arrogant, unthoughtful statement to make.
Reports indicate that we have growth, which is good news. I hope it will pick up momentum. Even so, the economy is still 2.5% smaller than it was before the recession, manufacturing is 8.9% lower and construction is even lower. Last Friday, the Daily Mail—yes, the Daily Mail—reported that workers expect a fifth successive year of below-inflation pay rises, and many have had no pay rise for four years. Working families are reading that and are reading about, for instance, the chief executive of Serco who is going because he has failed, but going with £9 million in his back pocket. He will not have any problems. They are reading about the enormous increase in dividends. Of course, I accept that savers need dividends, but it is almost telling people that we live in two different worlds running in parallel: the world of the working poor, where two in a family working cannot bring in enough income to look after the family, and the other world of people who are exceptionally and enormously well paid. The subterranean world of working families did not create the problems this country has, yet they are taking the brunt of the austerity measures.
The recent report from the Government’s Social Mobility and Child Poverty Commission, chaired by Alan Milburn, a former Labour Minister, reported that the working poor are bearing the brunt of the coalition’s deficit reduction. That is quite a statement and quite an indictment, too. What is the Government’s answer? It is not good enough to say, “We have this debt problem”. There is no need to repeat that mantra that it is the Labour Government’s fault. That does not wash any more. It cannot wash; it never did. What is the Government’s intention? One thing that would help would be for the Government to adopt the living wage. That would give some hope because it is quite clear that the minimum wage is now not meeting what families need to live independently. We do not want working people to be dependent on welfare benefits, and they do not want that, either. A living wage would certainly help.
This is an issue that we need to address. I congratulate my noble friend on achieving this debate.
Baroness Tyler of Enfield (LD)
My Lords, I, too, congratulate the noble Baroness, Lady Prosser, on securing this critically important debate. Living standards are the most pressing issue facing this country, despite the recent and of course welcome signs of economic recovery and the preliminary estimate of gross domestic product, just published, indicating that output will grow by 0.8% during the three months to September. Nevertheless, real anxiety over the cost of living is the day-to-day reality of many British families, particularly those on low incomes. The stark fact is that living standards have been stagnating. The economic review published yesterday by the Office for National Statistics shows that households in Britain have seen their living standards stagnate for the past four years and are spending an increased share of their income on essentials such as food, fuel and housing.
As has been referred to, the Which? Quarterly Consumer Report for this October found that just 24% of people surveyed believed that they were able to live comfortably on their earnings, and 52% in the lowest income group are still cutting back on essential spending. Furthermore, the Institute of Fiscal Studies has pointed out that real average earnings continued to fall in 2012-13, and this trend is expected to continue into next year. The time for action on the cost of living is now.
As other noble Lords have already pointed out, the Social Mobility and Child Poverty Commission has done important work in drawing to our attention the problem of in-work poverty in Britain. As it has already been referred to, I will not repeat what was said, but this focus on children living in poverty in households where at least one adult works forces us to abandon for good the long-held prejudice that poverty is the preserve of the workshy. It is simply not the case.
Before addressing what needs to be done, I want to recognise that the coalition Government have a genuine commitment to easing the burden on lower and middle earners, and to acknowledge the welcome measures already taken. I particularly mention the raising of the tax-free allowance to £10,000—a flagship Liberal Democrat policy that has given a £700 tax cut to more than 20 million working people and lifted some 2.7 million of the poorest paid out of income tax altogether. We have also seen the freezing of council tax and fuel duty, expanded childcare and an increase in the state pension. Of course, these efforts to ease the pressure on household budgets are laudable, but more simply must be done, and quickly, if we are to tackle the looming cost-of-living crisis.
Because of my usual areas of interest, I wanted to talk about childcare and the living wage—but, this week of all weeks, I felt that I could not begin without saying something on energy prices. Like many other noble Lords in this House—and, I am sure, in common with many people up and down the country—the ever-rising price of energy, way above the rise in wholesale prices, makes my blood boil. It simply feels as if we are being held to ransom for a basic essential of life. I am no expert in this field, so my thoughts are those of a lay person. I certainly do not speak for my party on energy policy; others far more expert than I do that. However, the antics of the big six companies—which seem to operate as a price-fixing cartel—tell me that privatisation in this case has created an energy market that is simply not working in the public interest. Otherwise, why would prices be going up sharply when wholesale prices, which are by far the biggest element of energy costs, are relatively stable?
In recent weeks there have been many suggestions across the political divide about how to do something about a situation which is fast becoming intolerable; the noble Baroness, Lady Prosser, referred to some of them. They include a price freeze on energy, a windfall tax, far greater transparency over profits, the simplification of tariffs, a competition review, more focus on consumer power through things like collective switching, and switching green levies away from energy bills to general taxation. Personally, I think that anything which could feasibly and realistically bring down prices, and quickly, deserves further investigation to test its workability and impact. I hope that this does not simply turn into a political football match. The stakes are too high, with winter approaching.
I am fully committed to protecting the environment, investing in renewable energy resources and safeguarding our green energy and jobs. However, we must help those in fuel poverty. That is why I strongly support shifting some of the costs of green levies from individual energy bills to general taxation, which is more progressive in nature. In simple terms, it prevents the cost of vital energy efficiency measures such as insulation and new boilers for households in fuel poverty from falling disproportionately on poor households. For reasons of social justice, those with the broadest shoulders need to bear a bigger load.
That is why I strongly support the call made at the weekend by my honourable friend Simon Hughes, who called for the Autumn Statement to contain a rebate on energy bills that would help the poorest most, and bring immediate relief this year. Of course, we all understand that money is very tight and that George Osborne has many competing priorities to consider when he draws up the Autumn Statement. My message is simple. If the choice is between doing something to reduce energy bills and introducing tax breaks for married couples, the former gets my vote, and I suspect that the same could be said for many up and down the country.
On low pay, I contend that the living wage has a valuable role to play in the fight to raise living standards. As the Institute for Fiscal Studies’ recent report, Living Standards, Poverty and Inequality in the UK, concisely expressed it,
“it is low hourly wages rather than low hours of work that are most strongly linked to being in poverty”.
Encouraging employers to pay a wage that allows workers to have an acceptable standard of living without recourse to benefits is not just about fairness but makes sound economic sense. According to figures by the Resolution Foundation, savings of up to £3.6 billion could be made by the Treasury if employers paid the living wage, which would end the current situation whereby tax credits to low earners are used to top up wages—essentially, to be honest, subsiding some employers who could afford to pay more.
A much more empowering approach would be if people were able to maintain or improve their standard of life through earning their own money, rather than through complicated tax credits whose take-up rate is only 65%. I know that some will argue that this will lead to a loss of jobs, to which I would respond that the same thing was said when the national minimum wage was introduced, and it simply did not materialise.
That is why I am delighted that at our party conference in September, the Liberal Democrats decided to adopt in principle the living wage as party policy and to create a commission to establish an official living wage with a view to a gradual rollout across sectors and employers who can afford to do so. I hope that this will also help stimulate a debate about how a fixed pot of pay is distributed more fairly between those at the top and at those the bottom.
My final point is about childcare and the need to tackle its cost and availability, which again has already been referred to by other noble Lords. Much has already been done in this area thanks to Liberal Democrat Ministers who have pushed for this to be a priority. Lack of access to affordable and good-quality childcare prevents many women from returning to work following childbirth, denying their skills and the potential tax take to the economy, and is proving a major squeeze on the household budgets of those that do return.
The Institute of Fiscal Studies, yet again, has shown that female employment has been the key driver for increased income among low to middle-income families over the past 50 years. Of course, the current provision of 15 hours a week of free childcare for all three to four year-olds, and 20% of two year-olds from the most deprived backgrounds, rising to 40% next year, is hugely welcome. However, the cost of additional hours of care has been rising rapidly and squeezing the living standards of working parents.
Again, that is why I am so pleased that Liberal Democrat party policy is now to extend the number of free childcare hours on a stepped basis, starting with 10 hours of free care for babies between the ages of one and two, and culminating in 25 hours for four to five year-olds. That fills the gap between the end of parental leave and the existing free entitlement for two years. At a time when we all recognise that public finances are still very hard pressed, these are the sorts of measures designed to alleviate the pressure on living standards that I would like to see given clear priority in 2015 and beyond.
Lord Monks (Lab)
My Lords, I, too, thank my noble friend Lady Prosser for initiating this very timely debate, which inevitably will be at the centre of the national conversations and debates as we come up to the next general election.
It is usually very nice to be part of an organisation that is top of the league. However, on this occasion it does not feel very comfortable to know that the UK is currently the EU’s inflation champion. Our rate last month of 2.7% was more than double the EU rate as a whole. In the wider OECD only three top us—Turkey, Mexico and Iceland. It is worth asking why we are in this uncomfortable position of being the EU inflation champion. Several factors have clearly played their part. One might be quantitative easing which boosts asset prices and thus favours the people who own the assets who are already wealthy, and in turn contributes to further rising inequality. It does nothing for most wage and salary earners who are the main source of effective demand and spending power. As the noble Lord, Lord Skidelsky, put it recently in the House, the winners are not the have-nots but “the have-yachts”.
What about the other factors behind inflation? Devaluation of sterling has certainly been a factor. The big fall in the pound in 2008 has probably mostly worked its way through now but there was a very strong inflationary effect, as one would expect given that we are a major importing economy.
The contrast with Ireland is stark. Ireland has had a very bad recession but it has also had some good things going for it. Whereas we have had a 20.7% increase in consumer prices over six years, Ireland’s rise was 3.2%. Food and drink prices have gone up by a hefty 35.9% in the UK in the past six years, but the Irish rise is 1%. The energy comparison is nearly as stark. The Irish rise is half ours and they do not have North Sea oil and indigenous sources such as we have.
I make it absolutely clear that I would not have liked the UK’s property bust to have been as severe as the Irish one has been. However, periodic devaluations have imposed big costs on us whereas that has not been the case with the euro. That is not a debate for today and I do not believe that the British economy was strong enough to hold its place in the euro in recent years. However, that situation shows that there is a cost to not belonging to a currency from which the Irish have benefited, at least as far as inflation is concerned.
My other concern is about pay, which other noble Lords have mentioned. Average real pay is down by 7.5% since 2008. Higher paid public sector jobs have been replaced with lower paid private sector jobs, which in turn have depressed demand. This problem was faced by many people before the recession, not just during it. Even when growth was healthy average wages barely grew and were negative for the lowest earners. Only the top 5% experienced faster earnings growth. The poorest half of the population has borne the brunt of the shrinking wage pie—a 25% drop since the late 1970s—with the winner being the increased share of profits in that pie. If profits had been ploughed back into investment, and therefore into growth, that might have been justifiable. However, that is not the case because the low rate of investment is another area where Britain is vying for top place in league tables in the European Union.
What can we do about all this? I know that the Minister thinks about these matters and I listen to his comments with great interest. However, can we not think about doing something about the following? What about the business culture in this country? The bonus system gives executives the incentive to use cash to buy back shares or to sell assets rather than invest in new capital and equipment. Bumping up the share price prompts executives to push up prices to keep profit margins high even when demand is weak and even though in the longer term the business is made rather anorexic. The bonus culture as it is creates an inbuilt bias against investment in new machinery, training and things that look like immediate costs but are benefits in the long term, and contributes towards inflation. This is not an insoluble problem. In Germany, after all, bonuses are tied not just to shareholder value but to growing market share, to organic growth. There is another factor in the bonus system and that is not the case in most outfits in this country.
How can we make an overdue change in that direction? The fact is that Britain needs a pay rise, as has just been said from across the House. Stagnating pay packets only depress demand and fuel borrowing on credit, and we have had too much of that in Britain in recent years. It also means reduced tax receipts and so intensifies our economic malaise. How about raising the minimum wage at least to its original real value? I know that the Government are beginning to look at this but can they accelerate that process and act on it urgently?
How about encouraging a new interest in the revival of collective bargaining in the private sector to help ensure that workers get a fair share—a fairer share than they are getting at the moment? One thing we do know is that inflation is not being wage-driven, which might have been the case in the 1970s but is certainly not the case now. As others have said, can we establish a mechanism involving collective bargaining for introducing the living wage concept? Trade union weakness has undoubtedly been a factor in the declining share of pay in the national income and in the growth of some undesirable things in the modern labour market such as zero-hours contracts, too much use of temps and agency staff, the ease of outsourcing and so on. The flexible labour market was supposed to generate faster growth and higher productivity. Does the Minister agree that it is now actually holding back growth, curbing demand, depressing purchasing power and making the economy go rather slower than it should be going in the right direction?
These are complex matters and I do not argue with that. They have been going for a long time and I do not argue with that either. I look forward to the Minister’s reply and hearing whether the Government are able to think strategically about what we do about a totally unsatisfactory situation.
Lord Horam (Con)
I, too, congratulate the noble Baroness on having brought about this debate. She made a thoughtful speech because she acknowledged in her introduction that these are global trends. Whether you look at America, Canada or this side of the Atlantic in Germany, France or Britain, inequality has increased over the past 10 years. People on low incomes and middle incomes have been squeezed and in many instances their standard of living has reduced over long periods. The noble Lord, Lord Monks, also made an issue of the balance between profit and labour. That has in many cases gone the wrong way. I agree that there would have been a reason for that if investment had been as high as we would have liked it to be but obviously that has not happened, and that changing balance is an important part of what has gone wrong in the past few years for all sorts of reasons.
However, as the noble Baroness, Lady Prosser, said, tackling these big issues is difficult for any Government, whether they are Labour, Conservative or coalition. None the less, we have to be positive. There is no point in sitting back and letting all this flow over our heads. We have to do what we can. In that respect, the initiative by the leader of the Opposition, Mr Miliband, at his party conference was notable and certainly made a big political impact, if nothing else. Sadly, I am afraid that such an initiative is unlikely to bring the relief to ordinary people that they would hope for. In particular, the truth is that if there were to be a 20-month freeze it would be easy for companies to get around that, either by increasing their prices in anticipation of the freeze or, if it happened, looking at their situation and increasing their prices afterwards by more than they would otherwise have done. So the net effect over quite a short period may not be much different from what it would have been anyway. I am afraid that that is the difficulty of introducing freezes of that kind.
I heard what my noble friend Lady Tyler said. I prefer to look at the green subsidies, but not because we want to change them in any way. All three parties have, quite rightly, had a part to play in bringing in green subsidies to produce decarbonisation and to contribute to dealing with climate change. However, as my noble friend rightly pointed out, the way they are now weighted on gas and electricity prices means that they hit the poorest hardest, because those prices are regressive, whereas taxation is progressive. If a way could be found of shifting some of that burden from prices to taxes, we would make progress. I have no knowledge of what the Government may do but I know that not only Simon Hughes but the Prime Minister made a point about this. Much though I like my right honourable friend Mr Hughes, I think it is more important that the Prime Minister takes this on board and I am glad that he has. I hope that some progress can be made in this very delicate area.
When it comes to looking at the sustained effect on gas and electricity prices, one should also look at a well regulated competitive situation. I stress good regulation, as well as good competition, as both together are needed. I think that it was the managing director of Ovo Energy, Mr Fitzpatrick, who said precisely that to the Select Committee in the other place—that sometimes the “six”, as they are called, look like a rather cosy cartel which is immune to competitive good practice. People coming into the industry need to have that competitive good practice so as to make the energy companies bring down their costs and thus their prices. Those two arguments should be looked at by the Government, as we want to make a sustained impact on this problem.
I would point out to the Opposition that the Government, as my noble friend Lady Tyler said, have done quite a lot to keep down prices and costs for ordinary people. For example, mortgages have been at their lowest ever rates. The average bill for energy prices is £1,500 a year—a very high level for the average household—but mortgages are obviously even higher. They are a huge cost in many people’s budgets, and keeping them down has been a massive achievement by this Government.
Council tax has been frozen. My own borough of Hammersmith and Fulham has brought down its council tax charges three years in a row without any reduction in the quality of public services. That is a huge achievement by a Conservative council. The Government have also cancelled planned rises in fuel duty three years in a row. Fuel duty now stands at 13p per litre less than it would otherwise have been. The noble Baroness, Lady Tyler, mentioned childcare. That has been something on which the Government have honed in, and I am glad to say that the Labour Party is also talking about it. As a grandfather who occasionally looks after five grandchildren, I am aware that the cost of childcare is a real issue. I think that we should pay attention to that and be glad that the Government are doing so.
As was said earlier, we have also raised the tax threshold and are in the course of raising it further, so there will be help from April onwards. The lowest point of the threshold will be £10,000 a year, bringing a saving of about £705 to the average family. Frankly, that is a terrific saving. Therefore, there is help, and I am glad about that.
Again, I make the point to the Opposition that, as a result of all these measures that have been brought in under the coalition Government, inequality has in fact reduced. The fall in the income of the top 20% of the population has been 6.8%, whereas the income of the bottom 20% of the population has risen by 6.9%, I am talking about income, not living standards, and I accept that prices have gone up even more. The noble Lord, Lord Davies of Oldham—a good friend of mine—made the point the other day in Question Time that inequality was in the DNA of the Conservative Party. I am afraid that inequality was in the DNA of the Labour Party when it was in power: the Gini coefficient, which is the acknowledged measure of inequality, reached its highest point ever in our history under a Labour Government. Now, we are becoming more equal because of the measures that a Conservative Government are taking. I do not think that we will take any lectures from him or anybody else on inequality. In practice, the Labour Party talks a lot about equality but the Conservative Party has delivered more equality than the Labour Government ever did.
Obviously there is a big political battle going on but I will close by saying that we need to be positive, as the noble Baroness said, and do what we can to help low-paid families and people facing tough times at the moment. I agree with all those, including the noble Lord, Lord Monks, who said that there should be strenuous efforts to make the Low Pay Commission work effectively. A lot of work needs to be done in that area. The minimum wage is £6.31 and the London living wage is £8.55; there is a big gap between the two. I am talking about London only at the moment. We need to home in on this issue and make sure that people’s cost of living is reduced by as much as possible and that they have the income to cover it. There is hope but we must be positive. I am pleased that this debate has taken place as it has raised an issue that is important to every family in the land.
Baroness Donaghy (Lab)
I thank my noble friend Lady Prosser for introducing this debate. I think that it is very appropriate that we are having this debate on Halloween, described in the dictionary as the “eve of All Saints Day”, which is observed by dressing up in disguise, party turns, et cetera.
The noble Lord, Lord Newby, will be responding to the debate, no doubt in his usual balanced and intelligent way, and he will be the treat. Unfortunately, he will also be the disguise for some extremely nasty tricks from the majority in the coalition Government. The key test for any Government is the resilience of families to withstand the hard times. I maintain that we have a higher proportion of people in the UK who have no safety margin in the hard times, or even in the good times. I want to focus my contribution on inequality and low pay—in particular its impact on women.
Women have been clobbered by this Government—not surprising as they have been virtually barred from the Cabinet. On female employment, the UK performance ranks 15th in the Organisation for Economic Co-operation and Development. The Commission on Living Standards said that this,
“underperformance stems from a toxic mix of unusually high childcare costs, a lack of high quality part-time work and a poorly designed tax and benefit system”.
It continues,
“patchy and inadequate social care prevents many over 55s from working, as they care for elderly parents or partners”.
The report concludes:
“Compared with the best performing economies, around 1 million women are missing from the UK workplace”.
If policies do not change, a typical low-income household in 2020 will have 15% lower income than the equivalent household in 2008. I am not saying that solutions are easy, but this prediction is avoidable. We need to be far more active in promoting increased wages, employment and working hours in low to middle-income households. Today’s workplace is polarised, with employment growing in highly skilled jobs and in low-skilled, low-status service sector roles, but declining in middle-skilled jobs. While it is only part of the solution, we need massive investment in intermediate skills in tackling basic literacy and numeracy levels.
Let me turn, as other noble Lords have, to the issue of low pay. I am proud to be a founder member of the Low Pay Commission. It is 14 years since we set the first statutory national minimum wage of £3.60 but more importantly, its framework, which has stood the test of time. The figure was very modest because we wanted to establish a national minimum wage safely and securely.
The adult rate has increased by 72% since its introduction in April 1999. I am aware that the Low Pay Commission works within tight constraints and the fact that the hourly rate has increased by more than the increases in average earnings or prices is commendable. However, despite the increase this month to £6.31 an hour, it still means that the national minimum wage has not even doubled in 14 years. This is no criticism of the Low Pay Commission. It should have a wider remit, as has been said, and I welcome the statement by the Secretary of State, Vince Cable, that he is inviting the LPC to extend its expertise in this area. Let us hope it will come to something.
We need not only to extend its remit but to be much tougher on compliance. Research commissioned by the Low Pay Commission showed that around 6% of the bottom decile of adult earners in the UK were not receiving their entitlement to the national minimum wage. Areas of non-compliance are found in apprenticeships and internships; among those on work experience; in social care, especially domiciliary social care; and among hotel cleaners and home workers. The LPC recommended that more needs to be done to ensure that all available tools are fully utilised. It expresses disappointment that after two years only one non-compliant business has been publicly named.
Let me give a couple of examples of non-compliance. A company can show in its books that it pays the national minimum wage to its employees, but they then work substantial amounts of overtime at a lower rate off the books, bringing the total earnings to below the statutory minimum. We met complainants but they were not willing to raise the matter with their employer; they knew they would never get another job in the industry because of the close communications within it. We met home workers who were being paid 50p per pleated skirt whose circumstances prevented them going out to work. They were reluctant to complain because they knew that there was a huge queue of women waiting to take on the work.
One way to assist compliance is to have effective, clear and accessible guidance on all aspects of the minimum wage. However, the Government replaced the guidance which previously existed with a website which lacks the depth and breadth of that which appeared on the previous Government’s sites—the LPC’s words, not mine. Although the Government accepted the LPC’s recommendation about an improved information site, unfortunately it has not been implemented. There is no point in beefing up the national minimum wage if no one knows about it. Stakeholders have confirmed that the existing site does not meet their needs.
We should not forget that the floor provided by the national minimum wage is not intended to be a substitute for a low pay strategy—the two are entirely different. Too many employers rely on low pay rather than a skilled workforce and the taxpayer foots the bill for low pay. In-work benefits have been slashed by the Government, making the prospects for low-paid families far worse and saving money only in the short term. However, low pay will still be a cost to taxpayers because of the absence of savings and pensions to cushion any rises in the cost of living—not least because of increased debt, arrears and homelessness—which will eventually cost the Exchequer.
According to a Which? survey, 28% of men say that they are living comfortably on their incomes, but only 19% of women say they are. The gap between wealth and poverty continues to be obscene. When it comes to total disposable income, 45% is enjoyed by the highest earning fifth of the population and a mere 5% by the bottom fifth. The irony is that there has been a reduction in income inequality because of the recession but, as the Institute for Fiscal Studies has said, it is a temporary phenomenon.
I wonder how many in government have a clue about how difficult life is for those on low incomes. They seem to be invisible to this Government. It is a hand-to-mouth existence and includes people running from low-paid job to low-paid job, probably consuming gas and electricity via meter, the most expensive way, and being told they have a spare bedroom, which gives them either less money or less flexibility in managing their family life. Crocodile tears from the Liberal Democrats do not wash when they consistently troop through government Lobbies, cutting health services, health and safety, and welfare. I ask the Minister: when will his Government stop wagging their finger at the low paid and start to actually do something about it?
The Lord Bishop of Derby
My Lords, I, too, congratulate the noble Baroness, Lady Prosser, on securing this debate and on setting such a good framework in her introduction. I want to look particularly at the human cost of this issue and at the family budgets of those who are at the sharp end of the struggle in trying to deal with rising living costs. I shall begin with the big picture. Earlier this year I organised a hunger summit in Derby. We looked at food poverty in what we call the developing countries, but we also looked at food poverty in our own city. We took the opportunity to launch a remodelled food bank system to provide a more comprehensive service to meet the growing food poverty that we are finding in our own back yard. That is the context in which we should begin to look at the pressure on family budgets. We were supported by the Fair Share Trust. Indeed, the noble Lord, Lord Newby, was in the House earlier this week when there was a Question about food waste, and I hope that one of the things we can do with excess food is redirect some of it towards organisations such as the Fair Share Trust so that it can be used to supplement those families whose budgets are so stretched that they cannot afford to eat properly.
Over the past 12 months in the city of Derby, we have seen a 100% increase in the use of food banks. The point I want to make in this debate is that the shift has been away from the normal suspects, who are, tragically, homeless people, towards families who are housed, but whose incomes are so low that they cannot feed themselves seven days a week. The increased demand has been seen among occasional users who pitch up several times a week in order to secure a proper meal for the family that day.
It is the same situation with treats. Today, many people are living on such stringent budgets that they cannot afford any treats. St Peter’s Church in the middle of Derby runs something called “Christmas Lunch on Jesus”. The project has some 400 volunteers who send a meal out on Christmas Day. Last year the meals were sent to 1,500 families, and this year the project is budgeting for 2,000 families. People do not have the wherewithal even to celebrate Christmas in the way most of us would take for granted. There is a real issue here.
I want to comment briefly on three areas of complexity. The first is work and income, the second concerns lifestyle, and the third concerns the role of the state and other support. I turn first to work and income. Recently, a family with one child turned up at one of our churches. They had got out of work and into debt. It took 15 weeks of debt counselling, providing food and childcare support—all the normal things—to turn the family around and get them back into work. The person concerned is now contributing food to the local food bank. My point is that work for many people is very insecure. It does not plough on and on and it is not just about getting a living wage. The experience of trying to be in work is insecure for many people. It is not untypical to tip out of work, get into debt because of having been living at a certain pace, and to run out of food. Churches and other groups try to pick these people up again. The problem, however, is that churches and the volunteer sector are struggling with the increased number of people in this situation and finding it harder to make that kind of generous response. When we talk about work and a living wage, we have to remember how insecure that is for so many people. Whatever the system is that underlies it, an enormous amount of energy and good will is required of volunteers to help people to cope. As other noble Lords have said, we need a more systematic approach to the provision and security of work.
My second point is about the sheer complexity of lifestyles and the difficulty around interpreting the phrase “family budgets”. Perhaps I may share another story. Two weeks ago, a family turned up at one of our city centre churches comprising a mother who was eight and a half months pregnant and five other children. They were running away from domestic violence. By the way, the woman has successfully had her sixth child. They pitched up at the church, a strange place to them, with no support systems. The children had been out of school for six months. The church has worked hard to place the children in local schools, getting them bus passes and school uniforms in order to help this woman through the trauma of the birth of her sixth child. Her benefits have been stopped because she has not replied to a letter from the DWP, but that is because she is no longer at home, having run away from domestic violence.
There is no easy answer for that story but it is not untypical of the very complex lifestyles that many people have. These are not normal families that you can just put in a box or bureaucracy, or find a welfare system for. There is a certain chaos and unpredictability about many people’s lifestyles. We therefore need to invest more in agencies with the sensitivity to pick up people who do not fit into the boxes, help them negotiate with the system, and discover what benefits and housing might be available. As family budgets are under such pressure, we really need to invest in those who can help people negotiate with the system.
My third point is about the role of the state. The big word is cuts: cuts in family budgets, in local authority budgets and in government expenditure. I encourage noble Lords to think that there is a potentially more positive side to this negative mantra of cuts in terms of the reshaping of welfare provision in our times, which is a challenge to all of us. Clearly, Government and local government are taking various decisions about the role of the state and public authorities, and we are having a political debate at the moment as to whether they are the right decisions. However, there is a very interesting role for not just the voluntary sector, which I have been talking about, but business. In the city of Derby, we are working quite closely with local businesses to see how they can support the management and leadership of schools, support the development of work opportunities for young people and raise aspirations for children in certain educational environments.
My experience is that many local businesses have a genuine desire to be part of a new ecology of trying to reach out and help people understand what work is about, to access it and be part of growing up to make a positive contribution. As the Minister looks at the big macroeconomic and social issues that have, rightly, been raised, I hope that there might be some response on how we can properly encourage a role for the voluntary and faith sectors in this interface between those who are crushed in terms of family budgets and those systems designed to support them, and on how we can try to grow a different ecology of welfare and mutuality where society uses local resources and local businesses, and the state, in a different kind of partnership. There is lots of talk about it but, for those of us on the ground, not a lot of action and few encouraging signs.
We are, of course, approaching the liturgical seasons of All Souls and All Saints. They are wonderfully inclusive notions—you could not be more inclusive than All Souls. I hope, whatever our political divisions, that we would be united in a genuine passion and concern for all souls, particularly those whose family budgets are most pressed, most chaotic and most under pressure. I hope that there could be a positive line across all parties of the House about creating a new ecology for welfare and care that could be very appropriate for the future.
Baroness Drake (Lab)
My Lords, I, too, thank my noble friend Lady Prosser for securing this debate. “Making work pay” in a world where,
“those who aspire to work hard and do the right thing are rewarded”,
is a challenging aspiration to achieve. Recent figures not only confirm the squeeze on living standards for low to middle-income households but also that it will be longer and deeper than previously projected. Despite job growth in the private sector, wages have fallen in real terms, many work fewer hours than they would like and the impact of changes to benefits and tax credits are all putting further downward pressure on those households. Although tax credits now make a smaller contribution to income for workers in the bottom half, it is still a significant contribution, and I speculate that deeper cuts to come in the welfare spend will be on in-work benefits.
To some extent, all families have been affected since the recession but households in work, on low and middle incomes, especially those with children, start with far less than the better-off, making the squeeze even harder to bear. They spend a greater proportion of their income on essentials such as food, fuel and transport, the costs of which have risen much faster than overall inflation, leaving them facing falling wages and an “inflation premium”. It is not surprising that calls to constrain energy bills have such resonance with the public. In addition, modest-income households are more prone to debt. According to the Resolution Foundation, among all households with some form of debt in the bottom half of the income distribution, 30% can be considered “debt-loaded”: their repayments account for more than a quarter of their gross household income.
The causes of the pressure on household budgets are both structural and cyclical, exacerbated no doubt by the events and policies of recent years. As my noble friend Lord Monks identified, it is also evident that many households benefited less from previous economic growth, when the wages of ordinary full-time workers barely grew and were negative for the lowest earners. Looking back even further, inequality increased at all points in the income distribution from 1979 to 1997.
The challenge for the Government is to ensure that the benefits of future growth are shared more equitably. To quote from the Commission on Living Standards’ Gaining from Growth report, only 12% of every £1 of UK GDP now goes to wages in the bottom half, down 25% in the past three decades. Polarisation of incomes is not unique to the UK but it is greater here than in most other developed countries, and so is the extent of low pay. To make up the ground left by the recession, wages for the low to middle-income groups have to grow by 1.1% a year in real terms over the next decade. That is without taking into account the reduced expenditure on tax credits and benefits. As my noble friend Lady Prosser said, that challenge has to make us consider how we can build on the current role of the Low Pay Commission and strengthen and broaden the contribution of the national minimum wage.
The factors contributing to low UK productivity are several and complex but they are neither new nor recent. Comparatively low labour productivity, low investment, lesser management skills and low company expenditure on training have been evident for decades, as has an institutional and cultural set-up that encourages many employers to seek low-paid low-skill routes to business success. Labour productivity has fallen further in the past three years.
A broad strategy to reduce the UK’s reliance on low pay must include a national minimum wage but setting that wage so as to avoid any perceived undue impact on employment and at a very modest level has not constrained growing income polarisation. There is a real danger that unless the national minimum wage is raised significantly, some firms will not need to be or become more innovative and more productive in absorbing higher wage costs. Those that are productive and could absorb the higher costs will simply continue to pay lower wages because they can.
Increased productivity is absolutely essential for sustainable rises in living standards but if we do not take a more radical approach to the national minimum wage and the role of the Low Pay Commission, we risk accepting that either the taxpayer must subsidise the wage bill of UK companies with low productivity with in-work benefits or, if in-work benefits are reduced, family budgets will become even more polarised. People who do the right thing will not be rewarded. Just over half of low to middle-income households have no savings at all, and two-thirds have less than a month’s income in savings. Yet the Government want people to save for their retirement and be less dependent on the state in so many ways. On the other side of that equation is that government must address the squeeze on living standards that is the reciprocal responsibility of government on a call to its citizens to accept that level of responsibility in return.
Time constrains my comments on employment levels and working hours as the driver of living standards, but I shall make a quick point. Yes, dual earnings act as an important source of protection for household budgets, but figures reveal that female employment has plateaued in recent years. Comparatively, the UK is distinguished by underperformance of women with children in their 30s and women over 50 due to the combination of intolerably high childcare costs, the lack of high-quality part-time work and the design of the tax and benefits system.
I refer to the point made by the noble Lord, Lord Horam, on the Gini coefficient, which is a measure of inequality, a statistical measure of which I am particularly fond, as it borrows my name. We need to be careful how we interpret statistics. If poverty is expressed as a percentage of earnings, and if earnings fall, there is a perception of there being a reduction in poverty, but the poor are still very poor. Although there has been a decline in the highest earnings, that will not be sustained, but the pressure on low to middle incomes will, because the fundamentals delivering income polarisation are still there—they are not the same as what comes to play in the rise of the highest levels of earnings.
The market alone will not address income polarisation. It requires intrusion by Governments with labour market policies. Economic policy that ensures not only steady growth but that those in the bottom half receive a fair share of the benefits of that growth will be one of the biggest challenges for all political parties and Governments in the following decade.
Baroness Pitkeathley (Lab)
My Lords, I congratulate my noble friend on securing this debate and on her excellent speech setting out the problems relating to the rising cost of living. There is very little to add at this stage, and my two main points are the same ones that many noble Lords have put forward.
First, it is not so much cost of living that is the problem, but the level of income. When we go to Scandinavia, we find the cost of living there tremendously high, but it is not a major problem for them, because their incomes are adequate and sufficient. For most people, incomes in this country are both inadequate and static.
The other major issue which has been referred to several times today is that this is not a problem for everybody; we are definitely not all in this together. The disparity between those who are barely coping and those who seem to be more prosperous than ever is what rankles. This was encapsulated by what was overheard in a north London supermarket: “Darling, do we need parmesan for both houses?”. This is not the big society about which we were promised so much; this is not even a halfway decent society.
The Joseph Rowntree Foundation study, which has updated the minimum income standards first published in 2008 to this year, shows that the continuation of several trends has made it harder for households to make ends meet. Increasing prices, especially in childcare, social rents and public transport, as well as in food and energy, have pushed the minimum cost of living up faster than the average cost of living. These increases show no sign of abating, while cuts in benefit entitlements both to those in and out of work are going to continue. We must remember that so many benefit recipients—some surveys say the majority—are actually in work. These discrepancies will continue; the report concludes that the minimum amount that households without children need to earn rose about in line with inflation, but for families with children this amount continued to rise more steeply. The people for whom rising prices for food and fuel are the problem are those whose wages are static or whose benefits have been cut. These people literally have to make that decision which I never thought I would see again in our supposedly decent society: whether to have food or the means of keeping warm.
Nowhere is this more acute than with those who are disabled and living—through no fault of their own—on benefits. Let me give a specific example. Beverley Smith is 47 and severely disabled.
“She’s tetraplegic and largely bed-bound. Most of her £174-a-week benefits income goes straight into her social care costs, leaving her with £71 a week for food, bills and any other expenses. In April this dropped to £55 when she had to make up a £16.55-a-week housing benefit shortfall as a result of the bedroom tax … Because of her condition she needs the heating on constantly, all year round, at a cost of around £108 a month. Two years ago it was around £80 a month. Her basic income has barely gone up since then, but now, she says, her gas supplier thinks she should pay £120 a month. ‘I can’t afford it now. How am I going to pay that?’”.
She has had to ask for help from a charity and gets food parcels from a local food bank. I join with others in condemning the Minister’s contention that people go to food banks because they are there. Beverley’s friends help out occasionally but she says,
“I miss out meals. Some days I might have some … toast, and some porridge, and that’s it”.
Beverley is one of hundreds of thousands of vulnerable people—particularly older people, people with a disability or families of low income—who face that heat or eat dilemma. Imminent energy price rises, soaring food bills and shrinking or static incomes have played havoc with budgets that were already tight. Many people are really in fear of what the winter will bring.
When we consider the difficulties such individuals and families now face, we must not forget that they are not only strapped for cash at present but also building up poverty for the future since they can make no possible provision for pensions from their current budgets. As our population ages, this will become more of a problem. I sincerely hope that the Government’s consultation on the deferred costs for care will clarify the position about how much in the way of resources you can have and still be eligible for the scheme. If the cap stays at its current level, the coalition’s much trumpeted reforms of care will mean very little to those in need of it.
One more issue, mentioned by the right reverend Prelate, is the effect of rising prices, especially of fuel, on community groups. Our local village hall in Herefordshire, a community hub if ever there was one, is a centre of not just leisure activities but vital links and social contacts, especially for the older people in the village who without it would be socially isolated. It is struggling to pay its heating bills, maintain the building and keep the rates for the breakfasts and lunches it provides at an affordable level for those who need it so much. This story will be repeated throughout our country, in towns and cities as well as villages. We often do not value such community hubs until they disappear but we should try to remember how vital they are in maintaining links and contacts. Such organisations and charities always work as hard as they can to ensure their services continue, often via the personal sacrifice of the volunteers in charge. Helping them invest in fuel-efficient heating, insulation, solar panels and so on can be useful not only now but as insurance for the future. We simply cannot afford to let such services close. We should remember that although volunteers are very good value, they are not cost-free.
So what must we do about it? First, as we have heard, we must enable people to maximise their incomes. Better access to benefits and no bedroom tax would be a good start. We forget, in the stigmatising of benefit claimants which seems to be de rigueur now, that huge amounts of benefits actually go unclaimed. We must also strengthen the powers of the Low Pay Commission, and I endorse what others said about the living wage. Better childcare and support for carers would also enable many who wish to undertake paid work but are currently prevented from doing so.
Secondly, we must ensure that instead of focusing on fraud in the benefit system—which is a tiny amount of the whole budget—we focus on fraud of all kinds in the tax system to target the rich as well as the poor. We must also do better with controlling prices of food and fuel. I hope that the Minister will not just say that the Government take those issues seriously but indicate what action they are committed to in order to address those most pressing problems.
Lord Davies of Oldham (Lab)
My Lords, this has been an excellent debate, and we owe a debt of gratitude to my noble friend Lady Prosser for both securing the debate and introducing it in such an expansive and perceptive way that it gave all other contributors some substance on which to cohere. She reflected on the changes in our economy and society over the past three decades, and the change in the nature of work. We have moved from a much more substantial manufacturing base 30 years ago and lost our capacity to make cars, unless the Japanese are employing British workers; all our companies apart from Jaguar Land Rover went down. The movement from the manufacturing industry to the services industry has produced a change for workers, with much greater part-time work; the emergence of the concept of zero-hours, which seems such an offence to the dignity of people presenting themselves for work; and the reduction in the bargaining power of the workforce.
The Government are represented today by a single voice from the Back Benches, the noble Lord, Lord Horam, who introduced some challenging concepts on which, if he will forgive me, I will not dwell too much on this occasion, because my noble friend Lady Drake raised the whole issue of how much the reduction of equality leads to the impoverishment of society, and what that means to those at the bottom end.
I am very grateful to the right reverend Prelate for identifying the community and local dimension of difficulty in acute economic circumstances, where a whole neighbourhood is beset by poverty among so many households. My noble friends have been concerned to emphasise the sheer blatant facts of the failure of wages to maintain the level of inflation. For wages to be stagnant over a decade when the inflation rate is more than 2.5% throughout that period is a reduction in the resources of working people. That is to say nothing about the level of unemployment, which also means that very many do not have work at all. Those in work have also suffered greatly in that period, at a time when on all sides we have been beset by the concept of the bonus culture and the “get rich quick” dimension of the City.
If we are talking about inequality, let us talk not just about inequality between groups but between regions. The real desperation of our nation at present is a ridiculous concentration of resources in London, which distorts the whole perspective of national statistics, but is reflected in the fact that ordinary Londoners are less able to get homes than people in other parts of the country. I was very grateful to the noble Baroness, Lady Tyler of Enfield, for her reflections on that point. She also raised the crucial question of energy. Let me emphasise that as we approach the depths of winter, the anxiety of people faced by the increase in energy bills at present is profound. Added to the insecurity which they suffer about the world of work, they are now facing circumstances in which the increasing bills will thrust many of them into considerable debt and, in order to avoid debt, into taking risks with keeping the household warm.
I know that there has been an element of dismissiveness about Ed Miliband’s proposal for a price freeze. However, that freeze is to do two things: first, to protect people in this crucial period of need so that further increases do not take place and, secondly, because we are concerned to restructure this imperfect market represented by energy. Of course, that means looking at the structure of Ofgem and its failure to avoid a situation in which our energy is overwhelmingly run by a group of six in a cartel, which play follow my neighbour in enriching themselves at the expense of ordinary members of the public.
One dimension that has not come into this debate but which is also of great significance to people on low incomes is the increasing cost of transport. I emphasise the cost of buses. Poor people do not travel a great deal by train, although those people who do become poor because of the massive increases in fares that the rail companies are able to perpetrate. Poor people travel on buses and are continually seeing those fares increase by more than double the rate of inflation. Travel costs are a very great concern for the person with a part-time job, and limited opportunities to work, who has to travel. That is so even for the person with a full-time job who has to travel. It is also true for our young people. How are they meant to get to their colleges and engage in education in circumstances where travel costs are so great?
I emphasise also a fact which my noble friends have covered very fully, as they have all aspects of this debate. There is a real issue of the pressure on housing. A very large percentage of our population are now in the private rented sector, and we all know the rate at which rents are increasing. Nothing is more disturbing to a family or to individuals than to feel that their housing costs are running out of control. As for whether one can get into the housing market with a purchase in London, unless a family is earning £100,000 a year its entry into the housing market is very difficult indeed. We all know the particular approach of the Government in their limited position with regard to 5% mortgages. The anxiety about that is obvious enough: that it will stimulate a housing bubble which will put us back to 2007-08, unless we are very careful.
In this debate, my noble friend Lady Prosser engaged with the fundamental issues of how people protect themselves and achieve security in a society in which so many issues are stacked heavily against them. She was followed by contributions from all parts of the House, but overwhelmingly from my own Benches, which have identified just where the Government need to act. It is a tough agenda that we have set for the Government, but the Minister has already been identified as our treat, so let us listen to him.
Lord Newby (LD)
My Lords, I thank the noble Baroness, Lady Prosser, for initiating this debate. I agree with many noble Lords, specifically the noble Baroness, Lady Drake, that what we have been discussing today is arguably the biggest challenge that we face with regard to economic policy—how we deal fairly with the bottom 50% of the workforce in terms of their earnings. I agree with the noble Baroness, Lady Prosser, that putting the current situation right is extremely challenging.
I agree very much with the noble Baroness’s analysis of the issues that are central to that challenge. Some of them, like the labour market changes that she and other noble Lords described, are very long-term challenges, while some have been exacerbated by the banking crisis. With regard to labour market changes, I agree with the noble Baroness, Lady Donaghy, who said that there is a real challenge because of, as it were, the hollowing out of the middle and the problem that people with intermediate skills have found their real wages squeezed. One of the reasons why we are keen to have a much higher level not just of apprenticeships but of advanced apprenticeships is to upskill many more people in that middle band so that they are more able to earn a higher income than they are at the moment.
I will talk later about low pay, but there has been quite sensible interest in and concern about what has been happening as part of a long-term trend on high pay. I was a member of the High Pay Commission, which looked at this whole issue. It has been very striking how over a couple of decades pay at the top has virtually lost touch with the reality of everything else and gone into the stratosphere. The Government are in the process of implementing the majority of the recommendations of the High Pay Commission, not least in giving shareholders a greater say in the pay of senior executives. It is a fact that bonuses have fallen by 85% since the peak year 2007-08, so something has happened in a way that we would all think was beneficial. However, I do not think anyone believes that we have gone as far as we should.
With regard to financial services, the remuneration code, which is in the process of being strengthened, will tie earnings much more closely to performance and lead to a much greater degree of deferred payment, which will not stop people being paid a lot of money but to a far greater extent will tie those earnings to what they have actually achieved. That, combined with greater shareholder control of earnings, will make some difference at the top end.
Fixing the economy is the Government’s first priority because this will raise everyone’s living standards. We are also keen to oversee a fairer tax system to ensure that jobs are created across the country and that those who make the most pay the most. However, we understand the immediate financial pressures that have been the main subject of today’s debate. I shall do my best to respond to as many of the issues that have been raised as possible—first, by looking at the way in which the Government’s economic policy is helping to keep employment as high as possible and interest rates low; secondly, by discussing the action that we have taken to protect standards of living; and, thirdly, by discussing our commitment to ensure that the impacts of our policies are as fair as possible.
First, on economic policy, we know, and have been discussing, the extent to which times are difficult. However, our view is that the only way to deliver a sustained improvement in living standards is to tackle the economy’s problems head-on and deliver a recovery that works for everyone. The Government’s economic plan is designed to equip the UK to secure a stronger economy and a fairer society and to help people who aspire to work hard and get on. The economy is turning a corner. Third-quarter GDP grew by 0.8%. This growth was broad-based across all sectors of the economy, and surveys of future intentions suggest that the growth will be sustained. This does not mean that we have eliminated all risks, but by cutting the deficit significantly, we have helped to secure near-record low interest rates which, as a result of the Bank of England’s forward guidance, are not likely to rise significantly in the short term. These low interest rates have supported hard-working families’ living standards, especially those families which have mortgages to pay. If mortgage interest rates rose by 1%, we would see average mortgage bills increasing by around £1,000 a year. It has been a central tenet of this Government’s policy to have a credible deficit reduction plan so that we can sustain low interest rates, and in this central aim, the Government have been successful.
Our economic policies are also helping people across the country get into work. There is obviously no better way to increase standards of living than by making sure that people are in work and securing a reasonable wage. There are now more people in employment than ever before: 1.4 million private sector jobs have been created over the past three years and 155,000 have been created over the past three months. It is pleasing that of the groups about which we have most concern the number of NEETs has fallen for the past five quarters. It has not fallen far enough, but there has been progress.
Last year, real household disposable incomes grew by 1.6% on average above inflation despite the squeeze, which was the fastest for three years, and according to the OBR, next year total earnings will increase above inflation and by 2015, they will be more than double the rise in inflation.
I realise that in the mean time pay, earnings and disposable income have been squeezed significantly, but one element of the issues that we face, which the noble Baroness, Lady Prosser, did not highlight, was that when this Government took office, there was no money left. This has been the leitmotif throughout all the policies we have had to adopt in order to get the deficit down and to keep interest rates down. We are also taking steps wherever we can directly to protect standards of living by pursuing measures that will keep cash in the pockets of hard-working people up and down the country. Noble Lords will be pleased to know that I am not going to list everything, but I shall mention the key points.
First, we are increasing the tax-free personal allowance to £10,000 by April next year. Taken together, this Government’s increases to the personal allowance will put £700 back into the pocket of each and every average taxpayer and will have taken around 2.7 million people on low incomes out of income tax altogether. We believe this is the most effective way to support those on low and middle incomes because it enables people to keep more of the money they earn. Achieving this in times of plenty would have been hard enough, but doing it under the economic circumstances we inherited makes it even more important. As a result of the changes that we have made, nine out of 10 working households will on average be almost £300 a year better off as a result of tax and benefits changes that took effect this year.
We are also taking a series of actions to keep consumers’ energy bills down. Although I agree that there is quite a row—to put it mildly—about what is happening to energy prices, and there is some suggestion that they are not actually rising very much, the wholesale price of gas this winter will be 8% higher than the price last year, according to Ofgem. That is the background ground to the price increases that we are seeing at the moment. The steps we are taking on energy bills include 2 million households getting help under the warm home discount, including well over a million of the poorest pensioners who will receive £135 off their electricity bill. Under the winter fuel payment, between £100 and £300 is available tax-free to those over 61 to help them pay their heating bills. A £900,000 Big Energy Saving Network will help the most vulnerable get the best deal for them. We are legislating through the Energy Bill to ensure that suppliers place all customers on the cheapest tariff that meets their preferences. We are making energy bills simpler, clearer and fairer, helping the 84% who do not switch and could be missing out on savings of up to £158. It simply is not the case that all electricity companies charge the same. There are savings to be made.
We are going further. The Prime Minister has announced there will be an annual review into the state of the competition in the market. This review will be led by the OFT, Ofgem and the new Competition and Markets Authority, when it comes into existence, to report by next year. Further measures on energy will be announced shortly by my noble friend Lady Verma when she gives the annual energy Statement. I recommend that all noble Lords stay for that.
In addition to announcements today, last week the Prime Minister announced a review of green levies on energy bills and more details on that will be announced by the time of the Autumn Statement.
Finally on energy, I completely endorse the comments of my noble friend Lord Horam on Labour Party policy in this area. It is simply incredible to believe that a temporary price freeze would have the effect for which the Labour Party hopes. I suspect that that is why the majority of people, when polled about this last weekend, said that they did not believe that it would work. We have also helped local authorities to freeze council tax, and we have frozen fuel duties. All these measures help to reduce the day-to-day cost of living for millions of people up and down the country.
I turn to redistribution and the distribution of income more generally. Before the fiscal consolidation we are now implementing, the richest 20% contributed three and a half times as much in tax as they received from public spending. This has now increased to around four times as much. As noble Lords have already discussed, there has been a fall in income inequality to the lowest level since 1986. There may be a number of caveats around that, but it is the case that income inequality is at the lowest level since 1986. For those of us who wish to see less income inequality, that is something to be pleased about. We have also taken steps to ensure that the most vulnerable low-income groups have been protected against the effects of economic circumstances.
Not least are the measures that we have taken for pensioners. It is interesting that not a single noble Lord has mentioned pensioners in the debate. I suspect that the reason is that the Government have treated pensioners, if not overgenerously, then certainly very fairly over the past three years. Pensioners have seen above-inflation increases to the state pension. The triple lock means that the basic state pension is higher by £6.85 a week than if it had been increased by earnings only. The average person reaching state pension age in 2013 with a full basic state pension can expect to receive an additional £12,000 in basic state pension over their retirement. In April this year, following a 2.5% increase, the basic state pension was estimated to be almost 18% of average earnings, the highest it has been in any year since 1992. In times of austerity, this is a significant achievement.
The noble Baroness, Lady Tyler, and others talked about improved childcare for people on low incomes. She referred to the fact that we are doubling the number of disadvantaged two year-olds receiving 15 hours of free childcare a week to 260,000 by September next year. We have also implemented 15 hours a week for all three and four year-olds and have announced free school meals for all children in their first three years of primary school.
Almost every noble Lord who has spoken in the debate has talked about low pay, which is clearly a very significant issue. The problems we now face are in part the result of long-term trends in unemployment. For example, the noble Lord, Lord Monks, pointed out that many people moving from the public to the private sector have taken a cut in pay because, on average, public sector wages have become somewhat higher than private sector wages. We have had a big shift from public to private, which has obviously had an impact on many people’s wages. The Government agree with the analysis of the Milburn review in this area. Its conclusion was that,
“the taxpayer alone can no longer bridge the gap between earnings and prices”,
and that employers,
“need to step up to the plate by providing higher minimum levels of pay and better career prospects, enabled by better skills”.
On the minimum wage, as noble Lords have pointed out, my colleague Vince Cable has asked the Low Pay Commission to look at the scope for increasing the minimum wage without having detrimental effects on the level of employment. We hope very much that that will lead to a greater increase in the minimum wage. However, the minimum wage is the minimum, and the living wage is a level that the Government support and encourage employers to follow. As a number of noble Lords pointed out, when the minimum wage was introduced there was a lot of scaremongering about the employment costs, which proved to be completely false. It has been estimated that the living wage might cost 160,000 jobs if implemented overall. I do not know whether that is a realistic assessment, but certainly the work that we have asked the Low Pay Commission to do to increase the minimum wage will begin to tease that out.
My Lords, the noble Baroness, Lady Donaghy, called me something I have never been called in your Lordships’ Chamber—a “treat”, which is impressive given that yesterday in particular I was called quite a lot of things, all of which were extremely derogatory. It is a great pleasure to hear what I think is an undeserved accolade. The noble Baroness talked about compliance. When the minimum wage was going through, I remember expressing some concerns that the legislation seemed to have very little in it about compliance. Although I understand that greater arrears have been identified in the past year than there were a couple of years ago, more needs to be done. I will take up the point she raised about the website with BIS, as we ought to be able to do something about that.
I am extremely sorry that I have been unable to deal with many of the questions and points raised by noble Lords in today’s debate, but I am out of time. Again, I thank the noble Baroness, Lady Prosser, for tabling the Motion. If we do not try our very hardest to improve the quality of life for the hard-working people of the UK, then we are not doing our jobs properly. I can assure noble Lords that we understand the financial pressures that hard-working families are facing, and that we are taking and will continue to take what we believe are the right steps to help them.
Baroness Prosser
My Lords, I thank all noble Lords for their contributions to the debate and particularly thank the Minister for his detailed response. I should like to single out the noble Lord, Lord Horam, for putting forward a different point of view and keeping us all on our toes. However, I find it difficult to understand the point that he and the Minister made about the narrowing of inequality. It rather reminds me of the “lies, damned lies and statistics” statement with which we are all familiar. How is inequality being narrowed when we have seen such a huge increase in the number of people using food banks and those in rent arrears? That phrase does not mean the same thing out there on the street. I urge the Minister, as the representative of the Government, to take the arguments back to other members of the Government and to remind them that the word “govern” is a verb—it is a doing word. I, on behalf of these Benches, expect there to be rather more doing than talking because the consequences of not dealing with the major widening of inequality in our society will be hugely dangerous for our country in the future. I once again thank noble Lords for their contributions.
Energy
The Parliamentary Under-Secretary of State, Department of Energy and Climate Change (Baroness Verma) (Con)
My Lords, with the leave of the House, I will now repeat a Statement made earlier in another place by my right honourable friend the Secretary of State for Energy and Climate Change. The Statement is as follows.
“Today I am laying before the House the annual energy statement, alongside the statutory security of supply report. This coalition Government are putting in place the most coherent, sustainable energy policy the United Kingdom has ever had, creating one of the most competitive and attractive electricity investment markets in the world, improving our energy security, boosting home-grown clean energy and providing jobs and economic growth in the process.
This ambitious energy and climate change policy is vital so that Britain can meet our significant challenges. The coalition Government inherited from the previous Administration an energy future with a huge, multibillion pound black hole at its heart, the result of years of underinvestment, dithering and delay, so this Government are having to take the tough decisions others have ducked to make sure Britain’s lights stay on. Everything we are doing has to ensure that we drive investment into the system, not scare it off or freeze it out. But as I will make clear in this Statement, energy security must go hand in hand with affordability.
So let me set out the robust plans we have to deliver affordable energy security. To deal with the problem of tightening electricity margins up to 2018, the Government have been working with the national grid and Ofgem to develop existing safeguards to have more electricity available for the grid at peak times, including, if needed, the use of power plants currently mothballed. We are introducing to Britain a capacity market to ensure we attract the investment we need in new power stations. The first capacity market auction will take place next year for delivery from the winter of 2018.
In addition to these measures to keep the lights on, Britain now has a long-term strategy encapsulated in the Energy Bill. Over the summer we published draft strike prices for renewable electricity under contracts for difference. Detailed proposals for the implementation of electricity market reform were published this month. The fruits of bringing this greater predictability and certainty to investment are already showing. Latest estimates suggest that at least £35 billion has been invested in new electricity infrastructure since 2010, and much more is in the pipeline. In the past 12 months alone, we have provided consent for seven major energy infrastructure applications worth around £20 billion with the capacity to generate electricity to more than 6 million homes, including, of course, last week’s announcement that we have reached key commercial terms with EDF for the first new nuclear power station in a generation at Hinkley Point C.
And there is more. Through the Energy Bill’s final investment decision-enabling programme, 23 applications for 26 investment contracts are currently being evaluated by the Department of Energy and Climate Change for a broad range of renewable technologies, including offshore wind, onshore wind and biomass projects.
Even though British households pay some of the lowest prices for gas and electricity in Europe, such facts are scant comfort to those who have seen prices rise considerably over the past 10 years. The main driver of these energy price rises has been rising wholesale energy costs, not social and environmental policy. But apportioning blame is also scant comfort to people who are struggling to make ends meet. That is why we have been taking action to help people and businesses struggling with their energy bills.
We have already introduced some help that is immediate. Two million vulnerable households will get £135 off their energy bills this winter, thanks to the Government’s warm home discount. Around 12.5 million pensioners will get the winter fuel payment—£200 for the under-80s and £300 for those over 80. And of course there are cold weather payments if needed, which last year delivered over £146 million to help cut bills for the most vulnerable.
This year we have added to these policies with more direct action. Our new Big Energy Saving Network is training 500 volunteers to go out into communities to help people get better deals from energy suppliers and reduce their energy bills. These volunteers will be fully supported. We know how much people in communities across the country rely on the post office network, so we will be working with the Post Office to raise the profile of the Big Energy Saving Network so that it can make the links with the elderly, the vulnerable and other cost-conscious families trying to make their budgets go further.
We have also brought together in one place all the advice from across government—from DECC and DWP—and from charities such as Age Concern and Citizens Advice. Today, I am writing to all Members of this House with information about this new guide so that they can share it with their constituents to make sure they are getting all the help that they are entitled to.
But while such immediate help for consumers and companies is important, we need more permanent change if we are to keep bills down, not just for 20 months but for 20 years and beyond. The energy company obligation is delivering such permanent change by modernising our housing stock and making it cheaper to heat our homes. Some 230,000 low-income households will be warmer this winter thanks to energy efficiency measures installed through the ECO.
Energy efficiency remains a central part of our strategy both to help the fuel poor and to deliver permanent energy savings, but the permanent energy change we seek also needs more competitive markets. This, however, is not something that the party opposite understands, for the previous Government created the big six, and their irresponsible policies would help only the big six. In contrast, from day one, this coalition Government have been determined, with the stick of competition, to take on the big six for consumers. We have done a lot but, as I will set out, we need to do more.
Already our measures to deregulate have seen a major growth in the number and size of independent energy suppliers. In 2011 there was no independent supplier with a customer base greater than 50,000. Now we have three independents with more than 100,000 customers, and a further eight companies have entered the market since May 2010. We have delivered a doubling of the number of independent energy suppliers offering competition to Labour’s big six, and already hundreds of thousands of people are benefiting, but we are doing more. We are backing Ofgem’s reforms to help consumers get better deals—market reforms to make sure that customers are on the lowest tariffs for them, are moved off poor-value dead tariffs and no longer face the complex web of hundreds of tariffs designed more to confuse than to compete.
Our reforms are making sure that people are given clearer, more personalised information on their energy bills so that they can compare tariffs more easily and switch more easily to save money. We are promoting collective switching, particularly aiming to ensure that the more vulnerable get to benefit from the best deals on the market.
But today I am challenging the industry to deliver faster switching. If you can change your broadband provider with a few clicks of the mouse, why should you not be able to do the same with your gas or electricity? It should not take five weeks for the change to take effect; 24-hour switching is my ambition.
First Utility has been out in front with its target of reaching 24-hour switching. Now, E.ON, SSE, ScottishPower and a number of independent suppliers, including Good Energy, Ovo Energy and Co-operative Energy, have accepted my invitation for urgent talks over the next month on how we can dramatically speed up switching. I want five-week switching to come down to one-week switching, and then I want to go faster still. Let us be clear that it will not happen overnight. We could announce 24-hour switching and then suppliers would say, “Okay, we will put our prices up to cover the cost”. That cannot and will not happen.
So I want to talk to suppliers who can agree and deliver a plan to speed up switching down to 24 hours, without increasing bills. Any company interested in making things easier for customers to switch, in addition to those that have already agreed, is invited to come and see me. Our preference is to do this jointly with suppliers, building on the good work of Energy UK, which has raised the ambition on this issue across the industry. But we are prepared to take action, if required, to compel those who drag their heels.
I have also written to energy companies about direct debits. I share concerns that they may be holding on to significant credit balances where customers have overpaid through direct debits. I expect all suppliers to make every effort to return money to customers with closed accounts. I accept that sometimes that will not be possible but, when it is not, my strong view is that credits should be directly applied to help the fuel poor and other vulnerable customers. My right honourable friend the Member for Bexhill and Battle will be meeting energy suppliers next week to discuss this question, and the question of the level of credit balances that energy companies are holding on to.
In our debates on energy bills, many have understandably been asking whether competition is working in our energy markets. While this coalition has already done a great deal to promote competition, we are ready to do more. As the Prime Minister announced last week, we now propose to introduce annual reviews of the state of competition in the energy markets. The first of these new competition assessments will be delivered by spring next year. The assessment will be undertaken by Ofgem, working closely with the Office of Fair Trading and the Competition and Markets Authority, when it comes into being.
The exact metrics for the review will be a matter for the regulators but I will be asking them to look in depth and across the energy sector at profits and prices, barriers to entry and consumer engagement. This Government have equipped the regulators with strong powers to deal with unjustified barriers to competition. If abuses are found, they must be addressed.
We also need to make sure that the energy suppliers are open and honest about the profits they are making, so I have also asked Ofgem to deliver—again, by spring next year—a full report on the transparency of the financial accounts of the energy companies and the ways this could be improved, building on the work already completed from accountancy firm BDO. Ofgem will be publishing its consultation on financial transparency this afternoon.
The public need to know that our reforms will have teeth—that companies that play outside the rules will be penalised and fined. With our Energy Bill, Ofgem now has powers to require energy companies to make compensation payments directly to consumers who have lost out. But today I want to go further. That is why I intend to consult on the introduction of criminal sanctions for anyone found manipulating energy markets and harming the consumer interest.
So, ours is a record of action and delivery. As set out in the annual energy statement, the Government are acting to help those most in need to keep warm this winter and to make sure that everybody will get a better deal from the energy companies. We are acting to deal with Labour’s energy crunch, filling in its energy black hole with more cleaner, home-grown energy, bringing stability and certainty to drive investment. This is our strategy for affordable energy security—a strategy to power the country and protect the planet, and to help keep bills affordable. I commend this Statement to the House”.
Baroness Worthington (Lab)
My Lords, I am grateful to the Minister for repeating the annual energy Statement in this House. I have listened to the content carefully twice now, and I am disappointed to say the least.
There are many important questions about the future direction of our energy sector that this Government are simply failing to clarify. One of the biggest, which was referred to in the debate that we had on Monday, is the degree to which this Government are still committed to decarbonising our electricity sector, yet there was no mention of this in the Statement. The Prime Minister has indicated that he wants to roll back green support mechanisms, without stating which ones. This is bound to decrease investor confidence across the board and increase the cost of borrowing. Just this morning the Leader of the House in the other place wrongly said that it was only Labour that wanted a decarbonisation target and that had we won the vote on Monday, this would have added £125 to consumer bills. Has there been a change of policy? Are the Government no longer committed to setting a decarbonisation target? Are the first few clauses of the Energy Bill now redundant? If so, we need to be told. Will the Minister please confirm that the official estimate of the cost of adding the decarbonisation target is £20, not the £125 which is being repeatedly trotted out by government claims that that is what the target would add to bills.
The other reason why I was disappointed was that the Secretary of State appeared, quite wrongly, to be trying to blame the situation in the energy market today on the previous Labour Government. Let us be clear, under Labour, 26 gigawatts of new capacity was added to the grid—19 gigawatts of non-renewable capacity and seven of renewables. Since then we have seen a hiatus in investment, with reports that renewable energy investment has now halved under this Government. The Statement says that £20 billion-worth of new infrastructure projects have been consented, but does not list what they are. To consent a project is nowhere near the same as having one delivered, built and providing electricity to the grid. We know this because there are many gigawatts of consented gas stations sitting by with absolutely no movement towards bringing them on to the grid. Will the Minister state clearly how much capacity has been added under this Government—not what is proposed or under construction, but what has been added?
We support a few things in the Statement. The most important is the Secretary of State’s statement that the main driver of energy price rises has been wholesale energy costs, not social and environmental policy. We know that they contribute less than 10% of the increase in bills that we have seen in recent years, and that many of them are precisely the measures we need to insulate ourselves against higher prices in the future, and to help the poorest and most vulnerable in making their homes more energy efficient. I am delighted that he made that very clear statement, and I hope that that could be reiterated by government across the board.
Sadly, to return to things that disappointed me, clearly the weakest part of the Statement is the Secretary of State’s claim that he is standing up to the big six. That is very hard to believe. The Government have given everything to the big six that they have asked for. They wanted a rollback in green and social measures, so the Prime Minister says that that will happen. They wanted a review of competition, and the Secretary of State has said today that that is what he will do. We do not need any more reviews; there have been 17 investigations into energy market competition since 2001. What has the regulator been doing all these years? Why do we still not have a competitive market either in generation or retail? We do not need another review. What we need is another approach and another Government; we need to split the big six generation companies from the supply companies to open up that market forcing them to sell their product through an open and transparent market in which everyone can compete fairly; and we need a new regulator. This is what Labour is committed to and what it will deliver.
On security of supply to the UK energy system—of course, there has been another statement today on this issue—the Government are failing to face up to the fact that the greatest uncertainty in security of supply of electricity at the moment is what will happen to our coal-fired power stations. Twelve such stations remain on the system. Built in the 1960s, they are ageing relics and have twice the emissions of gas-fired stations; they are old and they are prone to break down. There is no indication in the Statement that the Government are interested in finding out what these stations intend to do. As long as we do not know what they will do, we cannot move forward with investment in new infrastructure. The longer the coal-fired stations stay on the system, the less there is a clear incentive for investors to bring old gas-fired stations back into the market and to invest in new gas capacity. This is the big question on security of supply but the Government do not have an answer. We need to seek clarity, and soon.
It is welcome that the Secretary of State will be introducing new measures to bring the cost of bills down—we all want to see wholesale prices coming down—but this Government have not got to grips with the scale or the nub of the problem. Labour has a clear plan—we have been crystal clear on what we will do—but the Government simply do not have an answer. They do not even have a consistent message across the department and across government as a whole. The Statement is sadly lacking, but that is not surprising given where the Secretary of State finds himself these days.
Baroness Verma
My Lords, I have listened carefully to the noble Baroness. Of course, she would say what she has just said; it was the kind of speech that her colleague gave in the House of Commons.
We have laid out quite clearly in the Statement all the measures that we have taken. The noble Baroness has asked me a range of questions, to which I will try to respond in the time I am allowed, but she should be aware that continually saying that Labour will freeze energy prices will raise prices before and after any such action. These wonderful jingoistic statements do not mean very much. They might be populist but, at the end of the day, will they make a difference to the consumer? I doubt it very much.
It would be interesting to know whether the noble Baroness knows where her own leader’s electricity supply comes from because that particular company has already stated that energy freezes will cause hardship for investors and threaten the survival of some of the smaller independent generators. She should bear that in mind when talking about energy price freezes.
The noble Baroness asked whether we were still serious about decarbonisation. As I said in the debate on Monday, the Government are absolutely committed to meeting their decarbonisation targets. Legal requirements are in place in the Climate Change Act 2008 and we have commitments to our European partners. We have always stated that the best time to set a decarbonisation target would be in 2016 with the fifth carbon budget, taking advice from the Climate Change Committee. We must consider the whole economy and not only parts of it because we need to know what condition it will be in at that point. We also need to consider any action against the backdrop of what our partners in Europe and more globally are doing. We do not want to disadvantage ourselves competitively either.
The noble Baroness can rest assured that we are as committed as she is to decarbonising the energy sector, but we need to do so at a time when we know what the whole economy looks like, not in 2014 or earlier, when we will not have that analysis at our fingertips. This will take detailed work, and of course the noble Baroness is aware of that.
The noble Baroness asked about the rollback of our support for the green agenda. That is absolutely not the case. It is an important agenda for us all. We believe that we need a much cleaner, greener energy sector, so of course we are signed up to it. Within that, however, we have to recognise that a sensible Government can see what is working well, how it is working and how it is impacting on consumers, and are able to take stock of where the measures are.
The noble Baroness asked about investment. Since 2010, we have seen £35 billion-worth of investment, £20 billion of which has been made in the renewables sector. We have not put people off investing in Great Britain. It is wonderful to realise that people are very confident about coming to this great nation to invest, and we need to talk that up. I hope that the noble Baroness will join me in making sure that people go on wanting to come here and invest. This is a great place for investment and I would hate the conversation to lead to anything other than that.
The noble Baroness went on to point out that 17 investigations have been conducted since 2001. I would just like to remind the noble Baroness that her party was in government until 2010. If her party thinks that Ofgem is the toothless regulator it is making it out to be, why did it do not do something about it then? Why are the Opposition now planning on putting more costs on to the consumer by trying to develop a new regulator? What we want to do is ensure that the regulator we have in place, under new leadership, has the powers and the means to do the job it needs to do. That job is to go out there and make sure that the energy market is performing to the best of its ability for the consumer.
Lord Jenkin of Roding (Con)
My Lords, I thank my noble friend for what she has said, but might I press her a little further on the point with which she ended her reply to the noble Baroness, Lady Worthington? I refer to the question of the competition reviews. The Statement says that although much has already been done, the Government are ready to do more, and then goes into detail about annual reviews of the state of competition in the sector. If, as seems entirely possible, one of the results of a review is that the regulator, Ofgem, for example—I agree with my noble friend that we need to build on what is already in place and not try to create something entirely new—needs strengthened powers to make competition more effective, how might Ministers expect to deal with that? As the Secretary of State said in his Statement:
“If abuses are found, they must be addressed”.
Would it not be wise to take powers now in order to avoid having to introduce fresh primary legislation? Interestingly, EDF has come out in only the past few minutes to say that it would welcome a review, because that will help to restore trust in the system. If that is indeed likely to be the result, would it not be a good idea to act fairly quickly?
Baroness Verma
My noble friend is absolutely right. The purpose of the review is to enable the regulators, led by Ofgem, to see what needs to happen in order to strengthen competition. They should be able to look carefully at whether there is transparency or not and accountability or not. What we need to do is wait for the competition review to take place, conduct a consultation on the review, feed into the review and then comment on it. It would be wrong for the Government to comment at this moment in time. It is right to get the competition review under way by having all three regulators look at the position carefully. They have the expertise and they know what they are looking for. If they need extra powers, it is for the Government to ensure that we support them by ensuring that those extra powers are put in place.
Lord Teverson (LD)
My Lords, with this kind of Statement, we get rather infected with the way of doing things and the mood of the House of Commons. I welcome the fact that the Statement concentrates on competition. We have to keep it absolutely focused there. Is there an easy answer to this and is anybody offering one? No, there is not, but we need to keep working at it. I have a particular question for the Minister on that point, which I will ask in a minute, but first let me say that I welcome the security of supply report that came with this Statement. It is one of the clearest and most interesting documents that has come out of DECC for some time and includes things such as the electricity diversity diagram and report. I particularly welcome the move to make switching much easier and quicker; that is clearly important both for consumer power and for competition. I also particularly welcome the market manipulation pledges that have come from my right honourable friend the Secretary of State. We certainly expect that when it comes to other types of asset and other financial instruments, which is effectively what energy is nowadays, and we should have it now in this case.
My question was about the proportion of the wholesale supply that the Government intend should go through a market and be auctioned. Where is the government thinking on that? My own wish is that we start to expand the proportion of the market that has to go out there and is traded between the supply side and distribution to customers. One issue that came out in our consideration of the Energy Bill was the transparency of those actions. I know that that is a priority for the Government and would like to understand how that is moving forward.
My last point is about energy prices. We are told time and again that electricity prices very much rely on and follow wholesale gas prices, but we are questioning how much wholesale prices have gone up in reality over the past year. We are now engaged in greater questioning of the big six. Given that electricity generation is now dominated by much cheaper coal, can the Minister tell me where that extra margin from the cheaper fuel input has gone? It has certainly not gone to consumers. That is an area that the Minister would do well to pursue.
Baroness Verma
My noble friend is of course absolutely right. All the questions that he asks are poignant, as are the remarks that he made around switching and making sure that we have the security of supply that we require. As my noble friend is aware, in the short term we have measures in place. However, in the longer term we have to look at a range of measures and mechanisms. I know that my noble friend is very keen on demand-side reduction, which of course is part of that and another measure that we are seriously looking at piloting through the Energy Bill.
My noble friend also raised the issue of manipulation. The Secretary of State has said that we need to look at stronger measures. If we do not see action on greater transparency and accountability, we may have to look beyond just financial penalties at criminal sanctions. We are undertaking a range of measures. My noble friend is absolutely right that we are of course debating many of the questions that he has asked today in relation to the Energy Bill. There are further debates to be had and I hope that my noble friend will be reassured that we are undertaking very much the sort of action that he expects us to as a responsible Government.
Lord Horam (Con)
I have a further question about the security of supply. Along with the noble Lord, Lord Teverson, I very much welcome the strength of the Statement when it comes to security of supply. It is a very important issue, which people are concerned about. If there is any possibility of—to use the rather dramatic phrase—the lights being turned off, do I understand the Minister to be saying that mothballed capacity will be available and brought into action should that eventuality arise?
Baroness Verma
I reassure my noble friend that, yes, we have measures in place that will ensure that we have enough capacity to keep the lights on.
Lord Grade of Yarmouth (Con)
I, too, thank my noble friend for repeating the Statement. It was comprehensive, intellectually rigorous and resistant of soundbites, which is to be welcomed. My question relates to the regulator. The question of consumers switching between utilities is not a new concept. In the telecoms sector, Ofcom was quick to address the question of switching from one mobile phone provider to another. Was it a failure of the regulator or of the statutory powers and remit of the regulator that meant that this question was not addressed earlier?
Baroness Verma
My Lords, it is a failure of energy companies ensuring that consumers have easy-to-understand information. That has been a big part of the problem, as well as the fact that we have not pushed enough to get energy companies to be more transparent and accountable. First Utility has been one of the first companies to come forward, with E.ON, Scottish Power and SSE, to say that it will be leading the charge to try to make switching quicker and easier. We are inviting more energy companies to come forward to join us. The Secretary of State has made it very clear: we want to talk with all energy companies and we are keen to see their consumers’ bills go down. It will become apparent that those energy companies that do not want to do this will end up losing customers to those suppliers that are at the front of the game.
High Speed Rail (Preparation) Bill
Overseas Territories
Baroness Hooper
To ask Her Majesty’s Government what plans they have to support economic diversification in the Overseas Territories.
Baroness Hooper (Con)
My Lords, since our last debate on the theme of the overseas territories in 2011, there have been a number of significant developments, not least the Government’s White Paper, The Overseas Territories: Security, Success and Sustainability, on which wide consultations have taken place. This was followed by the communiqué of the Overseas Territories Joint Ministerial Council meeting, issued in December last year, which committed the political leaders and representatives of the UK and overseas territories to,
“a modern relationship based on partnership and shared values”,
and to,
“the principle and right of self-determination”.
I welcome this approach and look forward to the outcome of this year’s joint ministerial council meeting, which is due, I believe, next month and which I understand will continue the dialogue on constitutional issues, the commitment to growth and jobs, the environment and the relationship of the overseas territories with other international organisations, especially the Commonwealth, among other things.
Today’s debate is intended to concentrate on economic developments but it cannot pass without a reference to the increasingly politically charged atmosphere affecting Gibraltar and the Falkland Islands. I was fortunate in being able to join colleagues from both Houses of Parliament and many Chief Ministers and representatives of the overseas territories—including one from the Pitcairn Islands, which, as your Lordships know, has a population of 52 people—for the celebration of Gibraltar’s National Day in September. It was the tercentenary of the signing of the Treaty of Utrecht and there had been increased tension and disruption from the Spanish authorities at the border all through the long, hot summer. But the National Day celebrations went with a swing and there was no doubting the will and determination of the people as well as the politicians of Gibraltar to remain British.
Gibraltar also hosted the pre-joint ministerial council meeting, hence the presence of the representatives of other overseas territories. Those meetings were well attended and fruitful.
The economy of Gibraltar as a financial centre is clearly booming, and tourism flourishes in spite of the border difficulties; sadly, the situation continues to deteriorate in that regard. I was particularly saddened to learn that only yesterday there was a serious incident when a Guardia Civil patrol boat had a slight collision with a royal naval supply ship in British territorial waters and guns were pointed at each other. Can my noble friend the Minister inform us of any steps that the Government may have taken about this incident? Could he also give us, in relation to Gibraltar, any information on the eagerly awaited report from the European Union inspectors who have looked at the border situation?
I turn to the Falkland Islands, where there is sadly no abatement in difficulties being raised by Argentina, exacerbated last year on the 30th anniversary of the Falklands War. Again, this does not appear to have affected the economic development of the islands, which flourishes. It is the Falkland Islands Government, almost exclusively, who, like the Gibraltar Government, devise their economic diversification strategy and implements it. Her Majesty’s Government are involved in certain areas, notably in negotiations with the European Union development aid budget on behalf of the overseas territories. The Falkland Islands will receive some £3.5 million over the next three years from that source. Can my noble friend give us any further information about this and on the building of a new port facility in Stanley?
I believe that we can approach the general issue of economic development under three broad headings: diversification, tourism and financial services. On diversification, which is a common goal throughout the territories, a robust, long-term economic strategy needs to be worked out on a territory by territory basis. Some will need more help than others; each is a unique and different place. To give an example, Tristan da Cunha—which is heavily reliant on its one leading export, gourmet-quality lobster—needs to take advantage of new technology and upgrade its techniques, for example for buying and selling products online. Tristan is also looking to develop its tourism in line with its globally significant biodiversity and produce more high-quality, tourist-related products. Will the UK Government support this?
Another example that I can quote is that of Anguilla, where the economy is heavily reliant on tourism, which is currently suffering in the present economic climate. They have a small financial services sector, which is under challenge, and are seeking support for diversification in developing a fishing strategy, for example, to clear the waters to the north of the island of third-country, mainly Asian, trawlers, to enable local fishermen to fish and put a conservation policy in place. It must be said that Anguilla has particular constitutional issues that affect the relationship between the governor and the elected Government, which they claim is too complex and commercially based and not sufficiently clear to encourage sorely needed investment.
Both those examples, and the many others that I do not have time to quote, underline the need for a proactive rather than a reactive partnership plan between the United Kingdom and the relevant overseas territories. They also emphasise the importance of links in the field of education, training and skills, particularly at tertiary level, between UK institutions and the overseas territories. It is clearly important, not to say vital, for overseas territories to have well diversified economies, not only to enable them to become sustainable but to allow them to flourish with continually growing resilient economies and increasingly affluent societies. I look forward to my noble friend’s comments on this. In this respect, too, I welcome the fact that the Foreign Office will host a business forum for overseas territories during the week of the next joint ministerial conference specifically to introduce UK businesses to opportunities in the overseas territories.
To varying degrees, tourism affects all overseas territories. I have already made reference to some of them. The unique and isolated locations of many territories, treasure trove of biodiversity and improving communications all go to make tourism a high value source of income for those territories. Even Bermuda, now the largest of the overseas territories, acknowledges that tourism is its second-largest industry, providing 6% of its GDP. Perhaps the most exciting development, after years of campaigning, is the building of the airport on St Helena. This will have a huge impact, with journey times to the island reduced from five days at sea to five hours by plane. The UK Government’s involvement in the airport, as well as some ongoing DfID funding to infrastructure and capacity-building initiatives to support the airport investment, is to be welcomed. I hope the Minister will be able to tell us that the UK Government intend to follow on from and build upon the large upfront investment they have made in the airport.
My third theme is financial services. I shall try to speak briefly on this as I know that others will major on the overseas territories active in this area. First, it is important to recognise that, for example in a territory such as Bermuda—which provides a global service centre in the insurance remittance, private equity and asset management fields, with the knock-on effect of 100,000 jobs in the UK—we are talking about activities with an important added value of expertise. However, the eyes of the world, especially through the prism of the OECD, are focusing very much on money-laundering and tax-washing—I think that is the expression now. It seems that blacklists can be issued on a unilateral basis, which can have an unfair impact. Nevertheless, the OECD estimated that developing countries lose three times as much money to tax havens as they receive annually in aid. It is therefore essential that our Government do all they can to ensure openness, transparency and high standards of probity. Can my noble friend comment on the signing up by overseas territories to the multilateral Convention on Mutual Administrative Assistance in Tax Matters? Could he also tell us whether the Prime Minister’s announcement this morning of the Government’s decision to create a new public register of the ownership of some 2.5 million companies applies equally to companies registered in the overseas territories?
In conclusion, in the nearly 30 years that I have been a Member of your Lordships’ House, I have had the privilege and pleasure of introducing a number of debates on issues affecting the 14 overseas territories and their dependencies. Today’s debate is the least well attended. I feel sure that it is a case of quality rather than quantity and I am most grateful to those who are participating in the debate. I have received apologies from some who know and take a great interest in various overseas territories but are not able to be here. It is a sad reflection on the present composition of your Lordships’ House that, although people complain that we now have too many Members and nowhere to sit, so few take an interest in the fascinating, diverse and tiny overseas territories.
Lord Boateng (Lab)
My Lords, this House and the overseas territories themselves owe the noble Baroness, Lady Hooper, a debt of gratitude for the fortitude and determination that she has displayed over the years in pursuit of their interests in this House and more widely.
I well recall as Chief Secretary being asked to reflect on the airport in St Helena. The noble Baroness’s name came up then, all that time ago. It is to this Government’s credit that they have gone ahead with that long overdue project. That addresses the central issue which we are asked to look at tonight about the diversification of the economies of our overseas territories. The need to diversify those economies to achieve the Government’s stated objective of successful and resilient economies in the overseas territories is clear. Without diversification, there is no way that those small economies will withstand the shocks that they are bound to experience from time to time because of events in the global economy. At the moment, they are experiencing those shocks in tourism and the financial services industry.
Of course, success is a relative term. The financial services industries in the overseas territories have been, on one measure, a real success. They have, in some instances, developed interesting and significant markets—for instance in reinsurance and hedge funds. However, that success has come at a cost. I fear that the cost has all too often been paid by economies that are themselves struggling to develop.
It is not without significance, I submit, that the Africa Progress Panel—which is supported by the Department for International Development, our Government, as well as by the Governments of many emerging market economies in Africa—stated:
“The governance vacuum surrounding companies operating from offshore centres is undermining reform in Africa itself”,
and that,
“African governments and citizens … have no recourse to information about the operations of these companies”.
That is true, and why it is so important that the Government answer the Question asked by the noble Baroness, Lady Hooper, about their position on urging the overseas territories to sign up fully at the Joint Ministerial Council to the multilateral convention on mutual assistance for the administration of tax matters. No one wants the financial services sector to go down in the overseas territories. Without it, in a number of instances, they would be in serious difficulty, but that should not be at the expense of other developing economies and markets elsewhere in the world, particularly in developing markets and economies where the poorest of the poor can least afford the consequences of the failure to promote transparency, accountability and good governance in the financial services sectors. We await the Answer to that Question with interest.
Tourism, too, has suffered as a result of the recent global downturn. It is to one particular economy in one of our overseas territories, that of Anguilla, that I ask the Minister to address his mind and the activity of the Government. Anguilla is a small island whose dependence on tourism has come at a very high cost. According to the ECCB figures of September this year, there was negative growth in Anguilla for 2012—minus 2.61%—and, for 2013, growth is projected at 0.93%. Frankly, the margin of error there is such that the economy has effectively stalled.
The consequences of that in terms of unemployment and poverty on the island are real. It is now seeing growing levels of poverty, an increasing reliance on food banks, and one in 10 homes are without electricity. There is real human suffering in Anguilla and we have a responsibility to address it. The Government have said that where there is need, the overseas territories will have first call on DfID’s budget. We have not yet seen that materialise in fact, and we need to hear from the Minister what plans DfID has to step in to support Anguilla at this difficult time.
This is not one of those occasions when it will be open to DfID to say, “They do not meet our eligibility criteria”, because the fact of the matter is that they do. If we look at the criteria for overseas development assistance or at the OECD’s development assistance co-operation list, which defines the poorest countries in the world, Anguilla is among them. We need to hear what the Government propose to do to give some reality to the aspirations contained in the highly laudable White Paper of 2012.
There is a concern that Montserrat and Anguilla have somehow fallen into the twilight zone of policy that affects the Caribbean, so far as the operations of Her Majesty’s Government are concerned. Despite its middle-income status in some instances, the Caribbean generally has within it real instances of poverty. They are driving a situation in which there are fragile states exposed to the dangers and vagaries of international and domestic gangsterism, and in which women are forced to become mules for drug runners because of their own dire poverty. Yet because these pockets exist within “middle-income countries”, DfID is unable or unwilling to do anything. We need to revisit policy in relation to the Caribbean generally, but our focus this evening is on our overseas territories—those territories for which we are responsible. Surely, Montserrat and Anguilla are entitled to the benefit of DfID’s active engagement.
I know that DfID is supposed to be working in Montserrat in ways that promote private-public partnership responses to the needs of that island, which is all very interesting. There is a real opportunity to develop the volcano that was responsible for so much of the damage and harm done to Montserrat as a highly effective energy source. Yet despite DfID’s best endeavours, and despite what I am told is the express willingness of a number of private sector operators to become involved, there does not seem to have been any particular progress in attracting private sector engagement for Montserrat. We really need to see some action in this area.
Perhaps what we need to see is a greater degree of engagement on the part of Her Majesty’s Government with the ACP in Brussels, which has a brief in this area and which also has resources paid for by the British taxpayer. We should see what it can do to promote diversification across the piece, throughout our overseas territories. These territories are a responsibility that we have inherited. We should not see them as some sort of embarrassment or vestige of a colonial past that we no longer want to talk about. They are part and parcel of our history. We owe them a debt of gratitude for the role that they played strategically over many years in our island story. We owe them, too, a moral responsibility to deliver to them at this time of real need in so many of these territories.
Lord Blencathra (Con)
My Lords, I am pleased to declare an interest. I am the representative of the Cayman Islands Government in the United Kingdom, a remunerated post. I have never spoken or asked a question on behalf of Cayman in this House, and do not intend to do so today. Rather, I shall talk about all the British Overseas Territories.
I congratulate my noble friend on her speech. She has a notable track record of support for the territories and is a stalwart defender of them, as has been said by the noble Lord, Lord Boateng. However, that is my first point: why should we have to defend the territories? They are an incredible success story—and a great British success story, as the noble Lord, Lord Boateng, has just said.
Like your Lordships’ House, we would not invent them if we were starting from scratch today, but over hundreds of years they have worked and they still work today—even more so, I submit. They work because they are democracies with parliamentary assemblies based on the Westminster Parliament; because they have the rule of law and the security provided by the Crown; because they have the right to self-determination but have always voted to stay British; and because they are innovative and make the best of scarce resources. They are good for Britain because they, and the Crown dependencies closer by, put a lot more in than they take out.
Recently, I think I heard the Premier of Montserrat, which was completely devastated by the volcano in 1995, say, “If you’re served a lemon then you may as well make lemonade. And please tell the noble Lord, Lord Boateng, that we’ve drilled down the side of a volcano, got geothermal energy and are selling off some of the rich volcanic rock and ash that covered our capital to a depth of 12 metres”. That is innovation and diversification in action and, with the additional help that the noble Lord called for, they could do so much more.
This debate is about economic diversification, and the word “diverse” certainly applies to the overseas territories. Every single one is different. From Pitcairn—I can tell the House today that 4% of its population are visiting Parliament; that is, two of them—to the Falkland Islands, Anguilla, Bermuda and Tristan da Cunha, they are all small islands, except Gibraltar, which is almost an island, and, as has been said, each requires different solutions for economic growth.
Before I move on from the word “diverse”, I want to mention biodiversity. Some 90% of the biodiversity of the United Kingdom is not in the United Kingdom at all; it is in the British Overseas Territories. What native species do we have left in the UK that have not been lost? Soon we might have no red squirrels left, and even hedgehogs are becoming an endangered species. However, the overseas territories are packed with wildlife on land, in the air and in the sea. In the overseas territories we have some of the best marine parks in the world, and most of our coral reefs are still intact. Of course they are under pressure and too many species are on the red list, but at least we still have them and we have to ensure that we never lose any more.
Could the Minister please press his colleagues in the Foreign Office to look favourably on the Pitcairn bid to create the largest marine reserve in the world around the islands—836,000 square kilometres of pristine ocean? I understand that there is a concern that if we declare it we cannot enforce it, but they have suggestions for that in the excellent booklet that they have produced on the bid. We often cannot fully enforce our own fishing grounds but that does not stop us declaring that they are our waters. We should do the same for Pitcairn.
It does not require mega-investment to diversify the economy of many of these territories. Ecotourism is a natural area for economic diversification, and that could work in nearly all the territories. Tristan da Cunha has made a breakthrough with its gourmet lobster and exports 40 tonnes per annum to the EU, having fought for years for the right to do so with that mere 40 tonnes. It is also hoping to go upmarket with its island-produced knitwear, and if it improved its harbour then a lot of diversification would automatically follow.
Now that the airport is under construction in St Helena, I am certain that, with the drive and ingenuity of the St Helenians, we will see diversification there, too, and a huge boost to sustainable tourism.
Of course, tourism would be boosted in most of the territories if they were not discriminated against in air passenger duty. It cannot be right that it is cheaper to fly to San Francisco than to Turks and Caicos or the British Virgin Islands. The territories are not asking for APD to be scrapped but for it to be rebanded simply to remove the grossly unfair advantage given to most of the United States, which is 2,000 miles further away.
As my noble friend said, the Government are to be congratulated on their robust defence of the Falkland Islands and Gibraltar. Oil companies continue to explore in the Falklands because they have the assurance that the UK will support the right of the islanders to self-determination. I welcome the similar support offered to Gibraltar. Of course, Gibraltar diversified into online gaming, but the Treasury did not like it. We live in a global online world, and if the Treasury stamps out online gaming in Gibraltar because it fears loss of revenue, it will pop up in another less well regulated and non-British jurisdiction, and the Treasury will still have lost the revenue.
We all know that one size does not fit all in policies for diversification in the overseas territories. However, at very little cost the British Government can assist, and I, too, congratulate the Foreign Office on the initiatives it is taking in encouraging the territories to collaborate with other government departments and county councils to learn best practice. The business event it is organising for the JMC is totally focused on economic diversification. It is a first, and even if it is only half successful, it will be far better than nothing and better than what went before.
The territories have their own laws in place on human rights, equality and diversity and proper procurement procedures et cetera, but I worry at times that the UK Government may foist too many regulatory burdens on them which may make them uncompetitive. I think Bermuda has the largest population with 65,000 people, Pitcairn has just 48 or 52 people—it is about there—and the average is about 23,000 people. We cannot keep territories of that size competitive if we overburden them with all the quangos and authorities that we have in a country of 55 million people.
It is on competitiveness that I wish to close my remarks. Some of the territories and Crown dependencies are top financial centres and are rated alongside the Londons, Hong Kongs and New Yorks of this world. They contribute billions to the UK economy. The Michael Foot review, set up under the previous Government, showed conclusively that they did not cause the economic crisis of 2008. In July, Jersey published a report, Jersey’s Value to Britain, which showed that £1 in every £20 of money invested by foreign individuals and companies in assets located in Britain reaches the UK via Jersey, and each year Jersey banks send around £120 billion of their deposits to parent operations in the UK. The same goes for most of the other overseas territory and Crown dependency financial centres. A recent World Bank report—I think it was in April—showed that massive investment routed through the financial centres of the world is pouring into the eight African countries that have economies growing at more than 10%. British financial centres are putting money into developing infrastructure projects in the UK and emerging nations, not taking it out. Two days ago the Premier of Bermuda spoke at the Islamic finance conference and said that Bermuda would seek to diversify into Islamic banking. That is diversification of a kind, but still within the umbrella of international finance.
These financial centres cannot diversify into something totally different, and nor should they. I deplore the neo-colonial attitude of some activists who say that they should be closed down and get overseas aid instead. These territories are a source for good in the world, and I thank the Prime Minister for his robust declaration that they are no longer tax havens and that we should look at much larger nations which are not as well regulated as the territories. He is absolutely right. Professor Sharman’s report showed how easy it is to set up a shell company in some states of the USA, with no checks whatever. If the NSA is looking for sources of terrorist financing, it should spend less time looking into Angela Merkel’s and the Pope’s phone messages 5,000 miles away and look 50 miles down the road at 1209 Orange Street, Delaware, where a little two-storey block has more than 200,000 companies registered. No questions are asked and nobody knows who owns them.
The overseas territories are well regulated, as the Prime Minister has now acknowledged. We all support the principle of a global level playing field and therefore welcome the action being taken to secure this through the development of new international standards for automatic exchange of information that will have global application. Business is global and regulation must also be global and apply to all. If all territories and countries are treated equally under international regulation, as they must be, I am absolutely certain that the British Overseas Territories will still be the world-class jurisdictions of choice, and places of which we can all remain proud.
Baroness Howells of St Davids (Lab)
My Lords, I am grateful for the opportunity of speaking in the gap. I add my thanks to the noble Baroness, Lady Hooper, for initiating the debate. I have decided to concentrate on Anguilla, although it has been mentioned by every previous speaker.
Anguilla previously experienced strong growth during the period 2004-07. Its GDP stood at 12%. Now recession and the dreaded APD tax have hit the country. It relies heavily on its tourism sector. This has created a very worrying time for the island, with high unemployment, home foreclosures, and growing levels of poverty and business failures.
While it is accepted that there is the need to diversify—agriculture, fisheries, finance services and ICT are cited as possibilities—it takes a lot of time to diversify on tiny islands. Consequently, there is a need to invest in the facilities and infrastructure, which will improve access to Anguilla and enable the island to benefit more from tourism while diversification takes place.
We know that Anguilla is ready for overseas development assistance, according to the OECD’s co-operation list which defines the poorest countries in the world. However, DfID has not provided any development assistance to Anguilla for many years. In the 2012 White Paper, the coalition Government set out a vision to support all the overseas territories in order to make them flourish and be free from financial dependence. Overseas territories also have “the first call” on DfID’s budget.
Despite these facts, DfID does not provide any direct funding to Anguilla and does not have the machinery to re-evaluate the economic status of a territory once it decides that the territory should not get any support. This means that, despite six successive years of economic decline, DfID has been unwilling to entertain any conversations about re-evaluating Anguilla’s status for DfID support, despite the fact that Anguilla remains very much in need of help by official development assistance. The UK Government are committed to contributing 0.7% of their national income in aid, but it appears to be without regard for the overseas territories.
The Government of Anguilla are keen to diversify its economic base, but to do so at this time requires effective long-term thinking. While the economy remains in a negative state, it is difficult for the Government to focus human resources on this task. DfID has yet to offer effective assistance to facilitate that process. I ask the Minister to address these concerns and to give a reassurance as to what assistance will be afforded this small island, which is profoundly loyal to the British Government.
Lord Brooke of Sutton Mandeville (Con)
My Lords, with the leave of the House—I have also spoken to the spokesman for the Opposition—I have a very brief and indeed personal point to make in the gap, which relates to a single territory.
The island of St Helena is now awaiting the arrival of its airport and is hoping for tourists. Tourists like to see sights. St Helena has Georgian architecture; not always in the best of shape, but Georgian. Conservation is therefore important. For personal reasons I am interested in making a charitable financial contribution.
My personal reasons are that one of my forebears was governor, and a good one, between 1787 and 1801. Perhaps nepotistically, he brought out his nephew to be his secretary. The latter remained on the island in this capacity until 1834, publishing a book on the island’s history in 1808. A second edition was published in 1822, which added two chapters—we Brookes are of few words—to cover the residence of Napoleon Bonaparte.
The years 1787 to 1834 spanned many Georgian years. Every time I have an opportunity, like a regular meeting of the St Helena All-Party Group, or an ad hoc one, when someone germane is either going to St Helena or returning, I ask for details of the way to help the conservation programme. Every time I am promised the details, but answer comes there none. The CPA even put me on a CPA visit to St Helena one summer which was then cancelled, but with a written promise to send me on a substitute visit in the new year. The new year came, the visit went, with no word to me, and a substitute sent in my place, but not from my party.
I intend it as a compliment to my noble friend who will shortly be at the Dispatch Box to ask him to absorb what seems a reasonably simple request and get someone to send me in writing the details I seek, preferably with a letterhead or e-mail address to which I can respond if necessary. If there are other territories beside St Helena which have the same needs, I shall be happy to support them too, perhaps with others following suit.
Lord Bach (Lab)
My Lords, I hope that the Minister listened carefully to what the noble Lord, Lord Brooke, has just argued. In many ways, of all the questions that he will be asked this evening, that is one that he must answer tonight.
I will also start by congratulating the noble Baroness, Lady Hooper, on securing this debate. It is an important and timely debate, with the forthcoming 2013 Joint Ministerial Council about to start. I agree with her that it is a shame that there are not more speakers. Perhaps one of the reasons is that this debate has commenced after 6 pm on a Thursday evening in the autumn/winter, on, of all nights, Halloween. I wonder whether that has been a factor in keeping noble Lords away.
I have had the pleasure of working very closely with the noble Baroness in a number of fields over a number of years, perhaps most significantly as joint officers of the British Council All-Party Group. If I need to, I declare an interest as chairman. The whole House admires and has long admired the noble Baroness’s unrivalled knowledge and expertise in the field of foreign affairs generally, as well as the overseas territories, and her practical skill in getting things done. She does not just talk, but acts as well.
I am delighted that the noble Lord, Lord Ahmad of Wimbledon, is to answer this debate. Many of us on these Benches—can I let him into this secret?—admire his performances at the Dispatch Box. I have certainly enjoyed our jousts on the subject of legal aid. However, I have to tell him that there will be little jousting between the Front Benches tonight. To use the words of the noble Baroness, Lady Hooper, in the previous debate that she instigated on the territories:
“This debate is not … political. Indeed, I think that it is probably the least contentious … of government policy”.—[Official Report, 10/3/11; col. 1797.]
I agree but that is not to say that the Opposition do not have questions they would like answered. We agree with the comment of the noble Lord, Lord Howell of Guildford, in that debate, namely:
“This is a complex and wide-ranging portfolio”.—[Official Report, 10/3/2011; col. 1796.]
We are united in our commitment to the principle of self-determination whether it concerns Gibraltar, the Falkland Islands or any of the other overseas territories. It is for the peoples of the territories to decide their own future.
The Government’s White Paper, published in June 2012, builds on work done by the previous Government. Noble Lords should not simply take that from me; that generous comment was made by the Minister, Mark Simmonds, who used that phrase in a debate in another place on 11 December 2012. The Labour Government’s 1999 White Paper strongly influenced their policy during their time in office and, I venture to suggest, influenced the present Government when they produced their own White Paper last year.
Mr Simmonds also said in another place:
“I see the focus of the UK Government in the year ahead as assisting the territories with their priorities, rather than what we think their priorities should be”.—[Official Report, Commons, 11/12/2012; col. 15WH.]
We agree with that sentiment, as we do with the words of the communiqué that was issued following last year’s Joint Ministerial Council. Part of that communiqué was read out by the noble Baroness, Lady Hooper, a few minutes ago. It states:
“We are committed to a modern relationship based on partnership and shared values. We share a commitment to the principle and right of self-determination. The people of each Territory have the right to choose whether or not their Territory should remain a British Overseas Territory. Any decision to sever the constitutional link between the UK and a Territory should be on the basis of the clear and constitutionally expressed wish of the people of the Territory”.
We agree with that.
It has been obvious for a long time that some of the overseas territories are poorer than others. Not only are they situated around the world but their natural resources, histories and the forces that have moulded them are very different. The economic typhoon that has gone round the planet has affected the overseas territories, particularly those which are less well off. In our view the British Government have a duty to assist those territories that are feeling the effects of that economic typhoon most severely. I hope that the Minister agrees.
The subject of tonight’s debate—economic diversification in the overseas territories—may be key to gaining or recovering financial health. Many of the overseas territories are situated in beautiful and environmentally compelling parts of the world, and thus have built up and sustained a tourist industry that can be particularly vulnerable to downturns and recessions in larger, more industrialised, countries from where the tourists come. Sometimes tourism has taken the place of indigenous industries such as fishing or farming. When income from tourism falls, trouble may loom unless alternatives are found. Some of those alternatives have been mentioned in tonight’s excellent debate. Given that background, what is Her Majesty’s Government’s policy in terms of giving aid and assistance to overseas territories that may require them? I believe that the answer to that question is at the heart of this debate.
Much has been said about Anguilla and I am not going to repeat it, but I ask the Minister to answer those questions about the role of the Department for International Development and say whether some help can be given to that country, which clearly needs it. Many of us have received representations over the past 24 hours and it is important that the Government come up with answers.
Air passenger duty was mentioned in particular by the noble Lord, Lord Blencathra, in his excellent speech. Will the Minister answer the question posed by the noble Lord? It is a crucial question and it looks on the face of it as if the operation of the system is unfair.
The issue of financial transparency is obviously important—one that the Government should take seriously, and I have no reason to believe that they do not. I ask the same question that my noble friend Lord Boateng asked: ahead of the Overseas Territories Joint Ministerial Council in London on 26 November. Will the Government ensure that as part of efforts towards economic diversification overseas territories take steps to ensure greater financial transparency? Specifically, will all overseas territories sign up to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters? That is an important question to which many outside this House would like an answer.
In conclusion, this has been an excellent debate. I very much welcome the fact that it has taken place and we all look forward to hearing what the Minister has to say.
Lord Ahmad of Wimbledon (Con)
My Lords, I join other noble Lords in congratulating and paying tribute to my noble friend Lady Hooper, who has—as I recently found out, I confess—done incredible work in this area. She continues to represent the case for the overseas territories with great passion and vigour. I pay tribute to her efforts in this regard. The noble Lord, Lord Bach, was kind in his opening remarks and perhaps I may reiterate the sentiment he expressed about quality over quantity in terms of participation.
Economic diversification in the overseas territories is an important area. I will take the opportunity also to comment on what the Government are doing to improve trade and investment opportunities, about which all noble Lords asked. Mention was made of when my noble friend Lord Howell of Guildford responded to a previous debate on this subject. I share his sentiments and comments. Certainly from the Dispatch Box he, too, demonstrated Her Majesty’s Government’s commitment to the overseas territories.
The Government set out our vision for the overseas territories in last year’s White Paper. My noble friend Lady Hooper referred to it in her introduction. The Prime Minister described them as,
“an integral part of Britain’s life and history”,
and said:
“We want to see our communities flourish in partnership, with strong and sustainable local economies”.
As the noble Lord, Lord Bach, said, as we progress on this issue, there is no difference in the sentiment, emotion and determination to protect and defend the territories’ sovereign integrity that we share across the Chamber and the political divide.
The territories are constitutionally separate from the United Kingdom and have their own Governments and laws. The elected Governments of the territories are responsible for developing their economies but, as we said in the White Paper last year, the UK Government will continue to work with the territories to help them in this area. We have made significant strides but recognise that there is more to do. As several noble Lords outlined, the territories have particular challenges, such as their geographical isolation, small communities—only 52 in one case, as we heard—and the fact that at times they face hostility from their nearest neighbours. They have a narrow economic base and limited natural resources, and few have a manufacturing industry.
Many territory economies are based on the twin pillars of financial services and tourism, both of which are vulnerable to shifts in the global economy. Territory leaders recognise the need for diversification, but their scope to do so is limited. The Falkland Islands, for example, are actively developing their natural resources for their economic benefit. Anguilla, which was mentioned by the noble Baroness, Lady Howells, and others, is looking to develop a sustainable fishing industry, which is to be welcomed.
Renewable energy—another source of diversification —is another area that some Caribbean territories, such as Montserrat, are taking forward. They have an abundance of natural energy sources that can reduce reliance on imported fuels, help create jobs and of course improve balance sheets.
I will set out for noble Lords the work that we have been doing across government to support the territories in order to help them to diversify their economies. At last year’s Overseas Territories Joint Ministerial Council, the Government and territory leaders agreed to work together to promote trade and investment between the territories and the United Kingdom; to support territories in overcoming obstacles to trading with third countries; to support the development of entrepreneurship and the growth of small business in the territories; and to organise a business forum in 2013 involving the territories.
In July this year, we gave instructions to our overseas missions to assist bona fide territory companies and territory government/business delegations in accessing overseas markets. FCO and UKTI staff will also give a range of assistance across three fronts: first, assisting territory delegations visiting their markets; secondly, assisting territory companies experiencing market access difficulties; and, thirdly, assisting territory Governments and trade promotion agencies wanting to establish a presence in a market. We have also introduced a light-touch buddy system so that territories can call on expert UKTI advice in their respective regions.
We work in different ways across the territories, but I will highlight some specific examples where they have received assistance from the Government. Last year, the FCO launched the jubilee fund to help develop the capacity of the public services across all the territories. The fund, which this financial year is worth approximately £500,000, has been used to support secondments of territory officials to UK counterpart departments and agencies, as well as visits to territories by UK experts. This work assists the territories to reach high standards in governance, financial management and economic planning. Such standards allow the territories to present themselves as trustworthy and transparent partners in business, and excellent places in which to invest.
As several noble Lords have acknowledged, in 2011 the UK Government agreed to provide funding of more than £246 million to design, build and operate an airport on St Helena. I note the comments made by the noble Lord, Lord Boateng, and my noble friend Lady Hooper in this regard. I assure my noble friend Lord Brooke that I shall ask for a written response to him, enclosing both a name and an e-mail address to which he will be able to respond accordingly.
Earlier this year, the British Virgin Islands established an office in Hong Kong to help promote their financial services and tourism industry. They did so with the full support of the British consulate-general, who provided logistical help and identified the key players to ensure that the launch of the office was a success.
The Government support Montserrat in implementing its plan for sustainable economic development of the island. This includes exploiting geothermal power, improving telecommunications and upgrading transport links. We are also helping the Government of Montserrat implement reforms aimed at improving the environment for business. As the noble Lord, Lord Boateng, mentioned, diversification is an important part of the economy, and the Government are seeking to play their part.
Growth and jobs will be the focus of our discussions at this year’s Overseas Territories Joint Ministerial Council. Territory leaders will have the opportunity to discuss the issues with a number of high-level speakers from across government and industry. When it comes to issues of governance, Her Majesty’s Government are encouraging full participation, not just by the Foreign Office or DfID but by departments across the board.
In addition, we are facilitating a business event in the same week as the Joint Ministerial Council, which my noble friend Lady Hooper mentioned in her opening remarks. This will go further than a round-table discussion. We are working closely with the territories to ensure that they gain maximum benefit from it. We want them to showcase what they have to offer and to scope out the possibilities for the UK—territory, trade and investment.
I shall now turn to some of the questions asked, and if I am unable to answer all of them because of pressure of time, I will write to noble Lords. Gibraltar is close to my heart. The name Gibraltar in Arabic is Gibral Tariq, and means the mountain of Tariq, so I suppose I have a personal territorial claim. Gibraltar is the only overseas territory in the EU and European law applies to Gibraltar, with some exceptions. Our team in Brussels works closely with and on behalf of the Government of Gibraltar, alerting them to forthcoming EU measures, negotiating on their behalf, and ensuring that they are able to benefit from access to EU markets. I thank all noble Lords who raised the issue of sovereignty in both the Falklands and Gibraltar. Let me make Her Majesty’s position absolutely clear.
On the Falklands, the UK has no doubt about its sovereignty over the islands. The principle of self-determination underlines this. There can be no negotiation on sovereignty unless and until the islanders so wish. Our position on sovereignty in Gibraltar is also clear. The UK will never enter into arrangements under which the people of Gibraltar would pass under the sovereignty of another state. I assure my noble friend Lady Hooper that this will never happen against their freely and democratically expressed wishes. The relationship with the EU is also important for the other territories, and I am pleased to inform the House that only last week we reached the successful conclusion of the negotiations on the new overseas association decision.
I shall now turn to some of the questions asked, particularly in the area of financial services, which were raised by my noble friend Lady Hooper and the noble Lord, Lord Boateng. The noble Lord, Lord Bach, also raised several questions in this regard. The territories continue to meet their international standards. They have responded speedily to our G8 tax and transparency agenda, and the Prime Minister has commended the progress made by all overseas territories, as my noble friend Lord Blencathra acknowledged in his comments. Most have now had the multilateral convention on mutual administrative assistance on tax matters extended. They have all published action plans on beneficial ownership and agreed to play an active part in the new pilot initiative on multilateral automatic tax information exchange.
Turning to the incident which my noble friend mentioned in her opening remarks on Gibraltar, I will write to her in this respect with the full facts and, of course, place a copy in the Library.
As to the register of company beneficial ownership, we are strongly encouraging all territories to ensure that their consultations or assessment also include the question of whether the register of company beneficial ownership should be made public.
Some questions on taxation and Anguilla were raised by the noble Baroness, Lady Howell, and the noble Lord, Lord Boateng. I can assure them that I note and recognise the challenges that have been outlined. I, too, received a briefing from the Anguilla Government. I shall certainly be passing those comments back to my colleagues at the Foreign and Commonwealth Office. We are looking to support Anguilla through the promotion of public and private partnerships but I appreciate and fully understand the challenges it has gone through recently.
Turning to the comments of my noble friend Lord Blencathra on air passenger duty, for now I can say that no change is intended. However, again, his comments have been noted and I am sure will be shared. He also raised the issue of the gaming industry in Gibraltar. We believe that the Government’s reforms to the gambling tax will provide a fairer basis for competition between remote gambling supplied from the UK and that from overseas.
In conclusion, our relationship with the overseas territories is very strong. I am encouraged by, and welcome the warmth and support for, the Government’s position across the Chamber. We all recognise that the overseas territories are an important part of what constitutes our relationship with them and our valued partners. As I have already said, all government departments are committed to supporting the territories in their area of expertise. Despite all the challenges that we have, we are encouraging them and we regard them as partners; we are not there to interfere in areas of responsibility devolved to them. Our aim is simple: through the work that I have described, it is ultimately for them to be able to help themselves.