18:03 - Division on Amendment 41 - Ayes: 283 / Noes: 198 - Amendment 41 agreed.
19:42 - Division on Amendment 45 - Ayes: 91 / Noes: 202 - Amendment 45 disagreed.
19:55 - Division on Amendment 46A - Ayes: 113 / Noes: 190 - Amendment 46A disagreed.
The Lord Privy Seal (Baroness Stowell of Beeston) (Con)
I apologise for interrupting the right reverend Prelate but many noble Lords are leaving the Chamber and cutting across him. I remind my colleagues that it would be more courteous to the House if they were to exit without walking in front of him.
The Lord Bishop of Portsmouth
I am grateful to the noble Baroness. At Second Reading and in Committee I, along with others in this House, indicated our regret that these proposals as a whole might be seen as signalling that not every child is precious and deserving of love and support not only from parents and families but from communities, society and nation. Nevertheless, I recognise the intent of the Government.
I do not intend to rehearse the detailed arguments, numbers and costings used in Committee. The Minister and your Lordships are aware of them and of the perspective of my and other faith traditions. Whether personally supportive or not of the Bill’s provisions as a whole, noble Lords will see that my amendments do not challenge the main thrust of this part of the Bill: that decisions about family size should be made with responsibility and care and that any decision to have third or subsequent children should be made without expectation of benefit support. The exceptions I propose do not challenge the central plank of the policy, which seeks to influence parental behaviour.
I was grateful, as I know others were, for the opportunity to meet the Minister last week. I was grateful for his courtesy, candour and understanding, which I hope might be shown today in his response.
The Bill incorporates exemptions for multiple births and after rape, an exemption on which I hope the Minister can provide clarity about the procedure, judicial or otherwise, to be used in relation to that. The further exemptions I propose relate in the same way to specific circumstances or vulnerability. All relate to the common good of society, to an understanding of what is just, right and compassionate, and to characteristics and behaviour that we wish to encourage and enable, sometimes in legislation.
The first three exemptions relate directly to unforeseen circumstances that could not have been planned for when a decision was being made about family size. However carefully and responsibly consideration took place, these circumstances could not have been reasonably expected. The death of a parent drastically changes family circumstances. The death may remove the principal source of income, or increased childcare demands may compel the surviving parent to reduce their working hours or stop working. I hope that the Minister and the Government will, as they have previously, show understanding and accommodate these distressing circumstances at least for a transitional period. Will they indicate some provision here so that the deep sadness of bereavement is not exacerbated cruelly by financial penalty? Parental death is unforeseen when family size is decided.
A parent suffering domestic violence is often driven, as a last and desperate resort, to flee the family home. Everything is left behind as parent and children lose home and security and, sometimes, their main source of income. The Government have boosted refuge provision to support such vulnerable victims of violence. I hope the Minister agrees that it would be consistent to recognise the vulnerability of these children in relation to this Bill. The threat and danger of domestic violence is not chosen or sought. To penalise children taken out of a dangerous situation cannot be right and does not reflect well on the concern we all have for the security and protection of vulnerable young people.
No parent either plans for a disabled child, yet we know that the impact on previously anticipated patterns of work and childcare can be hugely significant. A realistic and rational decision to have a third child can lead to a massive change of circumstance if the child is disabled. I recognise, of course, that a disabled child will, in some circumstances, attract some additional payment, albeit hugely reduced under universal credit. The impact for that family on their employment patterns, on childcare priorities and costs would be exacerbated by the strict application of the two-child limit.
Two of the exemptions I propose relate to the behaviour and decisions which I and, I believe, the Government wish to encourage and which policy and legislation can enable through these amendments. Kinship carers and those fostering and adopting step in to care for children with love and commitment when many would otherwise be in the costly care system. Around and across your Lordships’ House there is a desire to welcome, enable and encourage such generosity, which benefits the children themselves and our society. Surely, when kinship carers or fostering or adopting families take third or subsequent children, often to keep siblings together, we should be supportive of that, not really because it saves money for the public purse and the Exchequer—though it does—but because it is the right and good thing, to be welcomed by this House, Parliament and the Government.
Baroness Hollis of Heigham (Lab)
My Lords, I do not want to add to the extremely powerful speeches we have had but I would like to ask the Minister a straightforward question. On Monday, when we discussed the benefit cap, we raised the issue of the guardian’s allowance. As noble Lords who were present at the time will know, the guardian’s allowance goes to those at the very sharp end of kinship care, looking after children who are not just neglected but orphaned and traumatised as a result. That benefit cap obviously interlocks very much with the issues of kinship care. In the light of that, has the Minister been able to think further on the arguments that were put during that debate and reconsider the guardian’s allowance issue? It is a subgroup within kinship care but a few may be affected by a benefit cap, which would have disastrous effects on their capacity to care for some of the most distressed and grieving children society is likely to see.
The Minister of State, Department for Work and Pensions (Lord Freud) (Con)
I thank the noble Baronesses, noble Lords and right reverend Prelates for their amendments, and all those who contributed to the debate. The amendments all relate to exemptions in certain circumstances from the policy which limits the child element in child tax credit and universal credit to a maximum of two children or qualifying young persons from 6 April 2017. I think we have gone through those exemptions so I will not go through them in the normal way but take them as read.
We have been clear since the summer Budget, when this policy was announced, that we will exempt a third or subsequent child or qualifying young person who is one of a multiple birth where there were previously fewer than two children in the household, and we will exempt a third or subsequent child born as a result of rape. These exemptions will be developed and brought forward in secondary legislation, as subsections of Clauses 11 and 12 permit. We believe that secondary legislation is the right approach for specifying exemptions, to allow for flexibility and engagement with stakeholders. It will be important to get the detail right and we have time to do that before bringing forward regulations for April 2017.
I recognise the deeply felt concern in this House, the other place and more widely about how this exemption will work—something the noble Baroness, Lady Manzoor, pinpointed just now. We all recognise that this is a difficult and sensitive issue and I would like to provide the House with further information. Clearly, we need to establish a way of making this assessment that is sympathetic and responsive to the claimant and timely in determining entitlement to benefit. Our intention is not to focus on or pre-empt criminal justice outcomes but to ensure that mothers receive the help they need at the time they need it, using clear criteria that are straightforward to apply and not overly intrusive, but which secure the system against fraud and error.
While we continue to look at the detail, our thinking is that a third party evidence model offers the most promising approach to striking the balance we need to achieve. This approach would not be new for the benefit system. For example, we use a third party evidence model in universal credit for the temporary relaxation of the requirement to be available for work in cases of domestic violence. The evidence required is the reporting of the abuse to a third party acting in an official capacity, such as a GP or social worker. This model was developed with input from stakeholders.
Of course, a significant amount of work is needed to take forward and develop the detail of the model. I also want development of the model to include working with stakeholders to help ensure that the process is as compassionate and supportive as possible for claimants in these circumstances, while providing the right assurance to government that the additional support is going to those for whom it is intended. We will be getting in touch with organisations with an interest in this policy shortly to seek their input, and I encourage any other stakeholders who would like to be a part of this to let me know. While there is a significant amount of work to do and detailed questions to be answered, I hope this helps reassure the House and stakeholders that we are thinking very carefully about how we respond to this difficult and sensitive issue.
We have been clear since the summer Budget that we will bring forward further exemptions for exceptional circumstances, and we will be doing that today. I am grateful to those who have suggested amendments and contributed to the debate. As a number of noble Lords pointed out, I have been talking to Peers on this matter. We have carefully considered those affected by this policy and the options available, while taking into account the fact that one of our objectives for universal credit is that it will be part of a simpler and workable welfare system that benefits everyone. I know that noble Lords will remember my muttering about adding carbuncles every now and then.
Regardless, I am pleased to announce today that in recognition of the important role which family and close friends can play in caring long term for children who are unable to live with their parents and could otherwise be at risk of entering the care system, we are in favour of an exemption for children in such circumstances. The noble and learned Baroness, Lady Butler-Sloss, and the noble Baronesses, Lady Sherlock, Lady Drake and Lady Armstrong, have made persuasive speeches on this issue not just today but in Committee—so it is worth putting the effort into those speeches. We recognise that in these cases such carers, often referred to as kinship carers, are not in the same position to make choices about the number of children in their family as other parents are. I am grateful that the noble Baroness, Lady Drake, is now taking my distinction there in a positive rather than a non-positive way.
As I have already mentioned, the Bill provides the necessary powers to make regulations to provide exemptions to this policy, and we intend to use regulations to provide for this exemption. In developing the regulations, we will need to ensure that we get the definition right to make sure that the exemption applies to the children to whom it is intended to apply. We will work with stakeholders in developing the regulations to deliver a solution which meets the needs of vulnerable children, while protecting the Government from the potential risk of fraud and error.
Baroness Butler-Sloss
If the Minister will forgive me for interrupting, I am having slight difficulty in understanding. I am delighted to hear about kinship carers but adopters are generally not family. One of the great points about adoption is that they come from outside, so the Minister’s suggestions to the House about kinship carers would not cover the majority of adopters.
Lord Freud
That is a timely intervention because I am now going to move on to the very eloquent arguments for exempting adopted children. We think that where a single child is being adopted, it would not be fair to treat the parents adopting more advantageously than other parents. However, where children need to be placed for adoption and have siblings in the same position—this was the example that the right reverend Prelate the Bishop of Durham used about one of his, I suspect, many friends—we recognise that it is often in the best interests of the children for them to be placed in their sibling group. Therefore, I am also able to announce that we are in favour of an exemption where there were previously fewer than two children in the household and the adoption of a sibling group causes the number of children to exceed two. Again, we intend to use regulations to provide for this exemption.
This is a good point at which to respond to the question of the noble Baroness, Lady Hollis, who on Monday night discussed guardian’s allowance—very eloquently, as usual. I am in a position to say that I will continue to explore that particular issue with her and whether it is possible to bring forward something at Third Reading.
In relation to disabled children, the Government are committed to making sure that disability benefits work for these families, so we will continue to support families with disabled children through the disability elements of child tax credit and the equivalent in universal credit. I must point out to the right reverend Prelate the Bishop of Portsmouth that the figure is not reduced in universal credit: the absolute figure reads across from the tax credit system into the universal credit system. That will be payable for all disabled children, even when they are a third or subsequent child, so support for families with disabled children will still be reflected in universal credit and tax credits following the introduction of Clauses 11 and 12. There is of course other support for disabled children within the DLA system to recognise the extra costs which, as noble Lords have pointed out, parents with disabled children need to carry. In addition, we are exempting disability benefits such as personal independence payment and disability living allowance from the uprating freeze.
The Lord Bishop of Durham
Could I ask for some clarity on what the Minister has just said? It sounded to me as though there was concern about the length of time that might be involved and so on and so forth, but his tone of voice sounded as though there might be willingness to at least explore the possibility. I am just teasing out whether he meant that he really was not willing to consider this, or whether there may be a possibility of exploring it further, particularly around domestic violence.
Lord Freud
We have a regulatory process where these exemptions will be gone through in detail. I can make a commitment today where I can do so, but I assure noble Lords, including the right reverend Prelate, that the machinery of government is not in a place which allows me to say anything more about anything else at this stage. However, the process of setting out regulations will take place some months from now, and we will be exploring in great detail how they work. If the right reverend Prelate is asking me whether there are going to be more opportunities to put pressure on the Government, I would imagine that there will be.
Baroness Hollis of Heigham
In which case, given that helpful and tactful response by the Minister, will he help us even further by agreeing to publish draft proposed regulations before the formal procedure of “take it or leave it” in both Houses, thus allowing various participants to discuss those proposed draft regulations with the Minister before they are formally submitted?
Lord Freud
In practice, I think that what I have said produces that outcome. I have said that we will consult very widely with stakeholders to get this right, because these are very sensitive issues. The rape exemption is very difficult. Getting kinship caring and adoption right is not straightforward. In practice, there will be consultation, but I do not want to overformalise that process. I have committed to a much more open process than you might see in some other regulations that we issue.
The next complicated case is the formation of new households through re-partnering of single parents, which we have looked at very closely and which produces a number of difficulties. First, it would be perceived as unfair by those families with three or more children who stay together and receive a maximum amount of child element or child tax credit in respect of two children, whereas other families who have formed more recently could receive more. Secondly, there is a risk that families may try to manipulate the benefit system by breaking up and re-forming, or even claiming to have broken up and subsequently re-formed in order to increase the amount. Thirdly, there would be a practical issue in assigning children in newly formed families to a particular parent. We have not done that before. Your Lordships will hear me muttering the word “carbunclising”. That is not to mention the intrusive nature of that process.
Finally, I looked at the numbers involved. The reality is that, whether we like it or not, the bulk of children stay with the mother. The number of fathers with children joining mothers with children is not many. Once the measure is fully rolled out, we expect that only 7% of single men will have children, so it is not that substantial a problem. The noble Baroness, Lady Manzoor, talked about half a million. That is just not the reality. I reiterate what I said in Committee about the way it is introduced in 2017 for child tax credit and universal credit. Any household which has claimed within the past six months will also be protected. For those reasons, I urge the noble Baronesses and the right reverend Prelate not to press their amendments.
The Earl of Listowel
Before the Minister sits down, given the fact that, as a nation, increasingly our children are growing up without a father in the family—according to the OECD, in the 2030s, we will overtake the United States in the proportion of children growing up without a father in the family—will he think again about his last statement? It may be a small proportion of fathers who bring children into these mixed families, but surely we want to encourage those larger families, especially, to have a father. The benefits that that father brings to those two children, or whatever, from the mother’s family is important. Will the Minister keep that in mind?
Lord Freud
We have looked at this very sympathetically, but in practice we found it too difficult. We have heard from this Chamber about the kinship and adoption issues, and those are the ones that we want to get absolutely right.
The Lord Bishop of Portsmouth
My Lords, I am grateful to the dozen or so Members of your Lordships’ House who have contributed in the course of these exchanges as we have considered these amendments. I am sure that we have all been touched and moved by the strength of feeling and clarity of argument that have been brought. I am particularly grateful for the Minister’s response a few minutes ago. In my opening remarks, I spoke of the candour and courtesy he showed when a number of us met him last week, and we have been grateful for that again.
We heard very clearly the indication from the Minister of the importance of consideration of the regulations that will be brought forward relating to these measures, and I am grateful for his sensitivity about that. I assure him that we on these Benches and, no doubt, others, too, will certainly engage in the way that he suggested. We are also grateful for some clarification about the reporting model he has in mind to be used where a third child is born as a result of rape. Again, I know that many people will wish to engage in further consideration about that.
I think it is fair to say that we are delighted by the position he has outlined about kinship carers and adoptive parents and are very grateful indeed for that on behalf of the children themselves and of wider society.
On areas where the Minister was not able to satisfy us as much as we might have hoped, I draw his particular attention to circumstances in which children and a parent flee domestic violence. I said at the beginning that violence is never justified in circumstances such as that. I hope that the Minister will understand how difficult it is for me and others to accept what sounds at the moment like a policy which gives a financial incentive to risk staying in a situation where children might be in danger of abuse or in physical danger. It is a very serious matter and I hope that there may be some flexibility in the conversation to which he has pointed.
With grateful thanks to the Minister and to those who have contributed in this conversation and this debate, and welcoming the advances that have been made and the indications of some further changes in the future, I beg leave to withdraw the amendment.
Lord Freud
My Lords, these amendments seek to remove Clauses 13 and 14 in order to prevent the proposed changes to the ESA work-related activity component and the universal credit limited capability for work element. Clause 13 amends existing legislation to remove this additional payment for new claims to ESA and aligns the amount of benefit paid to claimants with limited capability for work with that paid to jobseeker’s allowance claimants. I think I need to clarify that although some Peers have mentioned a loss of £60, the work-related activity component is just under £30 a week. Clause 14 is designed to introduce a similar outcome for UC claimants. The measure will save £640 million over the long term but in 2017-18, it will save £55 million while we will invest £60 million into additional practical support.
This change does not affect the support group component, the UC equivalent or the premiums which form part of income-related ESA. Existing claimants in the support group will be entitled to the work-related activity component if they are reassessed into the WRAG. We aim to protect existing ESA claimants who temporarily leave the benefit to try out work and then return to ESA, an issue which the noble Baroness, Lady Meacher, was concerned about.
ESA was set up by a previous Government to support people with health conditions and disabilities into work but it has unfortunately failed the very people who it was designed to help. Despite spending £2.7 billion this year on the WRAG, currently only 1% of people in this group actually move off the benefit every month. As a Government, we want to ensure that we spend money responsibly in a way that improves individuals’ life chances and helps them to achieve their ambitions, rather than paying for a lifetime wasted on benefits.
Currently, those in the WRAG are given additional cash payments but very little employment support. As the Prime Minister recently stated, this fixation on welfare treats the symptoms and not the causes of poverty. Over time, it traps people in dependency. That is why we are proposing to recycle some of the money currently spent on cash payments, which are not achieving the desired effect of helping people to move closer to the labour market, into practical support that will make a genuine difference to people in these groups.
The additional practical support is part of a real-terms increase that was announced at the Autumn Statement. How the £60 million to £100 million of support originally set out in the Budget will be spent is going to be influenced not only by Whitehall but by a task force of representatives from disability charities, disabled people’s user-led organisations, employers, think tanks, provider representatives and local authorities. I thank the noble Lord, Lord Low, and the noble Baronesses, Lady Grey-Thompson and Lady Meacher, for their work during Committee in this area.
The new work and health programme will provide specialist support for the very long-term unemployed. We are committed to supporting everyone who is able to work to do so. The forthcoming White Paper is aimed at ensuring that we offer the best possible support to those with health conditions or disabilities, a point raised by the noble Baroness, Lady Campbell, and the right reverend Prelate the Bishop of St Albans.
There have been ongoing discussions with the noble Baroness, Lady Hollins, about learning difficulties. Mencap’s website points out that despite the fact that research shows that 65% of people with a learning difficulty want to work, and the fact that with the right support they make highly-valued employees, only one in 10 people with a learning disability known to social services is currently in paid work. The Autumn Statement announced a real-terms increase in funding of almost 15% for those with health conditions and disabilities.
In Committee, some noble Lords raised concerns that we are expecting claimants who have been found “not fit for work” to be able to work. Although this was discussed then, it is important to stress once again that claimants in the work-related activity group have been found to have “limited capability for work”, which is very different to being unfit for any work. That is an important distinction, as this misconception helps drive people further away from the labour market and perpetuates the benefit trap.
As for returning to work and improved mental health, this Government are committed to ensuring that people with mental health conditions receive effective support to return to and remain in work. The noble Baroness, Lady Meacher, was concerned about this issue. We are investing £43 million over the next three years in trialling ways to provide specialist support for people with common mental health conditions. I have trawled the international evidence, and I know that we are going to build up a very substantial body of knowledge in this key area.
The noble Baroness, Lady Meacher, also raised the issue of deteriorating conditions. People with Parkinson’s who are currently getting the work-related activity component will not lose it, and will continue to receive ESA at the same rate, but any claimant who reports a deterioration in their condition can request a WCA to assess whether they may be eligible for the support group. As all Peers in the Chamber will acknowledge, some of these conditions can take a very long time indeed to develop, and there are times when people in the early period of those conditions are able to work, and indeed really want to.
Another area discussed at length in Committee was the evidence to support the Government’s view that the work-related activity component, in some cases, acts as a financial incentive to remain on benefit. I went through that evidence in some detail then but will summarise the points now. The findings of the OECD report, which we have touched on today, covered the whole population. Although the report does not specifically focus on the disabled population, it does not indicate the incentives would not apply there. We have the paper by Barr et al in 2010, which found that,
“eight out of 11 studies reported that benefit levels had a significant negative association with employment”.
It also noted that, “The most robust study”—by Hesselius and Persson—
“demonstrated a small but significant negative association”.
I have already mentioned the Norwegian study of the impact of financial incentives.
It is important to also recognise that the changes to ESA and universal credit work together and cannot be taken forward in isolation. Universal credit will replace income-related employment and support allowance once fully rolled out. We want to ensure that we build on what is working in universal credit to help those with health conditions and disabilities move into work. We have invested a lot in universal credit to make sure that we keep people connected to the labour market from the outset of their claim. Unlike under ESA, UC claimants with a health condition or disability are offered labour market support, where it is appropriate to do so, at the very start of their claim. This helps them to remain closer to the labour market, even if they are not immediately able to return to work.
The noble Baroness, Lady Lister, said that about 116,000 people in the whole country benefit from the disability element of tax credits. The smallness of that number illustrates how the current system is not working. That is why universal credit gets rid of the hours rules that stop people entering the labour market. It makes every hour—every fluctuating hour—pay and gives people the work coach support they need to find and then retain work. I have to say that some of figures from the noble Baroness, Lady Grey-Thompson, do not accurately reflect the situation. The point is that universal credit will make smaller, regular hours pay. Rather than dealing with a lot of very complicated sums, I will write to her and set out our response.
The findings from Universal Credit at Work show that universal credit is making a real difference in getting people closer to the labour market. It is easier to understand. People are earning more, they say they have better incentives to work and, indeed, they are working more. Universal credit is a step towards modernising the welfare system into one that improves individuals’ life chances, but we intend to go a lot further than that. We will publish a White Paper in the new year that will set out reforms to improve support for people with health conditions and disabilities, including exploring the role of employers, to further reduce the disability employment gap—which we are committed to doing —and promote integration across health and employment.
As for the impact of another budget, I should point out to the noble Lord, Lord Low, what we spend on disability benefit: it went up by £2 billion in real terms over the last Parliament. We spend £50 billion every year on benefits to support people with disabilities or health conditions, which is rather more than we spend on defence and police combined—6% of government spending.
Clauses 13 and 14, together with the additional practical support announced in the Budget, provide the right support and incentives to help people with limited capability for work move closer to the labour market and, when ready, into work. I therefore urge the noble Lord to withdraw his amendment.
Lord Low of Dalston
My Lords, I thank the Minister for his very full and careful reply. I knew that it was too much to hope that his generous spending spree would continue into this group of amendments, so we will deal with the case that has been made on its merits. I also thank all those noble Lords who have spoken. The amendment has attracted support from right across the House: I made it 10 speeches in all and 9:1 in favour of the amendment.
Baroness Hollis of Heigham
My Lords, all of us in the House supported universal credit and we all recognised the absolutely key role played by the noble Lord, Lord Freud, in seeking to deliver it. Why have those of us who worked on tax credits—my noble friend in the Treasury and myself as the Minister taking the tax credits Bills through this House—none the less gone on to support universal credit? It was because tax credits did make work pay, they transformed lives, and we were and indeed are proud of them.
But, first, without real-time information, we could not keep pace with the changes of circumstance. Half of all lone parents experienced more than a dozen changes of circumstance every year, and the computers never caught up. We had to have end-of-year adjustments and we had the sadness of trying to recover overpayments from people who could ill afford to make them. Secondly, as has been said, we absolutely needed to simplify the benefits system so that people would know what they were entitled to. Finally, tax credits were rightly built on a work model, and work was defined as 16 hours a week. However, we know that for many lone parents a job for fewer than 16 hours a week, a mini job, is the pathway into work. Instead of the cliff-edge of 16 hours, we supported the principle that the noble Lord enunciated in universal credit of a ladder up from mini jobs right on into full-time work. Over some 17 long Committee days, we supported the noble Lord on universal credit.
The architecture of universal credit remains, but to repeat the image of the noble Baroness, Lady Manzoor, the key driver of making work pay is being shrivelled by the cuts, slice after slice. My heart goes out to the Minister because he must hate it. But, of course, he cannot possibly comment. Instead of universal credit being more supportive than tax credits, which is where we came from in helping people into work, as my noble friend Lady Sherlock has said, increasingly the opposite is now true.
Yes, last autumn we protected existing families on tax credits—not new claimants—from cuts to their existing income, given the commitments made on all sides during the general election. The Chancellor accepted that as people move from tax credits to UC as part of the migration timeline, they should not be worse off simply by virtue of that administrative change. It was the right thing to do and I believe that everyone in the House, including of course the noble Baroness, Lady Meacher, who was so key to this, was delighted by the move.
However, as my noble friend has said, such transitional protection may not cover situations where there has been a recognised, formal change of circumstance which, as it stands, could bring existing tax credits families immediately into UC over and beyond the migration timeframe, and at that point they will experience cuts in UC. I want the Minister to help us by clarifying the situation. What will take a person who is on tax credits now, who is not part of the planned timeline, into UC and thus experiencing immediate cuts? The reason it is uncertain is that at the moment, certain changes with tax credits must rightly be formally reported to HMRC. As my noble friend set out, that must be done when a lone parent becomes part of a couple or the couple breaks up, when there is another child or a child leaves school, and when hours of work or income change, or childcare costs change—for example, during the summer holidays. And, of course, tax credits rates are now and should continue to be properly adjusted to reflect those natural changes in circumstance. However, will such changes of circumstance, which would bring about a change in tax credits, now instead be a trigger on to UC, at which point families will find themselves caught by the UC cuts, or will they remain outside it? Or does this apply only when the tax credit claims have completely ended, so that no tax credits are in payment? For example, if a lone parent has repartnered and her partner’s income floats them off tax credits altogether and then, say, a year on, sadly, he moves out and she needs to make a fresh new claim, will that fresh claim be under tax credit rules or the more oppressive universal credit rules?
If the oppressive universal credit rules apply, will there none the less be a linking rule—as in the past with a well-established principle for disability benefits—so that within six months, or certainly a year, a new claim is regarded as a resumption of the old claim? In other words, the lone parent remains de facto on tax credits with the protection that that carries when, by the natural time migration, she moves over to UC. I apologise to your Lordships for being quite nerdish about this, but it is essential that the Minister clarify the position for us, which I am sure he will.
Finally, we supported UC over tax credits above all to incentivise people into work. My noble friend has spelt out the additional resource that the Minister was able to achieve to incentivise people into work, especially those more marginal to the labour market, by allowing them to keep more of what they earnt. We all thought that that was the right thing to do. Several years back, the Minister was absolutely right, while criticising tax credits because of the multiplicity of interlocking benefits, when he said that there was a high rate of benefit withdrawal—that is, the taper—which meant that some working people kept only pennies in the pound for every hour that they worked. Therefore, they did not.
However, although the universal credit regulations do not change the taper, in many cases they essentially halve the work allowance which can be earnt before the taper kicks in for many, and they withdraw it in its entirety for some. Therefore, cuts will affect people who come on to universal credit after April 2016. The cut in the standard work allowance for a lone parent working mother, from more than £8,000 to £4,764, means that she will lose half. Effectively, she will lose £2,628 a year by being on universal credit, which she would not if the work allowance had not been halved. Couple families with one partner with limited capacity to work because of disability will lose around £3,000. Single people will lose it altogether. Hence, this amendment.
I am concerned, as are my noble friend and others on our Benches, about the impact of these proposed cuts within universal credit, as we all are about work incentives. We need evidence. The Minister respects evidence. If it is not there it needs to be collected. If it is, I am sure the Minister would want us to address any problems that may arise. My fear is that universal credit, instead of encouraging people into work, will begin to disincentivise them. But I do not know, which is why, as my noble friend has argued, we need that report to determine how, where and with what severity those cuts will fall, and on whom. In particular, how will they affect the key significance of universal credit: to improve work incentives and, as we all wish, to make work pay?
Without improving work incentives, universal credit has lost its moral argument and becomes instead, I fear, a mere administrative tidying up of the current benefit system, with the added risk that we are already beginning to see of repeated cuts. There would be much upheaval for no gain for many claimants, and real, if potential, losses for many more. I hope that I am wrong but we need to know. Such a report would tell us and, if my noble friend chooses to put this to a vote, I hope this House will support her.
Lord Freud
Before I start, I acknowledge my appreciation for what Peers are saying. This is not an attack on universal credit. They are some of its greatest fans and it is in that context that they speak. I absolutely get that and I appreciate it. It has reminded me that I owe regular updates about progress of universal credit and has jogged me to get going on that as soon as this Bill is over.
The amendment in the name of the noble Baroness, Lady Manzoor, seeks to repeal the work allowance regulations. I am going to sound like the noble Baroness, Lady Sherlock. This measure has been debated and voted on twice in the other place, and both times these regulations have been retained. Therefore, this House should think carefully about using a Bill such as this to introduce opposition to a financial measure that has seen that kind of support in another place.
On the amendment, let me remind noble Lords of the context of those changes. The previous welfare system was not working. Spending went up from £6 billion in 1998 to £28 billion in 2010, when we reached the stage where nine in 10 families with children were eligible for tax credits. Some families could earn £60,000 a year and still receive benefits. Yet, at the same time, the number of people in in-work poverty increased by about 20%. It also did not do enough to support people to get into work, stay in work, and progress in work. People were left with unfulfilled potential and did not have an incentive to progress. Even if we forget the money, it undermined opportunity and aspiration due to the distortions and complexities of the system.
The Government have stated their intention to move from a low-wage, high-tax, high-welfare society to a high-wage, low-tax, low-welfare economy and have set out a package of measures. Let me remind noble Lords that the national living wage is set to reach over £9 an hour by 2020 and the personal tax allowance is set to rise to £11,000 in 2016-17, taking 570,000 more people out of income tax. I remember some debates about increasing support for childcare, and we have moved it up to a rate of 85% of eligible costs. We have doubled the early years’ provision, which is free for the working parents of three to four year-olds. When one looks at the whole of childcare, we now spend £5 billion in total across all the schemes, including UC, tax credits and the early years’ provisions, which is more than any previous Administration. Since 2010, there has been an increase of £1 billion.
To respond to the noble Baroness, Lady Manzoor, the measure is different from the tax credit cuts. Universal credit provides an incentive to making work pay and helps to move people off a life on benefits. They get personalised support through a dedicated work coach which helps them through the barriers. It is a different structure. It is not the same thing as the reduction in tax credits. Clearly, we have two elements; namely, the work allowance and the taper rate. We have already got evidence that it works and gets people into work much more effectively than jobseeker’s allowance. Apart from the savings we will achieve on taxpayers’ money, it will generate—partly by focusing the money more efficiently on the people who need it most—gross economic benefits of £7 billion every year once it is fully in.