Pension Schemes Bill [HL]

Baroness Donaghy Excerpts

Committee stage & Committee: 1st sitting & Committee: 1st sitting : House of Lords
Monday 24th February 2020 Grand Committee

[Baroness Altmann]

In that case, I seek clarification on what would happen if the employer became insolvent. There would still be the same problem that members’ pots would be needed to cover the costs of wind up, because they could not be got from the employer. If there is not a capital buffer up front and we rely on waiting to recover it from the employer, we may still end up with the same kinds of errors that we had in defined benefit schemes, where there was nobody to get the money from and the members ended up with potentially no pension.

[Baroness Donaghy (Lab)]

In the absence of knowledge in this area I have had to resort to listening to the debate. I think the consultation is important. We need to be clear what the headroom is, what the buffer is and whether the headroom is to take account of inflation, as the Minister says. Taking account of inflation has nothing to do with sustainability, emergency action or catastrophes of other kinds, so we need clarity about, first, what questions are asked in the consultation and, secondly, what responsibility is taken.

It is all very well saying that the regulator will look at this and make sure it is sustainable, but I am not sure that the history of the Pensions Regulator gives me a good night’s sleep. I apologise if I have got it wrong, but there seems to me to be a bit of confusion about what this headroom or buffer is for, who takes responsibility for it and how the Pensions Regulator will keep a look out. It is not clear to me that statutory instruments will do it. However, if the Minister is confident that they will, we need to see them.

[Baroness Stedman-Scott]

Our job is to give noble Lords comfort and to clarify matters, which we must do. I am advised that if there were to be an insolvency of an employer, that would be anticipated up front when the scheme was established and some provision would have to be made for the risk of it happening. It would of course be part of the ongoing monitoring.

With regard to the helpful suggestion from the noble Baroness, Lady Donaghy, about the questions in the consultation, I might be getting myself into trouble—I am very good at that—but maybe we could write to noble Lords who have taken part in this debate and ask for their opinions about what questions should be included.

Apart from those matters, if there are any other points that I have missed out, or if I have not done as good a job as I should have, we will write to all noble Lords to clarify.

Pension Schemes Bill [HL]

Baroness Donaghy Excerpts

2nd reading & 2nd reading (Hansard): House of Lords & 2nd reading (Hansard)
Tuesday 28th January 2020 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, it is always a pleasure to follow the noble Baroness, Lady Noakes. I suspect that she is correct about CDCs, but if they had not been put in the Bill, there would not have been a Bill. This is possibly a case of the tail wagging the dog, but at least we have an opportunity to deal with other important aspects of pensions.

I thank the Minister for her presentation of this Second Reading, which she did in her usual frank and open-handed way. I am not the first person to say that, but I see no harm in saying it again. She accepts that the Bill is limited in its objectives. We are used to skeleton framework Bills from successive Conservative Governments. I can only add to the plea that we are given as much information as possible before Committee if we are to keep the number of amendments to a manageable amount and have sensible discussion. The Bill needs to be set in the context of the wider issues of pensions and the inequality of pensions provision, as well as being about dashboards, CDCs and auto-enrolment.

On CDCs, briefly, they have attracted support from both sides of industry. The scheme agreed between the Royal Mail and the CWU, the communications union, appears to be potentially reasonably good, but let us not forget that it was done in the context of the decision to close the defined benefit scheme. The union was faced with the harsh reality of today’s pension jungle, so it represents some security for employees. CDCs could give a better outcome than other schemes, such as defined contribution schemes, but I echo what others have said about the importance of informing employees in the pension scheme that these schemes are not guaranteed and that pension amounts could go down as well as up. How will workers be made aware of this? How can we be assured that CDCs do not represent the death knell for defined benefit schemes, and how will intergenerational unfairness be dealt with? Does the Minister agree that CDC pension schemes could have a negative impact on members of defined benefit schemes? It is clearly not for me to oppose such a scheme when it has been negotiated in good faith by Royal Mail and the CWU, but I hope that the Minister will be able to reply to some of my questions on and clear reservations about the uncertainties surrounding this pension option.

Nowhere in our unequal society is inequality so stark and shocking as in the area of pensions. According to the Money and Pensions Service, 22 million people say that they do not know enough to plan for their retirement, while the OECD places the UK well down the rankings of G20 countries—behind France, Norway and many others. The Money and Pensions Service went on to say:

“Financial wellbeing is about feeling secure and in control”


and that poor financial well-being affects mental and physical health and relationships. Examples of inequality are the huge gaps in protection for the self-employed, those working in the gig economy and those excluded from auto-enrolment, and those who, for whatever reason, do not take up the pension credit to which they are entitled. Almost 2 million older people aged 65 and over are living in poverty in the UK. Independent Age has been asking the Government to set out an action plan to improve the take-up of pension credit. More than two in five of the pensioner households which are entitled to pension credit do not receive it. The Explanatory Notes refer to the Government’s commitment to help people with better planning for retirement and for achieving financial security in their later life. What better way could there be than ensuring that the 1.3 million pensioners who miss out on £3.5 billion every year actually receive their entitlement? I echo the question asked by Independent Age: what is the Government’s action plan to improve the take-up of pension credits?

So much has already been said about the pensions dashboard. I favour having one publicly funded pensions dashboard, but I do not think that the Government are looking that way. How will they ensure data quality and the protection of privacy in multi schemes? The director of policy at The People’s Pension has said:

“if the government continues to promote multiple dashboards it’s imperative that a legal duty to operate in the best interests of savers is placed on all … operators.”

Will the Government agree to such a legal duty?

As the noble Lord, Lord Young, said, Which? has called on the Government to clarify that it is their intention for dashboards to include pension charges and income projection figures at the earliest opportunity. This is too important to be left to secondary legislation and the Financial Conduct Authority. As Which? stated, the Government recently proposed including charges on annual statements; the same principle should apply to dashboards. Although Which? supports in principle the proposals for commercial dashboards, it has said that it is absolutely crucial that there are strong regulations in place. It calls on the Government to make the provision of a pensions dashboard a regulated activity, to ensure that providers are authorised and subject to the FCA’s complaints-handling rules.

It is in everyone’s interest to get this right. According to the Association of British Insurers, it is estimated that £19.4 billion is held in pots that consumers have lost track of. The DWP—the Minister’s own department—estimates that, without a dashboard, 50 million pension pots will be lost or dormant by 2050, leaving people wide open to frauds and scams. In 2017, the victims of pension scams lost £91,000 each to fraudsters.

On the subject of auto-enrolment, I did not expect the Government to address the injustices done to women born in the 1950s, who lost thousands of pounds in pension payments, nor did I expect them to deal with pension equality between men and women— that would be very nice and I deplore the fact that it is not in the Bill, but I did not expect it. What I did expect is a boost to the auto-enrolment system. As my noble friend Lord McKenzie said, the Government should include an increase in auto-enrolment minimum contribution rates. They should support those in multiple occupations, so common in the gig economy, so that their collective earnings can be counted towards eligibility for auto-enrolment. They should expand auto-enrolment to include the self-employed, allow 18 year-olds to join and remove the lower earnings limit, which in turn would solve the problem in relation to multiple occupations. This would lead to an additional £2.5 billion in savings. What plans do the Government have for auto-enrolment?

Finally, I am fortunate that I have two modest public service pensions and a state pension. I always assumed when I was working that things would get even better. Looking at today’s pensions landscape does not fill me with great confidence. However, there is much to discuss, and I look forward to Committee stage.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2019

Baroness Donaghy Excerpts

Thursday 14th February 2019 Lords Chamber

[Baroness Thomas of Winchester (LD)]

My Lords, I thank the Minister for explaining these two important orders. I think this is her first time speaking on these matters. I do not know whether it is the first time on the Floor of Chamber but it may be, because these orders are usually taken in Grand Committee—I know that the noble Lord, Lord Jones, was keen that they should be debated here. I am sure the whole House welcomes the uprating that she announced, but has the time not come for this to be automatic rather than at the discretion of the Government, as there is no way the schemes will be wound up in the next few years?

My first time speaking on the mesothelioma order was 11 years ago, when I learned about its long latency period and the fact that some of the people affected, such as family members, did not work directly in industrial processes using asbestos. Subsequently, I knew a man who was diagnosed when he was over 80, his condition probably a result of national service in the Navy.

This was to lead me to ask the Minister about much-needed and hitherto neglected research, but she has spoken about that and I am glad that we have learned a lot more about it. I think a lung health summit was held last year with the British Lung Foundation, the Union of Democratic Mineworkers, the NHS and MPs. I am also glad the NHS long-term plan recognises the objective of improving outcomes for people with respiratory diseases.

We do not want to add to the number of people diagnosed with this disease, so perhaps the Minister will also tell us what work is going on to make sure that any asbestos in schools and hospitals is rigorously monitored, if it cannot be removed. I expect that this is where the Health and Safety Executive comes into its own, a body which has often been unfairly vilified for just doing its job. I know that it has had to cope with cuts to its budget, but I hope that it is able to be on top of this issue.

Finally, on the pneumoconiosis order, how does the payment tie in with universal credit, as that was something that I was not sure about?

[Baroness Donaghy (Lab)]

My Lords, I had the privilege of chairing the mesothelioma oversight committee of the last-resort scheme. I thank the Minister for both her presentation and the welcome change in dealing with research, which a lot of us were concerned about for a couple of years when it did not appear to be linked. We are pleased that the DWP is now working closely with other departments. Can the Minister indicate exactly how much was spent on a cross-departmental basis on research in the last 12 months to give us an idea of the scale of that improvement?

I want also to thank the staff in Minister’s arm’s-length branch who give my committee enormous support in dealing with stories of unimaginable pain and tragedy. Although one has to try to get some distance, it is important we all place on record that this is not some dry statutory instrument; it is about people’s lives and deaths. My own sister-in-law died of this disease some years ago. We still do not know whether it was as a result of pushing a trolley through the basement of the Scunthorpe hospital where she worked or of washing her husband’s overalls from the steelworks where he worked. Also, a good friend of mine died less than a year ago. I had known him for 40 years; he worked in local government. You would think, “Where on earth would he catch it in local government?” He was a student before he started his local government career, working for Cape Asbestos for 12 months.

I think it has been mentioned already that it is not always the traditional industries. There are jewellery repair workers; there are stable lads; there are all sorts of areas that people do not expect. It is important when we come across similar issues to try to pre-empt them and not allow this to happen again.

Finally—the Minister has pre-empted this issue and I know that the noble Lord, Lord Alton, will raise it, but I am going to be his John the Baptist and hope that I do not share the same fate—the forum for the victims and the victim support group have been trying for nine years now to get some equality between in-life payments and dependency payments. I know that the Minister has indicated that the Government have thought about this and decided that they should not do anything about it at this stage, but it is time to seek equalisation between the sums paid to asbestos victims who claim while alive and those paid to dependants, usually widows, which are much lower for pneumoconiosis. This disparity affects women in particular and has stagnated for quite a long time. Failing any change of heart, will the Minister agree to meet some of us to discuss any possibility for more flexibility in considering those requests for equalisation?

[Lord Alton of Liverpool (CB)]

My Lords, if the noble Baroness, Lady Donaghy, does not mind, I would rather change the metaphor and say that I am very pleased to be part of the infantry; she is a very good general in this case. The noble Baroness, Lady Thomas of Winchester, made her case admirably, too. I am grateful to the Minister for the way in which she introduced the orders.

I return to an issue that I have raised often in your Lordships House: the harrowing and lethal effects of mesothelioma, something which unites all of us in all parts of the House. Many of us in the Chamber today have been involved in the fight against mesothelioma for many years and I am pleased to see this important issue again being debated in your Lordships’ House.

I wholeheartedly support the uprating of the lump sum payments in line with inflation. It is a matter of compassion, of justice—I will return to that issue—and of equalisation. In that last respect, I was disappointed by one thing that the Minister said, although I rather anticipated that she would say it—I shall return to that matter, too.

As the Minister told us, mesothelioma is an invasive type of cancer caused by prior exposure to asbestos. It grows in the pleural membrane, which lines the outside of the lung and the inside of the chest. Less commonly, it can also affect a similar lining around the abdomen or heart. There is currently no cure and mesothelioma patients often have a short life expectancy and experience complex, debilitating symptoms. I vividly remember when I was a Member of House of Commons, representing an inner-city area of Liverpool, constituents coming to see me once there had been a diagnosis and then meeting the widow only weeks later, their loved one having died.

The UK has the highest rate of the disease in the world. Mortality rates have more than quadrupled over the past 30 years. It is estimated that around 2,400 people die of the disease every year and that, over the next 30 years, around 60,000 people will die of mesothelioma in the United Kingdom unless new treatments are found.

When these regulations were discussed in the other place, a number of Members of the House of Commons asked whether future increases could be made automatic rather than be made at the discretion of Parliament. The Minister there agreed to consider this. It is important that the Government carefully consider the argument. Has any consideration been given since the Commons stages about making the payments automatic? It is vital that we continue to support people and their families affected by these awful diseases.

Back in 2014 I tabled an amendment to the Mesothelioma Bill, and in 2015 I introduced a Private Member’s Bill which would have set up a small levy on participating insurance firms to help secure long-term funding for research into mesothelioma, an issue on which the noble Lords, Lord Wills and Lord Giddens, played an important part. At the time, it was estimated that 150 insurance firms were active in the employers’ liability insurance market, and this had the potential to raise around £1.5 million a year for research. This represented a very small amount of money to each of the insurance companies, but would have resulted in a great number of research opportunities. It would also have given great hope to people living with mesothelioma and to their families. Unfortunately, the amendment and the Bill were defeated.

Since then, the Government have allocated £5 million for a National Centre for Mesothelioma Research at Imperial College, and I thank Ministers who put in considerable effort to secure that and to look at voluntary funding from the insurance industry. I am very pleased that the British Lung Foundation, referred to by the noble Baroness, Lady Buscombe, was also able to secure match funding for this £5 million from a philanthropist who has seen the devastation wreaked by this disease. Unfortunately, although several individual insurance companies, including Aviva, Zurich, RSA and Allianz, had also, to their credit, previously contributed towards research into mesothelioma, negotiations for a broader, long-term funding commitment from the insurance industry came to a standstill. More recently, there have been some impressive results in mesothelioma research, which demonstrates why it is important for us to find more funding. Through the match funding, the BLF set up the Mesothelioma Research Network to bring researchers together to share ideas and support each other’s research. Our understanding of the genetics of mesothelioma has increased at the same time as a breakthrough in harnessing the immune system against cancer, and a clinical trial, the first of its type, has just opened in Leicester.

Another BLF-funded project is currently looking at ways to treat mesothelioma with immunotherapy. The creation of the MesobanK project now allows researchers across the world to access tissue and blood samples and other clinical data. The first MesobanK-British Lung Foundation fellowship is helping to develop gold nanotubes as potential new mesothelioma therapies. The British Lung Foundation continues to raise awareness of occupational lung disease, most recently through the creation of the Taskforce for Lung Health. The task force is a coalition of 30 organisations from across the lung health sector, including royal colleges, patients and the Health and Safety Executive, who came together to develop a five-year national plan to improve lung health in England. It makes recommendations to improve awareness of and compliance with the Control of Substances Hazardous to Health Regulations 2002 and to embed understanding of occupational lung disease in healthcare professional training.

Because this field is so underfunded, every pound of investment is likely to be worth while and to attract further funding. I pay particular tribute to Penny Woods and the British Lung Foundation, which continues its work to secure that funding for vital mesothelioma research. It has recently been able to leverage further research through the success of previous projects, helping to secure a £10 million grant from the Engineering and Physical Sciences Research Council. While I fully support compensation for the victims of these diseases, it is surely in everyone’s interest—the victims, the Government and insurers—to invest in finding a cure. This would, in the long term, remove the need for lump sum payments or any insurance industry levies. Investment in research is crucial.

On the subject of lump sum payments, as the noble Baroness told us, two statutory schemes make payments to mesothelioma sufferers, both of which make payments according to the age of the sufferer and their level of disablement. Both make payments either to mesothelioma sufferers who claim a payment in life—so-called in-life claims—or to their dependants where a claim is made after death. These are so-called dependency claims. However, there is significant inequality between dependency and in-life payments. From April 2019, the maximum in-life payment for a sufferer aged 77 is £14,334 and for a sufferer aged 37 is £92,259. From the same date, the maximum dependency payment for a sufferer aged 77 is £7,949 and £48,013 for a sufferer aged 37. Dependency payments are 45% less for a sufferer aged 77 and 48% less for a sufferer aged 37.

Universal Credit

Baroness Donaghy Excerpts

Monday 5th November 2018 Lords Chamber

[Baroness Buscombe]

My noble friend is absolutely right. The measures in relation to work allowance will make an enormous difference to families. The measure directs additional support in a package worth £1.7 billion across Britain, to some of the most vulnerable, low-paid working families. If a single claimant has responsibility for a child or qualifying young person, or has limited capability, they currently receive a work allowance of £198 per month and those with housing costs £409. With universal credit, raising the current work allowances will mean direct additional funding to working families with children, and working disabled people, by allowing them to keep more of their earnings before the taper rate is applied.

[Baroness Donaghy (Lab)]

My Lords, the Minister will not be surprised if I focus on the self-employed. The Social Security Advisory Committee has acknowledged that the main concern about the self-employed was not the grace period, though it acknowledged that a small extension is welcome, but the principle of the minimum income floor itself. Organisation after organisation submitted evidence to the committee to say that this would not work. The committee requested that,

“the Department should undertake a robust evaluation of the policy and its operation ... It is important to determine whether it operates equitably, what effect it has on the self-employed themselves, and what effect it is having on start-ups generally”,

and that,

“evaluation should extend to the related tests of ‘gainful self-employment’ which underpin the way in which the Minimum Income Floor operates”.

There is a fundamental flaw in the way that that has been structured. Can the Minister give some assurance that there will be such a robust evaluation of the policy?

[Baroness Buscombe]

My Lords, in all that we are doing with universal credit we constantly question and consider issues of substantive policy, because we want to make sure that the system works for the long term. The Government want to support people to be self-employed but it is right for them to be financially self-sufficient. Key to this is continuing to support people in, or considering, self-employment to progress to a level of sustained financial self-sufficiency. We recognise that it takes time for new businesses to grow and that even established businesses can experience difficulties. We will therefore provide all gainfully self-employed claimants with an equal chance and support from specially trained work coaches to grow their earnings, and to prepare and adjust for the application of the minimum income floor. We were going to move the minimum income floor to six months after migration, but have decided to introduce a grace period of 12 months.

Benefits: Reductions

Baroness Donaghy Excerpts

Thursday 1st November 2018 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I thank my noble friend Lord Bassam for initiating this timely debate. When the Welfare Reform Bill was being taken through this House, Baroness Hollis asked me what contribution I could make. I explained that I had worked for 40 years, so I knew nothing of welfare benefits. “That’s fine”, she said. “You can cover the self-employed”, and I did. It did not occur to me that I had a choice; that is how compelling and charismatic Patricia Hollis was. I mugged up on the subject, with the help of the Low Pay Unit, and spoke several times.

I learned enough to realise that the proposed universal credit system was unsuitable for the self-employed. It is rigid and mean. It does not take sufficient account of fluctuating earnings or seasonal variations. The Budget announcement only extends the 12-month grace period, so it will change nothing. When I last spoke on this subject, the Minister made no reference whatever to the self-employed. My first question therefore has to be: is she able to say what improvements will be made to the universal credit system to help the self-employed?

When what became the Welfare Reform Act was going through the House my party, as has been said, supported the general thrust. It was accepted that the current system needed to change and there was a hope that a comprehensive system would assist those who needed help the most.

The shadow Secretary of State for Work and Pensions, Margaret Greenwood, said on 17 October that,

“universal credit was designed to lift people out of poverty”.—[Official Report, Commons, 17/10/18; col. 648.]

I do not believe that was the intention. It was designed to save money and force people into low-paid jobs. I believe that people should be incentivised into work, but universal credit gives a Hobson’s choice of bumping along the bottom of the economy.

I always had reservations about the universal credit system, not just because of the self-employed but because it was not universal—it left out a number of important areas and meant that most families with a disabled child would be worse off. Combined with the cuts in disabled living allowances for most people with disabilities it meant that the disabled would not be lifted out of poverty. Changing the definition of poverty does not change the experience of poverty.

I was concerned about putting housing benefit into universal credit. I felt that local authorities were best placed to administer that scheme. I may be wrong, but it was a genuine concern that I still hold. Is the housing benefit bill too big? Of course it is. However, if there was a major shift—as my noble friend Lady Warwick has said—in the development of social housing, that bill could be brought down. Indeed, social housing is diminishing under this Government, despite successive announcements.

My major concern about universal credit was its complexity, and the fact that it would be hugely difficult and expensive to administer properly. I am an administrator by trade, and I think that the project is doomed to failure unless there are radical changes. I am not talking about the difficulties faced by claimants; the Child Poverty Action Group has already set those out very clearly. I am talking about the administration of the universal credit system itself.

This is the calm before the storm, as everyone knows. Only 9% of families with children are on universal credit. The Budget provided some small ameliorations but no equivalence between universal credit and legacy benefits. There is still a single claim for everyone in the household, despite our warnings of the danger of that in violent and controlling situations. The third child still gets nothing. Single women with young children will still be the hardest hit.

The National Audit Office and the Resolution Foundation have questioned the feasibility of the current switchover plans. Will the Minister say whether these organisations are wrong? It is important to remember that local authorities deliver over 800 services to their communities—they are best placed to understand family circumstances and bring services together. They need additional funding to enable them to deliver these services, and the Local Government Association points to the interaction between homelessness, the reduction in support for housing costs and the increase in the number of households in temporary accommodation.

We hear that the extreme right wing of the Conservative Party is calling for more money for universal credit—not because they have suddenly discovered poor people but to make a political point about Brexit savings. Beware, therefore, the big, bad wolf in grandmother’s clothing. It is the personal experience that counts: a young woman who volunteers in a food bank and has lost all faith in government; a friend who fell behind with her rent because of the bedroom tax; having to clothe your baby from a baby care bank; or feeling powerless, hopeless and done to. This is the real impact.

Pensions

Baroness Donaghy Excerpts

Wednesday 13th December 2017 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I am grateful to the noble Baroness, Lady Scott of Needham Market, for initiating this debate and for setting out so clearly why more than 3 million women have been treated so unfairly. Those of us who have been fighting for women’s equality for most of our lives support the equalisation of the state pension age and recognise that many women will benefit from the new flat-rate state pension. The subject of this debate is a group of women who have fallen into the gap between two safety nets: certainty about when they retire and relative certainty about their future income. I say “relative” because the old system counted a husband’s contributions as part of the woman’s pension and assumed no divorce.

I think John Cridland was right when he said in his Independent Review of the State Pension Age:

“People need at least ten years notice of change and change itself should be limited to once a decade”.


The women born in the 1950s did not receive this kind of notice. The decision taken in 1995 to set in train the equalisation was a fair decision but was not communicated in anything like an effective way. However, the real robbery took place in the 2011 legislation, which brought forward the year when the state pension age would increase to 66, from the planned date of 2026 to 2020. Even though after a huge outcry the Government slowed down their proposed timetable, it still meant that 2.6 million women were adversely affected.

It is not the equalisation of pensions that we are protesting about but the change in government policy which accelerated that change, combined with poor communication by successive Governments to the women affected. The acceleration meant that women did not have sufficient time to mitigate the potential losses, even if they were aware of the changes and in a position to do. One woman who estimated that she had lost £40,000 said that “no man has suffered this mismanagement of expectations”. Another asked: “Is it too much to ask that women like this are compensated for a contract that has been unilaterally broken with insufficient notice?”. The Institute for Fiscal Studies said that,

“household incomes for women in this age group have fallen by around £32 per week”.

For poorer households, the decline represented 21% of income.

I am sure that the Government will talk up the benefits of a flat-rate pension for those women who were not able to collect sufficient national insurance eligibility because of caring responsibilities and that the Minister will refer to the triple lock, the need to recognise demographic changes and the equality between the sexes. If she is very brave, she will talk about a lost generation applying for an apprenticeship. But we are not talking about any of these changes, nor do we wish to turn back the clock. We are talking about a different generation of women who did not have the same rights of flexible working and occupational pensions. In many cases, they did not accumulate sufficient independent wealth to maintain a decent standard of living on retirement.

These women had a raw deal on occupational pensions as well. When I started work, I was excluded from the occupational pension scheme because of a two-year eligibility requirement—and I was one of the lucky ones, because at least I was able to join eventually. Others were excluded because they were part-time and could not join until the law was changed in 2000. Others again were barred because they did not earn enough. All of us ended up with an occupational pension which was lower than we had the right to expect, and even now part-time workers are not automatically enrolled if they are deemed to earn too little. This continuing discrimination against the low-paid could be the subject of another debate.

It is difficult to appreciate today that married women who stayed at home to raise their families and care for their elderly were entirely dependent on their husbands’ state pensions. Until April 1977, the married woman’s stamp was offered to working women, most of whom did not appreciate the impact it would have on their state pension. The lower rate was encouraged by most employers and seized upon by low-paid women. When the lower-rate option was no longer offered, what is not always remembered is that the women who were already paying the reduced stamp were allowed to continue to do so. The age cohort we are talking about in this debate would then have been about 25 to 30, so were probably already working. It was a different world and they are paying the price for seeing one system swept away without benefiting from the new system.

In 1998, when I was a member of the Low Pay Commission, we discovered that women who earned too little to pay national insurance did not even appear on any statistics and could not be counted as a group who might benefit from a statutory national minimum wage. That was later rectified, but it was par for the course that low-paid women were undervalued and not regarded as a significant part of the labour force. This was not in 1850 or 1950 but in 1998.

Finally, the Women Against State Pension Inequality campaign is asking for a non-means-tested bridging pension to provide an income until state pension age and compensation for those women who have already reached state pension age. They are strongly supported by my former union, UNISON, which represents many of the women in this group. I urge the Minister to use her good offices to persuade the Government to change their policy on this.

Improving Lives: The Future of Work, Health and Disability

Baroness Donaghy Excerpts

Thursday 30th November 2017 Lords Chamber

[Baroness Buscombe]

I thank my noble friend for her question. The reality is that is why we are very pleased with the recommendations of the Stevenson/Farmer review. My noble friend is absolutely right that we have to encourage employers, large and small, to understand that what might superficially appear to be a lesser disability—or a more severe disability—should not enter the decision in terms of taking somebody on board. The reality is that we need to do more to work with people in occupational health and to find different ways to encourage employers to support those with disabilities. Also, one of the things we are very keen on is working with the third sector and charities—for example, the Samaritans, which is particularly close to my heart—to act as a backstop and support to employers so that employers can feel more confident about taking people with disabilities on board.

[Baroness Donaghy (Lab)]

My Lords, I support everything that my noble friend Lady Sherlock said. She mentioned that the Government have not done a cumulative impact assessment on the social security cuts, but the Equality and Human Rights Commission has. It says that, since 2010, households with a disabled adult and disabled child have lost over £5,500 pounds per year on average. How does the Government’s new strategy address these losses?

[Baroness Buscombe]

My Lords, I have to say that we do not recognise the findings of the EHRC, because the analysis does not provide a full picture; it looks only at a particular subset of disabled people and does not include analysis on changes beyond tax and welfare. It will, therefore, present a skewed picture.

Universal Credit

Baroness Donaghy Excerpts

Wednesday 21st December 2016 Lords Chamber

[Baroness Donaghy (Lab)]

I thank the noble Lord, Lord Farmer, and the Government for enabling this end-of-term Christmas show to pay tribute to a man who looks as amiable as Bob Cratchit—and whom I sincerely hope history will not judge as Scrooge. A Minister who actually understands his brief is regarded as a clear and present danger to his own side. The Opposition know that he has the confidence to make changes where they make sense and do not harm the overall project. His is one of the most complex and heavy areas of work, and he steered it through for six whole years on the Front Bench. In prison terms, that must make the noble Lord a long-termer.

During the debate on the then Welfare Reform Bill, I tabled an amendment about exempting industrial injuries benefit from the benefit cap. The noble Lord said in reply:

“My Lords, I will not make any promises on this but I will have another look at it. That is the weakest of possible promises. In fact, I am trying to say that it is not a promise at all”.—[Official Report, 23/11/11; col. GC 428.]

However, he delivered on this, and I was eternally grateful.

Others will be able to speak much more coherently on the other aspects of universal credit. I still think that including housing benefit was a huge mistake, and administering universal credit is extraordinarily complex, but it is not my intention to rain on today’s parade.

The noble Lord will probably know that my ignorance of welfare matters was total. When asked to participate in the debate, I explained to the noble Baroness, Lady Hollis of Heigham, that I had worked for 40 years and my expertise was in the world of employment. She immediately replied, “That’s excellent—you can deal with the self-employed”. I buried myself in this world and must have bored the Minister rigid with my analyses. I like to think that if the Treasury had allowed him, he would have been more flexible with the problems of the low-paid self-employed. I promise him that I will continue to pursue this.

Finally, I have to say something about the Mesothelioma Act 2014, which would not have existed without the noble Lord, Lord Freud. I took part in the debate as a tribute to the trade union movement, which campaigned to get mesothelioma recognised as an identifiable disease. Arising from the Act, an oversight committee was set up and I was invited to chair it. We oversaw the paying of £26 million last year, and the noble Lord should be extremely proud that claimants and their families will at least have some anxieties removed as a direct result of his actions.

I hope the noble Lord does not object if I conclude with a limerick. For the benefit of Hansard, the second line is “cold-water warrior”—I would not like it to be set down as “Cold-War warrior”:

“There was a long-termer named Freud,

A cold-water warrior who toyed

With a system that groaned

And a Chancellor who moaned,

And to his universal credit, he deployed—partially”.

God bless us, every one.

Welfare Reform and Work Bill

Baroness Donaghy Excerpts

Monday 14th December 2015 Lords Chamber

Moved by

[Baroness Donaghy]

61: After Clause 15, insert the following new Clause—
“Self-employment and minimum income floor
In Schedule 1 to the Welfare Reform Act 2012 (universal credit: supplementary regulation-making powers), in paragraph 4, at end of sub-paragraph (4) insert “, and may prescribe modifications of such provisions in respect of particular persons or classes of persons”.”

[Baroness Donaghy (Lab)]

In moving Amendment 61, I shall speak also to Amendment 66 in my name. The detailed amendment comes before the general one, but it is about the self-employed—and the Minister will not be surprised by that because I raised this in the Welfare Reform Bill discussions. I am coming back to haunt him.

With approximately 4.8 million self-employed people, this is an important area for growth in our economy, which makes it even more surprising that this Bill makes no reference to the particular and varied needs of the self-employed at such time that they might need some support from the social security system. I am grateful to the Low Incomes Tax Reform Group for its briefing.

Amendment 66 would add a new reporting obligation on the Government about self-employment and the impact of the minimum income floor in particular. The self-employed are a very diverse group which includes freelancers, farmers, seasonal traders and workers in construction and IT. Their needs will be different if their businesses are start-ups or are ongoing business. We need an annual government assessment. Some will take up to five years before their business is viable, and some will experience extremes of volatility in their income depending on their profession. We do not know enough about how this diversity fits into the social security system. The self-employed might be flexible, but their experience of the system is anything but.

I am arguing for a different system for the self-employed and for groups within the self-employed, particularly bearing in mind the Chancellor’s announcement that the minimum income floor will be the equivalent of the national living wage from next April, when it was originally the statutory national minimum wage. That is comparatively good news for the employed, but is bad news for the self-employed. To require the self-employed claimant to achieve an earnings pattern similar to that of the employed claimant is fundamentally to misunderstand the nature of profit and to ignore the fact that a business has to meet its costs and expenses before it can declare a profit. They include rent, heating, lighting, office equipment, vans, tools et cetera.

Reporting to Parliament would help to reveal what work is organised and regular under the new, much more stringent test to qualify for working tax credit. It would help to reveal how monthly reporting to DWP for universal credit purposes adds to the difficulty in the lives of the self-employed. This also has to be seen in the context of the Chancellor’s recent announcement that small businesses will have to report quarterly from 2020 instead of annually, just as our largest companies are dropping quarterly reports to their shareholders. Apparently, it is going to be made easy because the Government are,

“going to build one of the most digitally advanced tax administrations in the world”.—[Official Report, Commons, 25/11/15; col. 1361.]

Does that statement not fill you with terror?

The assumption is that more frequent reporting will improve accuracy, but that is far from the case. It does not take account of annual reconciliation, disputes about holidays or sickness, seasonal working or long periods of not working for freelancers, particularly writers and actors. We have the best actors in the world, but it is important that they do not all come from Eton. Equity recently conducted a survey of its members and found that 20% had claimed some form of benefit in the previous 12 months and more than half of them had claimed tax credits. When asked about their earnings, 25% of Equity members said that they earned between £5,000 and £10,000 from their self-employed work in the previous 12 months, and just over 23% earned between £10,000 and £20,000. Equity has said that when you factor in net profit figures, it is clear that many will hit the problem of the minimum income floor. I hope I will be forgiven for repeating what I said at Second Reading, which is that is that a minimum income floor is set for the self-employed who are deemed to be earning the national minimum wage—recently changed to the national living wage—whether or not they earn it.

You could argue that at least this is equal misery for all under the new system, but it is worse for those self-employed people with fluctuating earnings. If earnings in any month from April 2016 onwards are high enough to disentitle the claimant from universal credit, the surplus earnings regulations will apply to bring the surplus earnings in that month into account as earnings for universal credit purposes in each of the next five months. To summarise, actors will be worse off because of the application of the minimum income floor. That is why I ask in Amendment 61 for more flexibility to be applied to certain work groups because of their fluctuating earnings. It may seem an obscure amendment because it refers to the Welfare Reform Act 2012. However, the purpose is the same as it was when we discussed the self-employed during the debates on that Act. There is no evidence that a flexible approach has been adopted since the Act, and I do not believe it is impossible to prescribe the modifications that I have asked for.

To be self-employed, activity needs to be undertaken on a commercial basis, with a view to making a profit, and, as I said earlier, it must be organised and regular. With effect from April 2016, a self-employed claimant must register as self-employed with HMRC for self-assessment and provide their unique taxpayer reference with their working tax credit claim. It remains uncertain how HMRC will determine whether an activity is undertaken on a commercial basis; whether there will be different interpretations of whether someone is employed or self-employed for tax and tax credit purposes; and how claimants and prospective claimants will be helped to ensure that they claim on the correct basis to avoid unwittingly incurring an overpayment. HMRC is still developing its guidance, apparently.

The Minister’s letter to Peers of 25 November 2015 says that the same tests for determining the commerciality of a trade will be applied to tax credits as to income tax. However, the Minister goes on to say that if HMRC decides that the test is not met for tax credit purposes, the income from the activity will still be subject to income tax. It would be interesting to know on what basis that income would be taxed; if it were taxed as profits of a trade, it would be an indication that the tests of commerciality are not the same.

The minimum income floor will be particularly problematic—a word that I cannot say—for seasonal trades and trades that take more than 12 months to move into profit; newly established businesses taking on their first employee; businesses experiencing a downturn, a bad debt or the bankruptcy of a key customer; businesses depending on the weather; and businesses that incur large expenses in certain months. I have already mentioned entertainers and those in other unpredictable trades, but there are also bed and breakfast owners in the winter season; arable farmers who earn all their profit at or around harvest time; and livestock farmers, who face the cost of rearing and getting their livestock to market.

The fundamental objection to the monthly minimum income floor is that it opens up a gap in the treatment of employed as opposed to self-employed claimants. For example, a livestock farmer who has had his universal credit restricted by the minimum income floor in the seven months of the year when he makes little or no profit, and who receives no universal credit at all in the five months in which his business becomes profitable, will be entitled to considerably less universal credit over the course of the year than an employed claimant who may earn the same over the whole year but whose earnings are spread evenly over 12 months. It is wholly wrong that the amount of welfare support that a worker receives should depend so much on cash flow rather than earnings. The position is made worse by carrying forward surplus income and expenditure with a view to total annual profits being assessed over the course of the year, as the minimum income floor will continue to be applied on a monthly basis.

Many self-employed claimants will be disadvantaged by the minimum income floor even when their annual profits exceed it. Given that the intention of universal credit is to assist claimants at the point when they most need help, it seems perverse to restrict entitlement when cash flow is at its lowest and to exclude from entitlement when profit from that expenditure is finally received.

For claimants whose income and expenditure arise unevenly, would the Minister consider accepting Amendment 61 so that they may opt for appropriate and tailored conditionality instead of the minimum income floor? This would limit the risk to the DWP while addressing an otherwise unfair anomaly. Assuming that a statistical framework is already in place for self-employed and the minimum income floor, why should it not be made publicly available and sector-specific so that we can see who is most disadvantaged?

--- Later in debate ---

[Baroness Donaghy]

I thank the Minister for his response, which I will read carefully in Hansard. I thank noble Lords who have taken part in the debate. In view of the time, I shall be brief. The point of this group of amendments to this important part of the Bill was to indicate that some of us do not think there is sufficient focus on these areas when the issue of social security comes into consideration. These are not add-ons. Like the Minister, we sometimes think we live in a parallel universe. It is not a question of propping up failing businesses; it is a question of some seasonal and fluctuating businesses wanting their annual income to be taken into consideration, so there is some fairness when they claim for social security. The Minister says that there is some flexibility already and the powers already exist, but I have to say there is very little evidence for that, apart from the grand announcement that those in the first year of business will be exempt.

Yes, the number of self-employed on universal credit is low, but if you see an articulated lorry thundering down the middle of the road towards you, you probably have an idea that you might get run over if you stay in the same place. All I am trying to say is that the establishment of a minimum income floor will cause trouble with universal credit in future—and it would be well to heed that warning. In view of the time, though, I beg leave to withdraw my amendment.

Amendment 61 withdrawn.

Welfare Reform and Work Bill

Baroness Donaghy Excerpts

Tuesday 17th November 2015 Lords Chamber

[Baroness Donaghy (Lab)]

My Lords, I shall concentrate on an area in which the Government take some pride: the self-employed. The Bill will make the lives of the low-earning self-employed more difficult. The chasm between the Treasury and the DWP is more apparent in this area than in any other. There has been a huge growth in the number of self-employed since 2008 and the Government have favoured it as a viable route off welfare and into work, which is good, provided that it is not forced and that it is genuine self-employment.

Benefit claimants starting their own business are encouraged by the Government with a grant or loan under the new enterprise allowance, together with support from a business mentor. Perhaps the Minister could tell the House, if not today then in a letter that could be placed in the Library, how many loans or grants have been awarded in such circumstances, together with their value, and how many business mentors have been involved. You never know, that may present a rosy picture, but things become a lot bleaker for the self-employed when one contemplates the effect of the tax credit and universal credit cuts without the counterweight of the new national living wage premium—which employees, but not the self-employed, will receive. It has also become tougher for the self-employed to secure working tax credits since April this year.

I am grateful to the Low Incomes Tax Reform Group, and to Robin Williamson and his colleagues, for the briefing that they have provided. As I said, HMRC has tightened up the rules for the self-employed claiming working tax credits. The decision was first announced in the Chancellor’s Autumn Statement in December 2014 that self-employed claimants whose earnings were below 24 hours a week multiplied by the national minimum wage would be asked to show that their self-employment was genuine and effective. At the time of the Autumn Statement, the Low Incomes Tax Reform Group said that the proposed test was likely to discriminate unlawfully against disabled self-employed people who might not be able to work 24 hours a week for health reasons but who qualified under existing legislation on the basis of a 16-hour week.

The actual legislation, SI 2015/605, effective from 6 April this year, creates a slightly different rule whereby a claimant must meet the condition of being either employed or self-employed, as defined. For them to be self-employed, their activity needs to be undertaken on a commercial basis with a view to making a profit and it must be “organised and regular”. What is interesting is that the additional conditions laid down in the Autumn Statement—namely, that a client must register as self-employed with HMRC for self-assessment and provide their unique tax reference number with their working tax credit claim—have been postponed for introduction next year. Reading between the lines, I wonder whether this was a minor victory for the DWP and the Minister.

In a briefing published in April 2015, HMRC offered some information about how the new condition will be applied. It refers to selecting cases on the basis of a minimum-earnings threshold equivalent to qualifying working hours multiplied by the national minimum wage. It appears from its guidance that it is using the declared hours of the claimant rather than the hours needed to qualify for working tax credit to select claimants, and that leaves many uncertainties. How will HMRC determine whether an activity is undertaken on a commercial basis? Will there be practical implications for the difference in tax and tax credit interpretation of status, whether employed or self-employed? How will claimants and prospective claimants be helped to ensure that they claim on a correct basis to avoid incurring an overpayment by mistake? Apparently, HMRC is still developing its guidance on this. No wonder the Bow Group has said that self-employed people may be pushed on to unemployment benefits as a result.

I turn to the minimum income floor and universal credit. I raised this during the debates on the Welfare Reform Bill, and nothing has changed. The Government make the incorrect assumption that a self-employed person is running a viable business if they are making a clear profit equal to at least the national minimum wage. This ignores the fact that a business has to meet its own costs and expenses before it can declare a profit, and for an employee the salary that he or she is paid is clear of all those costs and expenses. The self-employed worker, though, has to pay for rent, heating, lighting, office equipment, a van, tools and so on, and can take home only what is left over. The two situations are not comparable. However, the DWP, in administering universal credit, deems that a claimant who is gainfully self-employed should be earning a clear profit equal in most cases to the national minimum wage for a 35-hour week, known as the minimum income floor. If they are not, their welfare payments will be restricted as though they were.

The exception is the start-up period during the first 12 months of a new business. This policy is unrealistic and impractical because very few self-employed people are able to make much, if any, profit in the early years of a new business, let alone the first 12 months. Many make a loss as a result of new premises, low receipts, bad debts, seasonal factors or taking on their first employees. This particularly affects the farming and hospitality industries. From April 2016, claimants will be allowed a limited carry-forward of cash trading losses made in any month, but this will not help to cushion the impact of the minimum income floor. Another rule will provide that if the claimant’s earnings in a month are high enough to no longer entitle them to universal credit, any surplus is to be treated as earnings in any of the next six months in which the claimant again claims universal credit. This rule is likely to bear more harshly on the self-employed claimant, again because of the impact of the minimum income floor.

Do the Government intend to align the minimum income floor with the national minimum wage, or the national living wage for the over-25s? This would raise the level of profit that they assumed a self-employed universal credit claimant was earning if their actual earnings in the month were less than that amount. With the cuts in tax credit levels and an increase in deemed income for universal credit purposes without any increase in actual income, this would be a double whammy for the low-earning self-employed worker and Britain’s pay rise would become another cut in welfare for the low-income self-employed worker.

Lastly, I want to raise the issue of the support for mortgage interest. According to the impact assessment, 170,000 households receive support for mortgage interest or SMI, 55% of claimants are of working age, and single females comprise almost half the case load. However, it is difficult for me to say how many self-employed would be affected because there is no reference whatever to the self-employed in any of the impact assessments.

Whether or not the proposal is justified, it will make life more difficult for the self-employed on low earnings. The SMI payments will be changed from a benefit to an interest-bearing loan, secured against the mortgaged property, from April 2018. Would the Minister consider a two-year grace period before SMI payments become loans secured on the property? This change, which would reflect an option previously given by the DWP during consultation, would ensure that SMI continued to act as a straightforward short-term safety net for homeowners in financial difficulty. I strongly believe that interest should not be charged on SMI loans and that administrative costs should not be secured on property. I look forward to the Committee stage of the Bill.