Welfare Reform Bill

Baroness Hollis of Heigham Excerpts

Tuesday 13th September 2011 Lords Chamber

[Baroness Hollis of Heigham]

My Lords, I very much support the principle of universal credit. It was put in the “too difficult” box when I was a Minister and I think we can all see why. The benefit system was built in the Beveridge world where, as long as the man held on to his full-time job and his wife held on to him, the family was insured. To his contributory benefits were added, over time, category benefits for disabled people or children; means-tested benefits for emerging groups such as lone parents or emerging needs such as housing benefit; and, more recently, the different structure of tax credits.

The result is that most benefits and credits have different income thresholds, different taper rates, different back-dating rules, different eligibility criteria, different linking rules, different passporting arrangements, different savings caps and different payment patterns. Not surprisingly, therefore, we have error, fraud, underclaiming and overlapping built into the system, to say nothing of complexity, confusion and high administrative cost. The result is that it is a full-time job being poor. We need a robust, easily understood structure that reduces the risk while increasing the reward of working as the most effective route out of poverty. I am hoping that the universal credit will deliver this.

The issue is not the unemployed, three-quarters of whom are back in work within a year, but the economically inactive—the lone parents, people with some disability—who linger far too long on benefit. Will universal credit make it easy for them to work? You need self-confidence, resilience and a modest cushion of security to afford risk. Most lone parents and many disabled people quite sensibly prefer the security of a guaranteed low benefit income to the risk and uncertainty of somewhat higher wages should either their job or their health fold, which would then require an exhausting struggle to get back on to benefit while only two tins of baked beans remain in the cupboard. We must reduce risk. We do not need to whip people back into work. That is a complete fabrication. We need to strengthen their confidence to risk work and to seek it by removing the penalty for failure. I believe that universal credit can do this.

Obviously, we must make work worth while. Any work must pay, not as now when so many lone parents find that working between three hours and 16 hours on minimum wage loses every pound—even though a 10-hour job cleaning caravans, picking mushrooms or working in the launderette may be just what she and a would-be employer want. Beveridge’s world of either “work and wages” or “not in work and contributory insurance benefits” has now become one where many people much of the time, and most women most of the time, will need both work and benefits—dials, not dichotomies. Again, universal credit’s structure can do this for us.

I very much support the concept of UC. Like the noble Lord, Lord Brooke, I thank the Minister particularly for the care that he has taken in his seminars and his briefing papers. In best “Yes Minister” style, I congratulate him on his bravery, as well as his tenacity, in bringing it this far. It needs doing—it really does. We must reduce the risk as well as increase the reward for work by simplifying and recasting the structure. But, and alas it is a big “but”—this reinforces the point made by my noble friend Lady Hayter, in her admirable speech—the architecture is being undermined by the cuts agenda and we risk UC failing.

I shall give some examples. First, as regards second earners, we know that in one-third of poor families he is in work and she is not. Her second wage could lift them all out of poverty and, in a world of increasing flexibility and part-time jobs, it is misguided to use UC to get him to work even longer hours, which are probably not available, or to discourage her from work because UC has higher deduction rates for second earners. It is not sensible. It keeps them in poverty. It does not fit the labour market and discourages a better work-life balance between them. UC needs to follow the choices, not constrict them. Incidentally, any lone parent in part-time work who repartners is relegated to second-earner status and loses money. Either she will not declare it, which is fraud territory, or she will not repartner and her lone-parent status continues. It is not sensible.

A point on childcare has been made by several noble Lords. Helping more people is good but, within a cut or a capped budget, those working longer hours will find that their work is unaffordable. I accept that the cost of childcare presents a huge problem to the department but the Government’s proposals undermine the incentive for full-time work. That is undeniable.

As regards the changes to housing benefit, HB must be regularly reconnected to the 30th percentile of market rents because rents are rising far faster than CPI. I care particularly about the shared room rent housing benefit. A woman of 33 living in a one-bed flat who loses her job will potentially lose her home. It will double her stress as she spends time looking for a room which is safe, rather than searching for a job, which she needs. That, too, cannot be sensible.

Let us take savings, which several people have mentioned. Today, you lose JSA if you have savings over £16,000. With tax credits there is a notional income instead from your savings and no cap. With UC, the Government are going for the lowest common denominator, as in so many fields. If you are new to part-time work, you will get no help from UC until your savings have been run down to £16,000, and probably lower than that. So why save? Instead of savings giving you resilience and protection against risk, we have made saving itself risky—the exact opposite of what we are rightly doing with pensions. That is not sensible either.

ESA is to be means-tested after a year—not just on a man’s income and savings, but on that of his wife, who perhaps is a part-time carer and part-time worker. What would noble Lords do, if they were her? You would either cut your hours or drop out of work altogether, rather than see his benefit withdrawn. Then, you would both enter retirement the poorer. We have increased the risk of her not working, which is the reverse of what UC intends. That is the trouble with a household means test for UC. It makes entirely good sense for the young, unemployed couple on HB but, if a member of the household becomes disabled, after a year financial support for him is almost literally paid for by other working members of his family. That can destroy families, which no one wants.

Finally, there is the helpful input of the DCLG, requiring social landlords to fund the new building programme by increasing rents substantially, thus probably adding £2 billion to the DWP’s housing benefit bill. At the same time, the DCLG is undermining the work incentive by pushing out better-off tenants. We have increased rents, increased insecurity, reduced work incentives and a higher HB bill—really helpful of the DCLG—and then it is a complete idiocy for it to localise and cut council tax benefit, undermining universal credit rules. It sends an Exocet through UC. With friends like the DCLG, who needs an Opposition? I suggest that the Minister explores a useful trade-off—that he drops the benefit cap, which the DCLG and most of us do not want; and the DCLG in return drops the localising of council tax, which the DWP and no one wants. The Minister would have the better bargain.

I want UC to work, but unless we can rectify these issues in Committee, we will have badly damaged the two drivers behind UC: removing the risk and increasing the reward of working. Then we will be back exactly where we are now.