Welfare Reform Bill

Baroness Hollis of Heigham Excerpts

Monday 21st November 2011 Grand Committee

[Lord Rix]

My Lords, I will manage to cut things short by saying that I am very grateful to the Minister. I trust that it will all come to pass and I beg leave to withdraw the amendment.

[Baroness Hollis of Heigham]

If we go on like this, we will finish today.

Amendment 87 withdrawn.

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[Baroness Hollis of Heigham]

My Lords, I support the noble Lord, Lord Best, in his amendment. There are some very difficult inconsistencies in the Government’s policy on housing benefit, about which we should be concerned. The noble Lord talked about the fact that there is, apparently, almost a standard housing and rent element in the benefit assumptions, even though we know that rent varies from area to area and region to region.

I particularly want to pick up the point that he made about the discrepancies between the private rented sector and the social rented sector. Some of us—certainly the noble Lord, Lord Best, and I—argued very strongly against a benefit cap based on underoccupancy in an earlier round of amendments. It was clear from the impact analysis that one of the responses that the Government felt was appropriate for people who were in so-called overly large local authority accommodation—with no possibility of an internal move because the stock does not exist—was to tell them that they should move into the private rented sector. However, the impact analysis also recognised that that sector would also have increased rents, and therefore the assumption of savings that would follow from that move would not be available to the Government.

The Government are saying that if you manage to avoid your housing benefit cut by virtue of these very harsh rules on underoccupancy by going into the private rented sector, you will then come up against an alternative cut—the benefit cap. You are between a rock and a hard place: you can stay put and have your cut because of the underoccupancy rules, or you can move to accommodation in the private rented sector which apparently fits, but because of the number of children you have, you will be up against the benefit cap and again you face a cut. Which strategy does the Minister suggest people should follow in that situation? It would be helpful to know because a lot of our poorest families will be faced with just such dilemmas.

[Lord McKenzie of Luton]

My Lords, we are indebted to the right reverend Prelate the Bishop of Ripon and Leeds for leading the charge on this. Indeed, faith communities generally have been a voice for people who might otherwise not have been heard. The need for so many amendments around this proposal in the Bill highlights the extent to which it is a badly conceived policy. Whether or not you believe there should be an overall cap on benefit entitlement, what we know about the approach taken to applying such a cap in the Bill shows it to be unfair, inconsistent and to ignore the needs of many of the most vulnerable.

This first group of amendments relates to how the benefit cap is to be calculated and shows the extent to which there are major inconsistencies in the Government’s approach. The second group relates to the fact that the Government appear to have ignored the needs of many of the most vulnerable people when thinking about who is to be excluded from the benefit cap.

The Government have argued that applying the benefit cap is fair. The Secretary of State for Work and Pensions, Iain Duncan Smith, has stated:

“The benefit cap will restore fairness to the taxpayer and fairness to those who do the right thing on benefits”.

Of course, we are learning with this Government that fairness has many different meanings to different people, but it would be hard for anyone to justify the idea that the current policy will be fair to children, who, as we have heard, the Children’s Society has shown are nine times as likely to lose out from the cap as adults. Out of the 50,000 households that will be affected by the cap, the Children’s Society estimates that 210,000 will be hit, compared to 70,000 adults. Perhaps the Minister will tell us whether he thinks this policy is indeed fair to children.

The Bill impacts so heavily on children in part because of the way that the Government have stated that they will calculate the level of the cap. At present it is proposed to set the benefit cap at two different levels. The first, for single people without children, will be introduced at around £350. For couples, it will be introduced whether they have children or not, and for single parents with children the cap will be introduced based on net average earnings for a working household with or without children, which the Government estimate to be around £500 per week at the point of introduction.

We should note that that proposal creates a substantial couple penalty, which the noble Baroness, Lady Tyler, spoke about. Research by Family Action showed that for two lone-parent households that decided to move in together this penalty could be as much as £9,000 a year. Does the Minister believe that financial penalties of this type form a disincentive for families to move in together? If so, what assessments has his department made of the likely impacts of applying the cap in this way on the rates of lone parenthood and cohabitation?

We note that while the universal credit has a higher personal amount for couples than for single people with children, the benefit cap has not followed the same principle. Not only is the current calculation unfair towards couple families, it is also unfair in its comparison between those in and out of work. Both working and non-working families were able to receive child benefit and housing benefit. As the level of the cap is based on earning levels rather than income, however, these will, as the right reverend Prelate said, be excluded from consideration of the amount of money that working families have to live on but included in the calculation for those out of work. Amendments in the next group seek to exclude child benefit and those in this group to exclude housing benefit from being included in the calculation of total income for out-of-work families. Perhaps now the Minister could explain exactly the basis on which this method for calculating average family earnings was chosen.

In-work benefits, including working tax credit and, subsequently, universal credit, will also be excluded from the calculation of the level of the cap, but not from the calculation of the amount of income that out-of-work families are expected to live on. Here we come to another lack of clarity about the Government’s approach, as it is once again not clear what the definition of work is expected to be for the benefit cap when universal credit is established. Before universal credit is established, the cap will initially be applied to housing benefit, and the note with the draft regulations that we received states that a claimant in receipt of housing benefit will be considered to be in work if they are entitled to working tax credit. It has been announced that when working tax credit is abolished, there will be a corresponding exemption for people on universal credit who are considered to be in work. The precise criteria for this exception are still being considered.

Again, the thinking behind the benefit cap appears to be out of kilter with what is behind the universal credit. Indeed, the Government have just spent a large amount of money on ensuring that households working under 16 hours will still be able to claim support with childcare costs under universal credit. Yet in benefit-cap terms, it seems that working less than 16 hours is not really considered as work, and it is possible that this childcare support will be removed by the restriction on the total amount of benefit that a family can receive. Large families may be caught in a trap whereby any move into work brings with it additional childcare costs, which are then reduced by the cap to the extent that working is no longer worth while. Does the Minister believe that a family in which someone is working for less than 16 hours a week is a “working family”?

Amendments 99ABAA and 99ACA in our names seek to understand why housing benefit and council tax benefit have been included in the benefit cap. At present, the proposals seem both unfair and unworkable. The differences in rent around the country, as we heard from the noble Lord, Lord Best, mean that families in different areas will be affected very differently by the cap, with the most severe impact on families in London. As the Government’s own impact assessment states about the possible impacts of the cap, it is likely to affect where different family types will be able to live, housing benefit may no longer cover housing costs, and some households may go into rent arrears. This is a direct consequence, they acknowledge, of government policy. Some households will be pushed into rent arrears, which will require expense and effort by landlords and the courts to evict and seek to recoup rent arrears. Some households are likely to present as homeless and may, as a result, need to move into more expensive temporary accommodation at a cost to the local authority. These costs are likely to fall most heavily on local authorities in London. Shelter, Crisis, Homeless Link and the National Housing Federation state that although the cap has been characterised as a cap on large families, high rents in London mean that families with just two children will be subject to the cap in all inner London and many parts of outer London, including Newham, Haringey and Hounslow, because of higher housing costs in those areas. London Councils points out that rent levels vary widely across the country. London has the highest average private sector rents in the country, at £220 per week, which is more than 35 per cent higher when compared to £164 nationally. It is estimated that more than 50 per cent of couples with more than three children in London are unlikely to be able to afford their rent.

The benefit cap will come on top of the already imposed cap on the local housing allowance, as we have heard, while Shelter, Crisis, Homeless Link and the National Housing Federation state:

“Unless housing benefit is removed from the calculation of the cap there is a risk that low income households will be displaced from large areas of the south-east, on a scale far wider than that feared in response to”

the local housing allowance caps. For families already hit by those caps, the organisations state,

“there is a risk that they could be hit again and forced to move twice within less than a year”,

as the noble Lord, Lord Best, said. What estimates has the Minister made of the additional cost to local authorities in London and the increased costs that they are likely to face as a result of the household benefit cap?

In the post-Bill world, these same local authorities will also be delivering council tax benefit. For the Government to be able to take council tax benefit or its replacement into account for the purposes of the cap, they will therefore need local authorities to tell them who is in receipt of the benefit and how much they are receiving. What arrangements does the Minister expect to be in place to ensure that the benefit cap correctly takes into account the amount of support with council tax?

The variation in local authority support for council tax also means that how families are affected by the benefit cap will vary by local authority. Those local authorities faced with additional costs in temporary accommodation as a result of the cap may be tempted to recoup their costs by limiting the amount of support that they give with council tax—knowing that, in effect, the DWP will pick up the bill by paying out more universal credit before the benefit cap is imposed. Perhaps the Minister can tell us what estimates have been made of the potential for savings from the benefit cap to vary, depending on the level of council tax support put in place by differing local authorities.

The Minister may say in his response that according to the impact assessment the benefit cap is expected to hit just 50,000 households—roughly 1 per cent of the out-of-work benefit caseload. Yet the impact on these families will be extreme, with an expected average loss of £93 a week. He may also tell us that he has no money and no way of recouping the expected savings from this policy of £225 million in 2013-14, and £270 million in 2014-15. However, it is clear that the costs of this policy, not only in terms of family well-being but for local authorities, will be high. The amendments proposed today seek to rescue this policy and to ensure that it can retain some aspects of the fairness that the Government say that they are aiming for. I hope that the Minister feels able to accept the amendments.

Perhaps I may conclude with a few questions. The impact assessment, as has been discussed, sets out the consequences of the benefit cap—that it will force people into rent arrears and cause them to be evicted—but it has not been able to put a cost on that. Do central Government accept that this is an increased burden on local authorities which, under the Government’s policy, should be met on one basis or another, and has any further work being undertaken to quantify this? What about the costs falling on the devolved Administrations? As to those Administrations, which benefits, if any, are included under Clause 93(9) that could be capped in England but not in Wales or Scotland? Perhaps the Minister could let us have a detailed note, not today but by correspondence, on the local authority obligations to individuals and families made homeless by these provisions and the types of rules that local authorities have to take into account, particularly in relation to local connections.

Can the Minister also say something about the number of people who will be affected by this cap and who live in social housing? I think that a figure of something like 70 per cent was discussed in the other place, but that may not be up to date. The point is that social housing is, generally, of lower cost than pretty much any other housing around. If people in social housing are being forced into rent arrears and eviction, the only consequence will be that they will face being rehoused in higher-cost accommodation.

[Baroness Hollis of Heigham]

Does the noble Lord not agree that, with the new affordable rents—which are going to be 80 per cent of market rents—we could end up with social housing being higher than the benefit available to somebody on the 30th or 20th percentile in the private rented sector?

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[Lord McKenzie of Luton]

Would the noble Lord approve of a lifestyle change that forced someone out of a council house, whatever the level of rent, into much more expensive private sector accommodation because they had been made homeless? Is that a lifestyle change that the noble Lord would approve of?

[Baroness Hollis of Heigham]

Perhaps I may add to my noble friend’s comments. Would the noble Lord care to compare apples with apples rather than apples with oranges—in other words, not compare the situation of a single man earning the average of £25,000 with the situation of a family who would also be entitled, for example, to child tax credits? If the noble Lord is going to make comparisons, he must in all integrity compare like with like.

[Lord Skelmersdale]

If there is a family where the sole income comes from either the man or the woman, then the situation is as I have described it. If, however, someone is working full time and someone is working part time, then the situation is clearly different, which is what I suspect the noble Baroness means.

[Baroness Hollis of Heigham]

The noble Lord is incorrect. He is failing to recognise that a man in work with a family at that income level will be entitled to tax credits that go into his net income. He is failing to take into account the additional benefits that come from the state over and beyond wages for someone in full-time work. He must compare like with like in all integrity.

[Lord Skelmersdale]

In that case, it would be useful for my noble friend Lord Freud to tell us how many families with an income of £25,900 a year are on benefit of any sort. I cannot imagine that he will be able to do so off the cuff but—

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[Baroness Hollis of Heigham]

If the Minister is staying on this point then I will sit down, but before he goes on to another point, could he please clarify further? Say that there are two households in band D in two different local authorities for which the council tax charge in one borough is £20 a week and in the other is £30 a week. In the first borough, the localised benefits system effectively allows a rebate of £15 out of the £20, but in the other borough facing £30 a week there is a localised council tax benefit of only half that sum, which is also £15. When it comes to calculating the universal credit, what elements of that mess will the Minister take into account? Will he look at the putative council tax that should be paid and the benefit or the net sum paid? What counts as income? What counts as cost? How will this be done when everyone will have a different calculation to be made locally?

[Lord Freud]

The noble Baroness is, as always, way ahead of the curve. As I hope I explained, there are several things that have to happen before we come to deciding some of those issues, and we need to know the shape of any replacement for council tax or the impact of localising council tax, which as yet we do not. I am left with my previous observation that we will take that information into account when we have it, but we have all the powers to do that so there is no issue here regarding our not being able to do it.

[Baroness Hollis of Heigham]

I understand the dilemma that the Minister faces and that it is not a dilemma of his making, so I have great sympathy with him. Will he expect income to be the council tax benefit, or the council tax benefit minus whatever element the individual may be expected to pay? In other words, are we dealing with gross or net? It could vary by £15 or £20 a week between two different households with similar income in adjacent boroughs, and that will make a lot of difference to their actual outgoings.

[Lord Freud]

Regrettably, yes, it may or it may not. That will depend on how we reach our design by taking in the implications of localised support. I cannot design a system on the spot when we do not know several of the components, but we have the powers here to take that into account and we are planning to do so.

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[Lord Freud]

The best I can say is that according to the current published impact assessment roughly 70 per cent of those affected are in social housing. However, the direction of travel of those figures in the new assessment is downwards, although I do not know by how much.

[Baroness Hollis of Heigham]

I am not sure that I have an answer that I fully understand. The noble Lord, Lord Best, raised the question of affordable housing, which, as we know, is to be set at 80 per cent of market rents. The market rent for a three or four-bedroomed family house not in central London but in some of the outer suburbs might well be £1,200 a month or £300 a week. Social housing with an affordable rent would therefore have to be 80 per cent of that £300, which is £240 a week. Let us assume that a family consists of a husband and wife with two or three children. He is in work and is paying an affordable rent, then his job collapses and he goes on to UC. He then finds that £240 a week has to come out of his benefit and he is up against the cap. Precisely what is he going to do? Obviously he is going to search for work but what does he do in the meanwhile? This is an affordable rent, being 80 per cent of a market rent, yet this is social housing, so there is nowhere else for him to go. What does he do? As my noble friend said, the probability is that he has very modest savings, otherwise he would not be in that sector in the first place, and he has children in school. It may well be that he cannot reasonably expect to get a job within the next six months, however frantically he tries, and he is then up against a benefit cap while in social housing with children. What does he do?

[Lord Freud]

My Lords, I have made it clear how we ease the transition for families, and that is one of the things that we are looking at.

[Baroness Hollis of Heigham]

Can the Minister at least help the Committee by indicating the shape—I shall not try to hold him to the precise details—of that transitional arrangement? Will it be over three years, or alternatively will extra resources be available through the discretionary housing allowance via the DCLG in order to allow local authorities to smooth that transitional arrangement? Would there be exceptions for particular payments, such as higher housing rent, because we are talking about social housing and affordable rents? Alternatively, would the Minister suggest to the DCLG that that rent could go from being affordable to the average social rent, even though that would then inhibit the ability to carry on with new building? I can think of three or four ways of doing it but what does the noble Lord have in mind?

[Lord Freud]

Regrettably, I am not in a position to be drawn. All I can say is that we are looking at how we can ease the position for families and how we can provide assistance for hard cases. I know that the noble Baroness has already created four different scenarios and ways of doing it, for which we are grateful, but that is all I can say at this point.

[Baroness Hollis of Heigham]

But it is a problem of the Government’s own creation. This is the difficulty—there is no evidence that this will have any longer-term savings cost.

[Lord Freud]

I should like to engage in a detailed debate on this, but all I can tell noble Lords at this stage is that we are looking at how we ease the transition for families, and we are looking at providing assistance in hard cases.

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[Lord Freud]

I very elegantly have a wonderful piece of paper to hand. On the median, it works for total income—all gross and net household income—and it works for the mean. I can give noble Lords all the figures but it would bore them.

[Baroness Hollis of Heigham]

If the Minister could circulate those figures to all Members of the Committee, it would be very useful.

[Lord Freud]

I am sure that noble Lords probably have them at their fingertips anyway. They are meant to be accessible figures, but if noble Lords would like some help and for me to use up another Scandinavian forest, I will circulate them. I will put them in an e-mail instead. That would be cheaper.

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[Lord Freud]

I will be happy to do that.

[Baroness Hollis of Heigham]

Will the Minister ensure that his colleagues in the DCLG do not give guidance to local authorities that anyone unable to pay their rent by virtue of these changes is therefore deemed intentionally homeless? That is absolutely key.

[Lord Freud]

As I said, we are working very closely with the DCLG on the implementation of the benefit cap. We will work through those issues in detail.

[Baroness Hollis of Heigham]

When may we know the answer to that point? Conventionally, under homelessness legislation, anyone who loses their home by virtue of a failure to pay their rent is regarded as intentionally homeless. If they have children, they may get some help on grounds of vulnerability and the local authority may temporarily rehouse them. However, in future the local authority has only to give them guidance into the private rented sector, where they will be stuck. It is not a casual question. Unless we redefine the homelessness legislation from 1972 onwards, these families will be crucified.

[Lord Freud]

It is for local authorities to make decisions on individual homelessness applications, as they do now. Under homelessness legislation, if the only reason for the person’s homelessness is a reduction in benefit that is outside their control, they should not be considered intentionally homeless by their local authority.

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[Lord Kirkwood of Kirkhope]

My Lords, I think that Clauses 93 and 94, and I speak only for myself, are incapable of satisfactory amendment. They constitute a direct and dangerous attack on entitlement and the concept of entitlement. They subvert the scrutiny of Parliament and they will cost more than they save. Apart from that, they are absolutely fine. I understand colleagues’ attempts to try to mitigate some of the damage. The speeches have been powerful; I have supported some of them and agree with all of them. If the Minister decided to take on all the suggestions that he has had today on exemption, it would be so complex that it would add some £270 million to add some agile computing to get the exemptions properly carried out—and I would like to think that simplicity is an overriding principle in developing new policy.

The thing that really causes me sleepless nights is looking at the clauses themselves. I have just three points. I spent some time—not quite in my bath, as I do not take social security Bills to my bath with me—looking at three aspects in particular. The Minister might help me with this. Clause 93(1) starts with the wording:

“Regulations may provide for a benefit cap to be applied”.

I think that that is a first. I do not think that there is any other social security legislation that aggregates entitlement and then depresses the total amount by regulation. If I am wrong, I would really like to hear about whether any other legislation does that—and I have been looking at this area of policy since 1986.

We need to be careful that the step we are taking is not taken lightly, because subsection (2) contains some language that is also worrying if you follow the thread all the way through the rest of the clause. It says inter alia that,

“where a single person’s or couple’s total entitlement to welfare benefits in respect of the reference period exceeds the relevant amount, their entitlement to welfare benefits ... is reduced by an amount up to or equalling the excess”

We find out about the relevant amount from subsection (5), which tells us that it is going to be contained in regulations. It also tells us at subsection (6) that the relevant amount will be,

“determined by reference to estimated average earnings”,

and we have had some important discussions about exactly what that does and does not mean. Then we have subsection (8), which is wonderful. It says:

“The Secretary of State may estimate such earnings in such manner as the Secretary of State thinks fit”.

That is quite novel as well. Is there another social security regulation where the Secretary of State can exercise that level of discretion on top of the attack on entitlement contained in subsection (1)?

[Baroness Hollis of Heigham]

It is putative.

[Lord Kirkwood of Kirkhope]

It may be putative, for all I know, but the conjunction of subsections (1) and (8) worries me greatly. There may well be other precedents, but perhaps people who know better than I do will leave me alone so that I can finish my speech quickly.

I move on to my third point. Clause 93(4) talks about regulations, and that subsection is also worrying. Paragraph (b) states that regulations may,

“make provision as to the welfare benefit or benefits from which a reduction is to be made”.

There is absolutely no qualification there. It refers not just to workless benefits but to welfare benefit or benefits. The Minister slightly gave the game away earlier by saying that we have all the power we need in Clause 93, and he is absolutely right about that. There is nothing that he cannot do by regulation. My point is: what is the House of Lords for if not to say that Clause 93 is a step too far?

I will vote not only against Clauses 93 and 94 but against the regulations that flow from those clauses, because that is the only way that we can protect entitlement. From where I am sitting, the concept of entitlement is sacrosanct in the benefits system. I am up for a discussion about reducing the social security budget total by £270 million. We can do that—we can have the debates; we know the process; we can choose the benefit and we can look at the effects. We do a lot of work in creating these entitlements and I should like to think that we do so carefully, line by line, particularly in the House of Lords. We all know that that certainly does not happen any more in the House of Commons, so this is the last place where on occasion we can protect people’s entitlement.

We should remember that we are talking about the lowest two deciles of the household income group in this country. They are the most vulnerable people in our communities throughout the length and breadth of the land. We need to be safe in the knowledge that we are doing what is right, benefit by benefit, but I think that Clauses 93 and 94 take away that security of knowledge. If we pass these clauses, everything can be capped by regulation. By convention, we do not vote against regulations in the House of Lords, and there are very good reasons and precedents for that. However, this is a game that any Government can play. My noble friend is a sensible and good man, as we established earlier in the Committee. We might make sensible decisions about some of these things but they will be enshrined in law. Another Government will use this power and it will subvert the role of Parliament. That is my objection. I understand and agree with a plea for exemptions left, right and centre, but I feel in my heart that if we pass this legislation we will be crossing a bridge that will lead to consequences which are not easily foreseen.

Speaking for myself, I will not vote for these clauses. I think that on Report the House should not just concentrate on some of the important, powerful speeches made in attempts to win exemptions but give some consideration to the parliamentary ramifications of Clauses 93 and 94. If that does not happen, we will be surrendering a power that we will never win back.