Welfare Reform and Work Bill

Baroness Hollis of Heigham Excerpts

Monday 14th December 2015 Lords Chamber

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, the amendment proposed by the noble Baroness, Lady Manzoor, would repeal the Universal Credit (Work Allowance) Amendment Regulations 2015, which were laid before Parliament on 10 September 2015 and come into force next April. The amendment tabled by the noble Earl, Lord Listowel, and the noble Baroness, Lady Armstrong, would increase the standard UC allowance payable for lone parents who are also care leavers. Both amendments refer to issues recently considered by this House. The work allowance regulations were lying before the House as recently as last month and we have already discussed care leavers in debates on the Bill, most recently last Wednesday.

The Bill does not make any changes to the standard allowances in universal credit, which are set out in the Universal Credit Regulations 2013, debated in this House in February of that year.

The Government set out in the summer Budget measures to transform Britain from a low-wage, high-tax, high-welfare society to a higher-wage, low-tax and low-welfare society. This package of measures included changes to UC and tax credit allowances but also the introduction of the national living wage and further increases to the personal tax allowance. Noble Lords will be aware that the Chancellor has subsequently announced changes to the tax credit element of this plan in response to concerns raised mainly by noble Lords about the timetable for implementation. However, the overall strategy remains unchanged. The welfare system needs to be brought under control to make it fair to the taxpayer and support economic growth.

This is perhaps a reasonable time to pick up the point made by the noble Baroness, Lady Lister, about all the improvements that there might be to universal credit. I acknowledge that there may well be improvements. One of the opportunities that we have, uniquely in universal credit, is to start doing randomised control trials to discover how we might improve it. Some of those suggestions may well work when we have discovered the dynamic effect of making those changes. We do not know at this moment, but we and future Governments will have the opportunity to test some of those propositions.

Doubtless noble Lords will have seen analyses published by various organisations assessing the impact of these changes on claimants and are clearly concerned about the possible impact on families. As I start trying to explain the impacts, it is important to explain why those analyses tell only part of the story. First, they fail to reflect that the summer Budget measures are a package. The comparator, which excludes work allowance changes but includes all other summer Budget measures, reflects the Government’s policies to deliver low taxes but not those to deliver low welfare. If we are to deliver our commitment to stable public finances, we cannot deliver one without the other.

Secondly, they fail to take account of all elements of government policy that will have an impact on families between now and 2020, including spending on vital public services such as the NHS and schools, on which so many families rely. If you take the sort of analysis that has been carried out by the IFS and the Resolution Foundation but instead compare the net incomes of those on tax credits in 2015 with what they would get under UC in 2020, taking into account the national living wage, increases in the personal allowance, better provision for childcare and economic growth, the cash position would look broadly similar in 2020.

Thirdly, and perhaps most importantly, the analyses fail to take account of the dynamic impact of universal credit, or indeed of any changes in behaviour as a result of the measures in the Bill. We are introducing universal credit precisely to give people more choice and opportunity to get into and progress in the labour market. The early impact is already documented, but static analyses cannot help showing claimants as passive recipients of welfare, unresponsive to the new possibilities that this Government are opening up with these reforms. This is particularly important when we consider universal credit claimants directly affected by this change when it comes into effect next April. The overall numbers are of course small, given the controlled rollout. They are also made up primarily of childless singles.

Let us be clear about the group we are talking about. They are a group with no barriers to full-time work. Indeed, many of them already move off universal credit altogether by finding full-time employment. Those with residual universal credit awards in work are normally working part-time and would therefore have got absolutely nothing under the tax credits system. The changes in April will reduce that generosity but will still leave this group better off than under the previous system.

I recognise that there are some more complex cases in the current caseloads, with higher entitlements and greater barriers to increasing earnings. To respond to the first question asked by the noble Baroness, Lady Sherlock, I can say that the Secretary of State has announced that we will use adviser support and the flexible support fund to ensure that each of those families is supported through the change.

[Baroness Hollis of Heigham (Lab)]

Would the noble Lord expand on that answer? How many lone-parent families? How much will they be supported by in terms of their finance—is he saying that it would be as though the cuts had not affected them—and for how long?

[Lord Freud]

It would be a small number of families; I do not have the precise number.

[Baroness Hollis of Heigham]

Can he give us a feel: are we talking about 100 or 1,000?

[Lord Freud]

It is a small number. It is probably towards the lower end of that, but I do not have the precise number. We will use the flexible support fund—the measures the Secretary of State was talking about—to help them to make the transition, so that they manage the change.

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[Baroness Hollis of Heigham]

Does that mean that they will not be worse off in cash terms during their transition by virtue of the support system?

[Lord Freud]

It is not the same as transitional protection, as I was indicating. It is our means of helping people adjust to the change we are seeing in universal credit for those groups.

[Baroness Hollis of Heigham]

How will that happen?

[Lord Freud]

We will help them make the transition. It will vary for each of those families: it might be some more work or it might be upskilling to earn more. The numbers are very particular and specific but they are clearly a focus of our obligation to those groups to help them to manage their position. We will put the resource in to help them to do that. That is what we are talking about. Helping those on lower income towards financial independence requires a tax and welfare system that encourages and rewards work, and one which provides people with the right support to progress in the labour market and provide their families with long-lasting security.

The next question asked by the noble Baroness, Lady Sherlock, was about how the transitional protection works. The people who get transitional protection are only those whom we have managed migration for, which, as the noble Baroness pointed out, will start in 2018. It is not designed to provide indefinite financial protection. Over time, transitional protection will be eroded as claimant circumstances change. It will be appropriate to end it when circumstances underlying the award are no longer recognisable as those on which the legacy calculation was made. We have not yet regulated for transitional protection, but we have described its principles. We will bring forward those regulations in due course.

[Lord Freud]

We put them out at the time of the Bill. They were reasonably large changes. There is a list of them: re-partnering would trigger one, as would a new member of the household. Other changes might be a sustained drop in earnings—an equivalent almost to moving out of work—or one or both members stopping work. As I said, those are all indicated. We will set out those changes in due course.

[Baroness Hollis of Heigham]

Can the noble Lord envisage a situation in which a couple—a family—received this, he moved out and she became poorer, but the result was a change in circumstances, so her reduced income was made worse because she no longer had transitional protection?

--- Later in debate ---

[Lord Freud]

I do not have the precise figures here so it is quite hard for me to know how much of that flexible support fund will need to be diverted, but it is a mixture of support and funding. It is a question of how that is combined. We do not anticipate a large amount because the numbers are not very large. We have not isolated the precise numbers. It is too difficult—we just have not done that—but our anticipation is that it is not a substantial amount.

Let me pick up the point from the noble Baroness, Lady Lister, on incentives to work. There are only two ways of reducing the cost of universal credit: looking at either the taper or the work allowances. The taper is what maintains the incentives to work and to work more. Keeping it at a steady rate so that people can understand exactly where they are, so that if they change their work hours they can understand exactly what happens in a way that they cannot with the present system, was something that we saw as a priority, particularly at a time when the economy is strong and there is work available. There may be a different dynamic at different stages of the cycle, but that is the position we are in now.

On the question from the noble Baroness, Lady Manzoor, the minimum income floor will continue to be calculated by reference to the national minimum wage, which includes the national living wage.

I turn now to Amendment 62D, tabled by the noble Earl, Lord Listowel. In the current system there is considerable complexity around the rates for young people, with some differences between benefits. The structure of age-related rates in universal credit is much simpler than the benefits it replaces, with just four rates of the standard allowance: two for singles, two for couples. That compares with 15 in employment and support allowance, for example.

The age-related rates are now established in universal credit and the Bill does not make changes in this area. Doing so would start to replicate some of the complexity that we are looking to remove and noble Lords have heard me grumble about “carbuncleising” enough to know what I mean. However, the Government do recognise the challenges which these young people face. We should be supporting vulnerable young people and parents to stabilise their lives and find work and we have a number of measures within the context of universal credit. We will ensure that care leavers claiming universal credit who need help managing their money and paying bills on time will have access to personal budgeting support. Care leavers are exempt from serving waiting days in universal credit to ensure a smooth financial transition, and single care leavers aged 18 to 21 are exempted from the shared accommodation rate for LHA housing costs. I ask the noble Baroness to withdraw her amendment.

[Baroness Hollis of Heigham]

I am still trying to make sense of the responses which the noble Lord very helpfully gave to my noble friend Lady Sherlock. I know that the Minister does not like hypothetical questions, but if we want a dynamic—to use his word—situation, we have to look at it in those terms. A lone parent with two children is currently on tax credits. Let us say that, in 2018, she re-partners. Her partner moves in and the tax credit transitional protection ends because his income floats it off. Within a year, he leaves her: does she then have to make a new claim to universal credit? Putting aside any question of the level of the national minimum wage, would that be at a lower rate, in cash terms, than she would have received on tax credits? In other words, what sort of linking would there be? If he moved out in less than six months, would she be able to resume her previous tax credit claim or will the cuts kick in at any point when there is a change in circumstance—even if it effectively only lasts for a fortnight—that takes her on to UC?

[Lord Freud]

We have not yet put out the detail of the transitional regulations and that is where one would expect to see them. We will be producing some precision in how the regulations will work.

[Baroness Lister of Burtersett]

Will the Minister say when, roughly, he expects to be publishing the transitional regulations? Will he, in his normal helpful way, commit to publishing a draft of the likely contents first, so noble Lords can discuss them, rather than just be presented with the actual regulations?

[Baroness Hollis of Heigham]

Before Report.

[Lord Freud]

I will take that request in the helpful way that it was offered. I will write to the noble Baroness to see if I can give her any comfort.