Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Decisions and Appeals) Regulations 2013
Baroness Hollis of Heigham Excerpts(11 years, 9 months ago)
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Lord Freud
Again, I thank noble Lords for some very good contributions. This is not the easiest or most digestible set of regulations. They very much replicate the existing decisions and appeals provisions but, just as the welfare reform agenda has provided an opportunity to reduce the complex range of income-related benefits, with the introduction of UC, it has also provided an opportunity to rationalise the rules governing the administration of these new benefits. This consolidated set of regulations does that by ensuring that the rules underpinning decisions and appeal rights are clearer and more accessible, benefiting both claimants and, indeed, the department.
On the detail of mandatory reconsideration, I reassure the noble Lord, Lord McKenzie, in particular, that we will closely monitor the impact on claimants, the quality of decision-making and appeal rates during the early stages of implementation. It is a key change that will improve claimants’ experience of the appeals process if we get it right. We will also monitor appeal volumes more broadly, particularly with the introduction of the new benefits, UC and PIP. We will review and amend the advice for decision-makers guidance as necessary, and if we find that the regulations are at fault there is an option to amend them.
On the point raised by the noble Lord, Lord McKenzie, regarding the time limit, the key issue is that we will be able to handle some cases with extreme speed while others may take more time, particularly where we need to ask for more evidence. I will commit to keeping noble Lords updated on that matter. On reconsiderations, we envisage that the first point of call will be to our staff, but some people may choose to go to an independent advice centre, although we had not been envisaging this as part of the role of the local support service.
Baroness Hollis of Heigham
If the Minister will allow me, could he reconsider that last point? I had wondered whether to intervene following my noble friend’s contribution on legal advice. It would be extremely valuable if the local support services, which are there helping people to move from paper forms to online forms for a brand-new benefit structure, et cetera, were able to give claimants the sort of legal or welfare advice steer that they would have got elsewhere in the past. For example, I remember vividly cases in which parents were trying to claim DLA for children under the age of two, which is of course simply not possible. That sort of advice and guidance could very well be served by the local support services and would pay dividends in cash, as well as in buy-in to the whole UC procedure, if the Minister could ensure it.
Lord Freud
My Lords, the best I can do is to have a think about it. The issue is the balance of what we are trying to get the local support service, which is a partnership approach, to do. I want to get the balance of that right, and I will take that away and think about it. Clearly, at some basic level there will be that kind of support; it is the extent to which it becomes a more formalised process. However, as I said, I will have a think about that point.
The point about ESA is that there is a long-standing provision for it to continue during an appeal. That will continue, so there is no change there. The only difference from the current arrangements is in this rather short period of reconsideration, during which ESA will not be payable. Once the appeal starts, ESA will go into payment, as it does currently. I hope that I have just nailed that point and that the noble Lord, Lord McKenzie, is not looking puzzled deliberately but understands it.
Lord Freud
Yes, the payment reflects what happened in the previous month, but it gives you what you need for the month that you are going to be spending that money in. I will take this debate outside over a cup of—sorry, over a glass of something; I think vodka is appropriate. I will argue this right the way through, because I think it is the most benign way to ensure that people have the appropriate amount of money for each month.
On the point about the advice sector, we are looking at working closely with the advice sector to look at how the existing infrastructure can be used to support claimants with complex needs, and we are looking at new services that we need to develop to ensure that claimants have access to the right support. I have already talked about the multimillion pound support package from the Cabinet Office and the Big Lottery Fund.
I hope that I can offer some reassurance to the noble Baroness, Lady Lister, on the question of supported exempt accommodation. I pulled this area out from the universal credit because I could see that people often came through these accommodations quite rapidly, and it just was not the appropriate way of doing this. We have left that for the time being but with a view to ensuring that there is a sustainable financial regime for this kind of accommodation.
I have to confess to the noble Baroness that I have heard concerns only recently that some of the kinds of accommodation that we would want to support are not within our definition of support-exempt accommodation. I will look at that when we look at the whole thing, and we will consult on it. It is an important issue that we have right up front.
I do not have numbers on payment exceptions. We do not want to set targets for this, but a useful figure to bear in mind in the private-rented sector is that currently about 25% of private-rental claimants have their landlord paid direct. We are trying to get as many people as possible to pay their own landlords.
Social Security (Payments on Account of Benefit) Regulations 2013
Baroness Hollis of Heigham Excerpts(11 years, 9 months ago)
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Baroness Hollis of Heigham
I am now completely baffled by the approach that the department is taking. On the one hand, the money-lending teams, which are obviously doing well, are seeking to exterminate illegal loan sharks and so on, but they exist because there is a demand for cheap credit, otherwise they would not be in business at all. We obviously respect what the Minister is trying to do with credit unions, which are an appropriate alternative—if, of course, you have first saved—but given that he has now agreed that the maximum figure for single people is £348, £464 for couples and £812 for families with children, why not use those figures as the maximum cap that people can borrow against for their payments on account, rather than be confined to one loan? Thereby, if you have taken out £70 or £120, you cannot take any more until you have paid that back. If you are going to have those caps, regard them as the caps against which money can be borrowed on several occasions and you will therefore teach people how to manage credit as well as income. I suggest that that would be much more appropriate, given the Minister’s other objectives, which we entirely share.
Lord Freud
This is a fascinating area because, following the growth of the micro-loan industry particularly in Bangladesh, where it started—it has spread all around the world—the lessons on helping people to learn how to budget are very much along the lines of giving someone a loan which they pay back before they get the next loan. There is therefore a real learning process. In our approach, we are picking up this global phenomenon, whereby we will provide credit—in practice, free credit behind which there is a discipline—which has to be repaid before the next loan is available. It is very much the same thinking as that which we see globally.
Baroness Lister of Burtersett
If people know they can get only that amount, they will borrow more than they need at that point, knowing that that is it, whereas, as both of my noble friends are suggesting, you could have £100 here and £100 there, as you need it. I suggest that it would be good to look at this again.
Baroness Hollis of Heigham
I would artificially inflate my bid, knowing what you are doing to me. That would be a very foolish way to encourage me to learn how to manage credit.
Lord Freud
I can see that I am in the presence of experts—in an observatory context—on how people manipulate any system at all. I shall take away your thoughts, as always, about the fact that some gamesmanship may be going on.
It is getting very late so I shall wrap up. When you look at local authority provision, there are clearly opportunities. It is for each local authority to consider its own local circumstances. We are in the process of getting information about the details of those schemes, which will perhaps provide goods or services and some will provide cash. Then we shall be able to report back at the appropriate time when we have some more information.
I hope I have dealt with the questions. Clearly there will be teething problems, as there is with anything new, but we will monitor this very closely as part of our evaluation programme, and that will cover the introduction of universal credit. In addition, the intention is to review specifically universal credit advances and budgeting advances in 2017. Short-term advances for those on legacy benefits will also be monitored and evaluated. I commend the regulations to the House.
Social Security (Loss of Benefit) (Amendment) Regulations 2013
Baroness Hollis of Heigham Excerpts(11 years, 9 months ago)
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Lord Freud
My Lords, I am particularly grateful that this has been quite a short debate. I appreciate the words of the noble Lord, Lord McKenzie. I do think that the debates we have on these matters are of an extraordinarily high quality. One of the reasons for that is that my department makes an effort to get information out to noble Lords so that these quite complicated matters can be understood and we do not waste a lot of time on points that are just misunderstood. However, I am deeply impressed by the number of people who have expended so much intellectual energy on gaining an understanding of what is in effect a rebuild of our social affairs. I appreciate that very much. As I say, I have taken a lot of ideas from noble Lords and I hope to be able to go on doing so. I therefore thank all noble Lords who have taken part in these debates.
I have one bit of information and one idea to steal from the noble Lord. We think that with the immediate three-year penalty for serious fraud, we estimate that there will be something in the order of 400 cases a year by 2020. The idea I want to take from the noble Lord is one that I do not think we have at the moment. It concerns the redirection of the payment away from the fraudster. That is actually a smart idea in these cases, and perhaps we shall claim it.
Baroness Hollis of Heigham
My Lords, this issue arose on the very first debate of the day. Will the noble Lord apply it where all sanctions occur, thus ensuring that there is an assumption that there will be a switch of payment to the main carer?
Lord Freud
The noble Baroness always takes a finger and seizes the rest of the arm. I have said that I will look at the idea.
It is clear that we do not have an effective deterrent at the moment. The view from the survey shows that people do not think that there is much to worry about from being caught out. We hope that the new regime will actually make people stop and think before committing a fraud. That is its intention, and I welcome the cross-party support for that. I therefore commend these regulations to the House.
Welfare Benefits Up-rating Bill
Baroness Hollis of Heigham Excerpts(11 years, 9 months ago)
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Baroness Hollis of Heigham
My Lords, normally one can say something halfway decent about some aspect of any social security Bill. I think that for the first time in 20 years in your Lordships’ House, I can find nothing good to say about this Bill at all—nothing. It is simply a lock-in cuts Bill which, to save £3 billion, will send 1 million poor children into deeper poverty by 2020 so that the better off among us, including myself, are spared a tax rise while millionaire earners have a hefty tax cut that is, curiously, also worth £3 billion.
Why do we oppose this Bill? It is simple, really. First, as my noble friend Lord McKenzie said, it is entirely unnecessary. We have always had annual up-ratings to respond to inflation; we now have a 1% rise for the forthcoming year and a Bill, costing many hours of parliamentary time, continuing it for a further two years. Why? The only defence offered by the rather fragile impact analysis is “certainty” for the financial markets, the public, and recipients themselves. Certainty, my Lords? Even if the Government cruelly ignore inflation, which the OBR believes will hit nearly 4% by 2015-16, benefit spend will still depend on the future number of claimants as well as on the level of their benefit. Exactly how can the Government give certainty to the markets and, that nice touch, certainty for the recipients, who will no doubt be grateful to learn that their benefit cuts are guaranteed for the next three years? No, the Bill is to lock in these benefit cuts for the poorest—to take it off the agenda, so to speak—in preparation, I do not doubt, for further cuts still to follow.
After all, if our solicitous concern for the markets and the public was driving this Bill, we would offer the same certainty to taxpayers for the next three years. There would be frozen tax allowances, so no more Lib Dem raising of the thresholds with the very real uncertainty that causes for NEST, auto-enrolment and, no doubt, the markets. There would be frozen tax rates, so no pre-election handouts. No, the Chancellor wants to lock the poor into their cuts, while being free in an election year to adjust the taxes that fall on the rest of us.
Secondly, the spin surrounding this Bill is deliberately and unpleasantly misleading, suggesting that these cuts fall on the undeserving poor, so that is all right then—the ones with closed curtains. It is not all right but, in any case, it is completely untrue. We had the distinctly ugly spectacle of the Iain Duncan Smith press releases while this Bill progressed through the other place, implying that these cuts were morally as well as financially desirable because they would help to wean the poor off benefit dependency, which the noble Lord, Lord Bates, cited today, as though the recipients were addicts waiting for their next benefit fix rather than loving and responsible parents trying desperately to feed their children. That was while IDS knew, as we all know, that two-thirds of these capped benefits are going to people in work on low pay with children to support. IDS smeared every poor family in this land, and I had thought better of him.
Why do we need these top-up benefits, such as housing benefit and tax credits for people in work? We all know why, don’t we? It was because while a wage may be acceptable for a single man in a full-time job on minimum wage, that wage will be hopelessly inadequate for a family man with two or three children to support unless it is topped up by tax credits. So unless employers raise wages substantially not to a living wage but to double the current pay to make good—to something like £10 or £12 an hour, which is not going to happen—their children will now become poorer still. That of course is why the argument that because pay is being capped to 1% so benefits must be is utterly fake, because Iain Duncan Smith—Mr Smith—knows perfectly well that they are largely the same group of people, their low but capped pay being topped up by low and, in future, artificially capped and lowered benefits.
It is precisely because earnings have fallen below inflation over the past few years during the recession that the tax credit bill has risen to compensate for that shortfall. Firms have also cut hours rather than sack staff; 3.5 million people are now involuntarily underemployed. As one family man in Norwich said to me not long ago, at least tax credits help to make up the difference.
So instead of the Government explaining and accepting, as they should, that the increase in tax credits is due to falling wages and that it helps to protect families, we are instead told that as wages have fallen, so must benefits, thus ensuring that the working poor face a double lock on pay and tax credits—and of course the universal credit, when it comes in, will no longer take the strain.
Nevertheless, the Government claim that we cannot afford not to cut benefits, an argument that has been run today. Benefit expenditure overall has grown, partly because tax credits help to offset low pay and lowered hours of work but mainly because pensioners are protected from any cuts, their pensions are rising and more of them are living longer. That is good news. However, the dirty news is that the unemployed and the low-paid, and their children, are now being blamed by IDS for what his colleague, Steve Webb, is rightly doing for pensioners. How cynical can you get? Pensioners get a triple lock into greater comfort, which I welcome, while the poor of working age get a double lock into increased poverty.
Let us be clear, and I make this point again: this is about policy choices. As my noble friend Lord McKenzie has said, the Government have shown that they are on the side of millionaires, who are receiving a tax cut worth £3 billion, rather than 1 million poor children who will see their parents made poorer still by around £3 billion.
Above all, the Bill and its impact analysis cheat. They both treat these cuts as though they were freestanding—one-off, so to speak—and apparently not so very large. Around 30% of households will see an average cut of £3 through this policy, according to the impact analysis documents, when actually those cuts are a further slice off income on top of the myriad other cuts since 2010 that are already damaging poor families. We have heard nothing about those today, even from those who sit on the coalition Benches. In that regard, I say, “Shame on you”, because they are deleting what is clearly absolutely central to this debate. We have been offered no assessment of the cumulative impact of these cuts—£18 billion of cuts and no public analysis of how they build up or of whom they hit.
We had a debate on this a couple of weeks ago. I hope that noble Lords will forgive me if I repeat the broadest of statistics; as the Government will not, I will try. With the invaluable help of CAB and Landesman economics, we tracked the cumulative effects of all the cuts since 2010 on one family: a couple with two young children, he a security guard in full-time work on minimum wage, living in a £100 per week council house and, obviously, entitled to pay council tax. He gained £1.71 per week from the raising of the tax threshold and then went on to lose £30 to £35 per week in benefit cuts. If one of his children is disabled, say, he will lose over £40 per week. Under the universal credit, the cuts increase to £50 per week if he is in work or £65 per week if he is unemployed. It gives a new meaning to the slogan that the universal credit will make work pay—yes, by reducing the benefit floor underneath it.
Those statistics were the result of a weekend’s work. With more time, I would have tracked the cumulative effect not only on the security guard’s family but on a lone-parent family, on a childless couple and on a single person, because they all share the cuts. It is not rocket science; it is standard policy analysis on standard family types, as they are called, and yet we are told that the DWP and HMRC with, what, 60 professional analysts, powerful computer modelling and a couple of months in hand to do the work are unable tell us what the total effect of these cuts will be, which some of us were able to work out in a weekend? I really cannot believe that they do not know what the impact of their policy initiatives is and who bears the bill. They still will not or cannot tell us. If they do not know, it is an utter dereliction of social duty, it really is—you cannot develop policy and be indifferent to its effects—but if, however, they do know and are not telling us, it is a deceit that I cannot believe my former department would stoop to.
Finally, what makes me angriest of all—the right reverend Prelate the Bishop of Leicester powerfully focused on this—it that this Bill is grotesquely unfair on whom it falls, on poor children above all. Since when, as we talk about us all being in this together, do we include poor children in the we, but exclude comfortably off pensioners like me, who have experienced not a penny of cuts? What sort of we is that? The noble Lord, Lord Bates, said nobody was telling him where to find the money. I urge him and the noble Lord, Lord German, to accept that we are today making policy choices, not following financial imperatives. It really is about choices about who pays and, ultimately, who gains. It really is. With £32 billion spent on pension tax relief still untouched, although two-thirds goes on the better off, and what is happening on tax reductions for millionaires, these are political policy choices.
We could all have done different and in the process saved the situation that poor children will fall into, stumble into, as a result of what we are doing today. These cuts will fall on those in rented housing who rightly fear losing their home, rather than on those who have two, three or, as the papers have recently told us, even eight homes. They fall on those who go to food banks, not to foodie restaurants. They fall on separated loving dads who have their children stay over at week-ends, rather than on fathers who lose contact and refuse them. They fall on families with a wheelchair user rather than a Ferrari driver. These cuts fall on the vulnerable but voiceless, rather than on those of us with resilience and resources, but who, of course, are more likely to vote. It is a shameful little Bill. As Hobbes might have said, it is nasty, brutish and short.
Taxation: Families
Baroness Hollis of Heigham Excerpts(11 years, 10 months ago)
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Baroness Hollis of Heigham
That this House takes note of the impact on families of changes to tax and benefits.
Baroness Hollis of Heigham
My Lords, when in the 1830s the Tory, Lord Shaftesbury, sought to limit child labour, mill owners insisted it was essential to the economy. Shaftesbury said that he refused to accept that the prosperity of Britain must depend on the labour and pain of its poorest children. The last Government lifted more than 1 million children out of poverty. With these cuts, some 300,000 to 400,000 children by 2015, and up to 1 million children by 2020, will now slide back down the snake into absolute poverty. I refuse to accept—the whole House will refuse to accept—that poor children must be made poorer still, so that the rest of us can, in time, become more prosperous.
Individual cuts seem modest, until you add them up. Can the noble Lord, Lord Freud, tell us whether the Government have published a cumulative analysis of the cuts since 2010? In its absence, I have tried. I especially thank Sue Royston of Citizens Advice and Howard Reed of Landman Economics for working through the statistics and the weekends, although any errors are of course my own. Let us remind ourselves that the Government froze the value of tax credits and child benefit, changed the taper rate, reduced the childcare component and, for some 200,000 families, increased working tax credit hours, which may cost them £40 to £50 a week on top. Next came the benefit cap, which hit families, especially in London, although my city of Norwich has 100 families affected by it. Housing benefit was reduced from 50% to 30% of private sector rents, so many now face serious shortfalls in local housing allowance; as do those facing the bedroom tax on alleged underoccupancy. From April, perhaps a quarter to one-fifth of working-age tenants of the housing association that I chair face HB cuts of £12 to £15 a week, as they have nowhere else to go.
Also in April come the localised council tax benefit cuts. Families who had not expected to pay council tax now face a poll tax of £5 or more a week. Benefit rises are to be capped at 1%. The bottom one-third of households will lose almost £5 a week as well as £15 per week, effectively, by 2015. The change from DLA to PIP will probably remove the lower-rate care element, worth around £20 a week, as well as making changes to carers’ benefits—all this before the arrival of universal credit, which will cut disabled children’s benefit from £58 a week to £27 a week. I could go on.
What is the overall impact? In my city of Norwich, which has a population of 135,000, these cuts will take £35 million a year from our poorest citizens and out of our local economy. What is the impact on families? By 2015, the poorest one-fifth of our people will have lost up to £2,000 a year. The more vulnerable families—those with younger children, or three or more children, in poor health, in poor housing or with disabilities—will suffer even greater cuts, of £40 to £60 a week, alongside, of course, severe cuts in public services. Take a working husband—a security guard on minimum wage—his wife, two children of three and six, living in, and now defined as underoccupying, a three-bedroom, £100-a-week council house. Citizens Advice calculates that whether he is in full-time work with in-work benefits, or loses his job and is fully reliant on benefits, either way that family will, by 2015, be losing £30 to £35 a week, even taking into account the tax changes. If the younger child, say, is disabled, they will lose £40 a week by 2015. If, however, by 2015 that family is on universal credit, they will be losing £50 a week if in work, and nearer £65 a week—unbelievably—if he is unemployed.
Why are the Government doing this? The Tories think it necessary and perhaps desirable. The Liberal Democrats, I think, find it necessary but perhaps regrettable. Their argument goes—I will list it and try to address these points—first, the welfare cost is unsustainable; secondly, it is creating welfare dependency; thirdly, welfare has to be cut if we are to cut the deficit; fourthly, it is not right that pay be limited to 1% while benefits rise at CPI; and finally, in any case, the rise in tax allowances offsets all this.
A fair summary, I hope, of Government views. Every point is false; every one. First, the welfare bill is not unsustainable. According to the DWP’s former chief economist, benefits took 12.5% of GDP under John Major in 1994, with 8% going to working age households. As of January 2012, benefit spend fell to 10.5% of GDP with only 5% going to working-age people. The driver of benefit spend is simply more pensioners getting better pensions. I welcome that, but poor children should not be made poorer to pay for it.
Next, in the Telegraph a fortnight ago Mr Duncan Smith asserted that tax credits and benefits created welfare dependency, when he knows that they make it possible for families to live on the same wage as that paid to a single man. A single parent, a Telegraph reader from Amersham in Buckinghamshire, wrote back on 3 January that she had brought up 3 sons while working part-time. Two are now at university and she is about to go into full-time work. She concluded:
“I object to Iain Duncan Smith’s suggestion that tax credits have made people lazy dependants who rely on hand-outs ... the tax credit has been a life saver”.
His welfare dependency; her life saver. His smear; her experience. I know whom I believe.
Next, the Government tell us that we have to cut welfare to cut the deficit, otherwise, it will be nurses and teachers—the usual rhetorical flourish. It is a matter of policy choices. It always has been and always will be. I will offer mine, although they are not necessarily those of the Labour party. While private pensioners enjoy more than £30 billion a year of tax relief, two-thirds of which goes to the better-off, while we cap the upper earnings limit, which saves higher rate taxpayers £11 billion a year, while we refuse—as my noble friend Lord Campbell-Savours has reminded me—an ad hoc Lords committee, urged by my noble friend Lord Myners, on tax-avoiding personal service companies, and while millionaire earners see their tax rate fall to 45p at a cost of £3 billion, I think that there is money from those who can afford to pay.
Fourthly, we are told that as pay is limited to 1% so must benefits, which since 2007 are outpacing pay. Until 2007, earnings outpaced RPI benefits. Why else did pensioners demand that the state pension be linked to earnings not prices? Yes, since 2007, during the recession earnings have fallen behind inflation. Does that mean that we reduce benefits so that they do not keep pace with inflation either? In any case, it is a false contrast because many families with 1% pay increases also rely on tax credits, housing benefit or council tax benefit for a living income.
As the Child Poverty Action Group has said, this child is poor not because its mother is a lone parent but because she is a cleaner; this child is poor not because its father abuses drugs but because he is a security guard. Five million people are paid less than the living wage. Two-thirds of those benefits cited by Mr Duncan Smith go to households in work to ensure that work pays, as we all wish to see. However, to make the unemployed poorer, the Government will make all the working poor receiving benefit poorer as well. One despairs.
Finally, the Minister may say that raising the tax threshold significantly is the best way to support low-income working people—except that it really is not. Very many of the working poor are below the tax threshold, and others—the full-time cleaner or the security guard on the minimum wage—keep only 15% of that alleged gain because means-tested housing benefit and council tax benefit taper away 85% of the increase in tax allowance, and then the other cuts pile in.
Every justification used by the Government for these benefit cuts is untrue—every single one. If, in a final throw, the Government say that the public support them, that is because the Government, with the aid of some of the press—none of whom, I suspect, will experience these benefit cuts themselves—have peddled the view that the poor must become poorer to save the rest of us.
Do the Government know or care what damage they are doing as they finger the vulnerable, the fragile, the poor, the soon to be underemployed, the soon to be unemployed, the soon to be in severe debt, the soon to be evicted—and, yes, the soon to be hungry—and encourage those who are themselves just a rung or two up the ladder, also struggling, to blame not those above them, bankers and the like, but those below them for their struggle? That is ugly, cynical, and utterly indecent.
We must all refuse to use this language of welfare, with its dark shadows of handouts and dependency, stigma and scroungers, failure and fault. When we founded the NHS we also built social security—the roots of which go back to Lloyd George—the insurance of the social contract we make each with each other; a network of mutual social obligation. We pay in, and in need, we take out, as is our right.
It is social security. I calculate that two-thirds of our £205 billion social security spending is likely to come back to each of us in our own lifetime: when we have children, when we are sick and, above all, when we draw our state pension. It smoothes the volatility of our working lives, as it should.
Only a third of social security spending goes in means-tested benefits, perhaps to relieve other people’s hardship; two-thirds will come back to us, as payments on our insurance paid—exactly as you would hope and expect from a contributory social security system based on entitlement, alongside a decent safety net for those in hardship, which could so easily have been any of us in the past.
Let us reframe the debate: it should not be about welfare and dependency, strivers and shirkers—such morally ugly language. It is about social security, contribution and entitlement. When I look around my former council ward in Norwich I see children unable to go on school trips, mothers missing lunch to feed their children an evening meal, women pawning their engagement ring to pay for school shoes. I see a middle-aged couple who have not eaten for two days arriving at my local food bank. I see families fearful that as they cannot afford the rent of their council home from April they may become homeless—and the worst cuts are yet to arrive.
I ask this House today, how many of us here have suffered any cuts? As a comfortably-off pensioner I have not suffered a penny of cuts—and so I will not accept that it is right that poor children should be plunged deeper into poverty to spare all of us; that middle-aged couples should resort to food banks to spare us; that families unable to pay their rent because of underoccupancy should face eviction to spare us. We are not entitled to ask the poor and their children to carry these cuts for our benefit. It is profoundly wrong and I am ashamed.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, this has been an interesting and important debate, and I am grateful to all those who have contributed. The noble Baroness, Lady Sherlock, referred to the quality of the debate; there was something interesting in all the speeches, which is not always the case. I therefore thank the noble Baroness, Lady Hollis, for securing the debate.
I shall set some context for the debate before I try to deal with as many of the points raised as possible. The arguments for our programme of tax and welfare reform are well rehearsed. We have heard much discussion in the media, in Parliament and elsewhere on the welfare and tax policies that the Government have planned. However, I think that it is worth me touching on the rationale for our programme of reform.
We have already made significant progress in tackling the fiscal challenge that we faced when we came into office. We inherited the largest deficit in more than 60 years and, since then, welfare spending has risen from 11% of GDP in 2007-08 to more than 13% today, including pensions and working-age payments. In a constrained fiscal climate, this puts real pressure on key public services and is unsustainable. The deficit has now been reduced by a quarter, and we have created more than 1.2 million private sector jobs. Even if we play around with the small anomaly of those who are on skills training, there has been a huge increase in private sector jobs.
The noble Baroness, Lady Hollis, raised a question about cumulative impacts, and I was fascinated by her sums on this. However, I need to point out that this Government publish impacts of benefit and tax changes alongside each Budget and Autumn Statement. That is something that previous Governments did not do.
Baroness Hollis of Heigham
Is the Minister acknowledging that the Government have not published a cumulative analysis of the cuts, benefits and tax changes since 2010? If he is so doing, which I think is what he has said, it is still done slice by slice. Can we hope that he will do so—will he give a commitment to do so in future?
Lord Freud
My Lords, it is bluntly impossible to do a total cumulative assessment. I have looked at doing it, and you do not know what to put in and what to leave out. No one has done it in the past; it is not possible. Doing it year by year, as we do, is the best we can do—and it gives a fair view of what happens in a particular year.
I shall continue. While we are taking action to reduce the deficit, we have continued to support families by cutting tax for more than 24 million working people, lifting 2 million of the lowest-paid workers out of income tax altogether. Further freezes in council tax this year will help families with the cost of living by keeping the cost of council tax bills down. Here I pick up the point made by the noble Baroness, Lady Pitkeathley, about localising council tax support. That is being done because it is at the local level where the need for particular support is best understood, and we have announced additional funding of £100 million to support that process. More widely, we are investing heavily in low-income families by supporting the most disadvantaged through every stage of their education.
On the question raised by my noble friend Lady Jenkin, the right reverend Prelate the Bishop of Exeter, and my noble friend Lord Bates, the Government remain committed to recognising marriage in the tax and benefits system. That is as far as I can go today. On the point raised by the right reverend Prelate on child benefit, it will be completely removed only from families that include someone earning over £60,000, and 90% of families will continue to receive child benefit.
It is clear that decisive action is needed to control the damaged and hugely expensive welfare system that we inherited. Labour increased spending on benefits and tax credits by £75 billion and, in real terms, expenditure on all working-age benefits increased from £59 billion in 1997-98 to almost £95 billion in 2010-11, in today’s money. These increases are simply unsustainable. In tax credits, spending increased by £23 billion in real terms between the same two dates, which meant that nine out of 10 families with children became eligible for tax credits—a point made by my noble friend Lady Jenkin. In some cases, families could receive more than £70,000 in earnings and still be entitled. It is clear that, given this level of generosity, we could not protect child benefit and tax credits from the need to make welfare savings.
The Government have not shied away from acknowledging that tough decisions are needed, and we are committed to ensuring that savings measures are taken in the fairest possible way. That is why the 10% richest households will contribute most as a result of the tax and benefit changes that we are making. My noble friend Lord German inquired about that. Overall, as a result of recent changes, we may have reduced the marginal rate from 50% to 45%, but everyone in this House will be familiar with the impact of the Laffer curve. What really counts is how much total tax is taken from the richest; a quarter of all income tax is paid by the top 1% of earners, and the top 5% pay about £50,000. In practice, our changes mean that, overall, the richest will pay £1,000 a year each more in tax, not less, as has been claimed.
It is reasonable to expect the richest to pay their fair share, and it was equally important that we took action to ensure that people on benefits did not receive support that far outweighed the income received by many families who do not rely on benefits to get by. We have, for example, done away with the frighteningly high rates of housing benefit in the private rented sector, and from April this year we are applying an overall benefit cap so that households on out-of-work benefits no longer receive more in welfare payments than the average weekly wage for working households.
The year 2013 is pivotal for welfare reform. The introduction of universal credit and the personal independence payment in April will kick off the most fundamental reforms of working-age benefits for generations. I am pleased to tell my noble friend Lord German that we aim, still on time, to start universal credit on 29 April as a pilot, moving to a national basis in October. The universal credit system creates a seamless system of support to make work pay. People will be able to keep more of their income as they move into work, and it delivers a smoother and more transparent scheme that does away with the administrative difficulties created by switching between benefits and tax credits.
The noble Baroness, Lady Donaghy, made a particular point on universal credit and the self-employed. She made a point about the carry-forward, and I can tell her that I am aiming to introduce something for that to work efficiently; that will be in time for when the people who need it will be using it, so I hope that I can reassure her on that important point.
In the Autumn Statement, the Chancellor announced measures to tackle the rise in spending on benefits and tax credits by increasing the majority of working-age benefits by 1% for the next three years. The savings in that Statement amount to £2.8 billion in 2015-16. We are aiming here to strike the right balance between the support we provide and the need to tackle the spiralling cost of the welfare bill. Picking up the point made by the noble Lord, Lord Alton, on disabled people, we are protecting those elements of ESA support, the disability elements of tax credits and the main disability benefits—DLA, carer’s allowance, attendance allowance and incapacity benefit. While I am discussing the points made by the noble Lord, Lord Alton, about disability—picking up his query on PIP—I suspect we will have a chance to talk about that more next week. There is not a difference: the 50 metre to 20 metre change does not create any substantial difference in entitlement. I will be able to go into that in some more detail.
Although the Government are committed to supporting working families, it would be unrealistic to exclude that group entirely from our savings measures. Although some families will be affected by the tax credit and child benefit changes, we need to put this into context: working households will gain by an average of £125 in 2013-14. Households will, on average, gain—no matter where they sit in the income distribution.
A lot has been made of the suggestion that 81% of the £1 billion or so raised by the tax and benefit changes will come from women. However, the analysis underpinning the 81% figure misrepresents the true impact of welfare reforms on women. It assumes that because the payment of child benefit is to women, its restriction hits women; but the reality is that in many cases it goes into households. The real figure, if you do that analysis, moves from the 80% or so figure to the 60% or so figure. The Government continue to support women and their families through their tax; 80% of households with children will see their tax credits increase. The across-the-board freeze in council tax bills will help families with the cost of living.
Picking up the point made by the noble Baroness, Lady Pitkeathley, on PIP for carers, I remind her that we are committed to linking carers to receipt of either rate of the daily living component of PIP. That is the underlying reason why the impact assessment published in May 2012 showed that broadly the same number would be entitled to the carer’s allowance. Of course, continuing on her theme, where a carer lives in the same household as someone who is disabled, the benefit cap will not apply anyway, because that is one of the exclusions.
On childcare, we are spending an additional £200 million on universal credit and the focus of that is on families who work fewer than 16 hours a week. This investment will mean that 100,000 more families will be helped as they move into work. The Childcare Commission has been considering the cost of childcare in England and we expect its report to be published soon, so there will be further developments on that.
Turning to child poverty, by the relative income measure, the previous Government may have made some progress in moving children from out-of-work households out of poverty, but the effect on children from in-work families was considerably less. As my noble friend Lord Bates pointed out, work is the best route out of poverty. However, only 13% of the reduction in child poverty between 1998 and 2010, came from this fundamental route of families moving into work. That is where universal credit is so important: our estimates are that up to 300,000 more people will enter work as a result of the introduction of universal credit through improved financial incentives alone; 75% of the gainers from universal credit are in the bottom 40% of the income distribution.
Universal credit will make it easier for people to understand the level of benefit to which they are entitled—compared to the current complex system of benefits and tax credits—and significantly improve the take-up of unclaimed entitlements. That is a powerful tool in tackling poverty, because in 2009 it was estimated that 400,000 of the people living in relative income poverty were doing so because their families were not receiving all the benefits to which they were entitled.
I need to point out the importance of our White Paper on pensions, published earlier this week. The reforms will give a boost to the people who lost out on the additional state pension in the past, such as low earners and self-employed people. About 750,000 women who reach state pension age in the first 10 years after the single-tier pension is introduced will receive an average of £9 a week more in state pension because of the single-tier valuation. In response to the noble Baroness, Lady Hollis, this Government are committed to protecting pensioners—much though she may resent it. We have legislated to restore the link to earnings for the basic state pension, and are committed to the triple lock.
On the point raised by the noble Baroness, Lady Sherlock, about relative beneficiaries, the people in the middle have been squeezed quite savagely in recent years overall. I refer her to the interesting article in the Financial Times suggesting that those brackets were back at the levels of 2002-03, whereas the bottom 30% had increased their income in real terms by 3% or 4%.
Our fundamental welfare reforms will transform the welfare system by 2017. The replacement of many of the current suite of income-related benefits and tax credits with our flagship reform—universal credit—will provide a streamlined and transparent scheme that will mean that 3 million families will be better off, on average, by about £168 a month. In April this year, the largest ever increase to personal allowances will benefit 24 million people and lift 1.1 million people out of income tax altogether. Our tax measures, coupled with a modern benefit system, will demonstrate that supporting families remains an absolute priority for this Government.
Baroness Hollis of Heigham
My Lords, first, I thank all noble Lords who have taken part in the debate. In particular, I should like to congratulate my noble friend Lady Sherlock on her very impressive and superb debut on the Front Bench. It was an admirable wind-up speech and we are indebted to her. All our congratulations go to her. She absolutely rightly drew on the speeches of my noble friends who talked about carers, the self-employed and low earners, as well as disabled children and their families who are worried as their children become adults. My noble friends will allow me therefore not to repeat what she has already said. I want to take one or two minutes—I promise not to take any longer—to pick up on one or two points made by those sitting on Benches other than my own.
I welcome the speech of the noble Baroness, Lady Jenkin. Like her, I support universal credit and, like her, I prioritise the support that we need to give to families. I was sorry that she reiterated the point that tax credits had created welfare dependency. As my noble friend Lady Sherlock said, the whole push of tax credits was to make work pay—a philosophy that goes straight through from tax credits into universal credit. I hope we do not get that argument repeated again.
As I expected, the noble Lord, Lord German, emphasised the value of the tax allowance rise. Of course, I am pleased about that. However, I remind the House of the effect on someone working full time on a minimum wage—the security guard I quoted. That tax allowance increase is worth £1.71 a week. That is before the £30 of other benefit cuts kick in. The noble Lord, Lord Bates, drew on the argument that the economy is in such a state and the deficit is so high that poor children must be made poorer so that the rest of us can be made more prosperous. He failed to address the point that the big increase in benefit expenditure—which, pace the noble Lord, Lord Freud, I welcomed—has been driven by the increase in pensions spending, and that the amount of GDP going to those of working age on social security benefits has fallen since 1994 from 8% to 5%. It is simply false to say that that expenditure is unsustainable. It is about political and moral choices. However, he is right, and I am delighted to hear him say this, that a living wage would reduce the welfare bill. I hope that we can count on his active support for that in future.
I especially thank not only my noble friends but also the noble Lord, Lord Greaves, who made a brave, splendid and first-rate speech. He made points that I wish I had had the wit to make myself. I also thank the noble Lord, Lord Alton, from the Cross Benches, for his powerful, moral critique, which again reminded us of where our moral priorities should lie when we make these policy decisions.
The noble Lord, Lord Freud, referred to cumulative assessment. With the help of Citizens Advice and Landman Economics, we were able to work out pretty precisely—to within 10p or so—the total cumulative effect, since 2010, of the benefit cuts and tax changes. I did it for one family type—the security guard with a wife and two children. If we can do it over a weekend with wet towels and half a bottle of gin, I am quite sure that the Government can do it with the numbers of staff that they have in the Treasury. The answer is that the Government are not choosing to do it. They do not want to be shamed by us and others as to the effect of what they have done over time. There cannot be any other reason why the noble Lord, of all people, who has the utmost respect from the House for his integrity on these issues, and the Government continue to duck the consequences of their action by giving us the cumulative statistics today.
The noble Lord, Lord Freud, also mentioned the Laffer curve. At that point, the noble Lord, Lord Skidelsky, muttered into my ear, as others have done, that the Laffer curve, which says that the lower the tax rate the more you collect, has been discredited by almost every reputable economist in this country and in the United States. I am sure that the noble Lord, Lord Freud, knows that.
As to the noble Lord’s point about pensions, it is simply inappropriate of him to accuse me of not welcoming what is happening on the single state pension when before the general election I was one of those who wrote a pamphlet calling for it, in which I was fortunate enough to corral the willing consent of his right honourable friend Steve Webb to contributing for it and calling for it. I am absolutely delighted. The point I was making was not that I do not welcome the improvement in pensioner benefits. Of course, I do. I argued that it should not be paid for by making poor children poorer. That is the shame on this House.
Finally, the noble Lord, Lord Freud, sheltered behind averages, which of course fall in the middle of the third quintile. I was trying to describe the effects on the poorest quintile, particularly the poorest decile. He did not rebut one of those statistics.
A long time ago, the Reverend Thomas Chalmers, a Scottish Malthusian in 1819, said that character is the cause, comfort is the result. He had the excuse of not being able to read the early effects of an industrialising society and its profound effects on the poorest and the most vulnerable, and its children. What is our excuse? I beg to move.
Welfare Benefits: Women
Baroness Hollis of Heigham Excerpts(11 years, 10 months ago)
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Lord Freud
My Lords, the reason for the reduction in child benefit for those on higher incomes is so that it could be implemented in this way. As my noble friend will know, it has been adjusted to provide a taper at £50,000 to £60,000 to smooth that transition.
Baroness Hollis of Heigham
My Lords, the noble Lord’s right honourable friends in the other place, the Chancellor of the Exchequer and the Secretary of State for Work and Pensions, are waging war on so-called shirkers, in part by cutting their benefits. However, as my noble friend has said, two-thirds of those benefit cuts are falling on women. If you take into account changes in pensions, pay and taxes, more than 80% of the cuts are falling on women who are bringing up children, caring for the elderly and holding down a part-time job at minimum wage. Does the Minister agree with his right honourable friends that apparently the face of a shirker is now that of a mother, a carer and a woman?
Lord Freud
My Lords, as regards the reduction, or potentially below-inflation increase, in benefits, a lot is happening in the economy in relative terms. Today’s article in the Financial Times is one of the best analyses of that that I have seen. I am sure that others have seen that article, which shows how squeezed people are in the middle and upper-middle tiers of income distribution. They have fallen right back to the level of earnings in 2002-03, while real incomes in the bottom 30% were 3% to 4% higher than they were. That is the context in which we are looking at the adjustments to the benefit levels.
Personal Independence Payment
Baroness Hollis of Heigham Excerpts(11 years, 11 months ago)
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Lord Freud
My Lords, clearly what we are talking about today is a centralised national process. There are social care provisions on the ground which local authorities are responsible for. PIP will be far more consistent and, indeed, objective than the current DLA, where the criteria for deciding who is entitled to DLA have become increasingly fuzzy. That is one of the problems associated with DLA. The money is designed to deal with the extra costs of being disabled, and those costs are incurred whether someone is in work or out of work—they are extra costs that need to be borne. However, the point of it being made as a payment, as opposed to a provision, is so that people can decide where best to apply those funds. As the right reverend Prelate said, some people will decide on the softer things, which for certain people are just as important as the harder requirements, but it is up to them to decide how to spend that money.
Baroness Hollis of Heigham
My Lords, I wish to make two brief comments. First, I have a question, which I am sure the noble Lord will be able to answer. Of the 170,000 people who are going to lose DLA when it moves to PIP, how many are on the current lower-level rate? Secondly, perhaps I may challenge the Minister to be wary of the assumption that DLA should be an objective test. It was never intended to be as such in 1992, when we introduced it, primarily because two people with the same objective disability may have very different competences in coping with that disability. It will depend on their resilience, their family support, their educational ability and their financial resources. Because DLA was person-centred and not a box-ticking exercise against some objective at their assessment, it was able to respond to that difference in competence, as well as to the depth of the disability. I very much hope that the Minister will not be led by a false myth into thinking that this can be reduced to an objective account of external health or mental health which is standardised across the country. It cannot be and, in my view, it should not be.
I support my noble friend very strongly in urging the department to come up with a layered assessment of how all of those benefit changes are interacting. I share briefly with the House a letter I received from a disabled middle-aged lady in an eastern region city who lives in a two-bedroom bungalow. She has rented a nearby garage so that she can charge up her mobility scooter. She is now faced with a housing benefit cut and losing one of her bedrooms of her bungalow, but as she says, there is no one-bedroom bungalow for her to go to. She has had a wet room installed under the disability facilities grant, so if she moves out within five years she would have to repay the grant. If she moves she has to repay the grant; if she stays she has a housing benefit cut. On top of that, she will almost certainly be forced to pay 20% for the first time on council tax, even though she is on benefit, and on top of that, some of her DLA support may also be questioned under PIP. What advice will the noble Lord give me to give to that lady?
Lord Freud
Yes, if I can deal with those in order. We do not have a breakdown of where people have moved from.
Small Pension Funds
Baroness Hollis of Heigham Excerpts(11 years, 12 months ago)
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Lord Patten
My Lords, the noble Baroness said that there are 1.1 million people with a pension fund of £5,000 or less. That is 1.1 million very admirable people. I greatly admire those who from small incomes, little bequests and savings over the years have decided to save for a pension. That is an admirable and a good thing. Compare and contrast them with others who may have exactly the same, albeit small, resources from income, bequests and savings, who choose to spend it and rely entirely on the state. The 1.1 million people to whom the noble Baroness referred are the deserving savers, which is why I share her hope that the Government may find ways in which to help deserving savers to get a better deal from those who give advice and those who invest.
It must be very lonely for someone who is of pensionable age, has that small sum of money and does not know which way to turn. However, if there were ways of grossing together all those people, imagine the purchasing power and the purchasing strength that 1.1 million people with £5,000 or less in their pensions would have in negotiating good advice or, indeed, negotiating a better deal when they invest.
The noble Baroness suggested that there should be a round table to deal with this as one way of looking at helping these people. Despite the rather austere framework that we are in at the moment, there may be market-driven opportunities here because I understand that those 1.1 million people have more than £2 billion to invest between them. It may be possible for those in the market to think of setting up a vehicle which would help, by pooling resources, to get a better deal for pensioners, strictly regulated though it should be. Therefore, I would like to put before your Lordships and, indeed, before my noble friend the Minister, an idea which I hope the Government will not stand in the way of: someone trying to set up such a body whereby the purchasing power of small pension holders could be pooled and used to their advantage. I have no interest to declare in this matter, by the way.
Let us look at each of the two areas referred to in the noble Baroness’s excellent Motion: “access to good advice” and maximising people’s retirement incomes. Access to good advice is critical. In the past, the world of the independent financial adviser and others has been a very peculiar one, suggesting to people, who often had small sums of money, that they should invest in this or that because there was a trail commission going back to someone. Under those circumstances it is natural, I guess, that people very often have said, “Go to this fund. Go to that fund—this bond fund, that equity fund”, because a commission is involved. That has all been stopped, which is a thoroughly good thing because I think that it was as close to being corrupt as you could get. But at the same time the unintended consequence is that people are now being told they will have to pay for the advice that they thought they were getting for free but was actually coming from commissions trailing back to suppliers.
It should be possible to think of ways in which individuals with small pensions, banded and grossed up together, could have much more purchasing power, first, to get better advice but, secondly, to get better investment returns. Let us take not £5,000 a year but £10,000 a year—forgive me, I can do that arithmetic. At present rates of about 3.5% returns, you get £350 a year to add on, which is a lot of money to people on small incomes. The trouble is that you go to a fund which promises 3.5% and very often that fund—say one called East European Opportunities Fund, to make up a name—then itself invests in other funds investing in funds of funds, and each of those has their layer of charges. Before you know where you are, a combination of slowly growing inflation and a multiplicity of charges has abolished any possibility of real growth in that pensioner’s income. People often talk about the magic of compound interest but the tyranny of high hidden charges directly on pension funds is very destructive of wealth.
Who does someone living alone turn to? They cannot afford advice so they look at what a Sunday newspaper says—“Invest here, invest there”—and what happens after that is very often a diminution of those people’s wealth, not an addition to it, which they have notably saved for, which I think is to the common good, rather than their just relying on the state. Therefore, I urge the Government to keep an open mind on new market entrants who would be strictly regulated by the great panoply of regulators that we have at the moment that regulate absolutely everything in the City after the events of 2000 and 2008. If private sector people are willing to invest on behalf of such pensioners, and they can see that they can make a reasonable amount from doing so, I urge the Government to make it possible for them to do that.
I do not think that the state should provide funds to do this. My noble friend will be relieved to hear that I make no request for extra government money, as I think that would be wrong. The new normal, we are told, is bumping along the bottom until 2017-18. Everyone is suddenly austerity-aware, and people who used to think that there were free lunches and free dinners now know that we live in a pretty austere world. I do not expect my noble friend to reply to the suggestions that I am about to make but I ask her to undertake in her wind-up that she will pass them on to the Treasury and to the right honourable gentleman the Chancellor of the Exchequer, whose policies I greatly admire. A time of maximum austerity is the time to get rid of a lot of perks for well-off pensioners which they do not deserve and do not need. The better sort of better-off pensioner makes a point of not claiming them. All those TV licences, all the cheap travel, all those winter fuel arrangements—
Lord Patten
I am making my speech. The noble Baroness barracks splendidly but I am picking on the three things which go to pensioners from government expenditure. I do think that now is the time for my right honourable friend to get rid of these things. There will be no political backlash at all. People think that it is bonkers and barmy to provide these benefits. I certainly do. I think that it is wrong and we should not be in that position. The Chancellor, half way through the Parliament, way ahead of a general election, with the full and stalwart support of my noble friends the Liberal Democrats in every Division on every single occasion in your Lordships’ House, should seize this opportunity and all will be well.
Baroness Hollis of Heigham
My Lords, who are we on these Benches to contest such a magnificent final flourish? I wish only that we could have persuaded the noble Lord to extend his shopping list of things to be remedied from higher rate tax relief to some of the other perks that presently go to incentivise the rich to save, as opposed to those who most need help—that is, those who are worse off.
I come back to the topic of the Motion of the noble Baroness, Lady Greengross. A key aspect of small pension funds is stranded pots. It is that which I want to talk a little about tonight. A Norwich hairdresser coming up to retirement has £20,000 in one pension pot and two other pots, one eight years old and one perhaps 12 years old, with £2,000 in each—total savings of £24,000. That hairdresser can annuitise her £20,000. She cannot access her two pots of £2,000. She cannot commute them into cash because she is over the trivial commutation limit and she is too late for the 2009 changes on triviality. She cannot annuitise those two small pots because they are too small. At the moment she cannot transfer them into her main pot because the companies do not want her business. They are orphan assets. So this woman, with her £24,000 of pension savings, cannot touch, and has actually lost, £4,000 of her £24,000 savings. It is a scandal, and with the help of the Pensions Advisory Service, TPAS, of which I declare I am a board member, we have been tabling amendments on this subject for the past five years wherever possible, which is why we are especially grateful that tonight the noble Baroness, Lady Greengross, has introduced her Motion.
As I am sure colleagues know, TPAS provides free independent information and guidance from technical specialists and a national network of 400 voluntary pension professional members to those who, for the most part, cannot afford or cannot access private information and guidance in their own right. Our website receives about 2.5 million hits every year, some 12,000 written inquiries a year and some 40,000 helpline inquiries a year for individual guidance.
A high proportion of that is fielded by volunteers. We have satisfaction ratings in the upper 90th percentile. TPAS is therefore especially aware of what pension issues are coming up in the lift as it offers information guidance day in, day out, hour in, hour out. About a third of our inquiries are about state pension and pension credit issues and the interlocking of benefits with small occupational pensions, which we hope very much will be addressed by a forthcoming Bill on the new state pension. Another third are on occupational pensions, including a growing number of inquiries on auto-enrolment—inquiries which I am sure will expand as the small and medium-sized enterprises coming later into the system are embraced. Thirteen per cent of our inquiries are on personal pensions, including SIPPs. Relevant to this debate, about 10% of our queries and problems are associated with small pots—how to trace them, how to access them and how to commute them.
Steve Webb, an admirable Pensions Minister, has told us that without action there will be 60 million small pots floating around by 2050—small pots orphaned out there, and for many people inaccessible. Why has this become a growing scandal? Pensions do not work for the main holders of those small pots, who are women. Pensions conventionally assumed a man in a 40-year job with a 40-hour working week, backed by a DB scheme and a dependent wife. If he held on to his job and she held on to him, his and her pensions were secure in retirement.
Now men have nine job changes and women have something like 11 job changes in their working life. If they have a pension—two-thirds of those in the private sector now do not—it will be DC. These DC pots have lower contributions from employers, who promptly halve their contributions when they go from a DB to a DC scheme with lower costs, passing both high charges and high risk on to those least able to cope—the employees. Those pots also receive lower contributions from the lower-paid and increasingly female part-time workers, as they continue to care for children and elderly parents alike.
This problem of small pots is compounded by what is happening in the pension industry overall, by what is happening to the labour market and by the problems that women have in caring not just for children but increasingly for older relatives and members of their family. The problem of small pots will be greatly magnified by auto-enrolment.
As my noble friend will know, I tried hard when NEST was introduced to allow small pots to be transferred into it. This was batted away because of the self-interested howls from the industry, which feared it would lose money under management, in much the same way as it has batted away early access to a slice of pension savings, which would also help transform the savings culture for women, and poorer women in particular. The industry was wrong—disastrously wrong in my view—on both counts, as it is now perhaps slowly beginning to realise, but much damage has already been done.
Pensions reflect the labour market. They were constructed decades ago by pale males with dependent wives for other pale males with dependent wives. They have never worked for women. Now, with people living longer and needing to save harder, with flexible labour markets, with auto-enrolment into low-contribution DC schemes, with half of all older women aged between 45 and 64 by 2020 to 2030 being unmarried and therefore needing a pension of their own, those low-paid part-time women especially, as they are in and out of the labour market, will collect a portfolio of small pots—hard-earned savings—some of which will be inaccessible to them at retirement as the situation now stands. Those pots will go AWOL and be inaccessible—frankly stolen from them by the structure of the pensions industry that we, all together, have constructed and inherited.
It is a problem that is simple to rectify. We expect two pensions Bills next year—one for public sector pensions and one, I hope very much, for the single state pension that Steve Webb has done so much to promote. Allowing employees to transfer small pots—otherwise potential orphan assets—into their larger pot would be an easy way to remedy this, provided we have the political will to overcome the short-sightedness and self-interest of some of those practising in the industry.
Without such speedy action, auto-enrolment could become a mis-selling scandal of orphan pots that will destroy any residual trust—and there is not much of that around—in the pensions industry. For all our sakes, including the Government, but above all on behalf of the poorest paid, poorer women, in some cases the self-employed, perhaps black and ethnic minority women, and men who find themselves churning between employment, unemployment and self-employment—for all those we have to rectify the problem of small, stranded pots which they will otherwise lose, to the distress of themselves and to the shame of us all.
Baroness Stowell of Beeston
My Lords, one of the great advantages of being a Government Whip is that we get to learn about lots of new areas of policy that we may not have been exposed to before. However, it also brings the great responsibility of sometimes having to respond to debates where those who have participated are far more experienced and provide greater expertise on the matter than the Minister in charge. That is particularly so in this debate. I congratulate the noble Baroness, Lady Greengross, on securing this debate and pay tribute to her for all her work in the world of pensions for so many years.
I reinforce and share the views of my noble friend Lord Patten. I, too, am very concerned about people who have done the right thing and saved hard for their pensions. This is one of the reasons why I am pleased to be here tonight and to participate in this debate. I also note the important point made by the noble Lord, Lord Lipsey: we are talking about people with small pots and, to many people, the small amounts of money that we are talking about make big differences. Like the noble Lord, Lord Kirkwood, I acknowledge that the topic of pensions does not lend itself to politics, and nor should it. However, the Government want people to be able to get the maximum benefit from their pension savings and we recognise that people can, understandably, find making decisions about their pension and the process of securing an income in retirement complicated.
We need to be clear that professional financial advice is not, and never has been, free, as has been acknowledged by many noble Lords tonight. Even though many people may have thought in the past that the advice that they were receiving was free, the cost of paying for advice may outweigh the benefit of receiving it. This is particularly important for those with small pension pots and we should not assume that paying for financial advice is the right option for everyone. It is important that consumers can make a decision about whether approaching a financial adviser represents good value for money. To do this, they need to understand how much it will cost and that the adviser’s interests are aligned with their own. The Government support the Financial Services Authority’s retail distribution review—or the RDR as it is commonly called—which seeks to bring transparency to consumers on these issues. In response to the point made by the noble Lord, Lord Lipsey, and repeated by the noble Lord, Lord McKenzie, that poor people should not receive poor advice, one of the added benefits of the RDR is that financial advisers will be required to have a higher level of qualification to ensure that the quality of their advice is better.
We also need to bear in mind the basics of what people need to know to make these decisions. As has been mentioned, understanding the options available and the language alone can be overwhelming. That is why, as the noble Baroness, Lady Hollis, made clear, the free, generic information and advice offered by the Money Advice Service and the Pensions Advisory Service are so valuable. The advice that is available from those two services, and particularly the Money Advice Service, includes helping people to think about whether professional advice is appropriate for them, because it may not necessarily be necessary.
Clearly it is important that professional financial advice is available for those who have decided that it is appropriate for them. However, we should be wary of overstating the problem about access for those with small pension pots. A recent survey by the FSA revealed that 63% of advisers are planning to continue to offer advice to those with savings and investments of between £20,000 and £75,000. A further 38% of advisers plan to continue offering advice to those with less than £20,000. I will come back a little later to the point made by my noble friend Lord Patten about pooling and whether it is possible to pool in order to access advice.
People have big decisions to make at retirement. I am pleased to say that this Government have already taken steps to ensure that people have more flexibility and better information to support those decisions. Of course those with pension savings below £18,000 have an additional flexibility in their options, which is that they can take their savings as a lump sum. For those who want to be able to guarantee an income for life, from 1 March next year the process of buying an annuity from an ABI member will include making customers consider their options for both the type of annuity that they need and which provider to purchase it from. This is what is known in the jargon as the “open market option”, which, as several noble Lords have said, is all about helping consumers to shop around.
The new ABI code of conduct, as part of the package of measures announced by the OMO review group in March, provides a real step change in the requirements placed on providers and in assistance to annuitants. The package has been developed to ensure that people approaching retirement will receive much greater support to get the best possible retirement income.
The noble Baroness, Lady Greengross, asked whether the Government would set up a forum to discuss the issues that have been raised in this debate. The noble Lord, Lord Kirkwood, in his usual colourful way, wanted me to be sure that there was cross-party working on this area. There is already a group similar to that described by the noble Baroness, which is alive to the issues raised. That is the aforementioned jointly led DWP-Treasury open market option review group. The group includes representatives from industry, consumer organisations, regulators and the Government and has met to discuss these issues since 2007. That has prompted a laugh from the noble Baroness, Lady Hollis. I have noted that.
The group has collaborated to deliver a number of key outcomes over the past five years, including the package of measures announced in March. It was responsible for the joint letter that was sent to the ILC on these matters earlier in the year. The OMO review group is now in the process of agreeing an evaluation strategy for this package. This will include assessing both the impact and success of the new measures but will also aim to consider the extent to which there are issues that remain to be addressed.
Of course, the decisions that someone can make at retirement will always be limited by what they have done and how much they have saved before retirement. That is why the Government have taken steps to encourage a culture of saving. The introduction of automatic enrolment will hopefully see between 6 million and 9 million people newly saving or saving more into a pension. The Government have also established NEST, which has been referred to, as a high-quality, low-cost pension scheme to support this. However, our work continues.
For example—the noble Baroness, Lady Hollis, spoke very passionately about this—people change jobs and will tend to leave small dormant pots behind them in their former employers’ schemes. The Government believe that as individuals move jobs their pension pots should follow them, as far as is possible. Consolidating pension pots helps to drive down administrative costs and boosts engagement with saving for retirement. The DWP is working with the pensions industry to develop an automatic transfer system for these small dormant pension pots. The aim is to develop an efficient and cost-effective system that minimises the risks to individuals and works to drive down charges.
This is probably an appropriate point at which to respond to the idea put forward by my noble friend Lord Patten about whether the Government would support an industry initiative to pool pensioners’ assets and increase purchasing powers. The Government welcome innovations to the industry that meet the needs of consumers, so my noble friend’s idea is certainly one that we would want to consider further.
The noble Baroness, Lady Hollis, and the noble Lord, Lord McKenzie, asked in relation to small pots whether legacy pots are yet in the scope of automatic transfer. They are not at this time, but we have not ruled out the option that they will be brought into scope in future. In addition, as of April 2012, up to two small personal pension pots of £2,000 or less can be taken as a lump sum by those aged 60 or over, even where people have other savings.
Baroness Hollis of Heigham
I was looking earlier today at the 2009 regulations, which may be what the noble Baroness is referring to. She may wish to follow this up by letter, but my understanding is that those pots have to have been earned in the previous three years. The problem with legacy pots is that they could have been earned 20 or 30 years before. I realise that this is a policy issue currently under discussion and that the noble Baroness will almost certainly wish to take advice from colleagues, but it would be hugely helpful to all of us if the Government could find a way to bring those legacy pots that are not covered by the 2009 changes into any future system, so that people do not find that some of their smaller pots remain inaccessible.
Baroness Stowell of Beeston
On a matter such as that, I will have to write to the noble Baroness.
Housing Benefit (Amendment) Regulations 2012
Baroness Hollis of Heigham Excerpts(12 years, 1 month ago)
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Lord Kirkwood of Kirkhope
My Lords, perhaps I may make a brief intervention at this stage. It is right not to dredge back over the painful territory of the policy intent, because we discussed it at great length in another context earlier in the year. We should use our time this afternoon to look at some of the detailed implementation questions that arise from the policy. Actually, we should be thinking about getting a housing policy for the United Kingdom that is worthy of the name when trying to sort some of this out.
People have been asking me some of the practical questions about this and I just do not know the answers. I am nervous that we are getting towards a single implementation date, 1 April 2013, when there will remain a great deal of uncertainty on the back of the substantial change. If people get substantial change and are not prepared for it, they are even more badly affected by it. We must avoid that at all stages, if we can.
Has the department any confidence in working with local authorities and local housing associations? I was interested to hear the Minister talk about the work done in Liverpool and the Midlands on the home swap direct scheme. That is entirely healthy and welcome. However, if we had taken this at a slower pace and worked with local authorities and local housing associations across the length and breadth of the United Kingdom, a lot of that would have been in place before 1 April. I have no confidence, even if everyone works hard—and I am sure that they are working hard—that we will get proper home swap direct-type arrangements in place across the United Kingdom.
Are there sufficient co-ordination mechanisms in place between the DWP and the other constituent nations of the United Kingdom—Scotland, Wales and Northern Ireland? Presumably, they are making their own arrangements in their own ways. Is the department confident that there is a proper exchange of information and swap of best practice, and that the circumstances north of the border, and in Wales and Northern Ireland, will be as fit for purpose as they can be, come 1 April next year? That is a very important question.
Discretionary housing payment distribution is an important element of that. I understand the Minister to have just said that decisions will be taken later about how it is to be rolled out. However, I say to him that only last week someone in a local authority tenancy came to me. He is in a two-bedroom property, had some adaptations made to the premises and signed a letter of undertaking to the local authority to say that he would stay in that property for a one-year or two-year period. Therefore, he is locked into that tenancy and cannot move. He was prepared in principle to consider moving but he is now caught both ways.
That is just one example of, I am sure, many detailed questions that are arising which would have been better addressed if we had had a more measured transitional phase in the policy’s implementation. Following our important debates on the Bill earlier in the year—it is now an Act—does the department have any further research on the availability of single and two-bedroom properties? Is the map any clearer as regards where the accessibility lies so that people can make a decision about whether there are appropriate smaller properties into which to downsize? It would be reassuring to know that some work had been done and that people were being helped to understand where to start looking for some of these properties.
I concur with what the noble Lord, Lord McKenzie, said about the disability issue. When looking at the impact assessment and the briefing that we received last week, I missed the significance of that. I am not a disability expert; a lot of people know a lot more than I do about this technical and politically very important problem. I was taken aback by the extent to which the client group will be affected by this policy change. I did not know that. I wish that I had known it during the passage of the Bill.
Lord Kirkwood of Kirkhope
Yes, it is two-thirds. I would not have guessed that. That is new and it is deeply concerning. I hope that the Minister will help us to understand what is being done about that.
During the passage of the Bill, the noble Baroness, Lady Hollis, kept referring to rurality. Another point that was driven home to me over the summer, coming from south-east Scotland, is that people are panicking about where they should begin to look for appropriately sized accommodation if they are to avoid the penalties that these policy changes introduce. There are no real alternatives in many cases, which is a problem.
A lot of us are relying heavily on the review. I was reassured that the Minister committed himself to conduct a proper review working with the noble Lord, Lord Best. I think that he made that commitment on his own initiative. Therefore, we are entitled to be confident about the review. However, if the review shows that the policy intent has not been delivered in some of these important areas, which I am sure are causing concern to other Members of the Committee as well as to the noble Lord, Lord McKenzie, and me, I would like him to reassure me that action will follow as a result of the review, so that this is not an academic piece of work that says, “On the one hand or on the other hand”, but will say, “Actually, we did not think that would happen. The culture has not changed in the way that we expected it would and therefore we are going to do something different and perhaps even change the policy”.
Of course, housing benefit needs to be constrained; it is a very big number and it is getting bigger. However, I think that we are grabbing at this policy. Irrespective of whether you think that the policy is right or wrong, the process is being carried out far too fast. Doing it all on one day—1 April next year—is a very unsafe thing to do in my view. I hope that we get this right and that the review will lead to some amelioration of some of the problems that are bound to come out of the woodwork when these policy changes are implemented.
Lord Best
My Lords, the Minister is well aware of my disquiet, and I am unlikely to be satisfied in relation, in particular, to underoccupancy—the bedroom tax. I know that he has made some important efforts and I think that he is going to be able to be reassuring on one or two points that noble Lords have raised. I am sure that we will hear that full-time students will not have to lose their bedroom and regain it by a convoluted process while they are away at university. Also, I think that we now have a date when it will be the case that taking in a lodger will not mean that benefit will be cut by the amount received in rent, which will be helpful to some people. These measures are not going to change the world, but they are good things to do and I am grateful to the Minister for putting them in place. There may be more.
I want to talk about discretionary housing payments, which are the way out when you can see that a situation is quite untenable and any reasonable person would say, “Of course, in that particular case, this whole business is a complete nonsense and we must allow those people to stay where they are”. I am now getting the kind of letters that hundreds of MPs are going to get when this really big change gradually dawns on the world outside. I shall read to the Committee from a letter and will give the kind of reply that I would like to be able to give and explain the difficulties I have in giving it.
There is a woman in a relatively rural area of Norfolk who lives with her husband. They are not of pension age. He is a bit disabled. She looks after him, and she also looks after her elderly mother in the village. She sees her mother in the morning, at lunchtime and in the evening. She does a great job with her 81 year-old mother. She is in a three-bedroom council house. They have been there for 23 years and have brought up their children, who have gone. She uses two bedrooms because she and her husband do not sleep in the same bedroom. She will be paying another £25 a week because she is deemed to have two empty bedrooms.
The council has said that it has some one-bedroom flats in the nearest town, which is 16 miles away, that it may be able to move her into, but not now because the one-bedroom flats in the town are rather precious. Later, it might be able to move her in, but in the mean time, she will have to stay where she is. She says, “I can’t afford the extra £25 a week bedroom tax. What am I to do?”. In my letter back to her, I should like to say that there are things called discretionary housing payments. I am hinting at it but what hope can one give to people in such circumstances? It would clearly be completely foolish to move her out, although she cannot afford to stay; she cannot afford the extra £25 a week. However, moving her 16 miles away would mean that her mother had to be looked after by social services at considerable cost and her husband will not be properly housed—it is a nonsense. I should like to be able to say that the local authority should have the opportunity, where anyone can see that it would be sensible, to fill that gap and pay the bedroom tax, enabling her to stay where she is.
We know about discretionary housing payments that take care of some of the local housing allowance and the private rented sector. We know about the sums that relate to the total benefit that people can get from the universal credit—the £500 limit. We know about these other aspects of using discretionary housing payments. However, I cannot find anywhere any money for discretionary housing payments to pay the bedroom tax, except in respect of two special categories. These are thoroughly commendable, although I was startled to hear that the money was taken from the rest of the bedroom tax payers.
There are two kinds of special case. One covers adapted properties that have been physically changed for the people who live there. It would be a nonsense to move them out because there is a spare bedroom. It would cost everyone an arm and a leg. The other exception is a case where there are foster children. They do not count as part of the family but, obviously, they must have a bedroom. There is £30 million a year, which will continue indefinitely, for those two exceptions. That is great but they are very restricted categories. My middle-aged couple in Norfolk would not fall into either group.
I am afraid that noble Lords and, in particular, Members of the other place will all get such e-mails and letters, so they should be prepared. I had another letter from someone with two daughters, one aged 11 and one aged 13. One daughter is severely disabled. She needs a very large bed and, therefore, her own bedroom. However, the two girls are expected to share because they are aged under 15 and are therefore underoccupying by having two bedrooms. That will cost the family £14 a week from their disability allowance. They do not have £14 a week; they have great difficulty in getting by on what they do have. Everyone says that they must stay where they are. This is where a discretionary housing payment could come in. However, as I read the numbers I can see nothing. What does the Member of Parliament say in replying to his constituent?
I hope that the Minister has up his sleeve the opportunity to put in place more discretionary housing payments to get us through what I suspect will be rather a large number of cases in which anyone would agree that it would be best to let people stay put. I do not think it requires more legislation. We will not get the results of the very important, thoroughgoing research—I have congratulated the Minister on it—until some way down the line. Then we will see how things are working out. If it is not already the case, I advise the Minister to talk to his Treasury colleagues and provide a bit more discretion for local authorities to pick up cases that otherwise will just be hopeless. I have no idea how we and the people concerned will be able to cope.
Baroness Hollis of Heigham
My Lords, I declare an interest as chair of Broadland Housing Association, which spans Norfolk as a major traditional housing association. I also congratulate the Minister. We appreciate the reviews that he is seeing through and respect his respect for the evidence. It is welcome to be working with a Minister who is evidence-based. We appreciate that and it should be recorded.
Despite what the Minister said, these regulations are not about overcrowding. The people who are overcrowded and the people who are underoccupying are two different populations and in two different sets of places—they do not match. If the Minister were really serious about the issue of overcrowding, he would actually be looking, as some of us have tried to do, at the underoccupation among pensioners who, of course, are the biggest source of underoccupation. Although I am not suggesting that we should do that, if the Minister were serious about this, he would not confine his efforts to families, many of whom have children.
Secondly, the regulations are not about treating social housing in the same way as private rented housing. This is the second line that the Minister has offered us. What we have learnt over the last six months is that, far from the local housing allowance pressing down private sector rents, which was the mythology offered to us throughout the past year, the reverse is happening. Private rents have soared because, as my noble friend said, no new housing is being built. Private renting is not becoming a transitional tenure but a longer-term tenure. Demand is going up as a result, as are rents, as will the housing benefit bill. So, far from this exercise pressing down housing benefit, I am confident that we will see housing benefit in the private sector rise, because there are not three housing markets in this country, there is one. As new building has stopped in the owner-occupation sector and the social rented sector, the pressure on the private rented sector will increase, rents will go up and, as a result, the housing benefit bill will rise.
So neither of these two things are at issue. This is not about matching underoccupation and overcrowding— it does not fit. The Minister knows the statistics— they do not fit. It is not about following the example of the private rented sector, where rents are soaring and HB bills are likely to go up.
Like others, I do not want to repeat the arguments aired at great length in Committee. I have not been persuaded by anything since that the Minister was correct in his analysis. As a chair of a housing association whose tenants will lose the best part of £1 million in forfeited benefit, I have some questions for the Minister. What advice will he give me, given that his colleagues in DCLG have ensured that, instead of having £42,000 on average for a grant for a new house, it is now down to £16,000? As we cannot build without a grant of a minimum of £26,000, we cannot build. For the first time in 40 years my housing association is not building any new property. Given that, we have no possibility at all of “balancing our stock” to build the new single-bedroom properties that are pivotal to this scheme. As a result, our tenants know that they are faced with only our existing stock and occasional re-lets.
Occasional re-lets, when they come up, if they are attractive and in the right places, are for the most part pursued by pensioners. However, in future, pensioners who would like to leave a three-bedroom house and move into a one-bedroom flat or bungalow, will not be able to access any re-lets in our villages. This is because people currently in two-bedroom properties who are in the client group affected by the benefit cuts will now have to move to any available one-bedroom property against their will. I have yet to discover how that in any way adds to the sum of human happiness.
Many of our tenants have functional illiteracy and may therefore be re-classed as vulnerable, with the result that we will enjoy their housing benefit direct. However others, such as couples with children, will find it hard to manage; they will have debts, the banks will lean on them, and although I am trying to get them into credit unions, that may not be possible as they do not operate throughout Norfolk. They may well run into arrears. What would he have us do? If we let the arrears run, that will affect the estate, other people will stop paying their rent, we will go into the red, our books will not balance and we will go into special measures. The alternative is to evict, but the local authority will hope that we do not, because those families will go into bed and breakfast accommodation. This may be 10 miles away, the children will have to leave their schools, the younger ones may be bed-wetting, they will all be crammed into one room, and the cost to the public purse will actually increase because the cost of a bed and breakfast will be something like £300 per week, as opposed to the rent for their current accommodation at about £70 or £80 per week. So we have made that family deeply unhappy, broken up the pattern of managing their lives and very fragile incomes, and put them into accommodation at greater cost to the public. However, as they are a family they are entitled to be rehoused, so the local authority will ask us whether we can help. We will reply that the only property we have available is the same three-bedroom accommodation from which they were evicted because they could not afford to pay for it.
Lord Freud
I could go on for longer about this. Rural areas will need to look hard at the options of adaptations to property, lodging, moving or paying for the extra room. One issue raised by the noble Baroness, Lady Hollis, is that this is not directed at pensioners who want to move down. The reason for that is the concern that it is pretty stressful for very old people to have these kinds of pressures on them. If we are to have this decision that we cannot afford to support people with extra bedrooms—they can of course have them, if they can find a way of paying for them—and have that mechanism happen to people who are still of working age and capable of making the adjustment, rather than to pensioners, then as time moves on you will move the cohort up into the pensioner group. That is what is happening with that particular issue. It is a timing issue.
On the sums and my noble friend’s question about what will be available, I will try to give a few figures for context. We expect probably around 400,000 underoccupiers to need the one-bedroom properties according to these size criteria. If we look at surveys that have been done—I am thinking particularly of the Housing Futures Network survey—around 25% of those people are likely to look for an actual move. In the previous financial year, there were about 100,000 new lettings of one-bedroom properties in the social rented sector in England and around 25,000 new dwellings completed.
Lord Freud
There is an implication in that: who takes priority for those new houses and then who do you take off the waiting list for the larger properties? There is then a kind of order of position that becomes somewhat more manageable. Do not forget some of the examples given, such as that there would be children in these rooms. The reality is that for the bulk of people affected by this, their children have left home. That is why they have too many bedrooms. I think the figure is—I am plucking a number from my memory—70% of the people affected by this. I will be hit hard by someone if I have the wrong figure and I will get the right one in a second but, from memory, 70% of these people do not have their children at home. That is obvious because of the underoccupancy effect.
I responded to the question on DHP use from the noble Lord, Lord Best. We are not talking about a ring-fence system with the DHPs. When you have very hard cases, of the kind discussed this afternoon, local authorities can move in and help.
As to the total figure, I have already given that as £165 million for next year. That is made up of the baseline funding of £20 million, £40 million from the LHA reforms, £30 million from the social sector—under the size criteria that we are talking about—and £75 million from the benefit cap. These are the kind of figures for people who have multiple effects.
I must correct my earlier figure of 70%. My memory was just slightly faulty; the figure is actually 66%, not 70%. I apologise.
This is a good time to answer the question of the noble Lord, Lord Best, about making an assurance. Actually, it was not Lord Best. Who wanted that assurance?
Baroness Hollis of Heigham
I understand the noble Lord’s dilemma about housing benefit, but the problem is caused because there is no capacity of demand to buy property and to fuel new building. As a result, the pressure is going on private rents, which as a result means the housing benefits bill will continue to go up, without even considering what is happening in the social housing sector. He will not succeed—he cannot succeed—in part because of the policies of his neighbouring government department.
Welfare Reform Bill
Baroness Hollis of Heigham Excerpts(12 years, 9 months ago)
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Baroness Thomas of Winchester
My Lords, having spoken on this matter at all previous stages of the Bill, I would like to add a few words now. I am extremely grateful to my noble friend for saying that he will look very carefully in future at the three care components. I am very grateful to the noble Baroness, Lady Meacher, for giving us the opportunity to allow him to say this in terms.
I hope that I may remind your Lordships what this is about. There are three care components in disability living allowance. Under universal credit, there are only two and children on the middle and lower rates of care will not get the higher additional rate. This will particularly affect children on the middle rate of care who do not need care all through the night. If they have more severe disabilities, they will get the higher rate. However, those who do not need significant care through the night can still be very severely disabled.
As noble Lords have said at all previous stages of the Bill, families with disabled children need all the help they can get. This is particularly true of families where there is a genetic likelihood of children inheriting a particular disease such as muscular dystrophy, which is the disease I have. In these families there is often more than one disabled child and, sadly, often only one parent. This is why many families with disabled children are disproportionately likely to live in poverty. Therefore, I am extremely grateful to my noble friend for saying that he will look very carefully at these three care components and how they will fit into universal credit, because that is what we are talking about. I do not think that the noble Baroness, Lady Meacher, needs to press her amendment because the noble Lord has said that he will undertake to do what we want.
Baroness Hollis of Heigham
I am very glad to follow the noble Baroness, Lady Thomas. Obviously, we all welcome the Minister’s commitment to undertake a review. It would have been very helpful if we had had this promise earlier in our discussions as it would have enabled us to shape much more thoroughly what might go into that review. However, what concerns me is that I still think the Minister missed the key point in his introductory comments. If I have misunderstood him, I would be grateful if he could correct my misunderstanding and make his position clear to the House.
The issue is not whether the right number of children is above the line in terms of severe disability, and where that line is drawn, as he seemed to suggest. That is not the issue, although the Minister seemed to suggest that it was. The issue is the fact that children who are deemed to have a lesser disability still have very substantial care needs. Indeed, their care needs may be more expensive than those of a bed-ridden child who may be more severely disabled but has less demanding care needs. We are concerned about the ratio of financial support for the less disabled child vis-à-vis that for the more disabled child. Therefore, it is not a question of whether more children should go into the higher rate category rather than the lower but of the relationship in financial terms between the lower rate and the higher rate given that the degree of disability does not translate into the need for extra financial support because of additional costs. That is the issue we wish the Minister to grasp, not whether the lines in the sand are drawn differently between groups of children but to recognise that the financial support for less severely disabled children should be pegged pretty closely to the rate for more severely disabled children because costs do not follow the level of disability.
The Countess of Mar
My Lords, like my noble friend Lady Meacher, I am a little puzzled as to why this amendment was rejected on financial grounds. I know that the Commons Reason given is that,
“it would alter the financial arrangements made by the Commons”,
and it does not need to offer any further reason. However, in this particular case, we have no estimate of the fiscal impact of these measures from the Department for Work and Pensions, so how can we know what the financial impact is going to be? Perhaps the noble Lord will make clear what the financial impact is going to be, particularly as the noble Baroness, Lady Meacher, presented her original amendment as being financially neutral?
Lord Best
My Lords, this combined amendment seeks to achieve a compromise on the so-called bedroom tax, the underoccupation penalty that reduces the housing benefit entitlement—later the universal credit entitlement—for those of working age in a council or housing association property.
Perhaps I might recap on the position we have reached on this measure. I have argued since Committee that the Government should stay with the current definition of underoccupancy from the Department for Communities and Local Government, which allows a household one spare room, which may actually be a room that is occupied all the time; for example, where children are not sharing because one has a disability or because a teenager wants a separate bedroom to do her homework and so on.
Requiring people settled in their council or housing association homes to move or pay a fine of what will now be £728 per annum on average seems very harsh. The housing benefit of these tenants will be cut by this amount so they will have to find the bedroom tax out of other benefit income. For an unemployed separated father who has a spare room so his children can stay, this represents a cut of nearly 20 per cent in his income from jobseeker’s allowance. Even though £14 a week may not seem a huge sum to most of us in this House, it means a very significant reduction in living standards for all households affected.
Your Lordships will recall that the earlier amendment on this theme was carried in this House with significant support from all parts of the House. It did not go so far as to allow families one spare room, but it changed the position so that the penalty would only become payable if the tenant refused an offer of a smaller, suitable flat. This amendment would still require all 670,000 households—rising to 740,000 households as the pension age rises—to move if they were to avoid paying the tax, but no one would have to pay until they had been offered and had turned down an alternative tenancy. This took away the surely inequitable requirement to pay the penalty for staying put even where there was nowhere else to go.
As your Lordships know, the majority of council homes built from 1920 onwards have three bedrooms. Requiring a move to a two- or one-bedroom flat can mean waiting for vacancies for some time; for example, in rural areas there are places where all the council houses have three bedrooms so if the tenants are to downsize they must leave the village, perhaps after living there all their lives. Some urban councils purposely avoid putting families into tower blocks, so singles and childless couples have been allocated larger flats there. To suddenly impose the underoccupation penalty on all these households before they have any chance to move elsewhere seems most unjust, and your Lordships voted for the amendment that would provide some relief for this problem.
It is important to note that the earlier amendment did not abolish the bedroom tax, and the penalty would still kick in for those who felt that they could not accept the alternative flat offered to them. Their reasons for refusing to downsize might be very compelling, but regardless of those reasons, the amendment—the compromise from the position of permitting a spare room—meant they would still have to pay if they did not accept the offer of the smaller accommodation.
This Lords amendment was rejected in the other place, though with a relatively small majority of 42, and with support from the amendment from all parties, including 12 Liberal Democrats and two Conservatives. This gives me some hope that if an amendment that cost half as much were to be presented to the other place, it might indeed gain acceptance there.
I am therefore bringing forward an even more modest amendment, in the hope of salvaging something here. The new amendment confines the postponement of the imposition of the bedroom tax to certain categories only, rather than to all tenants. I deeply regret abandoning hundreds of thousands of households who, even if this amendment is approved, will still be caught by the penalty charge on the 1 April next year. Even if they are willing to move, they will be trapped where they are because there are no smaller flats available. However, needs must, and the new amendment reduces the cost in the early years from perhaps a maximum of £300 million by around half, a far cry from the billions referred to in earlier debate. In due course, the Government will collect the great majority of the tax if, as gradually some people are offered a smaller home and do not take up the offer, they are then required to pay up. The cost implications are not, I suggest, too frightening.
Therefore, for the categories spelt out in this new amendment, no fine, penalty, tax, or housing benefit cut would apply unless and until they turned down an alternative offer of something smaller that is defined in regulations as “suitable”. The categories given relief in the amendment are: first, claimants who are not required to work for reasons already set out in the Bill in Clause 19, including those with,
“regular and substantial caring responsibilities for a severely disabled person”,
or for,
“a child under the age of 1”.
These are households for whom pressures to take a job—which, as the Minister has explained, is a key policy driver for the Government—are not relevant. For these people, the penalty simply represents a substantial loss of income with no escape. If the household felt that they could not accept an offer of an alternative flat, they would still have to pay, but only after that offer had been made.
Secondly, the amendment covers claimants who have already been exempted from the household benefits cap, mostly because they are disabled, but also including war widows. These are people who the Government recognise as having extra costs. My amendment simply replicates the categories which the Government have acknowledged should not be penalised by the benefits cap. Many of the 70 charities that are urging parliamentarians to accept an amendment on this issue represent people with disabilities, who are particularly badly affected by having to share bedrooms. Again, I fear that these would not be exempt from paying the tax unless they moved out, but the tax would not be payable until they turned down another home, deemed to be suitable, but smaller.
Each household would still have a very tough decision to take. For one it would be, “Could we move and put our disabled child with his special bed into the same room as his sibling, or should we take the cut in our living standards and stay in this house with a separate bedroom?”; or, for an older couple, where one is under pension age—under 61 years and 5 months next April—the choice could be, “Should we move from our two-bedroom flat to a one-bedroom flat, even though we often sleep apart when my husband is ill, and we frequently use the other room when my daughter comes to give me a hand for a few days?”; or, “Must we move, because £14 per week off my husband’s state pension would be just too much?”. I fear that these difficult choices would still have to be faced even if the amendment is carried, since the amendment only postpones the moment of truth until an offer of a suitable alternative flat is made. Thirdly, this concession would apply where the household regularly takes in foster children. Barnardo’s and other children’s charities are keen to see the nonsense of taxing foster parents removed.
What are the arguments against my case for a now extremely modest element of relief from the proposed underoccupation penalty? It cannot be said that granting this relief takes away the pressure on scroungers—people able to work but not working—since the revised amendment does not cover anyone required by the benefits system to seek work. Can it be argued that the Government have already announced a sufficient safety net to cover the most extreme cases? They have made available £30 million against the expected savings of £470 million, which the bedroom tax would yield, for discretionary housing payments which local authorities can use to cover the tax for deserving cases. The Government have mentioned two groups in particular to be helped by local authorities; namely, those living in homes that have been specially adapted and for whom downsizing would require the smaller home also to be adapted, no doubt at considerable cost, and households with foster children where the underoccupying rule is particularly inappropriate.
The funds for this discretionary power to bail out some hostels is confined to these special cases. If something was left over, it would leave local authorities with an invidious task; that is, how to assess the relative hardship of the bedroom tax in each of the other 670,000 cases where the discretionary housing payments are available to help only one in 16 of those affected.
Nevertheless, I confess to having been thankful for this small mercy—until I learnt that the £30 million for these discretionary housing payments is to be paid for not by the Treasury accepting any reduction in the gains achieved through the bedroom tax but by increasing the tax for the other tenants by another £50 per annum from the previous £13 per week to the new £14 per week.
What about the argument that those on very low incomes could find the money to pay the penalty charge from their savings? I fear that it is more likely that such households will be struggling with debts, perhaps depending on payday loans and even resorting to the loan sharks, rather than sitting on a pile of savings. While older tenants may have put aside a bit, few will be able to cope when faced with a new tax of £728 every year on top of the rises in their heating bills and other costs.
One other remedy suggested by the Minister is for these households to take in lodgers. That is certainly to be strongly encouraged, although the current disregard as to the amount that tenants are allowed to keep without losing benefit has not proved a sufficient incentive to date. Obviously, however, taking in lodgers is not appropriate for most of those in the priority categories of the very vulnerable and disabled people now covered by this new amendment. By all means promote lodgers’ schemes among those not helped by this amendment but it seems unrealistic to expect this idea to be of much help for those singled out in my new amendment.
I hope that since the earlier, more expensive amendment gained such a high level of support from all parts of this House, this lesser version will be acceptable. As noble Lords know, there is backing for any such measure. It comes not just from the many charities concerned with children and disabled people but from the social landlords—the councils and the housing associations. These social landlords have expressed grave concerns, not only on behalf of their tenants but because of the administrative and financial problems that the Government’s proposals will create for them.
The landlords will be asked to be the tax collectors of the £14 per week from each liable tenant to make up the weekly deficit on the rent that the penalty will create. They know that they will have a huge job identifying who may be eligible. I am grateful for the reassurance from the Minister that there will not be an army of snoopers to check on whether a young person has left home or is away for just a few weeks. But landlords will have the problems of collecting the £14 per week or £25 per week if there are two rooms. That will not be covered by housing benefit any more.
Even if the housing benefit is paid directly to the landlord because the tenant is classified as vulnerable or has run up arrears, the extra sum—the penalty charge—will still have to be collected directly from the tenant. This will not be easy. A gradual accumulation of rent arrears seems inevitable, meaning in turn evictions in due course and less money for renovations, new homes or regeneration. The gain to the Treasury is likely to mean losses for housing, as well as the misery of loss of income for those unfortunate tenants who have to pay up.
This will be a particularly painful levy on communities in the north-east and the north-west where 45 per cent of the relevant tenants will be hit, and in Northern Ireland, where rather higher standards have justifiably applied, 68 per cent of these tenants will be affected. In this House we are not troubled by postbags full of protests from aggrieved constituents, as I strongly suspect will be the case in the other place, but I know that many of your Lordships feel strongly that we have a role in restraining government where measures seem excessive or unfair. Even though this amended, amended amendment is now providing much less relief than I feel the situation requires, it nevertheless draws a line by mitigating at least some of the hardship for at least some of those on the lowest incomes, and now exclusively for those who are not in a position to go out to work because they act as carers or are disabled themselves, I hope very much that noble Lords’ support for these households will be sustained.
I pay tribute to the Minister who has worked extremely hard and effectively on this important legislation. I congratulate him on the changes he has achieved, but I know that he feels the hot breath of the Treasury on his collar. I therefore ask him to feel emboldened by the strength of feeling in your Lordships’ House to accept this very modest new amendment. I beg to move.
Baroness Hollis of Heigham
My Lords, universal credit is about using benefits to encourage behavioural change, and above all to encourage people to seek work by reducing its risk and increasing its reward. Like most people in this Chamber, I am deeply supportive of that, as the Minister knows. The House is extremely grateful to the Minister for the care and attentiveness with which he has introduced the changes made by universal credit through the stages of this Bill.
However, this amendment in the name of the noble Lord, Lord Best, has nothing to do with universal credit, nothing to do with behavioural change and nothing to do with urging people into work. It is simply a means of making savings that will come from cuts which will fall on some of the poorest. The Minister has already said, by referring to Moody’s, that we cannot afford to lose those savings, yet none of them falls on me although they could do so. I would be happy to indicate to the Minister, if he so wishes, where they might. In my view, this is about political and moral choices. Do I pay or should a disabled child suffer?
I want to make three brief points. First, I believe that at the core of the policy on underoccupation is a fundamental dishonesty. I do not accuse the Minister of this, but the position is a dishonest one. That is because it states that people of working age must downsize if they have one spare bedroom but, as the Government acknowledge in their own impact analysis, those smaller flats and houses to which people should move do not exist. The Government acknowledge that 85 per cent of people will therefore have to stay put. If they do not, and instead move into the more expensive private-rented sector, the savings will not be made. Let us think about this. The Government are publicly requiring people to downsize and then, knowing that the stock is not there, they hope and expect that people will ignore what the Government are telling them to do—otherwise they will not make the savings. The Government are calling for one outcome but want people to do the exact opposite. We are asking the House not to collude in that false choice.
Secondly, the Government’s position, as has been well outlined by the noble Lord, Lord Best, is deeply unfair to particular groups of people. I shall take just one: the couple with disability who need a bedroom each on occasion. He may have early prostate cancer and be going to the loo half a dozen times a night; she may have a respiratory problem and cough heavily through much of the night. On most nights, they need a separate bedroom otherwise one is being required to go without sleep or the other to sofa-surf in her own home night after night—a 60 year-old woman is being asked to sleep on a sofa night after night because of the change.
The same problems apply to disabled children being expected to share bedrooms with their siblings. If those disabled children need regular night-time care, their siblings are going to go to school without enough sleep, tired and upset, and almost certainly underperforming. Do we really believe that such families should carry the cuts on behalf of us all? I think not.
The third and last point is the consequences for housing associations such as my own—I declare an interest as chair of Broadland Housing Association, half of whose housing is in rural Norfolk. I cannot currently rehouse pensioners in rural Norfolk who want to downsize because I do not have the stock in the villages in which they want to live, yet it is among pensioners that underoccupation is most common. In future, the disabled family which does not want to move will be required to move, while to the pensioner who wants to move we will have to say, “You’ll have to stay put”. Can your Lordships think of a more foolish as well as—in many ways—more selfish policy, whereby people who do not want to move are made to move, and those who do want to move cannot, even though the costs of the one and the other would balance out? That cannot be right.
What will we do? As the noble Lord, Lord Best, said, families who cannot move, including those with a disabled child, will have to take a hit on their housing benefit through no fault of their own because they cannot move, and they will within weeks fall into arrears. What do we then do in a housing association? Either I evict a family with a disabled child into temporary accommodation or bed and breakfast—how I can do this to them?—or they stay put and arrears mount. I have already trebled the amount in my accounts for increased arrears. As the noble Lord rightly said, the money is not available to pay the debt charges of new building, which alone will solve the problems of getting our stock right in the longer term.
The Minister says that such people may make a contribution out of their benefit, by which he means, frankly, that they must either eat less or heat less. A disabled child and their family are being asked to eat less or heat less in order to bridge the gap between their housing benefit and the home in which they live.
I return to my opening point: we do not have to do this. It is about our political and moral choices. Families with a disabled child will lose £14 a week, while most of us enjoy a tax-free winter fuel allowance or find for the second year running that our council tax has been frozen. Not a penny of these cuts is falling on me or, I suspect, on very many of your Lordships, yet we are asking disabled families and families with disabled children to carry those cuts for us. I hope that your Lordships will put themselves on the side of the very modest amendment moved by the noble Lord, Lord Best, put themselves on the side of disabled children, disabled people, war widows, foster carers and kinship carers, and support the noble Lord’s amendment.
Lord Freud
No, my Lords. The department has an international wing that monitors this matter very closely and is on top of it. It has lawyers and also takes advice from lawyers—although formally I am not allowed to say that we ever consult lawyers internally for advice. I think that is the position. All I can say is that there are many ramifications to this. I am not playing games. I am quite worried about the implications for our whole benefits system.
Baroness Hollis of Heigham
In my experience in the department, over eight years and with a dozen Bills, the legal advice was usually gold-plated. When I scratched it, I realised that we were going over the top. Most outcomes that were predicted on such things as pensions did not occur. I urge the Minister to adopt an appropriate degree of scepticism toward the legal advice that comes his way.
Lord Freud
My Lords, I am always delighted to take the advice of someone who occupied my room in the department for so many years—although I think that there is a progression and that ignoring it early on does not mean that it will not come back. I will not go into this in too much detail. I am sure that the noble Baroness did not mean to say that I was making it up, because I was not.
Lord Freud
My Lords, I beg to move Motion F. If I can just get to the right place—