Taxation: Personal Thresholds

Baroness Lister of Burtersett Excerpts

Monday 20th January 2014 Lords Chamber

[Lord Newby]

My Lords, I do agree. The effect of what we have done is that by 2014-15 there will be a £705 cash benefit to low-income households, which even in real terms is well over £500. This has made a material difference to the income of people in those categories and is much to be welcomed.

[Baroness Lister of Burtersett (Lab)]

My Lords, the Resolution Foundation has shown that in future the 3 million taxpayers on universal credit will receive only about one-third of what other taxpayers receive from an increase in tax thresholds, and the 5 million low-paid workers below the tax threshold of course receive nothing. Does the Minister agree that this is a singularly ill targeted policy for helping those on the lowest incomes, and will he consider alternative, more progressive policies instead?

Welfare Benefits Up-rating Bill

Baroness Lister of Burtersett Excerpts

Monday 25th February 2013 Lords Chamber

[Baroness Lister of Burtersett]

My Lords, I had not planned to speak to these amendments but I have been stung into doing so by the remarks of the noble Lord, Lord Forsyth. I am going to keep my powder dry for later amendments. First, he started by saying that this is not a cut. Of course it is. He then had to concede that if you do not uprate benefits in line with inflation, you are cutting benefits. Do not tell the mother who has to struggle that this is not a cut—it is.

Secondly, the noble Lord said that we cannot afford to uprate benefits in line with inflation. This is about choices—particularly, as the right reverend Prelate the Bishop of Leicester made clear at Second Reading, moral choices. We can afford to protect people living in poverty from inflation.

I will not make the contrast with millionaires because the noble Lord said that it was a cheap contrast. I will simply make the contrast with a policy of which the coalition Government are very proud—that of uprating tax allowances by more than inflation. As Gingerbread, I think, pointed out to us, this is the least effective way of targeting resources on people in poverty. A much more effective way of helping them is by inflation-proofing their benefits. There is a choice. The choice was made to increase tax allowances by more than inflation, which is of no help to people too poor to pay tax, including people in work too poor to pay tax; of minimal help to people on means-tested benefits, because they lose some of it; and of greatest help to higher-rate taxpayers. That was a choice. It was believed to be all right because we could afford it, but we cannot afford this.

[Lord Forsyth of Drumlean]

Is the noble Baroness not leaving out an important ingredient? The reason why that choice is made is because by cutting the tax burden and encouraging people to save to invest and to work harder you create the wealth that is needed to create the welfare state. That is the difference. The noble Baroness seems to think that it is a fixed cake and that whatever happens it is impossible to increase the size of the cake and thereby make more money available for those in greatest need.

[Baroness Lister of Burtersett]

I do not want to get into a great debate about the economics of this, but are people in low-paid work who are getting tax credits not contributing to the wealth of the country in the same way? They are affected just as much as people on so-called welfare, which I prefer to call social security. The economic case was made by the noble Lord, Lord Low, and the noble Baroness, Lady Meacher. This is not about the state taking money out of the productive economy and somehow filing it away somewhere; this is about the state redistributing money to people who are more likely to spend it and to spend it in local communities, thereby helping to boost economic growth at the time we need it. I do not believe there is an economic case. I do not accept the crocodile tears that are being shed by someone who is prepared to support a Bill that will hurt people in poverty the most.

[Lord Bates]

I, too, was not intending to speak on this amendment, but I was spurred to by my noble friend Lord Forsyth of Drumlean. I rise to add to some of the points and to reinforce some of the questions that he has about this. I followed this debate quite closely at Second Reading, and I thought that the position then argued by the noble Lord, Lord McKenzie of Luton, was that the Opposition opposed the 2013-14 and 2014-15 limits but had not yet reached a position on 2015-16. Presumably by supporting this amendment, they are now making the position that they do not agree and would therefore reverse the policy as it affects 2015-16, which is £1.9 billion. I may have got that wrong, and I am very happy to sit down if the noble Lord wants to intervene to correct me.

Welfare Benefits Up-rating Bill

Baroness Lister of Burtersett Excerpts

Monday 11th February 2013 Lords Chamber

[Baroness Lister of Burtersett]

My Lords, this Bill should really be titled the “Welfare Benefits Downrating Bill” because it will downrate the real value of the benefits and tax credits upon which the poorest members of our society rely. The Bill’s length, together with its effects and some of the divisive arguments that have been used to justify it elsewhere, make it—unfortunately my noble friend Lady Hollis got in first with my best line—nasty, brutish and short.

Among those who face greater hardship as a consequence are the 200,000 children who will fall into poverty as families with children and poor mothers are particularly hard hit. In the words of the Children’s Commissioner for England, it is unacceptable that children should have to pay the price for the economic malaise of our country. Could the Minister please explain how this projected increase in child poverty is compatible with the Government’s obligations under the Child Poverty Act 2010? Moreover, as a number of noble Lords have said, about one-third of households containing a disabled person stand to be affected, despite the claims to be protecting disabled people.

I wish to examine the two main arguments used by the Government to justify this nasty Bill. The Secretary of State told the other place that the arguments are,

“first and foremost about affordability”,—[Official Report, 21/1/13; col. 128.]

and that deficit reduction is at the heart of the measure. Oddly, he countered the charge that social security spending had risen faster than anticipated under his watch by rightly pointing out that,

“a huge part of that is spending on pensions”.—[Official Report, 8/1/13; col. 188.]

Yet pensions are not included in his Bill, which is supposedly “all about affordability”, as my noble friend Lady Hollis has underlined.

Ministers enjoy using the affordability argument to ask the Opposition what they would cut instead, as have the noble Lords, Lord German and Lord Bates today. I cannot talk for the Front Bench but similar sums could have been saved in a much less regressive way by forgoing tax cuts that benefit the better off the most. I am talking about not just the regressive cut in the additional rate of tax but also the increase in personal tax allowances, which are of no help to the one-fifth of workers too poor to pay tax, two-thirds of whom are women; of only limited help to those in receipt of certain means-tested support, which tapers away with higher post-tax income, and this will be even more the case under the universal credit; and of most advantage to higher-rate taxpayers. As a Gingerbread report put it:

“It would be hard to design a policy that was less well targeted on low income families”,

than raising personal tax allowances—the more so, given that the better-targeted child benefit has been frozen, as the right reverend Prelate the Bishop of Ripon and Leeds has pointed out.

In any case, if the policy is really about deficit reduction, cutting incomes at the bottom is counterproductive because, as the IMF has pointed out, this reduces demand. People on low incomes are more likely to spend their money, and in the local economy. According to the Office for Budget Responsibility, the multiplier effect of changing benefit levels, for good or ill, is twice that of personal tax allowances. So what is the sense of taking money out of poor people’s pockets in order to put some back into better-off people’s pockets in a way that is less likely to keep the economic wheels turning? Again, a number of noble Lords have made that point.

The second argument concerns fairness. There are two aspects to this. The first is that over the past five years out-of-work benefits have gone up by about double average earnings. In the debate in the other place, a Conservative Back-Bencher said that it,

“cannot be right ... for benefits to rise, year after year, faster than the wages of the low-paid”,—[Official Report, Commons, 21/1/13; col. 101.]

but the past five years have been an aberration. With the exception of a much needed boost to the real value of support for children achieved under the previous Government, benefits have year after year gone up by less than wages because they have been linked only to prices. The consequence is that, according to Professor Jonathan Bradshaw, the value of the basic safety net benefit received by a single person is now only 11% of average earnings compared with 18% in 1948 and 20% in the late 1960s. Moreover, the replacement rate of unemployment benefits is low comparatively, meeting only 53% of former net earnings for a couple with two children on average earnings compared with an OECD average of 76%.

A Joseph Rowntree Foundation study of existing uprating policies concluded that they,

“imply substantial long-term reductions in personal disposable income relative to earnings”.

Indeed, the Minister, Steve Webb, told the other place that,

“we think that average earnings in a couple of years’ time will be more than CPI, as is the case in many normal years”.—[Official Report, Commons, 21/1/13; col. 114.]

So even the Government do not believe that benefits were going to run away ahead of earnings, if they continued to be uprated in line with the CPI.

As has already been pointed out, the differential impact of inflation on different income groups due to big increases in food and utility prices means that people on benefits typically will have been hit harder by rising prices than the people on average earnings with whom Ministers like to compare them. They are also being hurt by cuts in housing benefit and are about to face cutbacks in council tax support. We can already see the consequences in the growing hardship documented by charities and the inexorable rise of the new alternative safety net of food banks.

I wish to refer briefly here to the findings of the independent parliamentary inquiry mentioned by the right reverend Prelate the Bishop of Ripon and Leeds. The inquiry,

“was shocked to hear of instances where children were left destitute and homeless, entirely without institutional support and forced to rely on food parcels or charitable donations”.

The asylum support system, which has failed these children, has not been increased at all this year, not even by the miserable 1% in this Bill.

Percentage increases, or what the noble Lord, Lord German, called a small amount, have to be understood in the context of the value of the benefits themselves. Analysis by my colleague Donald Hirsch at Loughborough University shows how working-age benefit levels are well below the minimum income standards that members of the public believe are necessary to live a decent life. It is sobering to reflect that if I were a single, unemployed person the £71 I would get a week in jobseeker’s allowance is less than a quarter of the allowance I can claim a day for attending your Lordships’ House.

The other fairness argument that has been put was articulated by the Chancellor in his Autumn Statement when he maintained that,

“fairness is also about being fair to the person who leaves home every morning to go out to work and sees that their neighbour is still asleep, living a life on benefits”.—[Official Report, Commons, 5/12/12; col. 669.]

As has already been said, this has encouraged the framing of the debate in the loathsome terms of strivers versus skivers in which striving is misleadingly treated as synonymous with paid work and skiving with out-of-work benefit receipt. With reference to this the Joint Committee on Human Rights, of which I am a member, has reminded the Secretary of State,

“of the importance of fostering respect for the dignity of the vulnerable, including benefits claimants”.

I am very glad that so many noble Lords have made the point about the importance of the language that we use.

I hope in this context that noble Lords will also have regard to a new Joseph Rowntree Foundation study, which debunked the conventional wisdom of an intergenerational culture of worklessness despite a search in the kind of areas most likely to produce it. The researchers found that typically young people,

“aspired to a life that included work”,

The study said:

“Without exception, parents also hoped for better for their children and, where possible, made practical efforts to help them towards employment”.

The noble Lord, Lord Bates and Lord Sheikh, are not in their places, but they might like to read that study because they seem to believe that a dependency culture exists widely in this country. Study after study demonstrates the work commitment of people in receipt of benefits, and I am sure noble Lords would not want to follow the example of the Conservative Back-Bencher in the other place who insisted during the Second Reading debate that,

“there is evidence of a culture of worklessness, whatever the Joseph Rowntree Foundation says”.—[Official Report, Commons, 8/1/13; col. 238.]

And what was the evidence? It was a caller to LBC radio.

A number of pieces of JRF research have also illuminated how the demonising division of the world into strivers and skivers belies the constant movement in and out of work at the bottom of today’s insecure labour market. The assumption that people out of work are skivers ignores the ways in which they strive to get on and to help their children to get on, strive to care for their families and often to improve their local communities, too. I suggest that it is an unfair slight on the good name of many of our fellow citizens to write them off as “shirkers”, “welfare dependents” and undeserving of decent benefits.

It is also unfair to suggest, as did the Secretary of State recently, that many of those in receipt of tax credits are somehow getting what they are not entitled to. This smacked of an attempt to deflect the evidence that around half of those affected by the Bill are in working households. This discrediting of tax credits ignores the ways in which, as has already been noted, they have supported low-income working families whose earnings have been squeezed during the recession, and have probably contributed to the lower than expected level of unemployment. To then compare the increase in benefit levels with these same squeezed wages as justification for this Bill, which also cuts tax credits, is to add insult to injury.

I suggest that the Government’s arguments do not withstand scrutiny. Instead, this is an unnecessary, political bill designed to divide one group of low-income people from another and to court public opinion. The one silver lining is that opinion polls suggest that the public are less enthusiastic than the Chancellor of the Exchequer had perhaps anticipated. By fixing benefit upratings at an arbitrary 1%, regardless of what happens to inflation over the next three years, rather than assessing the situation in the normal way, year by year, the Government are, in the words of the Institute for Fiscal Studies, exposing,

“the poorest in society to inflation risk”,

a point made powerfully by the noble Lord, Lord Kirkwood.

As even the right honourable John Redwood warned in the other place:

“If inflation suddenly took off”—

I am not sure about “suddenly”, because I have been reading reports about the new Governor of the Bank of England talking about economic policy which may well increase inflation—

“this would become a much tougher and crueller policy”.—[Official Report, Commons, 21/1/13; col. 66.]

It is already a tough and cruel policy. It does not deserve your Lordships’ support.

--- Later in debate ---

[Baroness Lister of Burtersett]

My Lords, the noble Lord made the point about raising people out of tax, but in my speech I said that that is the least good way of targeting help on low-income families. It is a much worse way than, say, improving child benefit. Can he explain why the Government think that it is better to put money into personal tax allowances rather than protecting the incomes of people who are too poor to pay tax?

Working Tax Credits

Baroness Lister of Burtersett Excerpts

Monday 14th May 2012 Lords Chamber

[Lord Sassoon]

My Lords, what underlines this change and the need for it, as well as the unsustainability of the huge cost of working tax credits, is some of the unfairness and behavioural incentives in the system. This Government firmly believe that working people on low earnings should gain through money that they earn rather than from government subsidies. The switch from reducing reliance on benefits to increasing personal allowances is part of a significant change to getting more families to gain more from working than has been the case to date and for incentivising second earners into work. There was also a basic unfairness in the system as it was in that a single parent had to work 16 hours but a couple had to work only 16 hours between them. Therefore, underlying what the Government have announced are a fairness and an incentivisation and behavioural change that are very important.

[Baroness Lister of Burtersett]

My Lords, what advice would the Minister give to the woman interviewed on the “Today” programme last month? She is in a part-time job that she loves. Her husband is an unemployed builder who cannot find work. She is at her wits’ end because her employer will not give her extra hours and no alternative work is available to her. What is she and thousands of others in a similar situation supposed to do when they are struggling to manage without working tax credit and the only alternative realistic option is to give up work, which is the very opposite of what the Minister says that this Government believe in?

[Lord Sassoon]

My Lords, I did not hear that particular case and it is very difficult to comment on individual cases, particularly when one has not heard the details. I appreciate that many of the changes we are making across the tax and spending playing field are painful for very many people in this country. I do not minimise the effect on the 200,000 or so, including couples with children, who we are asking to find another eight hours on top of what they may do otherwise.

We should not play down the prospects for finding employment in this country. Nearly 1.1 million people found a job in the fourth quarter of 2011. Some 600,000 of those had been unemployed and had got into employment, and 459,000 were previously inactive. At the moment, the number of job vacancies is rising. At the last count, it was 464,000. I do not underestimate at all the effect on individual cases but there are jobs out there and more than 1 million people in one quarter found employment.

Guardian’s Allowance Up-rating Order 2012

Baroness Lister of Burtersett Excerpts

Monday 27th February 2012 Grand Committee

[Baroness Lister of Burtersett]

My Lords, I have a few brief points to make about the Tax Credits Up-Rating Regulations 2012. The Minister mentioned the change for couples, the 16 to 24-hour rule. Can he tell the Committee how many people are going to lose tax credits as a result of this and how this improves incentives for that group to take mini-jobs?

The Minister also mentioned working tax credit and childcare costs and went on to talk about how the measures are improving incentives to work, especially for women. I am sure that he is aware of the report published today by the Daycare Trust about childcare and how the cuts in the level of childcare costs to be met by tax credits are contributing to the crisis in childcare. Growing numbers are unable to afford childcare because no affordable and accessible childcare is available. This certainly does not improve incentives for women to take paid work. On the contrary, some women are having to leave paid work because they cannot afford the childcare, particularly when this is combined with the changes that will come in with universal credit where the withdrawal rate will be worse for second earners, the great majority of whom are women. It is difficult to see how these will be a great improvement in incentives for women.

I want to raise one other point. When the Minister repeated the Autumn Statement in your Lordships’ House, I asked him about the decision to renege on the pledge to increase child tax credit in real terms and what impact that would have on children living in poverty. I was referred to the Treasury website. I realised why, of course, when I discovered that the impact would be to increase the number of children living in poverty by 100,000. Perhaps that was not something the Minister particularly wanted to tell the House. I then had another go with the noble Lord, Lord Freud, in Oral Questions when I asked him why the Government had dismissed the projected 100,000 increase in child poverty due to the change in tax credits—reneging on the tax credits increase—as a statistical quirk that arose from the relative nature of that poverty, even though in opposition the Prime Minister had made the loud and clear promise that,

“the Conservative Party recognises, will measure and will act on relative poverty”.

The answer that I received from the noble Lord, Lord Freud, seemed to be a response to a different question. I hope that perhaps the noble Lord, Lord Sassoon, may now be able to give me the answer to that question, given its relevance to the tax credits uprating order.

--- Later in debate ---

[Lord Sassoon]

What I will concede is that we look at the effects of tax, tax credits and benefits together. Therefore, whatever makes up the bundle—some of it inherited, some not—comes in to that mix. Regardless of where individual measures came from, it is important to look at them in the round, which is what we have done and will continue to do.

In relation to the questions of the noble Baroness, Lady Lister, I concede that I will probably fall into the trap of answering in a way that does not quite get to the nub of one or two of them, but I will come back to them. In headline terms, regarding the impact of the Autumn Statement on the number of children in relative income poverty, analysis shows an estimated increase of around 100,000 in 2012-13 on the measure used previously. However, this does not represent a forecast of the actual change in child poverty year on year because the measurement does not take into account, among other things, the value of public services that benefit children such as education and healthcare. These are very important in improving life chances, particularly among poorer households. Again, we have to be very careful here about whether we are using measures that properly capture the full effect of government policies.

In relation specifically to childcare, as I am sure the noble Baroness knows, the Government are investing a further £380 million a year by 2014-15 to extend the offer of 15 hours’ free education and care a week to disadvantaged two year-olds, and to cover an extra 130,000 children. Under the universal credit we are investing an extra £300 million so that 80,000 more families will get help with their childcare costs. However, I have not had a chance to see what has been published today. As I say, I will write on those points.

As I said in my opening remarks, the employment situation in this country is not easy. However, we had to take urgent action to tackle the deficit that we inherited, particularly the unsustainable welfare bill. I have mentioned the extraordinary increase in expenditure on tax credits in seven years from £18 billion to £30 billion a year. It is spending that is poorly targeted and totally unsustainable. The reforms to tax credits in these regulations and orders that we have been discussing are a fair and proportionate way to deal with this very difficult inheritance, as I have explained.

Essentially we have ensured that those most able to contribute to the deficit do so while those with the lowest incomes continue to be supported. It is because of that commitment that the highest decile of earners will make the greatest contribution towards reducing the deficit both in cash terms and as a percentage of their income, as I think the noble Lord, Lord Eatwell, recognises. In that context, the orders and regulations before the Committee are an important step towards realising our ambition to restore the UK to economic stability, but in a way that drives prosperity and means that we tackle the deficit in a fair and responsible manner. I commend the orders and regulations to the Committee.

[Baroness Lister of Burtersett]

Will the noble Lord write to me on the question I asked about the impact on couples of the change from 16 to 24 hours?

[Lord Sassoon]

I will write. I do not know what information I will be able to give but I assure the noble Baroness that I will cover the point.

Autumn Budget Forecast

Baroness Lister of Burtersett Excerpts

Tuesday 29th November 2011 Lords Chamber

[Lord Sassoon]

My Lords, there is no one more grateful than me for not having to read out 45 minutes of Statement, however excellent it is, so I am glad of the change in the rules of the House.

The situation with the pension funds is that two groups of funds approached us to ask if we as the Government could facilitate their creation of a collective vehicle through which they might invest. We have signed a memorandum of understanding with the groups of pension funds, and we will work quickly to help them set up a vehicle that will then be in place for them. We will be reporting on progress certainly by the Budget next year. Of course, there is nothing to stop those pension funds from investing now, and indeed some of them do so through private sector vehicles.

Further, the UK pension funds are not the only bodies putting up their hands and recognising the attraction of this asset class. Noble Lords may have seen only yesterday an interesting article by the chairman of the Chinese sovereign wealth fund, the CIC, in the Financial Times, saying that it was looking to invest in this sector. The appetite for investment in UK infrastructure is very strong. The UK pension fund vehicle will be additive, and we welcome that.

The housing strategy was published on 21 November. The Government have a clear plan for supporting the housing market in order to achieve a more stable and sustainable position. Without going in detail through every element of what that strategy consists of, we are introducing the new build indemnity scheme to support builders and lenders in increasing the supply of new homes by increasing the supply of affordable mortgage finance. We are launching the new £400 million “Get Britain Building” investment fund. We are bringing more empty homes and buildings back into use. We are invigorating the right to buy, and for the first time within that, the receipts from additional right-to-buy sales will be used to support the funding of new affordable homes for rent on a one-for-one basis. We are supporting locally planned large-scale developments and we are consulting on various planning obligations. What was set out on 21 November is a substantial and important package for housing.

[Baroness Lister of Burtersett]

My Lords, can the Minister explain to the House the justification for reneging on the pledge to increase in real terms child tax credit, given that that increase was supposed to stop child poverty rising? Can he tell the House what the impact of that will be on the number of children living in poverty?

[Lord Sassoon]

My Lords, the original £110 rise over inflation was announced at a time when the expectation as regards inflation was significantly lower than has turned out to be the case. The inflation increase that will be made is much higher than intended. Inflation in all the independent forecasts is expected to come down significantly next year, so by April 2012 when the uprating comes in, the inflation expectations are going to be different. That is the basis for the change now. On the distributional effects, those have been set out in considerable detail in a document that was put up on the Treasury’s website this afternoon.

Living Standards

Baroness Lister of Burtersett Excerpts

Monday 5th September 2011 Lords Chamber

[Lord Rooker]

To ask Her Majesty's Government what is their response to the Resolution Foundation's Commission on Living Standards' report Missing Out, published on 27 July 2011.

[Baroness Lister of Burtersett]

My Lords, in the absence of my noble friend Lord Rooker, and at his request, I beg leave to ask the Question standing in his name on the Order Paper.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Resolution Foundation report finds that the share of national income going to the bottom half of workers in the form of wages has shrunk over the past 30 years. While this has been a long-term trend in most advanced economies, the Government are committed to the UK having a better educated and more flexible workforce within a more balanced economy and to ensuring fairness, with all individuals rewarded for entering and progressing in work.

[Baroness Lister of Burtersett]

My Lords, I thank the Minister for that Answer and for drawing attention to that key finding. However, the other key finding of the report is that the main reason for the falling proportion of national income going to those on low and middling wages is rising wage inequality, particularly at the top. Will the Minister please advise your Lordships' House what the Government plan to do to reduce wage inequality both before and after tax, particularly at the top end of the wage distribution?

[Lord Sassoon]

My Lords, I declare an interest as a former member of the advisory board of the Resolution Foundation, whose work I very much admire. The report talks about wages before the effects of tax and benefits. Indeed, the noble Baroness is right that about two-thirds of the effect which it identifies results from growing wage inequality. However, it is interesting that the report’s tables point out that, at one extreme, the wage inequality results in those within financial services on the 90th percentile of earnings earning 6.2 times the amount earned by somebody on the 10th percentile, whereas in manufacturing the differential is only 3.3 times and has hardly changed over the past decade. Therefore, we need to see a much better balanced economy; balanced growth is what we want to see. In the previous decade, manufacturing’s contribution to the economy halved and that of financial services increased very significantly. The starting point has to be a more balanced growth in the economy.