Economic Inequality

Debate between Baroness Lister of Burtersett and Lord Newby

Monday 10th February 2014 Lords Chamber

[Lord Newby]

My Lords, the Government are encouraging employers to pay the living wage where they can. One of the key things about people in work on very low incomes is that a large proportion of them are working a small number of hours or a smaller number of hours than they would like. Economic growth will mean that more of those people are able to work longer hours, which will help deal with their household circumstances.

[Baroness Lister of Burtersett (Lab)]

My Lords, not everyone is able to take paid work. Will the Minister explain what impact the raft of social security cuts, which will make the poor poorer, will have on inequality?

[Lord Newby]

My Lords, the prior question to that is: why are these changes being made? The answer is that we inherited a completely unsustainable economic circumstance which this Government are putting right.

Taxation: Personal Thresholds

Debate between Baroness Lister of Burtersett and Lord Newby

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

Debate between Baroness Lister of Burtersett and Lord Newby

Tuesday 5th March 2013 Lords Chamber

[Lord Newby]

My Lords, this proposed new clause would require the Secretary of State to lay a report in each of the years in question, assessing the impact of that year’s uprating order on child poverty based on the different measures contained in the Child Poverty Act. I absolutely understand noble Lords’ concern to ensure that we are tracking progress and impacts on child poverty. However, I do not believe that this new clause is necessary to do that.

The Government already publish child poverty figures every year using the households below average income series, which is usually published in May or June and includes details on the areas listed in the amendment: namely, the number of children,

“living in relative low income … combined low income and material deprivation … absolute low income … persistent poverty”.

Moreover, later this year, we will see the first of what will become an annual report from the Social Mobility and Child Poverty Commission, chaired by Alan Milburn. It will report on the Government’s progress towards reducing child poverty, in particular meeting the targets in the Act and implementing the most recent UK strategy.

The noble Lord, Lord Kirkwood, asked a number of questions about that commission. He asked where it had got to and what it was going to say. The answer is that the Government do not know what it is going to say because it is an independent commission. We await its report eagerly, but we are not attempting to pull it up by the roots to find out what it is going say as it is in the process of undertaking its work. I can reassure my noble friend that there is no drift in the work of the commission. It is a very substantive piece of work and it is therefore not surprising that it cannot do it very quickly. We expect that its report will be available in the late summer. It will report to Parliament and I am sure that we will give considerable scrutiny to it in your Lordships’ House when the time comes—we are already looking forward to it on these Benches, I can tell you.

I strongly believe that it is only through such comprehensive reporting, looking at poverty issues in the round, that we can have a meaningful debate about child poverty. As noble Lords have mentioned, we published in response to a Parliamentary Question in another place the expected impacts on child poverty of the uprating measures that we have announced. An additional 200,000 children will be in that category by the end of the period covered by the Bill as a result of the measures in it.

The noble Baroness, Lady Sherlock, asked whether we would publish other impacts of the measure. We do not think that it is possible to derive estimates of all the measures in the Bill. For example, impacts cannot be modelled for the persistent low income poverty measure because impact assessments are based on cross-sectional data rather than longitudinal data. In addition, measures based on an estimate of material deprivation are technically complex to model because material deprivation relies on more factors than just income, so impacts have not been modelled for these measures. The noble Baroness asked also about the absolute poverty figure. If she will forgive me, I shall write to her on that separately.

As we have said previously, we believe that we need to be cautious about setting too much store by such individual assessments of impact. These are not predictions of how the child poverty figures will change in the future, as they do not take into account all the other variables which exist. For example, our estimates will change as forecasts of economic growth and average earnings change, and they do not take account of policies which cause child poverty figures to move in the other direction such as universal credit. Universal credit, which has not played much of a part in our debate today, is of course expected to lift up to 250,000 children out of poverty depending on the effect of the minimum income floor. I believe that we can have a meaningful debate about poverty, as we have started to do in the latter part of this debate, only when we accept that poverty goes wider than the measures contained within the Child Poverty Act.

The noble Baroness, Lady Lister, asked a number of questions about the work that we are doing on defining poverty and on the consultation. The consultation is finished. She is quite right that a number of people have been very critical of what the Government are proposing and we are now considering how we respond to those criticisms. It is not the case that the Government have made up their mind about the outcome and are going to ignore everything that has been said—that would be ridiculous. I can give the noble Baroness an assurance that we are analysing all the submissions, of which there have been a number, and we will produce our response to the consultation in the summer.

[Baroness Lister of Burtersett]

I am sure that the Minister is about to say this, but the assurance that I was seeking was that all the responses would be published on the web. I do not question the fact that the Government are analysing them all—I am sure that they would not ignore any of them—but the public need to know what people were saying about it.

[Lord Newby]

I am happy, I think, to give that assurance. I say “I think” only because I have not talked to officials. That is the standard practice and, unless somebody for a reason that I cannot immediately think of has said that they do not want their comments to be published, I would expect the department to publish all the comments and representations that we have received.

I want to clarify a few matters that have been put to us on several occasions by noble Lords. First, the Government are committed to the Child Poverty Act; secondly, we are committed to eradicating child poverty; and, thirdly, we strongly believe that income matters and will remain a central part of any new measures of child poverty. Our discussion is about what else one needs to do both to measure and deal with child poverty so that all children have a better opportunity when they are living on very modest means.

A number of noble Lords have cited figures from the IFS and the Child Poverty Action Group which suggested that child poverty levels would rise by between 800,000 and 1 million by 2020. I really would caution against setting too much store by those figures. First, child poverty forecasts are an inexact science. For example, the numbers that the IFS produces do not account for future changes to government policy. It is measuring change at a time of immense fiscal challenge for the Government but cannot know what government policy will look like in four or five years. The IFS core numbers also do not take fully into account the dynamic and behavioural changes that will result from the Government’s reforms. Moreover, even in the short term, child poverty forecasting has proven difficult to get right. The IFS, which I accept is a leader in this area, made predictions in October 2011 of a fall of 100,000 in the figure for relative child poverty for the year 2010-11. In reality, the figure fell by 300,000. It is therefore an inexact science and it is very easy for numbers produced by it to be spectacularly wrong. This does not of course detract from the importance of taking action to reduce the level of child poverty, but it serves as a reminder that we should proceed with caution in making forecasts of child poverty, whether based on measures in isolation or changes over the longer term.

It is important to remember that many figures on poverty are based entirely on tax and benefit changes feeding entirely into the relative income measure of poverty. This measure does not capture the full range of issues that poverty involves. It captures a lot, but it does not capture them all. It will not tell us how many children’s lives will have been changed by 2020 but only how many children have circulated around the poverty line. One way of tackling child poverty is to focus on this line, pushing up benefit incomes to lift people from just below it to just above it. We already know that focusing on the relative income line alone yields perverse results, and people have referred in this debate and earlier debates to the fact that, in 2010, 300,000 fewer children were set to be in poverty because the recession had caused median incomes to drop. Children were set to be pulled out of poverty not because anything had changed in their lives but because the rest of society got poorer.

The alternative path that we are trying to follow in government focuses on the interventions that transform lives. That is why we have protected spending on the education budget; that is why we have invested £2.5 billion in the pupil premium for disadvantaged pupils; that is why we are spending £1.2 billion on capital investment in schools; and that is why we are investing in making work pay through the universal credit, sending out a clear signal that we believe that work is the best route out of poverty for parents and their children. As part of the universal credit, we are spending an extra £200 million to support families with childcare costs and, for the first time, this support will be made available to families who work fewer than 16 hours a week. This will mean that 100,000 working families will be helped with their childcare costs.

As I have said, the Government are currently analysing responses to their consultation on new measures of child poverty, measures which will attempt to capture the wider reality of poverty in the UK today. The Government already produce a number of detailed reports on poverty. I hope that this will reassure the Committee that we will continue to publish vital information around child poverty and to take our obligations around child poverty seriously. This proposed new clause would therefore be an unnecessary addition to the Bill.

Welfare Benefits Up-rating Bill

Debate between Baroness Lister of Burtersett and Lord Newby

Monday 25th February 2013 Lords Chamber

[Lord Newby]

My Lords, the effect of Amendment 6 would be that if inflation as measured by the September CPI was to rise to 3% or above in 2014-15 or 2015-16, Clause 1 would not apply. Amendment 10 would do the same for Clause 2.

As I set out earlier today, a key purpose of the Bill is to deliver clear and credible plans for our public finances. It is only through having these plans that we can maintain confidence and keep interest rates at near-record low levels. We have clearly stated our intentions on uprating policy for the next three years, but the plans for 2014-15 and 2015-16 are made possible only by this Bill. Adding conditions to the Bill would remove that certainty and weaken the credibility of our plan to reduce public spending and tackle the deficit.

The Autumn Statement operating decisions were taken on the basis of the Office for Budget Responsibility’s CPI forecast. As the noble Lord, Lord Kirkwood, explained, the OBR does not forecast inflation to reach 3%. The CPI forecasts for the purpose of uprating in 2014-15 and 2015-16 are 2.6% and 2.2%. The Bank of England’s Monetary Policy Committee is committed to maintaining price stability, which is defined by the Government as an inflation target of 2% as measured by the 12-month increase in the consumer prices index. Inflation is forecast by the MPC and the OBR to be above the 2% target in the near term but is forecast to fall back towards the target in the medium term. The inflation target is not set by the Governor of the Bank of England. The inflation target is set under the terms of the Bank of England Act 1997 on an annual basis by the Chancellor, and that will continue to be the case whoever the Governor of the Bank of England is.

As I said at Second Reading, and as the noble Baroness, Lady Lister, helpfully reminded me, these are forecasts and targets. External factors and unforeseen events can produce a different outcome—on the upside or the downside. Nobody can say with absolute certainty what inflation is going to be two years from now.

[Baroness Lister of Burtersett]

Both the noble Lord, Lord Kirkwood, and I referred to economists and people who are suggesting that the inflation rate might be higher. Can the Minister quote the people who are saying it might be lower?

[Lord Newby]

My Lords, economists say all kinds of things. For every economist who says one thing, I guarantee that I can find you an economist who says the other thing. There will be a new inflation forecast from the OBR at the time of the Budget. It would be completely inappropriate for me to speculate on what that might say and I am certainly not going to do so today.

As I said at Second Reading—and I repeat—we will continue to monitor closely the rate of inflation and its impact on the cost of living for families and the wider economy, as we always do. Again, as I said at Second Reading, the Government have taken action in response to the changes in the cost of living, including cancelling the January fuel price rise, providing further funding for local authorities to freeze council tax and, of course, for virtually everybody in work, implementing the largest ever increase in the personal allowance in April 2013.

The Government believe that what really matters to families is the impact of our policies as a whole and this will continue to be a key consideration for our policies in the future. However, that does not mean that we believe that we should add conditions to the Bill, and I am certainly not going to agree to that this evening. People have seen very significant restraint in their pay across the private and public sectors without the comfort of a safeguard against increases in inflation. Noble Lords have said a lot about certainty today. The truth is that no one has certainty, whether they are in or out of work, about their future real income. As noble Lords know, many people in the public and private sectors have not been getting pay increases linked to inflation and have been falling behind in real terms. This is exemplified by the difficult decision we took to freeze public sector pay at a time when inflation was rising to 5.2%. It is also borne out by the fact that, according to the latest figures, over the past year average earnings have risen by only 1.3%—not very different from the increase that is being proposed in the Bill. This means that on the best available forecasts—those produced by the OBR in November last year—even with the effects of this Bill, by the end of the financial year 2015-16, out-of-work benefits will still have risen faster since the start of the financial crisis than if they had been linked to average earnings, which many noble Lords are concerned about.

It is vital that we set out clear and credible plans to reduce welfare spending, tackle the deficit and secure the economic recovery. Adding conditions to the vital savings delivered by this Bill would remove that certainty.