Welfare Benefits Up-rating Bill

Baroness Meacher Excerpts

Monday 25th February 2013 Lords Chamber

[Baroness Hayter of Kentish Town]

My Lords, I beg to move Amendment 1 in the name of my noble friend Lord McKenzie of Luton.

[Baroness Meacher]

My Lords, I support Amendment 1, which seeks to ensure that the Government have flexibility to increase benefits in 2014-15 and 2015-16 taking account of the level of inflation at the time. The amendment does not seek to impose a particular percentage increase in benefits in any year. It simply seeks to avoid the straitjacket imposed by the Bill as it stands.

Amendment 1 covers all the benefits and claimant groups referred to in Schedule 1. It would therefore leave open the possibility of a Government deciding to protect a particular group, perhaps disabled people or children. This amendment has become particularly pertinent in the light of the downgrading of the British economy by the ratings agency Moody’s at the end of last week, along with the anticipation of yet more quantitative easing and the expectation that in these circumstances we will have more inflation year by year. That inflation comes on top of a level of inflation which is already above 1%, which is vital to this set of amendments and, indeed, to the Bill.

This Bill has to be considered in context. As noble Lords know very well, last year’s Welfare Reform Act has already capped benefits and imposed the bedroom tax so that an increasing percentage of everyone’s rent will be paid out of their personal allowance, leaving them with the most pathetically small amount of money to cover food, heating, clothing and other necessities. Also, the Government have already changed the basis of annual welfare benefit increases from the RPI to the CPI. This is absolutely crucial because that measure alone, before this Bill, is expected to save £5.8 billion a year. Such savings can be achieved only through imposing the most incredible hardship on many of the most vulnerable people in this country. The proposed limiting of upratings to an increase of 1% will be an increase in the consumer prices index, not the retail prices index, so it is not even going to cover an inflation rate of 1%. That is how bad it is. It is the compounding of the previous Welfare Reform Act with this Bill that is so deeply shocking to many of us.

The cumulative impact of all these changes and the proposed 1% uprating limit is not yet fully understood even by the experts in the field, let alone by its victims. But it is not surprising that there is deep concern in those organisations which have to work with vulnerable people, including the CAB service. It is worried stiff about its clients and the capacity of the bureaux to cope with what is going to be an unimaginable flood of people in desperate circumstances. The Government are breaking the long-standing link between annual incremental increases in benefits and prices. Once lost, it will be very difficult to restore it. Indeed, it is difficult to imagine that happening for decades. That is how serious this is. It is not just one little part of a Bill; it is actually historic because it changes the whole way we look at increases in welfare benefits.

Has the Minister undertaken an impact assessment on this Bill, including an estimate of the likely cost of increased mental breakdowns and the resulting impact on mental health services? Has the Minister assessed the costs arising from the result of increased crime rates and the impact on the criminal justice system, and from the impact of increased homelessness on local authorities? Also, I refer to the overall impact on communities of what I fear we will see in terms of increased unrest. It is very difficult to believe that we will not experience unrest in communities that are profoundly hit by the combination of all these changes—not just arising from this Bill, but from a combination of everything that is being done. I would be grateful if the Minister would reply to this question: has the impact of this Bill, combined with the previous Bill, been fully assessed in terms of services and costs? If these implications have not yet been estimated, does the Minister agree that that must be done before implementation of this Bill?

I want to challenge the Government’s rationale for this uprating Bill—that welfare benefit increases must take account of the public sector pay freeze and the low level of pay increases across the economy in recent years. Citizens Advice is right to argue that a 1% increase means something very different to somebody on an average wage from what it means to somebody on welfare benefits. A 20% increase in out-of-work benefits in the period 2007-12 resulted in an average annual increase in income of only £2.37 per week. A lower percentage increase, of 15%, in public sector pay during the same period provided an average increase in income for public sector workers more than five times greater. It was a lower percentage but a much greater increase in actual terms.

--- Later in debate ---

[Lord Forsyth of Drumlean]

My Lords, perhaps I may pick up on some points made by the noble Lord, Lord McKenzie. I have the highest respect for the noble Lord, Lord Low, and nothing would give me greater pleasure than to vote for the amendment. There is a problem, however, in that we cannot afford to vote for the amendment. The noble Baroness who has just spoken talked about cuts. We are not talking about cuts but about not having increases. It is true that there might be cuts because of inflation, but if we go down the road proposed by the noble Lord, Lord McKenzie, inflation will be even higher and the cuts will be more severe. It was Lord Callaghan who pointed out, as a Labour Prime Minister in the 1970s—sometimes I feel that we have gone back to the 1970s; even the Daleks made an appearance in Westminster last week—that inflation is the father and mother of unemployment.

It is really quite extraordinary for the noble Lord, Lord McKenzie, to make so much of the rating agency’s downrating of the UK from AAA status. I do not know whether he has read what the rating agency had to say about why that downrating was being made. It was because the agency believed that the Government would not be able to meet the targets that they had set, and which the Opposition are constantly urging us to abandon. The noble Lord talked about the impact of the sliding pound and of inflation, which is a consequence of not meeting these targets. On the idea that finding money out of thin air will not hurt the poorest hardest in the long term, because of the inflation that would be created and the impact it would have on the pound, the hard reality is that we simply cannot afford to do what the noble Lord, Lord Low, would ask of us.

It is the cheapest of cheap politics to keep going on about millionaires being given a subsidy. First, that assumes that the state is entitled to their money and that it can spend that money better than they can; and, secondly, that if they spend it by investing or buying goods it will not generate wealth and prosperity in the economy, while somehow a state bureaucracy involved in spending money and taking it by force through an Administration will get better value and growth. That is a delusion which we happily abandoned in the 1970s when we abandoned rates of income tax at 98% and discovered that the consequence of cutting taxes to 40% was that the rich ended up paying a higher proportion of tax than in the past. Already we are seeing that the proportion of tax paid by the very rich is falling and the proportion paid by the poorest is rising. That is not as a consequence of the recent measures made by my right honourable friend the Chancellor in his Budget but as a consequence of the politically inspired 50% tax, which the previous Government introduced as some kind of political gesture to try to create division between the parties.

We can all make speeches saying that we would like to have more money available for those who are poorest but if we were to follow the prescriptions of the noble Lord, Lord McKenzie, and his party—in so far as we can work out what their prescriptions are—the effect would be higher inflation, higher interest rates and higher unemployment, with those who are poorest in our country being the most disadvantaged. It would not be the rich or the people in the public sector but those who are unemployed, while the prospects for new jobs would be reduced.

I say to my noble friend that she is right to press ahead and, I hope, to reject this amendment. It is not because we do not care about those who are most vulnerable in our society but precisely because we do that we want an economic policy that will deliver the wealth that is necessary to pay the bills. The truth is that we are in this mess because the previous Labour Government spent money on welfare that was based on an unsustainable bubble. That is why we now have the problem. It is very regrettable that noble Lords opposite should seek to make party politics out of this issue while not acknowledging the very heavy burden of responsibility they carry for having brought this situation about and the real courage being shown by my right honourable friend the Secretary of State in bringing forward this Bill. It is trying to bring into effect a welfare system that will be within our means and will recognise the need to encourage those who have the greatest need.

[Baroness Meacher]

It is very fashionable to blame the previous Government for our predicament but does the noble Lord accept that the banks have to carry perhaps 90% of the burden of responsibility, and that the banking crisis started in the United States—not even in this country? In fact, if there was a weakness, it was in the degree of regulation. My understanding is that the previous Conservative Administration opposed even the level of regulation that this country had. This is therefore not a party political issue; it is about banking, and this country has been deeply wounded by the banking crisis.

The other question for the noble Lord is whether he accepts, as Lord Maynard Keynes argued rather powerfully, that if you are in a terrible state of recession the best way to get yourself out of it is to generate growth. That means that you should not be withdrawing demand from the economy in this incredibly irresponsible way. What the Government are doing is very worrying.

[Lord Forsyth of Drumlean]

I am most grateful to the noble Baroness. I disagree with the idea that leaving money, as Gladstone would have put it, to fructify in the pockets of the people is withdrawing money from the economy, and that somehow the state would spend that money more effectively.

As to her particular question about whether I accept that all this difficulty was caused by the banking crisis, no, I do not. I think that the banking crisis was caused by the monetary policy being pursued by the previous Government by targeting inflation. The noble Baroness seems surprised by this, but the fundamental causes of the financial crisis were the huge financial surpluses that were being built up—I hesitate to stray too far from the amendment—in China and the Middle East, which kept interest rates low, and an inflation-targeting policy being pursued by the Bank of England that meant that they were very low interest rates. As a result, the banks tried to go for yield. The banks were certainly at fault in devising packages that they thought would reduce risk and give a higher return, and it is certainly true that regulators such as the FSA should have been on to this.

However, the fundamental point is that while Labour were in charge they did nothing about that; indeed, they revelled in it. We were told that they had abolished boom and bust, and that they had come up with a new paradigm. That is why that Labour Government, even at the height of the boom, with huge revenues coming in and house prices and asset prices going through the roof, did nothing except collect the tax. Instead of putting the tax away for a rainy day, what did they do? They spent it on welfare that they could not afford, and when the boom collapsed there was a sudden gap in the market that my right honourable friend is now having to deal with. So let us not rewrite history here; let the Labour Party take responsibility for what it did in government.

The fact is that under both Governments we have been living beyond our means. We have been spending about 10% more than we earn, and we have been saving nothing. We need to save 10%. The consequence of that is that our living standards will fall unless we are able to create growth, and you do not create growth with the state taking more and more from the productive part of the private sector. According to the OECD, close to 50% of our GDP is being spent by the Government. We used to define communist countries as those where more than 50% of the state’s production was spent by the Government.

I say to my noble friend on the Front Bench that this is not an easy amendment to oppose—of course it is not—but she is absolutely right to do so because it is in the long-term interests of the most vulnerable people in our country that we stick to this policy and do not go further down the road that has brought us to this mess. If we travel down that road, it will mean that the hardship endured by the most vulnerable will be all the greater.

--- Later in debate ---

[Lord Newby]

My Lords, at the risk of repeating arguments made in earlier debates, I remind the Committee of the context of the Bill. This country is still recovering from the most damaging financial crisis for generations. When this Government came to power, the state was borrowing £1 in every £4 that it spent. Even before the recession, the UK had the highest structural deficit in the G7 and between 1997 and 2010 welfare spending increased by some 60% in real terms. Welfare spending now accounts for more than a quarter of government spending: that is, more than £200 billion. The £1.9 billion of savings enabled by this Bill in 2015-16 is a necessary part of helping to reduce public spending, tackle the deficit and secure the economic recovery.

Amendments 1 and 9, spoken to by the noble Lord, Lord McKenzie, would remove the 1% uprating figure in the Bill in Clause 1 and Clause 2. The effect of these amendments would be to give the Government discretion over benefit levels on an annual basis in much the same way as under existing legislation. As I have already explained, we believe it is vital that we set out credible plans for the longer term. The Bill is needed to enable us to set out our uprating policy over several years so that we can be sure we will deliver those £1.9 billion worth of savings.

My speaking notes at this point said that this amendment would completely undermine that core purpose of the Bill. I was relieved, but not surprised, that the noble Lord, Lord McKenzie, used that very word to define the effect of these amendments. He said that the amendments would undermine and, indeed, negate the core purpose of the Bill. They would, and so a vote for these amendments would be equivalent to a vote against the Bill at Second Reading. I note that the amendments, while removing the 1% figure, do not suggest an alternative uprating metric. If we assume that the noble Lord’s intention is that we operate in line with the CPI, this would obviously not deliver the savings we are talking about. I remind the Committee that the £1.9 billion worth of savings that this Bill will generate in 2015-16 are equivalent to the salaries of about 45,000 nurses and about 40,000 teachers, so these are not negligible amounts, as some noble Lords have suggested, and the savings would have to be found somewhere else.

As I say, the amendments undermine the purpose of the Bill and, frankly, demonstrate a fundamental difference of opinion between the two sides of the House on how we deal with the current economic situation. The Government believe that the main priority is to get spending under control, reduce the deficit and restore growth. The Bill helps us to achieve that. At the same time, we are implementing policies that make a real difference to people’s lives—people of the most modest means. Let me name just a few of them: universal credit; the pupil premium; reform of early years education; tackling problem debt; and lifting people out of paying income tax through raising the personal allowance. We believe that these policies are vital if we are to have a real and sustainable impact on poverty over the medium to longer term. We cannot simply focus on increasing incomes through welfare payments, lifting people just above the poverty line.

The noble Baroness, Lady Meacher, asked me a number of questions about the impact assessment. I remind the Committee that we published a detailed impact assessment for the Bill, which includes details of the impact by family type, and have made public details of the impacts on relative child poverty. She asked whether we could delay the changes until we had a broader impact assessment that covered the impact on mental health, crime and, I think she said, social unrest. As regards the impact on crime, it seems to me that the noble Baroness is being completely unrealistic to believe that such an impact can be measured with any degree of precision. At the start of the downturn, most commentators believed that crime rates would rise substantially. If one had taken the average view of people in the know, that is what one would have put in an impact assessment. The truth is that crime rates have not risen substantially. They have fallen. I obviously welcome that. I make that point only to make the more general point that, while one can make an impact assessment that covers some things with a reasonable degree of precision, on other things—on crime, for example—it is impossible to do what the noble Baroness wants. That is why the impact assessment is couched in the terms that it is.

The noble Baroness asked about exceptions or exemptions from direct payment. We are not setting out the exemptions in the regulations because they will be based on individual needs and assessments. Individuals will work with an adviser via Jobcentre Plus. There will be personal budgeting support, which will contain two elements: money advice, to help people who cannot manage monthly payments, and alternative payment arrangements, which include rent paid direct to landlords, more frequent payments and payments split between partners. These will be undertaken on an individual basis.

I do not really want to get involved in a long macroeconomic discussion. I would like to get involved in one, but perhaps I might simply refer the noble Baroness to the letter from the noble Lord, Lord Desai, in the Financial Times last week. It seemed to explain extremely carefully and clearly why this downturn is not like the typical Keynesian downturn that we have seen in the past. I would commend that letter to all noble Lords who are looking for a primer on why the Government are following the line that they are.

[Baroness Meacher]

I thank the Minister for attempting to respond to some of my questions. Perhaps I may return to the one on the impact assessment. The Minister referred to the crime issue and I accept that we have had a long-term decline in crime. However, I am not sure that that makes it impossible to look at the increase in the amount of crime among benefit recipients; that is something precise worth looking at. Moreover, I do not think that that negates the possibility of looking at the amount of mental breakdown among benefit recipients. Again, that is one of my main concerns, having been involved in mental health services for 25 years. I fear that there will be quite a dramatic increase in mental breakdown and an incredible impact on a very tight psychiatric service. In particular, in-patient beds have been cut over many, many years. It would be helpful if he could look at that.

[Lord Newby]

I think that the difficulty—and I may be wrong—in terms of mental health is that the noble Baroness is very worried about what might happen. She may be right and she may not be right, but it is difficult to model—in the way required in an impact assessment—that kind of change which has not happened. As far as I am aware—she will know much more than I do—you cannot go back and say, “This is what happened in the past”, which would give us the kind of experience that would enable us to say in an impact assessment, which is a very specific thing, that these outcomes are predicted with any degree of certainty.

I will talk to officials about this. I realise it is a potential problem. However, I still maintain that while there are some things that can be relatively clearly enumerated in an impact assessment, some other things are very difficult to the point that the value of attempting the exercise is relatively low.

[Baroness Meacher]

I am sorry for standing up again but I want to clarify the point; otherwise we will be left with a misunderstanding. I was saying in my speech that it would be helpful to have an impact assessment of what has happened in, say, two years’ time. I agree that we cannot look at these things prospectively, so I want to clarify that. I am suggesting postponing implementation until an impact assessment can be undertaken in real terms.

[Lord Howarth of Newport]

Will the Minister acknowledge that there is abundant evidence that incidences of crime and mental illness are significantly higher in more unequal societies? Given that the tendency of the policies in the Bill will be to exacerbate inequality, is not the noble Baroness, Lady Meacher, well justified in her anxiety, and should not the Government be taking great care to examine the potential impact of these policies?