Impact of Government Policies on Family Budgets

Baroness Smith of Basildon Excerpts

Thursday 27th October 2011 Lords Chamber

[Baroness Smith of Basildon]

My Lords, we owe my noble friend Lord Knight of Weymouth a debt of gratitude, not just for bringing forward this debate today but for his passionate comments. I like to think that when I am winding up a debate I can say how much I have enjoyed the contributions. While these have been very valuable, I regret to say that “enjoyable” is not the word that I would use on this occasion, given the depressing and serious impact that government policies are having on families, whatever their shape and size.

I was particularly interested in the comments of the noble Lord, Lord Stoneham. He expressed concern over the political nature of the comments of my noble friend Lord Knight. While he paid great tribute to my noble friend’s political skills, we have to understand that economics and politics are inextricably linked, and that it is political judgment that has led to the economic decisions that the Government have made.

At the previous general election the economy was the key issue. There was little disagreement over the need to tackle the deficit. Where there was a real divide was on the issue of how that should be done. The Labour Party took the view that it could and should be reduced alongside economic growth, while the Conservative view was that cuts had to be harder, deeper and faster to have the kind of impact on the economy that the party wanted to see. In the event, no political party won an outright majority. In fact, more people voted against all three major political parties than voted for them. Eventually, a Conservative-led coalition Government was formed with the Liberal Democrats and those hard, fast and deep cuts that were promised by the Conservatives became a reality.

As we have already heard from my noble friend Lord Knight, at the 2009 Conservative Party conference the Chancellor in waiting, George Osborne, promised that everyone would play their part in a deficit-reduction plan. He said:

“Everyone must pay their share”.

The famous and now discredited, “We’re all in it together”, was repeated three times in his speech, and then again by David Cameron. It is an excellent soundbite; it was attractive, understood and believed by many to be a commitment. It appealed to that very British sense of fairness. Everyone in the country would suffer equally in the pain that was to follow, no section of society would hurt more than any other, and all would pay their fair share. However, in their impact the Government’s actions have achieved precisely the opposite, as we have heard today. The noble Lord shakes his head but I urge him to talk to people who are feeling the impact of this Government, and not just read the brief that he has received from civil servants.

That impact has achieved the opposite of what the Government said that it would. The evidence that some people have been hit harder than others is overwhelming. We have heard something of the pressures on families from my noble friends Lord Knight, Lady Pitkeathley and Lord Stevenson. We have heard real examples of real families. My noble friend Lord Knight read out what he called a long and painful list of cuts that are hitting the poorest hardest. My noble friend Lady Pitkeathley’s examples of particular families highlighted not just the suffering that they face but the invaluable role that the voluntary third sector plays and how hard charities are being hit as local authorities cut their funding. That issue was raised with David Cameron at Prime Minister’s Question Time. He said that local authorities should recognise the value of charities before they cut their money. I have to say to Mr Cameron that they do recognise the value, but when their funding is being cut and they are under pressure local authorities are often left with little choice.

The comments of my noble friend Lord Stevenson were particularly useful to this debate. His experienced observations from supporting those in debt via a charity add a significant contribution to the matters before us today. However, it is also very worrying that this will just get worse. I welcome my noble friend’s constructive comments about what would help and hope that the Government will take them on board.

My noble friend Lord Knight referred to the Institute for Fiscal Studies report that was published earlier this month, which forecast the biggest drop for middle-income families since the 1970s, pushing 600,000 more children into poverty, taking the figure up to more than 3 million within two years. That is alongside 2.5 million working-age parents and 4 million working-age adults who do not have children being forced into poverty. However, for those not in poverty but who are struggling to make ends meet—the squeezed middle, as we heard from my noble friend Lady Pitkeathley—the IFS predicts that average income will fall by 7 per cent after inflation. That is the biggest fall in living standards for 35 years.

This is not just about numbers. As the chief executive of Barnardo’s, Anne Marie Carrie, said:

“This isn’t just about statistics as every day thousands of families are being forced into making choices between heating or eating”.

Unfortunately, that is not an exaggeration. The most startling increases in energy bills are forcing people to go cold or face alarming bills, which they may not be able to pay. The increase in energy prices of around 18 per cent in the past year—more in some cases—is crippling for families.

The Government’s response, with Chris Huhne complaining that people can not be bothered to switch energy companies, is an insult and is also inaccurate. It proves how out of touch he and the Government really are on this issue. In a Which? investigation, a third of calls to energy companies failed to elicit the lowest tariff, as requested by the customer. If an energy company is unable to identify the lowest tariff, how can the Government possibly expect the customer to do so? Why do the Government not ensure that the energy companies reduce the number of tariffs and automatically offer the lowest to the customer? Am I right to be curious about why any company would want such a confusing and complex system of tariffs, which it does not apparently itself understand? Whose side are the Government on in this argument?

Given the dramatic increases in energy prices, the Government must take action to stop those who have the least paying the most. Individuals with pre-payment meters are not eligible for any discounts, so they end up paying more and often, in effect, disconnect themselves as they just cannot afford it. As prices rise to their highest ever, the over-60s will get £50 less winter fuel payment this year than last year, and the over-80s will get £100 less. Warm Front, the Labour Government’s scheme for over 10 years, of which we are extremely proud, has brought warmth to the homes of pensioners, those with disabilities and the vulnerable. It is now being wound up. Having helped more than 2 million people with their bills, insulation and energy efficiency, the budget has been drastically cut this year and next, and will be ended altogether by 2013. The Government’s answer is the Green Deal. I appreciate noble Lords’ concerns about energy efficiency, particularly in private sector homes, but in principle the Green Deal is a good scheme which can make a contribution to making homes more energy efficient and reducing bills, as energy efficiency measures can be installed and paid back over time through energy bills. However, given that it is not to be available initially to those in some of the coldest, most energy-inefficient homes in the private rented sector, there is a lost opportunity to support those most in need.

I turn to feed-in tariffs for renewable energy. The best reasons for feed-in tariffs are an increase in energy supply, thus making a contribution towards energy security, and to help those on lower incomes and local communities reduce their bills. But the Government have changed and cut the scheme so that the main beneficiaries will be private households that can afford the initial capital cost, knowing that they can recoup this in time. That is great for them but, despite today’s announcement, the restrictions placed on the scheme have greatly reduced the benefits when just some relatively minor tweaks could have achieved the Government’s objectives in reducing costs without losing so much capacity and limiting those who can benefit.

Although VAT on domestic energy bills remains at 5 per cent, the Government have increased VAT on energy bills for business customers from the Labour Government’s reduction. This really hurts businesses, especially when prices are so high, and the increase just gets passed on to the customer in consumer prices. So we have higher costs at a time when unemployment is rising. In the quarter from June to August 2011, the average weekly pay increased by 2.8 per cent, compared with last year. However, bonus payments are up 28 per cent. In that same three months, 178,000 fewer people were in employment than in the previous three months. ONS statistics show that the two constituencies in my home town of Basildon are suffering a 12 per cent and 10.9 per cent increase in those who are unemployed and claiming JSA. That is just one side of the equation and I want to come back to my opening remarks and those of my noble friend, Lord Knight.

The Government said, “We’re all in it together”, and that everyone would take their fair share of the pain. The Government promised to tackle bankers’ bonuses. It was reported earlier this year that the chief executive of Barclays said it was time for banks to stop feeling remorseful—as he wallowed in his £9 million payout. Labour’s plans for greater disclosure were rejected and, despite the Government’s levy on banks, the bonus culture continues unabated with an estimated £7 billion to be paid out this year. In 2009, before the General Election, George Osborne said that the Government should act in the light of the unacceptable bank bonuses and that we could not wait for the “promised land” of “responsible bonus culture”. Does that mean that the Government now think these bonuses are responsible and acceptable? We are told that the best the coalition Government can now hope for is a declaration that bonuses are less than they would have been, despite reports that salaries will increase by up to 40 per cent in some cases to compensate for the so-called cuts or deferral of bonuses. So no fairness there.

The Secretary of State for Communities and Local Government, Eric Pickles, said he would crack down on the pay of council chiefs. Yet it is reported that even in the council next door to his in my home town of Basildon, the chief executive is to work for just three days a week from 2013 on a salary of £100,000 a year, and the council still has not cleared up the mystery of whether he will receive his pension at the same time. This is what really hurts people—when unemployment is rising, energy prices are soaring, those travelling to work face an average 8 per cent increase in their fares, supermarket prices are increasing, and the Government fail to act. Yet others are completely immune from pain, or at least from the fairness that the Government said they were so keen on.

It does not have to be like this. My noble friend Lord Knight read out to your Lordships’ House the five-point plan proposed by the shadow Chancellor. The Government are cutting too far, too fast and too deep. They are cutting jobs and choking off economic growth. That is the choice the Government have made; but it is the wrong choice. It is not just bad politics—it is bad economics, because it is hurting people and the economy. This includes people such as Caroline O'Brien to whom my noble friend Lord Knight referred; Shirley the carer to whom my noble friend Lady Pitkeathley referred; and it includes my noble friend Lord Stevenson’s charity that is helping people with debt.

The Government need to start thinking about such people as individuals and take action that will support them and their families—and the economy. I urge the Minister to take on board the comments that have been made today.