Welfare Benefits Up-rating Bill

Baroness Stowell of Beeston Excerpts

Monday 11th February 2013 Lords Chamber

Moved By

[Baroness Stowell of Beeston]

That the Bill be read a second time.

[Baroness Stowell of Beeston]

My Lords, the Bill before us is about securing a stronger economy for the future. Noble Lords are well aware of the challenge we currently face. We are dealing with a deficit which is unprecedented in peacetime. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day.

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[Noble Lords]

Hear, hear.

[Baroness Stowell of Beeston]

I am grateful to my noble friend. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day. We have begun to make progress on that deficit—it has since reduced by a quarter. But there are still difficult decisions to be taken if we want a stronger economy that delivers a better future for everyone. Let me be clear about that: everyone, all of us, whoever we are, deserves the chance to do the best for ourselves and our families.

Several commentators have said that we should look first to make savings from those with the broadest shoulders—the richest in society—and I am proud to say that we are. This Government’s plans increase the total tax contribution from the most well off. As a result of our actions, the richest pay more tax on capital gains, more stamp duty on their homes, more tax on their pensions and are less able to avoid or evade tax. The top 20% of households continue to make the greatest contribution towards reducing the deficit. The Autumn Statement raises more than £1 billion pounds a year from the richest and more than £8.5 billion over the forecast period. Overall, the richest will pay more in tax during this Parliament than under the previous Government’s tax plans.

However, as we seek to reduce the deficit and retain credibility with financial markets, we cannot ignore the welfare budget. From 1997 to 2010 spending on working age welfare increased by some 60% in real terms. Today, it accounts for £1 in every £8 that the Government spend. The Institute for Fiscal Studies has said:

“When cutting public spending dramatically to help reduce an unsustainable budget deficit it is almost inevitable that spending on benefits and tax credits—which account for 30% of the government’s total budget—will be targeted”.

But in seeking savings from welfare, we have always sought to strike a balance, and that is true of this Bill.

The Bill provides for most working-age benefits, tax credits and statutory payments to be subject to a 1% increase in 2014-15 and 2015-16. I will not go through the full list but it is set out in the Schedule to the Bill and the Explanatory Notes. As a result of this, the Bill will save £1.9 billion in 2015-16. We have also retained safeguards for a number of key benefits, which will not be subject to the provisions in the Bill.

For pensioners, we are maintaining our commitment to the triple lock, a commitment which will see the basic state pension rise by earnings, prices, or 2.5%, whichever is highest. In 2013-14, when both prices and earnings growth are below 2.5%, we will ensure that the poorest pensioners will see the same cash increase by over-indexing the guarantee element in pension credit, which would normally rise with earnings. In addition, for disabled people and carers, we have committed to uprating benefits covering additional needs to the costs that they incur because of their disabilities in line with inflation. The protection applies to disability living allowance, attendance allowance, carers allowance, the disability premiums in working age benefits, the disability elements in tax credits, the carer premium and the support component of the employment and support allowance. Those are not included in this Bill: they are protected. We have sought to find a balance between making necessary savings and protecting those who are least able to increase their spending power.

We have also sought to strike a balance between supporting those on benefits while containing the costs of the welfare system. Let us not forget that most people have faced significant pay restraint in recent years. Looking at average incomes over the past five years, including those in low-paid jobs, those in work saw their incomes rise half as quickly as those on out-of-work benefits, at a rate of 10% compared to 20%. Let us not forget that public sector workers have had their pay frozen and then increased by just 1%. Indeed, even with the 1% increase on these benefits, on current projections out-of-work benefits will still be at a higher level in 2015-16 than if they had been uprated by average earnings growth since the financial crisis began. While people want to know that the welfare system is there for them in hard times, when they need to draw on it, they also want to be confident that it reflects the budgeting decisions that people have to take in work and that it incentivises people to find and take work.

By setting out clear savings commitments in legislation, the Bill also seeks to give certainty, both to taxpayers and to the markets, that this Government are committed to securing fiscal credibility in the years ahead, and it is “the years ahead” that I am particularly concerned with. Investing in credibility and stability is an investment for the long term, and it is, of course, a means to an end. Yes, we have to rebalance the public finances, but not simply so that we can point to a nicely balanced budget in the ledger.

In my eyes, the real end is ensuring that the next generation can benefit from a stable and growing economy, one where they are able to secure a job, become productive members of society and get on in life. I do not believe we can achieve that end without taking these difficult decisions.

Noble Lords need not look far for reassurance that this Government’s approach is the right one. In Spain and Greece, one in every two young people in the labour force is unemployed. Italy and Portugal are not far behind. I do not pretend that unemployment is not a problem in this country, but the decisions that we have taken to restore the public finances and the credibility and stability we have secured with the financial markets have been key to securing the stability of our own labour market. Over the past year, the UK employment rate has grown faster than any other G7 country. Employment in the private sector is up by more than 1 million since the election, while the last quarter saw further improvement in youth unemployment, a fall in long-term unemployment and a fall in unemployment overall. For me, this underlines the critical importance of the Government’s fiscal plans. We are trying to repair a damaged economy so that we can secure something that makes a real difference to people’s lives—a sound economy backed by an expanding labour market for them and for future generations.

But a sound economy has to go hand in hand with a strong social settlement. We can get the economy going again, but we will have failed if we still have a welfare system which does not make work worth while. So at the same time as we are restoring the public finances, I would ask your Lordships to remember that we are working to restore the welfare system as well. This year will see the introduction of universal credit, an historic change that will create a welfare system that is simpler, more effective, and designed to ensure that work pays. We expect some 3.1 million households to gain from the move to universal credit, on average by £168 per month. This is a progressive reform. Around 75% of the households that gain are in the bottom 40% of the income distribution. Overall, we believe that universal credit could lead to the equivalent of up to 300,000 additional people in work through improved financial incentives alone.

It is important that we see this Bill in its broader context. It enables the Government to make savings that are crucial to reducing the deficit and to maintaining our credibility with the financial markets while protecting those on fixed incomes or with additional needs. But at its heart it is a Bill for the long term, one that plays a crucial role in repairing the public finances, and so one that is an investment in a sound and stable economy in the future, and a future that is better for everyone. It is on that basis that I commend this Bill to your Lordships’ House.