Benefits: Two-Child Limit

Debate between Lord Bates and Baroness Sherlock

Monday 26th March 2018 Lords Chamber

[Lord Bates]

The Office for National Statistics says that the average family size in the UK is 85% with two or fewer children and 87% for lone parents. Those are the statistics that we are currently working to.

[Baroness Sherlock (Lab)]

The right reverend Prelate’s Question asked how the policy will improve family stability, mentioned in the Government’s impact assessment, which stated:

“Encouraging parents to reflect carefully on their readiness to support an additional child”,


could help family stability. The Government argued strongly when the Bill was going through that in the case of tax credits, it would not apply the two-child limit to children who had been born before last April, because parents did not know that the policy was coming in when they had those children. However, they are applying it precisely that way to universal credit. From next February, when universal credit opens out to big families, if you make a new claim and have children born before this policy was ever dreamed of, you will not get support for the third and subsequent children. Can the Minister explain how that is fair?

Jobseeker’s Allowance (Supervised Jobsearch Pilot Scheme) Regulations 2014

Debate between Lord Bates and Baroness Sherlock

Tuesday 1st July 2014 Grand Committee

[Lord Bates]

I begin by thanking my noble friend Lord Kirkwood and the noble Baroness, Lady Sherlock, for their scrutiny, which compared and contrasted interestingly to the sparks flying and a lot of heat and not much light that took place in the other place when it considered these regulations. I totally accept their spirit of genuine inquiry and the need to flesh out the important issues and details, which we need to get on to the record. At the same time, I ask them to recognise the fact that what we are bringing forward here is a pilot, which in its nature is going to have areas of ambiguity that will be resolved as it takes effect and is rolled out. So a tolerance of that would seem fair.

Another thing should be said and needs to be put on the record. I accept that there is criticism of the Work Programme—but the noble Baroness will accept that there was criticism of the New Deal and even of the Flexible New Deal. The IPPR report came out just last week; it is not normally a champion of government social policy, but it actually said some very positive things about the way in which the Work Programme is going. Of course, 294,000 outcome payments have been paid to providers on the scheme, which suggests that something is happening in the labour market. In addition, at the risk of slightly straying into the territory of the other place, we need to put it on record that there is a changing employment environment. We have employment at record levels in this country and we seeing the number of vacancies increase quite dramatically; it is up 100,000 at 600,000. We are seeing a lot of people getting off benefits and into work; unemployment is down 27%, while youth unemployment is down 33% and long-term youth unemployment is down 39%. So in the interests of balance, one ought to put that record out there, to say that what Her Majesty's Government are doing in trying to help people is not without effect. Therefore, it is progressing.

I turn to the specific points. First, I recognise the sterling work of the Secondary Legislation Scrutiny Committee, which looked at these regulations and commented in a fairly detailed way. It asked that the Explanatory Memorandum be enhanced and updated with a lot more detail, and the department did that. That Explanatory Memorandum was published last week ahead of the scrutiny which is now taking place in Parliament.

The noble Baroness raises a very interesting point about whether there ought to be a mechanism. Whether it is for the House or the Secondary Legislation Select Committee, there should be something that says that when a report makes a recommendation there should be some mechanism for ensuring that people who have a close interest in this—certainly, perhaps, the spokesmen of the respective parties or groups—are systematically made aware. I will take that back to the department, and we will certainly try to respond to it.

Many points were raised. My noble friend Lord Kirkwood and the noble Baroness, Lady Sherlock, referred to many of the same issues, and I will work my way down them. On why the power is for 13 weeks and whether that is too long or too short, this is a new initiative and that is why we are testing it. The evaluation will help inform us about whether it is the right length of time to refer claimants to this more intensive activity. The length of the programme gives sufficient time for claimants to adapt and benefit from the enhanced jobsearcher’s routine. It also gives providers a reasonable amount of time to work with claimants to ensure that the support is effective.

I was asked why claimants will be on the programme for a maximum of 13 weeks. We will track them for as long as it takes after they have left the programme, typically for at least six months, to establish the impact of the pilot. I confirm that the pilot is being run on a randomised control basis, which is regarded as the gold-standard methodology for evaluation. I confirm that we will publish the results of the evaluation.

At this point, I turn to my colleagues behind me because the noble Baroness made a very interesting point when she focused on selection and randomised control and asked about the predominant methodology. The pilot we are talking about is a randomised control trial. The type, category and number of individuals will be the overriding methodology that will be used.

[Baroness Sherlock]

Something is either a randomised control trial or it is not. I am going to try to help the Minister here. It is not impossible that what the department is trying to do is select people to go into the pool, and then people from that pool of those deemed to be eligible will randomly be chosen to go into the programme or a control group. If that is what the department intends to do, will the Minister explain how people get to be in the selection pool in the first place? If I have got that wrong, he will of course correct me.

[Lord Bates]

The normally impassive officials behind me are nodding sagely to say that that is indeed the methodology that has been adopted. Advisers will have discretion on those who are eligible for the pool. Let me make a little further progress and perhaps some further inspiration will be on its way.

I was asked how claimants can possibly look for work for seven hours a day and what a typical day will look like. The Select Committee, the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Sherlock, all asked this. A typical day will be tailored to meet the needs of each individual participant. While there are generic skills that underpin jobsearch activity, participants will have tailored work plans that address their specific needs. They may include work on IT skills, interview techniques and job application skills, which do not just involve visiting the jobsearch website, looking at this person who has been on the Work Programme and has applied for up to 100 jobs without success for two years, and asking what are they lacking that would ensure that they get off benefits and into work, which is the outcome that we all seek. The Government have introduced the principle that looking for work is a full-time job, as has been said.

--- Later in debate ---

[Lord Bates]

We can certainly look at that. One of the reasons why it needs to be tailored, rather than just having a letter generated, is that a lot of those people will have literacy or numeracy problems. They cannot comprehend it, whatever form of English it happens to be delivered in. Therefore the ability to talk that through with someone in person, so that they can explain it at the meeting while giving claimants the formality of the letter, would seem to be the right way to do that.

In terms of how we will ensure quality of service throughout the contract, the majority of the payment made to providers will be based on service delivery. The standards of service delivery will be monitored throughout the contract and payment will be related to providers consistently meeting the required minimum service levels outlined in the specifications. In terms of what will happen if the work coach ignores the claimant’s view that they are not suitable, at the point of referral claimants will be able to make representations if they feel that a pilot will not be appropriate for them. The work coach would take this into account before making a referral. Where the work coach decides that a referral should nevertheless be made, the normal appeal route will be open to the claimant who refuses to attend and is sanctioned as a result.

In terms of varying periods and whether they will all be 35 hours, everyone will be attending for 35 hours unless they are not able to do so because of restrictions. That is the point that was made earlier. We acknowledge that people are caring for other people; for instance, there are parents caring for young children and they might have other responsibilities that are entirely legitimate and need to be built around. Again, that is the reason why it is a tailored and individual approach.

[Baroness Sherlock]

I thank the Minister for answering a great many of my questions. I shall flag up one or two that I think he may have missed. One is the question of childcare and travel costs. Can he confirm that those will be available up front—that people will not have to find the money to pay for childcare and then reclaim it from the provider? On the same point, will the Minister clarify the answer he has just given to the noble Lord, Lord Kirkwood? Is he saying that an individual judgment will be made about whether somebody does not need to do 35 hours because they have other needs or responsibilities, or is he—as I suspect—saying that if somebody is not required to be available full time for work, in a comparable manner they will not be required to be available full time for this programme? Perhaps the Minister can clarify that for the record.

I do not think that he answered the point about whether somebody was engaged in doing something at the suggestion of the Child Poverty Action Group, or if somebody is already engaged in doing something that in fact makes it more likely that they will get a job. With that, can he clarify that anyone doing voluntary work will therefore not be covered by the programme, because that is what the list seems to say?

Finally, will he clarify his answer about the randomised control trial? One of the biggest problems that can befall a randomised control trial is if the selection pool from which people are chosen is itself biased. One of the difficulties in having what is essentially a subjective judgment made by coaches about referring people into the pool is that it does not matter how rigorous the randomisation is from the pool if entry into the pool itself is not biased. Can the Minister say whether the Government have been thinking that through? Do they have any concerns in that direction?

[Lord Bates]

I am grateful to the noble Baroness for saying that there are only one or two issues to cover, which suggests that I have worked my way through the list. I feel as though I am doing well, or, rather, the wonderful officials behind me are doing well.

The point about childcare is a serious one and I want to get my reply on the record. As regards childcare travel guidance, extra costs incurred by claimants will be provided. This is not currently published but has been stipulated in the terms and conditions. The provider is encouraged to consider claimants’ circumstances when awarding this and, if possible, to do this in advance. Good reasons are always considered before applying any sanction, and whether travel costs had been issued would be taken into account.

As regards how the randomised control trial will work, for the pre-Work Programme strand of the pilot, the Jobcentre Plus adviser will first identify suitable claimants, after which they will be randomly allocated to a treatment or control group. I think that I have mentioned that already. The 35-hour period is currently part of the claimant commitment, so that would apply.

As regards the Child Poverty Action Group’s view on charitable or voluntary work, perhaps the noble Baroness would be good enough to send us more information on that group’s recommendation on that.

[Baroness Sherlock]

That group simply asked whether, if somebody was already doing something that made it more likely that they would get a job than by going on the programme, that would do. I am sure that it was not thinking about work experience at a high-level cultural institution, for instance, but I give that by way of example.

[Lord Bates]

I thank the noble Baroness for that very helpful further intervention, which enables me to confirm that those engaged in voluntary work will not need to participate. A work coach will consider any other activity in which the claimant is engaged before deciding what action is taken. I again thank my noble friend Lord Kirkwood of Kirkhope and the noble Baroness, Lady Sherlock, for their scrutiny. I hope that this debate has been helpful. I believe that it will make a positive contribution to understanding how we can help some of the hardest to reach people in our society and give them employment, hope and a future.

Health and Safety Executive

Debate between Lord Bates and Baroness Sherlock

Thursday 3rd April 2014 Lords Chamber

[Lord Bates]

That is a very good point. I certainly endorse what the noble Baroness said about the Olympics. There were 46,000 people working on that site and to have not one fatality is exemplary. That gives me the opportunity to point out that that is one thing that the UK does extraordinarily well. Fatalities in the workplace are much lower in the UK, at 0.71 per 100,000 workers, compared to an equivalent rate of 0.81 in Germany, 1.57 in Italy and 2.49 elsewhere. That is an important record, showing that the HSE is working correctly with contractors in major projects, and this will ensure that that work continues in future.

[Baroness Sherlock (Lab)]

My Lords, one question raised in discussion of the review was the desirability of increasing commercial income for the HSE. Notwithstanding the Government’s view of that, will the Minister take this opportunity to assure the House that they have no plans to privatise the HSE?

[Lord Bates]

Yes, I can very quickly do that. There is absolutely no question of privatising the HSE, but Martin Temple, himself a businessman with a distinguished background in engineering and manufacturing, recognised that there were great opportunities, because the Health and Safety Executive is genuinely admired around the world. A lot of people are coming to look for good-will advice as to how to operate their systems, and I think it is absolutely right for the taxpayer that the HSE ought to be free to exploit those commercial opportunities to enable it to continue doing its excellent work around the UK.

Financial Assistance Scheme (Qualifying Pension Scheme Amendments) Regulations 2014

Debate between Lord Bates and Baroness Sherlock

Tuesday 11th March 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

My Lords, perhaps I may put two brief questions to the Minister. There is no impact assessment attached to these regulations, but my recollection is that the FAS is funded from the public purse and not, as is the case for the Pension Protection Fund, from the levy. It may be that it is just de minimis in the scheme of things because we are dealing with only one identified scheme at the moment. However, I would be interested to know what the costs of this in terms of additional FAS spending might be. Perhaps the Minister might take this chance to update us on what the annual ongoing costs of the FAS currently are. Can the Minister also clarify for me, in relation to the particular scheme that has been identified, whether it had been paying the protection levy? If not, why was it outside of that?

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation and my noble friend Lord McKenzie for his, as always, insightful questions. I am very pleased to see the Government’s ongoing support of the Pension Protection Fund set up by the previous Labour Government. The PPF has made a substantial difference to people’s lives. As regards schemes including Woolworths, MG Rover and Turner and Newall, the members would all have had much lower pensions had it not been for the PPF and the Financial Assistance Scheme. I also welcome the Government’s continued support for that scheme.

I would like to ask a couple of specific questions. First, I recognise that the Minister is trying to close a specific loophole and obviously the changes relate to a particular case. I must confess that the Opposition are therefore unsighted on some aspects of this. Following on from the question of my noble friend Lord McKenzie, can he explain a bit more about the Government’s thinking in deciding to plump for the FAS as opposed to the PPF, rather than leaving the members of a scheme ineligible for either, because that would seem to be the key question?

Secondly, obviously, the Government have not brought forward an impact assessment for these regulations. The Explanatory Note was helpful in explaining the long gap between the consultation process and these being brought forward, but will the Minister confirm that there is a timescale for further consolidation of the regulations on which the Government consulted in 2011, and that an impact assessment will be brought forward to accompany those changes?

[Lord Bates]

I am grateful for those questions. In terms of context, we are talking about a specific scheme with a number of members—the George and Harding pension scheme. To answer the point made by the noble Lord, Lord McKenzie, the scheme had not been contributing to, or paying, the PPF levy and therefore was not able to claim under that procedure. Therefore, we are changing the relevant dates so that we do not break the contributory principle of the PPF but ensure that financial assistance is made available. The noble Lord, Lord McKenzie, is as astute as ever and I am sure that the noble Baroness, Lady Sherlock, as a former adviser in Her Majesty’s Treasury, will also be aware that Her Majesty’s Treasury did seek to have some idea of what the impact would be on the Exchequer. The estimated full cost of the FAS contribution is £600,000, which comes out of the Exchequer over time because, obviously, that will be the way that people will be compensated as and when the funds will need to be drawn down. That is also the reason for the specific dates because we are trying to cope with a specific scheme rather than giving an open-ended commitment. Having demonstrated this, I hope that we can point to the fact that, should similar gaps in certain schemes arise in the future, we will look very carefully at them without giving any cast iron guarantee.

[Lord Bates]

That is the net present value of the cost of the scheme. Annual ongoing cost differs depending on the schemes taken in. I do not know how helpful that is but we try to be as fulsome as we can. Has the relevant firm been paying the protection levy? I have covered that point but that does not mean that it gets entry into the scheme. It was thought that the employer supporting the scheme was a statutory employer. I think that is the point we are dealing with here—the definition of a statutory employer. It was realised that it was not only after investigation. When will we consolidate the FAS regulations? As noble Lords know, there is a great deal happening in the pensions area, to be continued on Centre Court tomorrow, I think. This requires the department to prioritise its resources. The consolidation of the FAS regulations remains on the department’s work plan but I cannot give a definite date as to when the draft consolidation regulations will be laid before Parliament. I am grateful for the probing questions I have been asked. The noble Baroness, Lady Sherlock, looks as though she wants to come back in.

[Baroness Sherlock]

I thank the Minister for those answers but just want to push a little bit more on consolidation. Is there a difference in principle with how long one might wait after consulting before consolidating legislation? I am glad things are on the departmental work plan, but I gather it is rather a busy work plan at the moment and would be grateful for any hints. The other question I asked is whether, whenever that happened, an impact assessment would be brought forward at that point.

[Lord Bates]

I think I will probably need to write to the noble Baroness on those two points, again to ensure that we get absolutely the right answer. They are good questions and we want to make sure we get a correct response. I am grateful to the noble Baroness and the noble Lord, Lord McKenzie, for raising their concerns. I commend these regulations to the Committee.

Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) Regulations 2014

Debate between Lord Bates and Baroness Sherlock

Tuesday 11th March 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for that explanation and I do not propose to detain the Committee long on this order.

For many years Governments of all complexions have looked at ways to encourage the UK workforce to save for their retirement. There have been several changes to pension legislation but none as big as the Pensions Act 2008 and the pension reforms that will affect every employer in the UK. Since October 2012 new regulations require every employer in the UK to enrol automatically their eligible workers—which will be almost everyone—into a workplace pension scheme.

I want to say how much I appreciate that this Government have given such strong support to auto-enrolment, which was begun by the previous Government but taken forward by the present one. We also welcome the Government’s policy intent in these regulations to allow schemes providing career average salary benefits to be used as qualifying schemes for the purposes of automatic enrolment. This is a positive step and has the support of the Opposition. The Opposition will continue to support the Government to ensure that auto-enrolment is a success and the move to ensure that both average salary benefits schemes and hybrid schemes are a part of auto-enrolment is also positive.

[Lord Bates]

I am grateful to the noble Baroness, Lady Sherlock, for that support. Auto-enrolment is very much a success story. The credit for the figures that are coming in transcends parties and Governments. It is also very encouraging for people providing for their retirement. With that support, I commend the regulations to the Committee.

Income Support (Work-Related Activity) and Miscellaneous Amendments Regulations 2014

Debate between Lord Bates and Baroness Sherlock

Tuesday 11th March 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for that explanation. Labour supports the aim of these regulations. Indeed, the leader of the Opposition said in a speech last June that in a workless household, both partners or a single parent should use some of the time while their children are at nursery to make some preparations that would help them get back to work. He also stressed that there would be no requirement to go back to work until the youngest child is five years old. So we support the aim of these regulations.

When this order was debated in another place, my right honourable friend Mr Stephen Timms asked a series of questions of the Employment Minister, Esther McVey. She was able to answer only two of them and perhaps not in the depth that my right honourable friend had hoped for. I shall therefore put some of the same questions to the Minister in the hope that the intervening week will have enabled his officials to brief him to answer them perhaps more fully than was possible on that previous occasion.

First and most seriously, why is there no easement in the regulations for lone parents who have suffered domestic violence? I acknowledge that the Government have taken domestic violence seriously. In this very Room not so long ago, we debated the new cross-government definition of domestic violence and I was pleased to give the Government support for aiming to do precisely that. In the Universal Credit Regulations 2013, there was a clear easement for domestic violence which stated that, for 13 weeks, there would be no work-related requirements. In jobseeker’s allowance, the claimant is exempt for four weeks, which can be rounded up to 13 weeks. But in these regulations, there is nothing.

On 3 March in the Delegated Legislation Committee in another place, Stephen Timms asked Esther McVey this question:

“Can she confirm that it is her intention that there will be guidance that makes it clear that there will be the 13-week easement for people who suffer domestic violence, in line with other regulations?”.

The Minister replied:

“I will indeed; it is right that, as such support is given in other areas, it should be given in this area”.—[Official Report, Commons, First Delegated Legislation Committee, 3/3/14; col. 14.]

Can the Minister confirm that it is indeed the Government’s intention that there will be guidance that makes it clear that there will be the 13-week easement for people suffering domestic violence? If so, can he explain why that is not in these regulations, as it is in the corresponding regulations on income support and jobseeker’s allowance? Finally on this first point, can he explain what a lone parent would have to do if a decision-maker should require her to undertake some work-related activity despite suffering domestic violence? After all, Gingerbread reports many cases of lone parents being pushed to do things which they are not required to do by regulations or by guidance, perhaps because of a misunderstanding among generalist advisers in jobcentres. What should a lone parent do in these circumstances?

The second question that I want to ask is on the issue of parents of children aged five who have not started school and are not legally required to receive full-time education. Parents have to explain why it would be unreasonable for them to find other arrangements for the care of the child until he or she is in full-time education. Why is that easement not in these regulations?

Thirdly, under the regulations and as the Minister explained, single parents cannot restrict their availability for work-related activities during their child’s normal school hours—which is to be expected—or when their child is under the temporary supervision of another adult. Gingerbread is concerned that the latter issue causes a potential problem, because it means that a single parent could be sanctioned for being unable to undertake work activities because informal childcare arrangements had broken down. The Minister may say that childcare is covered in the “good cause” provisions, but that is not acceptable because of the process that would have to be gone through to try to sort that out. In JSA, informal childcare is not taken into account when compliance is being determined, presumably for precisely this reason, so why is it here?

What would happen to a single parent asked to attend an interview or other work-related activity whose three or four year-old was not in nursery and who did not have access to reliable free childcare? How should she pay for childcare? In another place, when Stephen Timms asked about this, Esther McVey referred to the childcare subsidy available for the first year when a parent first starts work. She also referred to Childcare Assist, which helps with childcare costs in the week before a single parent starts work. What about someone who is not working and not required to work? How should she pay for her childcare in these circumstances? Gingerbread suggests that Jobcentre Plus should pay for the childcare. What does the Minister think of that?

Finally, there is the question of travel time. The JSA and universal credit regulations place a limit of 90 minutes’ travel time to and from an interview. Can the Minister confirm that that limit will apply also to single parents undertaking work-related activity? If so, will that be made clear in the guidance to decision-makers? I look forward to the Minister’s reply.

[Lord Bates]

I am grateful to the noble Baroness for her response and for generously saying that support for this initiative in preparing people for the world of work is shared across parties. When we are dealing with some of the most vulnerable people in the country, it is important that, as far as possible, such agreement exists.

The noble Baroness referred to domestic violence. Again, I preface my remarks by welcoming the fact that she acknowledged that the Government had taken this very seriously and it was of great concern. We do not believe it is necessary to put an easement for domestic violence into these regulations. The draft regulations are flexible enough for advisers to apply the policy when appropriate. The income support guidance will reflect the position in jobseeker’s allowance and universal credit by stating that when a person satisfies the policy requirements, they are eligible to receive the easement, which includes deferring interviews and not setting mandatory work-related requirements. Providing the domestic violence easement in guidance mirrors the current approach taken for claimants who are victims of domestic violence and abuse who are entitled to old-style employment and support allowance.

We believe that these regulations are broadly enough worded for that to be taken into account as a good reason why certain requirements may not be met. We do not think it is necessary to put it in the regulations, as has been requested. But in response to Stephen Timms in the other place, my colleague Esther McVey, who is the Minister responsible for this area, has said that she will issue guidance in this area to the workplace advisers. I hope that will go some way towards reassuring the noble Baroness on this point.

The noble Baroness asked what would happen if the coach made a claimant do something despite them being subject to restrictions. The requirement to undertake activity when subject to domestic violence would be a matter of good cause to be considered, and would also be subject to appeal if that was something that was disputed.

[Baroness Sherlock]

I just want to be sure that I have understood this correctly. Three questions occur. First, why would the Government use as their comparator the position in old-style ESA rather than JSA or universal credit—the creature of their own invention, which they have just introduced? What is the difference between somebody on universal credit and somebody on income support? Secondly, will the Minister clarify that the guidance he has just referred to will be for a 13-week easement? That was the question asked by my right honourable friend Stephen Timms. Thirdly, if a lone parent who had suffered domestic violence was then inappropriately asked to engage in work-related activity, she could appeal, but would her benefits be sanctioned in the mean time, and how long does the average appeal take? What would happen to her while she was trying to sort that out?

[Lord Bates]

While I am getting some guidance myself, I will move on to some of the other points that the noble Baroness raised. She asked: if childcare is not available, is this an excuse not to undertake a work-related activity? We have no power to mandate claimants to place their children in childcare in order that they can undertake work-related activity. Claimants may also restrict their availability for work-related activity to times when they do not have childcare responsibilities. However, claimants cannot use the unavailability of childcare as a reason for not undertaking work-related activity. Even with the ability to restrict their availability, the requirement to undertake work-related activity remains. Claimants must accommodate this requirement or face the possibility of sanction. Claimants would therefore need to be reasonable about what they could do, which may involve taking up the offer of free childcare. If a claimant fails to comply with work-focused interview or work-related activity requirements, the regulations prescribe that the availability of childcare must be taken into account in determining whether that is a good cause, although it is not determinative of good cause in itself.

The noble Baroness asked about comparisons with jobseeker’s allowance and universal credit and the limit of 90 minutes’ travel time to and from the place of interview. A 90-minute travel time to work in each direction applies to those claimants who are expected to look for, and be available for, work. It does not apply to lone parents affected by this change, not does it apply to claimants on employment and support allowance. Any work-related activity which a claimant is required to undertake must be reasonable, taking the claimant’s personal circumstances into account, including the time that it would take for the claimant to get there. When determining what is reasonable, matters such as the availability and practicality of using public transport, the location of work-related activity and childcare responsibilities must be considered. Guidance will be updated to ensure that advisers are aware of this and take account of claimants’ individual circumstances.

Another question was about what support the group could get from the flexible support fund. The flexible support fund can be used in a number of ways, including paying for travel and replacement adult or child care to enable lone parents to undertake training, attend interviews or start work.

On why we use comparator old-style ESA, not JSA or universal credit, the JSA easement is for jobseekers. The ESA easement is in guidance. We will consider the need to place this in regulations.

[Baroness Sherlock]

I thank the Minister. I urge him strongly to take the question of domestic violence back to his colleagues and to think again. I take the Minister’s line as possibly a hint that Ministers may indeed be doing that; I hope very much that I have not overinterpreted it. I look forward to hearing some more information about that. I do not think that the distinction between someone being a jobseeker or not seems to be a good reason why someone who has suffered domestic violence should be treated any differently. If one is coming out of that circumstance, the ability to look for a job, whether mandated to do so, or just to prepare for it, would both seem to be of comparable difficulty and ought to be treated similarly. I look forward to hearing some good news on that before long.

I want to clarify a couple of the Minister’s other points as I may have misheard them. When this matter was discussed in another place, the question of childcare—particularly the position of someone whose child was not in nursery having to use informal childcare—my understanding was that the Government’s position was that the additional childcare offer for two and three year-olds is an offer, not a requirement. I understood the Minister to say that, effectively, a lone parent would not be able to use the fact that he or she might not have access to any suitable childcare as a reason not to engage. Therefore, if they could not find anything else, they would have to take that offer up, whether they wanted to or not, or have their benefits sanctioned. Can the Minister clarify that?

On travel time, I am quite surprised to find that there is no limit. Can the Minister at least reassure the Committee that the guidance will say that one should not be expected to travel for three hours each way to do a brief interview or course? In a sense, the point of having a timeframe is that it is a time limit. If that time limit applies for a job, why would it not apply to a course or some other thing that the department might require the lone parent to do? Can the Minister reassure the Committee that there will be some limit, or some guidance, at least, given to decision-makers as to what a reasonable limit would be?

[Lord Bates]

On that point, we can safely say that that limit is consistent across JSA and ESA, and therefore the 90 minutes would continue to be the restriction. The whole point of this is to encourage an engagement to prepare people for their place of work, and therefore there is a degree of flexibility on both sides. On whether the 13-week easement in the case of domestic violence would still apply, the answer is yes.

On whether that guidance is still being formulated, of course, we introduce regulations and I would like to think that where we have had drawn to our attention certain lacunae in the regulations, particularly where they affect vulnerable people, we have shown a willingness to pause and look carefully at that. I am sure that when the guidance is issued, that will provide an opportunity for that to happen.

[Baroness Sherlock]

I thank the Minister for his graciousness in allowing me to intervene. There was one more issue, which was that of parents of children aged 5 who have not started school and are not legally required to receive full-time education, and why that easement was not in the regulations. I suspect the answer may be patterned on some of his previous answers.

Social Security Benefits Up-rating Order 2014

Debate between Lord Bates and Baroness Sherlock

Monday 3rd March 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of the orders, and the noble Lords, Lord German and Lord Kirkwood, for their contributions. I would like to add myself to the circulation list for this exciting reply to the questions of the noble Lord, Lord German. Is the Minister willing to place a copy in the Library, given that it might be of interest in years to come? They are very good questions.

I share the hope of the noble Lord, Lord Kirkwood, that Parliament retains a sense of the importance of these orders. The decisions taken here by Parliament will affect the living standards of millions of people over the next year. They really matter, and if we ever get to the stage where we stop taking them seriously we will be failing in our duty. I pay tribute to the noble Lord, Lord Kirkwood, who turns out every year, come rain or shine, although I am disappointed that he had nothing to say about the GMP. I look forward to a year when I find something to say to it, but I am not going to ask any questions about it either.

Much has been made of the fact that the Government are uprating pensions by the triple lock. That is welcome as far as it goes. The comments about RPI notwithstanding, will the Minister acknowledge that the triple lock has so far been less generous than the RPI uprating it replaced? It was not used in the first year. I notice that my right honourable friend Stephen Timms pointed out, when this order was debated in another place, that the RPI last September was 3.2%, whereas the pension uprating delivered by the order, as the Minister said, is 2.7%. My right honourable friend said that the triple lock has delivered a lower uprating than the previous formula in each of the three years it has been used. The effect of that is that in RPI terms it is a real-terms cut for the third year in a row.

More concerning is that the standard minimum guarantee element of pension credit is to be increased by only 2%. This reduces both its real-terms value and its value relative to the basic state pension. One of the consequences must be that the poorest pensioners find their pension income falling in real terms. The Minister, I am sure, can confirm that. I would be very interested in the Minister’s answer to the question of the noble Lord, Lord Kirkwood, about cost. If the value of some of these benefits is falling, but the spend is rising, is caseload the reason? I would be interested to know.

The decision on pension credit is significant not just for those currently dependent on pension credit, but potentially for all those who will receive the new single-tier pension, which is due to be introduced in April 2016, if the Pensions Bill currently going through the House receives Royal Assent. The Government have signalled, during our deliberations on that Bill, that they propose to introduce the new single-tier pension at a rate above the prevailing rate of pension credit. By reducing the value of pension credit in real terms, are the Government not giving themselves the option of introducing the single-tier pension at a starting rate lower than might have been the case had pension credit maintained its value in real terms?

Can the Minister help me on another point? As the premiums payable to pensioners with working age benefits will be uprated in line with pension credit rates, does that also mean that they too will face a real-terms cut? Will the Minister confirm that? Also, what assessment has he made of the impact on pensioners with small savings of the Government’s decision to increase the savings credit thresholds by 4.4%, some way above inflation? I know that the Government are keen for people to do the right thing and to save, but the reason for introducing a savings credit was so that people who had put money aside would still find themselves better off than those who had not. Will the Minister explain the Government’s thinking on that?

I also have some questions about process. I am with the noble Lord, Lord Kirkwood: I fear that I may have lost track of some uprating that should have happened. If I tell the Minister what I think is happening, perhaps he will correct me where I go wrong. As I understand it, the Welfare Benefits Up-rating Order 2014 uprates by 1% those on benefits covered by the Welfare Benefits Up-rating Act. The protected benefits are covered by this order. So what happens to tax credits? Where did they get uprated? Where was the benefit cap uprated? I know that it has been, but I am not quite sure where that happened. Also, are all the elements of universal credit uprated in this order and, if so, where are the work allowances uprated? I could not see them.

I have two final questions. First, on childcare, it seems to me that the childcare element of universal credit is not being uprated at all. Can the Minister explain why not? If it is not being uprated at all, that is a significant real-terms cut. The last annual childcare cost survey in 2013 from the Family and Childcare Trust—what used to be the Daycare Trust—found that costs had risen by an average of 6% the previous year, more than double the rate of inflation. If the decision is made to cut that childcare element in real terms, coming on top of the Government’s decision to cut the proportion of childcare costs in universal credit to 70%, will that not have a significant impact on the ability of working parents to afford childcare? There was no impact assessment, and I was not able to work out what the effect of that was. Have the Government made any assessment of the impact on working parents of that decision on childcare and, if so, what is it?

Finally, I should be very interested to hear the answers to the questions from the noble Lord, Lord Kirkwood, on PIP, for example, where I have grave concerns about the implementation. The recent report is not encouraging in that respect. Also, I should like to understand to what extent, if at all, the Secretary of State is using discretion in making judgments about the appropriate levels of uprating, given the concern that abounds now about the use of food banks and the extent of poverty among people who are in receipt of benefits.

[Lord Bates]

I thank noble Lords for their questions. All Members who have spoken are renowned experts in the field. Until a few months ago, I was joining from the Back Benches in scrutiny of such orders, so I sense the expertise that lies behind the pertinent questions which have been asked. I was particularly struck by my noble friend Lord Kirkwood’s question about how small is the audience for a mere £3.3 billion of taxpayers’ money to go to the poorest in society. That is a worthy point to make, and it would be absolutely ungallant of me to point out the level of participation from the Liberal Democrat Benches and the absence of participation from the Opposition Benches.

[Baroness Sherlock]

And the Conservative Benches: are they packed?

[Lord Bates]

Of course I should not have mentioned that.

[Baroness Sherlock]

We were playing so nicely.

[Lord Bates]

We are a coalition—we share the point. The point is that I think that there is a genuine cross-party support. For example, the triple lock on pensions is welcome, it is working and it is delivering real-terms increases to pensioners.

If I may, I will go through the points raised in the order in which they were raised. My noble friend Lord German raised the question of the Treasury grant to the National Insurance Fund. It is not a question of the National Insurance Fund running out of money. Making provision for such grant has no overall impact on the Government’s finances. It is done primarily for accounting purposes to ensure that the National Insurance Fund complies with the Government Actuary’s recommendation of maintaining a working balance of one-sixth of the expected benefit expenditure in 2014-15. My noble friend was absolutely correct to point out that at least now the information in the forecast is being made available in the Government Actuary’s report. He asked me a specific point about whether we will look at that historically over the 10-year period. I should say that we think that the grant has not been required over that period but, as one of the paragraphs in the probably lengthy letter that I shall be sending to noble Lords, I shall cover that important point and I thank him for raising it.

There was a smart observation asking: why the different dates. They are in place for good administrative reasons, including taking into account the prescribed payment days of different benefits. I know that there might be a follow-up question asking why there are different payment days but perhaps we can just say that that is the answer. However, the noble Lord puts his finger on an interesting point.

My noble friend Lord Kirkwood asked whether we would ensure that working-age benefits will be debated once the Bill is finished. Working-age benefits will be debated again from 2016-17. I will turn to the IFS Green Budget in a minute. My noble friend and the noble Baroness, Lady Sherlock, asked about the uprating of tax credits. The Tax Credits Up-rating Regulations 2014 will uprate certain elements of tax credits by CPI from 6 April. These were laid in draft form on 12 February and are due to be debated later in March. The Child Benefit and Tax Credits Up-rating Order 2014 will increase certain elements of tax credits and the rate of child benefit by 1% from 6 April and 7 April respectively. That was made on 24 February.

My noble friend Lord Kirkwood also asked about how much of the increase in expenditure is in relation to caseload increases. Clearly, caseload is an important factor in the overall expenditure, which is why it is important to make pension spending more affordable over the longer term, including, for example, the changes we are making through increasing the state retirement age. As regards the delay in implementation of the personal independence payment, PIP has been successfully introduced using a controlled approach to learning lessons as we go along in a live environment. We have been very clear that PIP will be introduced in a gradual way. Disabled people have wanted us to take time to get it right, which is what we are doing. Natural reassessment is under way in several areas and we will continue to monitor and evaluate it before making any further decision on widening the reassessment rollout.

My noble friend also asked whether we are going to introduce new eligibility criteria for winter fuel payments. Winter fuel payments are non-contributory and were designed to give older people in the UK reassurance that they can keep warm during the cold weather. The Government intend to bring in an eligibility criterion based on country of residence with payments going to only eligible people living in EEA countries with colder climates. Legislation will be needed to pass this before any changes are made.

On the UC rollout, our current planning assumption is that the universal credit service will be fully available in each part of Great Britain during 2016, having closed down new claims to the legacy benefits it replaced with the majority of the remaining legacy caseload moving to universal credit during 2016-17. Final decisions on these elements of the programme will be informed by the development of the enhanced digital solution.

My noble friend Lord Kirkwood also asked about the Green Budget report written by Paul Johnson and the excellent organisation, Oxford Economics, for the Institute for Fiscal Studies. He suggested that we read the report—it says here that I will do so. I think that I will apply the collective and say that I assure my noble friend that we will do so. It is a very important contribution. We have all said that we want these changes to be evidence based. When serious organisations such as the IFS produce serious research, of course we should take it seriously. We will monitor future developments. I am grateful to my noble friend for drawing that to our attention.

--- Later in debate ---

[Baroness Sherlock]

My Lords, I am very grateful to the Minister for explaining the process and what happens to the different benefits, but I am still chewing over the information that neither the childcare allowances nor the work allowances in universal credit will be increased at all and are therefore facing a real-terms cut. I might have let that go, but I am afraid that I will have to push back on his comment that all sides of the House agree that people will be much better off under universal credit than under the present system. Universal credit is simply a delivery vehicle. Whether or not people will be better off will depend on how generous the benefits are, the taper rates applied, the levels of work allowance or disregard applied and the interaction with other sources of support. In other words, unless the calculations done previously about the gains to work and participation rates in work are redone using these figures, we do not know whether people getting universal credit are going to be better off than they are now.

If the Minister cannot tell me now, could he please write to me later and place a copy in the Library on what assessment the Government have done about the effect on incentives to move into work and gains to work as a result of these real-terms cuts to components of universal credit?

[Lord Bates]

I appreciate the point which the noble Baroness has made and I was not suggesting that everybody would be better off under this provision. The question is one of removing perceived barriers to go back into work—to encourage people to move seamlessly off benefits and into work—without creating disincentives. That principle, I think I am correct in saying, is one that is widely shared on all sides of the House. How it actually applies and is worked out for individuals and individual families is clearly a crucial matter. On that point, I will add that to the list of issues about which I will write to noble Lords immediately following this debate.

I have already explained that we are spending an extra £3.3 billion on uprating pensions and benefits in 2014-15, enabling us to protect key benefits and vulnerable groups. This order protects pensioners, many of whom have worked hard all their lives and are no longer in a position to increase their income through work, and benefits, which reflect the additional costs faced by disabled people, again reflecting our commitment to protect those least able to increase their spending power. Those are principles which I hope all noble Lords can support and on that basis I commend these orders to the Committee.

Social Security (Maternity Allowance) (Participating Wife or Civil Partner of Self-employed Earner) Regulations 2014

Debate between Lord Bates and Baroness Sherlock

Monday 3rd March 2014 Grand Committee

[Baroness Scott of Needham Market (LD)]

My Lords, I support the social security regulation which we are debating today—not just because it avoids an €11 million fine. I think it is a good thing in its own right. For once, we have a welcome change to the benefits system in that it is beginning genuinely to reflect the diversity of people’s lives and the lives of women in the workforce. That is a very good thing indeed. It is bringing a new group of women, predominantly from the very small, micro-business sector, within the ambit of maternity benefit. I just wish that the gold-plating had been left in place just on this one occasion so that they could have had a benefit more in line with everyone else.

I want to ask two questions. The first is about disseminating information, because this is a very difficult group to reach. They do not tend to be members of chambers of commerce, and that sort of thing. I do not have a particular answer, but I wanted to put in the plea that all efforts are made to ensure that women who are likely to benefit actually know about it and are able to. We hope that the Government’s new enterprise allowance scheme will be successful, so we could have even more very small businesses starting up in the coming year or so, so we need to get on top of how we can ensure that women know that these benefits are available.

Secondly, I welcome the discussions on shared parental leave—I know that the Deputy Prime Minister has been very keen on this and it has some support within government. It would provide welcome flexibility, but I am curious as to how these arrangements might work if we have shared parental leave. With those questions, I welcome the instrument.

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation and I look forward to hearing the answers to those two excellent questions. I do not propose to ask any questions about the second order, as I accept the Minister’s assurance that it is consequential upon the first. However, I should like to ask a few questions so as to understand better the implications of the first order, relating to maternity allowance.

The first question relates to the point that has just been made about the rate being so low. The standard rate of maternity allowance is £136 a week, or 90% of average weekly earnings, for up to 39 weeks. In this case, the Government decided to settle on £27 a week for 14 weeks. I think I heard the Minister say that the aim of the allowance was to enable women who regularly help in the business of a spouse or civil partner to take a break from their activities towards the end of a pregnancy or the start of motherhood. Have the Government made any assessment of whether the amount of money involved is such that it is likely to make taking that break possible when otherwise it would not have been?

Secondly, the Explanatory Note says that 1,300 women will be affected by the provisions at an estimated cost of £0.5 million. No impact assessment was carried out, so we do not know whether the Government considered other approaches. Clearly, there is quite a wide range between what the Government are doing and an allowance that is fully gold-plated. Did the Government consider bringing this in at an intermediate level and, if so, what kind of cost would have been implied?

Next, I should be interested in understanding what conditions a claimant would have to meet to qualify for maternity allowance under these circumstances. We have had a question about shared parental leave. I should also be interested in knowing what happens to someone who is adopting a child rather than giving birth, as the regulations are specifically about giving birth or having just given birth. Looking at the regulations, I do not think that someone in these circumstances would be entitled to statutory adoption pay, so would they be entitled to maternity allowance? Similarly, what happens if the child is stillborn or dies immediately after birth? Certainly, I think that SMP is payable if a child is stillborn after 24 weeks, but is there a read-across to this provision?

I was pleased to hear the question about communication because I was going to ask something similar. The Minister made the very good point that there may be strong reasons why women in these circumstances may be better off being paid by the business and being able to pay national insurance. I am very conscious that the Pensions Bill is going through the House at the moment. Of course, if a woman in these circumstances does not end up with 35 years of national insurance payments in her own right, she may find that when she comes to retire she is not entitled to the new single-tier pension, and in future she will not be able to claim on her husband’s contributions either. Therefore, when the Minister looks at the communications campaign, I wonder whether anything can be done to make sure that the opportunity is taken to communicate to those women so that they understand the consequences of not paying national insurance and of not coming within the national insurance and tax system.

Finally, I have a practical question. Can the Minister explain the tax and tax credits treatment of these benefits and say whether there is any passporting or link across to any other benefits as a result of receiving this maternity allowance?

[Lord Bates]

I thank my noble friend Lady Scott of Needham Market for her contribution and I also thank the noble Baroness, Lady Sherlock, for raising these points. Some very good questions have been asked and I shall do my best to answer them.

My noble friend Lady Scott asked whether women getting this maternity allowance will have access to shared parental leave and a pay scheme. The answer is no, and I am sorry to be disappointing. The statutory shared parental leave and pay provisions are designed for employed couples to share the care of their child. It would be available to eligible women who are entitled to maternity leave, statutory maternity pay or maternity allowance because they are employed or self-employed earners—that is the key word. Therefore, women receiving this form of maternity allowance will not have access to that scheme as they will be neither employed nor self-employed in their own right.

My noble friend Lady Scott and the noble Baroness, Lady Sherlock, asked how we will encourage take-up of the allowance, and we talked about some of the publicity which is being received. We have identified stakeholder groups relating to both self-employment and maternity, and they have been informed of the change. They include Maternity Action, Netmums, Mumsnet, Bounty, Sands, Citizens Advice, the Royal College of Midwives, the British Medical Association and HMRC. We will be publicising the qualified conditions and the claim process on direct.gov.uk, as well as providing relevant guidance and claim forms. Needless to say, if there are any specific organisations which the noble Baroness thinks it would be helpful to include in that list, we will be delighted to hear from her.

I turn to the points raised by the noble Baroness, Lady Sherlock. She asked about the sad cases where there is a stillborn child. The mother would still be entitled to maternity allowance, in the way that statutory maternity pay applies at present. These provisions do not extend to adoption.

--- Later in debate ---

[Baroness Sherlock]

Before the Minister leaves that point, I understand the Government’s argument that they do not wish to gold-plate anything that comes from Europe. I was pushing him slightly because he gave two different reasons for doing this. One was not to gold-plate; the other was to give the women an opportunity to take a break from their activities. My question was whether he had done any assessment of whether the level and duration of the payment would be adequate to meet that objective.

[Lord Bates]

The answer is that no such assessment was undertaken.

The noble Baroness asked whether this maternity allowance will passport through to other benefits. It is up to each provider of those passported benefits to decide whether to extend their passported benefits to this group. Of course, in the same group of regulations we are talking about changes being made to the legal aid provision, so there is some element of a knock-on effect to that. I am grateful to all noble Lords who have spoken.

[Baroness Sherlock]

I am happy for the Minister to write to me but I asked about the tax treatment of the allowance and the tax credits position. He may feel free to write if that is easier.

[Lord Bates]

I apologise to the noble Baroness. I will follow that up in writing.

I am grateful to all noble Lords who have spoken. I thank them for their interest in the debate and take the opportunity to say that I hope we agree that the Social Security (Maternity Allowance) (Participating Wife or Civil Partner of Self-employed Earner) Regulations 2014 ensure that those women who participate in the business of their self-employed spouse or civil partner can receive maternity allowance to enable them to interrupt their activities due to pregnancy or motherhood, and that the Legal Aid (Information about Financial Resources) (Amendment) Regulations 2014 contribute to ensuring that those entitled to help with their legal aid costs receive that help, while those who can afford to pay, do so.

Statutory Sick Pay Percentage Threshold (Revocations, Transitional and Saving Provisions) (Great Britain and Northern Ireland) Order 2014

Debate between Lord Bates and Baroness Sherlock

Monday 10th February 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for that explanation. I woke yesterday morning to hear on the radio an announcement about a wonderful new scheme the Government are planning to introduce called the health and work service, which would cover England, Wales and Scotland. I wonder what happens in Northern Ireland. I am not sure I caught that. This scheme would offer voluntary medical assessments and treatment plans for employees. There was nothing in that bulletin to inform the listener that this would be paid for by scrapping the percentage threshold scheme, or PTS, which enables employers to reclaim some of the costs of statutory sick pay, or SSP, from the state. I will be charitable and assume that this is because Parliament has not yet approved this order. I know that Ministers are loath to let anything slip out to the media before Parliament has had the opportunity to scrutinise it in great detail—although I confess that, somehow, the BBC had got hold of that side of the story on its website a little later.

These regulations abolish the percentage threshold scheme, and we are assured that stakeholders welcomed the change, apart from one employer representative group which was concerned about the impact on small employers of removing the remaining element of SSP reimbursement. We were told that the average amount claimed under the scheme in 2009-10 was £500 per year, per claimant—that is, per employer claiming. That may not sound a lot, but the impact assessment also tells us that micro-employers, those with fewer than 10 workers, receive 70% of the recovery, and £500 can be a lot of money to a micro-employer.

I know of a church in Durham, where I live, the sole employee of which is a rather wonderful youth worker; the vicar, of course, is paid by the diocese. Sadly, the youth worker has been off sick for some months. It was a big decision for the church to hire her, but it decided to dip into its reserves to hire a youth worker to work not just with the children in the church but children in the local community. Unfortunately, she has developed a condition which means that she has been off sick for some months. She is brilliant and the church does not want to lose her, but money is tight. Thanks to the PTS, it has been able to get some of the SSP back, so it can afford to pay a locum to do at least some of the work. At the moment, a locum youth worker is running a wonderful club for a few weeks for year 6 children in the neighbourhood to help them prepare for moving up to secondary school. However, my point is that £500 to that church is a lot of money. Can the Minister tell the Committee whether the Government have talked to micro-employers about the likely impact of this change on their operations? According to the Black review of sickness absence, micro-employers represent 82% of employers; obviously, they represent a smaller percentage of employees, but that is a lot of employers.

The argument made in the Black review is that PTS compensates mainly small employers for “higher-than-average sickness absence” but fails to promote attendance management; I think that was the point the Minister was making. That seems to me to fail to distinguish between two things that were rammed home to me in business school in assessing sickness absence in an organisation: the number of periods of sickness and the number of days of sickness. If you have a lot of periods of sickness, a lot of employees off for a small number of days, that can tell you something about whether people are taking sick leave a lot and it can tell you something about morale. The total number of days can be completely skewed in a small organisation by one person having a very serious illness. I did not see that distinction made. A good example would be this church, which would look as though it had a terrible sickness record but that is because one youth worker happened to develop a condition.

I am trying to draw this out, because I wonder if the Minister could help me to understand. The assumption is that those who get most of the money are small organisations with higher than average sickness absences, which therefore fail to promote attendance management. I wonder whether the evidence backs that up. Can the Minister help me to understand that rationale? The impact assessment says that the abolition of the PTS removes a transfer of some £50 million from the Exchequer to businesses and that the new health and work advisory service will generate a net value of around £70 million for employers—£120 million in benefits minus £50 million in intervention costs, I gather. There will also be a presumed benefit to the state.

The Minister can correct me if I am wrong, but my understanding is that that means that all the current spend on the PTS of £50 million is being recycled into the new scheme. Can the Minister confirm that? The assumption is therefore that businesses are not losing out. However, if that is true, what calculations have been made as to how evenly the gains and losses will be distributed? After all, if 70% of the benefit of the PTS goes to micro-employers, is it assumed that 70% of the benefits of the new service will be enjoyed by micro-employers? The impact assessment says that smaller employers are expected to benefit disproportionately, as they are less likely to have their own rehabilitation and occupational health services, but it did not quantify that. Can the Minister tell the Committee if any assessment was made? If so, what is the distinction? Within smaller employers is a large group: micro-employers are those who have fewer than 10 workers. Was any distinction made between those two categories?

A crucial question is whether the fact that in future employers will bear the full cost of SSP is likely to have any effect on their willingness to hire or retain staff whom they may judge likely to need it. In other words, will they discriminate against staff who have a potential health issue or have had a health record in the past that gives them cause for concern? The impact analysis does not address that directly, but under the heading “Key Assumptions/Sensitivities/Risks” it includes the following assumption:

“The removal of the PTS doesn’t precipitate (illegal) discrimination by employers against employees with poor sickness absence records”.

Can the Minister tell the Committee what evidence underpins that assumption? I am not saying that that will happen but I would be glad to know why the noble Lord, Lord Freud, felt sufficiently confident that it would not to sign off the impact assessment without that assumption spelt out in it.

My other question about these regulations relates to whether there is any risk that employees will be less likely to receive SSP under the new system. In consequence of the abolition of the PTS, the Government have also produced a set of regulations which have not yet taken effect, which propose to abolish the requirement on employers to maintain records for each employee relating to sickness absence and the payment of SSP for three years after the end of the tax year where SSP was paid. I refer to the Statutory Sick Pay (Maintenance of Records) (Revocation) Regulations 2014.

Can the Minister tell us what risk assessment the Government have undertaken as to the likelihood of employers not paying SSP correctly or at all once the record-keeping requirement is abolished alongside the order we are discussing today? The Explanatory Note which covers both orders tells us that HMRC will retain the power to require an employer to produce records to show them that SSP has been paid appropriately. What discussions has the department had with HMRC to satisfy itself that there will not be an unintended consequence of some employees not getting the money to which they are entitled? The Explanatory Note also says:

“Stakeholder engagement found that employers maintain records of sickness absence for payroll, tax and other staff management reasons”.

Can the Minister confirm that those stakeholders include individuals from or representing micro-enterprises?

Finally, the 2011 Black review on sickness absence recommended that the Government should carry out further research into the reasons behind the significant number of people claiming ill health benefits who come straight from work, especially from smaller employers. That is the earlier Black review. It recommended that the Government carry out further research into the reason why significant numbers of people claiming ill health benefits who come straight from work appear not to have been paid sick pay by their employer beforehand. Has that been done?

My very final question is that the impact assessment notes that HMRC periodically visits businesses to see if their payroll is running smoothly and it reviews payroll documentation including SSP and sickness absence records. Can the Minister clarify whether on those visits HMRC will still routinely review SSP records? I look forward to the Minister’s reply.

[Lord Bates]

I thank the noble Baroness for her questions and for the case study she gave us from the diocese of Durham, which of course I have a strong affinity with and want to see everything possible done to help. In considering that, the best thing that could happen to any small employer in that situation is that the employee returns to the workplace. The question is whether, through this reallocation of the resource from the threshold scheme to the health and work service, it is more likely that the person concerned will find a pathway back to the employer and the workplace, which is the best solution all round. Our view is that it will and that it is a better use of the resource.

The noble Baroness asked how the £50 million that is currently paid under the threshold scheme will be allocated. It will be used to fund the health and work scheme and the tax exemption for interventions which was announced in the Autumn Statement. Where interventions are recommended to get somebody back to work which incur a cost—for example, the provision of physiotherapy or a particular piece of equipment or a change in working practices—the employer will be able to offset that cost. Many large national or multinational companies have sophisticated HR departments which seek to address all these issues to get employees back into the workplace as soon as possible. However, micro-employers do not have that facility. They will be able to take advantage of the new scheme and make some savings as a result of it. That is one of the reasons why it is widely welcomed by them. Micro-employers will benefit more than larger employers for the reasons I have outlined.

Less than 10% of micro-employers make claims under the percentage threshold scheme, which raises another point that the scheme is so complicated and complex that many micro-employers who could benefit from it do not take advantage of it at present because they do not appreciate that it is there. We hope that with the publicity surrounding the new way of working through GPs and employers and employees, more will take advantage of the service, and that will be to the benefit of all. Micro-employers currently receive around 70% of the money paid out under the scheme. The average claim under the scheme is less than £500 a year, but this masks considerable variation. For example, around 25% of micro-employers claimed less than £200 in 2008-09.

The noble Baroness asked about a particular church employee. The health and work service will support the employee and the employer in the diocese to try to find a plan to enable the person concerned to return to work under the new scheme. She also asked why the scheme will not apply to Northern Ireland. However, this is a fully devolved matter for Northern Ireland and therefore it will make its own decisions on how the scheme will operate. The health and work scheme will apply just to England and Wales.

The noble Baroness asked about the abolition of associated SSP record-keeping. Employers will still need to maintain SSP records for pay-as-you-earn and tax purposes. There is no evidence to suggest that employers will not meet their SSP obligations as a result of record-keeping abolition. The HMRC statutory payments disputes process will continue to ensure that employers meet their obligations. There will be ongoing monitoring of disputes and the actions which are taken.

I think that that covers many of the points which were made. However, the noble Baroness may be about to tell me—

[Baroness Sherlock]

I would hate to disappoint the Minister and I thank him for going through so many of my questions.

I have a couple of specific points. His answer to my concerns about the record-keeping point was that the Government assume that since employers keep records anyway, there is no reason to assume they will cease to keep them. They say that in its routine visits HMRC currently inspects payroll records, including SSP records. Is it the intention of the Government that it will continue to inspect SSP records on these visits, even though companies are not specifically required to keep them in the form that is described here? The suspense is killing me—I look forward to hearing that answer.

Can the Minister explain again the position of micro-employers? My understanding was that 70% of the benefit was going to micro-employers, but I think he said it would be only 10% of the claims. Perhaps he could help me to understand that. The point I was trying to draw him out on, about the fact that the new service will more than compensate for the loss of the PTS, was that I can see that across populations that is true but if, as a micro-employer, you have only one or two employees and they cannot be got back to work because of the nature of their conditions, they will lose out. Was any thought given to whether they might be protected from that in some way?

[Lord Bates]

The noble Baroness asked about the HMRC visits. I am delighted to give her the answer, which is yes. She also asked for clarification on the 10% figure. I said that less than 10% of micro-employers make claims under the percentage threshold scheme, which I think was the point she was asking for clarification on.

I hope that noble Lords will agree that the abolition of the percentage threshold scheme is important so that savings can be reinvested in the new health and work service, which will benefit both employers and employees in reducing lost working days and increasing economic output. I commend the order to the Committee.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2014

Debate between Lord Bates and Baroness Sherlock

Monday 10th February 2014 Grand Committee

[Baroness Sherlock (Lab)]

My Lords, I thank the Minister for his explanation of this order, and I apologise for missing the first few seconds of it. Like my noble friend, I was caught out by the omission of this order from today’s lists, and I apologise to the Committee. I also thank my noble friend Lady Drake for her very detailed and extraordinarily learned analysis of the impact of this order and the ones that have preceded it. I hope very much that the Minister will be able to give it the answer it deserves, and I look forward to hearing that.

A helpful note on this subject from the House of Commons Library dated 17 December 2013 reminds us that the original idea proposed by the Pensions Commission chaired by the noble Lord, Lord Turner, of which my noble friend Lady Drake was such a distinguished member, was that the qualifying earnings band should start at the primary threshold for national insurance purposes and should finish at the NI upper earnings limit. The previous Government said in their 2006 pensions White Paper that they would adopt broadly this approach, so the lower and upper limits of the qualifying earnings band were set at £5,035 and £33,540 respectively, and provision was made for both limits to be increased in line with earnings.

The real jump came with the Government’s Pensions Act 2011, which introduced an earnings trigger for auto-enrolment set at a level higher than the lower limit of the qualifying earnings band, on which contributions are paid. As we have heard, for 2011-12 the trigger was set at £7,475 rather than the planned threshold of £5,035 in 2006-07 terms, and the effect of that was to exclude 600,000 individuals, 75% of them women. My noble friend went through some of these figures but I think it is worth rehearsing them because the Minister will have to give us an answer about the effect of these changes.

Since then, the exclusions have mounted up. In 2012-13, the trigger rose to £8,105, excluding 100,000 people, 82% of them women. In 2013-14, it rose to £9,440, excluding some 420,000 people, of whom 300,000—72%—were women. Now, as we have heard, by going up again from £9,440 to £10,000, the Government will exclude another 170,000 people, of whom 120,000—69%—are women. I would be very interested to know if the Government agree with the figure offered by my noble friend Lady Drake about the cumulative number of people who have been excluded from auto-enrolment by these changes.

The DWP paper titled Review of the Automatic Enrolment Earnings Trigger and Qualifying Earnings Band for 2014/15: Supporting Analysis—I commend the officials on its title—issued in December 2013, offers the defence that the reason that so many women are affected is that women are more likely to work part-time and to earn less than men, so they will be disproportionately represented in the group excluded from auto-enrolment. Well, yes, of course. That is not a defence, it is a reason, but that still leaves the problem. Now another 170,000 are to be excluded from the benefits of auto-enrolment into pension saving.

Of course, not only are women more likely to work part-time but there are those who work in more than one mini-job, neither of which takes them above the trigger point for being brought into this. Those women could, in fact, be earning significant sums of money on which contributions would be payable but because neither job takes them above the trigger they will not be auto-enrolled in either job. I would be interested if the Minister could comment on that.

As so much has been said already, I will ask just a small number of questions of the Minister. The DWP document I mentioned noted—and the Minister reinforced a version of this in his speech—that the Government used three principles in reviewing the automatic enrolment thresholds. The first of these is whether the right people are being brought into pension saving. Can the Minister tell the Committee how the Government reached the conclusion that excluding another 170,000 low-paid workers from the benefits of auto-enrolment met the condition that the right people are being brought into pension saving?

Secondly, with a trigger of £9,440, the target population for auto-enrolment is around 10 million individuals, of which only 37% are women; going up to £10,000, that falls slightly to 36%. When the Minister considers that figure, which came from the DWP’s excitingly named document, and the high proportion of those excluded who are women, is he satisfied that the Government’s approach to auto-enrolment is serving women workers well?

Finally, the paper argues that workers paid below the earnings trigger are likely to be able to achieve their target replacement rates through the single-tier pension if they remain low earners, and it may therefore not be beneficial to direct income from working life into workplace pension savings. If an individual earning £9,999 a year has an option to contribute to a DC scheme, should she take it?

[Lord Bates]

My Lords, first, both the noble Baronesses referred to the speed with which we have gone through the Order Paper. In fact, that caught all sides on the hop, and apologies are due all round. The responsibility, of course, lies in the preceding orders going too speedily. However, I am grateful to both noble Baronesses, who, in the exchanges we have had over many sittings on the Pensions Bill, have demonstrated their incredible grasp and knowledge of these complex areas, and have spoken passionately about the impact upon women in particular. I will come to these points, and respond to them as best I can.

One of the key things I said in the concluding remarks of my speech was that we recognise that setting these thresholds is a balancing act and that there is no right or wrong answer. It is therefore right that there should be a debate and that it has become an annual debate. It is an affirmative instrument and therefore any changes that are made annually have to come before your Lordships’ House for consideration. That is the right way to do it.

The other point of context we need to acknowledge, which the noble Baroness, Lady Drake, was good enough to make, is that the figures for auto-enrolment, which I accept came out of the Turner commission, which in turn came out of the Pensions Act 2008 under the previous Government, have been impressive. Significant progress has been made in encouraging the right people to save for their retirement. In pursuing that, we are absolutely on common ground.

It might be helpful if I went through some of the figures that we have for the number of people affected. Raising the 2014-15 value of the automatic enrolment trigger from £9,440 to £10,000 will exclude around 170,000 individuals, of whom around 120,000—69%—are women. Raising the 2013-14 value of the automatic enrolment trigger from £8,105 to £9,440 excluded around 420,000 individuals, of whom 300,000—72%—are women. I am going back through these numbers because it is a rough way of getting back to the calculation made by the noble Baroness, Lady Drake, which the noble Baroness, Lady Sherlock, asked me whether I agreed with. Raising the 2013 value of the automatic enrolment trigger from £7,475 to £8,105 excluded around 100,000 people, 82% of whom were women. Finally, raising the 2011-12 value of the automatic enrolment trigger from £5,035—in 2006-07 terms—to £7,475 excluded 600,000 individuals, 78% of whom were women. If one calculates those figures, one begins to recognise the numbers that the noble Baroness, Lady Drake, presented to us.

However, it is not so simple as to say that 70,000 women would be in automatic enrolment if their part-time earnings were brought together. I realise that there is a big education job to be done here, because many women who are underneath the threshold need to realise that if they are above £5,772 in terms of the lower earnings limit, they can opt in and therefore get the benefits that would accrue from that.

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[Baroness Drake]

I do not want to be too difficult. However, the Secretary of State has stated clearly that this is driven by his view that people should not be auto-enrolled into pensions until they start paying tax. That is not doing a balancing act; that has been the Government’s consistent position since 2010. The Hansard record shows that I keep asking the question, “Are you going to keep tracking the tax threshold, because if you keep doing that you will exclude more and more women?”. That is not a balancing act. If you did a balancing act, you would say, “What is the balance between that approach and the number of women excluded?”.

The Government have locked themselves in, both by the Secretary of State’s statement and by their behaviour since 2010, when they said that people who do not pay tax should not have the advantage of auto-enrolment. The benefit of releasing them from a certain level of tax is reduced by the fact that they lose the employer’s contribution, and we are now getting to a point where the gain from the increase in the tax threshold is less than the loss of the 3% of the employer’s contribution. So over their lifetime, the low-paid person is actually worse off.

[Baroness Sherlock]

My Lords, before the Minister answers that, I asked him whether he felt that the way in which the Government have designed the service served women well. His defence appeared to be that there has to be a line somewhere. The point I was trying to put to him is that the Government have designed this scheme in such a way that only a third of its target population are women; in other words, they have designed a scheme that will benefit two men for every woman. Does he feel that the way the Government have chosen to design the scheme benefits women?

[Lord Bates]

No more or less than raising the personal tax allowance thresholds is a policy that is designed to disproportionately benefit women compared to men. When the tax threshold goes up from £7,475 to £10,000, that is a massive benefit to women, particularly in lower income positions. That is money coming into their households, so they can decide what to do with it. Anyone with earnings over £5,772 will retain the right to opt in, as I have already said, with employer contributions.

The Pensions Act requires the Secretary of State to review the thresholds each tax year. That is a discussion which takes place. There is a strong argument that says there is synergy there between personal tax allowances at the £10,000 level, helping employers and employees to understand where that mark falls, but in no way does that guarantee what the policy will be going forward. It will be for the policy to be announced and the review to take place and the instruments to come forward next year.

I am trying to work my way through the many questions that the noble Baronesses have put to me. I am not sure whether I have answered all the points.

[Baroness Sherlock]

I will let the Minister off the first two, if only on the grounds that I am unlikely to elicit an answer that I will find helpful. But my last question was very specific: if an individual earning just less than £10,000 a year had an opportunity to contribute to a DC scheme, does the Minister think that she should take it?

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[Lord Bates]

The view is that this will be a personal choice for the individual faced with that challenge. It is a specific point. I know that the noble Baroness feels very strongly about this.

[Baroness Sherlock]

I am not asking this question because I feel strongly about it; I am trying to test the Government’s argument that the reason low earners should not be auto-enrolled is that it is not worth saving small sums of money. Do the Government assume that same stricture should apply to private pensions as well as to auto-enrolment?

[Lord Bates]

Each individual’s situation will be different. In some cases, they will have partners who will be earning more and therefore they will take a household decision to take advantage of the same scheme. For some people, that will not be the case and therefore they will not. We are saying that we want there to be a scheme. We want it to be as simple and straightforward as possible so that as many employers and employees as possible can get full benefit from it, and so that people can get into the habit of saving. It will be up for annual review. There needs to be much more education to ensure that all people who earn below that threshold realise that they can opt in should they wish to and should their personal circumstances make that the right choice for them.

I have tried to address as many as possible of the questions that have been put forward by the noble Baronesses, for which I thank them.

Pensions Bill

Debate between Lord Bates and Baroness Sherlock

Monday 20th January 2014 Grand Committee

[Baroness Sherlock]

I have a question to add to that. I am grateful for the Minister’s explanation as to why the Government feel they need to have some flexibility to deal with circumstances as yet unknown, but I do not think that the Minister addressed what the problem is with the specific amendment I moved. After all, the amendment does not seek to prevent the Government from having those powers; it simply says that the Government may not make regulations in such a way as to exclude categories of business such as small and medium-sized businesses from auto-enrolment. What is the Government’s particular problem with this amendment?

[Lord Bates]

I will come to the noble Lord, Lord McKenzie, in the first instance. We have said that there are three categories, which he rightly referred to: tax protection, leavers and retirees. Those are the issues that we have identified. We are, of course, having a consultation. One of the challenges we invariably have is that we phrase a piece of legislation and make certain statements on the record in terms of the progress of that legislation through the House. We give certain assurances and then put something in to say, “This is to cover for unforeseen circumstances”, to which the legitimate question is: “What are those circumstances?”. The legitimate response to that has to be that they are unforeseen at present.

Responses to the consultation are currently being processed. They will be dealt with and published later this year and could reveal examples that we have not actually identified at present. This is a new policy and a new area and we therefore need to look at this. As I made my remarks about unforeseen circumstances, I gave examples of areas where it would be unacceptable to exclude people from the terms. We have rejected these exemptions and certainly would not want to introduce them. We have identified casual staff and teachers with second jobs, for instance, as being examples of people for whom we would not want this provision to apply. However, there will be further consultation on this issue and I ask noble Lords, if not quite to trust the Government, at least to accept that sufficient assurances have been put on the record. We recognise that there is broad consensus, but this needs to apply to everybody. However, this is a young policy in general terms and therefore flexibility is still required.

[Lord Bates]

The short answer is that it is not easy. As the noble Lord will well know, given his experience as a distinguished Minister in the previous Government, it is not easy precisely to craft provision in those areas. We will seek to produce further examples by Report, following the responses received to the consultation. However, I can certainly assure the noble Lord that none of the responses has suggested that small employers should be excluded from the scheme. I know that is at the heart of the concern and, I hope, is at the heart of the reassurances which I have sought to give.

[Baroness Sherlock]

My Lords, I thank the Minister for that response, but confess that I am still a little uncertain about what the Government’s position is. I understood him to say that it is the Government’s policy that all categories of employer should be included and that the Government are still consulting and categories of person may emerge who they do not yet know about who they may wish to exclude in the future, and therefore they need to keep this open. So the question I am left with is: are the Government open to the possibility that somebody may make a compelling case for excluding a category of employer by size? If they are not, there is no reason for them not to accept this amendment. If they are, then, frankly, their assurances are not worth the time that they have been given today. I am disappointed that the Minister has failed to address the specific amendment. However, as we are in the Moses Room, and I do not have the option to do anything other than withdraw the amendment, I beg leave to withdraw it.

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[Lord Bates]

My Lords, these amendments allow for two simpler alternative tests for a scheme to demonstrate that it is of sufficient quality. These were developed following last year’s consultation on technical changes to automatic enrolment, asking for views on whether there is a simpler way to determine whether a defined benefit scheme is good enough for automatic enrolment.

As well as calling for a general simplification in these rules, responses to the consultation highlighted that once the contracting-out period ends in April 2016, all those schemes that are currently contracted out, and so considered good enough, must satisfy the test scheme standard. This is considered unnecessarily complex and burdensome, particularly as, until the end of the contracting-out period, the schemes will have satisfied the higher standard of the reference scheme test. The alternative tests provide for a scheme to be used for automatic enrolment if the cost to the scheme of the future accrual of benefits for active members would require contributions that are at least equivalent to one of two prescribed percentages of relevant earnings. The first will apply at the aggregate level, looking at the scheme as a whole, and the second will apply at the individual level and must be satisfied for at least 90% of relevant members. Moreover, in order to provide assurances about the quality of schemes satisfying this alternative test, the amendment ensures that the prescribed amounts will not be lower than 8% of relevant earnings, in line with the minimum level for total contributions into a qualifying money-purchase scheme.

We are mindful of the need to strike the right balance between increasing simplicity and flexibility and ensuring adequate member benefits across all qualifying schemes. This balance will be one of the key issues to explore as we consult stakeholders on the detail of the alternative tests, and will also be reviewed in 2017 to ensure that the legislation is working as intended. I beg to move.

[Baroness Sherlock]

My Lords, I thank the Minister for his explanation of these amendments. I have two questions. He may have answered them but, although I listened hard, it is hard to be sure. First, will he confirm whether the Bill, with these amendments, will qualify the existing accrued rights protections in any way? Secondly, will he assure us that, given the variations in definitions of pensionable pay, the new defined benefit scheme qualifying tests will be of no lesser standard than the certification alternative requirements used at the moment for employers using money-purchase schemes but using an alternative definition?

[Lord Bates]

I certainly give the noble Baroness the assurance that she rightly seeks with her second question: there will be that minimum standard. In answer to her question as to whether the amendments will qualify in any way the existing accrued rights protections, nothing that we are doing in this clause or in the regulations that we plan to make under it will have any impact on accrued rights.

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[Baroness Sherlock]

My Lords, as my noble friend Lord Whitty has explained, the purpose of this amendment is to ensure that the objectives of the Pensions Regulator, as set out in the Pensions Act 2004 and as to be amended by Clause 45 of this Bill, can be applied appropriately to charities.

We on these Benches are sympathetic to the aims of Clause 45 and recognise that there is a balance to be struck between the requirement on the Pensions Regulator to ensure that there is enough money in pension funds to meet their liabilities and the need to ensure that burdens are not placed on employers, with requirements so tough that they are effectively forced out of business and thus rendered unable to make any future contributions to said pension funds. However, as my noble friend pointed out, there are real concerns among those responsible for managing the finances of charities and other non-profit organisations over whether the clause, as drafted, is fit for purpose.

Charities have charitable objects that effectively circumscribe their purpose and activities. I declare an interest as the chair of some charities now and having been formerly chief executive of three different charities. I also remind noble Lords of the interest I declared previously as a non-executive director of the Financial Ombudsman Service.

As my noble friend has pointed out, charities do not necessarily aspire to grow as companies do. They may happen to grow, if demand is there and money is available to fund their activities. They may aspire to grow, to increase the number of people that they work with in line with their charitable objectives. However, they may not. In my time, I have presided over charities that grew but I have also taken decisions that effectively reduced charities by refocusing them on core objectives and ensuring that they were sustainable. While charities generally do grow, they also need to be sustainable, and that is what my noble friend is addressing here.

This is not a negligible issue. Registered charities employ around 850,000 people. The voluntary sector, according to the Charity Finance Group, contributes £11.6 billion to UK gross value added, compared, for example, to the contribution made by agriculture, which is just £8.3 billion. As my noble friend pointed out, there is a significant issue with charity pension funds. The Charity Finance Group estimates that the top 50 charities are carrying almost £5 billion in liabilities. I am advised that those liabilities, and the actions that have been required to flow from them, are driving a significant number of charity mergers. This is having an effect on the architecture of the sector, not just on the individual charities and their employees. Those charities are understandably nervous about any shift in direction or emphasis that is not appropriate to their circumstances.

I have personal experience of the fact that charities have often suffered at the hands of legislation or public policy that was based on the assumption that most organisations were either public or private and did not take into account the often quite different structure and funding arrangements of charities. The noble Lord has had significant involvement with charities and will understand that point.

If the Government are not minded to accept this amendment, can the Minister tell the Committee how the Government envisage “sustainable growth” being applied by the regulator to charities? What reassurance can he give to worried finance directors of charities? Can the Minister remind the Committee of what relationship, if any, there is between his department and the regulator when it comes to deciding how best to interpret their objectives as set out in statute?

[Lord Bates]

My Lords, this amendment relates to the proposed new objective for the Pensions Regulator. The Pensions Regulator oversees the scheme funding regime for defined benefit pension schemes. This regime requires, among other things, the regular evaluation of a scheme’s funding position and a formal recovery plan to plug any deficit identified.

In undertaking this evaluation, the Pensions Regulator is guided by a number of objectives set out in the Pensions Act. It is therefore important, in reference to the remarks of the noble Lord, Lord Whitty, and the noble Baroness, Lady Sherlock, that when we talk about this new requirement, it is placed in the context of the six or seven different measures that the Pensions Regulator will take into account in determining the funding rate that is necessary for the scheme to make up any deficit. While some consideration of sponsoring employers is implicit in these objectives, the new objective will make it explicit that the regulator must consider them, alongside members and the Pension Protection Fund, in deciding upon the suitability of deficit recovery plans and other decisions related to scheme funding.

The new objective responds to concerns expressed by sponsoring employers which felt that they needed to be recognised in the regulator’s statutory objectives, given their importance to defined benefit schemes. The current wording of the objective refers to sustainable growth, as the Government believe that the best protection for scheme members is a strong, healthy employer standing behind its scheme now and in the future. Whether that is a charitable organisation or a commercial organisation, its health must be the first objective in order to keep a sustainable body behind the scheme. Sustainable growth can benefit both the organisation and pension scheme members via a potentially stronger employer covenant underpinning the pension promises made.

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[Lord Bates]

My Lords, the four amendments I will speak to fall into two groups of two. The first two, Amendments 64A and 72A, relate to the application of the PPF compensation cap to individuals who have entitlement to both an occupational pension and a pension credit arising from a divorce or civil partnership dissolution settlement. It has come to light during the drafting of the Bill that the way in which the PPF currently applies the compensation cap to this group, while in line with the policy intent, does not comply with legislation. When compensation is calculated, these two entitlements are kept separate. It was the intention that the compensation cap would also be applied separately and this is what the PPF is currently doing. However, the legislation, as currently worded, requires the two amounts to be added together and the total capped, leading to a significantly lower payment. These amendments simply bring the existing legislation into line with the policy intent and the actual practice of applying the cap separately. They also allow the change to be applied retrospectively to cover past calculations and for them to come into effect from Royal Assent to reduce the period in which the practice and the legislation are out of alignment.

The second set of amendments—Amendments 67A and 67B—relates to the provisions in the Bill that establish a long-service compensation cap in the PPF. Those provisions in Clause 47 already make provision for how the long-service cap will apply in the calculation of PPF compensation for individuals in the PPF when the long-service cap legislation is commenced. The amendments deal with how the long-service cap should be applied when a scheme is either undergoing assessment by the PPF or winding up when the long-service cap is introduced. When the legislation commences, a scheme could be in the PPF assessment period—that is, being considered for entry to the PPF, or the scheme could be in wind-up.

Members of schemes in the assessment period will see their payments increased to reflect the long-service cap. However, any valuation of the scheme’s liabilities as part of the assessment period will continue to be based on the current cap structure. Any scheme that winds up outside the PPF, after being in assessment or not, will allocate its assets against the current cap structure. I hope that is absolutely clear. I beg to move.

[Baroness Sherlock]

My Lords, I thank the Minister for that very helpful explanation of these amendments. He may have answered the question that I am about to ask in his final sentence but I did not quite catch it, and I apologise for asking him to repeat it. In relation to the cap, for schemes currently in assessment, do the current PPF rules and levels of benefits or the more generous rules apply?

[Lord Bates]

The answer is that the current provision applies if a scheme is wound up outside the PPF. Schemes will increase payments where appropriate to reflect a long-service cap. However, the scheme’s liabilities will continue to be measured against the old cap. This is to prevent the actuary having to recalculate the scheme valuation, leading to delays and extra costs. I hope that that is helpful to the noble Baroness and thank her for raising the point.

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[Baroness Sherlock]

My Lords, the amendment in my name and that of my noble friend Lord Browne would require the Government to lift the restrictions on the National Employment Savings Trust, or NEST, on transfers made before 30 August 2014, and to notify the European Commission that they wish to lift the ban on the transfers and the contribution cap. Following this, and within 14 days of the notification, the Government would be required to make a Statement to Parliament.

The Government’s decision to legislate now but not to lift the restrictions on NEST until 2017, and to refuse to lift the ban on transfers in and out until pot follows member commences, is cause for real concern. Crucially, it cannot be in the public interest for the Government to proceed in such a way. Incidentally, I am sure that the Minister has noted the recommendation from the Work and Pensions Select Committee that the restrictions be lifted without delay.

I agree that there was a good case for having restrictions before it was clear how the market would progress, but these restrictions are no longer justified. The auto-enrolment market is now well under way and NEST has not taken all the business, which had once been a concern among some. Indeed, the restrictions have meant that NEST has been able to get less of that low and medium-earning segment than it otherwise would have done, which will contribute to the increase in the number of small dormant pots.

While the contribution limit will be lifted from 2017 by legislation, the restriction on individual transfers in and out of NEST will be left to coincide with the beginning of pot follows member. Whether the income cap is such a problem up to 2017, the continuing ban on transfers in and out will be. The DWP’s own research found that more than 80% of employers want one provider. However, the ban means that any employer who is thinking about using NEST but currently has a pension scheme of any type will be discouraged from using NEST because they cannot transfer in the pension assets in their current scheme. The Government are encouraging employers to use NEST but, by refusing to lift the ban on transfers in and out right away, they are discouraging those employers who currently have a scheme elsewhere. In this way, NEST is being disadvantaged against many of its market competitors.

Our amendment would enable employers who currently have an existing pension scheme to take their employees with their existing savings into NEST. While there remains a ban on transfers in and out, those employers cannot use NEST, or can use it only by leaving any existing pension pots in a stranded place, with a different scheme. Has the Minister considered that aspect of the Government’s decision?

It appears that what the Government are actually doing is ensuring that the restrictions on NEST remain until every employer has staged. By the time the NEST restrictions are lifted, auto-enrolment will be complete. There are a number of significant problems with the Government’s position. First, as the pensions industry acknowledges, NEST provides best-practice standards, which has obliged the insurance companies to improve their standards. Yet NEST is disadvantaged in competing for many of the low and medium-earning savers for whom it is designed. That may well result in customer detriment for many of those workers. Secondly, the Government’s proposals fail the public interest test. If large numbers of low and medium-earning employees cannot use NEST, it is thereby being prevented from delivering its public interest obligation. Thirdly, restricting NEST impacts on its financial position and makes it harder to pay back the state aid earlier and thereby allow it to reduce its charges even further. This again undermines NEST’s public interest obligation and its mission to deliver a low-charge, high-governance pension proposition. Finally, the rest of the industry is reported in the pensions press as increasingly not having the capacity or, possibly, desire to cope with all the employers who are still to stage in. Having had, it is said, the advantage of the NEST restrictions in place while larger employers move in, the rest of the industry is perhaps less interested in the smaller end of the market.

I trust that the Minister will be able to explain why the Government have so far refused to lift the restrictions. However, whatever has been said in the past, I urge the Minister to accept this amendment; but if he cannot do so today, I hope that he will take it away and reconsider before Report the strong case for these restrictions to be lifted—not in a few years’ time but now, before auto- enrolment is complete. I beg to move.

[Lord Bates]

My Lords, I thank the noble Baroness, Lady Sherlock, for giving me the opportunity to update the Committee on all things NEST.

As noble Lords know, the National Employment Savings Trust was established to support automatic enrolment, providing access to a quality, low-cost scheme for a target market of low-to-moderate earners and smaller employers. We are now just over one year into automatic enrolment and NEST has around 800,000 members and 2,500 participating employers. Opt-out rates are low, with only 8% of individuals enrolled into NEST choosing not to save for their retirement. NEST is already very successfully doing what it is there for—supporting automatic enrolment.

However, we are approaching a peak in the staging profile. Between April and July this year, 27,000 medium-sized employers will start to enrol their workers, and from April 2015 more than 1 million small employers will do the same. We anticipate around 65% of these small and medium employers will use NEST. By the end of staging we expect NEST to have admitted around 750,000 employers and to be providing a pension saving vehicle for between 2 million and 4 million members.

This implementation challenge is what we need NEST to focus on. We need to ensure that the millions of people currently not saving sufficiently for retirement are provided with an opportunity to do so, and that NEST plays its part in starting to make pension saving the norm rather than the exception. For this reason, during the implementation of automatic enrolment, it is critical that NEST focuses on the key task of getting employers and workers on board without distraction. That is why we announced that we will be lifting the annual contribution limit and transfer restrictions currently placed on NEST by April 2017, when implementation for all existing employers is complete.

I am pleased to advise the Committee that, following an invitation from the European Commission, the Government submitted a formal notification earlier this month of their plans to lift these two constraints. The Commission will provide its response in due course. Once this has been received, the Government intend to consult on draft regulations and bring forward secondary legislation later this year to lift the constraints in 2017.

These regulations will provide certainty that beyond 2017 NEST will be on a similar footing to other providers and its members in the wider pensions market. It will enable NEST to support the successful implementation of automatic enrolment but will send a clear message to employers that these constraints will not have any bearing on them in the longer term, helping them to make an informed decision about automatic enrolment scheme choice for their members.

The Government are committed to ensuring that the introduction of automatic enrolment is a success. Effective implementation is important for building and maintaining consumer confidence in the reforms. Removing the annual contribution limit and transfer restrictions by April 2017 is the right approach.

The noble Baroness asked if the ban on transfers stopped employers from choosing NEST. NEST already has 800,000 members and 2,500 participating employers. Given that the overwhelming majority of employers that have staged so far are large employers, the evidence suggests that the constraints have not unduly deterred employers from choosing NEST.

This is an operational capacity issue for NEST. The restrictions on transfers in and out of NEST were designed to enable NEST to focus on its primary objective of supporting the introduction of automatic enrolment. Between April and July this year, an anticipated 10,000 to 15,000 medium-sized employers will start to use NEST to meet their automatic enrolment duty. It will not stop there, with more than 1 million small employers starting to enrol their workers from 2015.

I hope that those comments and updates, and the responses to the questions that the noble Baroness rightly raised, will enable the noble Lord to withdraw his amendment.

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[Lord Bates]

The noble Baroness makes a important point in relation to this and I would not dissent from it. NEST has a vital role to play and we want it to be a success. However, it is new, and a new system is coming online, so this ought to be done through learning from experience in a gradual and incremental way rather than as a big bang, of the sort which has had its problems in the past.

[Baroness Sherlock]

My Lords, I thank all my noble friends who have contributed to the debate and am grateful to the Minister for his graciousness in revising his position. It is quite possible that my noble friends are in a better position to decide what the Labour Government intended by these measures than he perhaps is, despite his knowledge and his current position, since they were involved in shaping it.

Pensions Bill

Debate between Lord Bates and Baroness Sherlock

Wednesday 15th January 2014 Grand Committee

[Lord Bates]

Yes, and our hope and belief is that there will be higher standards. That cannot be issued by diktat and has not been covered. We are simply giving the powers and setting out the framework as to how we will go about that, but that discussion has to be had with the pensions industry. The conversation is ongoing and we will certainly be reporting on that progress.

I turn to some of the specific points that have been raised. The noble Baroness, Lady Sherlock, talked about the level of support and seemed to be fairly sceptical about whether there was any.

[Baroness Sherlock]

My Lords—

[Lord Bates]

The noble Baroness always asks an honest and genuine question, and I am trying to give an honest and genuine response, which is to say that we are not necessarily comparing like with like here. Although people understand how the pot-follows-member scheme might work—in other words, they will have just one pot, and everything will be transferred into it—they do not necessarily understand what the noble Baroness is proposing in terms of alternatives, whether they are single, multiple or virtual aggregators. Therefore, to give a clear-cut position on that is somewhat difficult.

It was drawn to my attention today that Adrian Boulding of Legal and General, one of the largest pension providers, in today’s Pensions Expert, formerly Pensions Week, says:

“the concept of your pension pot following automatically to a new employer is now not far off. The long-term benefits of people having ‘one big fat pension pot’, as the minister likes to call it”—

I think the Minister he is referring to is my right honourable friend Steven Webb—

“will be greater consumer engagement, more informed decisions, greater buying power and better pension outcomes. All well worth striving for”.

--- Later in debate ---

[Baroness Sherlock]

I thank the Minister for that response and am also very grateful to all noble Lords who have contributed to this discussion. The noble Lord joked at the beginning that the Turner commission had been quorate. I think when he reads Hansard he may find that slightly less funny than it seemed on the face of it. If I was sitting where he was sitting and two-thirds of the members of the pensions commission told me that I had got this wrong—auto-enrolment and all that flowed from it was based on their recommendations—I would be thinking very hard indeed at this point.

I am very grateful to the noble Lord, Lord Turner, for what seemed to me a pretty damning indictment of the fact that, although we may share an objective, the way the Government are going about trying to achieve this will not tackle the very grave consequences of market failure in the pensions market for savers who are depending on the results of those investments for their retirement income. As my noble friend Lady Turner pointed out, that is one of the most significant issues facing not just the Government but, frankly, this Committee.

I am sorry. I have a great deal of respect for the Minister but I am afraid that he was unable to answer the major questions that came up today. I do not blame him for that. He did not invent the policy: it was invented in another place and he is doing a good job of defending it. But the fundamental questions are out there unanswered. The noble Lord, Lord Turner, pushed home the consequences of that market failure on high costs and charges and what that does to savers’ incomes, and the fact that, despite the Government's best intentions, pot follows member simply does not contain within it the means for addressing that.

The noble Lord also pointed out the consequence of what happens to savers’ incomes in retirement of not getting that right now. Those effects will run for a long time. I was very grateful for the intervention of the noble Lord, Lord Stoneham. Given the origins of this Bill, I thought it was a brave and helpful intervention. But the questions that he posed about how pot follows member can deal with old pots and multiple moves are still sitting on the table. It will be interesting to hear whether there is some small movement on auto enrolment pots, but we will still have the issue of significant numbers of dormant small pots.

We still do not have an answer, as my noble friend Lady Drake pointed out, to the problem of people who are leaving the labour market altogether either to become self-employed or simply to leave the labour market. What happens to those pots?

We did not really get an answer as to why, when so much of the Bill is remarkably loose, the Government suddenly get very prescriptive in this area and solely specify PFM on the face of the Bill. As my noble friend Lady Drake pointed out very powerfully, there are some major difficulties of implementation. The Minister is calling for speed and action now. He must know that the barriers to implementation described by my noble friend Lady Drake are such that he is not in a position to press that button now. If he is, he might want to respond to the questions that she posed about the IT challenges, the standardisation challenges, the huge issues of implementation and the need to build consensus across the industry to prioritise savers’ interests. If he feels that the Government have all those cracked, I encourage him to stand up and intervene and tell me now. Otherwise, there is a lot more work to be done. All this amendment is trying to do is to make sure that that work does not abandon the alternative option—which may in the end be the saving of our shared objective—when there is no need to do so at this stage.

I am also concerned about some of the points that the Minister raised in response to there being no single model. I would be very happy to work with the Government to see if we can build consensus around a single model of an aggregator. If that is what the Minister offers, let us work together to try to do that.

The Minister said that there would be more consolidation in pot follows member. Leaving aside for one moment the serious concerns about the judgment made in the impact assessment raised by my noble friend Lady Drake and the noble Lord, Lord Turner, if pot follows member does not tackle the full range of risks that have been described, then that simply does not answer the question. The Minister again gave an argument that most annuity providers would require a minimum level of pot and the point of decumulation, but again he did not take on the point made by my noble friend Lady Drake, which is that being able to buy in bulk in the market, which an aggregator could do at the point of decumulation, actually opens up whole opportunities in that area.

He made the point about good and bad schemes and that there should not be any bad schemes. I completely agree with him, but there are 200,000 pension schemes in this country. The chances of getting all those up to an optimum level before this is introduced are frankly unrealistic. Given that, the point made by my noble friend Lady Drake stands even more strongly. Even if the Government could guarantee to get all those schemes up to what they would regard as an acceptable minimum standard in the context of the criticism of market failure made by the noble Lord, Lord Turner, and even if they could do that fast, there will still be a significant difference between the best and worst returns. For reasons I will explain in a moment, that seems to be very difficult in the context of auto enrolment.

I was pleased that the Minister managed to find some backing for his scheme from a survey. Did he say that the survey was conducted by the ABI?

[Lord Bates]

Yes.

[Baroness Sherlock]

That is marvellous. So the ABI backs a scheme and the survey conducted by the ABI backs the scheme. That is excellent. I think it still leaves out some possibility that there may be other people out there who do not back the scheme. Perhaps it was the other way round. Either way, I think it is the same point made differently. None the less, I take the point and thank him for sharing that with us.

The Minister also made the point that there will be real attractions—and he quoted someone from Legal & General saying that it was clear that the direction of travel from the Government was for pot follows member. There are—but, of course, this is a Bill, not an Act. It is open to Parliament to make a decision if it does not agree with what the Government are proposing, and so far this Committee clearly does not agree with what the Government are proposing. Not one person who has spoken backed the Government’s plan; all backed the alternative. So we still have an opportunity. He also went on to say that many advantages have been mentioned of people having one big, fat pension pot. Of course, there is no reason why that big, fat pension pot could not be sitting in a well performing, well regulated, successful aggregator.

That takes us to the fact that we have two significant public policy dilemmas or issues. The challenge that we have here is made all the more significant by the fact that it comes on the back of auto-enrolment. This is not an individual employee making a choice to go to a pension fund, place their money in it and take their risks in the market. This is somebody who is not choosing, but is simply choosing a job, and by doing so will be forced by default, if they make no other choice, automatically, without their express consent, their pension pot will be moved from their previous employers to their new employers. That is in the context whereby already the state has auto-enrolled them. So step one, without any active consent, we have auto-enrolled them in a pension scheme. Step two, when they move jobs, without any active consent we default moving it with them to the new employer. Doing that in a context where the level of return that they might have expected to gain with the old employer could, potentially, be significantly higher than that which might be enjoyed with the new employer, creates the possibility that the state is creating consumer detriment on a significant scale. That is a very serious challenge, and in that context I suggest that the Government’s proposal of pot follows member has a very high bar to pass.

Finally, the other public policy point is that, if one of the consequences of this is that significant numbers of savers end up with lower retirement incomes than they might otherwise do, that is bad for them, but it is also bad for us as a country. I think that my noble friend Lady Drake quoted from the impact assessment, which suggested that the gains and losses would balance out across the piece. Even if that is true, and I do not know the impact assessment well enough to be sure—I do not have enough confidence in it yet to be confident of that—that does not help us individually. On average, the life expectancy may be X, but if mine is significantly below and yours is significantly higher, the difference matters quite a lot to me, because although on average we may both die at 84, if I die at 60 and you die at 100, that does not make me happy. So the consequences for individuals are really quite significant.

Given all that, there is also the fact that the distribution will mean that, if savers do not go into retirement with the kind of incomes that the Government expect them to have, the whole strategy for retirement on which this is predicated begins to be called into question. So this whole Bill is predicated on an assumption that future generations of savers will have higher retirement incomes because of all these actions taken. It is, therefore, absolutely incumbent on all of us to make sure that the Government get this right. All this amendment does is to put the aggregator option into the Bill. I urge the Minister to accept it and to work with us in doing that. We will definitely return to this matter at a later stage but, since this is the Moses Room, I beg leave to withdraw the amendment.

Welfare Benefits Up-rating Bill

Debate between Lord Bates and Baroness Sherlock

Tuesday 5th March 2013 Lords Chamber

[Baroness Sherlock]

My Lords, I thank all noble Lords who have spoken in this debate, which may be an interesting precursor to the kind of debate we may have when the commission finally reports. I am particularly and genuinely pleased to hear the Minister say two things—first, that the Government remain committed to eradicating child poverty and, secondly, that income matters. They are both important statements, and I welcome them and am very pleased to have them on the record. I thank the Minister for making them so clearly.

The noble Lord, Lord Bates, with whom it is always a pleasure to do battle, took me to task for saying that I did not somehow accept that the Government made clear their commitment to eradicating child poverty. What I was challenging was not that commitment but whether or not the actions were being taken that would make it a reality. That was the point that I was trying to make, and I apologise if that was not clear. My question was really about what one does to make a difference.

A lot has been said about the nature of the measure. I have never thought that the well-being of children was about only money. However, the reason why this amendment is about money is because the Bill is about money; the amendment is about the impact of the Bill, and the Bill is solely about what happens to the tax credits and benefits that go out to people—in this case, children. So it makes no sense for it to be any broader than that.

The second thing that is worth saying is that I made it clear that the relative income measure was, deliberately, only one of four income measures in the Child Poverty Act, and that was for a reason. The Government of the day recognised that we had to take a 3D approach to understanding what poverty was, and no single measure alone would be able to give us all we needed. However, those four points of perspective between them give a pretty good idea of what is happening to incomes across the UK. That is something that we need to understand.

The noble Lord, Lord Bates, commented on the regional variation of median income. That is true, but the cost of living also varies. As he and I both know, the cost of living in Durham is significantly different from the cost of living in London. So although wages may be different, so too is income—and the measure relates to median incomes.

It is also worth reminding ourselves that the Child Poverty Act does not—

[Lord Bates]

That is quite an interesting point, if the noble Baroness is prepared to expand on it on the record. I think that she accepts that it is true in Durham, a city that we both love greatly, that median incomes—or, rather, average incomes—are significantly lower, by 44% according to my figures, and that the cost of living is different and lower. So in those circumstances —putting the two together by using a national measure and putting 60% of median income—you would perhaps overstate the level of child poverty in Durham. Does she accept that?

[Baroness Sherlock]

It might be worth the noble Lord and me sitting down together with the Child Poverty Act. He might find that many answers to his questions are in there. As well as giving the Secretary of State a specific duty to address income measures, because tax and benefits are in the gift of central not local government, with the exception—reprehensible in my view—of the recent move to localising council tax support, the strategy places a duty on local authorities and other players to engage in issues around child poverty, specifically because they have competence in those areas. So if the noble Lord goes back to read it, he will find that there is an awful lot more in it than he perhaps remembers. We may have to come back to that.

It is also worth coming back to the idea that it is not just about money—but it is also not not about money, a point made very clearly by my noble friend Lady Farrington. The noble Lord, Lord Bates, said that the fact that the Labour Government did not meet their target for child poverty reduction means that the measure does not work. I do not think that it means that at all. I pick up again a point that the Minister made. I fully accept that no forecast is a precise measure and no measure is precise, but one reason for keeping a long-term target of 2020 is that what really matters is direction of travel. Over time, how does the income of the poorest relate to the income of the country as a whole? On that, I am proud that our Government lifted 1.1 million children out of poverty. If I had to stand up and say that we had pushed 1 million children into poverty, I would be ashamed of that, and I am very glad that I am not in that position.

If the Government come forward with other measures, we will happily debate them. I am always open to any conversation that focuses the attention of this House and the nation on the well-being of the poorest families, and I am very happy to have the conversation when the commission reports about what that means and what the best means is to assess the impact of policies on that. However, at the moment, the Child Poverty Act is law, and it puts an obligation on the Government—a statutory duty—to address child poverty in all these areas. Unless they measure that, I simply do not see how it is possible to satisfy themselves that they have done it.

The Government’s defence has also partly been that the measure is meaningless. It may be worth reminding ourselves even of the relative income measure. The Child Poverty Action Group reminds us that a relative low-income poverty line is, typically, around £12 per family member per day for all spending needs after housing costs. It notes that many families in poverty will be far below that—because that is where the line is, and many families are way below the line. The point of having four measures is to try to understand the impact of policies such as this on all those measures. I accept that other measures are going on. I accept the point that the noble Lord, Lord Bates, made—and he has engaged with the arguments from this side of the Committee most comprehensibly—that other measures are happening and that there are time lags. However, it is impossible to ignore the fact that a Bill that sets out deliberately to cut in real terms the incomes of poor and middle-income families will do anything other than increase child poverty in real terms. That is a real increase—it is not a statistical anomaly.

I do not want to delay the Committee much more, but I remind noble Lords that the amendment simply invites the Government to report before they enact this Bill on what the impact will be on child poverty, using measures already in statute to reflect a duty that the Government already have in statute. That is all that it does; it could hardly be less radical. However, as I am interested in returning to this at a later stage, I beg leave to withdraw the amendment.