Poverty

Lord Haskel Excerpts

Thursday 22nd July 2010 Lords Chamber

[Lord Haskel]

My Lords, I am not sure of the collective noun for maiden speeches—an avalanche, a torrent? Whatever it is, we have had it today and I congratulate all noble Lords who have made maiden speeches. They have demonstrated the genuine concern in your Lordships’ House for the poor and the vulnerable. I hope that the Government will take note of their concern that such people should not be exploited but should be given a fair deal.

The coalition Government are in a hurry. They are hurrying to change the nature of education, they are hurrying to have fewer public services delivered by the state and they are hurrying to change the economy. However, when you hurry, one thing stays the same: the law of unintended consequences remains alive, well and flourishing. As my noble friend indicated in his authoritative speech moving the Motion, it is the poor who are the victims.

Let me give some examples arising from the increase in VAT—a rise that has caused concern to many noble Lords. Some of the examples that I consider important have been mentioned by other noble Lords. Was it really the Government’s intention to take away half the surplus of the housing associations? Many speakers are concerned about the effect of the Budget on affordable housing but, according to Mr David Montague, chief executive of the London & Quadrant Housing Trust, the increase in VAT will cost the housing association sector £125 million, which is half its surplus. The Minister knows that it is the poorer households that are increasingly concentrated in social housing. If you want to eliminate poverty and enhance life chances, social housing is essential. Amid all their talk of fairness, did the Government in their Budget really want to make life more difficult for the housing associations? The noble Lord, Lord Best, reminded us that housing benefit is a third of the income of the housing associations, so their work will be doubly more difficult—more VAT and less housing benefit. Was this really the Government’s intention?

Was it really the Government’s intention to victimise poor women more than men? As my noble friend Lord McKenzie told us, women have lower incomes, so the VAT increase will hit them harder. This effect on poorer women is supported by a recent paper from the House of Commons Library that shows that the extra VAT raised will come disproportionately from women. In addition, because of their lower incomes and their greater caring responsibilities, women are bigger users of public services, both for themselves and for those for whom they care. They will have to fill the gaps left. Do the Government really intend to victimise women more than men—or is this the law of unintended consequences at work?

Was it really the Government’s intention to penalise charities? According to the Charities Aid Foundation, charities will pay £140 million a year more in tax. Therefore, charities are going to be hit in two ways: they will have to pay more VAT and their income will be reduced because of the hard times. Yet, as the noble Earl, Lord Clancarty, reminded us, the Government and society look to the charities to help the poor, the unfortunate and those who cannot cope. Indeed, a third of their income comes from the Government because the Government look to charities to provide services that many of us consider essential. I cannot believe that it was the intention of the Budget to penalise them—or, again, is this the law of unintended consequences at work?

The only way to deal with the law of unintended consequences is to legislate, not through dogma or political belief, for what works—for what gives the intended consequence. Like other noble Lords who have spoken, this forces me to the conclusion that this Budget is more driven by politics and less driven by the need to deal with our deficit. Perhaps there are no speakers from the Conservative Back Benches because it is impossible to defend ideology triumphing over common sense. If it were otherwise, the housing associations, women and charities would be compensated with increased benefits for the rise in VAT. Surely that is right, because VAT is a tax that does not take into account your ability to pay. That is why it is regressive.

On average, the rise in VAT will cost every household £500 per year, irrespective of ability to pay. That is why it hits the poor hardest. Before the election, the Liberal Democrats often spoke of raising a similar amount through taxing unearned income or through carbon taxes. Since the election, they have been silent. I join my noble friend Lord Watson in asking whether the Liberal Democrats have deserted the poor by having to defend a Conservative Budget—or is this another unintended consequence?

The stated aim of the Budget was to protect the vulnerable. My noble friend Lord McFall told us that that was shown to be misleading by the IFS. It was shown the following day when the IFS helpfully disaggregated George Osborne’s June Budget alongside Alistair Darling’s March Budget. They were shown separately and are dramatically different. The bias towards those on lower incomes that characterised the Labour years has more or less been inverted in the first coalition Budget.

This unfairness to the poor is further emphasised by the inconsistencies in the Budget architecture, as Chris Wales pointed out in a recent Smith Institute seminar. The Chancellor won praise for his commitment to the triple lock for uprating the state pension, but people on welfare benefits live in the same world as pensioners, often with higher demands placed on them and even less to live on. Unless the Government believe that they are all scroungers living off the state when they should be working, it would be logical to assume that, in the interests of fairness, the poor on benefits should have the same uprating guarantees. Is that unintended neglect or just plain right-wing politics?

Of course, other aspects of the Budget will hit the poor unfairly and other noble Lords have mentioned them. What concerns many of us is the gigantic gamble that the Government are taking with people’s jobs and livelihoods. The Government are convinced that we are spending too much on the workless and at the same time that work has to be transferred from the public to the private sector. It is not rocket science to identify some of the unintended consequences of that on poor people’s jobs. It is a gamble, because there are so many uncertainties. Business will not invest without demand, yet the economy is being starved of the money necessary to create the demand.

Also, a high proportion of people depend on benefits because of low pay. One-third of households have state benefits. If, as we are told, there is to be a high number of unemployed people, pay will stay low. Will that low pay be subsidised by tax credits? If so, jobs will be transferred to the private sector to save money, but they will be subsidised with public money. That seems curious economics to me. Surely if the jobs are going to the private sector to reduce the burden on the taxpayer, it makes sense for private sector employees to get a living wage and not the minimum wage mentioned by the noble Baroness, Lady Donaghy, which has to be subsidised by the taxpayer. Are these more unintended consequences or just crazy economics?

Surely the right question to ask is why people are in low-paid jobs and what can be done about it. I agree with Iain Duncan Smith that you have to make sure that there is enough financial gain for people to benefit from work. You have to support poor people in work for a short time until they get to work longer hours or are promoted. Do the Government have a plan B? Is there a plan to delay the rise in VAT until the cuts in public sector jobs are in balance with the rise in private sector jobs? Is there a plan to think through all the unintended consequences? Is there a plan to protect the poor as things go wrong?