Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2016

Lord Kirkwood of Kirkhope Excerpts

Monday 7th March 2016 Lords Chamber

[Baroness Manzoor (LD)]

My Lords, I thank the noble Lord, Lord O’Neill, for that overview of the income disregard level applied to working people on tax credits. As I have said previously, I was delighted when the Chancellor decided not to move forward with his proposed cuts to tax credits; however, despite the perception that changes to tax credits were stopped entirely, the reality is somewhat different.

We all know that the cuts to universal credit, while they mirror precisely the tax credit cuts and matter more in the long run, will go ahead, despite the efforts of those on these Benches to stop them. They will, in the long term, affect millions of the low-income working people the Chancellor claims to support. There is also another hangover from the plan to cut tax credits—the change in the income disregard obliquely referred to in the Chancellor’s Autumn Statement. These regulations will reduce the additional amount a person can earn while claiming tax credits in any given year from £5,000 to £2,500, as we have just heard. That means that if a person’s salary exceeds their expectations by more than £2,500 they will face an overpayment at the end of the year.

Overpayments can cause real hardship for those on low incomes, who get what amounts to a bill at the end of the tax year. For those living week to week, this can prove catastrophic, forcing them into rent arrears or limiting their ability to put food on the table. So, the level of the disregard matters. If the Government truly cared about making work pay, they would ensure that the level of the disregard allows people to feel confident in taking on additional hours, or taking a promotion, without worrying that they are going to breach the tax credit disregard and face an overpayment charge at the end of the year.

The income disregard is particularly important for those taking on unpredictable work. I want people to take up a job, assuming they are able, regardless of the job. Unlike some, I do not think, for example, that zero-hours contracts are fundamentally wrong. Indeed, for some people they are a useful tool to balance their work and personal lives. While there are concerns about their exploitation in some sectors and by some businesses, ultimately, we want people to feel able to take up a job, even on zero hours, and feel confident that it is the right decision. So, the level of the income disregard matters in giving people confidence to take up work; setting it at a level where it hits only people whose salary increases substantially is important in giving that confidence.

I do not believe that £2,500 is enough of a disregard to prevent significant overpayments. What is the primary reason for that? We have been here before. The Minister is absolutely right that when tax credits were first introduced by the Labour Government in 2003, the disregard was set at £2,500. The result was £2.2 billion of overpayments, which affected 2 million households—a third of all tax credit claimants—who were hit with overpayment debts that year, many of which ran to thousands of pounds. That meant that millions of low-income working families faced unexpected changes that they struggled to pay for. Do we want to return to that state of affairs? The Labour Government, realising this problem, hugely increased the disregard, all the way up to £25,000. Many would see this as a sledgehammer to crack a nut, but it had the desired effect. Overpayments by HMRC fell significantly in the subsequent three years: from £2.2 billion to £1 billion for the years 2006 to 2009. The Government decided to reduce the size of the overpayment buffer zone: first, in 2010, from £25,000 to £10,000; and then to £5,000 from April 2013. Reports by HMRC show that as the income disregard has reduced in value, overpayments by HMRC, unsurprisingly, have increased. By 2013-14, when the disregard had returned to £5,000, the total amount of tax credit overpayments had again reached £1.9 billion—almost back to 2003 figures.

The £2,500 disregard proposed in the regulations would, in real terms, be the lowest threshold ever imposed on tax credits, given the inflationary changes since 2003. There is a risk that it will lead to further significant increases in overpayments and hardship for low-income working families. Yet in making this decision, the Government have offered little evidence as to what the impact of these changes will be. The original regional impact assessment, which was published alongside all the tax credit cuts, simply scored the savings of the change in disregard, which was mentioned only twice in the entire document. No further impact assessments have been made for these regulations.

In response to the Secondary Legislation Scrutiny Committee, the Government said that they expect that 800,000 people will be affected by this change. However, they seem to offer little explanation of this estimate or of what the average impact on each person will be. We should not allow the Government to make such big decisions, affecting so many people on low incomes, based on so little information. In the Commons, Ministers utterly failed to give further explanation, simply saying that the majority of those hit will be couples, and the majority of those will be male-female couples. That is simply the law of averages, not an adequate explanation of the impact of the Government’s policy. I also note, for those on the Labour Benches who are hesitant to support a Lib Dem Motion to Regret, that their own Front Bench in the Commons stated that the Opposition are seriously concerned about the impact of the reduced figure of £2,500 on low-income families, and rightly divided on the issue. It is therefore surely right for the House of Lords Opposition Front Bench to follow their Commons colleagues in voting against these regulations, albeit on a Motion to Regret rather than attempting to stop the Commons having its way.

The Minister was always likely to say that things have changed since 2003, and indeed he did. He said that this change is because of the new real-time information system, which will cut overpayments as RTI uses monthly pay figures to spot an income rise during the year, so that tax credit payments can be adjusted quickly instead of leaving a debt to be paid at the end of the year. However, organisations such as the Child Poverty Action Group say there is no mechanism allowing tax credit awards to react automatically to many of the changes in circumstances that currently affect entitlement to tax credits, such as a change in the presence of a partner, the number of dependent children, spending on formal childcare, or whether parents work more or less than between 16 and 30 hours a week. Entitlements to tax credits change on the day when these changes occur, yet awards cannot be adjusted until families tell HMRC, which recalculates the entitlement. Overpayments often arise during this intervening period but that will not be picked up by real-time information. How do we know that? Because it is not picked up at the moment. If real-time information worked, we would not have seen, as I noted earlier, the increases in overpayments that have occurred since the £5,000 disregard was put in place.

These regulations will have a big impact on families, but do they actually benefit the taxpayer? I suggest that the benefit is likely to be limited. There is real concern that, in the end, it will end up costing HMRC more in trying to claw back the overpayments than it will have saved in lowering the disregard. HMRC figures show that as of June 2014, no less than £5.6 billion in tax credit overpayments was owed by households, £89 million of which was from 2003-04. So these regulations are likely to put a significant financial burden on families and deter people from taking on additional hours of employment, and yet may not in the end result in the overpayments being returned to the Treasury. This is a badly thought through plan that runs counter to the Government’s supposed aim of incentivising people to take up work.

We must understand that this is only a short-term fix. Universal credit, as the Minister has said, will replace tax credits in a few years. That is very welcome, since that system will do away with the need for disregard altogether—exactly the right approach to the overpayment problem. As universal credit comes in, the scored savings from the cutting of the disregard reduce significantly, so these regulations are likely to hit millions of people over the next few years to no long-term end. This is bad law, poorly justified by the Government and running counter to their own stated aims. That is the reason for my Motion to Regret. I beg to move.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, I am delighted to be able to follow my noble friend. She has done the House a service this afternoon in raising this very important issue. It is particularly important for the Liberal Democrats because, in our reduced circumstances in the Commons, it was impossible for us as a group to take part in the debate on Thursday 3 March when these draft Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2016 were discussed in the Delegated Legislation Committee. Now, we have a straightforward and excellent statement of what the Liberal Democrats in Parliament think about these regulations, and my noble friend did a tremendous job in that regard.

We also owe her a debt because she brings in front of us a Treasury Minister who is a significant figure, not just because he is a Minister in the Treasury but because of his background. I hope that more than anything else this afternoon he will say to us straightforwardly that he is going to take an interest in these regulations. His name is now on them. He is an experienced hand, he understands statistics and he understands how processes of administration work, and I have some questions for him.

--- Later in debate ---

[Lord O’Neill of Gatley]

Let me respond to the two specific points made by the noble Baroness, Lady Manzoor. The first is linked to the question put by the noble Lord, Lord Tunnicliffe. As I said, there are a number of ways one could think of to make a rational response, and one of the reasons I hesitated to go down the path that the question sought to take me is that it is important that this be seen in the context of what is happening with universal credit. Rather than prejudging what is implicit in both questions, which is that the real-time information system will not succeed in the way we believe it will, I think we should give it a chance.

In response to the second point made by the noble Baroness, I suspect that a number of noble Lords will not be aware of something that is technically quite complicated; there may not be sufficient awareness of what we are trying to deal with here. The reason why the disregard is being put back to its original level is because there are people who receive a significant increase in their income where there is no consequence without it coming back down. That is why all members of the coalition were perfectly happy to reduce it so significantly at the start of the last Government.

[Lord Kirkwood of Kirkhope]

I appreciate that the Minister is trying to make progress, but I wonder if I could ask him a brief follow-up question to RTI. Is he confident that the new system which is to take effect in a few days’ time will be sufficiently sophisticated to disaggregate the data flows in the new system from the old system? Otherwise the overpayments that are overhanging the data at the moment will make it impossible for any statistical changes to be determined in the new system as opposed to the old, in terms of how successful or otherwise it might be.

[Lord O’Neill of Gatley]

My Lords, I have not personally studied the RTI system in enormous detail, but I am confident in our officials’ advice and guidance that the system has been sufficiently upgraded to enable us happily to undertake this policy initiative.

Medical Innovation Bill [HL]

Lord Kirkwood of Kirkhope Excerpts

Friday 12th December 2014 Lords Chamber

I hope that noble Lords will accept Amendments 8, 9, 10, 14 and 15 in the name of the noble Lord, Lord Saatchi, which provide useful clarification as to the scope of the Bill and the availability of the common-law Bolam test to doctors who choose to or choose not to rely on the Bill.

[Lord Kirkwood of Kirkhope (LD)]

My noble friend has helpfully explained the Government’s position regarding the new amendments tabled by the noble Lord, Lord Saatchi. I support his amendments. What I am unclear about is whether any special provision has been made for the risks of mental health which were raised in Committee. Does the department believe that the Saatchi clutch of amendments gives sufficient protection for patients receiving innovative treatment who suffer from mental illness?

[Baroness Jolly]

My Lords, I am waiting for confirmation from the Box on the mental health issue. If the noble Lord will be patient, I believe something is coming. The answer is no, but under a special provision doctors can choose. I hope that is clear to the noble Lord.

Public Sector: Debt

Lord Kirkwood of Kirkhope Excerpts

Thursday 23rd January 2014 Lords Chamber

[Lord Newby]

My Lords, the Government are determined to bear down on the level of public debt. Under current plans the debt will peak at 80% of GDP in 2015-16 and will then begin to fall. Whether the fiscal consolidation is dealt with entirely by cuts in expenditure or whether there will be a balance between further constraint on expenditure and additional tax increases, is, I suspect, one of the battle lines that will be drawn in campaigning for the general election.

[Lord Kirkwood of Kirkhope (LD)]

My Lords, reducing the annual deficit is one thing; eliminating net public sector debt by 2018 is quite another. Can my noble friend give the House an assurance that in future, deficit reduction policies, including the capping of annually managed expenditure, will be pursued by the coalition Government only if protection is made available for low-income households?

[Lord Newby]

My Lords, sadly, we are not going to abolish the debt by 2018, although I hope that we shall abolish the annual deficit by then. The Government have set out expenditure plans for 2015-16; how expenditure falls beyond that will, as I said, be the task of the next Government. The parties will set out their plans, and my party has already explained that it would expect further fiscal consolidation to take place, but that a proportion of that fiscal consolidation will need to be borne by the shoulders that are broadest.

Economic Prosperity and Employment

Lord Kirkwood of Kirkhope Excerpts

Thursday 18th July 2013 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to follow the noble Lord, Lord Mitchell, in his interesting and powerful speech, with which I entirely agreed. This is an important and timely debate. The thing that I am picking up from the debate—I hope that the Government are picking it up —is that things are really seriously changing, not just economically but technologically, in a way that is often hard to grasp. Governments need to make plans on the basis of a much longer-term perspective to try to accommodate some of these changes. We have heard that from the noble Lord, Lord Monks, with whom I agreed, the noble Lord, Lord Skidelsky, with whom I agreed as well, and the noble Lord, Lord Giddens. All of them made important analytical speeches and all were looking forward and trying to understand the significance of the extent of the change that we have seen. I certainly think that investment banks and digital revolutions are part of that consideration and analysis.

The role of Government is twofold. First, we need to start thinking about managing expectations better in terms of what the future is realistically likely to hold. As part of that discussion, we need to consider how sustainable growth will look and can be provided in the middle to longer-term future. I have real fears that the rather loose assumption that we are going back to the trend levels of growth that we have known in the past is likely to be wrong. The Government need to be brave enough, if they believe that the analysis justifies it, to start discussing these issues in a grown-up way with the public and shaping people’s expectations about wages, growth and living standards over the middle to longer term. That is a very important role for the Government at the moment because of the exponential levels of change that we may be witnessing.

Secondly, the Government need to plan a little more coherently and systematically what the future policy framework is. We had some powerful speeches from colleagues earlier about the need for continuity. Two or three colleagues mentioned the importance to SMEs of continuity. I agree with that. As a foot soldier in the modern coalition Government, I struggle sometimes to understand what the growth policy is. I understand what the austerity policy is because that hits me in the face every time I turn a political corner, but I struggle to understand exactly where the five to 10 year programme is heading. I am a little surprised that the important work of the noble Lord, Lord Heseltine, No Stone Unturned, has not been referred to more often today. I wonder whether the Government are founding their thinking on that. Many of the recommendations of the noble Lord, Lord Heseltine, are correct and should be pursued.

How are all of these major programmes—whether it is No Stone Unturned, the European structural funds, apprenticeships schemes or the Work Programme—melded into a vision that the coalition Government can put forward with confidence at the next election in answer to the middle and long-term challenges? That vision is absent at the moment. It is going to be quite difficult because the election is looming and that makes it harder for any sensible policy-making to be worked through and promoted.

The other thing is that in the spin and the stunts that are used to announce important policies—we had an announcement this week about the pupil premium—the policy gets lost in a lot of noise. The Government should really be much clearer in what they are saying. They need more focus, they need more persistence, and they need to concentrate more on delivery than on making public announcements. They need to separate the signal from the noise. I looked at the Financial Sustainability Report, which was published yesterday. Its long-term views about demographic assumptions, climate change costs and a decline in North Sea oil revenues compound my fear that there are some real problems that we are not yet properly addressing.

Finally, I turn to some issues which are second order but are very important to me. They come into the category of inequality to which the noble Lord, Lord Skidelsky, rightly referred. The Government need seriously to address long-term and youth unemployment. Incidentally, if people are trying to address the housing benefit budget in a meaningful way, we need to have some plans for development of social sector housing units over the next five to 10 years. There is a huge agenda that the Government need to be addressing in the middle to longer term. If we do not do that, in the near future we shall find ourselves during an election with only half a story to tell. That would not be in our interests as a coalition Government and it would not be in the long-term interests of the country.

[Lord Ahmad of Wimbledon]

Before we continue, I remind noble Lords that this is a time-limited debate. When the clock strikes five, noble Lords should be looking to make their concluding remarks.

Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2013

Lord Kirkwood of Kirkhope Excerpts

Wednesday 17th July 2013 Grand Committee

[Lord Newby]

My Lords, I am pleased to introduce the Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No.2) Order 2013 and the Financial Services Act 2012 (Consumer Credit) Order 2013. I will refer to the former as the RAO order and the latter as the consumer credit order.

I am sure that we can all agree that a well functioning consumer credit market is vital to the functioning of a healthy economy. However, the market is not functioning as it should, and consumers are not being properly protected. The current licensing regime, run by the Office of Fair Trading and established under the Consumer Credit Act 1974, lacks the capacity and powers to comprehensively tackle consumer detriment in a fast-innovating market. The National Audit Office estimated that there was £450 million of unremedied consumer detriment in this market last year. This Government are determined to ensure that the market functions well for consumers, firms and the economy. That is why we are moving the regulation of consumer credit to the Financial Conduct Authority next April. Consumers will be far better protected; the FCA will require higher standards of firms and will have more robust enforcement powers. However, we will also make sure that the regime is proportionate and supports a sustainable and competitive credit market.

There is widespread support for the transfer to the FCA, and agreement that we have got the balance about right. We first consulted at the end of 2010 on broad policy options. Then, following extensive work on regime design with firms and consumer groups, the Government published detailed proposals on 6 March this year.

The statutory instruments that I am introducing today take into account the feedback that we received from a wide range of stakeholders during the consultation period. These instruments effect the transfer of consumer credit regulation to the FCA under powers taken in the Financial Services Act 2012. The RAO order amends the Financial Services and Markets Act 2000, or FiSMA, and associated secondary legislation, to bring consumer credit into the scope of FCA regulation and to apply the FiSMA regulatory regime to consumer credit. The order also makes extensive amendments to the Consumer Credit Act 1974—or CCA—in relation to the functions of the OFT. The consumer credit order ensures that retained provisions of the CCA continue to apply appropriately and can be effectively enforced.

Before turning to the specifics of the new regulatory regime for consumer credit, I draw attention to the scope of regulated activity in this market. The Government’s policy is to carry forward the current scope of consumer credit regulation. We are, however, making a few key changes that were well supported by respondents to the consultation. The most significant of these relates to a new growth sector in the market, peer-to-peer lending.

First, the RAO order creates a new, bespoke regulated activity that brings together what peer-to-peer platforms do when they arrange credit agreements between lenders and borrowers. It ensures that the consumers who borrow and those who lend via the platform are both protected. Secondly, we are aligning the definitions of credit broking and credit intermediation, and narrowing the definition of credit reference agencies to capture only those who provide credit references as a primary activity. Thirdly, we are removing third-party tracing agents from the scope of regulation, as they do not carry on a financial activity. Fourthly, we are clarifying that not-for-profit debt advice is carried out by way of business and is therefore a regulated activity. This was called for by not-for-profit debt advice providers themselves, and will ensure consumer protection is consistent. Finally, in view of responses to the consultation, we are extending the current exemption for insolvency practitioners to include advice that they may reasonably provide in their professional capacity in anticipation of a formal appointment.

I now turn to the three main components of the new FiSMA regime for consumer credit. The first one is authorisation. Unless they are exempt, all firms will need to be authorised by the FCA in order to carry on consumer credit business. They will have to meet a much higher bar than under the current licensing regime. The RAO order revokes the OFT licensing regime to allow for the move to authorisation under FiSMA, but the Government recognise that a one-size-fits-all approach will not deliver their vision for a competitive and sustainable credit market.

The RAO order therefore provides for what is known as the “limited permission regime”. To be eligible for this regime, firms must only conduct certain specified lower-risk credit activity. The quid pro quo is that those firms will face lower costs and fewer regulatory burdens. The RAO order defines the activities which are eligible for the limited permission regime. They include: credit brokerage, where firms do this as a secondary activity to their main business, such as car dealers; and sellers of goods and services who provide credit without interest or charges, for example a gym or golf club.

The FCA must assess firms against prescribed threshold conditions. Limited permission firms will have to meet a smaller, modified set of threshold conditions which have been designed to suit the lower-risk nature of their business. For example, a simpler solvency test will apply. One of the advantages of the FCA regime is that it can make rules to tackle actual or potential detriment in the market much more quickly than the Government could legislate. Its rules are also binding on firms, while the OFT’s guidance is not.

The RAO order repeals certain provisions of the CCA and related secondary legislation to allow the FCA to make rules in these areas. It revokes advertising requirements so that the FCA can make rules under its financial promotions regime instead and it revokes “form and content” requirements in the CCA so that the FCA can cover these requirements in its rules.

Finally on enforcement, the FCA has a more flexible and robust enforcement toolkit than the OFT, and will have greater resources to take action on breaches of its rules. The RAO order therefore provides that certain requirements in the CCA that are currently subject to criminal penalties should instead be punishable by the FCA’s regulatory powers. Some criminal offences in the CCA will remain in force under the FCA regime, where there is greatest risk of consumer detriment.

In addition, the consumer credit order applies the FCA enforcement toolkit to provisions of the CCA which will still apply under the new regime. It also ensures that there is no double jeopardy—a person may not be convicted of an offence under the CCA where the FCA has already used its enforcement powers in relation to the same breach. The consumer credit order provides for the continued role of local authority trading standards, and the Department of Enterprise, Trade and Investment in Northern Ireland, in investigating and prosecuting offences under the CCA. Trading standards will play an important new role in supporting the FCA to police the regulatory boundary and to take action against illegal loan sharks.

Consumer credit firms should not see this transfer as wiping the slate clean. The RAO order gives the FCA the power to take enforcement action against any breach of the CCA prior to the transfer, but it will not be able to apply its rules or sanctions retrospectively, as this would be unfair to firms. Unlike the OFT, the FCA also has the power to require redress to be paid to consumers. In addition, customers of consumer credit firms will still have recourse to the Financial Ombudsman Service.

The timetable for the transfer to the FCA is driven by the demise of the OFT on 31 March. We recognise that this is a challenging timetable for firms, which is why the Government have introduced provisions to help smooth the transition. We recognise that firms will need to prepare for FCA authorisation, so the RAO order allows the FCA to grant interim permissions based on firms’ existing OFT licences. Interim permissions will allow firms to continue to trade from 1 April, but all firms will still need to apply for full authorisation by April 2016.

This approach will mean business as usual for firms but allows the FCA to deploy its full enforcement powers to protect consumers during this period. The RAO order includes transitional provisions, so that firms who have already applied to the OFT for a licence do not have to reapply from scratch for FCA authorisation and live enforcement action will be seamlessly picked up by the new regulator.

The Government are committed to promoting continuity in the conduct requirements that firms need to abide by to ensure that the compliance burden is manageable. The RAO order allows the FCA to designate, as rules, secondary legislation made under Part 2 of the CCA. The new regulator is also incentivised to replicate CCA requirements in its rules. Where rules are the same, or substantially the same, as CCA provisions, the requirement to conduct a cost-benefit analysis is waived and the FCA’s competition duty does not apply.

I hope that I have been able to explain the purpose and the benefits of these orders and I commend them to the Committee.

[Lord Kirkwood of Kirkhope]

My Lords, I will make a brief intervention in the Grand Committee’s proceedings. These are extensive and important orders. I confess that I defer to the knowledge that other noble Lords have on consumer credit, but I would like to tax my noble friend with a request for assurances about payday loans and unsecured household credit. There have been some big changes in that field and I want to detain the Committee for a moment on that issue.

However, before I do that—and my noble friend will understand why I have been put up to this in a moment—I want to raise an issue about Article 9 of the consumer credit order, which includes provisions for local weights and measures authorities to institute proceedings in England and Wales, and in Northern Ireland. Given my accent, he will not be surprised to know that I would like an assurance that this does not mean that weights and measures enforcement cannot take place in Scotland. I am sure that he will tell me that it is a Section 30 order or some such thing but I will be able to go home more safely at the weekend if I can say that I asked the question.

I come at these orders from the niche direction of the whole question about unsecured short-term household lending. Other people have been doing a lot of work on this but the matter has been drawn to my attention simply because of the massive increase that we have started to see in the amounts of money rolled over and borrowed under the existing payday loan provisions.

Economy: Sustainable Jobs

Lord Kirkwood of Kirkhope Excerpts

Thursday 27th June 2013 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, it is a signal pleasure to follow the right reverend Prelate because I agree with every word that he has said. He was absolutely correct to concentrate on the contribution that social enterprises can make to our economy. I can say that as a non-remunerated, non-executive director of the Wise Group in Glasgow, which is a social enterprise that has been involved in employability for the past 30 years. It adds value to the provision of support for unemployed people in a way that I think other more statutory government bodies struggle to do. I am very pleased to endorse everything that the right reverend Prelate has said.

This is a very timely debate. I add my congratulations to those already offered to my noble friend on securing the time. I want to take a slightly different approach to the debate and I want to start by making a political point. I hope I can carry the House with me on this but I am very concerned about the potential stigmatisation of the unemployed. In my experience, which is mainly derived from my work in the Wise Group, people in households that suffer worklessness are strivers as much as anyone else and they try to better themselves and their families.

Of course, I have been in politics long enough to know that a game is played but I do not say that pejoratively. I know that there are points to be scored in the public debate in trading positions and policies as part of the coming and going of politics, but I am worried. I have been concerned about this policy area for some time and I have never known the psychological effect to be so bad on people who suffer unemployment. My plea to my noble friend on the Front Bench—this is certainly not directed at him personally, as he knows—is that he will take the message back from me, if from no one else, that we need to be careful about our use of language.

The second thing that I want to talk about is the environment of unemployment and welfare-to-work, which has substantially changed, certainly since I was initially elected to the House of Commons in 1983, and whose development I have been following during that time. It is now harder to make work pay. Colleagues are probably now familiar with the substantial change that is encapsulated by the fact that the majority of poor, working-age adults and children in the United Kingdom now live in families containing at least one worker. That is a hard prospect for policymakers and none of this is easy. The adage that we all used to hide behind, because it was true 10 or 15 years ago, that you could work your way off benefits and out of poverty is not necessarily true at all. We therefore need to weigh that in the balance when we make changes.

The environment that we are now in is characterised by no guarantees of secure work in contracts of employment. The labour market that we now face has a problem about low wages, temporary jobs and zero-hours contracts, which used to be peculiar employment devices used in proper circumstances and for understandable reasons in industries such as hotels, catering and entertainment. These contracts are now being used much more widely, including in education and health. If we do not recognise that, we are not properly doing our job as policymakers. It has also been suggested to me that a massive 20 million hours a month of underemployment persists in the United Kingdom labour market. That is completely new and none of us has properly started to address it in a way that is necessary.

I wish to make a final point about the context because I have noticed from working with a client group in Glasgow that the level of uncertainty about being in work has changed significantly. Even if you can get people off benefits—and you can if you give them proper support—they go into a world of work that is full of uncertainty. It has one of the most destabilising effects on households because you never know just how long it will be before you are going to have to switch back to benefits, low-hours contracts or low-pay contracts. I accept that universal credit will help, at least in theory, if we can introduce it safely and as soon as possible. However, we need to do more to address uncertainty in the workplace, which is a serious problem.

I listened carefully to what my noble friend Lord German said about the Work Programme, of which I have some experience. I am interested to hear that the figures for the second year of the programme are now available. I should be grateful if my noble friend, if he has the figures, could differentiate between the minimum performance levels that are in the contracts for the prime providers—levels that I have always thought were unrealistically high; and the DWP was not sensible in setting them at these levels. As far as I can recall, the JSA 25-plus minimum performance level for providers was 27.5% of the referred group, the JSA 18-24 cohort figure was 33%, and the ESA caseload was 16.5%. These are not targets. DWP expectations were much higher. I have not had the benefit of access to the latest figures and I look forward to studying them as soon as the debate concludes because I am interested, but I should be reassured if my noble friend could confirm that if the minimum performance levels are not reached by prime providers their contracts will be re-examined. That was the promise made: if they did not reach these levels in year two, the contracts would be at risk, and rightly so because the figures for the first year were de minimis. That was perhaps understandable in year one but we would be looking for serious progress in year two. I am not satisfied that we are looking at only minimum performance requirements. We should look at the DWP expectation levels for these client groups in order to test whether we are making progress in the Work Programme.

It is also foolish for the DWP to offer people who have done their two years on the Work Programme and have still not found work to the Troubled Families programme run by the department. These client groups are chalk and cheese. The Work Programme people are there because they are required under the jobseekers commitment to be there. The Troubled Families initiative, which I support and was pleased when it was given extra money from the Government in the past few days, is a voluntary programme. In my experience, you cannot put conscripted people into a programme that was originally designed for volunteer clients and have any expectation that it will succeed. That idea needs to be rethought.

Finally, given the £248 million underspend on the Work Programme—I think we can all understand that an underspend might be a consequence of not having as many people on the unemployment lists as we had anticipated in the first year—can my noble friend confirm that the full amount for the programme will be spent supporting moving people from benefits into work? It is a flagship, essential and crucial programme, and I wish it well. I support it but I have some serious concerns about how it is being implemented. In fact, it may well be that we should talk to colleagues on local authorities about increasing their involvement in delivering and implementing some of these national programmes, some of which have been more successful than others.

I wish briefly to raise two other matters before I sit down. First, can we work more with employers? It is absolutely right that we concentrate on supply-side measures, upskilling people, and helping people who are furthest from the market. There remains a problem of “parking and creaming” in some of the schemes and I understand that we will need to address that issue. However, can we get alongside employers more systematically? They need help as well if they are offering contracts of employment to people who have sometimes been out of the labour market for more than two years. That would be a development that would help the Work Programme to improve and be more successful.

Finally, there are three priorities, all of which have been touched on by colleagues in their excellent speeches in this debate in which I am pleased to take part. The three priorities for me include youth unemployment, which affects just shy of 1 million young people. They in particular suffer from the precariousness of unemployment—and employment, even when they get jobs. We really need a concerted cross-party approach to youth unemployment. Also, nearly 36% of the caseload is made up of people in long-term unemployment. It is a proxy for household distress, which the Troubled Families programme is beginning to address. If people are unemployed, have been through the Work Programme for a full two years and still cannot find their way into the labour market, we should treat them more holistically. A multiagency approach such as that provided in the Troubled Families programme—it is a horrible name and I wish we had a different one—is important. Finally, there is the hard-to-reach group, who are the third category of clients whose chances we need to do more to improve in the future.

Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Monday 25th March 2013 Lords Chamber

Moved by

[Lord Kirkwood of Kirkhope]

After Clause 2, insert the following new Clause—
“Annual report to Parliament—
(1) Within a year of the passing of this Act, and annually thereafter, the Secretary of State shall publish and lay before both Houses of Parliament a report on the costs to the Exchequer arising from the provisions of this Act. (2) A report under this section shall include a comparison of the costs to the Exchequer arising from the provisions of this Act against the costs that would have arisen had each of the individual relevant sums and relevant amounts, as defined in the Schedule to this Act, been increased by a sum equivalent to the change in the general level of prices, measured by the Consumer Price Index.(3) A comparison shall include an analysis of the effect of the provisions in this Act on each of the relevant sums and relevant amounts in the Schedule.”

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to move the amendment on the Order Paper to insert a new clause after Clause 2, entitled “Annual report to Parliament”. It will give my noble friends on the Front Bench some comfort, perhaps, if I tell them that this is a probing amendment. This is a case of once bitten, twice shy.

However, it is important to spend some time reviewing the context in which the Third Reading of this important Bill takes place, particularly against the background of our not having had the advantage of having the Budget Statement available to us when we were on Report. We are now better informed in terms of the updated projections that have been done by the Office for Budget Responsibility, which inform this debate directly. I cannot resist the temptation to say to my noble friend that we are also better informed on CPI in that, as we were speaking on Report last week, the BBC was reporting that the February monthly figure for inflation had ticked up by 0.1% from 2.7% to 2.8%. Admittedly, that is two points away from the magic 3% that I was using in an amendment—as it happens, unsuccessfully—to try to get some inflation protection for people on benefits.

I mention that merely in passing. I will not go back to discussing what we did on Report because I would be out of order to do so, but it illustrates the point that inflation can be capricious. It is a difficult thing to forecast. Some commentators who know more about it than I do were saying that, for example, the recent weakness of sterling, which has dropped by 7% in recent days, increases the risk of inflation, and so does the new monetary policy framework that Mark Carney, the Governor-designate of the Bank of England, is going to work with. We therefore need to look at the Bill carefully.

This amendment is a rather clichéd parliamentary device, as an annual report to Parliament is the last thing I could get the clerks to accept as being in order. However, it gives us time to reflect on the full-blown consequences of this Bill as we launch it on to the statute book. I still have some deep concerns, which are not merely around the question of the reduced household budgets of low-income working-age families. As I said in Committee, the Bill sets a very dangerous precedent for future Governments. If you believe, as I do, in the value of social protection then implicit in that is your understanding that temporary or maybe even long-term benefit recipients are also entitled, over the longer term, to have a share in the national wealth of the country. We all know that that national wealth is stagnating and we are in difficult times; I understand that perfectly well. However, since 1992—and I stress that date, which is a long time ago—we have had the absolutely implicit foundation of an understanding across party divides: an acceptance that the uprating formula would be sacrosanct.

These are exceptional times. Certainly, if the Government had said, “For the forthcoming 12-month period, 1% is all we can afford”, as they did, I am perfectly willing to consider that. I am sure that other noble Lords are, too. On the savings in this Bill, colleagues may have an advantage over me because I am just off a train from the Siberian north and I have not had a chance to look at the new impact assessment—I assume that one exists—on the new costs of the Bill. Obviously the OBR’s estimates for inflation have changed from 2.6% and 2.2% to 2.8% and 2.4%. Again, there is an inflation uplift, which will adjust, in the Treasury’s favour, the savings that the Bill will make. The Bill covers two years of uprating but not this immediate year’s uprating, so an extra £500 million will be saved in the coming year. Of course, housing allowance, which is a different category of benefit, is not covered in the Bill so the totality of the savings is not reflected in the impact assessment, and last week’s impact assessment has been adjusted because of the OBR’s more recent and accurate estimates of inflation.

--- Later in debate ---

[The Countess of Mar]

We are at Third Reading, and the noble Lord has spoken for 16 minutes. He might believe that we have actually got the point. Is he going to be very much longer?

[Lord Kirkwood of Kirkhope]

No. I have two remaining points to make before I sit down. First, we have learnt over the past few days that Mr Alan Milburn, the chairman of the Social Mobility and Child Poverty Commission, has made it clear that he thinks that income is important for low-income families when trying to deal with child poverty. Finally, we need to invite the Social Security Advisory Committee to look at all this between now and July.

A lot of work needs to be done, and an annual report would help to inform that work. It is not safe to allow this Bill to continue into its later stages until we are sure that we have some way in which to track its progress and can ensure that those at the bottom of the low-income scales do not get hurt as a result of its provisions. I beg to move.

[Lord King of Bridgwater]

I shall intervene very briefly, supporting the point made by the noble Countess, Lady Mar. My noble friend Lord Kirkwood and I had an exchange last time on this matter, and he has made it clear once again that he does not like this Bill. I do not like it either. I do not think that any Member of this House would like to have this Bill at all, were things more normal and better than we actually find.

Since we have debated the Bill we have had a Budget and we have had Cyprus. If anyone wants to think that the situation is improving, the most significant thing in the Budget was the absolutely frank admission by the Chancellor of the very serious debt situation that we face. We now realise that it will be extremely tough to turn the ship round. Since then, we have had the comments from the rating agencies, and my noble friend may recall an intervention that he allowed me to make in his previous speech that we had better watch out for the rating agencies.

We have already heard that we are on negative watch by the other rating agencies, and that is even in our present situation. If we ally to that some recognition that this Government are not going to be able to stick even to the programme that they have proposed, if we faced a further downgrade from the rating agencies we might start to move into territory where the Government have to borrow to meet our debt at interest rates that are significantly higher. It will not then be a question of benefits being uprated by only 1%; there could be, as in other countries, significant cuts. If we get higher interest rates as well, with the impact on a huge raft of people who depend on their mortgages and who are finding it an extremely tough battle to maintain them, and with the risk of a significant increase in repossessions around the country, we will be in a very tough situation indeed.

To summarise, the purpose of my noble friend’s amendment is simply that at the end of the year we should discover how much we have saved and what the impact has been. If the Treasury is not going to do that anyway, I do not think that we need to spend a lot more time on this amendment, writing complicated additional amendments into a Bill on a matter that will surely be part of the normal purpose of government.

--- Later in debate ---

[Lord Newby]

My Lords, this amendment would require the Government to produce revised costings of this policy annually. I fully understand the inflation risk about which the noble Lord, Lord Kirkwood, is concerned. However, as I said last week, while I share his concerns about measuring the impact of government policies, I believe that additional reports on the Bill are simply not necessary. As I said last week, the Government already have comprehensive arrangements in place to report on the impacts of government policy. We publish impact assessments of every Bill, including the Exchequer impacts. These are based on the OBR forecasts available at the time.

At Budget, we publish an updated account of the Exchequer impact of any government policy that has changed due to modelling or forecast changes and has not yet been implemented. The DWP publishes benefit rates and expenditure tables of all its benefits, and we produce analysis of the cumulative impact of government policies on changes to households across the income distribution at every major fiscal event. This analysis will use updated inflation projections and will look at the cumulative impacts of all changes, rather than artificially isolating just one policy. These mechanisms go further than any Government have gone before in increasing transparency and enabling the effective scrutiny of policy-making.

Since we previously debated this matter, we have had a Budget. As the noble Lord, Lord Kirkwood, said, at Budget last week the OBR revised its forecasts for inflation slightly upwards. The forecasts increased by 0.3 percentage points for the purpose of uprating in 2014-15, and by 0.1 percentage points in 2015-16. As I said last week, it was always a possibility that the forecasts would change. Similarly, they can change again at the Autumn Statement, and again at Budget 2014. These forecasts could go up as well as down. However, Governments must make decisions based on the best forecasts available at the time. The OBR’s forecast at the Autumn Statement showed that while inflation is forecast to be above 2% in the near term, it is then forecast to fall back towards the target in the medium term. This has not changed. As I set out last week, the OBR is not alone in taking this view. The IMF, the OECD and the Bank of England all show inflation falling back to target in the medium term. Nor has the inflation target changed: it remains at 2%.

One thing that has changed since we were last in this House is the Budget announcement on public sector pay. The Budget announced that public sector pay awards will be limited to an average of up to 1% in 2015-16. This will be on top of four years of pay being either frozen or capped at 1%, which included the period when inflation was at 5.2%, far above the forecasts for the periods covered in the Bill. This is not a justification for the Bill, but it is a reminder that people face inflation risk in everyday life. The decision that the public sector should continue to face a further year of pay restraint was a difficult, but necessary, decision to support fiscal consolidation.

It is against this background that I repeat what I have said many times on the Bill: that this Government do not take decisions to find savings from welfare lightly. However, this Bill is necessary to make vital savings from welfare, to help reduce the deficit and to restore economic recovery. The Government have set out their plans for spending in advance to give confidence to the markets that we are taking the necessary tough decisions. We can do that only by using the best forecasts available at the time. These forecasts have changed, but they continue to show inflation falling back to target in the medium term. I hope I have reassured the noble Lord that the amendment is simply not necessary, and I beg him to withdraw it.

[Lord Kirkwood of Kirkhope]

My Lords, the House has a busy schedule for the rest of the day and, as I said earlier, I am happy to withdraw the amendment. I am grateful to colleagues who have contributed. We are all of the same mind that we need to be very careful and monitor the consequences of these Bills. The noble Lord, Lord King, is correct that the Treasury does that annually, but I will make it my own business to make sure that working-age, low-income families do not suffer more than the Government feel they will in the course of the next five years as a result of this Bill. I beg leave to withdraw the amendment.

Amendment withdrawn.

Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Tuesday 19th March 2013 Lords Chamber

Moved by

[Lord Kirkwood of Kirkhope]

4: Clause 1, page 2, line 2, at end insert—
“( ) Subsection (1) does not apply in relation to a tax year if, on the review in that tax year under section 150(1) of the Social Security Administration Act 1992, the Secretary of State determines that the general level of prices, measured by the Consumer Price Index, for Great Britain has increased by 3% or more over the period under review.”

[Lord Kirkwood of Kirkhope]

My Lords, my Amendments 4 and 9 in this group take us into much lighter territory. I hope that the noble Lord, Lord Forsyth of Drumlean, will understand and relax, because the purpose of the amendments is not to attack the savings which it is the principal purpose of the Bill to achieve but only to protect the position of benefit recipients should the Office for Budget Responsibility’s estimates for inflation be exceeded by 3%, which is the figure that I have chosen for the purposes of the amendments.

The amendments are different from those which have gone before because, apart from anything else, they are much less susceptible to attack on grounds of financial privilege. A problem that I had with some of the earlier amendments, and I share some of the analysis, was that they were prone to attack on those grounds. I think that those of us who participated in consideration during the passage of the Welfare Reform Act last year felt that financial privilege was being used rather rashly in the other place, but the purpose of this House is to persuade the House of Commons perhaps to think again about some of the legislation that comes to us.

Amendment 4 would simply disapply the 1% limit on benefit uprating in the event of inflation reaching 3%. I would be interested in the view on this of the noble Lord, Lord Forsyth, because he knows a lot more about it than do. Judging where inflation will come out in September 2013 and September 2014 is an inexact science. We will learn tomorrow what the Office for Budget Responsibility and the Chancellor think about the situation, but the two years covered in the Bill, September 2013-14 and September 2014-15, are considered to be facing inflation increases of 2.6% and 2.2% respectively. The purpose of the amendment is to ask what happens if those estimates are wrong. They are forecasts; they are not scientifically worked through. We have therefore to ask ourselves what we do as a legislature if inflation reaches 3%.

Change in the real-terms value of benefits is very sensitive to inflationary increases. I have said that the Office for Budget Responsibility’s baseline is 2.6% for September 2013 and 2.2% for September 2014. That reduces the real value of benefits by 4% and produces a saving of £3 billion; that is already agreed and is in the Bill. However, checking Library figures, I am advised that if inflation exceeds Office for Budget Responsibility estimates by 1% in the two years covered by the Bill, it will reduce the real value of benefits in the hands of claimants by 6% and result in a windfall saving to the Treasury not of £3 billion, which is what the deficit reduction programme is looking for, but of £5.1 billion. You can multiply the figures. If the OBR baseline is exceeded by 2%, that reduces the real value of benefits by 8% and produces a windfall saving for the Treasury of £7.2 billion. I have no way of knowing whether any of that will happen. All I seek with this amendment is to ask what the Government will do if it does.

The financial context is slightly worrying and has been getting worse since the coalition Government promulgated this policy some months ago. We will learn more about this in the Budget tomorrow. The Budget may well be—and some of us will argue that it should be—looking to promote growth and loosen some of the constraints on inflation that the Bank of England’s Monetary Policy Committee is required to oversee. However, we have a Bank Governor-designate in Mr Mark Carney, who comes with a reputation of being prepared to live with higher levels of inflation. If that happens, then the 3% figure in the amendment may well be breached sooner rather than later. In some of the earlier debates the noble Lord, Lord McKenzie, rightly adverted to the fact that the markets are already pricing in higher inflation in the short term over the two years that the Bill covers.

As a legislature, we now face an increasing risk of inflation for these two financial years; I put it no higher than that. We very much need to take that into account. The CPI calculation of inflation is a national figure, worked out with average figures on a statistical basis, but someone said to me the other day that childcare costs have gone up 6%, as anybody who has studied the incidence of rising costs on low-income families will know. That is a long way in excess of the general CPI rates that we face, as with food prices, rents and energy prices, particularly for the low-income families that I am concerned about.

I am grateful to my noble friend for the considerable discussion that we had about this. He was generous in considering what I said, but it would be helpful if the House knew what the Government would do if the 3% inflation figure was breached. I am reasonably content that there are overriding powers in the Social Security Acts, but I do not think there are in the Tax Credits Acts; I might be wrong about that. What happens if something untoward happens to inflation and we end up in the 2014 and 2015 fiscal years with something unexpected suddenly coming over the horizon? Surely some of these reductions in the value of benefits that I have alluded to would be quite unconscionable as a windfall increase to the Treasury’s coffers in a way that is not intended, as I understand it, but may well happen by mistake?

[Lord Forsyth of Drumlean]

I have looked carefully at my noble friend’s amendment and listened to his speech with care, but he does not provide the remedy in the amendment. It simply says that the uprating limited to 1% is cancelled if inflation reaches 3%. Would he indicate why he chose 3% and what the remedy would be? If he specifies a remedy, then we are back into the argument about cost.

[Lord Kirkwood of Kirkhope]

The remedy would simply be that if 3% was breached, then the clauses in the Bill fall and there would be the default position of an annual uprating process. It would be at the Secretary of State’s discretion with the usual provisions of Section 150 of the Social Security Administration Act 1992. It would be taken year by year and would say that inflation was forging ahead in an unforeseen way. For myself, I would listen to an argument that said that we should stick to 1% on costs shown in those circumstances, but if 3% was breached we would go back to the status quo. That does not have a cost at all.

The noble Lord, Lord Forsyth, and I have been doing government uprating statements for 30 years together and I have never known a Government not get an uprating statement that they wanted if they had a majority. That is what I think would happen in these circumstances. However, the Secretary of State would be obliged to come back and say to both Houses that the circumstances were not what he had anticipated or what the Office of Budget Responsibility had calculated and that therefore there would be a chance for reconsideration. That is all I ask.

In fact, Clause 1(5) and Clause 2(4) of the Bill give the Treasury power to protect itself from the downside. These clauses say that if inflation falls below 1% it will not admit the full 1% uprating and will reserve the right to adjust it. Yet there is no limit to which the Treasury will allow inflation to increase before it comes back and argues its case in Parliament one way or the other. There is a 50:50 chance of this happening. I believe in my heart of hearts that the Government would respond to that. I do not believe it would be at all conscionable to leave 3.5% or 4% inflation with these 1% caps for the two years in this Bill.

We need more than that. We need some inflation-proofing and protection for recipients of benefits in the two years covered by the Bill if inflation races ahead. That is the burden of the argument. It is no more and no less than that. I do not think that it would be attacked on the grounds of financial privilege. It has no direct effect, as I see it, on deficit reduction. I am content that the Government get £3 billion in savings, but not content that they get £5 billion or £7 billion, because that is not what the Bill is designed to do. I argue in this amendment that there is no protection in particular for low-income families. I hope that my noble friend will give me some reassurance about what the Government will do in these eventualities. If he is not prepared to accept this amendment, I may well be tempted to test the opinion of the House. I beg to move.

[Baroness Morgan of Drefelin]

My Lords, I am not an economist. I declare an interest as chief executive of a cancer research charity. My concerns are similar to those voiced by the noble Lord, Lord Kirkwood. The Bill locks in the 1% and does not contain a very important review provision. I am sure that my amendment is so anodyne that the Minister will say either that it is unnecessary or that he will accept it.

For that reason, I will be brief. It is important once more to challenge the myth that disabled people will be protected from the measures in the Bill when that is so clearly not the case. Let us remember that, by 2015, in excess of 40,000 cancer patients will be claiming ESA. It is the main benefit claimed by cancer patients, as we have already heard. For those cancer patients in the support group, only a proportion, the support component, of what they receive, will be protected, while their core payment will rise by only 1%, as my noble friend Lord Low mentioned.

Overall, cancer patients in the support group will see their ESA payments rise by only 1.4%, rather than by inflation, and Macmillan Cancer Support has estimated that, by 2015, cancer patients will be £138 worse off each year than if they had received the 2.2% rise which could have been expected with the CPI level as was in September 2012. I cite the £138 figure, but I am conscious that we do not yet know the true effect of the Bill. That figure shows how far ESA will fall behind inflation if the consumer prices index were to remain at the September 2012 level of 2.2%. However, it has now risen to 2.7%. If, as we have heard, inflation were to rise to 3% over the next three years, the loss to cancer patients and others in the ESA support group would be even greater. The actual impact on cancer patients and others supported by those payments is just as uncertain as the level of inflation itself.

In its current form, the Bill leaves no flexibility to protect vulnerable groups such as cancer patients if there is a significant rise in inflation over the next three years. For that reason, I support the amendment moved by the noble Lord, Lord Kirkwood. I fully expect the Minister to say that he will accept my amendment or that it is unnecessary because it is a matter of course that there will be a review by the Social Security Advisory Committee if we have such a rise in inflation. I very much look forward to hearing the Minister’s remarks about how the Government aim to continue to protect cancer patients as much as possible.

--- Later in debate ---

[Lord Forsyth of Drumlean]

The noble Lord, Lord Foulkes, normally cheers when I get up to speak, but not on this occasion, perhaps because we have found something to disagree on.

I must congratulate my noble friend Lord Kirkwood on this very ingenious amendment. I suspect that he started from a position opposed to the Government’s proposals, knowing his long and distinguished record in supporting people on low incomes. I am sure that he would have preferred that the status quo had a rival—

[Lord Kirkwood of Kirkhope]

Since the noble Lord asked, let me tell him. I am looking him straight in the eye. I have voted for the Government all through this afternoon against my better judgment, but I say this to him: if any further cuts are introduced by the coalition Government for the rest of this Parliament, he can forget any support coming from my direction for the next two years.

[Lord Forsyth of Drumlean]

The noble Lord and I both have our crosses to bear in the coalition. I am grateful for his confirmation that he does not support the principle. This is just a very clever device to try to get us back to where we started from without making a commitment to spend money. The amendment states that the provisions in the Bill which limit the benefit increases to 1% can be set aside if inflation reaches 3%. That is for very good reasons. The noble Lord argues the case about people on low incomes and the effects of inflation. The noble Baronesses, Lady Morgan and Lady Masham, in their amendment, have highlighted the desperate impact that inflation has on cancer patients who are not working.

The best way to protect those people is to ensure that inflation does not rise to 3%. The idea that it is inevitable that inflation will rise to 3% is deeply damaging.

If the noble Lord, Lord Foulkes, wishes to interrupt, I will be happy to give way, but otherwise I would be grateful if he did not make remarks from a sedentary position, which is distracting me from my argument—which of course, was his intention.

The best way to protect people is not to have inflation. One thing that sets inflation running uncontrollably is people’s expectations of inflation. When the noble Lord makes a speech saying, “I think that inflation is going to be more than 3%”, people hear that and think, in their wage negotiations, “Lord Kirkwood says that it will be more than 3%; the Government say that it will be two and a bit per cent”. Expectations drive the inflation rate, and inflation is devastating for the poorest in our society and for people on fixed incomes.

Therefore, we need to follow a policy that will limit the possibility of large increases in inflation. That is where we have a problem. To do that, we must show that we have control of public expenditure and have plans in place that can be relied on.

If the amendment were accepted, anyone looking at the Government’s plans for financial responsibility over the next two years would say, “They have marked down that social security and benefit payments will be this, but, of course, because of Lord Kirkwood’s amendment we cannot rely on that because if inflation is above that figure, the Secretary of State will need to take a decision”. They will note that he will be taking a decision in the run-up to an election and will therefore draw conclusions about what the pressures on the Secretary of State might be.

The amendment drives a coach and horses through the Government’s finances for anyone looking at whether they can rely on the Government delivering.

--- Later in debate ---

[Lord Kirkwood of Kirkhope]

I think it is me, in fact, but let that pass. I am grateful to my noble friend. He and I had a good private discussion about this. I understand the Government’s position and he understands my position as well. I plead not guilty to his charge of being clever. All I am trying to do here is to get an insurance policy to protect people who are on benefits who may well need it. I hope I am wrong. He knows more about inflation than I do, but there is a real risk that in the demeanour of the coalition Government’s policy, which I would support, to try to attract higher levels of growth, it may be a price worth paying—not to let inflation rip, as my noble friend said, but to allow it to rise reasonably in expectation that growth would follow as a result of that. The shift in the policy changes that.

When the Bill was drafted we were in a different position. We are now—we will see tomorrow whether that is correct or not—in a position of the proposals of the noble Lord, Lord Heseltine, for growth, much of which I support. I must say to the noble Lord, Lord Forsyth, that I pay attention to what he says as Britain is a poorer place. These are huge sums of money and we need to work out collectively how we make provision for social protection in future. However, I say to my noble friend—I am looking him straight in the eye—that I cannot accept that this is a safe position to leave the House in. I want the protection—

[Lord King of Bridgwater]

Is not the key point here that the Government have to be able to convey credibility to those around the world who may lend us money? The noble Lord, Lord McKenzie, has made the point very well. We have to borrow a lot of money or there will be nothing like the present level of benefits if we find, as the Minister has made clear, that we are out on the market trying to borrow from countries and lenders who say, “I thought they had a clear plan. Now they’re qualifying it, they may not follow through”. I make this simple point. The noble Lord quite rightly talks about the risk of inflation rising. The risk that he is prepared to accept is that we lose our rating and then we will be in a very much worse state.

[Lord Kirkwood of Kirkhope]

I thought that we had lost our rating. I have now lost my drift.

This is very simple. This is a one-way bet for the Chancellor. If the Government end up with a windfall of £1 billion or £2 billion over and above the saving that I am supporting here, that is completely unconscionable. I am moving this amendment only to try to get an element of inflation protection for benefit claimants. I am grateful to everybody who has taken part in the debate, even the noble Lord, Lord Forsyth. I am sorry to do this to my noble friend, but I want to test the opinion of the House.

Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Monday 11th February 2013 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to follow the noble Lord, Lord Touhig, who is an expert in his field and brings an interesting Welsh dimension, as does my noble friend Lord German, to this important debate. It has been an excellent debate so far, reflecting the rising level of apprehension that exists in the country about what the future holds, particularly for the low-income, working-age households that the Bill particularly affects.

I am in some difficulty with the Bill because, at the risk of sounding pedantic, I do not even agree with the title. The Bill’s Short Title is “Welfare Benefits Up-rating Bill”. The Long Title is “To make provision relating to the up-rating of certain social security benefits”. I have argued this etymological, perhaps pedantic, point before. There is a world of difference between statutory social security entitlements and welfare benefits. Welfare benefits were things that we inherited from our American cousins. They have nothing whatever to do with the statutory provision that we in the United Kingdom have enjoyed for the past 20 years.

I agree with noble Lords who made powerful speeches about the kind of language that we use to frame the debate. It is not just “drivers” and “skivers”, but goes more fundamentally to the point that since Section 150 of the Social Security Administration Act 1992, which the Bill seeks to amend, we have always had uprating. I was there when that Act was cast. It put the uprating debate beyond short-term party-political arguments. It stated that there were entitlements that gave people on various benefits a stake in creating the wealth of our country. That is a very important element in the social cohesion that we have enjoyed in this country to date. We are at risk of setting a very bad precedent with the Bill by disrupting this for a three-year period.

My noble friend Lady Stowell made a powerful but, I think, Treasury-influenced speech with important points that cannot be ignored.

We need to try to have a more measured, long-term public discussion about what is going on. The public are ignorant about the facts of social security, and I mean that in the polite sense of the word. They are just untutored about what is going on. They are frightened to death by some of the gross figures because we always talk about cash as snapshot cash figures—and the quantities are truly frightening for anybody who does not know anything about it—instead of talking about percentage shares of the wealth of the country and the long-term longitudinal dimension to some of this debate, which tracks what families do in the course of a life, and looks at people going in and out of work and the contributions they have made through the national insurance contribution system, or what is left of it.

We should and could have a much more informed debate about what we think we can afford. If Britain is a poorer country, as I believe it is—I do not know for how long it is going to be poorer, but it is certainly not going to go back to sustainable levels of growth in the near future—we have to ensure that the country knows what that means for the future. It is an ageing society. We are all living longer and that is a success story, but we have to pay for that, too. We are talking not just about health costs but about costs across the whole public policy area. That debate is not happening to the qualitative level and the political extent that it should. That is the first point I wanted to make.

My second point concerns something that one or two colleagues have mentioned. On top of everything else, this Bill worries me. I could be persuaded that for the next 12-month period there is a case for looking at the uprating of benefits, and I would certainly want to engage in that. However, I am deeply worried that this is on top of everything else. I would like to think that I have been studying this as long as anybody, but I have no idea what the next five years are going to hold, particularly for low-income working-age families. The point that was powerfully made by the noble Baroness, Lady Hollis, was that the cumulative effect of all this has not been analysed by anybody. I would argue—and I think that the people sitting behind the Minister would probably say this—that the situation has been changing so fast that it has been impossible to pin down a cumulative analysis of what has been going on. I agree with her that this has to be done.

I want to make a connection between what the noble Baroness was saying and what my noble friend Lord German was saying, because he said something important with which I fundamentally agree: these cuts now have to stop. Between now and 2015, I will stand shoulder to shoulder with my noble friend Lord German, particularly in relation to low-income working-age households, in arguing that there should be no more cuts after this. Anything else would be to risk poverty and deprivation on a scale that we underestimate at our peril. If my noble friend Lord German and I get our way and stop any future change beyond this Bill, we could get on and do the arithmetic that the noble Baroness, Lady Hollis, is suggesting. Perhaps it is calculus, not arithmetic. If we do not do that, we will all be arguing blind. I certainly do not know what the full consequences will be of everything that has happened to date, and I do not think that that is safe. I want to come back to that in my final point.

I want to make one other point about fairness. I think the noble Lord, Lord Adebowale, made it earlier. There is a qualitative impact to these cuts as well as a quantitative one, particularly for low-income working-age households. The noble Lord said this powerfully; he has more experience in the front line than I have. The impact of a 1% cut for somebody in the lower two deciles of income is much more profound than for others. It does not matter what the cash effect is; it is the impact.

Another matter that deeply concerns me but that has not been drawn out enough is the residual level of unsecured debt that these households are carrying—estimates just shy of £6,000 on average. It worries me that this is what we are putting into households across the United Kingdom with an average unsecured debt of £6,000. The impact question has a qualitative as well as a quantitative effect.

In closing, I want to try to promote an amendment to this Bill because, as we have been saying, an inflation risk has been introduced in a way that we have never seen before. This Bill imposes a 1% uprating in 2014-15, regardless of inflation. I am sure that we all trust the Office for Budget Responsibility; I am not an economist, but it seems to me that their forecasts have been pretty dodgy in terms of some of the metrics in the economy in the past. If they are not right about a 2.6% increase in CPI, and a 2.2% increase the year after, in 2014, anything in excess of that will increase these cuts.

Nobody in this room can tell me what that increase will be. I have done these metrics but will get them checked before Committee, because my arithmetic is not great, but if inflation were to be 2% more than the OBR’s current forecast over the next two years, the savings in 2015-16 increase from £1.9 billion to £4.7 billion. Who can put their hand on their heart and say that they know that we are not going to face this kind of inflationary increase? With food costs, fuel costs and rent costs, some families will certainly experience a 2% increase over the OBR estimate. I do not know how widespread that will be, but some of them will face that, so it is just not safe for us as legislators. I know there might be some issues of financial privilege in some of this, but I think it is possible to amend this Bill in a way that says that in Clauses 1 and 2, subsection (1) shall be disapplied if inflation goes higher than 3% or 4%. I do not know. That is a political decision, and we will have to think about that.

Let me make it clear that I am not trying to take away the power of the Government eventually—as long as they stay within the envelope of the OBR’s estimates—to seek the automaticity of the 1% increase that is suggested in this Bill. However, if it goes anywhere above that, they have to default back and argue the case year by year using the 1992 Section 150 provisions. I think that would be a modest amendment. It would give people like me some comfort to know that there was some protection for these low-income households in future.

I say to colleagues, having been thinking about this carefully over the weekend, that if we do not do that there are next to no other circumstances in which it would be safe to introduce this Bill the way it stands at the moment. It will impose an inflation risk that is a one-way bet for the Chancellor, because if it goes up he gets more savings, and if it does not he gets the savings in any case. Therefore, we have to think carefully about this in Committee. I will happily participate in any discussions around an amendment of that nature in order to ensure that we give some protection to some of these families in future.

Financial Services Bill

Lord Kirkwood of Kirkhope Excerpts

Wednesday 28th November 2012 Lords Chamber

[Lord Kirkwood of Kirkhope]

My Lords, if I may interrupt the exchanges between the two Front Benches, this is a very welcome development from the Government. I absolutely support the course of action that is being taken and I can assure the noble Lord, Lord Mitchell, that I have the same concerns as him in terms of the argument he mounted, but this is a more sensible way to proceed.

I was pleased that the noble Lord, Lord Mitchell emphasised the fact that access to credit for low-income households is an important part of some of the changes we are introducing to the benefit system over the next five to 10 years. As we know, because colleagues have had important discussions about this matter, one of the changes brought into being by universal credit is that credit for all benefits taken together is paid, not weekly or fortnightly—as we have been used to in the past—but monthly. It will be a dramatic change for many low-income households that are used to weekly or fortnightly management of cash budgets in order to get through payment of their weekly responsibilities without getting into debt. When universal credit is fully rolled out in 2018—so we have a little time to get this right—I am absolutely certain that families will need access to small amounts of money to see them through when benefits either run out or, as I think is inevitable, fail to be paid. At the moment, if you do not get your housing benefit, your jobseeker’s allowance can tide you through. If you do not get your universal credit, you get nothing. If you get nothing for one month it is really serious; if you do not get the benefit paid for two months, you are in penury. Controlled access to this kind of loan is an important part of the process and we must not throw the baby out with the bathwater.

I know, as well as anybody in this House, the effect of loan sharks and the many sharp practices which must be controlled. What I cannot understand—this is the reason why I rose at this moment, to say to my noble friend that his suggestion is very welcome—is why we do not have a statutory code of conduct for licensed practitioners who are members of the Consumer Finance Association. If they had licences and they breached the code of conduct, whether it was about inappropriate, usurious rates of interest or criminal methods of collecting outstanding amounts of money, their licence would be withdrawn. I am just about to finish a period as a lay member of the General Medical Council so I know what a regulator can do and what fitness to practise means to a medical practitioner who is on the shady end of clinical practice, and it works.

In taking away this amendment, I hope the noble Lord, Lord Mitchell, will look at the Bristol work, which is a serious piece of work—I know because I have checked—that will contribute a lot to the debate and which many colleagues in this House might like to get access to before they make a final decision on this matter. I hope that he will weigh that in the balance. I hope the Minister, when he comes to recast the amendment—bilaterally, I trust—will think seriously about whether there could be some way of at least not ruling out the FCA adopting a statutory code of practice which would meet all the legitimate concerns that are coming from all sides of the House. I hope common sense will prevail and I hope that the noble Lord, Lord Mitchell, feels able, in all conscience, to withdraw the amendment. I can assure him that there will be as much pressure put on from this side of the House as is coming from that side to get this thing right before the Bill is passed.

[The Lord Bishop of Durham]

My Lords, I welcome with other Members of the House the statement made by the noble Lord, Lord Sassoon. One of the points made by the noble Lord, Lord Mitchell, in his excellent speech was about the dysfunctionality of the market. As was said, interference and capping of interest rates normally drive people towards loan sharks with unintended consequences of a very serious order, as we see in many parts of the country at the moment. However, if you look at the profits being earned in this market, it is clear that the barriers to entry are so high that there is absolutely no way in which people can come in and start shaving off the abnormal rates being achieved through participation in this market. If it was working, the interest rates would drop—it is as simple as that. The rates are clearly usurious—to use an old-fashioned expression. It used to be said in the old days that you could not take away people’s beds and cloaks because they were essential for life—that is the Hebrew Scriptures; today, equivalent things are being taken away as a result of those very high rates of interest. It is a moral case, and it is bad for the clients and bad for all of us in this country when it is permitted to happen.

I hope that over the next few years, thanks to two other amendments that have been agreed by the Government over the past few weeks during the Report stage—one puts an obligation on the FCA to look at access to finance in areas of deprivation and the other, through other means, will enable the FCA to know exactly what is happening in terms of lending in areas of deprivation—we will put together in this House a package of measures that will enable this market to be effective. But that will take time. The proposed amendment that will come next week will be permissive, not obligatory, and will enable regulatory authorities to ensure that, in the interim, there is not this abnormal rate seeking which has been so damaging in so many of our areas, including many in my own diocese.