Benefit Changes: Vulnerable People

Lord Livermore Excerpts

Thursday 27th June 2019 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I thank the noble Baroness, Lady Janke, for securing this debate and congratulate her on her opening speech.

I should like to focus on some of the benefit reforms introduced in the past decade, the choices that were made about how available resources should be distributed, and the outcomes that those choices created for some of the most vulnerable people in our society.

First, however, by way of context, I should like to look briefly at the choices made in this area by the Labour Governments from 1997. Those Governments had clear objectives to reduce poverty among families with children and among pensioners, and they accorded those objectives the highest priority. Through the introduction of child tax credit, working tax credit and pension credit, spending on families with children was increased by £18 billion a year, and on pensioners by £11 billion. The number of pensioners living in poverty halved, and the Resolution Foundation has calculated that the number of children living in poverty fell from 3 million in 1998 to 1.6 million by 2010.

The Institute for Fiscal Studies has described these measures as “highly progressive”. Its distributional analysis shows a 15% increase in net income for the very poorest 10% of families, and a 5% decrease for the very richest. It shows a 10% increase for the second poorest, and a 3% decrease for the second richest. This was progressive tax and benefit reform, underpinned by principles that remain today both relevant and right: to ensure that work pays more than welfare, and to prioritise support for children and, in so doing, reduce child poverty. It is a tragedy for so many families’ prospects, for our nation’s prosperity, and for the fabric of our society that in the past decade each of those principles has been undermined, with the systematic reallocation of available resources away from the bottom half of the income distribution.

Undoubtedly, in the years after the global financial crisis, a period of fiscal retrenchment was necessary but, even in an era of austerity, there are clear choices to be made about who in society should bear the greatest burden. The distribution of austerity in the years after 2010 hit the most vulnerable in society particularly hard. While money was found to cut the top rate of tax, the impact of the tax and benefit reforms implemented in the five years of the coalition Government meant that the poorest decile of working-age families with children was over 6% worse off, the second poorest over 5% worse off and the third poorest over 4% worse off.

The Institute for Fiscal Studies summarised the benefit changes in this period by saying:

“The cuts to working age benefits made by the coalition government led to significant reductions in income across the lower-income half of households”.


It went on to say:

“Households in the sixth to ninth income deciles were protected from the impact of reforms over this period to a remarkable degree”.


Indeed, whereas the previous Labour Government chose to prioritise support for children, the IFS says that in the years after 2010,

“families with children were affected by benefit cuts to a much greater extent”,

than other groups.

After 2015, as austerity continued, with cuts to universal credit and the four-year benefit freeze, we again saw a decision to reallocate available resources away from the poorest in society. If we look at the distributional impact of changes to tax and benefits since 2015, it is strongly regressive. A couple with children, out of work and most in need, is more than £4,000 a year worse off. A lone parent, out of work, is £3,500 worse off every year. Even in work—which the benefits system should reward—the cuts to family incomes are large: a lone parent is nearly £1,500 a year worse off; and a couple with children with one earner, £1,000 a year worse off. Yet while the poorest decile loses an average of £1,100 a year, the richest decile gains £400 a year. While some of the richest working-age families with children gain £1,000 a year, the poorest lose £3,000 every year—15% of their income. These are quite some choices the Government have made about who in society should bear the greatest burden of austerity.

The recent reforms to universal credit announced by the Secretary of State for Work and Pensions are of course welcome. Yet, while many design flaws persist, of particular concern should be the ongoing lack of work incentives and, once in employment, the extent to which work really is now an effective route out of poverty. Recent changes have actually reduced the incentive to enter work at low earnings for many single parents. There is still no incentive to enter work at low earnings for potential second-earners among the 1.9 million couples with children eligible for universal credit, only 600,000 of whom are currently dual-earning. Yet it is precisely these two groups—single parents and potential second-earners in couples with children—who we know are most responsive to work incentives. There are still very weak incentives for all universal credit recipients to progress to longer hours or higher earnings. This is particularly concerning because, while work should be the most effective route out of poverty, for too many people this is no longer the case. According to the IFS, while tax credits prior to 2010 pushed down in-work poverty, cuts since then have increased it. Now, 57% of those living in poverty are in working households. That is 8 million people living in poverty despite being part of a working family: the highest level since records began.

In his most recent Budget, the Chancellor reversed some of the cuts to universal credit. But these changes unwind only a quarter of the welfare cuts announced in 2015—cuts that are still set to reduce household incomes by £12 billion by 2023. These substantial cuts are still in place because, although the Chancellor announced the end of austerity, he made a further choice about who in society should gain. By failing to cancel this final year of the four-year benefit freeze, he did nothing to end the austerity faced by many low-income households. As a result, a couple with children in the bottom fifth of the income distribution will lose £400 a year, while a single parent working full-time on the minimum wage will be £1,940 a year worse off.

To reverse these cuts would have cost the Exchequer £1.5 billion out of a total Budget giveaway of £55 billion, but this was clearly not a choice the Chancellor was willing to make. Instead, he chose to announce tax cuts costing £2.8 billion, from which 90% of the gain goes to the top half of the income distribution and nearly half of the gain goes to the top 10% alone. Looking at the overall effect of the most recent Budget, the richest 10% of households will gain 14 times more than the poorest 10%. Looking just at the policies that came into effect at the start of this fiscal year, the incomes of those in the top fifth of the income distribution will increase by an average of £280, while the incomes of those in the bottom fifth will be cut by over £100.

Now, as for the past decade, we see once again the deliberate reallocation of available resources away from the bottom of the income distribution and towards the top. There can only ever be one outcome from a decade-long choice that the poorest in society shall bear the greatest burden. Child poverty is now projected to rise by a further six percentage points by 2023 to its highest ever level. The proportion of parents living in poverty is also set to hit a record high. Extraordinarily, of children who have a single parent, are in large families, are in a household where no-one is in work, or live in private or social rented housing, the majority will be living in poverty by 2023.

Poverty is rising in this country, not by accident but by design. Poverty is rising because for a decade, with each decision that had to be made, the most vulnerable in our society lost out every single time.

Benefits: Reductions

Lord Livermore Excerpts

Thursday 1st November 2018 Lords Chamber

[Lord Livermore (Lab)]

My Lords, I congratulate my noble friend Lord Bassam on securing this debate and on his powerful opening speech. I did not know Lady Hollis nearly as well as many other noble Lords speaking today, but I know—both from her formidable reputation and from having had the pleasure of hearing her speak—that she was a consistent, eloquent and uniquely powerful voice for so many who too often have no voice of their own and I greatly admired her for it. How desperately do so many in our country need that powerful voice today. I know that many of my noble friends, in speaking up for the most vulnerable in society, will continue the work and maintain the legacy of Lady Hollis.

During the last Labour Government, I worked for 10 years in the Treasury. Welfare reform was central to the mission of the then Chancellor. The principles underpinning his reforms remain both relevant and right today: to ensure work always pays more than welfare and to prioritise support on to children and, in so doing, to reduce child poverty. It is a tragedy then—for so many families’ prospects, for our nation’s prosperity and for the fabric of our society—that over the past eight years successive cuts to the UK’s social security system have undermined every one of those principles.

Since 2010, we have repeatedly been told that those cuts were an economic necessity. The Government’s policy of austerity—of not just reducing the deficit but of aiming to run a surplus—was used to justify over £12 billion of cuts to the welfare system. Yet in his Budget speech on Monday the Chancellor announced that austerity is coming to an end. He abandoned his fiscal objective of running a budget surplus in the next decade and instead embarked on a £55 billion giveaway. If there is so much money to spend and austerity really is over, any cuts that the Chancellor now imposes must surely be a matter not of economic necessity but of political choice.

Let us look at the choices that this Government have made. We should, of course, begin by welcoming the £1,000 increase in universal credit work allowances, which, while it does not address some of the underlying design flaws, puts back some three-quarters of the cuts made to universal credit by George Osborne. However, more than 75% of the benefit cuts that the former Chancellor announced in 2015 remain government policy, with the freeze in working-age benefits still continuing next year. Of the £12 billion of planned welfare cuts by the end of this decade, only a quarter have now been reversed and over £4 billion of further working-age benefit cuts are due over the next five years.

Even with the new universal credit measures, those in the bottom 30% of the income distribution will still gain less from the increase in work allowances than they will lose from the continued benefits freeze. As a result, a couple with children in the bottom half of the income distribution will lose £200 a year, while a single parent working full-time on the minimum wage will still be £1,940 a year worse off. To reverse these cuts would cost the Exchequer £1.5 billion, but clearly this was not a choice that the Chancellor was willing to make.

Instead, the Chancellor chose to announce tax cuts costing £2.8 billion, 90% of which benefit the top half of the income distribution. Nearly half the gain goes to the top 10% alone. Looking at the overall effect of the Budget, the richest 10% of households will gain 14 times more than the poorest 10%. The IFS has calculated the distributional impact of changes to tax and benefits since 2015. It is strongly regressive. The poorest decile loses £1,100 a year, while the richest decile gains £400 a year. While some of the richest working-age families with children gain £1,000 a year, the poorest lose £3,000 every year—15% of their income. These are quite some choices that the Government have made.

These are not the inevitable consequences of reducing the deficit. No longer are they the necessary result of austerity; rather, they are deliberate policy choices reflecting the Government’s values. Their choice is to continue to cut ever deeper into working families’ incomes, not out of economic necessity, but out of ideological determination. The choice to spend £2.8 billion on tax cuts, half of which benefits the richest 10%, while it is still their policy to cut £1.5 billion from low-income and middle-income families, is a bad one. It is a bad choice for the Government to make and a bad choice for the Opposition to support.

Look back at the distributional impact of Labour Budgets over the 10 years that Gordon Brown was Chancellor and you will see a 12% increase in net income for the poorest 10% of families and a 5% decrease for the very richest. That is what progressive tax and benefit reform looks like and those who now claim to be more progressive could learn much from it. The reality is that austerity may have ended for a few at the top, but it is far from over for many hard-working lower-income and middle-income families. By cutting support to them, this Government break the promise that work will always pay more than welfare. By their choices, they betray a generation of children and, by their actions, they expose a Government deliberately targeting the very poorest in society while handing billions back to the better-off.