Welfare Reform

Lord McKenzie of Luton Excerpts

Thursday 11th November 2010 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for repeating the Statement that was given in another place today and acknowledge his personal and detailed engagement in the development of these proposals. On this side, we are grateful for advance sight of today’s Statement. Beyond the normal courtesy of being sent an advance copy and being able to hear it in the other place, we have of course been able to read about it in the newspapers over the past couple of months.

On the substance of the Statement, we have always been clear that we agree with the broad principles of what the Government are doing. We made good progress through the introduction of tax credits and the minimum wage to make work pay, and we made good progress in reducing the number of workless families by 350,000 and the number of unemployed lone parents by a similar amount, but there is plenty more to be done. The system is too complex at present.

The right honourable Secretary of State and the Minister have on more than one occasion gone on the record in acknowledging the work that we did in government that they are building on. We agree that work is the best route out of poverty and we agree with strong conditionality in the welfare system so that benefit recipients get something for doing something. We agree with the principle of a single welfare-to-work programme—we were introducing the personalised employment programme to do just that but at a much more modest pace than the Government are proposing in the work programme. In successive policy, we set out our long-term aspiration for a single working-age benefit papers that would simplify the system, as the universal credit seeks to do. Attaining that would be a significant technical as well as policy achievement, so on our part there is no opposition for opposition's sake.

On this side, we will offer constructive opposition to try to help the Government make their principles a successful reality. It is in that spirit that I raise some concerns. First, it is right that there should be a contract setting out the expectation between the state and the claimant to enshrine the something-for-something nature of things, but as well as providing benefit is there not an obligation on the state to grow employment? Will the Minister agree to publish, perhaps with his friends in the Treasury, targets for employment growth and unemployment reduction? I notice the claims in the media, which we have heard repeated today, that the tougher conditionality will reduce unemployment by 350,000. I would be interested to see the evidence supporting that.

The noble Lord, Lord Freud, will recall our extensive debates on conditionality during the passage of the Welfare Reform Act 2009. In particular, he will recall the consensus that lone parents, particularly mums, should not have to be available for work outside school hours, that there needs to be affordable childcare and that transport costs should be taken into account in assessing availability for work. Can the Minister confirm that tougher conditionality is not to weaken these protections and that good cause will still apply? What is proposed for the protection of children when benefits are withdrawn? Will hardship payments still be available and, if so, at what level of benefit?

Through the future jobs fund and the young person’s guarantee, we found that offering a real job on the minimum wage lifted people's aspirations and got a lot of really good work done for the community. That is what the unemployed—all the way back to the “Boys from the Blackstuff” in the 1980s—have always wanted: they want a job. The new work programme is dependent on successful job outcomes, so they need this too. When will the Government publish a credible plan for jobs growth? The Bank of England said this week that the prospects for growth are highly uncertain, but it is certain that more than 1 million people will lose their jobs as a result of the comprehensive spending review. Can the Minister give hope to those who are currently unemployed that the number of vacancies will start increasing again?

The benefit of work is in building self-confidence and self-esteem. How will the work experience proposals offer that and other gains such as something on the CV and a good reference? How will it be different from the community payback work that we successfully introduced in government? Will it just look like another form of punishment? How will he find these work placements and guarantee us and the work programme providers that the scheme will not just displace other jobs that are needed to get people permanently off benefit? In our experience, as with apprenticeships, it is easy to announce the policy and the funding, but it is much harder to persuade employers to take them up.

On universal credit, there are many points of detail that we wish to explore about how the credit will operate, but those questions are mostly for other occasions. We recognise that the proposal is ambitious, but can the Minister comment on the reports that, in order to fulfil the commitment that no one will be worse off under the proposals, up to an additional £2 billion a year will be required after 2016? Given the time that will be taken to introduce the universal credit, has any thought been given to utilising the better-off-in-work credit in the interim?

We will need to explore the detail in the White Paper on what is included within the credit. Can the Minister say today whether DLA is in or out and whether it is to be subject to the taper? Given that the previously announced decision that council tax benefit—with a 10 per cent cut, of course—is to be devolved to local authorities will potentially lead to differential arrangements up and down the country, what is the Minister’s understanding of what that will mean for the universal credit?

There has been much debate about the draconian changes to the housing benefit regime. In due course, we will want not only to unpick the evidence base on which that is predicated but to look for answers, which to date have not been forthcoming. Will the universal credit allow the separate net identification of components of the credit, given the possible combination of overall caps, individual rent caps and the standard tapers? Does that preclude the direct payment of rent to RSLs and landlords in the private rented sector? If child benefit is to be included, how does the Minister respond to the point that one consequence will be potentially to reverse the hard-won campaign that such support should be a resource that transfers from the pay packet to the purse?

I reiterate our concerns about what is being cut to pay for the proposals. The arguments setting out our opposition to the unfair and damaging cuts to housing and child benefit are well rehearsed and will be made again and again. I should also say that the noble Lord could avoid these damaging cuts by taking more time and, in doing so, he could possibly lower the risks around the delivery of the proposals. We can achieve political consensus on this and agree a programme that goes beyond a single Parliament. That would allow time to build employment in the economy, get reassurance about the success of the IT upgrade on which the universal credit is dependent and allow a smoother transition from the flexible New Deal to the work programme, thus avoiding a damaging gap in provision that potentially will hurt contractors and, more important, vulnerable job seekers.

Let me be clear that we support the strategic direction of the proposals, but what counts is the decency with which they are implemented. We will work constructively with the Government to seek to ensure that that is the case.

Disabled People’s Right to Control (Pilot Scheme) (England) Regulations 2010

Lord McKenzie of Luton Excerpts

Monday 8th November 2010 Grand Committee

[Baroness Thomas of Winchester]

My Lords, as my noble friend said, it is just over a year ago that the band of Peers who speak on DWP matters welcomed the amendments to the Welfare Reform Bill, now Act, of 2009 which have triggered these regulations for pilots. I, too, can give them a hearty welcome.

I said a year ago that the amendments, now regulations, would herald a real shift in power from the state to disabled people, ensuring that they are in the driving seat when it comes to the support they need. I seek a few clarifications and have a few questions.

The amendments, which inserted a new clause, included a power for the Secretary of State to issue directions under existing community care legislation to deliver alignment under existing enactments. The then Minister, the noble Lord, Lord McKenzie of Luton, to whom I also pay warm tribute, said:

“Alignment means delivering the effect of the right to control to individuals in receipt of adult community care services”.—[Official Report, 27/10/09; col. 1114.]

My noble friend Lord Freud responded that it made far more sense to base the right-to-control approach on community care services, which are likely to be required on a sustained and long-term basis, than on the more transitory requirements surrounding support for disabled people to secure employment.

I should be grateful for clarification on that point. I think it means that adult community care is not included in these regulations because it comes under other legislation on direct payments, but that under these regulations authorities are enabled to share information about community care. Is this correct? Presumably this means that assessments will be shared so that disabled people do not have to undergo multiple assessments.

We all know how stretched local authorities’ financial resources will be. Will any support be provided to authorities to enable them to develop and implement a single assessment system? Will there be any practical support for organisations that provide information, advice, peer support and advocacy? There is an obligation for authorities to give to the disabled person information about organisations that provide advice and assistance, but there is no duty to sustain those organisations, nor is there a right to advocacy. Perhaps my noble friend can say what support there will be for the pilots.

Having read the document helpfully provided by the Office for Disability Issues, Making Choice and Control a Reality for Disabled People, I end by asking my noble friend one or two questions arising from that document. On page 20, I see that the Office for Disability Issues is working with the Department of Health to consider allowing, within the trailblazers only, third parties to carry out non-complex assessment reviews. Are we talking about people other than healthcare professionals? I was not sure. If we are, there is already a certain amount of controversy about those who carry out the work capability assessment, and it is important to get all these assessments right.

Another small point is the rule that a disabled person has to be informed in writing of various things. We are told that this means,

“in a format that is accessible to the person”.

If that is what the regulation means, why does it not say so?

Finally, have we got anywhere with the idea that the excellent access to work provisions might be guaranteed to a disabled person before the offer of a job, so that a potential employer would be more encouraged to offer that person employment? I hope that my noble friend can answer those questions—perhaps in writing, if not today. However, in general, I welcome the regulations most warmly.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for his full explanation of these regulations and for his kind words. We certainly welcome the introduction of the right-to-control trailblazers, which, as all noble Lords who have spoken identified, flow from the Welfare Reform Act 2009. The Minister referred to them as groundbreaking; the noble Baroness, Lady Campbell, referred to them as transformational and overturning a culture of dependency. I very much agree with that. The noble Baroness was the driving force behind the development of the right to control. She described the legislative process as one of co-production. It would seem that this approach has very much continued in the development of the regulations before us. The right to control is predicated on the principle that disabled people are the experts in their own lives: and that their being passive recipients of whatever support is deemed appropriate, and how that support is delivered, is no longer acceptable. I agree.

I have one or two specific questions that perhaps the Minister can help me with. The Independent Living Fund is not one of the qualifying services, although it is one of the six funded services that are to be included in the right-to-control trailblazer areas. Notwithstanding that further applications are to be considered during the current financial year, my understanding is that the right to control can still apply to existing recipients. I should be grateful if the Minister could confirm that. Can he also explain the position for future years? What are the planned allocations over the CSR period? If he cannot tell us today, he might let us know when that information will be available.

Work Choice is one of the qualifying services. According to the DWP website, contracts have now been awarded for the delivery of that programme. Can the Minister say a little about how those contractual arrangements sit alongside the right to control? For example, will the duty of the responsible authority to provide information to the beneficiary under Regulation 7 remain with the Secretary of State or, by agreement, be passed to the third-party provider? In second arrangements with providers, what estimate has been made of the likely numbers of people who will opt for arrangements other than those available under these contracts? More generally, can the Minister say whether any of the six funding streams are likely to be inculcated in whole or in part into the universal credit when introduced, or if any of the relevant services within the meaning of Section 39 of the Welfare Reform Act would be so included? I understand that we may get more detailed views on that later in the week.

It is understood that the Work Choice programme, when introduced, will focus very much on an individualised approach to supporting people towards and into work. That is something that we should support. Can the Minister say something about the relationship between that programme and the right to control? As the noble Baroness, Lady Thomas, said, concern was expressed during our deliberations on the Welfare Reform Bill that expressly excluding adult community care services from the legislation would substantially diminish benefits from the right-to-control approach. The reason for the exclusion was that similar provisions exist under other legislation. We are told that the Department of Health will issue directions to local authorities to ensure that people assessed for adult community care services living in the pilot areas will have the equivalent facilities of the right to control. Given that the regulations have now been laid and that the pilots are due to commence shortly, have those directions now been finalised?

Supporting People is a vital, non-statutory programme that helps about a million of our most vulnerable citizens each year. It is a sign of the times that it is considered a reasonably protected budget, although it suffers a 12 per cent real-time reduction over the CSR period. It is a qualifying service for the purposes of these regulations, to the extent that it helps disabled people to live independently. Funding from the centre is no longer ring-fenced and there is great concern that local authorities, under extreme financial pressure because of budget cuts, will shift resources to other programmes. To the extent to which that happens, vulnerable people who are eligible to benefit from these and other regulations will suffer. Will the Minister say how this issue is to be monitored?

It is comforting that the DFG regime has been brought within the right-to-control pilots. Again, the budget will be under extreme pressure because local authorities typically top up their central capital allocation. Obviously, their scope for doing so is diminished. Will the Minister deal with one point? It is focused on the changes to buildings, but it should cover the provision of equipment as well. Do the processes envisaged here facilitate the recycling of equipment? I recall instances in the past such as when I was on a local authority and someone had a stairlift fitted. Sadly, within two weeks, they died, but it was pretty much impossible to get the stairlift taken out of that property and installed in another property with an equivalent need. I am not sure that I have my mind around all the processes envisaged here, so I should like to check whether that is facilitated, or not precluded. Obviously, that would damage the interests of disabled people.

Finally, could the Minister remind us of the basis on which the pilot areas were chosen?

In conclusion, these regulations are a hugely important step forward and a tribute to a lot of work that has been done by many people, particularly the noble Baroness, Lady Campbell. They give us a chance to test the proposals in practice and open up opportunities for disabled people to transform the quality of their lives. We give these regulations our full support.

[Lord Freud]

My Lords, I thank everyone who has spoken in this debate for their unanimous supportive approach. We are looking at a watershed moment—despite the level of consensus in this Committee, or maybe even because of it—in the way that right to control will enable disabled adults to have a real say in how services are provided and choose how to purchase those services. As the noble Baroness, Lady Campbell—who will, I think, be watching—said, these pilots need to be implemented well. While I could not possibly comment on her claim that she is a control freak, I know she raised the issue that some people who may not be quite as enthusiastic about taking total control will still be part of the pilot. Full support for them will be built into the pilot and will be a vital aspect of it.

I will now deal in no particular order with the questions that were raised. The noble Baroness, Lady Thomas, asked about the number of assessments required. We are working with all the local authorities involved to support them in undertaking just a single assessment, and have a field support team working with the different local authorities to share the approach. The noble Baroness asked why the regulations do not refer to accessible formats for the provision of information. These do not need to be specified in the regulations because there is a general duty under the Equality Act. The noble Baroness asked how community care will work. It is aligned with right to control. These regulations work alongside the legislative framework for community care. Indeed, the data-sharing regulations extend to community care.

The noble Baroness asked about the support provided to user-led organisations during the pilots. Trailblazers work with the local organisations that supply the support and advocacy. The representatives are members of local project boards, and the Government will provide support to trailblazers, which can include support for user-led organisations. The noble Baroness raised the issue of general support. The concept of right to control involves assembling the money that is already there and making it accessible in a right-to-control way. For the purpose of the pilots, we are putting resources in because there is clearly extra cost for the communities. From memory, the figure that we are adding to that package is £7.5 million, which will be a mixture of cash and practical support.

Poverty

Lord McKenzie of Luton Excerpts

Thursday 22nd July 2010 Lords Chamber

Moved By

[Lord McKenzie of Luton]

To call attention to the impact of the Budget on people in poverty; and to move for papers.

[Lord McKenzie of Luton]

My Lords, I welcome the opportunity to open this debate and am grateful to all noble Lords who are proposing to contribute. I look forward to hearing maiden speeches from four new Members of your Lordships’ House. I also thank the number of organisations that have offered us briefings for this debate. The consistency of their analysis and the intensity of their concerns are startling.

Poverty has many faces, none of them attractive. There are many in our world who live in abject, absolute poverty without sufficient nourishment and with no access to clean water, shelter, simple life-saving medicines or rudimentary education. Defeating such poverty remains, quite properly, a supreme cause of our time. There are, however, issues closer to home that should also command our attention and commitment. These might be described as matters of relative poverty, which, for families, was characterised by the founder of the Child Poverty Action Group in this way:

“Their resources are so seriously below those commanded by the average … family that they are, in effect, excluded from ordinary living patterns, customs and activities”.

It is from this perspective that I would like us to consider the impact of the recent Budget, which cut spending beyond inherited plans by £32 billion a year, as well as raising net taxes by a further £8 billion. Eleven billion pounds of spending cuts will come from specific welfare measures.

In analysing these issues, let me anticipate and deal with the complaint that the state of the public finances gave no room for any other Budget judgment. Our borrowing has risen because the global financial crisis caused tax receipts to fall and spending to rise. The fiscal stimulus led to more borrowing, but it was the right choice to stop recession turning into depression. We had set out our clear deficit reduction plan, which would have brought the deficit down to 5 per cent of GDP in 2013-14. The coalition Budget goes faster, cuts deeper and adopts a different set of priorities. Let us be clear: the Government chose to do this; they did not need to do it.

In March, George Osborne declared that we are all in this together and said that he would not balance the Budget on the backs of the poor. It is by that statement that we will judge him and the coalition Government of which he is part. The Chancellor of the Exchequer claimed his Budget as a progressive Budget, saying that it was tough but fair. Tough it was; progressive and fair it most certainly was not. The Budget Red Book presents various charts to justify the claim of being progressive, but the truth has been laid bare, in particular by the IFS. Only by overlaying the Budget measures with the progressive measures inherited from Labour’s March Budget can the net result be seen as progressive, even taking account of the personal allowance change. Even this must be treated with some caution, as the analysis does not fully factor in all the draconian consequences of the housing benefit measures. It also cannot as yet take account of what is coming down the track from the cuts that will pour from the expenditure review—cuts that will inevitably impact most on the poor.

When we hear that the Budget is grounded in fairness and that we are all in it together, frankly, we beg to differ. We do so because of what the Budget contains in rises in VAT; in reductions in tax credits; in the freezing of child benefit; in restricted benefit and pension uprating; in narrowing the gateway to disability living allowance; and in illogical and spiteful cuts in housing benefit.

I start with the impact of the changes to housing benefit. These changes include taking a reduced level of local rents for the housing allowance; capping rent levels for each type of property; increasing the non-dependant deduction; uprating the local housing allowance rates by CPI, rather than actual rent levels; and docking 10 per cent from the long-term unemployed. These amount to a net cut of £1.7 billion a year—a cut to be met by the poor and those on low incomes. Penalising working-age people who are unemployed is a particularly savage act. The need for reform of housing benefit to improve work incentives is accepted, but a 10 per cent deduction in housing benefit is entirely arbitrary, will cause incredible hardship to those who seek to make up the shortfall from their jobseeker’s allowance and will exacerbate poverty in those very communities where jobs are hardest to come by.

As Shelter points out, the reforms adopting the 30 per cent level rather than the median level of rents for housing allowance will lead to a significant reduction in the amount received by many claimants across the country. Citizens Advice calculates that an average allowance for a two-bedroom property in England will fall by nearly £10 a week, and for a three-bedroom property by £13, worsening existing rent shortfalls. Shelter says:

“We expect that many households will try to remain in their home and be forced to make financial sacrifices in order to do so. For those households already struggling to balance very tight budgets, a reduction in local housing allowance will … push … them over the edge, triggering a spiral of debt, eviction and homelessness”.

This will be made even worse by the uprating over time of local housing allowances by CPI, rather than actual rents, so that the allowance will be increasingly disconnected from rent levels.

The National Housing Federation has warned that these cuts will put more than 200,000 people across Britain at risk of homelessness. It says that they will force families to move, for some away from social and family networks, undermining well-being, employment and childcare opportunities. It will amount, in effect, to the expulsion of low-income families from some communities. These consequences are not difficult to predict. There is no massive affordable housing programme to rely on to take the pressure off private sector rents. If the expectation is that there will be downward pressure on private sector rents, this is a huge gamble being taken with the lives of some of our most vulnerable families. From the Government there seems to be no recognition of the consequences, no compassion and no understanding of the devastation that this will cause to so many who need our help.

I turn now to issues of indexation. Until now, most benefits have been uprated by the RPI, with means-tested benefits by the Rossi index, a variant that excludes certain housing-related costs. Moving to uprating all benefits by CPI will mean that the real-terms value of benefits will continue to fall compared to average earnings and will fall at least 1 per cent faster—although the IFS suggests that this would be closer to 2 per cent—than under previous uprating rules. Without countervailing measures, uprating benefits by RPI was anyway at risk of driving inequality as the cumulative gap with earnings widened. Uprating by CPI will, in the terms of CPAG, cause the downward escalator to move even faster. This is a cut to benefits of nearly £6 billion annually—this when research shows that, because of their spending patterns, people on low incomes face much higher inflation rates than CPI. How does the Minister justify this? What rationale underpins this change, other than reducing the costs of benefits?

The use of CPI does not relate only to benefits; it has a profound effect on pensions and pensioners. More than 10 million people get a state second pension, including 6 million women. The reforms to S2P in recent years have been particularly focused on improving outcomes for the low-paid. The average state second pension is now £36 a week. The switch to uprating this by CPI rather than RPI means a loss on average of more than £2 a week by 2015, with growing losses thereafter. There was no mention of that when boasting about the triple lock. There are also ramifications for public sector pensions and for many private sector occupational pensions because uprating is linked to S2P uprating. This comes at a time when pensioners are faced with the burdens of the VAT increase and no benefit from the increased personal tax allowance. As the Public Service Pensioners’ Council points out, it was assured by all three parties that any changes to public sector pensions would have a long lead-in time and be the subject of consultation. Where was the consultation? It may be fashionable to attack public sector pensions, but many who gave public service are on low or modest pensions and the uprating changes affect them, too. What evidence is adduced to support the Government’s intention that CPI is a better measure of inflation for pensioners than RPI? Given that the coalition agreement specifically recognises that work is needed to amend the CPI index, can the Minister advise us of progress?

We should give credit where credit is due. We welcome the increases in the child tax credit announced for April 2011, even though—as Save the Children pointed out—those on housing benefit will see a reduction in housing support of up to 65 per cent of this increase. However, these increases in child tax credits are dwarfed by a plethora of reductions to the tax credit regime. CPAG calculates that only 20 per cent of the £3.2 billion of cuts will come from reducing entitlement for families on higher incomes. The rest will have a direct impact on low-income families. The increased rate at which tax credits are withdrawn would lose someone earning £16,420 a year £200. Introducing the £2,500 income disregard for households facing a drop in income— a novel invention, I am bound to say—could mean a reduction in tax credits of £1,000, particularly affecting people who take maternity leave or long-term sick leave.

Families with babies seem to have been especially targeted by this Budget, despite the rhetoric around family values. They lose the health in pregnancy grant, the £545 baby element of the child tax credit and the £500 Sure Start maternity grant, other than for the first child. Then there is the demise of child trust funds. The increase in the child tax credit is not enough to compensate for these. Freezing child benefit for three years will have a disproportionate effect on the poor, because child benefit contributes a larger proportion to their household income than it does for more affluent households. Notwithstanding all this, the Government assert that increasing the child element of the child tax credit above inflation to ameliorate the freezing of child benefit will cause no measurable impact on child poverty in the next two years. Will the Minister please confirm that this assessment is made on the basis of all the measures set out in the latest Budget, rather than just those two items? We welcome the Government’s commitment to the child poverty targets but, frankly, this Budget takes us in the wrong direction.

Time does not permit a detailed analysis of how different households might be affected by different combinations of Budget measures, but the Citizens Advice briefing is recommended reading. However, we know that one group will particularly bear the brunt of this Budget—women. This was covered extensively in yesterday’s debate on the role of women. The analysis shows that, of the £8 billion net revenue to be raised in 2014-15, some £6 million will be from women—and this at a time when women still lag behind men in earnings and wealth.

That is just one more manifestation of a regressive Budget judgment. If we needed proof, the choice of a VAT increase as a revenue-raising measure is it. The 2.5 per cent increase in VAT is the biggest single item in the Budget, raising some £13.4 billion. Both the Prime Minister and his deputy are on record as acknowledging that it is a regressive tax, hitting the poorest hardest. The IFS analysis shows percentage income losses for the poorest to be more than twice those for the richest. The Government know that the VAT hike will have a significant adverse impact on the incomes of poor families but chose it in preference to targeted taxes on the assets and income of the wealthiest.

On proper scrutiny, it is clear that the 2010 coalition Budget is deeply regressive. It cuts benefits, reduces tax credits for families on low and moderate incomes, short-changes pensions and pensioners, exacerbates homelessness and chooses regressive taxes. These choices did not have to be made.

We came into politics through a variety of influences. Many of us wanted to bring about social justice, combat poverty and promote equality. The improvement in our own material well-being and our inculcation into grand institutions such as your Lordships’ House may have dimmed or deflected that commitment. However, if that cause needed a catalyst—a call to action—it is writ large in this unfair, regressive and ill judged Budget. We have work to do to expose its excesses and we must use our energies to protect those whose lives will be scarred by its ideology.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, it just remains for me to thank all noble Lords for contributing to today’s debate. It has been wide-ranging and informative, as one would expect from your Lordships’ House.

I add my congratulations on four marvellous maiden speeches, from my noble friends Lord Boateng, Lady Donaghy and Lord McFall of Alcluith, and from the noble Lord, Lord Shipley. The passion, knowledge and experience that went into these speeches make me feel glad that I slipped under the wire earlier when the standard was not so high.

I thank the Minister. It is a pity that we did not hear from any Conservative Back-Benchers on poverty issues. Perhaps we should take a message from that. I accept that the Minister has an interest in and is passionate about tackling poverty; I know that from our debates on the Child Poverty Bill. His assertions about protecting the most vulnerable were not particularly convincing, if I may say so. Concern about increasing work incentives on the basis of the Budget is partly about driving down the level of benefits, and fairness in housing benefits is very difficult to see from the propositions that are coming forward.

We shall clearly have the opportunity to debate these at length as the primary and secondary legislation comes forward. I am gratified by the fact that, on today’s showing, more noble Lords will participate in that endeavour. I beg leave to withdraw the Motion.

Motion withdrawn.

Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

Lord McKenzie of Luton Excerpts

Wednesday 21st July 2010 Grand Committee

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, the Government are committed to reinvigorating pensions, and a robust protection regime for company pensions is essential so that people have the confidence to save. Noble Lords will be aware that Parliament legislated, with cross-party support, for a new regime. The Pensions Act 2004 created two new bodies, the Pension Protection Fund and the Pensions Regulator. These bodies are delivering improved protection for scheme members, helping to renew confidence.

These two sets of draft regulations, which the previous Government consulted on, will respectively mean that the UK Government meet a European Commission ruling and ensure that the protection regime operates effectively. The first set of draft regulations concerns the Pension Protection Fund and a state aid issue. I hope that noble Lords will bear with me if I am not able to answer some detailed questions which I am sure will emerge. BT plc has appealed to the Court of First Instance on the state aid ruling, and last Friday the High Court concluded a hearing brought by the trustee to determine the precise meaning of the scheme’s Crown guarantee. Some answers from the court are likely next week, but several key issues remain to be explored by the court after that.

Noble Lords will be aware that the Pension Protection Fund was set up in 2005 to protect members of eligible pension schemes which are mostly final salary defined benefit schemes. It does this by paying compensation to members of eligible pension schemes when the sponsoring employer has become insolvent and there are insufficient assets in the scheme. The PPF is financed through levies on eligible defined benefit schemes, residual assets of pension schemes transferring into the PPF and investment returns. The administration costs of the PPF are paid for by money provided to the board by Parliament. This money is then recovered by an administration levy from schemes eligible for the PPF. A small number of schemes do not pay the PPF pension protection levy or the PPF administration levy. These are defined benefit pension schemes with a full Crown guarantee and therefore do not require the protection of the PPF.

A Crown guarantee is a promise given by a public authority to stand behind the liabilities of a pension scheme should the scheme wind up in deficit. The precise nature of the Crown guarantee and what it protects varies, but broadly the result is the same—these are schemes whose liabilities are ultimately underpinned by the taxpayer. In some cases, the Crown guarantee covers only a particular part of the scheme, certain members or certain benefits. These are known as “partially guaranteed schemes”. Such a scheme would have to pay an administration levy only in respect of the part of the scheme that is not covered by the guarantee.

In many circumstances, Crown guarantees for pension schemes do not present a problem as the sponsoring employers are not commercial entities operating in a competitive market. In 2009, the European Commission reported on an investigation into whether the Crown guarantee for certain liabilities that BT had to the pension scheme gave rise to an incompatible state aid. The Commission decided that the non-payment of the PPF levies by the BT scheme could not be justified under EU rules because it relieved BT from charges that its competitors had to pay and was therefore an incompatible state aid. It is important that the Government do not unduly distort competition in competitive markets through state aid. Consequently, the UK Government were required to cease the incompatible state aid and ensure that the BT scheme paid the full PPF levies.

In February 2010, the previous Administration made regulations by negative resolution to remove the exemption from paying the PPF pension protection levy. This followed consultation last autumn on draft regulations. This pension protection levy is set by the board of the PPF, is intended to raise £720 million in 2010-11 and is one of the ways by which the PPF funds the compensation payable to members of schemes in the PPF. This set of regulations will complete the action and remove the exemption from the PPF administration levy where it gives rise to an incompatible state aid. This second levy funds the running costs of the PPF and is set at the much lower level of £22 million in 2010-11. These regulations are the final part of implementing the Commission's decision. The Commission's decision in respect of the BT pension scheme applies only to that scheme. However, the Commission will expect the UK Government to apply the same reasoning to schemes in a comparable legal position, and where the facts are the same. These regulations are therefore drafted in such a way.

I turn to the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010. The Pensions Regulator commenced operations in April 2005. It was established as an arm’s-length body and charged with regulating workplace pension schemes. Noble Lords will be aware that Parliament gave the regulator important powers, with cross-party support, to address the risk of avoidance activity. Avoidance is an attempt by a sponsor employer deliberately to walk away from its statutory pension obligations—for example, as part of a corporate restructure—or to offload them onto the Pension Protection Fund. This activity would have serious cost implications for those schemes that will remain responsible for paying the PPF pension protection levy.

One of the regulator's main powers to address the avoidance activity is the contribution notice. This requires a cash sum to be paid to the scheme, or to the board of the Pension Protection Fund, up to the value of the sponsor employer's full statutory debt to the scheme. There are legal tests to ensure that this power is used appropriately. For example, the regulator must be of the opinion that it is reasonable to exercise its powers and it must have regard to certain factors, where relevant, when forming its decision. These factors include the avoidance of involvement of the person in the act of avoidance, and the connection or involvement which the person has or has had with the scheme.

The Pensions Act 2008 amended the contribution notice power to close a loophole. The problem was that under the 2004 Act, the regulator was prevented from issuing a notice to any scheme other than the one in relation to which the avoidance occurred. This meant that an employer could avoid a contribution notice by transferring the members to another scheme. Requiring the employer to pay funds to the original scheme would not assist those transferred members, so a contribution notice might not be justified. Parliament agreed legislation, with support from all sides of the House, to permit the regulator to direct the notice to the scheme to which the members had been transferred.

These draft regulations, which are required under the 2008 Act, simply set out how the regulator must calculate the amount to be specified in a contribution notice where members are transferred from a defined benefit to a defined contribution scheme. The 2004 Act already provides the means for calculating this amount in respect of defined benefit funding rules, and these regulations provide the means for calculating the contribution notice sum where those rules do not apply. There are important safeguards, including that decisions to use the contribution notice must be made by the regulator’s determinations panel, which is independent of the evidence-gathering part of the regulator.

In my view, there is no undue impact on business, and consultation responses supported this. These regulations will in fact provide certainty for business on how this power works. In my view, the provisions of the Occupational Pension Schemes (Levies) (Amendment) Regulations 2010 and the Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010 are compatible with the European Convention on Human Rights. I commend the two sets of regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for a precise and extensive explanation of these orders. Given that, as he indicated, they were promulgated under the previous Government, it will come as no surprise that we do not propose to oppose them. Notwithstanding the fact that I had command of the Pensions Act 2008, I do not propose on my account to delay the Committee much on these issues.

There are just a couple of matters in relation to the contribution notices on which I wonder if the Minister could update me. I went back and read a bit of the Hansard debate—sad person that I am—and it reminded me what a joy that episode was in my life. I recall that there were issues around the extent to which anti-avoidance measures should be written into the primary legislation to give assurances to businesses, trustees and sponsors of pension schemes, and how much should be left for a code of practice and other means to maintain flexibility to be able to ensure that new avoidance devices that came along could be properly addressed. On that issue, does the Minister’s experience to date—I accept that that experience to date has not been extensive—suggest that the balance of that approach was right? It was a matter of some debate at the time. Are there any emerging avoidance schemes of which we are aware, where we think that the anti-avoidance framework is not sufficient or does not give sufficient powers to the regulator to address those issues?

In the past there were proposals for insurance-based schemes that would, it was suggested, negate the need to pay the PPF levy because an insurance company would stand in the stead of the PPF. At the time, because the PPF was emerging and still something of a fledgling body, the previous Government were not prepared to entertain that, although there were issues about whether the benefit of an insurance contract could be a contingent asset for PPF purposes in doing the calculations. Will the Minister update me on whether there has been any further progress in those sorts of schemes and whether the current Government are minded to take a different view from the one that we took?

The levies order is pretty straightforward and we do not take issue with it, although I ask the Minister if he could give us a general update on the PPF and where it stands in the context of the current pensions framework. In the immediate past there were a number of challenges about whether the PPF would be able to withstand the thrust of new schemes that might be entering into the PPF—I think our line at the time was that there was 20 years’ worth of cash flow there, and that was the key driver. An update on that would be helpful, perhaps with an idea of the number of schemes currently covered by it.

--- Later in debate ---

[Lord Freud]

My Lords, I thank noble Lords for their contributions and I am glad that we were able to take the noble Lord, Lord McKenzie, on such a romantic trip down memory lane, although I sensed a little bitterness in his observation.

The first set of regulations addresses a fairly narrow issue relating to state aid. They are intended to address the rare situation where a reduction in the PPF levy for a pension scheme with a Crown guarantee, sponsored by a commercial entity, provides an unfair advantage. The regulations will ensure that the UK Government have complied with the European Commission’s decision and met their obligations. The second set of regulations provides the means for the regulator to calculate the amount of a contribution notice in certain cases, but only where the grounds for the use of this power have been met.

I turn to the points raised in the debate, and first to those made by the noble Lord, Lord McKenzie. He asked whether insurance contracts can be used. They may indeed qualify as contingent assets for the purposes of calculating the PPF levy, although there have been no recent representations on this matter and no changes in the law are currently planned.

The noble Lord asked what the experience of the Act had been in practice. As he said, these are early days, but I have pleasure in assuring him that, so far, the Act, which I acknowledge he was responsible for, appears to be working well. The noble Lord asked about activity in terms of emerging avoidance schemes. There are none that the Government are currently aware of. As he will know, the department and the Pensions Regulator work together closely in order to monitor the effectiveness of the legislation and ensure that it remains robust. He also drew our attention to paragraph 7.2 of the Explanatory Memorandum and the phrase,

“and only pay an administration levy in respect of the non-guaranteed part”.

I have pleasure in confirming for him that he has not found a flaw in the regulations because that is exactly—

[Lord McKenzie of Luton]

My Lords, the copy I have before me states,

“and only pay an administration levy in respect of the guaranteed part”.

[Lord Freud]

I thank the noble Lord for that. I have in front of me a piece of paper stating “the non-guaranteed part”, and it should be the non-guaranteed part. I hope that he does not have an earlier misdraft. I can assure him that the draft regulations we are considering use the term “non-guaranteed part”. If an earlier incorrect draft has been floating around and if that is in any way our responsibility, I of course apologise. But in the correct form it is “non-guaranteed part”. I have to congratulate him on his eagle-eyed spot, albeit of what would seem to be an out-of-date version.

The noble Lord asked where we stood on the levy. I have some information about that which will be handed over immediately. There are now 160 schemes in the PPF, and no doubt he will also be pleased to learn that the movement in the markets has meant that the deficit in the Purple Book has narrowed very appreciably. As of 30 June, it stood at around £21 billion.

I turn now to some of the points raised by my noble friend Lord German. He quizzed me on how this situation may affect other companies. The regulation reads rather misleadingly as if it is a very wide universe, but in practice, BT is the only commercial company operating in the marketplace where these regulations are relevant. We do not need to think about how this might affect other companies because there is only one other organisation with a partial guarantee, and that is Bradford & Bingley, which has been cleared by the European Union.

On the BT consultation, covered in paragraph 26, the guarantee to the company does not give it aid because it takes effect only at the time of insolvency. Where it does provide aid is by reducing the PPF levy while the company is extant.

[Lord McKenzie of Luton]

I am sorry to interrupt the noble Lord again, but I think that was a point that I may have touched on. Is there a potential for us to end up in a situation where if in fact BT were to become insolvent and therefore could not meet its obligations—obviously there is a big “if” attached to that—the scheme would have the benefit of the guarantee and would have had the benefit of PPF protection? My question concerns how those two things sit together and on what basis the levy is computed in those circumstances.

[Lord Freud]

I thank the noble Lord for that smack-on-the-nose question. It is much harder to give a smack-on-the-nose answer, because we are waiting to find out the implications of the legal case. The noble Lord is asking me to pile hypothetical on hypothetical and it is not possible at this stage to give a sensible answer. We could go on piling up the hypotheticals, but it would rapidly become silly, so I crave his patience at this stage. It is simply not possible to wonder how the different levels of guarantee and PPF protection may or may not interrelate.

State Pension Credit Pilot Scheme Regulations 2010

Lord McKenzie of Luton Excerpts

Monday 5th July 2010 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of the order before us. I will not rise much to his opening salvo about the state pension, except perhaps to remind him gently that it was a Conservative Government who broke the link with earnings, and it was the previous Labour Government who, on coming into office, had to address the abject situation that many pensioners found themselves in, hence pension credit. That is how the previous Government lifted hundreds of thousands of pensioners out of relative poverty. Perhaps, though, that is for another debate.

It goes without saying that we support the pension credit pilot, which, as the noble Lord, Lord Kirkwood, acknowledged, has as its basis the provisions of Section 27 of the Welfare Reform Act 2009. Maximising the take-up of income-related benefits is an effective way of tackling pensioner poverty. We know that, despite considerable take-up activity, a significant number of people who are entitled to pension credit are still not claiming it.

The noble Lord, Lord Kirkwood, said that the regulations are, in his view, basically tactical in enshrining means-testing as part of the system. I remind him that the package on which the pensions system is based stems from the Turner commission: improvements to the basic state pension, relinking it to earnings, and improvements to S2P, particularly the flat rating. The other component is, of course, auto-enrolment, on which we await the results of the review that is under way. My noble friend Lady Hollis, who is not with us today, has strong views about wrapping pension credit, S2P and the basic state pension into one pot.

[Lord Kirkwood of Kirkhope]

I have said that, too.

[Lord McKenzie of Luton]

Indeed, among the advocates of that I include the noble Lord and possibly even the Pensions Minister, although we shall see what will flow from that.

We note that the limited consultation that the DWP undertook before the election showed general support for the pilot, although, as ever, with some reservations. Clear communications are, as the DWP’s response to the consultation acknowledges, of paramount importance. We are likely to be dealing with many people who are vulnerable and who could be distressed at seeing ad hoc credits appearing on their bank statements.

A condition of eligibility of receiving benefit under the pilot is that a person must receive retirement pension that is paid by way of direct credit transfer to a bank or other account, a point that the noble Lord, Lord Kirkwood, probed. I am not sure whether the Minister has information to hand—if not, perhaps he could write—but we would be interested to know what percentage of people in receipt of retirement pension are now paid other than by these means. Are there data covering the extent to which such people are underrepresented or overrepresented in the entitled non-recipient category? We ought to know that.

The noble Lord, Lord Kirkwood, also touched on a question that arose about the design of the pilot, which involves the payment of just three four-weekly amounts. Is that sufficient to provide the information to satisfy the objectives of the pilot? Given the set-up costs of the pilot, it would be a pity if the opportunity were missed to provide a secure evidence base. On what basis is the Minister satisfied that the three-month period is sufficient to meet the objectives for which the pilot is designed?

The pilot is to cover both the guarantee credit and the savings credit, so the spread of amounts of payments could be quite wide. Is the Minister also satisfied that the proposal to select 2,000 at random from the entitled non-recipient population will pick up a sufficient range of circumstances to enable a comprehensive evaluation of the differing reasons for lack of take-up?

Of course, the pilot has to be seen in the context of other campaigns that are under way to improve the take-up of benefit. Perhaps the Minister could give us an update on these. Specifically, could he tell us about the outreach programmes and the current volumes of face-to-face visits that are being undertaken? What progress is being made on the programme that allows one phone call to access three benefits—pension credit, council tax benefit and housing benefit? Will this continue alongside the pension credit pilot payment?

The noble Lord will recall our deliberations towards the end of the Welfare Reform Bill on the renaming of benefits and the campaign by the Royal British Legion to improve the take-up of council tax benefit by designating it as council tax rebate. If memory serves, we had common cause on this; the noble Lord indicated that it had the support of his party, particularly the now Prime Minister. Will the Minister tell us what progress has been made on this and the current timetable to bring it to completion?

The relationship between pension credit and housing and council tax benefit is important. I understand, for example, that no capital limit is applied to the latter two if a person is in receipt of the guaranteed credit. Both elements of pension credit can be the passport to social fund payments, both discretionary and regulated. Do the amounts paid under the pilot not count for these passporting purposes? If this is the position, is there a risk that, by claiming housing benefit separately during the course of the pilot and/or refraining from claiming pension credit until the end of the pilot period, an individual might miss out, albeit for a short period?

We welcome the pilot. As I have said, it is another means of improving the take-up of pension credit. It is encouraging to see it move forward, notwithstanding the more disagreeable rhetoric that typically emanates from this coalition Government around the welfare system, focusing on fraud and error and itself creating a climate that will deter some people from claiming their just entitlement. This is all against the backdrop of draconian cuts to be visited on government departments and local authorities, with knock-on effects for the voluntary and third sectors—collectively, the support system for helping the most vulnerable to obtain their rights. It is to be hoped that the benefits of this pilot will not be swept away in the deluge of cuts, which would impair the functioning of those whose efforts are directed at helping the poorest and most disadvantaged.

[Lord Freud]

My Lords, this has been an interesting debate. Several points have been raised, which I will endeavour to respond to. I start with the question of my noble friend Lord Kirkwood on means-testing and the signal that it gives out. Whatever system we end up adopting—whether we go for a higher basic pension, as he suggested he supported, or stay with means-testing—there will always be the need for some sort of safety net, given that it is a contributory system. That does not send a message that the Government want more means-testing at the heart of their vision. Nevertheless, it remains the case that we want to ensure that pensioners get what they are entitled to.

The noble Lord asked this pointed question: if there are no plans to roll the system out nationally, what is the point of spending a goodly sum, £1 million, in the present climate? When you look at the scale of the problem, with 1 million pensioners not getting the help that they are entitled to, despite the efforts of PDCS and third sector organisations, we need to think innovatively. Clearly, we are not in a position to roll out a fully automated system today, and we need to build up the evidence base to establish what kind of information we need to get people more of the help that they deserve. The cost of the study was queried by my noble friend Lord Kirkwood. The current revised estimate of the cost of the whole study is £800,000.

Will we have the necessary information to evaluate at the end of the study? There are several elements to the evaluation. We will be asking a sample of the customers to participate in a face-to-face interview and using research contractors who know how to encourage participation. The interviews will be carried out in the place most convenient to the participants—probably in their own homes. Then we will track the take-up of the pension credit of people who have participated in the pilot. Those data are gathered automatically as part of the administrative system. Finally, we will gather the claims data from those who claim pension credit as part of the pilot. Again, that will be done via our own systems.

Homing in on the point on which I touched just now on national rollout, there are no plans for a national rollout. This is a study to help build the evidence base to see what we may be able to do in this area in the future. The complexity and the staff training required are not as daunting as my noble friend Lord Kirkwood suggested. The study will be run by a centralised team rather than small groups across the country. The definitions of income and capital are very much based on the definitions used in standard pension credit. If there are any changes, these will be introduced to make them simpler. We do not have any concerns about our ability to train staff to administer these payments effectively.

My noble friend mentioned the Daily Mail in connection with possible stories about lots of money whizzing off to the Costa Brava. The pension credit is not an exportable social security benefit. Therefore, I assure him that we will select people to take part only if they are resident in Great Britain.

The noble Lord, Lord McKenzie, asked about process. Pensioners can claim housing benefit and council tax benefit alongside pension credit in a single phone call without the need for a signed claim form. Their calls to the 0800 claims number from a BT landline or from the six largest mobile phone networks are free. The noble Lord asked whether 2,000 was sufficient as a sample size. We are confident that 2,000 participants will deliver a sufficient range of circumstances to build a meaningful evidence base. He asked about recovery of money in different ways in terms of the interplay with other claims. I make it absolutely clear that under no circumstances will anyone receiving a payment under these regulations be asked to repay a penny. We will make sure that participants in the study are made fully aware of that fact.

Both the noble Lord and my noble friend asked about the 12-week length of the pilot. It was important to balance two factors; namely, to make the pilot long enough to collect enough meaningful information and to protect public funds which are in short supply. The determination is that 12 weeks is a reasonable compromise between those two objectives.

The noble Lord, Lord McKenzie, asked about passporting and the exclusion of housing benefit and council tax benefit, as it is called at the moment. If we had added in those two benefits, it would have added a significant level of complexity and cost to the pilot. From the outset it was never the intention that the interaction between pension credit and housing benefit and council tax benefit should be factored into this study. Clearly, we expect to learn more about issues such as people’s attitudes to receiving automatic payments of benefit, which may have wider application to other benefits such as housing and council tax benefits.

[Lord McKenzie of Luton]

Perhaps we can just be clear on this fairly narrow point. If somebody in receipt of payments under the pilot refrains during that period from making a claim for pension credit, is there a risk that they could be disadvantaged? If they have a claim for pension credit, I think it will open up some passporting opportunities. I was probing whether that passporting will exist in the interim if a payment is made under the pilot which is not the result of an actual claim to pension credit at that stage.

[Lord Freud]

I thank the noble Lord for that question. I will go back and double check this, but my understanding is that this pilot is entirely separate from any other activity. If an application which took in the passporting opportunities was made in the normal way during this pilot, there would not be a countervailing claim on the money paid by the pilot.

I have just received some support, for which I am more than grateful, confirming my understanding—it is therefore more than my understanding. The position is that there is no risk of disadvantage. If someone claims pension credit, they will get the full claim plus any passporting money, in addition to the pilot funds.

I turn to the question raised by my noble friend and the noble Lord on how many pensioners are paid directly into a bank account. More than 90 per cent of pensioners receive their pensions through direct payments into either a bank account or post office account. I refer to the standard pension to which they would be entitled. We are talking about a small group who do not receive their payments in that way.

I shall write to the noble Lord on his question about the number and content of visits to customers to encourage their take-up. I do not have that information to hand.

Let me draw my remarks to a close. The research study, through these draft regulations, will allow us to explore what potential exists to use data more effectively to improve the take-up of pension credit, to make more automatic awards of pension credit in the future when better data are available, or to simplify the benefit rules. Importantly, it would also help to throw light on whether people are happy about personal data being used in this way. I therefore commend these regulations to noble Lords.

Motion agreed.

Social Security (Claims and Payments) Amendment (No. 2) Regulations 2010

Lord McKenzie of Luton Excerpts

Monday 21st June 2010 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I start by thanking the noble Lord, Lord Lucas, for the opportunity to discuss these regulations. As other speakers have said, he has joined the exclusive band of those involved in Motions of Regret, one that I myself have joined, although I have been on the receiving end of several. I should say that I find myself in the rather unusual position of dealing with regulations that were promulgated under the previous Government and for which I would have had some responsibility in terms of explaining and defending, but a responsibility from which I am now free.

In his introduction, the noble Lord, Lord Lucas, talked about how these regulations would persecute poor people. If that was what they were about, the Government of which I was a member would have had nothing to do with them, and I am sure that that runs for the Minister, the noble Lord, Lord Freud. The noble Lord also said that people can only end up in a worse position. Again, if that were the case it would not be something that I or the former Government would have wanted to have any truck with. This does not inevitably have to involve that position because it is a voluntary scheme with maximum amounts, and of course collecting debt in this way is cost-free to the individual, although there may well be administrative costs for HMRC and the DWP. One of the other ironies we are faced with is that my noble friend Lord Rosser, who joins me on the Front Bench, was previously chair of the Merits Committee. I think that he preceded the noble Lord, Lord Goodlad, and in his time has been responsible for various Exocets, of which this may have been one.

I cannot support the Motion tabled by the noble Lord, Lord Lucas, because I do not think that he has made his case, but I accept that the explanations given in the Explanatory Memorandum and initially to the Social Security Advisory Committee and the Merits Committee could have done more to set out the detail of the proposal, especially the methodology and the evaluation, but in our view the response of Steve Webb, Minister of State for Pensions—I still have to pinch myself when I say that—to the Merits Committee has, in our view, gone some way to rectify that.

However, we have a timely opportunity to reflect on these regulations and to take the coalition Government’s mind on them. As the noble Baroness, Lady Thomas, and the noble Lord, Lord Kirkwood, both mentioned, Steve Webb’s response indicated the possibility that the Government may choose not to proceed with the pilot at this time. Can the Minister give us an update on this and indicate the factors that will be taken into account in making any decision to defer? The proposed trial is of course partly focused on the recovery of tax credit overpayments. I am bound to say that, as I understand it, they do not inevitably flow from official errors—they are not necessarily the only cause—but we will have to see the extent to which the proposals might be affected by the cuts in tax credits that the Government are poised to announce tomorrow. We have heard the coalition promise to reform the administration of tax credits so as to reduce fraud and overpayments, and again we will have to see what that means in practice. If it can be accomplished in a fair way and without impairing take-up, all well and good, but the emphasis should be on the “if”.

It is accepted that the transition from work to benefits is a difficult one and can pose problems with budgeting for the repayment of existing debt, so these proposals offer help to those who cannot afford to settle their debts in one go. They provide a nil cost method of payment and are in addition to the other methods of payment available. Given our debate this evening, can the Minister tell us more about these other methods and whether there are any proposals to extend or restrict them? The principle of an additional voluntary method for people to repay tax overpayments has been welcomed by the SSAC and the respondents to the consultation undertaken by the committee were positive about the proposals.

One of the concerns expressed by the SSAC was the proposed maximum level of deduction for tax credits—three times the 5 per cent of the single over-25 rate for income support. The committee pointed out that this was greater than the maximum individual deduction under the third party deduction scheme. Although other recommendations were accepted, this was one area where the previous Government were unable to accept the SSAC recommendation, which was to limit the maximum amount deducted to 5 per cent of the income support rate. Have the current Government a different view on this? We know from our debates on the Welfare Reform Bill that the Minister is exercised about the impact of cash deductions from benefit levels—this was in the then context of sanctions—and he hinted at the prospect of other types of sanctions, possibly vouchers. Has the thinking developed further? How would such a system sit alongside the TPD scheme and these proposals—or can we take it that vouchers have been ruled out?

In its report in February to the then Secretary of State, the SSAC reflected on the history of the TPD scheme—and we have heard it from the noble Lord, Lord Kirkwood, today—where the type of deductions allowed from benefits has grown over the years. The last DWP response to the request for a review of the scheme was rejected, with the assertion that it had a twofold purpose: to provide last-resort rescue where a claimant is struggling with arrears of essential household outgoings, and to impose compliance with social and monetary obligations. Is this still the position of the Government?

We would all agree, I hope, that it is important that the manner in which the trials are conducted makes it clear that it is voluntary and that participants can withdraw at any time. It is also vital, as was envisaged when the proposals were devised, that the repayment from benefits should not be seen as the easy or default option for dealing with HMRC debts. In particular, it should not displace the HMRC code of practice which provides for overpayments to be written off in cases of extreme hardship. Access to advice therefore remains paramount. If the proposed free national advice service is to go on the back burner, then continued funding for those agencies, national and local, which work tirelessly at the moment to fill that gap will be critical.

As we have heard, the Merits Committee under the incisive chairmanship of my noble friend Lord Rosser did not question the objective of the regulations and the proposed trials but was concerned whether the proposed methodology would deliver sufficiently meaningful data to support its extension. I think that is the thrust of the Motion of the noble Lord, Lord Lucas. Concerns were expressed around the control groups, the percentage take-up from those contacted, minimum levels and time spent on benefits. Like the SSAC, the Merits Committee was anxious to know what advice had been sought on the design of the pilots. Frankly, I think the reply from Steve Webb of 31 May covered these matters and should allay the fears of the Merits Committee, the SSAC and, indeed, the noble Lord, Lord Lucas.

The nature of the communication inviting individuals to participate in the trial is recognised as being critical to both emphasise the voluntary nature of the trial and to help individuals understand the impact on their income of signing up for trials. This was one of the SSAC recommendations which we accepted. We also agreed to share copies of proposed communications with the SSAC. I trust this agreement will endure with the new Government.

At the end of the day, whatever the methodology, what matters is implementation. Neither HMRC nor DWP lacks experience in implementing pilots, but these require resources and training. As the matters we are discussing by definition impact on the poorest and the most vulnerable—those which the coalition Government have pledged to protect—we seek reassurance that any pilot will be properly resourced.

Although we cannot support the noble Lord’s Motion, we agree on the importance of the department providing good information, generally in explanatory memoranda, and its engagement with SSAC and the Merits Committee—which might have obviated the necessity for our interesting discussion.

Pensions: Automatic Enrolment

Lord McKenzie of Luton Excerpts

Thursday 10th June 2010 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I join other noble Lords in thanking the noble Lord, Lord Kirkwood, for initiating this debate, which gives us a timely opportunity to understand the proposed direction of travel of the coalition Government on this important matter. I thank both him and the noble Baroness, Lady Noakes, for their kind comments.

The debate gives us a chance to test whether the broad consensus around pension reform hitherto still holds. Noble Lords will be aware—it has been referred to today—that this was anchored largely in the work of the Turner commission. It is a particular pleasure to note that another member of that commission, Jeannie Drake, will shortly join your Lordships' House on the Labour Benches.

It has been a very good, if short, debate. The noble Lord, Lord Kirkwood, called on the Government to show some enthusiasm for auto-enrolment—I certainly endorse that. He and others have pressed on the scope of the review, to which I should like to return in my contribution. I congratulate the noble Lord, Lord Fowler, on his upcoming 40th anniversary. I am delighted that he will soon be reunited with John Prescott.

We had a fascinating trip down the memory lane of pensions: graduated pensions, SERPS and S2P. I say to the noble Lord that S2P has been simplified, squeezing out some of the earnings-related component of it. Perhaps we might find another opportunity, together with the noble Baroness, Lady Noakes, to debate what has happened to defined benefit schemes. I might just ask the Minister whether the so-called tax raid on pension funds will be reversed by the coalition Government.

As regards the need to annuitise at 75—or the need not to do so—I have been an agnostic on that because it has nothing to say to those who are likely to benefit for auto-enrolment. Auto-enrolment is to deal with people who undersave, who need their income in retirement and who do not have the opportunity to store it up and pass it on as an inheritance. When the proposals come forward, we will look at the tax treatment of pots that are left and then passed on as an inheritance, and whether that properly takes account of inheritance tax. It would be quite wrong to use it to open up a tax loophole.

My noble friend Lady Hollis, as ever, made a thought-provoking contribution, stressing particularly issues around longevity and the huge potential for auto-enrolment. She spoke of the challenges of small pension pots and the emerging consensus around a new state pension. I take the point exactly that, if that were to be achieved, it would help on issues around the interaction of benefits.

The noble Baroness, Lady Greengross, remains supportive of auto-enrolment, and again stressed the importance of consensus, on this issue of the interaction with the benefit system. Consensus was an issue that the noble Baroness, Lady Noakes, also acknowledged. I am intrigued about proposals on the scope of coverage and all employees not necessarily having to be covered. I accept that issues around self-certification, trying to give administrative easements to employers while still encompassing a broad range of employees, have proved a challenge. I think that there were a couple of goes at it and would acknowledge that it was unfinished work in progress when we left office.

The Turner commission was established to consider the long-term challenges facing the UK pension system, characterised by undersaving for retirement, inequalities and complexity in the state pension system and demographic and social change. Changes to the state pension, making it fairer and more generous, were implemented from April this year, providing a firmer foundation upon which people can build savings for their retirement. Notwithstanding these improvements to the state pension system, including the coalition Government’s announcements about uprating, which I welcome, it will not provide the retirement income to which many people aspire. It is estimated that around 7 million people are currently not saving enough to obtain a reasonable replacement rate of income in retirement. In excess of 40 per cent of working-age employees are not contributing to a private pension.

The reasons for that are complex, but they include issues around low financial literacy, inertia, lack of provision especially for those on low and moderate incomes, as well as declining employer provision away from defined benefit schemes towards contract-based DC schemes—hence a role for government intervention. That government intervention had two key components. One was a system of automatic enrolment requiring employers to make a minimum contribution to their workers’ pension funds and a new national pension scheme designed to provide a simple, low-cost way of saving for low to moderate income earners—originally personal accounts. Put simply, that was our starting consensus, enshrined in primary legislation in the Pensions Act 2008. Like the noble Baroness, Lady Noakes, I remember it well. But the consensus did not just involve political parties; it involved a significant range of stakeholders, including the CBI, the TUC and the ABI. By and large, that consensus has held, which is to be welcomed.

As ever in these matters, the challenges come in the detail of the earnings on which employers’ contributions are to be made; what the mechanics are surrounding the process of auto-enrolment and the right to opt out; what safeguards there are in the system to discourage employers with existing provision from levelling down and what existing provision satisfies the auto-enrolment tests; what information should be provided to employees; whether advice should be provided to all or any groups of individuals being auto-enrolled; and what compliance and anti-avoidance measures are required. On the low-cost national scheme, there are issues around not being favourably treated so as to prejudice private sector providers; the funding and charging arrangements; the sheer operational and governance issues of a trust-based scheme with potentially 1 million employers and several million members; the nature of the investments of the fund; and how lifestyling is to be organised for so many members—indeed, how the scheme administration is to be accomplished.

Much of this, subject to any review which the Government may wish to undertake and advise us of today, is settled. Regulations are in force which prescribe the arrangements which the employer must follow to comply with the employer duties on automatic enrolment. I believe that there was a broad consensus on that; we had two goes at it to try to improve the original draft, and I thought that there was an acceptance that there was a considerable improvement. There were issues around information requirements, opting out, and duties towards voluntary savers. Existing regulations also cover the point in time at which employers will have to start to comply with their duties and the minimum contribution level which employers and employees will have to make.

Arrangements have been made for the national scheme which provide for the winding up of the Personal Accounts Delivery Authority, as it has completed its task of providing its advice and designing and developing the infrastructure of the new low-cost scheme. Statutory instruments have given effect to the scheme order, which will actually create the new scheme—to be called the National Employment Savings Trust or NEST—as a trust-based, occupational pension scheme. This is currently due to inherit property, rights and liabilities from PADA in July 2010 and thereafter to be responsible for implementing and running the scheme.

A lot has been accomplished but there is a lot of work still in hand. Like other noble Lords, I acknowledge the desire of the coalition Government to take stock and review matters, and this obviously raises a number of questions. We have heard some of this from other noble Lords, but I should be grateful if the Minister would deal with the following points, either in responding to this debate or later in writing.

We understand that there is to be a review of aspects of auto-enrolment. Like the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Noakes, I ask the Minister to tell us a little about the scope of the review and what drives its timing. I think that this is a separate review from the 2017 review. I take it that the coalition Government remain committed to the concept of auto-enrolment, and that this is not to be abandoned. I accept that already from the tenor of today’s debate.

Is it envisaged that the scope would remain as currently planned, or are there any proposals to curtail the range of employers subject to the duty or limit the range of income to which the duty applies?

As currently planned, the auto-enrolment process would commence in 2012 and be staged over a four-year period so that all employers would be within the duty by 2016. As for employer and employee contributions, the phasing currently provides for an initial period where minimum employer and employee contributions would commence at 1 per cent each and not reach the full 3 per cent and 5 per cent respectively until October 2017. Is it envisaged that either of these would change, and is it the Government’s desire to accelerate the employer duty obligations, leave them unchanged or introduce them at a slower pace?

Fears of employers with existing provision “levelling down” have been ever present, despite DWP research that shows that this is generally unlikely. Are the Government contemplating any further arrangements to allay any such concerns, which we have heard expressed again today?

On a wider point, one of the commitments in the coalition programme is the undertaking to explore opportunities for people to access part of their pension early, presumably looking at the New Zealand and US experience. I know that this concept is much beloved of my noble friend Lady Hollis, although of course not beloved of the Treasury, but I am interested in the Minister’s view on this and on whether shifting emphasis from something that is overwhelmingly about provision for retirement to an effective lifetime savings account will change the paradigm with regard to employers’ willingness to contribute beyond statutory minimums.

Another concern expressed about auto-enrolment was the risk of mis-selling because individuals would not get full value for their contributions as they would lose benefit—possibly, in some cases, pound for pound for any pension income secured—and this despite detailed analysis demonstrating that overwhelmingly individuals would get positive returns. At the time of the legislation there was much debate about whether people should be able to access advice as well as just receive information. There was a Lib Dem amendment, as I recall, that suggested that anyone of 50 or over should get one hour of free financial advice. In this regard, I note and welcome a commitment of the coalition Government to create a free national advice service, apparently to be funded by a levy on the financial services sector. Is the Minister able to tell us more about this, such as when it is expected to be up and running and the likely structure and level of the levy? Will this overlap with the proposed banking levy?

Whatever else the review is to cover, we understand that it will cover the suitability of NEST as a delivery mechanism for auto-enrolment. We know that NEST is well advanced in its preparations: it takes over from PADA in July, trustees have been appointed, arrangements for the scheme administration are in hand and an impressive team has been assembled to address the full-range challenges of running a scheme of this magnitude.

So what are the concerns? Is the suggestion that NEST has the wrong business model, or is the contention that the existing private sector providers could serve the target market better? The latter would be surprising, as they have lamentably failed to do so in the past. Will the Minister give us an assurance that there is no intention to move away from the universal service obligation envisaged for NEST or indeed that the scheme should be other than a low-cost scheme?

Securing dignity and security for tomorrow's pensioners is the business of Government. The reforms that we initiated were founded on the principles of personal responsibility, fairness, simplicity, affordability and sustainability, which has helped build the consensus. We hope that that consensus will endure. We look forward to hearing what the Minister has to say and seeing the results of the review in due course.

Pensions: Deepwater Horizon

Lord McKenzie of Luton Excerpts

Wednesday 9th June 2010 Lords Chamber

[Lord Harrison]

I am grateful to the noble Lord for his reply to my first question—

[Lord McKenzie of Luton]

My Lords, on the subject of return—

[Noble Lords]

Time!