Pension Schemes Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Report stage (Hansard): House of Lords
Monday 19th December 2016 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the Minister for the introduction of these amendments, which are very welcome. He has been true to his word and we thank him for taking us through the process of dealing with the regulations. One of our criticisms of the Bill was the plethora of regulation-making powers therein contained without the prospect of sight of even drafts of such regulations by the time we had to conclude our deliberations.

It was for this reason that we sought to strengthen the parliamentary process for this secondary legislation by subjecting it to the affirmative regulation procedure. The Government are meeting us part way on this matter by requiring in some key areas that the affirmative procedure apply to the first regulations made under various provisions. As we have heard, the changes apply to fit and proper person requirements, financial sustainability, the business plan, systems and process, continuity strategies and significant events.

We have also had the benefit of briefings with the Minister and the Bill team, which have aided our understanding of the regime and how it is meant to operate in respect of a range of issues including non-money purchase benefits, significant events, tax and pause orders and connected employers. As our continuing amendments should signal, we are not in total accord with the Bill as it stands and consider further change desirable.

As to the Henry VIII clause introduced by Amendment 24, the Minister is right that we discussed it before it was laid and I was grateful for that opportunity to engage. We are not enamoured generally of such provisions, particularly when they emerge at the tail end of our deliberations. As originally explained to us, they will be constrained by being used only to make the implementation of the regulations effective. In the event, they seem to go further than that. I wonder whether the Minister might comment. We recognise also that these types of provision have been used by Governments of all persuasions.

We recognise the complexity of the provisions in the Bill as well as the agility of the sector in adapting to change and sometimes circumventing it. Our own scrutiny of the Bill has caused us to conclude that the primary legislation is not in perfect shape even after being improved by our amendments, but until the detail of the regulations has been consulted on, it is difficult to foresee in every respect ideally what changes might have been appropriate. This is notwithstanding the flexibility that the Government have already taken for themselves; for example, in Clause 39.

For us, the imperative is to see a fit-for-purpose Bill on the statute book as quickly as possible. We will therefore not oppose this amendment.

[Lord Freud]

My Lords, I thank your Lordships for your understanding. I thank again the whole House and its committees, which made the point forcefully about making all these substantial regulations subject to the negative procedure. This was an occasion where we went back. There was a good suggestion—I am sure it was from the noble Lord, Lord McKenzie—that we should do it the first time via the affirmative procedure. I am with the noble Lord on this in thinking that that is a pretty smart way of doing this kind of legislation, because one can really clog up Parliament with affirmatives. I have to do quite a few of them and really, when one looks at them, it is overkill. This compromise may be something that we can look at becoming more of an institution in future. Let us just see on that.

On the power in Clause 37 and the pointed question put by the noble Lord, Lord McKenzie, about its use, I assure noble Lords that that power is narrow in scope. It will be limited to consequential amendments to allow for necessary technical fixes. It will apply only to existing legislation and legislation passed in this Session. Just to make it absolutely clear, it can be used to amend primary legislation but only in this consequential context to allow necessary amendments to make the Bill work.

I am grateful for the understanding of the House on all these amendments—the last of them in particular. I beg to move.

[Lord McKenzie of Luton]

I do not want to prolong this but may I just check one point? The noble Lord said that the Henry VIII provisions would be used only in respect of Acts passed in this same Session of Parliament. The wording sent to me says,

“an Act passed before or in the same session as this Act”.

Could the Minister clarify that?

[Lord Freud]

To make it clear, it incorporates legislation that now exists and the legislation that we will prospectively pass with this Bill.

Pension Schemes Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Report stage (Hansard - continued): House of Lords
Monday 19th December 2016 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I shall also speak to our other amendments in this group, Amendments 20, 21 and 22. They take us back to another issue that we discussed in Committee: the substitution of a new scheme funder where a triggering event has occurred. Depending on the circumstances, one of two continuity options has to be pursued. Continuity option 1 requires the transfer out and winding up of the scheme, while option 2 involves an attempt to resolve the triggering event. At present, continuity option 1 is mandatory on the trustees where certain of the more significant triggering events are involved. These are where the Pensions Regulator issues a warning or determination notice concerning decisions to withdraw a scheme’s authorisation, or where a notification that the scheme is not authorised has been given.

In Committee we pursued an argument to the effect that the Pensions Regulator should be enabled to cause the matter to be resolved by the replacement of the scheme funder. We argued that transferring the responsibility for a master trust to a new scheme funder could provide a quick answer to a collapsing master trust, costing less and helping members because it keeps the scheme intact and avoids unnecessary investment transition costs and expenses for Members. This has been acknowledged by the Government. However, the Minister rejected our amendments, particularly on the grounds that it was the role of trustees to run and manage schemes. They have the fiduciary duty to act in the best interests of members and should not be second-guessed by the regulator in this regard.

The Minister asserted that the outcome of substituting a new scheme funder was available to the trustees under continuity option 2, subject to the full requirements of adoption including the preparation of a comprehensive implementation strategy. We accept that as far as it goes, and agree that the substitution of a new scheme funder can be a way of resolving the triggering event. However, it does not provide a route where option 1 is mandatory on the trustees. That is why our Amendment 19 would allow for a new scheme funder to be put in place under option 1, in accordance with regulations to be added to the long list included in Clause 24(4) under our Amendment 21. Amendment 22 would require the submission of an implementation strategy.

We have heard from the Government no good reason why the substitute scheme funder route should not be available for all triggering events, although the Government may argue that for triggering events one to three, matters are likely to be more serious than for a change in a scheme funder to be the way forward. Will the Minister confirm that he would routinely expect the regulation around option 2, including the substitute funder, to be considered before the regulator formally moves to withdraw authorisation?

Amendment 20 is a rerun of a debate in Committee, and on rereading Hansard we consider the matter sufficiently covered. I beg to move.

[Lord Freud]

I shall take the opportunity to go through the matter of transfers because there has been a lot of discussion of it and this at the heart of it. I will pick up what we did in Committee, where the amendment from my noble friend Lord Flight referred to automatic transfers. I confirm that we will look to revisit automatic transfers once the market has absorbed the recent reforms.

The next issue was that we announced in 2016 that we would ensure that the pensions industry launched the pensions dashboard, which would allow people to see in one place their retirement savings from across the industry, which they could consolidate, and the Government would support the industry in doing that.

We then moved on to touch on transfers between default funds—for example, where a trustee may wish to move members out of an old default fund into a new one because they think the old fund is not offering value for money. There, we were concerned whether members might get left behind. This would be for the trustees to consider and act on under their fiduciary duty, not for legislation.

Then we had issues about bulk transfers in place at the moment, which require an employer connection and an actuarial certificate. There, I confirm again that we would have a call for evidence to consider the potential changes to DC to DC transfers. The last point that we visited was about the transfer from a master trust which is failing. Again, I confirm that where a scheme is acting under option 1 following a triggering event, the Bill applies, not the current provision under legislation relating to bulk transfer without member consent.

I think that sets a useful context for consideration of the amendments. Amendment 20 makes two additions to what will be covered by the regulations that must be made under Clause 24. Clause 24 sets out the detail of continuity option 1 and the requirements. In this situation, the clause requires that the trustee must identify one or more master trusts to which members’ rights must be transferred. The regulation-making power set out a number of matters connected with how this process should work. The intent is for members to be able to continue to save with as little disruption as possible and to protect the rights that they have accrued.

The regulator is aware of the need for schemes to be available that have been authorised into which members can be transferred. Experience to date has shown that there are good-quality schemes in the market. From our discussions with both master trusts and pension industry bodies, we are aware that they are keen to demonstrate the reliability of master trusts and for members to have confidence in them as a vehicle for pension saving, and there are therefore likely to be some available to take in transfers. For many master trusts, making themselves available to take a transfer would offer the opportunity to take in a number of members that they have not had to actively source—clearly, they get the benefits of scale.

Employers and members also have reassurance provided by NEST. Although a master trust could not itself do a direct bulk transfer to NEST—as the employer must first establish a connection with NEST—an employer could chose to sign up to NEST and move its workers across. NEST is required to admit any employer and any worker enrolled by the employer to meet its automatic enrolment duties.

The master trust industry has expressed an interest in developing its own panel of providers to assist with addressing situations where a master trust fails. Although we cannot guarantee that there will be a large number of master trusts looking to take on members of any failed master trust, we are confident that there is adequate provision within the market overall.

The second part of Amendment 20 would require that regulations made under Clause 24 set out what would happen to any non-money purchase benefits where a master trust which has mixed benefits was going to transfer the money-purchase benefits out of the scheme and cease to operate in respect of those benefits. We do not believe that that is necessary. We have been careful to design the master trust authorisation to target the risks to money-purchase benefits in these structures.

Therefore, if authorisation is withdrawn from a master trust which offers mixed benefits, it will be required to stop operating in relation to the money-purchase benefits only. It may still continue to operate in respect of the non-money purchase benefits if it is compliant with the relevant requirements of the non-money purchase benefit regime.

Where the scheme as a whole is winding up, existing provisions governing how non-money purchase benefits are to be discharged will apply to those benefits. That is clearly an issue of avoiding duplication.

On the question asked by the noble Lord, Lord McKenzie, the regulator can decide to encourage the scheme to substitute the scheme funder where this is appropriate, and before it moves to withdraw authorisation. The flexibility is there. Adding on the requirement that one option must be looked at before the other would probably reduce flexibility.

Amendments 19, 21 and 22 seek to make provision that continuity option 1 also allows for the substitution of a new scheme funder. Clause 23 sets out the two continuity options that must be pursued by trustees when a master trust has a triggering event. Unless authorisation has been withdrawn or refused, trustees will have a choice as to which continuity option they pursue. Clause 24 describes continuity option 1. Continuity option 2, under Clause 25, is when a master trust resolves its triggering event itself. The legislation does not specify how the event can be resolved, which is deliberate. It means that it encompasses a wide range of options, including the substitution of a new scheme funder. The trustees have the freedom to choose how best to resolve the event their scheme has had.

Clause 26 sets out the duty on the trustees to submit an implementation strategy to the regulator. Our aim is that members continue to save in a pension. Under continuity option 1, the situation is such that to protect members’ rights it is necessary that the scheme transfer these rights out and wind up. The event that led to continuity option 1 will often not be about the scheme funder, so a new scheme funder would not rectify the issue. If the Pensions Regulator has had to withdraw authorisation, a new scheme funder will not be the right response. It is likely the regulator will have ensured the trustees considered this at an earlier stage. Under continuity option 2 the aim is that the triggering event is resolved.

The amendments seek to provide that continuity option 1 also covers the substitution of a new scheme funder, which seems to be a misunderstanding of what is provided in the Bill and would cut across how the two options are intended to work. Where the trustees have the choice about which to pursue, they can try to resolve it. Identifying a new scheme funder is just one of the ways to get that resolution. We do not want to limit schemes’ options which is why we did not list particular solutions. The substitution of a new scheme funder already comes within continuity option 2 and its process.

We agree that where a master trust has experienced a triggering event, a new scheme funder could be identified, and could be the most appropriate resolution of a triggering event. This should be an option open to the trustees. That is why we have made the provision for continuity option 2. Continuity option 1 is solely about transfer out and wind up. The amendments would cut across the way in which the options and indeed, the regime as a whole, works in the Bill. With these explanations I ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am grateful to the noble Lord for setting the context and picking up on some of our previous debate on transfers. The purpose of the amendment was to test whether it is possible to have a replacement of a scheme funder when you are in the triggering circumstances that take you into continuity option 1. As it stands, if you are in continuity 1 processes, you have to follow the route of transfer and wind-up; you cannot have a replacement scheme funder. The purpose of the probe is to try to understand why that is. One route to deal with it is that, before getting to a triggering event, 1, 2 or 3, the regulator will have a process with trustees and there can be a nudge which takes us into continuity 2. I understand that, but I think the Minister has confirmed that if it is just straight continuity then that is it, you have no hope of having a replacement scheme funder. I am still a little unclear as to why that would be so.

I think the noble Lord said that substituting new scheme funders would not generally be appropriate given the state of the scheme, so it has to be addressed by these other arrangements. But that does not mean that there would not be arrangements where that could be entirely appropriate. So I think that there is still a bit of a gap in the Bill. However, having said that, I think that we have given it a good airing. I beg leave to withdraw the amendment.

Pension Schemes Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Committee: 2nd sitting (Hansard): House of Lords
Monday 28th November 2016 Lords Chamber

[Lord Freud]

I think that the situation is the same—the fact that you have primary legislation will allow that to happen. I will clarify that, but I think that is the point of primary legislation.

I make the point to the noble Baroness, Lady Drake, that the Pensions Regulator will make a pause order only under carefully considered circumstances. The pause order may last for the duration of a triggering event period but is not likely to continue for a significant length of time, and the regulator must weigh up the potential impacts on members when considering whether to issue such an order.

I shall now turn to the government amendments on the pause power.

[Lord McKenzie of Luton (Lab)]

My Lords, perhaps I might speak to my amendment in this group, which he has answered in part. That might make it a tidier process.

The purpose of Amendment 47A is to look at the issue of tax relief, as the Minister has identified. Under the pause provisions, an order can direct that no new members are to be admitted to the scheme and no further contributions and payments are to be paid towards the scheme by, or on behalf of, any employer or members. This does not apply, under Clause 31(6), to,

“contributions due to be paid before the order takes effect … and … references to payments … include payments in respect of pension credits”.

Our amendment seeks to make it clear that amounts recoverable by the provider from HMRC in respect of tax relief attributable to the permitted contributions—that is, those paid before the order—will still be available to the master trust. For the purposes of Clause 31(6)(a), it is presumed that the tax component is a contribution or payment. If so, do the mechanics of how relief at source operates mean that the HMRC payment is due to be paid before the order if the related contribution is—there is a timing issue here—or is it proposed that there will be some form of carve-out for the tax relief under Clause 31(5)(b)?

The intention behind the amendment was to probe that narrow issue rather than to achieve a wider objective, but of course it raises the wider issue of the amounts of the two forms of tax relief, touched upon in particular at Second Reading by the noble Lord, Lord Flight, and the noble Baroness, Lady Altmann. They set down very clearly the problem for schemes operating net pay arrangements for individuals who do not pay income tax, in contrast to those who use the relief at source method and can get tax relief at 20% on the first £2,880 paid into a pension—equivalent to a gross of £3,600. Those who are not subject to income tax and are within the net pay method are clearly missing out. The extent to which they miss out in aggregate may not be dramatic at present and will be influenced by auto-enrolment thresholds or current required contribution levels and the income tax threshold—the personal allowance. However, this will increase as more and more auto-enrolment takes place, the required contribution increases to 3% and there is still a gap—possibly a widening gap—between the threshold and the income tax personal allowance.

Can the Minister tell us how many non-taxpayers are currently contributing to a pension under net pay arrangements and could benefit from relief at source, and what is the aggregate tax benefit forgone? Going back to my earlier point, the amendment is intended specifically to focus on the technical issue of how that tax is garnered and paid before the cut-off point of the pause order.

[Lord Freud]

My Lords, on that narrow point, I hope that I can again reassure the noble Lord that, when those rebates are due, before the pause order is in place, we have a way of making sure that they are paid—through Clause 31(6)(a). It may be easier for me to write to the noble Lord and describe that process, but I think that it achieves what he is looking for. I will have to provide the figures on the net pay separately but will write to him on those, too.

[Lord McKenzie of Luton]

I would be grateful if the noble Lord could write on that specific point because I am struggling to see how a contribution—particularly one which comes in fairly late in relation to the date of the pause order—could immediately be converted into a receipt from HMRC, which is what I think the Bill requires.

[Lord Freud]

This is really a specific point, but I will write to the noble Lord both on the numbers and on how the process will work. I hope that that will be satisfactory and that we can then dispose of the matter for the purposes of later stages of the Bill.

I turn to government Amendments 47, 48, 49 and 52. These are intended to provide further clarity and some tidying up of the provision. They are based on further consideration of the comparisons with the Pension Regulator’s freezing-order power in the Pensions Act 2004, and are intended to ensure that they work sufficiently in a triggering event period. Amendment 47 makes clear that the pause power can be used to prevent benefits being paid out. Following the introduction of the Bill to the House, we have received some inquiries as to whether this is achieved through the provisions in the Bill. That was our intent, and as the freezing-order power makes separate provision to cover this aspect, we have, through Amendment 47, made an equivalent and explicit provision in respect of the pause order. Amendment 48 inserts a missing definition of “pension credit”, which was an oversight, and mirrors the freezing-order power. Amendment 49 is consequential to Amendment 47, and ensures that members retain their entitlement to any benefit payments affected by the pause order.

--- Later in debate ---

[Lord Freud]

I thank noble Lords for allowing me to speak to these amendments. Once again, please accept my sincere apologies for proposing these amendments now rather than including them in the draft Bill as introduced. Most of my proposed amendments modify the procedures the Pensions Regulator must follow when exercising some of the new functions introduced by the Bill.

Amendments 58 to 65 and Amendments 73 and 76 change the procedure that the regulator must follow when making a decision on an application for authorisation from an existing master trust scheme. The majority of the Pensions Regulator’s statutory functions are exercised through internal procedure known as “standard procedure”, with “special procedure” applying to certain functions where there is an immediate risk to members or assets. These procedures are set out in the Pensions Act 2004. The Bill as introduced provides for standard and special procedure to apply to the power to grant or refuse authorisation to an existing master trust scheme. However, on further consideration, we do not believe that some of the steps involved in these procedures would be appropriate.

The standard procedure provides for the issuing of a “warning notice” to such persons who, in the view of the regulator, would be directly affected by the regulatory action under consideration. They would then have the opportunity to make representations before a decision could be made about whether to exercise the regulatory function. This means that the Pensions Regulator would be obliged to send the trustees of an existing scheme such a notice after the trustees submit an application for authorisation.

In this instance, the regulatory action the notice would refer to would be the power to grant or refuse authorisation. It would not be necessary to warn the trustees that the regulator intends to take this regulatory action and make this decision, nor would it be appropriate to invite further representations at this point as the trustees would have submitted all necessary representations in their application. Special procedure, which dispenses with the warning notice and representations steps in the first instance, could be used only when the regulator considers there is an immediate risk to the interests of the members or assets of the scheme.

Amendments 58 to 65 and Amendments 73 and 76 would align the process of deciding whether to grant authorisation to an existing master trust with the process the Bill specifies for making this decision for new schemes. However, the amendments retain the requirement that the decision to grant or refuse authorisations must be made by the determinations panel of the Pensions Regulator. This is appropriate because in both situations a scheme operating in the market will be required to transfer members out to an authorised master trust scheme and to wind up. The impact of this is significant, and under these circumstances it is appropriate for the determinations panel to make the decision. The amendments I propose would maintain rights of appeal to the First-tier or Upper Tribunal should the decision be to refuse authorisation. The amendments would simply remove unnecessary steps and delay.

Amendment 55 has a slightly different purpose. It would ensure that if an existing master trust scheme—that is, a master trust in operation before the commencement date—submits an application for authorisation and the Pensions Regulator decides to refuse authorisation, it would not have to commence the process of transferring members out and winding up until any appeals are disposed of.

The final amendments I seek to move within this group are Amendments 72 and 77, which also deal with changes in procedure, but in relation to different regulatory powers within the Bill. The regulator has a power to direct the trustees of an authorised master trust to comply with the requirements of Clause 26 in relation to the implementation strategy. Where there is no strong reason to specify a different procedure, it is right that the regulator’s functions should be subject to the standard procedure, and for this reason Amendment 72 makes this power to direct subject to that procedure. In addition, where the trustees of a master trust should be following an approved implementation strategy but are failing to do so, under Clause 28(4) the regulator has the power to direct the trustees to pursue the continuity option identified in the strategy and to take such steps as are identified in the strategy to carry it out.

Amendment 77 makes this a power which can only be exercised by the determinations panel under standard procedure. The Government consider this appropriate, as it is a power which may have a significant impact on the scheme and its members. I hope I have given a thorough explanation of my proposed amendments. I thank noble Lords again for bearing with me in bringing these amendments at this stage of the Bill process, and I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his full explanation of these provisions. I am bound to say that we would like to study them a bit further and bring something forward on Report, if necessary, but I thank the Minister and the Bill team for supplying us with a Keeling schedule, which made these provisions somewhat less impenetrable than they might otherwise have been. As far as the panel is concerned, we discussed the issue of resources available to the regulator before. Will the determinations panel have the necessary resources available to it, and how speedily can it act and pick up these matters?

I have two brief questions on Amendments 73 and 76, which delete particular provisions in the Bill. Amendment 76, for example, deletes:

“The power to grant or refuse authorisation of a Master Trust scheme in operation on the commencement date under section 5”.

I presume that power is being deleted because it flows to the determinations panel, but will the Minister just clarify that for us?

[Lord Freud]

I am pleased to do that. My understanding is that the second assumption is correct: Amendment 76 moves it over to the determinations panel and I spelled out last Monday the process by which we will get the financial resources required by the Pensions Regulator. Clearly, one of the issues in that process will be the funds required to operate the determinations panel.

--- Later in debate ---

[Lord McKenzie of Luton]

I will be brief as I do not want to echo the fantastic contributions made by the noble Baroness, Lady Bakewell, my noble friend Lady Drake, the noble Baroness, Lady Altmann, and the noble Lord, Lord Flight. I can see that if an intelligence unit were part of a wider cross-government approach, it could well pay dividends. However, I fear that we would simply replicate arrangements whereby HMRC constantly chases tax avoiders, alights on some and then there is a change, and then somebody draws a line somewhere else and it is a never-ending process. Nevertheless, it may be worth while pursuing that.

The noble Baroness, Lady Bakewell, should be congratulated on bringing forward this amendment, the thrust of which we clearly support—although I disagreed with her on her last amendment. As others have said, events have to a certain extent overtaken it because we heard from the Chancellor last Wednesday the welcome news that the Government will shortly publish a consultation on options to tackle pension scams, including cold calling. It proposes giving firms greater powers to block suspicious transfers and making it harder for scammers to abuse “small self-administered schemes”. So this approach appears to take us a little further than the strict terms of the amendment, but if we are to forgo the opportunity to legislate now, at least on cold calling, we need some reassurance from the Minister on how short is “shortly” and what legislative vehicles will give effect to these conclusions.

I do not seek to repeat a number of the awful situations that noble Lords have identified, of people being deprived of their life savings. We have argued before that insufficient groundwork was undertaken by the coalition Government when they introduced these reforms; my noble friend Lady Drake made that point. One omission was clearly to anticipate the opportunities for fraud which these changes attracted. So if the Government are not able to convince us how quickly they can introduce measures to tackle these problems, we will be minded to support the amendment in the name of the noble Baroness, Lady Bakewell, at least as an interim measure.

[Lord Freud]

This amendment seeks to make it a criminal offence to make a cold call or send other unsolicited electronic mail or communications for the purpose of scamming a pension scheme member of their pension savings or to make changes to their existing arrangements; for example, inducing them to participate in high-risk investments. The noble Baroness, Lady Bakewell, focuses on a substantial issue. The figures are enormous. According to the ONS—the Office for National Statistics—eight scam calls happen every second in the UK, or over 250 million a year. Almost 11 million pensioners are targeted annually by cold callers, and savers have reported losses of nearly £19 million to pensions scams between April 2015 and March 2016. The amendment also stipulates that a person convicted of such an offence is liable to a term of imprisonment not exceeding six months, or a fine, or both, so it aims to deter scammers from such activity.

I state firmly that this is a priority for the Government, and we are determined to tackle the scourge of fraudulent nuisance calls. We want to send a strong message to consumers that they should not respond to such approaches. However, as my noble friends Lady Altmann and Lord Flight and the noble Baroness, Lady Drake, pointed out, that is not enough—banning cold calling alone will not stem the flow of transfers in scam vehicles or the establishment of those vehicles in the first place. Scammers who make cold calls are criminals and will continue to cold call and incite people to part with their savings. It probably does not make a huge amount of difference to the savers whether the criminals are based in this country or elsewhere in the world where we find it difficult to get hold of them.

The Government have explored this issue in detail, which is why in the Autumn Statement last week we announced that we will consult on how best to ban pensions cold calling. That needs to be supported by a wider package of proposed measures intended to tackle pension scams themselves. With regard to timing, on which I have been pushed by the noble Lord, Lord McKenzie, the plan is to publish a consultation on these measures before Christmas and to have the next steps ready for the 2017 Budget—I think it is still called a Budget—which will be in the spring. Comments can then be made on proposals to: ban cold calling in relation to pensions investments, and tackling inducements to do that; placing restrictions on certain types of transfer, which seeks to limit the flow of funds into scams; and making it harder for scammers to set up and run fraudulent small self-administered schemes, which tackles the potential vehicles for scams. We intend to provide more detail on these proposals in the consultation document.

To tackle the scams effectively, it is clearly vital to get this right and to do so in a way that does not impact on legitimate businesses. The consultation will seek to understand what impact these proposals would have on legitimate firms and member transfer activity, and what, if any, legislative solutions might be available and proportionate to disrupt the scams. In answer to the noble Baroness’s question, we will also be consulting on appropriate custodial sentences, although imposing them on people in different parts of the world is harder to achieve.

As I said, we need to ensure that we get this right, and the consultation, alongside existing engagement with experts from the pensions industry and consumer groups, will help inform our thinking. With that in mind, I ask the noble Baroness to withdraw the amendment, with which we are entirely in sympathy.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, the amendment of the noble Lord, Lord Flight, seeks a way of tackling the concern about the calculation of DB pension liabilities and deficits, particularly their volatility and the impact a large deficit can have on a company’s balance sheet.

By way of illustration, the LCP annual survey of FTSE 100 company schemes estimated deficits at 31 July 2016 of £46 billion, compared with £25 billion a year earlier and an estimated surplus in February 2016—big swings, clearly. Of course, a significant factor in these calculations is bond yields, which reduced sharply following the EU referendum, pushing up liabilities, although it is suggested that some of this reduction has been negated by interest-rate hedging and that foreign currency-denominated assets have benefited from some decline in sterling.

The reality is that a number of factors feature in how DB schemes should be accounted for: life expectancy, inflation and discount rates, as well as contribution levels and benefits. In seeking to understand the sensitivity of this, for FTSE 100 companies, as reflected on the basis of International Accounting Standard 19, the aggregate pension deficit of £46 billion in July 2016 comprised liabilities of £628 billion and assets of some £582 billion. These are very large aggregates.

The noble Lord’s amendment concentrates on the calculation of defined benefit pension liabilities and would enable directors to use an alternative method if,

“they are satisfied that accounts give a true and fair view”.

It provides that the Secretary of State must,

“set out one or more alternative methods”,

for these purposes—I understand that this is based on actuarial advice—and that an alternative method of valuing DB liabilities must not be,

“contrary to international accounting requirements”.

I am grateful to the Institute of Chartered Accountants in England and Wales for the information it provided in helping me to frame this contribution. At present, listed companies have to adopt international accounting standards. In other cases, companies can choose to use IFRS or FRS 102, which replaced FRS 17. However, it is understood that so far as pension scheme liabilities are concerned, the two standards are broadly consistent. The amendment of the noble Lord, Lord Flight, would not appear to apply to listed companies which are bound by international accounting standards—but for how long? He raised that interesting question. FRS 102 sets out how defined benefit plan liabilities are to be measured and recognised. It requires a defined benefit obligation to be calculated on a discounted present-value basis, using a rate of discount by reference to market yields at the reporting date on high-quality corporate bonds. This has to be recognised in full on the balance sheets.

We have sympathy with the amendment to the extent that it seeks to dampen the volatility of the measurement of liabilities for accounting purposes, but not if it is seen as a route to lessen employer contributions to DB schemes. We recognise that the current accounting treatment which generates this volatility is not ideal, although it is not helped by government policies such as quantitative easing. However, we have concerns about this approach. The Financial Reporting Council is responsible for setting UK accounting standards, not the Secretary of State.

A process in which generally applied standards are overridden on particular issues would set a precedent that could lead to a confusing regime and not help transparency and confidence in financial reporting. It begs the question of what alternative method of valuing DB liabilities would enable directors to be satisfied that the accounts give a true and fair view. What would this mean for trustee scheme valuations? The era of very low interest rates has brought the matter into sharp focus. In winding up our Second Reading, I think the Minister said that the Government had this issue in their sights and would explore it in the upcoming winter Green Paper. We look forward to that but, in the interim, we seek an update on where the thinking is going.

[Lord Freud]

I thank my noble friend Lord Flight for this amendment, which opens up a fascinating area. Amendment 81 would require the Secretary of State to make regulations which would have the effect of allowing companies to disregard any method of valuing defined benefit pension liabilities required by accounting standards. I recognise and understand the concerns that have been expressed in this debate and during Second Reading about the measurement of the liabilities under accounting standards, particularly when we are in what one would hope is an unusual period of interest rates being low not for reasons of the economy but because of quantitative easing.

Following its recent public consultation on its future agenda, the International Accounting Standards Board concluded that,

“there was no evidence of problems that were sufficiently widespread and significant to require a comprehensive review of IAS 19”.

However, I assure my noble friend that this is not the end of the matter. The UK’s Financial Reporting Council is in the early stages of considering the impacts of the current approach and will be examining the case for an alternative approach. I believe that this is the most appropriate way forward compared with the approach proposed by this amendment. The independence of the standard-setting approach is widely regarded as one of its strengths. I do not think it would be right for government to intervene directly—here I echo the wise words of the noble Lord, Lord McKenzie. It should not effectively set aside the accounting standards framework that has been developed to deal with these complex matters. If the Financial Reporting Council finds objective evidence or broad stakeholder demand for change, any proposals would need to take fully into account the risks they may pose to members’ benefits and would need to be tested through public consultation.

My noble friend talked about the experience in the US. When he did so at Second Reading, he got me to do some work—I always resent that—to look at that. In the US, schemes may move to calculate their funding based on yields from high-quality bonds averaged over the past 25 years. That approach would effectively discount rates by 1% and lead to employers paying significantly less into their pension schemes. What we must not allow to happen—again I echo the noble Lord, Lord McKenzie, and it is not often that that happens—is a change that releases pressure on employers, only to find that that leads to their pension scheme being less well funded and members losing out.

I do not think there is a quick and easy solution here. Nobody who looks into this issue can be in any doubt that this is an extremely complex and technical area. To come up with an alternative accounting methodology would require a number of substantial steps. Those would include: undertaking a detailed analysis of the current commercial, financial and broader economic impacts of the current methodology to determine whether there is a need for that change; developing alternative approaches, which would also have to model transition impacts between the two regimes; seeking views from the market through public consultation on identifying the costs and benefits and any adverse impacts; and, finally, developing the detailed standard itself, which again would require a further round of public consultation.

We are planning to publish a Green Paper over the winter, and I can reassure noble Lords that it will explore the issue of how liabilities are measured and reported in the round. We want to ensure that measures of liabilities and deficits are properly understood and are being used and interpreted appropriately. We will explore and seek views on whether the measures used could, in some cases, be driving investment behaviour that is not in the best interests of members or employers, and we will look at what the alternatives might be. I hope I have reassured my noble friend that his concerns are being addressed and that he will withdraw his amendment.

Pension Schemes Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Committee: 1st sitting (Hansard): House of Lords
Monday 21st November 2016 Lords Chamber

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

Clause 1 is critical to the Bill. It sets out the scope for the regime, so I welcome these considered amendments, which give us the opportunity to explore this important clause in detail.

We have taken considerable care in defining master trusts and setting the scope for the new authorisation regime. The guiding principles throughout have been twofold: the first is to ensure that members are protected against the risks that arise in these new structures; the second is to ensure that the extent of any regulation is proportionate.

For example, the definition applies to schemes which are open to more than one employer because the level of engagement and involvement of the employers and scale of such a scheme is likely to be very different from that of a single employer scheme or a scheme in which all the employers are part of the same corporate group. It applies only to schemes which offer money purchase benefits because of the risks that the member bears in relation to such benefits, but we have been careful not to create a loophole for schemes which offer mixed benefits—as we will come on to later.

However, we also need to be mindful of the fact that master trusts are a recent development in a rapidly changing pensions landscape, and the master trust market is evolving all the time. A one-size-fits-all regime may not be proportionate, and we therefore need flexibility to be able to respond to the needs and changes. It is for this reason that Clause 39—which we will come to later in Committee—makes provision allowing for the disapplication of some or all provisions of the Bill for certain schemes.

Turning to the specific amendments, my noble friend Lord Flight seeks to exclude from the definition “AVC only” and “relevant centralised” schemes. I have sympathy with his intentions. Many defined benefit schemes offer AVCs for historic reasons and could be considered to be DB schemes to all intents and purposes, but schemes such as this could be excluded from regulation under our powers under Clause 39, and we prefer to use this power rather than to create a list of exemptions in the Bill, allowing time for more detailed consultation with industry about the diverse types of scheme that currently exist.

I put it on record that our intent is to propose such a carve-out. That is: we intend to consult on regulations under Clause 39(1)(b) to disapply some or all of the provisions of the regime for a mixed benefit master trust scheme, where the only money purchase benefits are those related to additional voluntary contributions of non-money purchase members, but we will also be considering carefully the need to avoid creating any avoidance loopholes as we go through that process.

In relation to the relevant centralised schemes, I am concerned that my noble friend’s amendment may go too far. The definition to which he refers is not confined to industry-wide or not-for-profit schemes, and although there may be a case for excluding some such schemes, I am wary of creating a loophole.

Our aim is to protect members from the risks that are particular to master trusts, and these may equally arise in industry-wide schemes. Similarly, although it is true that most master trusts are run for profit, and that this gives rise to certain risks which the regime seeks to protect, it is not this feature alone which determines the nature of master trusts.

I am grateful for the amendment tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. As the noble Lord said, it is a probing amendment to investigate the boundaries of the definition. The amendment would change the definition of master trusts in the Bill and extend it to all schemes which offer money purchase benefits, including those which are used by only a single employer or employers connected to each other.

On the noble Lord’s question of how and when we plan to consult on draft regulations, and indeed on the question asked by the noble Lord, Lord Kirkwood, we have worked with the industry and the regulator to establish the key criteria for master trust authorisation. We intend to continue these discussions to develop more detailed policy and secondary legislation. We will follow the published government principles to ensure that consultation is an ongoing process, using the most appropriate forms of communication. The timing of that formal consultation on draft regulations will depend on a number of factors. We anticipate that the initial consultation to inform the regulations may take place in autumn 2017. I hope that that gives the noble Lord, Lord Kirkwood, some reassurance about the process.

The amendment would extend the scope of the definition and the authorisation regime considerably and would do so in a way that would be disproportionate. To take the example of the scheme starting as a single group employer picking up a non-associated one and moving back and forth, if the scheme is intended to be used for more than one unconnected employer, it is within the scope of the regime. If it starts with only connected employers but takes on an unconnected employer, it will fall within the regime at the point that it takes on the unconnected employer.

[Lord McKenzie of Luton]

Will the noble Lord help me on that point while it is on my mind? If you take on an associated entity and therefore have to join the scheme, what happens if you have a joint venture and that joint venture comes to an end? Are you perpetually in and out of the scheme? How does that work?

[Lord Freud]

In practice, one has to be fairly formal about the definition. The noble Lord has drawn up an example of a potential revolving door which I suspect may be in the black swan category. I will take that point away. I need not write to him on it because we will have a chance to come back to it, or I will make sure that we do. He describes a very volatile situation, but I suspect the very existence of a precise regime will tend to stop people doing that kind of thing unnecessarily, or without a very good reason.

On the question of bringing into the regulations schemes that have only one employer, we are currently considering whether some schemes offering decumulation-only benefits have the same rules as some master trusts. Any use of the powers to deal with this issue will clearly be subject to the affirmative procedure. My noble friend Lady Altmann asked whether PPF could be extended; an amendment has been tabled—I think it is Amendment 18—to explore this issue, and we will deal with it when we reach that point.

Much of our debate at Second Reading indicated that there is general acknowledgement that further regulation of master trusts is both desirable and necessary. Master trusts have developed in part in response to the success of the automatic enrolment programme emerging as a different kind of beast to the traditional structures that have existed in the occupational pensions sphere.

There is much to recommend master trusts as the schemes of choice for employers and members. They can drive value for money due to competition in the market and the economies of scale and offer a neat solution for smaller employers, for whom setting up an individual pension scheme for employees would be impractical and burdensome. But these very qualities also give rise to new risks that are not present in single employer defined contribution schemes in the same way. In a single employer scheme, the employer is typically far more closely involved in the running of the scheme and tends to have a more active relationship with the trustees. With master trusts used for automatic enrolment, employer involvement is generally limited to paying over the employer contribution. The different dynamics that exist in master trusts give rise to the need for a different approach to ensure that members are properly protected. These issues do not arise in the same way in single employer or connected employer schemes, and it is for this reason that we have been careful to confine the definition to multi-employer schemes in which the employers are not all connected.

--- Later in debate ---

[Lord Freud]

At the moment, these schemes would not be within the master trusts legislation. I cannot give a full answer now because I am not sure what other protections there may be for people in this situation, but we will have a chance to come back to this issue again and again and I shall make sure that we have a dialogue on this point later, as we consider the Bill in Committee.

This Bill addresses the risks that arise in master trusts. It is important to remember that these risks are specific to this particular type of structure, and it is therefore important that the definition reflects those structures and does not go wider. This ensures that the regulation in the Bill is a proportionate response to the issues arising. I hope that with these explanations and assurances particularly on the process of consultation, noble Lords are reassured, and I ask them not to press their amendments.

[Lord McKenzie of Luton]

In relation to the use of Clause 39 for carve-outs, is it envisaged that that will be done on a broad scheme basis or on an individual scheme basis? How will it work in practice? Will it be a carve-out for a defined type of scheme, as in the AVC scheme referred to, or could it be more specific?

[Lord Freud]

We will come on to discussing Clause 39 later, but I think that it will be fairly specific—sorry, no, I think that it will not be specific. It will be general types.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response. I should say to the noble Lord, Lord Flight, that I accept that having this in the Bill in those terms would not be appropriate. The purpose of the amendment is to try to have a debate around the issue and thus have something on the record. I accept entirely the proposition around annual business planning and the assurance given that there is a need and recognition that the Pensions Regulator must be properly resourced to carry out these important functions.

Although there is an impact assessment, it is quite thin. It takes up lots of paper but it is thin in terms of the numbers that were on some of the schedules. The Minister has reiterated what was in that report about how there will be a further impact assessment at the secondary legislation stage. What precisely does that mean? Is it that when the regulations are in place and have been agreed there will be a comprehensive review, or that it is going be done piecemeal as each of the components of these regulations is put in place? If we tot up the number of regulations in the Bill—I have not done it—I am sure that they will run into the several tens. How is that actually going to work and when would the secondary legislation be laid for these purposes? Will there be an aggregate impact assessment at that stage?

[Lord Freud]

One of the things I have committed to do is to go back and think about how we make these regulations in the context of the noble Lord’s own suggestion of perhaps looking at the balance between the affirmative and negative procedures. In that context, the exact way in which the Government decide to present the regulations would clearly change. Regulations made under the negative procedure tend to be less of a set piece, while affirmative regulations do tend to be more of a set piece for obvious reasons. The answer to the noble Lord’s question will depend on our reflections on what we do with his proposition.

Pension Schemes Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Committee: 1st sitting (Hansard - continued): House of Lords
Monday 21st November 2016 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I shall speak also against Clause 16 standing part of the Bill. The amendment is an alternative formulation that requires the affirmative procedure to operate for the regulations. We touched on this issue earlier this evening. The clause imposes a duty on a range of persons involved in running a master trust to give notice of the fact that a “significant event” has occurred. Civil penalties can be applied to anybody failing to comply. The only hint of what might constitute a significant event is what the Secretary of State sets out in regulations. No hint is given in the Explanatory Notes to the Bill. The information provided to the Delegated Powers Committee simply refers to a significant event being one that might affect the ability of the scheme to meet the authorisation criteria, such as a change of trustee or scheme administrator.

As the Delegated Powers and Regulatory Reform Committee pointed out, the delegated power confirmed by Clause 16(3) is a very wide one. It emphasised that the definition of what constitutes a significant event is fundamental to determining the duty imposed by Clause 16. It says that the width of the power appears to be needed because the Government have not yet decided on the policy or purposes for which the power is to be used. Its conclusion is that the power is inappropriate in the absence of any convincing reasons to justify its scope. We agree that as things stand the Government have more work to do to justify the change in the clause. I beg to move.

[Lord Freud]

I will begin by explaining why it is important that the clause stands part of the Bill, and then I shall set out my thoughts on the proposed change in the parliamentary scrutiny procedure.

Clause 16 addresses one of the requirements that will be placed on a master trust scheme once it has been authorised. One of the great strengths of the authorisation regime is that it is an ongoing system. This means that, in order to continue operating in the market, the Pensions Regulator must remain satisfied that the master trust continues to meet the authorisation criteria. This makes it particularly important for the Pensions Regulator to remain informed about the scheme. Indeed, I hark back to our discussion a little earlier about whether there should be someone to compensate as a last resort. It is really important that we make sure that the Pensions Regulator knows what is happening in schemes. That is one of the key ways in which to make that happen.

The regulator will collect information from authorised master trust schemes on a regular basis through a combination of existing requirements on occupational pension schemes and new requirements on authorised master trust schemes, introduced as part of the Bill. For example, all occupational pension schemes are already required to submit an annual scheme return to the Pensions Regulator and, under Clause 15, master trusts will be required to submit a supervisory return as well. In addition, Clause 14 introduces a requirement on the trustees of master trust schemes to submit the scheme’s annual accounts, and on the scheme funder to submit its accounts to the Pensions Regulator. These returns allow the Pensions Regulator to collect information from schemes on a regular basis in order to determine whether they still meet the authorisation criteria.

This clause provides that the Pensions Regulator must be notified in writing if significant events occur in relation to an authorised master trust scheme. The Secretary of State, following consultation with the industry, will set out in regulations what constitutes “significant events” for the purposes of this clause. These might include, for example, change of scheme trustee, change of scheme administrator, changes to the continuity strategy or changes to the business plan. The Government intend that the events which will be prescribed as significant events will be events of the type which the regulator would need to be made aware of promptly due to the potential impact on the scheme’s authorised status or because they are indicators that support or intervention may be required.

To be clear, the occurrence of a significant event in a master trust scheme will not necessarily affect the ability of the scheme to meet the authorisation criteria. It just may have such an effect or it may be a warning sign. For example, a scheme may have a change of trustee. As the fitness and propriety of a trustee is linked to the authorisation criteria, the Pensions Regulator must be informed of this change so that the new trustee may be assessed against the relevant standards. The new trustee may well meet the required standards, in which case the scheme’s authorisation status will not be affected—but there could be an impact. A civil penalty will apply to a person who fails to comply with this reporting requirement. For that reason, it is important to be as clear as possible about who will be subject to this requirement in the Bill. This clause therefore lists the persons subject to this requirement in subsection (2). Further persons may be listed in regulations.

There is a precedent for this requirement. Section 69 of the Pensions Act 2004 provides that key persons involved in the running of defined benefit occupational pension schemes must report the occurrence of certain events to the Pensions Regulator. That provision was made to warn the Pensions Regulator that such a scheme may require the support of the Pension Protection Fund. The provision in this Bill is made to warn the Pensions Regulator that an authorised master trust scheme may need support or intervention or be at risk of not meeting the authorisation criteria. This provision will protect scheme members and it will assist the Pensions Regulator to carry out its functions. That is why it is important that this clause stands part of the Bill.

Amendment 35 concerns the affirmative as opposed to the negative procedure. We have discussed that and we will also consider it in this context. On that basis, I hope that the noble Lord will see fit to withdraw both his opposition to the clause and his amendment. I hope that I have provided clarity on the wider purpose of Clause 16 and I commend it to the Committee.

[Lord McKenzie of Luton]

I thank the Minister for that response. I think we understand what the intent of this provision is. Obviously, the persons to whom this obligation applies are listed in detail in the Bill. Why, therefore, is it not possible to list at least some examples in the Bill—for example, a change of scheme trustees—as one of the significant events which might require action? There is silence on that side of the equation. However, there is a list of persons who are subject to this provision.

[Lord Freud]

I think the reason is that it is pretty odd to have a hybrid approach to a list of requirements some of which are in the Bill and some in regulations. We are looking to put them all together in a coherent way in regulations, which we will consider how best to introduce to the House.

[Lord Freud]

The noble Lord has opened himself up to a letter from me.

[Lord McKenzie of Luton]

My Lords, I think we need to read the record. In the meantime, I beg leave to withdraw the amendment.

Work Capability Assessments

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 8th November 2016 Lords Chamber

[Lord Freud]

We do not yet have a formalised programme. We are in the middle of a consultation, as the noble Baroness knows. We will take the results of the consultation very seriously, come to the appropriate conclusions and develop the policies and the means of implementation.

[Lord McKenzie of Luton (Lab)]

My Lords, is any part of the consultation to consider the appropriateness of maintaining cuts to the employment and support allowance, which, as the Minister will know, is denying some £30 a week to thousands of the most vulnerable households in the country?

[Lord Freud]

We announced earlier this year that there would be no more welfare savings but we would go through with those that had already been announced. The job of the Government is to implement what has been announced, but there will be no more. This Green Paper looks at how we can have a better system of managing health issues with getting people into work. We have got half a million more disabled people into work in the last three years, and we need to keep that trajectory going.

Pensions: Women’s State Pension Age

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 2nd November 2016 Lords Chamber

[Lord Freud]

One of the odd things about this is that we are providing equality between men and women. Men have had to retire at 65 for many decades and we are bringing women’s retirement age to the same level. Women actually have longer in retirement, even after 65, because they still live longer. One of the reasons is that we are being blessed by greater longevity. In the period since 1995, men are living longer by four years and women by three years.

[Lord McKenzie of Luton (Lab)]

My Lords, we know that the Government have a poor record of communicating changes to pension arrangements, despite what the Minister has said, as evidenced of course by the confusion over the introduction of the single state pension. The issue here as touched on by my noble friend is not that there was no communication about state pension age changes, but that there was not effective communication. That is why there is a proper sense of injustice articulated by the WASPI campaign, and why it argues for the promised transitional provisions now to be offered up by the Government. I ask the Minister again, despite what he has said: will the Government reconsider this matter?

[Lord Freud]

I can only repeat that we have made it clear—and the Pensions Minister went as firmly on the record as he could—that there will be no further moves in this area.

Pensions Act 2014 (Consequential Amendments) Order 2016

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 8th September 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, I shall follow the usual incisive contribution of my noble friend Lady Drake and the contribution of the noble Lord, Lord Kirkwood of Kirkhope, in thanking the Minister for his introduction of this order. It is quite like old times. I also take the opportunity to thank the officials who spent a bit of time yesterday with us trying to unlock for us some of the intricacies of these provisions which, although small in terms of drafting, are quite complicated.

We note the Minister has confirmed at least in one respect the judgment of his predecessor, concerning compatibility with the European Convention on Human Rights. I state from the outset that we do not seek to challenge these provisions, although we add our concerns to that expressed by the Secondary Legislation Scrutiny Committee, that overlooking an appeals mechanism within three months of a new pension scheme starting does not inspire confidence. My noble friend Lady Drake has rightly chided the Government in stronger terms, and the noble Lord, Lord Kirkwood, made the point that two omissions are two too many.

As we have heard, the order seeks to address two distinct issues. First, it extends the automatic adjustment of certain benefits where a recipient or their family are in receipt of another benefit which is uprated. In particular, it ensures that the definition of benefit income includes the state pension under the Pensions Act 2014—that is, the new state pension—and that definitions of alteration include those transitional provisions of the new state pension which have to be uprated by no less than the increase in prices. That includes protected payments, certain increments inherited from a deceased spouse or civil partner, and certain other deferred amounts inherited under the state pension. Secondly, as the noble Lord explained, there are appeal rights to secure certain national insurance credits.

On the first issue, the automatic adjustment would apply only to income-related benefits including income support, JSA, ESA, pension credit and universal credit. The Explanatory Note to the order sets out the limited circumstances where the state pension will form part of the benefit income of a person claiming a working-age benefit. Its application is asserted to be—perhaps the Minister will confirm this—for pension credit awards and potentially for so-called “mixed” couples, where there is currently a choice of pension credit or the working-age benefit. We are told that this choice is to be phased out. Perhaps the Minister will also confirm the timing and mechanism for this to happen.

To the extent that income support, JSA and ESA are to be replaced by universal credit, the Government anticipate that these arrangements in due course will apply to universal credit and pension credit only. This raises a number of questions. First, there is the timetable for universal credit. It is understood that the most recent plans—pre the resignation of IDS—were for universal credit to be rolled out for all new claimants between 2016 and June 2018, with gateway areas becoming full service areas. This was to be followed by migration of current claims of legacy benefits to be completed in 2021. Is this still the plan?

How does the Minister respond to the article in Tuesday’s Times, which refers to the involvement of GCHQ in alerting No. 10 to security flaws in the programme, with significant numbers of claimants facing significant issues? Can the Minister assure us that, now IDS is out of the way, the reported chaos under every stone has been dealt with? Quite apart from this order, however, we should find time to debate this fully.

So far as pension uprating is concerned, Sections 150, 150A and 151A make reference variously to uprating by not less than earnings or prices. My noble friend Lady Drake pressed this issue. There is of course no specific reference to the triple lock in these statutory provisions, although it can be catered for within the drafting formulation. I press the Minister, as has my noble friend, to confirm the Government’s position on this matter, particularly in light of his predecessor’s recent comments. Will the triple lock continue to be applied, as now, at least until the end of this Parliament?

We have been told that Article 3 amends an omission of a consequential amendment arising from the 2014 Pensions Act, and this omission being included in the right of appeal for decisions concerning awards for credits made under Part 8 of the State Pension Regulations 2015. We are told that any credit decisions under these provisions in respect of the tax year 2016-17 will need to be reconsidered once the law has changed. My noble friend, again, pressed on that matter. As my noble friend said, these could relate to decisions on credits for spouses and civil partners of members of HM Forces, people caring for a child under 12, foster carers and people approaching pensionable age. These are important provisions.

The Explanatory Note suggests that this omission will have very little effect because it concerns only one class of credits—post-April 2016 class 3 credits to cover gaps in the records of those accompanying HM Forces, as spouses or civil partners, in a posting outside the UK. This seems to be on the basis that generally decisions on tax credits for 2016-17 will be relevant only in determining the new state pension for those reaching state pension age for 2017-18, by which time the problem will have been fixed. The exception appears to be spouses and civil partners of HM Forces personnel, where credit from 1975-76 can be relevant to pension awards for 2016-17. Can the Minister confirm that that is correct and that is why it is of limited effect?

Can the Minister say generally whether the appeals rights apply only to those credits which have to be claimed and not those applied automatically? I think he did that in his presentation, but I ask: if that is the case, what is the remedy, should the latter be subject to error? Is this a matter of administrative adjustment?

The Explanatory Note seems to be suggesting that, notwithstanding that there is no current right of appeal in certain circumstances, HMRC can in the interim undertake a reconsideration, which would be the first stage of an appeal should the right to one exist. Again, I think that that is what the Minister said, but perhaps he would confirm that.

The issue of National Insurance credits takes us back to an earlier debate about generally improving take-up of these credits, which are not awarded automatically—again a point pressed by my noble friend Lady Drake. In resisting a reporting process to Parliament on a take-up strategy, the noble Lord said that,

“we intend to review these systems to identify what efficiencies can be put in place to make the system of national insurance credits as simple as possible”.—[Official Report, 18/12/13; col. 353.]

Would the noble Lord please now offer us an update?

[Lord Freud]

My Lords, I thank noble Lords for their contributions, which made it rather a more interesting debate than I had anticipated. I will go straight into the questions that were raised rather than reprising the content.

There have been two omissions. One was something that has actually potentially affected people; we are getting that first one back in time. We take this seriously. It is not the first time that I have had to grovel somewhat about redoing regulations; I suspect that some noble Lords on the other Benches have had similar experiences.

[Lord Freud]

Never! So, clearly we need to take this seriously. In this case, however, the impacts have not been great. On how the feedback works, we have an established complaints and resolution procedure—and it is particularly valuable doing it this way because, as the noble Lord said, the numbers are small—whereby people can either write or phone in. We will catch these and assess what is happening.

I say to the noble Baroness, Lady Drake, that I described in my speech a process that, so far, no one has tried to appeal. If they do, there is a workaround, so in practice there will be no gap at all for people. The minimum guarantee for the pension credit standard will continue to be uprated, at least by earnings every year. I am in a position, I think, to confirm to noble Lords that the triple lock is in place through this Parliament, as has been said several times in the past.

On the question raised by the noble Baroness, Lady Drake, about credit decisions, the oversight affects all decisions on credits—which includes grandparents—made under the powers in the Pensions Act 2014 from 6 April 2016 to when the law is changed. The specific decisions affected relate to credits for spouses and civil partners of members of Her Majesty’s Forces, child benefit recipients, people caring for a child under 12, foster carers and people approaching pensionable age—and, as I mentioned, it includes grandparents. I am afraid that we do not have data on the numbers. There are around 400,000 eligible for carer’s credit and, in August, there were 10,900 recipients. There are 200,000 service spouses eligible and, since April, we have had 1,850 applicants.

The noble Lord, Lord McKenzie, enjoys reading newspaper articles on universal credit. I can confirm that there was a most imaginative use of the present tense in the Times—all references to spies are pretty historical by now. We have been working with GCHQ all the way through to make sure that universal credit is secure. It has monitored and is content with the system; that is something that has been of immense value to us as we have developed the system.

We made an announcement in July on the timetable. We now envisage universal credit being completed by March 2022 instead of March 2021, but nine months of that difference is contingency.

The noble Lord, Lord McKenzie, asked about credit applications. Decisions on credit applications made in respect of 2016-17 will be relevant in determining the new state pension entitlement only of people reaching state pension age from 2017-18, as this will be the first cohort for which 2016-17 will be a relevant tax year. What he was asking was therefore correct.

On his question about a review, we carried out a review and found that the main issue was lack of information. This is being addressed in the new state pension awareness campaign. I think I have covered most of the questions, but I will go over them carefully afterwards and I will write to noble Lords.

[Lord McKenzie of Luton]

Before the noble Lord sits down, I imagine he has a note from the Box ready, so perhaps I could ask him to comment on the right of appeal in respect of credits where they are awarded automatically. From what he said, I think the right of appeal applies to credits that have to be claimed. If there is an error in the application of automatic credits, what is the remedy and how is it applied?

[Lord Freud]

I will confirm this in writing, but my impression is that there is a right of appeal in these circumstances. It may be that there was no gap in the legislation. I will confirm that, but that is my starting position for 10.

Universal Credit: Rent Arrears

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 13th July 2016 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government how they will address the causes of the increase in the number of council tenants in receipt of Universal Credit who are in rent arrears.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

I appreciate the concern with this. The reality is that there are a lot of factors at play and universal credit is not the sole issue. Many people are coming into universal credit with pre-existing arrears. Safeguards are in place for claimants, including advances, budgeting support and alternative payment arrangement. Research shows that over time claimants successfully reduce their arrears. I have commissioned work from the department to help understand the true level and causes of these arrears.

[Lord McKenzie of Luton (Lab)]

I thank the Minister for his reply. He will be aware of the survey conducted by the National Federation of ALMOs and ARCH which details the shocking build-up of rent arrears by council tenants. Of those covered by the survey, 79% in receipt of universal credit were in arrears and only half of those previously had been in arrears. Despite what the noble Lord says, it seems that the rollout of universal credit is causing a build-up of debt among social tenants, creating financial hardship and reportedly driving some into the arms of loan sharks. That is not surprising, given the long processing times and the recently introduced imposition of a further seven-day waiting period before the benefit can kick in—an imposition opposed by the Social Security Advisory Committee. As the rollout of universal credit is to widen, does the Minister agree that these arrangements have to be reviewed urgently, from the point of view of both landlords and tenants, and the seven-day waiting period scrapped?

[Lord Freud]

The best evidence I have got at the moment is a gateway review, which shows that a rather high figure—48%—of the singles on UC have got arrears, but, interestingly, half of them were pre-existing arrears. That compares with 31%—so it is higher—but the interesting thing is how quickly it comes down. In the second wave—that is, three months later—it comes right down to very close to the JSA figure. There is a lot of complexity here; it is not straightforward at all. I am looking at it with some urgency.

Welfare

Debate between Lord McKenzie of Luton and Lord Freud

Monday 21st March 2016 Lords Chamber

[Lord Freud]

At one level, the new Secretary of State will clearly look at his whole portfolio with a critical eye. At another level, there may be changes in who gets the higher-rate mobility component to allow them to qualify for the Motability scheme. More people are on the higher rate under PIP than was the case under DLA. Indeed, more people with mental health issues are going on to PIP than would have received DLA. So, while there is a change in who gets the top-level mobility component and is therefore entitled to the Motability scheme, the absolute number qualifying for the Motability scheme is now moving up. As I said, there are now 24,000 more people on the Motability scheme than there were in 2013.

[Lord McKenzie of Luton (Lab)]

My Lords, the Minister will recall that we recently debated issues around rent restriction policy and local housing allowance changes for supported accommodation. There is a commitment in the Statement that there are no further plans to make welfare savings beyond the substantial savings legislated for recently. Are the proposed changes to supported accommodation now off the table, and does the commitment also run to pensions and pensioner benefits?

[Lord Freud]

Supported accommodation is a vital issue and I am grateful for the noble Lord’s question as it gives me a chance to offer the industry as much reassurance as possible. We have delayed two of the changes—the rent reductions and the LHA cap on supported accommodation—for a year because that will give us time to really understand the sector. In the short term, I expect to get a report on how the sector works so that we can look at how to support it most efficiently with funding and finance. The noble Lord will probably not remember how it is financed, as I do not think that anyone knew at that time. It has been quite a complicated issue. As for his question about the commitment and pensions, the pension element is growing rather rapidly, so, far from cuts, that becomes an irrelevant consideration.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 29th February 2016 Lords Chamber

[Lord McKenzie of Luton]

My Lords, as the Minister has anticipated, we have a sense of déjà vu on this drafting. We have lost count of the number of amendments and changes the Government have made to their own legislation. Again, the Commons are disagreeing with an amendment that the Government themselves laid in your Lordships’ House and replacing it with an alternative. So confident are they now that they will get it right on this occasion that they have decided to address the point at hand in regulations.

However, the substantive point is serious and it is important that the legislation is right. It is understood that the issue is to properly identify those cases where the 1% per annum reduction will apply to only the rent and to where it will apply to rents and the amount of the service charge. The former will apply to rents determined by a formula social rent approach; the latter to what is known as affordable rents, which are determined on a percentage of market value. It is understood that the sector is content with this differentiation—the Minister has confirmed that—and so are we. We look forward to the regulations in due course. There will, doubtless, be various iterations of them.

[Lord Freud]

I thank the noble Lord, Lord McKenzie, for being merciful in his remarks. As I said at the start of this brief debate, this Motion has been tabled as a result of representations made by the providers—I confirm that again—and the regulator. We welcome their input, as the noble Lord does. I urge noble Lords to support this Motion.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 9th February 2016 Lords Chamber

[Lord Freud]

My Lords, the amendment to paragraph 3(5) of Schedule 2 is to address ambiguity in the drafting and clarify that, in a case where the tenancy begins after the beginning of the first relevant year but not at the beginning of the second or third relevant year, the rent should be calculated in the following relevant year. The amendment also removes a redundant cross-reference to paragraph 3(2), which is a drafting error we had regrettably not spotted previously.

I would like to inform the House that a number of social housing providers have alerted us to an unintended consequence of the government amendment brought forward on Report, which sought to enable continuation of existing policy that affordable rents are inclusive of service charge when determined on the percentage of market rent principle, but exclusive of service charge when determined on the social rent model. We have looked at this and agree there is an issue in the drafting that we need to address. The Government will therefore be seeking to do so during Commons consideration of Lords amendments. I thank the providers who raised that issue with us, and apologise to the House that this has come up at such a late stage, and that we are dealing with it in this way.

The Bill returns to the other place without the proposed changes to the ESA WRAG, and the limited capability for work element in universal credit. It also now places a requirement on the Government to publish and report on income measures of child poverty. In sending these amendments back, the Cross-Benchers, in particular, have sent a clear message and I will say only this: there will now be a process between the two Houses, as is conventional. We have discussed many other matters during the passage of the Bill. Many of them are important and we will continue to reflect on them and seek to obtain the best outcomes we can. I beg to move.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for his explanation of Amendment 5. It makes the drafting of this area somewhat less impenetrable. I was going to say that it would be churlish, given the occasion, to point out that this is the third or fourth attempt to get this drafting right but clearly there will need to be a fourth or fifth, from what the Minister has said, and we welcome the point to which he has alerted us.

I take this opportunity to welcome the Minister’s action in deferring the impact of the rent reduction policy for a period and holding back on the local housing allowance. We will have to see where that leads. Of course, this point was pursued rigorously by the noble Lords, Lord Best and Lord Kerslake. My understanding is that this has not necessarily allayed the concerns of providers sufficiently and there is the risk of holding back on some key projects in relation to supported accommodation, which would be a great pity. So I think there is a task for the Government there.

With regard to the amendments that go back with the Bill to the other place, all we can do is urge the Minister to send it on its way with his wholehearted support.

Housing Benefit (Abolition of the Family Premium and Date of Claim Amendment) Regulations 2015

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 3rd February 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, we should be grateful to the noble Lord, Lord Kirkwood, for giving us the opportunity to range over this issue this evening and to the noble Lord, Lord Low, for his very extensive analysis of some of the risks around homelessness that these changes will create. Given the hour and the business to follow, I shall raise one or two brief questions.

On the family premium, the Explanatory Note with the regulations says:

“Removing the Family Premium helps to simplify the overly-complex HB system … and should therefore reduce administration costs”.

Can the Minister seriously tell me how much of a reduction in administration costs is anticipated just from removing this one component of what is and can be quite a complex calculation? It seems to me that it should be built into the system, so whether it is there or removed would make very little difference to the cost.

As for backdating, we have heard the arguments against the Government’s position that effectively we want to get equality with universal credit and if universal credit only needs one month’s backdating why does the housing benefit system need longer? I should have thought that it was recognised—and the noble Lord, Lord Low, has made it clear—that the housing benefit system is more complex. Indeed, is that not one of the boasts of the Government about universal credit, which we have supported—that it is an easier system whether you are in or out of work? You simply move up the scale; you do not have to come off one system of benefits and go on to another, or seek to return to them in due course.

We are in danger of overlooking a fundamental point here—that this is about backdating if there can be shown to be good cause. It is not something that is awarded willy-nilly. There are particular concerns around people with mental health conditions and the extent to which they are supported to make the right sort of decisions and judgments about their claim for benefits. That seems to sweep aside that issue.

There is one technical issue that the Minister may be able to help with. If somebody is awarded JSA after making a claim, they would be entitled to a three-month backdating of that benefit. The award of that benefit could automatically transport somebody on to maximum housing benefit—somebody who was not previously eligible for housing benefit. So we get somebody on JSA with a three-month backdating, which opens up the opportunity for housing benefit for somebody not previously entitled. There is something in the text that suggests that that backdating would apply to housing benefit as well, but I cannot quite see technically how that comes about. I would be grateful if the Minister could clarify that on the record tonight, because clearly there would be an anomaly with accessing one benefit opening up the opportunity for another benefit and giving rise to different backdating results, as a result particularly of these regulations.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords—

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 27th January 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, in the spirit of comradeship and friendship with the Liberal Democrats, we are very happy to support that request.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

I think there were two parts involved in that question, so let me go through them. In answer to the first part, I will meet the noble Baroness and the CPAG. In answer to the second, I am happy to meet her and the CPAG.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we support each of the amendments set down in this group and have added our names to some of them. On Amendments 50, 51 and 52, we join other noble Lords in congratulating the noble Lord, Lord Best, on his negotiating skills—doubtless assisted in that endeavour by the noble Lord, Lord Kerslake—and the Minister for listening and helping with at least a partial solution.

The deferral of the rent reduction programme is clearly welcome. The clarification on the comfort in respect of LHA caps is clearly important as well. The more that the Minister can say on that, the better. My noble friend Lady Warwick has outlined some of the problems because of the known existence of that aspiration. The Minister could, I hope, therefore go further. It is always the way that Ministers come forward with concessions, and then everybody piles in and wants just that little bit more, but this is a very important issue.

That raises the question of where that leaves the amendments, as the Minister’s proposition in his correspondence effectively covers co-operatives, almshouses and community land trusts, as well as housing associations. Are the Government going to accept the amendments, substitute something for them or simply rely on what is on the record of this debate?

The noble Lord, Lord Kerslake, spoke to Amendments 53, 61 and 63, each of which we can support. He stressed the importance of an independent evaluation of what has gone on, in good time for rent policy for the subsequent period to be settled. In respect of Amendments 61 and 63, the noble Lord explained the importance of flexibility in respect of new-build, particularly for schemes of marginal feasibility. We had a very helpful meeting with members of the Bill team and the noble Baroness, Lady Williams, on this. Hopefully, embedded in this long list of government amendments is one that addresses that issue specifically. It may not necessarily have the breadth or flexibility the noble Lord is seeking, but I think it at least seeks to address the principle.

Amendment 59A, in the name of the noble Baroness, Lady Manzoor, proposes a report on local housing allowance rates. We debated this in Committee, but the Minister probably still owes us a reply. The purpose of that discussion was to recognise that, with the moratorium following the 1% limitation, LHA rates are increasingly going to move away from the reality of what renting in the private sector actually entails.

The noble Lord, Lord Ramsbotham, was clearly pleased with the outcome for almshouses. All in all, we should be grateful to the Minister for responding as he has—or hopefully will—at the Dispatch Box in confirming this. This is a real issue of substance which was worrying many people.

The noble Lord, Lord Best, is probably happy with the definition of supported housing that we have here, which is the broadest possible. I know there have been issues with specified support—what is in and what is out—but I take it from the correspondence and what has gone before that the moratorium is in respect of the widest definition of supported accommodation.

[Lord Freud]

I will start by picking up a point made by the noble Lord, Lord Ramsbotham, on unintended consequences. The House of Lords has done its job in alerting us to some unintended consequences in time for us to sort them out. I know that I rely on this House for that again and again, and in this case I express my gratitude to a number of noble Lords—with the noble Lord, Lord Best, leading the field—for enabling us to deal with these issues.

Let me now do the business on these amendments. Amendments 50 and 51 would exempt housing co- operatives, community land trusts and supported accommodation, while Amendment 52 would extend that exemption to almshouses. I will just make a few comments before I turn to the rent reductions in social housing. We face a challenge on the overall housing benefit bill and believe that social housing providers need to play their part in helping to bring that bill down. However, we also recognise the vital role that many housing providers play in supporting people who need the most help.

The Government have always made it clear that our policy will protect the most vulnerable members of society. To achieve that, the Bill has built into it the flexibility to except some social housing and provide exemptions for providers facing financial difficulty as a result of the reduction. We have also made several amendments to the Bill, including some today, which we believe will be helpful.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we strongly support the amendment moved by the noble Baroness, Lady Meacher. Indeed, it replicates part of an amendment moved in Committee by the noble Earl, Lord Cathcart. We know from the Government’s point of view that there is an article of faith here. Their starting point is that they overwhelmingly want and expect universal credit to be paid as a single monthly payment in arrears to the claimant. We know that there are opportunities for alternative payment arrangements and my noble friend Lady Sherlock set down our understanding in responding to the amendment in Committee.

The issue of eight weeks has been raised, but it is not eight weeks before you get to a solution. As I understand it, the guidance states that, when arrears reach one month’s rent, the DWP will review the situation—I am not sure how long it takes it to do that—following notification by the claimant or landlord. When they hit two months or eight weeks, either the landlord or the claimant can request an APA. Again, I think the point was raised about how long it takes the DWP to respond to those questions. Even then, there is no automatic right to one because the Government are still clinging to the concept that managing benefits should mirror choices in managing money which they say that those in work have to make.

The issue is one not only of having a nominal system in place under which alternative payments can be made, but of how those are put into practice and what realistic timescales are involved. Even if it were on the dot of eight weeks, that is a time for a landlord to wait. Some landlords might be left in a marginal economic situation.

A question was posed about what information we have about claimants of universal credit and other benefits being effectively denied access to properties available for rent. It might be quite hard to get hard statistics on that, but it would be interesting to know what the department has. The landlords fear, even if they may ultimately get paid, that they will have to wait eight weeks or even longer before they get their money.

My noble friend asked about what is happening with universal credit and how many people are in the system at the moment. At December 2015, there were 287,000 universal credit claims—I think that this is internal management information and therefore not fully verified—and some 37% of those payments included a housing element. Again only preliminary analysis showed that 19% of those had a managed payment to the landlord. I suppose that that gives a glimpse of something that is working to an extent, but clearly is not working in a sufficiently robust way to address the very real concerns that have been raised.

We debated this endlessly during the passage of the Welfare Reform Bill. My noble friend will remember it, and jam-jar accounts have featured already this evening. The arguments were strongly made against not only monthly payments but the opportunity for direct payments, particularly in relation to housing. My noble friend Lady Hollis made an extremely important point that the fundamental is a roof over your head—pretty much everything else flows from that. How can you get a job if you do not have secure accommodation? How do the kids get to school if you do not have secure accommodation? It is a fundamental issue. Just a relatively small change to the system, giving people the choice of having direct payments, means the prospect of removing what is clearly a growing problem, as explained, and fixing it in an effective way, so we support the amendment.

[Lord Freud]

This amendment requires the Secretary of State to make regulations that would allow universal credit claimants to opt to have the housing cost element of their award paid direct to the landlord, irrespective of the reason. One key principle of UC is that the single, monthly payment mirrors the payment of monthly wages that most claimants would receive if they were in full-time employment. Whether they are receiving UC or are working, tenants need to make similar decisions on managing their money, including paying their own rent.

The Government understand that a move to a single, monthly household payment is a significant change for many claimants and that some will require help and support. Regulations came into force in February last year to allow DWP to inform social landlords whenever one of their tenants makes a claim for or is awarded universal credit with housing costs or when an existing universal credit claimant moves to one of their properties. This enables the social landlord to decide whether the claimant requires advice, support or assistance in budgeting so that they can manage their rental payments.

There will, of course, be instances where the claimant needs additional support and, to this end, the Secretary of State already has powers to pay all or some of a claimant’s UC entitlement to a third party through alternative payment arrangements—or APAs, in the trade. There are three APAs: paying rent directly to the landlord; making more frequent than monthly payments; or splitting the payment within the household. APAs can be considered by the Secretary of State at any point during the universal credit claim, whether at the outset or later on, if a claimant cannot manage the monthly payment arrangement.

Recent improvements allow the landlord to email their APA requests, which are dealt with in a matter of days as a priority—so some of the early teething problems as we started rolling out the system have been addressed to speed up that process. Wherever possible, these arrangements are time-limited and delivered with appropriate budgeting support to help claimants make the transition to monthly budgeting.

The arrangement also covers claimants who are in rent arrears, and managed payments to the landlord will be considered where claimants have arrears of at least one month due to repeated underpayment or where the claimant owes arrears of at least two months and is at risk of eviction. These protections, combined with the measures enabling landlords to recover arrears from a tenant’s UC award, already mitigate any impact on landlords’ income or on homelessness.

We are in fact making a series of initiatives in this area and one of the most interesting is the trusted partner trials, where we are working with local authorities so that they decide the people who should be put on an APA, at least initially, and then look to see the budgeting support that a person needs to run their own funding.

Picking up the point made by my noble friend Lord Cathcart on experience, in terms of arrears we did an elaborate direct payment project and we found that, in the early stages, the numbers who paid in full were running at 95.5%, compared with 99% of those where the state paid. However, by the 18th payment—these were weekly payments in the comparator in this project—the direct payments figure had risen to 99%. Interestingly, this happened when the removal of the spare room subsidy came in, and those tenants who had become used to managing their own rent handled the removal of the spare room subsidy better than the ones who had been on the state-managed payments system. That is not surprising because the managed payments system is not necessarily an easy option where there are reductions for non-dependants, the spare room subsidy and so on, because the claimant will still need to pay the shortfall to the landlord.

The other factor, which I am surprised that noble Lords have not clocked, is that a large number of the families on universal credit are in work. It is not like the old legacy system where you have one lot out of work and one lot in work; this is a blended group and people are moving from the out-of-work group into the in-work group. Therefore, the idea that you can be halfway down the taper—in the jargon—and have a managed payment would be incredibly hard for any organisation, including the DWP and the tenant, to manage. Two million households is equivalent to a quarter of the case load.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 25th January 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, we support Amendment 1 for the reasons advanced with conviction by the noble Baroness, Lady Campbell, strongly supported by the noble Lord, Lord Low, and pretty much every other Peer who has spoken in this debate so far. We heard from the noble Baroness, Lady Doocey, about the importance of proper reporting to the ability to deliver proper parliamentary scrutiny. The right reverend Prelate the Bishop of St Albans raised the very important issue of the need to have data on different groups, otherwise there is a risk that targets will be achieved by dealing just with those closest to the labour market. The noble Lord, Lord Wigley, reminded us about the impact of specific, detailed reports which come before Parliament. The noble Baroness, Lady Thomas, said that we can get full employment only if we make progress on the disability employment gap. The noble Baroness, Lady Hollins, and other noble Lords, talked about the failure of the Work Programme at the moment—a running theme on these issues. I am delighted that the noble Lord, Lord Lansley, and the noble Baroness, Lady Meacher, touched on Amendments 42 and 43. That enables me, in the absence of my colleagues, to address those and I will do so in a minute. The noble Baroness, Lady Afshar, made an important point about tackling the stigma around mental health which, sadly, still pertains in some communities.

We, too, welcome the Government’s commitment to halving the disability employment gap by 2020. We are grateful to the Minister for organising a meeting last week, together with his colleague, Justin Tomlinson MP, although the message delivered was that the amendment would be resisted by the Government. I hope there has been a change of heart in the interim. This is notwithstanding the generally encouraging noises and the promise of a White Paper. We know that the disability employment gap has stayed stubbornly persistent—the noble Lord, Lord Low, referred to it as intractable—for too long and cross-government effort will be needed to deliver on the commitment.

The reasons why we need regular reporting have also been summarised, too, by Leonard Cheshire in its briefing paper and these include, in particular, the incentive for action in that it will provide a departmental and cross-government focus on the gap. As the Minister himself has frequently opined, it is that which gets measured and reported on which gets government attention. That briefing highlighted the somewhat conflicting messages we have received from the Government. The Employment Minister in another place stated that the Government did not see the need to report on disability employment, as the measure was essential to achieving the wider commitment to full employment. However, the more enlightened Minister for Disabled People did promise that the annual report on progress to full employment would include an update on the Government’s progress towards halving the disability employment gap.

We need some clarification on this, particularly considering the comments made by the noble Lord, Lord Freud, in Committee, to which the noble Baroness, Lady Campbell, referred. The thrust of those comments was that the management information which this amendment seeks has not been built into the current plans and would not represent value for money, given the timeline to just 2020. Do the Government have no ambition after that? It would also disrupt the universal credit timeline, wherever that currently stands. If the Minister rejects the amendment, but promises regular reporting, will he make it clear what that will entail and what the sources of the data will be? The amendment is seeking not just aggregated data reporting but a proper analysis of progress over a range of conditions. If we do not have clarity on this and the noble Baroness, Lady Campbell, is minded to test the opinion of the House, we will support her.

Amendment 42, in the name of the noble Baroness, Lady Howe, seeks, as we have heard, to add people with mental health problems to the list of groups which are exempt from the conditionality element of back-to-work support schemes. We have received a very helpful briefing from Mind which covers this and other issues. It is suggested that conditionality, with its threat of sanctions, has a negative impact on people with mental health problems, that it undermines the relationship between claimant and adviser, removes choice and control, and has no evidence to support it working for people with mental health problems. It seems to us that this is fundamentally about having the right sort of support for people with mental health problems. Mind and others point out that the mainstream back-to-work support is currently often generic, as we have heard today, untailored and does not address the barriers to work which disabled people face. The lack of specialist support is undermining the opportunities for individuals to access work. This is a constant complaint from those who engage with these issues, so perhaps the Minister will tell us how he is to address this in the context of halving the disability employment gap.

Amendment 43, in the name of my noble friend Lord Layard, refers us back to psychological therapies, as we have heard. I am grateful for the interventions of the noble Lord, Lord Lansley, and the noble Baroness, Lady Meacher, so that we can at least debate this a little today. On the matter of drafting, we need to reflect on the reference to “primary medical condition” given that entitlement to the WRAG is determined by a range of descriptors which can be for physical or mental health factors. Drafting aside, my noble friend's objective is to encourage and assist those with a mental health or behavioural disorder to access assessment and, if appropriate, treatment. This is an objective which we wholeheartedly support.

My noble friend Lord Layard has previously made a powerful case in identifying that nearly a million people are on ESA due to depression or anxiety disorders but that only about half are getting treatment. We have heard that improving access to psychological therapies can make a real difference, as the noble Baroness, Lady Meacher, confirmed. The pilots that took place were 10 years ago. My noble friend has previously explained that around half of those treated under the programme last year recovered during treatment. Such results could obviously assist the path for people back to work and we know of the evidence that work—good work—is good for people’s health. His amendment does not mandate anyone for treatment—we have been down that path before—neither is it instructing the NHS to treat in a specific way a group of individuals. But it requires that those with a mental health problem be encouraged and assisted to be referred for assessment and treatment. There is no conditionality attached and no suggestion that such individuals should somehow jump the queue.

If assessment and treatment is key to making individuals well and helping them move closer to the labour market, is that not exactly what the system should be about? This of course begs the question of what the process should be. I hope that the Minister will accept the thrust of this amendment and follow up with my noble friend and others who have been engaged in the past. We used to have mental health champions in Jobcentre Plus; perhaps the Minister could tell us what has happened to this role.

I finish where I started: fundamentally, we are very happy to support Amendment 1, which is very important, and to help the noble Baroness test the opinion of the House if that is her decision.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, Amendment 1 would build on Clause 1, which sets out the Government’s commitment to report to Parliament annually on the progress made towards full employment. Producing an annual report which illustrates progress towards full employment across the UK demonstrates this Government’s clear intention and continuing commitment to building a strong economy, growing business and ensuring labour market opportunities for all.

The purpose of this amendment is to require a further annual report to Parliament on the progress that has been made towards narrowing the disability employment gap. The amendment would also require the report to include how the Government have defined the disability employment gap, how they will assess whether progress has been sufficient and what remedial action will be taken if progress is insufficient. The amendment also requires that the report should include data on progress in increasing the employment rates of specific groups of disabled people, including people with autism, a learning disability, mental health problems and visual impairments.

I hereby formally commit the Government to report on our progress towards halving the disability employment gap in the annual report on full employment—no ifs, no buts. Halving the disability employment gap is a crucial part of achieving our full employment aspirations and a key priority for this Government in its own right. I hope also that, following my meeting with Peers on this very subject last week, they are assured of my commitment and that of my honourable friend, the Minister for Disabled People, who was also at that meeting.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 25th January 2016 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, this is an interesting group of amendments. If I heard correctly from each of the speakers, the thrust of it is that government should be entitled to a whole range of information that will best inform it across the piece as to how to tackle a range of issues. Specifically, the group of amendments seeks to add to the reporting requirements to Parliament: the progress of children at five in areas of cognitive, personal, social, emotional and physical development—likewise for children living in disadvantaged households; the health and well-being of children living in workless and long-term workless households; and maternal nutrition in workless and long-term workless households.

The noble Lord, Lord Ramsbotham, referred to a range of matters. In particular he spoke about the collection of disadvantage that you get: homelessness, mental health, fuel poverty and low income—it is that collection of issues which makes more difficult the life chances of individuals. A number of speakers emphasised the importance of education—the noble Baroness, Lady Manzoor, picked up again the point she made in Committee about key stage 1 for education, and the noble Baroness, Lady Hollins, spoke about the importance of health and well-being boards. I understand that the Office for National Statistics produces data on national well-being and on the well-being of children; I think it reported in 2014 and again just last year. It is interesting that a whole range of data goes into those measures. It is said with regard to children that there are something like seven domains and 30-odd measures of children’s well-being, which is a whole collection of stuff to have to handle and deal with.

At the end of the day, government ought to welcome the information that this collection of amendments seeks to be reported on, which is a range of information across the piece. The key issue that flows from it is what you do with it, or what strategies or interventions will flow from that collection of data which will make a difference to the life chances of young people—which is the thrust of this.

The noble Lord, Lord Ramsbotham, made the point that we do not have a collective figure for the consequences of all the changes in the tax and benefit system in recent times. I know that the IFS did a calculation of what had happened under the coalition Government with regard to tax and benefit changes and concluded that if you look at those changes—the percentage of the income of various groups of people—the lowest two percentiles bore the greatest burden. If you look at it in terms of absolute amounts, the top 10% bore the most, but if you look at it as a percentage of income, the poorest have had the worst outcome from all these changes the Government have introduced—and that is before we get into ones that are reflected in the Bill we have debated to date.

When we talk about health and well-being, we need to be clearer about our distinctions. We have the national statistics data and the background to that, which is a very broad measure. The issue around health and well-being boards’ and local authorities’ responsibility is a slightly different focus, but important nevertheless. So far as we are concerned, we can see the benefits of this range of amendments, which try to encourage the bringing-forward of data to underline just what the consequences of these policies are. I think the noble Earl, Lord Listowel, talked a moment ago about how it is all too easy for us in this Chamber to see this in perhaps rather abstract terms and not the reality. People out there have to face the reality of what these policies mean, and the collection of data of which noble Lords speak will help bring that home to government as well as to campaigners generally, so that those who bear the largest burden feel that that is understood, reflected and challenged—which is our job here.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, these amendments on Clause 4 have been grouped together quite widely. I will start by making a general point about adding to the reporting duties that the Government have already set out. The best way of securing progress by government is to have a focused set of measures. I echo the implication of what the noble Lord, Lord McKenzie, said. The more you have, the more likely you are to have a diluted effort and distraction from the key issues, which in this case the evidence tells us are worklessness and educational attainment. Of course many factors contribute to these headline measures. For example, we know that children’s health is an important factor in their educational attainment. Tackling health at work will help ensure that more adults are able to work. Therefore delivering on worklessness and educational attainment calls for a wide set of actions. However, it is important that we focus government on its core objectives that will tackle the root causes of child poverty.

First, with regard to additional statutory reporting duties, I turn to Amendment 3. With this amendment the noble Lord, Lord Ramsbotham, seeks to introduce an additional reporting duty on the Secretary of State. The report must contain data on maternal nutrition in workless and long-term workless households in England. I have already set out that our evidence review published in 2014 makes it clear that worklessness and educational attainment are the factors that have the biggest impact on child poverty and children’s life chances. We are committed to supporting families at the earliest stage and to helping parents move into work and earn more through universal credit or investment in childcare, the national living wage and increases to the personal allowance in the tax system. This is the best way to secure children’s life chances and ensure that parents are able to care for themselves, too.

I cannot overstate the importance of ensuring that we focus on measures that tackle the root causes of child poverty and not be distracted by others that do not do so. Of course, the issue raised by the noble Lord, Lord Ramsbotham, is important. The Government take action. They provide advice for parents on maternal and infant nutrition via NHS Choices and Start4Life. Government also operates the Healthy Start vouchers scheme, which provides low-income people with vouchers that can be spent on milk, plain fresh and frozen fruit and vegetables, and infant formula. It already publishes the results from the National Diet and Nutrition Survey, which includes results by age and gender. There are a variety of reasons why adults have poor diets, and it is important that we look at the whole picture, which gives us valuable information and helps shape interventions. I therefore cannot support this amendment.

Through Amendment 4, the noble Lord, Lord Ramsbotham, seeks to expand the duty placed on the Secretary of State to include a duty to report on the progress of children and disadvantaged children living in England at age five in their cognitive, personal, social, emotional and physical development. It is vital that all pupils thrive and develop in their early years. Monitoring children’s personal development is already a core function of every education setting. This monitoring then enables teachers to tailor their support based on how each individual is progressing. I assure your Lordships that we do not take this issue lightly. As the Prime Minister said during his speech about children’s life chances—quoted by noble Lords—we want,

“stable families and good parenting, because we know the importance of those early years in setting children up for a good life”.

There are two key issues at the heart of the life chances reforms—action on work and action on education. Lives can be transformed by focusing on these two most significant drivers of poverty. The Bill will start to realise the vision set out by the Prime Minister when he said that,

“we can rescue a generation from poverty and extend life chances right across our country”.

We all know that the end of key stage 4 is a vital juncture in a young person’s education. It represents the culmination of primary and secondary schooling and provides a consistent point at which to measure attainment across all young people. Pupils who fail to achieve at the end of key stage 4 are at high risk of not being in employment, education or training, so the Secretary of State is committed, through the life chances measures in the Bill—

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 25th January 2016 Lords Chamber

[Lord Freud]

Amendment 27 seeks to exempt people in temporary accommodation from the benefit cap. I do not agree that it is appropriate to have a blanket exemption from the cap for people living in temporary accommodation. Rather, the best approach is to provide targeted support early so that people may better address their barriers to work. As I said in Committee, an exemption might, in fact, prolong a stay in temporary accommodation if it is likely that the cap will apply when a household moves to more permanent accommodation. That is an incentive both on the local authority and on the family.

I have already explained how £870 million in discretionary housing payments will be available for those households that need additional support in adjusting to the cap. Provision already exists to support the most vulnerable people who might be affected by the cap. Housing benefit paid to households in specified accommodation is disregarded from the benefit cap, and we included refuges within the definition of “specified accommodation”. While this does not mean that such households are exempt, by not including housing benefit in the calculation we expect that the vast majority of these cases will not be affected in practice by the benefit cap.

From April 2017, the weekly management fee in respect of temporary accommodation, currently £40 in London and £60 elsewhere, will be abolished and replaced with a grant that devolves this funding to local authorities. Unlike the existing management fee, this new grant will not count towards the benefit cap and that will help local authorities tackle homelessness more effectively. I therefore ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

I thank the Minister for his reply. None of it was a surprise, and I will, of course, withdraw the amendment in due course. I would just like to ask the Minister a few questions. He said that if there were a blanket exemption, this would prolong the stay of people in temporary accommodation. What evidence is there for that? Is it not generally the case that temporary accommodation is not of the best quality, and some of it pretty grotty? Why would families not want to move out of temporary accommodation as soon as they could to put down their roots in a more permanent arrangement? In relation to the grant, that seems helpful in principle, but on what basis is that grant going to be made available? Is it going to be ring-fenced for these situations, or just generally devolved to local authorities and caught up in the morass of funding and cuts that they are having to face?

[Lord Freud]

One of the most worrying aspects about temporary accommodation is that many cases have not been temporary. There have been cases where people have been kept in temporary accommodation for months, stretching to years. One of the reasons for that was that the only way it could be extinguished was by going into social housing. People were quite keen on that route through. That was changed in the 2012 Act so that it can be extinguished by going into private housing. Nevertheless, we want to incentivise councils to move people into settled housing as quickly as they can. Indeed, I think that the limit is 13 weeks. There are just too many examples; I do not have the exact number, but there are too many cases where it has gone on too long.

On the fee, funding previously paid to local authorities will become an upfront payment no longer tied to households remaining in temporary accommodation. The fund will be administered by the DCLG and the devolved Administrations. We will be able to give further details of that process in due course. That is all I have at the moment.

[Lord McKenzie of Luton]

I am grateful to the Minister for that. I will read the record, but I am not sure that I would agree with the proposition about local authorities not wanting to move people into more permanent accommodation as quickly as they can, and away from temporary accommodation, which is expensive for them. Having said that, and given the hour, I beg leave to withdraw the amendment.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 21st December 2015 Lords Chamber

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, Amendment 72, tabled by the noble Baroness, Lady Sherlock, and the noble Lord, Lord McKenzie, would retain the benefit cap at its current levels and have those levels apply across Great Britain. We introduced the benefit cap to increase incentives to work, to promote fairness between those in work and those on benefits and to help address the deficit, and it is clear from the evidence that the cap is working. Since it was introduced in 2013, more than 18,000 previously capped households have moved into work.

The evaluation evidence shows that capped households are 41% more likely to go into work than similar uncapped households. This is even more marked in London alone, where households were 70% more likely to go into work than similar uncapped households.

I am heartened to hear from the noble Baroness, Lady Sherlock, that she now supports the existing benefit cap. I happen to remember that that was not necessarily the position on the Opposition Benches in 2012. Indeed, I seem to remember that the counter proposition from them was that we should have a regional cap, so I hope that the Opposition are now delighted that we are beginning to move in the direction suggested. Perhaps in another three years, in 2018, the Opposition—

[Lord McKenzie of Luton (Lab)]

When we debated the regional cap at that time, did the noble Lord support it?

[Lord Freud]

Of course I did not support it; I am on the record as not supporting it. This is not an absolute regional cap—this is a two-tier cap, London and the regions—but, the Opposition may feel that it is better late than never. I look forward, by 2018, in another three years, to the full-hearted support of the Opposition for the current proposals.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I speak to Amendment 86, which is in my name and that of my noble friend Lady Sherlock. I also speak in support of Amendment 73 moved by the noble Lord, Lord Best, and Amendment 90A in the name of the noble Lord, Lord Kerslake. As we have heard, regardless of whether the benefit cap has played a role, local authorities remain legally obliged to rehouse families who are demonstrably homeless through no fault of their own, are vulnerable in some way or are in priority need for rehousing.

Families will be placed in temporary accommodation while a council decides whether it owes them a rehousing duty and then until a settled home can be found. For some families, the wait for rehousing can be considerable. I note that the noble Lord, Lord Best, has a 39-week grace period. I understand that that is likely to be sufficient in the overwhelming majority of cases but not in all cases, particularly in London. While in temporary accommodation, councils charge families rent to cover their own costs and expenses, and this is commonly paid for by housing benefit. In some cases, councils have to top up additional costs out of their own funds or, as we have heard, the limited pot of discretionary housing payments.

Temporary accommodation is generally leased by local authorities from the private sector at a premium, placing a considerable burden on them. Councils are already struggling to secure enough temporary accommodation as a result of the combined effect of limited funding and a shortage of self-contained accommodation. This is already leading to an increase in bed-and-breakfast use or people being rehoused away from their local area. The lower benefit cap will increase demand for homelessness services and exacerbate the pressure on the local authority supply of temporary accommodation. With more homeless families affected by the cap, local authorities are likely to be forced into further subsidising the cost of temporary accommodation. This will be difficult for cash-strapped councils, increasing the incentive to place families in the cheapest areas far away from their support networks.

It will also make it harder to permanently rehouse homeless families, as the benefit cap will make alternative housing options unaffordable. For larger families, even social housing will be subject to the cap. The policy therefore risks the perverse scenario in which families are made homeless because of the benefit cap and trapped in the limbo of temporary accommodation by the benefit cap at the expense of the public purse. The amount that can be reimbursed through the local housing allowance is limited to £500 a week, which means that other costs over and above that amount must be met by local authorities. In some cases, this will come from funding for discretionary housing payments, but often the necessary funds will have to come from elsewhere, given that DHP funds are in such short supply in the context of seemingly insatiable demand.

We know that the Government have declined to collect statistics which might help them measure the extent to which any purported savings from capping household benefits are simply being shifted on to local authorities in the form of additional homelessness costs. Our honourable friend Emily Thornberry MP sent freedom of information requests to every local authority in London over the summer and the findings throw doubt on the idea of the cap as a savings measure.

In the first year following the introduction of the cap, London councils spent a combined total of £19.2 million supporting households which had been hit by it. In the second year, this rose to £23.3 million altogether. Some boroughs spend more than 80% of their total DHP allocations on supporting capped households, and in most boroughs the proportion is increasing each year. To date, local authorities in the capital have spent almost £47 million in DHP funding as a direct result of the benefit cap and it is likely that this is just the tip of the iceberg in terms of the overall costs involved. Reliance on temporary accommodation is a significant driver of these additional costs.

As we have heard, across London more than a quarter of households currently affected by the benefit cap are living in temporary accommodation and in some boroughs it is much higher. In Waltham Forest, apparently a staggering 58% of capped households live in temporary accommodation. This compares with less than 1.5% of the overall population of people claiming housing benefit. The disproportionate presence of families in temporary accommodation among households affected by the cap is a huge issue for local authority spending. It is also a real source of human misery as, increasingly, councils are having to house homeless families in temporary accommodation outside their area, and sometimes many miles away from their support networks and their children’s schools.

Our amendment would exempt newly homeless households from the benefit cap. This would allow councils to continue to procure nearby temporary accommodation and make it easier for them to move households into affordable accommodation. It will also help councils focus their DHPs and their own budgets on homelessness prevention. If the Government are serious about cutting back on public expenditure associated with the benefit system, and in targeting the benefit cap at families in a position to make choices about where they can afford to live, it is hard to see why they should argue against exempting homeless families being housed in temporary accommodation.

[Lord Freud]

My Lords, these amendments seek to exempt people in temporary accommodation from the benefit cap. I cannot agree that it is appropriate to have a blanket exemption from the cap for all those living in temporary accommodation, even if it is time limited in the case of Amendment 73. Rather, I believe that the best approach is to provide support so that people may better address their barriers to work. My challenge to the noble Lord, Lord Best, is: if there were to be a 39-week exemption, how would that not have a perverse incentive on people staying in temporary accommodation longer term if it is likely that the cap will apply to them when they move? That is the reason for our approach.

Discretionary housing payments are available from local authorities for those households who need additional support in adjusting to the cap. We have made £800 million available over the next five years for all the welfare reforms. However, in particular areas, one of which is London, this will be a substantial element. In the Autumn Statement, it was announced that further DHP funding will be made available for the most vulnerable people, including those who may be in supported accommodation. In 2016-17 it will go up from the current level to £150 million, and the allocation of those funds reflects the new measures we are bringing in, as does the timing of their introduction.

We have already made provision to support the most vulnerable people who might be affected by the cap. Housing benefit paid to households in specified accommodation is disregarded from the benefit cap and we have included refuges within the definition of “specified accommodation”. The disregard applies to benefit cap cases under both housing benefit and universal credit. While this does not mean that these households are exempt, by not including housing benefit in the calculation we expect that the vast majority of these vulnerable cases will not be affected by the benefit cap.

Finally, from April 2017 the weekly management fee, currently £40 in London and £60 elsewhere, will be abolished and replaced with a grant that devolves this funding to local authorities. Unlike the existing management fee, the new grant will not count towards the benefit cap and will help local authorities tackle homelessness more effectively. I would therefore ask the noble Lord to withdraw his amendment.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 21st December 2015 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, this amendment requires certain financial and governance arrangements to be put in place in respect of the providers of motor vehicles under Motability arrangements. As we have heard, it is attached to Clause 20, which contains a provision enabling the Secretary of State to recover the costs of administering the scheme under which mobility components of DLA and PIP are made available, on the claimants’ request, to Motability. I understand that the annual charges will be under £1 million per annum and that Motability will absorb this so that it will not be passed on to lessees, but perhaps the Minister will confirm that.

The noble Lord, Lord Kirkwood, and my noble friend Lord Rooker have raised concerns before over the governance issues and in particular the level of remuneration of the chief executive of the operating company. We should acknowledge that Motability has been a major force in helping disabled people to have access to suitable vehicles. Since its creation in 1977, it has supplied more than 3.5 million vehicles and currently has some 637,000 customers—a 1.8% increase on the year.

Noble Lords will be aware—my noble friend spelled this out—that there are basically two separate entities: Motability, which is a registered charity incorporated under royal charter; and Motability Operations Ltd, an entity regulated by the FCA and owned by four major banks. The latter is contracted to carry out the acquisition and leasing operations on behalf of the charity. Each of them publishes extensive annual accounts, the former in accordance with the Charities Act 2011. The latter is financed by a combination of bonds in the capital markets and bank borrowing. Obviously, the main source of income for the scheme comes from individuals who choose to spend either their higher rate mobility component of DLA or the enhanced mobility component rate of PIP.

It will be recalled that the introduction of PIP as a replacement for DLA was discussed extensively during the passage of the Welfare Reform Act 2012, with the prospect of the revised mobility thresholds meaning that some disabled people would drop out of entitlement. Can the Minster please update us on the progress of this, which is due to be completed in 2018? How many DLA recipients have been reassessed and how many have fallen out of eligibility for Motability? One-off transitional support has been introduced for those who would lose the use of their vehicle, and perhaps we can know how many have availed themselves of this. This level of support was said to be subject to review during 2015. Has this happened and what changes are proposed? Was there any consultation with the DWP involved?

It would seem that the operating group is funding the cost of this transitional support via the charity. Does this mean that the costs are ultimately being borne by the vehicle lessees—that is, the very disabled people the scheme was meant to support?

The DWP also provides funding to the charity for the Specialised Vehicles Fund, which enables disabled people to lease a drive-from-wheelchair vehicle. Is it the case that, faced with funding being frozen on an annual basis, Motability has restricted access to the fund and apparently did this without consultation? Can the Minister say whether this restriction was discussed with the department at all and whether it agrees with the approach adopted?

As my noble friend made clear, public funding is involved in these arrangements in various ways: the application of Motability components of DLA and PIP; funding for the Specialised Vehicles Fund; and taxation benefits by way of zero VAT on the lease of vehicles and their sale at the end of the lease period. On this basis, notwithstanding the published report and financial statements, noble Lords are justified in testing matters of value for money, transparency and probity, and we look forward to the Minister’s response.

[Lord Freud]

My Lords, that was a thoroughly enjoyable debate for this time of the evening. The amendment moved by the noble Lord, Lord Kirkwood, is directed at Motability, which provides vehicles at discounted rates to people whose disability or long-term health condition has a significant effect on their mobility. It is run on a day-to-day basis by Motability Operations, a limited company, and is overseen by the Motability charity.

On the specific questions about Clause 20 that were raised by the noble Lord, Lord Kirkwood, I can say that the Government divert benefit payments directly to Motability but the administrative costs of the diversion have been borne by the Government, who do not have the power to recoup them. Clause 20 gives the Secretary of State the power to make regulations to do so. Such a power would currently apply only to Motability but it is drafted broadly to enable the provision to apply to any organisation running a future scheme.

I can confirm to the noble Lord, Lord McKenzie, that the cost is small—less than £1 million, I think—and Motability has confirmed that it will not change its pricing or the level of service it provides. Therefore, it will have no impact on its members.

The noble Lord, Lord Rooker, asked about information on directors’ remuneration and relevant interests. That is available in the annual and interim accounts of Motability Operations, in compliance with international financial reporting standards. These can be found on its website, which is where I found them on the occasion referred to by the noble Lord, Lord Rooker. Indeed, it publishes information on its board meetings in the same place.

The department meets regularly with Motability to discuss the scheme’s performance. I know that this does not overly impress the noble Lord, Lord Rooker, but as a charity, Motability is accountable to the Charity Commission. It is therefore unnecessary to require Motability to submit the annual report that is the formal subject of the amendment, because the information is there.

I will run through some of the rather surprising number of other issues. On overhead costs, Ernst & Young found that Motability was driving down its overhead costs, while satisfaction was rising. On the monopoly question, we have regular meetings and consider the value for money that Motability provides. The banks own Motability shares but they have waived all dividends and received no profit.

--- Later in debate ---

[Lord Freud]

There is a key issue about charities having to attract the best people when they are very substantial operations, which Motability is. I know, because I was involved for a period in a foundation in the charitable area, that to attract the kind of people who are commercially competent puts you into that bracket. I have said enough.

[Lord McKenzie of Luton]

One can understand the argument that the Minister has advanced in respect of the operations entity, but it seems much more difficult to justify the position he has taken in respect of the charity.

--- Later in debate ---

[Lord Freud]

I should have made clear before that that is not departmental money; it is users’ money that we transfer. That is the reason that the salaries are set by Motability and not by government. Government does get itself into quite a lot of problems because there are areas of commercial endeavour where salaries, bluntly, are much higher than the Prime Minister’s salary. There is a different set of rates in the outside world. I know that the noble Lord, Lord Rooker, is not going to let this one go and I will watch him—from a distance—to see how far he gets on this.

Finally, the noble Lord, Lord McKenzie, asked where we are. It is too early to tell the full picture. This started on a control basis only in July 2015, so I do not have a reliable figure for him. I remind noble Lords that customers who return their vehicle in good condition will get the benefit of up to £2,000-worth of support from Motability, which will in practice allow many to continue to be mobile through purchasing a used car.

[Lord McKenzie of Luton]

Would the Minister just mind dealing with two residual points? One is about the transitional protection—how that is funded and whether it is dealt with by the charity from contributions to the operating company or otherwise. The second is that the specialised vehicle fund has been frozen for a couple of years, which has obviously had an impact in terms of the opportunity to take advantage of that in an inflationary situation. Were the Government consulted on the changed criteria that were put in place for that?

[Lord Freud]

I will have to write on that latter point. The funding for the £2,000 comes from Motability itself—the charity—as I understand it, based out of the reserves it has built up. It needs very substantial reserves because the risk in a leasing business is in the residuals, which can be very volatile, even though you are the biggest. You need very substantial reserves, but it took a view that it had some excess which it was prepared to spend in this way. I urge the noble Lord to withdraw his amendment.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 14th December 2015 Lords Chamber

[Lord McKenzie of Luton (Lab)]

My Lords, as your Lordships have heard, we have added out name to Amendment 60 in the name of the noble Baroness, Lady Manzoor, and I cannot think why we did not do likewise for Amendment 62C, which we support and which also has the support of the noble Baroness, Lady Hollins, the noble Lord, Lord Best, and the noble Earl, Lord Listowel.

The proposition to remove access to the housing element of universal credit for 18 to 21 year-olds from April 2017 has been some time in the making. Its progression—or, more likely, regression—can be tracked from a series of references by the Prime Minister at his party conference. Its original focus was to remove housing benefit for people aged 16 to 24, but this has now been narrowed, as we have heard, to 18 to 21 year-olds for universal credit. There are of course already lower levels of housing benefit allowances for single people under 25 and couples under 18, as well as restrictions under the shared accommodation rate. Can the Minister confirm that the Prime Minister’s desire to have an extended denial of housing benefit or universal credit for 16 to 25 year-olds is now off the agenda? The rationale for the policy has a familiar refrain:

“This will ensure young people in the benefits system face the same choices as young people who work and who may not be able to afford to leave home”.

That is a simplistic view of the choices facing many young people and in any event ignores the fact that housing benefit can be claimed by those in work.

This policy is being introduced at the same time as the new youth obligation for 18 to 21 year-olds on universal credit—the so-called boot camp. As the noble Lord, Lord Low, points out, we are promised that there will be exemptions, and the amendment is probing what might be available. The policy starts from April 2017 for 18 to 21 year-olds who are out of work. Can the Minister confirm specifically that there will be protection for vulnerable claimants, as spelt out by the noble Lord, Lord Low, and that they will definitely include those with recent experience of work, young people living in homeless hostels or domestic violence refugees, care leavers, those with dependent children, those receiving ESA, or its equivalent, or income support and those who cannot live at home?

Like the noble Lord, Lord Low, we are grateful for the briefing provided by Crisis and its insights into the consequences of these proposals should they not be ameliorated—in particular, the consequences for those who are homeless or who have experienced or are at risk of homelessness. Its briefing reminds us that if the protections and exemptions are not sufficient, any savings from this measure will be wiped out by costs elsewhere, mostly from increased homelessness.

The policy has generated a range of criticism, as we have heard. The Chartered Institute of Housing says that it could mean young people being less willing to take risks in moving for work because of the removal of a safety net. Centrepoint says that claiming housing benefit is for many a short-term solution to a situation they find themselves in, providing them with a safety net from which they can get their lives back on track. Shelter opposes the measure because it asserts that,

“every young adult deserves somewhere safe and decent to live”—

and who could disagree with that?

House of Commons briefing paper number No. 06473 of 26 August 2015 refers to the Uncertain Futures paper published by YMCA England. This points out that, of the estimated 3.2 million 18 to 21 year-olds, just over 19,000 young people are currently claiming jobseeker’s allowance and housing benefit, and that 71% of the 18 to 21 year olds who access JSA do so for less than six months. It also points out that 7,200 young care leavers between 19 and 21 years-old in England are currently out of work and would potentially be able to claim JSA and housing benefit and that nearly 1,400 18 to 21 year-olds are currently living in YMCA supported accommodation and claim JSA and housing benefit. It points out, on lifestyle choice and the assertion that people just want to live on the dole, that most young people are entitled to £57.90 a week in JSA—frankly, what we would blow on a meal at the weekend.

YMCA England concludes:

“By removing automatic entitlement to Housing Benefit for 18 to 21 year olds the Government could be in danger of inadvertently taking away support from the young people who need it most and in doing so, exposing many more vulnerable young people to the risk of becoming homeless and therefore damaging their prospects of finding work in the future. Action is needed to address youth unemployment, but without protections thousands of vulnerable young people will face uncertain futures, not knowing if they will have anywhere they can call home and leaving them less able to find work”.

[Lord Freud]

My Lords, the Government’s policy proposal is to remove automatic entitlement to the housing cost elements of universal credit for certain young people aged 18 to 21. I confirm to the noble Lord, Lord McKenzie, that that is the Government’s policy. It will apply only to relevant 18 to 21 year-old claimants who make new claims in the areas where UC digital has rolled out. This will ensure young people in the benefits system face the same choices as young people who work and who may not be able to afford to leave the family home.

I start with the amendments tabled by the noble Baroness, Lady Manzoor. It is not fair that taxpayers should have to pay for young people who are not working to be able to live independently when young people in work or education may not be able to afford to do so. Having said that, the Government recognise that vulnerable people need to be protected. Work is currently being undertaken with a wide range of stakeholder groups to understand who these vulnerable young people may be. I can reassure the noble Baroness that the policy will not stop people looking for work in other areas of the country in the same way that young people not reliant on benefits can look for opportunities away from where they live.

We need to complete the consultation work in order to ensure that a robust policy is put in place. I acknowledge the remarks of a wide range of noble Lords, including the noble Lord, Lord Low, the noble Baroness, Lady Hollins, and the noble Lords, Lord Best and Lord McKenzie, but we are doing this work. It is too soon to make decisions on the specific exemptions that will be applied, but we will bring forward detailed proposals once the work is completed—although, to anticipate the question, that will not be in time for Report. Indeed, to jog back to the previous amendment, I do not anticipate that the work on the work allowances that we discussed in UC would be done in time for Report. As I mentioned previously, the change will apply only to new universal credit claims from April 2017.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 9th December 2015 Lords Chamber

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

I can answer that. It is a general way across the world that social scientists compare family to family of different sizes so there are ways of weighting each child or adult in the family.

[Lord McKenzie of Luton (Lab)]

My Lords, this has been a thoughtful and extensive debate. Amendments 24 and 26 in the name of my noble friend Lady Lister and the noble Lord, Lord Kirkwood, would cause data on low-income families where one or both parents are in work—that is, in-work poverty—to be reported.

We support these amendments. We know, as we have heard, that some two-thirds of children living in poverty are in working families and that whatever the climbdown on tax credits, the Government have in-work support in their sights. If we are concerned with measures that look at the current experience of poverty as well as the risk of poverty, there seems no logic in including out-of-work but not in-work poverty, although the policy levers may be different.

Amendment 25 in the names of the noble Baroness, Lady Grey-Thompson, and the noble Earl, Lord Listowel, seeks to retain the current income measures in the Child Poverty Act. We, of course, support that. Our Amendment 46 does the same but retains that Act’s targets as well.

The absence of income measures cannot be justified and runs counter to pretty much all the evidence or views of those engaged with child poverty. The Government’s suggestion that income measures are a symptom of poverty, rather than a cause, is too simplistic. My noble friend Lady Blackstone gave us a great example relating to educational attainment. If people are poor they do not have the same opportunity to have the same equipment at home; they do not necessarily have books at home and they do not necessarily go to school with a meal inside them so that they can be more attentive at school. It is simplistic to say that one is looking at the experience of poverty and that it is not a symptom of poverty.

In its July 2015 response to the Government’s child poverty statement—a number of noble Lords referred to this—the Social Mobility and Child Poverty Commission stated:

“The commission has argued in the past that a more rounded way of measuring poverty—taking … account of causal risk factors—is sensible. The life chances of children, the poorest especially, depend on many things … It is not credible, however, to try to improve the life chances of the poor without acknowledging the most obvious symptom of poverty, lack of money”.

Pretty much every noble Lord who has spoken in this debate, with the possible exception of the noble Baroness, Lady Stroud, agreed with that proposition. She asserts that looking at simplistic measures of income contains a number of flaws, but my noble friend Lady Hollis made clear that the Child Poverty Act 2010 had four measures. You need to look at the circumstances in aggregate, not just at one snapshot in time.

CPAG says:

“We believe that poverty is a condition marked by a lack of adequate resources, some of which may not be financial. Nonetheless, an inadequate income remains the decisive characteristic of poverty and must remain central to any poverty measurement”.

A number of noble Lords referred to the Centre for Analysis of Social Exclusion at the LSE and the work that it did. It looked at the responses to the DWP’s consultation on child poverty measures, which sought to test the level of support for replacing the existing measures with new dimensions, including those provided for in the Bill. As we have heard, the research shows that there is a very high level of support for the existing measures in the current Act. Most wanted no change and those who countenanced additional dimensions saw this as supplementary information, but not as measures of child poverty itself. Most respondents were of the view that lack of material resources— income—was the very core of child poverty. We agree with that. It is suggested that respondents to the consultation saw the proposals to change the measures as bringing to an end the official measurement of child poverty in the UK. How does the Minister respond to that? He will doubtless tell us that the HBAI figures will still be published as now, but we know from our prior deliberations—the noble Baroness, Lady Grey-Thompson, made this point—that what gets reported under Clause 4 will be the focus of the Government’s attention. That is why they are approaching it this way.

[Lord McKenzie of Luton]

I thank my noble friend for that intervention. I doubt there is much that she does not understand or is incapable of understanding, but she asked a highly relevant question. I hope that the Minister will give that assurance.

We have had a number of contributions to this debate. My noble friend Lord Liddle took us back in history but stressed the importance of the work that went into developing these measures in the first instance, enjoining the skills of Tony Atkinson. The right reverend Prelate the Bishop of Durham recognised the value of having worklessness and educational attainment as part of a measure. However, he said that that was not sufficient; there needs to be a focus on income if life chances are to be influenced and addressed.

The noble Earl, Lord Listowel, supported the existing measures in legislation. I think that the Child Poverty Act was the first legislation that the Minister worked on in opposition when he joined this place. At the end of the day, I thought that we had pretty much cross-party agreement, although it is fair to say that the Minister said there were other aspects of poverty which he thought should be reported as well. However, I do not believe that is the same as tearing up the Child Poverty Act, which is what this piece of legislation seeks to do. This is a very important issue because, unless we look at income, we will not address the here and now of poverty. It is all very well looking at some of those factors which have medium and long-term effects on people’s life chances, but we also need to address how people without resources exist today. That is why we need these amendments.

[Lord Freud]

My Lords, if we are taking a trip down memory lane, I remind the noble Lord, Lord McKenzie, that he unceremoniously threw out my amendment to put in four key life chance measures, which I said at the time would better reflect the real drivers of poverty, so clearly the debate has not moved on a lot.

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[Lord McKenzie of Luton]

Does the noble Lord accept that the issues he was talking about were quite properly to be included in the building blocks of the strategy, which the Bill also required? It did not eschew the measures themselves.

[Lord Freud]

I shall address the amendments. I am sure the noble Lord will come back to me on some of these issues as I go through my remarks. Amendment 25, in the names of the noble Earl, Lord Listowel, and the noble Baroness, Lady Grey-Thompson, seeks to expand the report to include data on children living in households with low relative income combined with the other three income measures in the current Act, as we have discussed. The reason that we do not want to include those is that they fail to tackle the root causes of child poverty and focus on symptoms, which we want to replace. I will set out my argument in full. The effect of Amendment 46, in the names of the noble Baroness, Lady Sherlock, and the noble Lord, Lord McKenzie, is wider still. It would prevent the repeal of those measures from the Child Poverty Act 2010.

I shall try to explain why we find the four income-related measures unfit for purpose, particularly as regards treating them as targets. The income measures they are based on are a poor test of whether children’s lives are really improving. As my noble friend Lady Stroud pointed out, in the past, they have shown child poverty falling when the economy was in recession. Much more importantly, when you look at them as a driver of decisions by a Government, they are inherently unpredictable and would lead a Government to spend finite resources on action that does not produce the best results for children.

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[Lord McKenzie of Luton]

I agree that we should have this in legislation but can the Minister confirm that his personal commitment will cover the circumstances and the work that needs to be done to identify whether somebody is experiencing material deprivation? That is not just an income issue.

[Lord Freud]

I think the noble Baroness, Lady Lister, will support me here but my memory is that the material deprivation figures are in the HBAI statistics. She nods that that is the case, so I can confirm that.

I shall summarise briefly. I am not in a position to give noble Lords the one word they want, but hope I have indicated that the measures will be available to see what is happening to relative child poverty. I am convinced that it is our new life chances measures—the measures rejected six years ago by the noble Lord, Lord McKenzie, which focus on the key drivers of worklessness and educational attainment—that will make the biggest difference to children, and that these amendments, were they on a statutory basis, would dilute that focus. We want to focus on the measures that make a real difference to children’s lives. I therefore invite the noble Baroness to withdraw her amendment.

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[Lord McKenzie of Luton]

My Lords, I shall be brief because I know that we want to make progress today. I support wholeheartedly my noble friend Lady Lister, with her brilliant exposition as to why we should substitute “life chances” for “social mobility”. I join her in opposing the proposition that Clause 5 stand part of the Bill. We have a very specific amendment in this group, Amendment 41, which is merely to delete the words, “on request”, so that the commission, whatever its final title and remit, can be proactive in offering advice to the Minister. That obviously carries the implication that the commission must be appropriately resourced. Perhaps the Minister will tell us what is intended in this regard. I hesitated to raise that issue, because I feared that the Minister was going to tell me that we put it there when we were in government, but I hope that he will not. Even if we did, it seems to be entirely reasonable that it should now be expunged from the provision.

I also support those who argue that there should be proper strategies, so that you do not just have odd reporting obligations: there must be an intent to come forward with a strategy focused on life chances and on fuel poverty. As the noble Baroness, Lady Grey-Thompson, said, if we do not have a strategy, where is all this reporting going to lead? Given the hour, I think I will leave it there.

[Lord Freud]

I hope that what I have to say on this group of amendments will be a little more pleasing, although I do not think it will please everyone on everything. I will divide my remarks into two areas: the first on strategy and targets, and the second on the commission. It is a wide group of amendments, and that is the way they break down.

Starting with Amendment 33, I think that noble Lords who put that forward would accept that we have dealt with that pretty thoroughly when we considered Amendment 25, so I shall not reiterate all of my arguments on that matter. Noble Lords have heard my concerns about the implications of legal targets when the financial figures are so difficult to forecast.

Amendment 31 sets out exactly what information should be in the Secretary of State’s report. I think that I am going to please the noble Baroness, Lady Lister, when I explain where we are. We will publish a strategy on life chances, so that is the noble Baroness’s strategy. We will then publish an annual statutory report on the new measures: I think that is effectively what the noble Baroness is driving at. The Government have produced major new strategies, and I think that noble Lords all around the Chamber will accept that we have tried to transform all the structures of the benefits system and the support we provide for people in a coherent way.

Welfare Reform and Work Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 7th December 2015 Lords Chamber

[Lord Freud]

There have been studies showing the numbers who are addicted to one or the other. I remember producing some figures on that in the debate on the last Welfare Bill. Clearly, one of the points of developing a life chances strategy is to get a better grip both of those areas and, indeed, the figures on debt. As the noble Baroness hinted, the figures are imperfect, and that is one of the reasons we want to get a better grip on it. When we look at the levels of debt, that will tell us about impacts, and we can start to analyse what those impacts are. That would of course include any government measures and the impacts would be revealed.

[Lord McKenzie of Luton]

I am still a little unclear on one fairly key point. When responding to the consultation on the measurement of poverty, the commission recommended almost a two-pronged approach. One was that there should be a multidimensional focus on the causes of poverty, but a clear focus on recording the experience of poverty and dealing with poverty here and now with an income measure. I understand what the Minister has been saying about focusing on the causes. One can see the longer-term impact of that; but what, precisely, are the Government going to do differently in respect of the here and now of people’s actual experience of poverty—people who simply do not have enough income today, and will not tomorrow or the day after, to get by and play their part in society? That is what I find to be missing, so far at least, from the Minister’s response.

[Lord Freud]

I am not sure that the Government would do much different from what they are doing. They have a safety net and there are various measures to support people. We are building at speed now the universal support system in which we are combining with local authorities to help the most vulnerable, but in a very different way from how people have been helped in the past, which was through crisis loans that they went on and on building in a random way, without anyone looking at the root causes of their problems and trying to help them out of them. This approach accords with that. Clearly, we will be spending our money on the root causes of poverty and on life chances. But there will be income measures published, because we have said that we will go on publishing the HBAI. If people want to see what is happening, that gets a lot of publicity every year. That is the change: the money that we will be spending on life chances. Those are some of the mechanisms by which we will do it. Universal support is one of the key things, but there are a lot of other things. Getting mental health right is something that has evaded Governments for a long time, and we are now spending more money on that than any Government have before.

I urge noble Lords not to press these amendments.

[Lord McKenzie of Luton]

Could we perhaps have one more brief run-through of the issue of income? The Minister says that the Government are not doing anything specific to address income poverty other than the application of their current broad benefit regime, with all the cuts that that is now having to endure. Is that it, in terms of actually tackling current poverty? How does the Minister deal with the point that pretty much every expert out there has concluded—certainly the commission has—that we need to have consistent, robust measures of poverty? What the key driver is, and all the other stuff, is subsidiary to that. There seems to be an overwhelming view coming from the experts on that. Is that not a view that the Government share?

[Lord Freud]

No. Every year I stand here because there is a forecast that says that child poverty is going up, has gone up or will go up, but when we actually see the figures we find that child poverty has actually gone down; the Government have been impressed and shocked by that. When you transform the economy, change the culture so that work is what has been driving things, and move up the employment rates and the earning rates in the way that we have, you find that the behavioural impacts are very different from the static analysis that many of the external experts tell us about.

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[Lord McKenzie of Luton]

I will follow up on the point about local authorities that my noble friend Lady Lister raised. The Minister will be aware that we are in the era of devolution deals, particularly with combined authorities—Manchester was the first, and there are others as well. As part of that process, is the department engaged in inputting into the package with a particular focus on child poverty issues?

[Lord Freud]

As noble Lords will be aware, the Government’s emphasis is to put authority into the hands of local authorities, which is what devolution is about. Therefore they cannot have devolution on the one hand and then send a whole series of specific requirements down on the other.

Universal Credit

Debate between Lord McKenzie of Luton and Lord Freud

Monday 24th November 2014 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government how many households are in receipt of the housing element of Universal Credit.

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

The information requested is not currently available. The department published its strategy for releasing official statistics on universal credit in September 2013; officials are currently quality-assuring data for universal credit. It is not yet possible to give a date for when these statistics will become available.

[Lord McKenzie of Luton (Lab)]

I thank the Minister for his reply as far as it goes, but I am surprised that the department does not have better systems for identifying these statistics. We know that its approach to the introduction of universal credit, which is meant to be a flagship policy, is painstakingly slow. We also know that the Secretary of State has declared that it is unlikely that the target date of 2017 will now be met. The Minister is aware that universal credit can bring great hardship to vulnerable clients, which is why alternative payment arrangements have been put in place. Is the Minister able, at least, to say anything about the extent to which direct payments to landlords now operate in respect of people on the housing element of universal credit, and the extent to which those individuals can be identified early, before they build up debt arrears?

[Lord Freud]

We have put out some statistics on the level of housing arrears, which show that, right at the start, 16% of people were in arrears. That compares with 7% for JSA equivalents. In the second wave of research, that 16% figure had come down to 12%. We have put in a lot of measures to ensure that we get that figure right down and give people the support that they need to manage their finances.

Diffuse Mesothelioma Payment Scheme Regulations 2014

Debate between Lord McKenzie of Luton and Lord Freud

Monday 17th March 2014 Grand Committee

[Lord Freud]

That is a very powerful point from the noble Lord. I have not yet had a chance to talk to my colleagues in the Department of Health but I shall pick up that issue specifically.

On the suggestion as to where to spend the recoveries money, it is the same core point. There is a process for funding research, and it does not work to direct other moneys around in that mechanical way. The money will go into research as the right propositions come up. That is the reason why, fundamentally, we will not be able to provide support for his Private Member’s Bill. It is a difference not in aspiration but in the structures that we can accept. I know that he will be disappointed in that, but he may not be surprised.

The point that the noble Lord raised on the causes of mesothelioma and the last occupation is one that requires reflection, and I shall write to him on that particular set of points. I will also pick up the related point from the noble Lord, Lord Wigley, on the technical issue of the MoD advising tenants. On the noble Lord’s point about widening the coverage of the 2014 Bill, clearly we will continue to operate the 1979 scheme, but I have dealt in enormous detail with why we would not widen this scheme and why we are in no position to make any such commitments now.

[Lord McKenzie of Luton]

I gather that the noble Lord has moved off the research issue, but will he say whether there is any commitment from the insurance industry, the ABI, to continue contributing, as it has in the past?

[Lord Freud]

I have been in discussion with the insurance industry. There is currently no commitment to go ahead with its funding, but I do not think that this is the end of the story. We are still talking about various options.

--- Later in debate ---

[Lord Freud]

My Lords, I am not in a position to bind a future Government over what happens in four years’ time. However, as the noble Lord appreciates, there is now a context for that Government to take a view at the right time on what should happen beyond then. The figure we have at the moment, which is publicly on record, is 3%. In response to the question asked by the noble Lord, Lord McKenzie, that is based on DWP forecasts. Clearly, to that extent, we are committed to a tariff level. If those forecasts are wrong for one reason or another, there could be variation round that 3%. That is the best we can do to set the level today. However, when that process has gone through—we thought the right point for that was after four years because we will have done the smoothing and seen how it actually works and if people change behaviour as a result of the scheme—we will clearly know exactly what is happening. We can then have a much more specific forecast of expectations, once the scheme is in and has been rolling for some time.

[Lord McKenzie of Luton]

Are we to see some regulations come forward round the mechanics of that levy? There is an absence of a reference to that here, but that does not mean that that is the end of it. Something could come forward to explain how it must all work, who will be levied and on what basis.

[Lord Freud]

I am sorry but I am confused: Schedule 4 has the levy rates. That was also a question from the noble Baroness, Lady Sherlock, who said that they were not in there. There will be further regulations to come, and there will be negative regulations adjusting these figures.

[Lord McKenzie of Luton]

Schedule 4 sets down the tariff, which is based on the gross starting point, but presumably there is a separate starting point for the levy on the insurance companies. Is that going to come forth? On the four-year review of the tariff, must we not have regard to the fact that civil compensation claims are likely to rise over a period anyway because of changes in the claims process?

[Lord Freud]

Yes, that is one of the moving features here. We are moving the tariff up. We have committed to moving it up by CPI in this interim period. That is a sensible enough period after which to take a new look at where civil compensation has moved, if indeed it has, and to reset. However, at that stage other factors could also be looked at. Although the noble Lord, Lord Howarth, is enticing me in his skilful way, that is all I can say on the review. I am deeply impressed.

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[Lord Freud]

I think it is because they do not have dependants. However, I will write to justify what that difference is and why we have designed the scheme in that way. Our estimate is that the 80% payment will be within the 3%, but that is clearly based on our figures. As to the final question on the setup and running costs of the scheme, I cannot go into too much detail for reasons of commercial confidentiality. I will write carefully and provide as much information as I safely can.

[Lord McKenzie of Luton]

On one last point, can the Minister say when we are likely to see the levy rate because, presumably, if people are to start to make payments under the scheme, the cash will have to be obtained from the insurers? That will not necessarily be a straightforward process.

[Lord Freud]

It will be within the next Session. In the initial period the DWP will be putting in funding, so we do not have a funding issue because we are the underwriters of the scheme and are managing the smoothing process which, I can assure the noble Lord, is more complicated than it might appear to be from outside.

I am confident that these regulations will underpin a robust and fair scheme which all noble Lords agree has been needed for some time. This Government are committed to improving the situation faced by mesothelioma sufferers, and the establishment of the diffuse mesothelioma payment scheme is a huge achievement. I commend these regulations to the Committee.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 12th March 2014 Lords Chamber

[Lord Freud]

I am always grateful to the noble Baroness when she comes up with solutions for us, and I can see her yearning to be on this side—perhaps not in this particular coalition but in this particular ministry—sorting out these issues. She has gone to the issue of what the best way might be in which to help this group, which, clearly, we will look at precisely when we consider that matter. I shall pass on her thoughts to the consultation in the hope that it will speed it up.

As I say, we will consult on our strategy, and that will cover the two schemes referred to in the amendment of the noble Lord, Lord McKenzie, as well as broader approaches to combating and preventing fuel poverty, which the noble Baroness, Lady Hollis, indicated. On that basis, I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I certainly intend to withdraw the amendment. I am grateful to my noble friend Lady Sherlock for her support and for raising the wider issue of the impact of the new pension arrangements on passporting. I am grateful, too, to the noble Lord, Lord German, for probing the same points in seeking reassurance on the continuation of the cold weather payment scheme and the warm homes discount scheme. I am grateful, as ever, to my noble friend Lady Hollis for providing a solution to the Minister.

I took comfort from what the Minister said, but I would like to read the record on precisely where he has ended up in looking at some sort of definition of low income—whether it is somebody just on the basic single -tier pension—and at a broader review of fuel poverty strategy. I am confident that there will be an opportunity going forward to address and, I hope, influence those issues. Accordingly, I beg leave to withdraw the amendment.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 20th January 2014 Grand Committee

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

My Lords, I think confusion may have arisen between the discussions that the previous Labour Government had on this and the discussions that we had in Committee on the previous Pensions Bill, which introduced NEST, or at least some revisions to it. I shall check the Hansard record but I distinctly remember discussing this point with the noble Lord, Lord McKenzie, and making an astonishingly similar argument about the importance of making sure that NEST got its primary role right before we moved on to other aspects and transfers. I shall look forward to writing him a letter—I hope—pointing him to the exchange that we had three years ago.

[Lord McKenzie of Luton]

I look forward to the letter and its contents in due course. We were relaying the origins of NEST in the first place. These issues—the restrictions—were not intended by the then Government that introduced it to avoid NEST being distracted.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 15th January 2014 Grand Committee

[Lord Freud]

Once these things are put in place with the social care provisions, there may be ways of dealing with that, but it is premature to address it until we have the shape of those social care provisions. As I said, the way to do that is not necessarily through a wholesale change to our AIP strategy.

[Lord McKenzie of Luton]

Does the Minister accept that the easiest way to change it would be simply to amend the disregards for capital in pension credits? It would be easy to do that.

[Lord Freud]

I am grateful for all suggestions. The noble Lord has made the point that I was trying to make: there are probably quite a few ways to skin this particular cat and one would want to look at it in that context. I have confirmed for the noble Baroness that sums of money taken out for essential repairs and so on are disregarded, so there are areas of flexibility as we work through the full implications of this policy.

[Lord McKenzie of Luton]

Is it possible that this cat might be skinned by the time we reach Report?

--- Later in debate ---

[Lord Freud]

My Lords, I will arrange to write to the noble Baroness. I think I can deal with the second point straightaway. We simply do not know whether it is an age or a cohort effect, so I cannot be clearer about that.

[Lord McKenzie of Luton]

Could the Minister put something on the record? I am very concerned about issues around sanctions, particularly for older members of the pensioner cohort. They struggle, some of them, in later life to deal with paperwork. When we discussed sanctions in the Welfare Reform Bill around people with mental health challenges, the department undertook never to sanction someone without a face-to-face interview or at least a letter—whether that has been complied with is another matter. There should be some sort of process so that elderly people who fall foul of the system are protected before sanctions are levied.

[Lord Freud]

The noble Lord makes a very fair point. I know that I smiled about that, but it is a real point about older people handling bills. It is best if I come back to the noble Lord and write specifically on that matter.

I can update the noble Baroness, Lady Sherlock, a little more. We are assuming 1 million extra changes of circumstance. That is what the £17 million comes from, and we are assuming a 10% reduction in savings to account for this on the increase in fraud and error. Those are the figures. I will check that I have not missed any other points. I owe the noble Lord, Lord McKenzie, something on sanctions for sure, and probably one or two other things. On that basis, I hope that the Committee will agree that the clause stand part of the Bill.

--- Later in debate ---

[Lord Freud]

The noble Baroness is now going back to the conditionality debate, but I am now going on to the actual level of payments, which is a somewhat different point. I understand that there is a concern that there could still be a potential impact on a small subset of those universal credit claimants who also receive widowed parent’s allowance. This is the point about them being worse off by £7.56 a week. This is not an unintended consequence, because we have been clear about treatment of unearned income and that widowed parent’s allowance would be deducted pound for pound in assessing universal credit. As noble Lords know, universal credit is a fundamental reform of the current benefits system and leads clearly to both increases and reductions in the level of entitlements. However, no one already on benefit whose circumstances remain the same will lose out in cash terms as a direct result of the move because of the transitional protection.

The point is that widowed parent’s allowance is a taxable benefit. Working claimants might not only have their allowance deducted from the universal credit entitlement, but also pay tax on it through the tax code in their earnings. The reduction in net earnings as a result of the additional tax will be only partly offset by an increase in universal credit because of the 65% taper. Noble Lords will appreciate that there are good reasons why universal credit works on the basis of net earnings and tapered withdrawal, because that is the mechanism that is designed to incentivise work. Nevertheless, I will look carefully at the points that have been made on this issue in this debate and by stakeholders. I need to emphasise, however, that it would be a disproportionate and expensive response to move to a full disregard for all claimants of either of these two awards.

I now move on to the question of allowing bereavement support payment for unmarried couples and the request for a review within six months following Royal Assent. Our law and tax systems recognise inheritance rights and needs of bereaved people only if they have a recognised marriage or civil partnership. This stems from the founding principle of the national insurance system, which is that all rights to benefits derived from another person’s contributions are based on the concept of legal marriage and civil partnership. Allowing cohabiting couples to have access to bereavement benefits would significantly increase complexity; and proving cohabitation can be incredibly challenging, not to say an intrusion into claimants’ private lives.

On the request for a review, there clearly needs to be a period following introduction of the new payment to allow changes to bed down before we can review its effectiveness and impact on the different groups of claimants. I can assure the noble Lord, Lord Browne, that we have already committed to review the change in our impact assessment at a point when sufficient evidence is available to assess all aspects of the policy.

I want to pick up another point made by the noble Lord on the take-up of bereavement benefits. The take-up is high at around 90%, which has been helped by the rollout of the Tell Us Once information service. The majority may not qualify for the full amount due to the complex contribution conditions. Indeed, this is why we have simplified them into a position where someone is entitled to the new payment on the basis of payments of 25 times the lower earnings limit in any one tax year. I believe that the bereavement support payment will be simpler and fairer than the current system, providing support when and where it is needed most by supporting people to regain control of their lives as soon as they can. These amendments would be a backward step resulting in more complexity in a system that would provide less help to those who need it when they need it.

[Lord McKenzie of Luton]

Will the noble Lord perhaps deal more fully with the point raised by my noble friend Lord Browne about contributions and be a bit more specific about why Class 3 contributions are no longer a route to qualification?

[Lord Freud]

We think that it is essential to retain the contributory principle, and it is reasonable for people to have made those contributions for at least six months in order to qualify. However, the noble Lord and the noble Lord, Lord Browne, will appreciate that this is a radical simplification of the contribution conditions.

[Lord McKenzie of Luton]

We have been considering this for a long time and I do not want to prolong the debate, but that really will not do. All that has been done is that one route has been chopped off for people who satisfy the contribution conditions. Class 3 contributions are payments. We are not talking about credits into the system here, this is a payment. Presumably the noble Lord will argue that one should reduce the Class 3 rate on the basis that someone will get less for it.

[Lord Freud]

The point is that, depending on if it is a late payment, it would be possible to make a very small contribution and get a large payment of £9,800 back. I am happy to write to the noble Lord with a full justification of that decision.

Housing: Underoccupancy Charge

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 14th January 2014 Lords Chamber

[Lord McKenzie of Luton]

Lord McKenzie of Luton to ask Her Majesty’s Government, in the light of reports of anomalies in the operation of the underoccupancy charge, whether they have any plans to amend housing benefit regulations.

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

The housing benefit regulations will be amended in March 2014 to ensure that all working-age social sector tenants who underoccupy their homes are subject to a reduction in their eligible rent, regardless of the length of their tenancy, unless they fall within one of the limited exceptions. The exceptions include certain excluded tenancies, shared ownership tenancies, mooring charges for houseboats, rent for caravan sites, temporary accommodation and supported exempt accommodation.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for that reply, but is not what has happened just another example of the incompetence that surrounds the Government’s welfare reforms, and their careless approach to people’s lives in introducing it? The upshot is that there are thousands of people who are being hit illegally with housing benefit reductions, and thousands of people who are unnecessarily caused undue stress because of the effect of this tax. I would like to ask the Minister how the Government are going to rectify matters for individuals who are denied their full benefit entitlement to date, whose rent arrears may have affected their credit rating, who have moved house in response to the tax and given up their security of tenure, or who have fallen into the clutches of private sector landlords who are now intent on evicting tenants claiming housing benefit? Is not this mess a further reason to scrap this wretched tax?

[Lord Freud]

My Lords, I can tell the noble Lord that the numbers involved in this anomaly are small and the amounts are modest. We have put guidance out to local authorities and we intend to regularise the matter through regulations in March.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 13th January 2014 Grand Committee

[Lord Freud]

My Lords, I should start by quickly apologising to the noble Lord, Lord Browne, on my belt-and-braces comments. I should have directed my admiration towards the noble Lord, Lord McKenzie, as regards the deputy Government Actuary. I need to address to the noble Lord the point on recovery, which is a straightforward matter, to the extent that if someone changes their mind we will undo both sides of the payment and consider only any actual additional payment made to balance up.

[Lord McKenzie of Luton]

Perhaps we can clarify the point to get rid of it. In that case, does the reference to benefits paid basically include the additional pension that has been earned from the payment?

[Lord Freud]

Yes. To the extent that if someone changes their mind about wanting to buy class 3A contributions and recoups that fund, we will recoup the early payments made on that benefit in order to balance both sides of the position.

We hope to have the pricing details bottomed out by Budget time, although I cannot give any range at this point.

As regards the query on numbers from the noble Lord, Lord Browne, of the 7 million pensioners we assess as potentially being able to afford it, we estimate that around 30% will have savings of between £1,500 and £10,000, 20% will have between £10,000 and £20,000, and 50% will have more than the £20,000 limit. So if we assume that pensioners would not want to spend more than, say, 25% of their capital on this, we might expect the average amount bought to be £5 a week. However, those are, again, premature estimates, and it is not worth spending too much time on that because there will be more information later.

I also take on board the points made by noble Lords about the importance of communicating the new scheme effectively and giving people the right information at the right time. We will take great care in going through the detail of implementation and delivery arrangements to put the customer first and will work with key stakeholders to ensure that this happens.

As I said in my opening remarks on pricing and revenue raising, we need to bring regulations back to the House, and at that time we will have the details required for a fully informed debate. We will introduce those regulations as soon as possible. I hope that I have been able to assure noble Lords that the new voluntary national insurance class 3A policy is well intended, designed to give some people who may have lost out on the opportunity to build additional pension the chance to do so.

[Lord McKenzie of Luton]

Will the Minister clarify a couple of points? Is it the case that someone can avail themselves of these provisions if they are currently contracted out and that there is no prohibition on that?

[Lord Freud]

I can confirm that they can do so.

[Lord McKenzie of Luton]

Whatever the level of their current S2P arrangements—they might have paid in significantly or they may have nothing at all—can they still avail themselves on the same basis as everyone else?

[Lord Freud]

Yes, I can confirm that, too.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 8th January 2014 Grand Committee

[Lord McKenzie of Luton (Lab)]

Before the Minister sits down, I hope that he will help me. I think that he made reference to the proposals being cost neutral and that his previous formulation went something along the lines that the new arrangements would not be more costly than the current ones. Should we be worried about this nuance?

[Lord Freud]

My Lords, it was not my intention that the noble Lord should be worried about it. I ask the noble Baroness to withdraw her amendment.

--- Later in debate ---

[Lord Freud]

I do not have the crossover point figure. I could look into that. Clearly, it would be different depending on the system. I can offer to discuss this with some graphics, which I suspect are essential, in a briefing session before Report.

[Lord McKenzie of Luton]

Will the Minister help me on another point about simplicity? We will come on to discuss 3A voluntary contributions in a moment. As I understand it, additional pension achieved via that route could be deferred and a lump sum could be taken. Is that right?

[Lord Freud]

Yes. The reason is that that is the equivalent of the private pension provision, which is a purchase. We are drawing a distinction here between public provision and private provision. With the pulling into a single tier, that is where the line is drawn between the two. As private pensions offer lump sums, that is where we would expect people to be taking them.

--- Later in debate ---

[Lord Freud]

Clearly, it is because we are expecting that broadly the same numbers of people will be getting cold weather payments. Because of the complexity around this, as I was trying to indicate, we have put no assumption of savings into these figures.

[Lord McKenzie of Luton]

I accept that the Government have not put in any assumptions of savings but if, in fact, there are going to be 540,000 fewer individuals on savings credit and presumably at least some of those would have been able to access cold weather payments under current arrangements—quite apart from couples; I am not talking here about mixed-age couples—there must be savings. There must be circumstances where cold weather payments are not going to be due to somebody in the future who would have got them under the current arrangements. We are just trying to understand the numbers and the savings.

[Lord Freud]

We estimate that only 80,000 who would otherwise have been claiming pension credit in 2020 will be taken out of the scope of cold weather payments. Cold weather payments will clearly continue to be linked to savings credit, but it is difficult to say whether the 100,000 who may lose savings credit would get cold weather payments for other reasons. It depends on where they are living and what is triggered. That is the reason that we have not made any assumptions. On the basis of these observations and, in particular, the reassurance in respect of support with housing costs, I ask the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I am going to withdraw the amendment—we are in the Moses Room—but I am bound to say that I think that the noble Lord would himself recognise that that answer in no significant way addressed the issues we were trying to explore. I will just restate them, and maybe we could have follow-up correspondence. Maybe we should have one of our sessions around this; it is important that we get to the bottom of it. We are seeking to understand how many individuals who would get the savings credit under current arrangements will not do so under the new arrangements in the future, whether they are individuals or couples; I am not dealing here with mixed-age couples. What is the average loss of income because of the denial of savings credit? What is the benefit to government of having restricted passporting of these individuals to a range of benefits, except that some of them may have other routes to those benefits? Of course, the cold weather payments depend on where they live; I am not asking the noble Lord to assume that they go and live in the Antarctic, Scotland or somewhere cold. Sorry, Des; I am in hot—no, cold—water.

The Minister will see the point that I am probing here. There must be savings to government from these changes and we are just trying to understand the measure of them. I take it from the Minister’s reply that there is absolutely no intent to bring forward any special arrangements to reinstate this sort of entitlement for people who will fall out of it because the savings credit is no longer applicable or because they are just at the threshold of being out of the guarantee credit. That is where S2P is going to be pitched, on the basis of all the information that we have. I am not sure that we can make much further progress on this issue this afternoon, unless the Minister is going to—

[Lord Freud]

I think the noble Lord made a valuable suggestion. This is one of the issues we can look at in a pre-Report session, at which we can go through some of the figures and tables. I am happy to commit to arranging that.

[Lord McKenzie of Luton]

I am grateful for that. On that basis, I beg leave to withdraw the amendment.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 18th December 2013 Grand Committee

[Lord Freud]

Let me take the two issues there. It is not necessarily the case that the MoD will have records on this, especially of an accompanying partner. That is clearly one of the issues. I think what was envisaged was exactly to look at this kind of thing and other benefits, which is exactly what we are doing. We are, as I say, treating it very seriously, but that is not the same as being able to say that there is a ready solution. We will come back to this issue.

[Lord McKenzie of Luton]

I am not sure whether the Minister confirmed that, whatever happens with the impact of this amendment, there is no suggestion that the existing arrangements both in respect of the crediting and the easement of the first contribution condition are not going to continue post-April 2016.

[Lord Freud]

I am pleased to confirm that the crediting and the easement will continue post-2016.

--- Later in debate ---

[Lord Freud]

My Lords, the amendments relate to the single-tier pension. I have to confirm that the noble Lord, Lord Whitty, is in a better place, but I think we all knew that. I covered quite a lot of this in detail on Monday, so I will keep my comments relatively brief.

The amendments describe a minimum entitlement at a level broadly equivalent to the state pension entitlement that a person with 40 qualifying years could receive under the current scheme through their basic state pension and the additional state pension. For someone on low earnings, that equates to around £180 a week. That is the question that the noble Lord, Lord Browne, was seeking an answer to.

I fully appreciate the sentiment behind wanting to set the rate higher than the illustrative rate of £144, which is from last year's effective equivalent rate. Indeed, under the Bill, future Governments will be free to make above-earnings ad hoc increases in the light of economic conditions at the time, but setting a starting rate that cannot be afforded within the current spending projections would instead force the hand of future Governments, siphoning off greater and greater amounts of GDP into pensions spending. Setting a minimum starting level of £180 a week would add a further £12 billion in real terms to the single-tier costs by 2030—that is a per annum figure. Over the longer term, it would increase annual pension expenditure by another two percentage points of GDP in 2060 and squeeze out other spending pressures from an ageing society.

Sustainability is a core principle of the reforms. Our proposals work within projected expenditure on the current system, and our current modelling, including the illustrative start rate of £144, stays within 1% of current expenditure until the late 2030s.

During Second Reading, much was made of the consensus following the Pensions Commission report, which recommended that the state move away from providing earnings-related pensions. I was pleased to see that the noble Baroness, Lady Donaghy, had moved her scepticism out from 10 years to 30 years in the space of a few weeks, so there is hope that we may move her to the 100-year objective. To this end, under previous reforms, the earnings-relation provided by the additional state pension was effectively being squeezed out of the system, moving over time to a flat-rate state pension but, as many respondents to the Green Paper pointed out, that was not doing enough to support private saving and underpin automatic enrolment.

I have said this before, so I will go on record twice on this. These reforms are not about increasing pensions expenditure. They are not about reducing it. They are about spending the money differently, so that we can move to a flat-rate pension quickly to tackle an urgent problem of undersaving.

To respond to the pointed question of the noble Lord, Lord McKenzie, about why the single tier does not lift many clear of the guarantee credit, that is largely because many people on the guarantee credit have a higher standard minimum guarantee. About 37% are entitled to one or more additional amounts—for instance, for disability—and we do not want to remove those additional amounts.

[Lord McKenzie of Luton]

I understand that point, but what does that do to the argument that this is all about having a very clear platform so that people know that it will pay to save and that they will be above means-tested benefit levels? On the basis of this information and what the Minister just said, 99% of people who will get STP will still be eligible for the guarantee credit. Indeed, annexe C to the impact assessment states that total spending on the guarantee credit and the savings credit will actually go up by the end of the period in the tabulation. That does not make sense to me. I understand that it is the additions that mean that guarantee credit is above the level of STP, but that seems totally to undermine the whole thrust of the rationale of the Bill.

[Lord Freud]

Despite the guarantee credit not changing a lot, there is roughly a halving of the overall reliance on means-tested benefits, so there is a move, but I acknowledge that it is not by any means a complete elimination of the use of means-tested benefits.

--- Later in debate ---

[Lord Freud]

I accept that. This is for low-paid households. That is what universal credit is. There will be some people in higher paid households who will have to take a view on how to make their arrangements through voluntary NICs or whatever. I accept that point.

[Lord McKenzie of Luton]

The Minister proffers universal credit as a solution, but as I understand it, universal credit will generate only a class 3 credit, not a class 1 credit. Therefore, it would help towards pension entitlement but not to contributory JSA or ESA.

[Lord Freud]

The noble Lord is exactly right. It goes to the point of what we are discussing. It would get you the pension entitlement and the bereavement benefit entitlement but not the contributory entitlements. The current arrangements for crediting a person with national insurance contributions are comprehensive. They cover all the main reasons why someone may not be working, or working only a small number of hours, such as ill health and unemployment, or where people are caring for a child aged nought to 12 or for someone with a disability. They also cover those currently entitled to working tax credit, and we have recently introduced credits to protect the contribution record of working-age grandparents looking after their grandchildren.

Those who fall outside the scope of the crediting arrangements and who can afford to do so—higher paid households are clearly in that category—can make payments on a voluntary basis. The current rate of voluntary class 3 national insurance contribution is a very fair price at £13.55 a week, or £705 a year. The person could recoup the cost within four years of receiving basic state pension benefits.

Using this approach to establish whether a person’s combined earnings exceed the lower earnings limit would require the collation of tax and contribution returns for employees with multiple jobs. That clearly would place a burden on business and require HMRC to develop complicated IT which would take time and money and benefit a small number of people. We would also need to consider collecting the employer’s national insurance contributions in proportion to the earnings in each job, which would add considerable administrative complexity.

The question that one needs to consider is whether those who have aggregate earnings above the primary threshold should be credited or should pay a discount rate of national insurance. That is a question I address to the noble Baroness. It could be seen as quite unfair on someone who is earning just over the threshold in one job and has to pay full national insurance, whereas someone else just below might be credited.

--- Later in debate ---

[Lord McKenzie of Luton]

Before I do, will the Minister comment on the issue of universal credit being just a class 3 credit, whereas some of the benefits that will be subsumed into universal credit—ESA, JSA and the working tax credit—are class 1 credits? Is that not a diminution in the crediting opportunity?

[Lord Freud]

They are all class 3 in universal credit.

[Lord Freud]

JSA is, I think, already a class 3, is it not? I have a comprehensive list of national insurance credits. Rather than running through them all, perhaps I should just forward it to the noble Lord and the Committee to make the point.

[Lord McKenzie of Luton]

I am grateful to the Minister. I think that I have the list, which probably came from the same source as his did. I was interested in the rationale for the universal credit just being a class 3 credit, because that is a change for somebody who would previously have been on JSA or ESA in particular. Has any assessment been made of the extent to which people are likely to lose out on their contributory JSA or ESA as a consequence of that?

[Lord Freud]

The principle is not to allow access to contributory benefits through claiming another benefit. That is fairly logical, if you think about it. If you were purely claiming unemployment benefits and you were on them for a year, you would automatically go into contributory unemployment. That is the logic that we are pursuing when we move to class 3 in universal credit.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply and my noble friend Lady Sherlock for her questions. On the latter point, I am not sure that the Minister specifically dealt with whether there would be individual strategies focused on those types of people whom we particularly need to reach, such as carers. On the issue that was just raised about not accessing the benefits through other benefits, the point about contributory ESA and contributory JSA, as I understand it, is that you cannot achieve them only by credits; there has to be a payment arrangement as well to qualify. If the credit is changed, that makes it potentially more difficult than it is at the moment. The Minister mentioned the earnings factor credits but, as I understand it, those disappear because S2P obviously disappears as well in the new regime.

I am comforted by the fact that deficiency notices, perhaps in their new form, are to be reactivated once we get to the stage where the April 2016 data are available, which is helpful. I suppose that, broadly, one accepts that there is going to be a big communications strategy. I see that my noble friend Lady Sherlock is poised to ask a question, so I will give her that opportunity.

[Baroness Sherlock]

Before my noble friend withdraws his amendment, the reason I asked the Minister generally at the beginning about whether all the currently available routes to gaining NI credits would continue on the same terms was precisely to try to draw out the kind of things that my noble friend has been highlighting. If the Minister finds anything else which could possibly fall under that category when he goes back and consults more with his officials, perhaps he might write to us.

[Lord Freud]

My Lords, I will be pleased to do that.

[Lord McKenzie of Luton]

I am grateful to my noble friend and to the Minister. I am happy to read the record on this but, in the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, the engagement of the guaranteed minimum 2.5% uplift in April this year saw the basic state pension reach a higher share of average earnings than at any time since 1992. Next year, in 2014-15, the basic state pension will be more than £8 a week higher than if it had been uprated by earnings alone in this Parliament.

This Government believe that, like the basic state pension, the single-tier pension should be uprated by at least earnings to ensure that it retains its value compared to wages, but there is flexibility in legislation for above-earnings increases. I therefore reassure the noble Lord, Lord McKenzie, that the triple lock could be used for the uprating of the single-tier pension, as it has been in this Parliament for the uprating of the basic state pension.

Clearly, the noble Lord would not—and the noble Baroness, Lady Sherlock, was generous enough not to—expect me to commit future Governments for the next 47 years. Looking back 47 years would take us back to 1966. That was a long time ago. Was it the summer of love? Perhaps that was 1967, but in any case it takes us back a long way. Therefore, I do not think that one could commit any Government to anything, and I am sure that there will be lots of different Governments over the next 47 years. However, when you look at the proportion of GDP taken up on the assumption of a triple lock, it is possible that Governments will want to stick to it. The Office for Budget Responsibility adjusts for the triple lock by applying a 0.3 of a percentage point premium to the annual uprating of the basic state pension over and above the earnings rate.

Clearly, the triple lock has insulated pensioners from periods when the inflation rate has been relatively high, and has been particularly important in the unusually uncertain economic climate that we have seen in recent years. The Government do not want to constrain future Administrations by placing a requirement to uprate by the triple lock in primary legislation. It must be up to future Governments to decide, based on their annual reviews, whether uprating above the minimum of earnings is applied.

In response to the noble Lord’s question, the expenditure figures include the impact of the minimum qualifying period and deferrals, but the chart in chapter 3 of the impact assessment—there is a loser’s chart there —does not. No savings are assumed from passporting.

On the provisional outcomes on the basis of earnings upratings, the White Paper set out the assumption that the triple lock would be extended until 2060, but we have nevertheless demonstrated the impact on earnings upratings on expenditure in our impact assessment. That is in chart B2 in the impact assessment, which shows that the triple lock uprating has a progressively greater impact on expenditure, and therefore pensioners’ incomes, over time.

The annual uprating process for the state pension is transparent, based on a review made by the Secretary of State with reference to the general level of earnings and the overall economic situation. The indices for earnings and prices are published by the Office for National Statistics before the uprating decision is announced and are readily available. As a result, we see no advantage in committing in legislation to providing a relatively straightforward calculation. I therefore ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for that reply. I did not expect him to announce that it was going to be triple lock for the next 47 years; my noble friend Lady Sherlock made our position clear.

There is nothing wrong in looking back 47 years to 1966. England won the World Cup. Harold Wilson was Prime Minister and in his ascendancy. Those were halcyon days and well worth reflecting on.

As I said, the amendment was just a peg to get a debate to highlight that the Treasury is withdrawing quite a lot from the S2P. To an extent, we accept that that is a progressive measure. The Treasury has been chipping away at various bits and I have by no means listed them all. We will probably have another go at listing them in the interim, but in the mean time, I beg leave to withdraw the amendment.

Benefits: Sanctions

Debate between Lord McKenzie of Luton and Lord Freud

Monday 16th December 2013 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government what has been the impact of the application of the new sanctions regime for jobseeker’s allowance and employment and support allowance claimants.

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

The new sanctions regime was introduced in jobseeker’s allowance from 22 October 2012 and in employment and support allowance from 3 December 2012. We have released statistics on the sanctions up to the end of June 2013. They show that there has been little change in the volume of sanctions since the introduction of the new regime. Matthew Oakley is conducting a review of how we operate the sanctions system and will report back in due course.

[Lord McKenzie of Luton (Lab)]

My Lords, I thank the Minister for that reply. It is not a matter of dispute that the social security system should involve rights and responsibilities, but I suggest that the recent, delayed data show a record number of sanctions, and raise the question of whether the sanctions are being fairly applied—particularly the JSA and ESA three-year sanctions. I ask the Minister particularly about the case of Reilly and Wilson v the Secretary of State. He will be aware that the Supreme Court dismissed the Government’s appeal and determined that the Government had a duty of fairness to provide enough information to jobseekers on an individual basis about available back-to-work schemes for them to make informed representations should they so choose. Will the Minister give an assurance that this is now happening, and that it is happening before the DWP seeks to apply the sanctions regime?

[Lord Freud]

My Lords, as part of the Jobseekers (Back to Work Schemes) Act we passed earlier this year, we are having a review, which is being run by Matthew Oakley. He is concentrating on precisely the issues of communication that the noble Lord raised.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 16th December 2013 Grand Committee

[Lord Freud]

The cost of providing it to absolutely everyone in the country would be large and, in capacity terms, would be too great to be able to cover everyone on that basis.

[Lord McKenzie of Luton]

If there were increased demand because of the changes that are taking place in the broader communications strategy, what is the capacity to deliver individualised statements? How many could the department cope with?

[Lord Freud]

One of the issues here is that we will need to talk, or write, to people who cannot get the information in the digital way that we are planning as our primary way of communicating. Clearly we will be in a position to do that but, until we have the service up and running, it is difficult to estimate what the underlying demand might be.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, before I withdraw the amendment, can I check on two points? The Minister said that it would be possible to go to the previous year’s statement on the normal basis by 6 April 2016. Would that statement include any estimate of what life would be like under STP or would it just be on the old basis? I accept entirely the Government’s intent to communicate effectively on this. It would be crazy to develop a policy like this and then let it fall because there had been inadequate communication, so there is not a challenge on the Government’s intent here. However, how will they spot the difference between those who are digitally able and those who are not? How long will it take for them to realise that there is a group of people here or there who have not accessed the system and that they therefore need to do something else?

[Lord Freud]

I shall take the noble Lord’s second question first. We realise that some people today are not necessarily digitally able or on the net, but this is the way of the future and we are looking to increase digital take-up and access and a lot of investment is going into that. It is interesting that the divide currently seems to be at age 45, with people pre-45 tending to be relatively familiar and people post-45 tending to be less so—this tells us something about the nervousness in Lords committees. However, clearly, as the system moves ahead over the decades, more and more people will take digital involvement for granted. For those who cannot today, we will need to supply other means of support and we have said that we will do that.

Statements before April 2016 will contain information to help people understand what the amount stated will mean if they reach state pension age after 2016—in other words, what the foundation amount that they could expect represents.

[Lord McKenzie of Luton]

I am grateful for those further clarifications. I have just one final point—I promise no more. Is there a statutory underpinning for state pension statements? If there is not, should there be one?

[Lord Freud]

I complained about razor blades before. I am pleased to be able to inform the noble Lord that, no, there is not a statutory underpinning. I am not utterly sure as to why there should be one and whether that is a loss to the system.

I should be very interested if the noble Lord can explain why there should be one and to think about that.

[Lord McKenzie of Luton]

Perhaps I could write to the noble Lord. It just seems to me that one would have assumed that the Government were authorising some formal way to produce this information, or have an obligation to. Perhaps that is the difference here: the more we move to a statutory basis, it imposes a stricter obligation on the Government. We might reflect on that, but we have cantered around the issue, so I withdraw the razor blade and beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, I thought that I had just said that we had made that concession a general one in practice.

[Lord McKenzie of Luton]

My Lords, I wonder if I could help my noble friend Lady Hollis here, although on this issue I am not sure why I should, as I was the Minister dealing with this and she was on the Back Benches giving me a hard time. My recollection, although I have not gone back over the detail, is that there was the opportunity to buy back outside of the six years, but you had a limited period in which to do that. I have forgotten what the deadlines were and I do not know whether that time has expired now; maybe it has and we are therefore back to the usual six years, with the extension that the Minister has explained. There were two systems and there was a limited opportunity to go back—for any length of time, as I recall—and you had to go back within a fixed period of time.

[Lord Freud]

Without indulging in too much nostalgia, particularly as I was not present in 2008—or was not present here—that relaxation was because of the change from 39 qualifying years to 30. That was specifically introduced to exclude the cliff edge, and the concession was only for people reaching their state pension age before 2008. As I said, I do not think that we need to get over-nostalgic. As they move through into the new single-tier system, both before and afterwards, people now have a broad ability to purchase extensive voluntary national insurance contributions, and of course we are adding to that capability with the new class 3A voluntary contributions. Therefore, there will now be a substantial opportunity for people to buy state pension.

Universal Credit: National Rollout

Debate between Lord McKenzie of Luton and Lord Freud

Monday 28th October 2013 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government when they will publish an agreed plan for the national rollout of Universal Credit.

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

Our priority is to deliver universal credit safely and securely over a four-year period to 2017. We remain committed to that objective, these timescales and the budget. We have already announced plans to expand universal credit into additional jobcentres from today and to roll out the claimant commitment nationwide by next spring. We have also said that we will provide more details around our implementation plans later in the autumn.

[Lord McKenzie of Luton (Lab)]

I thank the Minister for that Answer. Any confidence that we may have had in the Government’s ability to deliver universal credit was dramatically shaken by the NAO report last month. It concluded that the DWP was not achieving value for money and that there was,

“weak programme management, over-optimistic timescales, and a lack of openness about progress”.

Alarmingly, it stated that the department does not know to what extent its new IT systems will support national rollout. When will those systems be fit for purpose to support national rollout as well as enable detection of fraudulent claims? I also note that the department has written off £34 million-worth of abortive IT expenditure. How much more will be written off as abortive before the Government get their act together?

Mesothelioma Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Monday 22nd July 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we support these amendments, which were spoken to by the Minister some little while ago. We do so in the confidence of having received advice from my noble friend Lord Browne, to whom I pay tribute for his tenacity in pressing certain points, even at Third Reading, and for the food for thought that he has left for colleagues in another place, added to that suggested by my noble friend Lord Howarth and the noble Lord, Lord Alton.

We have heaped praise on the Minister for all his efforts in developing and bringing forward this scheme, and we should do so again this afternoon—in particular, for his determination to have a co-operative approach to a scheme which, sadly, will have to last for many years. This has been reflected in the welcome approach of the Bill team, for which we are very grateful, and indeed in the attitude adopted by all noble Lords who have participated in this debate. I thank my noble friend Lady Sherlock in particular.

Of course, we would have hoped that the scheme would go further, especially in terms of the level of payment. However, we have something solid and substantial to build on in both another place and with a future Government.

I have a final word for all those who have campaigned on behalf of people who are or will be affected by this terrible disease. They, too, can be justifiably proud of what has been achieved so far. It will be their efforts that continue to remind us of what we still have left to do.

[Lord Freud]

My Lords, I shall just tidy up the questions that noble Lords have raised. I turn, first, to the concerns about the scheme rules raised by the noble Lord, Lord Browne, who takes pride of place in terms of specificity. He was looking at the draft rules, and we will update them to reflect the points that he has made. I do not have an answer for him right now concerning the discrepancy between “a relevant” and “the relevant” employer but I will write to him over the summer. If possible, I should like to borrow his expertise in the coming months. We are still seeing the Bill through and I retain overall responsibility for making sure that it gets through in good shape. Perhaps I may borrow the noble Lord to go through some of these points with the Bill team, because he seems to have been most effective and helpful.

My noble friend Lord German raised related points concerning a company which is uninsured at the point of exposure and which later moves on. If the employer still exists, a claim would have to be made against that employer. If the employer no longer exists and no employer liability insurer can be identified, the person could come to the scheme. That is relatively straightforward to address.

I should take up the points raised by the noble Lord, Lord Howarth, who has been utterly assiduous in looking through the Bill, for which I thank him. I will touch on some of the points that he commends to another place. These issues are very specific, so the rate that we can pay is tied very much to the risks that the costs get passed on to British business. The start date is very much tied to the structure of the smoothing that we have, so that would be very difficult to change. We also have a problem with the household member concerned because it is cover not from employer liability but from public liability. We look at the point on annual reporting in the context of how the oversight committee works.

On the point made by the noble Lord, Lord Empey, on research, we are having a meeting later this week on this issue with key players, launched by the British Lung Foundation. My noble friend Lord Howe and I will be there, and it might be a useful place to discuss how we might look at the progress of research. While we did not agree with the amendment of the noble Lord, Lord Alton, we very much agree with the sentiment behind his motivation for raising the issue because something most disturbing was happening with the lack of research. We are looking for the very best way of making sure that we have quality research. I know that my noble friend Lord Howe went through that in great detail and that he has put a lot of energy into ensuring that we transform that situation. With that, I beg to move.

Mesothelioma Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 17th July 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I have addressed it and was simply taking the opportunity to pick up a few points from the Minister’s opening statement, with which I think he was trying to be helpful in setting the scene for this. I was also trying to be helpful by saying what our position is on that. It seems to me that that is my responsibility at this Dispatch Box on behalf of the Opposition. We have tabled an amendment, so we can pick that up in due course. The key thing for us is whether the levy rate will be reduced at the end of that four-year period or whether it can be maintained at its opening level. Obviously that will have beneficial implications for the rate of payments in due course, but perhaps we will come to that on some of our later amendments. However, I support the amendment moved by the Government.

[Lord Freud]

My Lords, perhaps I may quickly touch on some of those issues. The point raised by my noble friend Lord Avebury will be dealt with in the third group of amendments, but, as he shrewdly spotted, the figure of 75% comes out at £75 million of costs.

--- Later in debate ---

[Lord Freud]

Yes, my Lords. That specifically is what the state provision is there for. In particular, the 2008 mesothelioma scheme was set up to make payments to people, such as wives, who worked with asbestos. It is a smaller payment but that is what it was designed to do. I ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

I thank the Minister for his response, and all noble Lords who spoke in favour of Amendments 4 and 8. I also thank my noble friends Lord Howarth and Lord Browne for addressing the issues in Amendments 5 and 6.

To pick up the Minister’s reply, if the response to everything we have discussed tonight is basically that the scheme is locked down and there have been negotiations—this point was made by the noble Lord, Lord Stoneham; as well—we might as well go to the bar because I am not sure that we are going to shift anything tonight. We pay tribute to the Minister—

[Lord Freud]

I must come in on that. The group—huddle?—of noble Lords who have been working on this Bill have made enormous changes to what we are doing. Noble Lords’ concerns have fed straight in and we have made a series of changes. I do not want any Peer to feel that their views and the work they have done has not been taken, absorbed, acted on and gone right to the edge of what is possible. I assure the noble Lord that the bar is not the place for him.

[Lord McKenzie of Luton]

I am grateful to the noble Lord for that explanation although it is a pity about not being allowed to go to the bar. I want to make it clear that we have acknowledged, I hope fulsomely, the work the Minister has done on this. I acknowledge also the acceptance that what we have deliberated on in Committee and in meetings has influenced the Bill but if we are now saying that in a sense we have come to a full stop, I wonder what progress we can make. However, I will carry on with the argument.

As far as the start date is concerned, I simply do not accept the point that the insurers did not know until July 2012 that there was the expectation that a scheme would be set up. From what the Minister has told us, there have been two years of intense negotiations, generally with the ABI, which has had to discuss matters and negotiate with a range of insurers. There was an intense process under way, as we understand it, and therefore it must have been very clear to insurers that something was very likely to come from this and that was going to be the sort of scheme that has now emerged. I do not accept that the first insurers knew about it was the point when we said: “Here is the document. This is what we are going do”.

[Lord Freud]

I just want to clarify the point about the expectations or otherwise of the insurance industry. From our negotiations, which went on for a long time —more than a year; I cannot remember exactly—it would have been anticipating that the specific insurers with historic liability would have been pinned down in a completely different way from this levy. We spent an enormous amount of time working on that. As I have already told the House, my first instinct was to try to get the actual insurers that wrote the liability to find the money out of their balance sheets. I judged that the legal risks to that approach were high—not impossible, but high—and we therefore switched to this other approach. Actually, the expectations that the industry might have had would not have been set anything like as early as noble Lords might think.

[Lord McKenzie of Luton]

Again, I am grateful to the Minister for that explanation, but it seems to me that the expectations were not set only at the point of July 2012. On the cost that the Minister has outlined, I understand that it has reduced from the original figure of £119 million. I do not think that the figures that the Minister has given reflect any additional benefit recovery potential that would come from having two more years in the scheme, or know whether that was fed in to any analysis of how it might impact on the spreading that would arise from that. Maybe we will have to have that discussion on another occasion. I do not think that we are going to see eye to eye on this.

On Amendments 5 and 6, the noble Lord prayed in aid a technical deficiency of the drafting. I have done it myself; I think it was the noble Lord, Lord Deben, who advised generally against that. The thrust of the point made by the noble Lord, Lord Browne, was that, whether it is the employer liability route or the public liability route, you are basically coming back to the same insurers. Obviously, the Minister’s point about there being some hope for the self-employed —being able to argue that in certain circumstances they were de facto employees—is helpful.

We do not accept the proposition that the start date should be the 2012 date. February 2010 is a better date. That was when the expectation was effectively created. In fact, when you look at it, the insurers ended up with a lesser scheme than was proposed in February, so their expectation should have been of a higher obligation arising from that. A broader bureau was consulted on at that time. Having said all that, I wish to test the opinion of the House.

Mesothelioma Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 17th July 2013 Lords Chamber

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

My Lords, I thank the noble Lord and the noble Baroness for their amendments. As I understand it, their purpose is to set out the exact tariff to be used by the scheme and to require that the growth tariff would be uprated annually in line with the consumer prices index. I support the intention of the amendments, although I do not think that they are necessary. I shall explain why.

I put on the record that it is our intention to uprate the scheme payments annually in line with the CPI. If we were to put that in the Bill, we would have no flexibility to uprate by any other amount in future. For instance, we have given an undertaking to review the scheme’s operation and the rates of payment at the end of the smoothing period. Obviously I cannot pre-empt the findings of the future review, but were any review to show that a gap had developed between average civil damages and scheme payments, we would want to address that. If we were required by the Bill to uprate only in line with the CPI, we would be unable to do so.

Regarding the proposed tariff to be included in the Bill, I confirm that we have published an ad hoc analytical publication that sets out the same figures that are included in the table attached to the amendment. These are the figures that we will be using as a baseline when we calculate the percentage level of damages. If we included the table as a schedule, as the amendment proposes, we would need either annual primary legislation or a regulation-making power to make any change to the schedule. As I say, I am happy to go on record to say that the figures contained in the report that we have published will be used when we calculate the amounts that individuals will receive. We will publish in regulations the amounts that people will receive from the scheme.

I hope that I have covered these issues in adequate detail and have put the position on the record without the need for these amendments, which I understand were intended to tease out these issues. I hope that the noble Lord will feel able to withdraw the amendment.

[Lord McKenzie of Luton]

I thank the Minister for his reply. It dealt satisfactorily with the purpose of the amendment, which I beg leave to withdraw.

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[Lord McKenzie of Luton]

My Lords, we have Amendments 25 and 29 in this group and we support Amendments 17 and 30 in the name of my noble friend Lord Howarth, although there is some overlap between the two sets of amendments. I will be brief as I believe we are pushing at an open door from what the Minister told us earlier today. Amendment 25 calls for the establishment of an oversight committee to monitor, review and report to the Secretary of State on the overall arrangements touched on by this legislation. It would undertake this task in relation not only to the scheme and the technical committee but to the tracing office and the electronic information gateway. They fit together, and we know that the insurance industry sees them as an integrated package.

The idea of an oversight committee was originally prompted by concerns over the extent to which the insurance industry may be engaged in all of this, possibly as a scheme administrator—although we welcome the news announced earlier today about the open competition—and certainly on the technical committee, running the tracing office and devising the portal. An oversight committee properly constituted would provide a level of reassurance for those whom the scheme should benefit and would be a counterweight to the level of engagement of a powerful industry with clear financial interests in how it all works, as my noble friend Lord Howarth so powerfully demonstrated. That is why we believe that the oversight committee should include representatives of asbestos victims support groups and the trade unions which have supported them, with an independent chair. Effective oversight would, we suggest, help the hard-pressed DWP resources, and an annual report from the committee could be incorporated with an annual report to Parliament by the Minister.

In Committee and in meetings thereafter, the Minister has expressed support for an oversight committee. We heard it again today and I know that he has considered various options. While disappointed not to see a specific amendment from the Government today, we hope for an assurance that they will introduce an amendment when the Bill passes to the House of Commons. I was not quite sure that it was clear enough in the noble Lord’s opening statement, so I hope he will clarify matters. It would be good if that assurance spelt out at least the bare bones of what is intended.

Amendment 29 is a return to the issue of support for sufferers of other asbestos and long-latency diseases. The payment scheme in this Bill relates to those diagnosed with diffuse mesothelioma. It therefore excludes other asbestos-related diseases such as asbestos-related lung cancer and asbestosis. It also includes other work-related, non-asbestos diseases such as pneumoconiosis. The DWP’s June 2013 analysis quotes the Health and Safety Executive data on industrial diseases, which has an annual estimate of sufferers of asbestos-related diseases of some 3,500—that excludes those suffering from mesothelioma—and of non-asbestos-related industrial diseases of some 4,200. Many of these will face the same problem in identifying a negligent employer or an employer liability insurer. The DWP’s June note acknowledges that many of the diseases covered do not share the same characteristics as mesothelioma, and that their severity and progression may vary, depending on the heaviness of exposure to asbestos.

It also highlights the fact that, for example, only a small proportion of asbestos-related lung cancers are compensated through government schemes, because of the range of different causes of lung cancer that mask an asbestos cause. Notwithstanding this, and perhaps somewhat strangely, in computing the effect of extending the scheme, it has been assumed in the data that the same proportion of those with diffuse mesothelioma who can access the scheme proposed by the Bill will be able to access an extended scheme, that the same level of scheme payment will be received, and that the same amount of benefit will be recovered. These are fairly broad-brush assumptions, to say the least. In resisting this amendment, the Minister will doubtless point to the costs of bringing forward an extension of the scheme. On the basis of their estimates over a 10-year period, they suggest that there will be 5,100 successful applicants for other asbestos-related diseases and 6,100 with non-asbestos work-related diseases. There will be additional levy on insurers of £478 million and £564 million respectively.

At face value, these figures are shocking. It is not so much the amounts as the suggestion that over the 10-year period some 11,200 people will miss out. By how much will depend on benefit recovery arrangements, but they could miss out to the tune of £1 billion. If the concentration were just on the other asbestos-related diseases, not expanding the scheme will deny 5,100 people, who will miss out just because an employer has gone out of business or cannot be located and a relevant insurer cannot be established.

The amendment requires the Secretary of State to bring forward proposals within a year to establish other schemes to cover these other diseases. We have been clear that we do not want the pursuit of broader coverage to hold up the scheme for diffuse mesothelioma, and there is no reason why acceptance of the amendment should cause this to happen. It is accepted that it will be difficult to graft onto the mesothelioma scheme the tariff approach, given the varying degrees of suffering that some of the other diseases entail, and that there may be convoluted issues around causation. Therefore, while continuing to acknowledge the merits of the mesothelioma scheme, we should no longer look aside from those people—many thousands on the Government’s own figures—who face terrible suffering because of the negligence or breach of statutory duty of an employer. This is all the more important where access to the state lump sum and social security support is more difficult, as it is for some.

The Minister has come thus far and we have supported and congratulated him on doing so. Indeed, he has expressed sympathy for a broader scheme. Accepting the thrust of these amendments would add to that journey, which I beg him to undertake. If he cannot, he will of course be aware that the campaigns will go on.

[Lord Freud]

My Lords, it would be most convenient to deal with these amendments in their original order. If I may, I will start with the amendment moved by the noble Lord, Lord Howarth, on the scheme administrator, and then turn to the two amendments tabled by the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, which relate to an oversight committee and future reports on further schemes. I will then turn to the amendment of the noble Lord, Lord Howarth, on annual performance.

Amendment 17 is intended to make certain that the body chosen to administer the scheme is able to operate in a wholly objective and unbiased manner. I know that there has been concern among noble Lords about the insurance industry’s involvement with this scheme, especially its administration. I agree that it is paramount that the administrators of a scheme that is intended to help its applicants must be able to do so in a fair way. I am confident that the necessary safeguards are in place to ensure this without the need for an amendment on the matter.

First, I remind noble Lords of the commercial procurement strategy that I spoke about earlier. The scheme administrator will be chosen through an open procurement competition that will be launched in time to meet our aim of taking the first applications in April 2014 and making payments next July. Members of the insurance industry will be allowed to tender, as will the shadow body created by the ABI. Legal specialists may also tender. The body will be chosen through this exercise according to our commercial criteria, which include being able to administer the scheme as set out by the scheme rules.

Secondly, I refer noble Lords to the scheme rules, which set out clearly every aspect of the scheme administration and specify how the administrator may or may not act. Compliance with the scheme rules will form an integral part of scheme arrangements.

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[Lord McKenzie of Luton]

Before my noble friend withdraws the amendment, perhaps I may clarify one point with the Minister. I was slightly less reassured about the oversight committee than I expected to be, partly because it looks as though it might be a fragmented effort, given the ELTO structure. The noble Lord said that his preference was for a non-legislative solution, and we do not have a problem with that. However, will a conclusion be reached as to whether the non-legislative solution will be found by the time the alternative of a legislative solution passes in the Commons? It would be a pity if we had not concluded on this and decided in due course that we needed a legislative solution and the Bill had completed its passage.

[Lord Freud]

My Lords, my aim is to know where we are with the structure over this Recess. I think that I owe the noble Lord a letter at the end of the Recess setting out where we have got to on that so that he will be able to talk to his colleagues in the other place. If he thinks that a gap is developing, that is a way for me to handle that uncertainty.

--- Later in debate ---

[Lord Freud]

The amendments in this group concern the technical committee that will be established to make decisions regarding disputes about whether an insurer provided employer’s liability insurance to a particular employer at a particular time. The amendments do two things: first, they make clearer the definition of “potential insurance claimant”—in other words, those who could be in dispute with an insurer about cover and whose disputes might come to the technical committee for a decision—and, secondly, they remove the power of the Secretary of State to expand that definition in the future.

Currently, the definition of a potential insurance claimant includes those who allege that an employer is liable for damages and an employer or anyone else who is alleged to be liable for damages. Amendment 26 removes the phrase “or anyone else”. This phrase is not deemed necessary because we are not able to identify any further parties that could come to the committee, other than those already listed.

Amendment 27 removes Clause 15(10), which gives the Secretary of State powers to make regulations to amend the definition of potential insurance claimant. This could include extending the scope of the technical committee to cases concerning other diseases or bodily injury. Amendment 32 makes a consequential amendment to Clause 17 to reflect the fact that, with the removal of Clause 15(10), there will be no regulations under Clause 15.

The Delegated Powers and Regulatory Reform Committee, in its report, recommended the removal of the power to amend the definition of “potential insurance claimant” unless its purposes could be more precisely specified. Having considered the points made by the DPRRC about this power, we are persuaded that these amendments are necessary. Clause 15 as it stands potentially broadens the scope of the Bill in a way that is not consistent with the focused nature of the rest of the Bill. Furthermore, as we are not able to specify the exact circumstances in which the Secretary of State might choose to expand the classes of people about to bring disputes before the technical committee, we agree that such a broad regulation-making power is inappropriate.

I hope that noble Lords can support the wish to make the Bill as robust as possible, and support the removal of unnecessary regulation-making powers. I beg to move.

[Lord McKenzie of Luton]

My Lords, we have no difficulty in accepting these amendments. As far as Amendment 27 is concerned, we are a little unhappy to see this disappear but accept that, without broader schemes evolved and being brought forward, it does not make particular sense.

So far as Amendment 26 is concerned and the deletion of “or anyone else”, can the Minister just remind us who that was intended to cover or who the drafters originally thought ought to be covered?

[Lord Freud]

My Lords, I think that is the most difficult question I have had in the past three years. I simply do not know what was in the draftsman’s mind. I think it was a standard reflex to capture anything that may not have been in the list. When we had the chance to go over it in more detail, we really could not think of anything else so it became redundant. I think that is the explanation and I am deeply impressed by the question.

Food: Food Banks

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 2nd July 2013 Lords Chamber

[Lord Freud]

My Lords, I must emphasise to my noble friend that food banks are absolutely not part of our welfare system, in which we have other means of supporting people. There is local provision, and following the devolution of part of the Social Fund to local authorities, local authorities are now responsible for setting up local welfare provision. To the extent that they are interested in using third-sector groups, including food banks, that is entirely up to them.

[Lord McKenzie of Luton]

My Lords, April this year saw the demise of the discretionary Social Fund and the passing of responsibilities to local authorities. We know that funding for local authorities was not ring-fenced and we learnt last week of a further 10% cut in their budgets. Does the Minister not accept that this, taken together with harsher benefit sanctions regimes and a longer wait for benefits, will mean that the use of food banks will only increase? Despite what he said, is it not a fact that under this Government food banks are looking to be a permanent part of the welfare provision of this country?

Property: Under-occupancy Charge

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 2nd July 2013 Lords Chamber

[Lord Freud]

My Lords, we rely very heavily on discretionary housing payments to ensure that we have a way of dealing with the difficulties and challenges faced by particular groups and families. That is the way we have chosen. Local authorities can look at the particular circumstances and apply those funds as appropriate.

[Lord McKenzie of Luton]

My Lords, the bedroom tax does not take account of the size of a bedroom. Two children under the age of 16 of the same gender are expected to share, whether or not the room is a single, and indeed even if only a single bed will fit in it. Can the Minister tell us what behavioural response is expected from families in those circumstances, other than to buy bunk beds?

[Lord Freud]

My Lords, clearly there has been slight exaggeration about some apartments and homes. Local authorities will look very carefully at particular homes to make sure that they are in the right category, but it is up to a family that is in such circumstances to look for a more appropriate place to switch into. I must make the point that the turnover of people in the private sector is enormous by comparison to the very low turnover in social housing. This is not healthy for anyone, and certainly not for the economy.

Children: Contact with Fathers

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 13th June 2013 Lords Chamber

[Lord Freud]

My Lords, we are clearly talking about fundamental social trends which have been going on for many decades. There are two ways of looking at family breakdown: in some ways it is a liberation, and in some ways it is an unnecessary tragedy when you have children involved. Clearly, we have various prevention measures, a fund to get counselling practitioners trained and support for people so that when they separate, that separation is as amicable as possible.

[Lord McKenzie of Luton]

My Lords, is it not the case that, for many young people with separated parents, overnight stays are made expensive, if not impossible, by the bedroom tax?

[Lord Freud]

We are clearly in a position where we have a huge deficit and we need to find ways of reducing it. One thing about the spare room subsidy is that if we were to make double provision for children—in other words, a room in two different places—that would cost the state another £50 million. There are lots of desirables that we would all like to see, but we have really got to go to the essentials when we are running the kind of deficit that we are.

Homeless People: Night Shelters

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 11th June 2013 Lords Chamber

[Lord Freud]

My Lords, this is a very particular ruling on what is a dwelling for which housing benefit is payable. Clearly, there are other ways to provide support for night shelters where they are not dwellings. As I said, that is in the Supporting People programme and in the homelessness prevention budget, which are the two large budgets. There may be a small number of the 9,000 or so bedroom spaces where one has to look carefully at what is the appropriate funding, but a large amount of effort is going into supporting rough sleepers and to make that provision. If the effect of this is to upgrade the provision of beds for those who are sleeping rough, that might be a rather good outcome.

[Lord McKenzie of Luton]

My Lords, the Minister said that homelessness was a priority for the Government. It is interesting to note that, after years of declining trends, 2010 marked the turning point when all forms of homelessness began to rise. Does the Minister accept that for many, a period of stay in a shelter is the first step to being able to obtain and keep a home? It is an environment where they can begin the transition from a chaotic lifestyle to something more stable. In those circumstances, why does not the Minister take up the suggestions that noble Lords have made to look specifically at statutory guidance or a tweak in the regulations so that the types of provision caught by this ruling are put back in the position where people assumed that they were before the judgment was made?

[Lord Freud]

My Lords, I emphasise that there is absolutely no change here in what is the kind of home for which housing benefit is appropriate. Where that is, in the case of Anglesey, a hall where the showers for those people are half a mile away, it may be that other forms of support, such as the Supporting People programme or homelessness prevention are more appropriate. The No Second Night Out programme, which is now being introduced throughout the country, is beginning to make some impressive moves to make sure that people in the state of rough sleeping are caught early and got back on to the path, as the noble Lord said, out of a chaotic lifestyle into something where they can get themselves organised.

Mesothelioma Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Monday 10th June 2013 Grand Committee

[Lord McKenzie of Luton]

My Lords, Amendment 16 requires an independent review of average civil compensation for mesothelioma cases, an annual reporting to Parliament and a review of the payments made under the scheme. We know very little of how the payment arrangements and levy amounts will work in practice and trust that a draft at least of the regulations for payments under Clause 4 and the levy under Clause 13 will be available in good time before Report. Can the Minister give us an assurance on this? We are grateful for the additional documents covering these matters that were circulated on Thursday, which do provide some additional analysis. It is a pity, frankly, that we did not have sight of them in time for the Committee session last week.

Although the Minister told us that his negotiation had been about the levy rate, it seems, inevitably, that payment amounts will be determined by the tariff. The levy rate will be set at a level that is presumably estimated to be sufficient to meet the projected numbers of those diagnosed and their age profile, together with admin and legal costs. If this is the case, the computation of average civil compensation is fundamental to payment levels and it is important that compilation of the tariff is current, hence the call for an independent, periodic review. The period between reviews might depend on an interim uprating—perhaps based on CPI—and maybe the Minister can tell us what is intended in that respect. Amounts payable under the statutory schemes are in practice uprated on an annual basis. We need to know more about the intent when the levy produces more, or less, than is required to cover scheme payments and administration. When it produces more, has the Minister’s negotiation focused on this being used to enhance the percentage payout—to the extent that it is not already 100%—or on it being carried forward to reduce the levy in subsequent periods? What is the insurance industry’s expectation of the position from the negotiations? Indeed, what is the Treasury’s position?

Clearly, to the extent that it has not already been achieved, we would expect to see any surplus used to enhance payments. If levy shortfalls could be borne, in whole or in part, by those diagnosed with mesothelioma, we will resist this. What consideration has been given to the possible avoidance of the levy by insurers, by bundling products and/or loading premiums on other business lines such as public liability? The additional information provided last week indicates a significant change to the estimated amount of legal fees which the scheme will fund. It reduces from £7,000 to £2,000, a benefit of £5,000 per case for the insurers. What is the reason for that reduction? It is also noted that the percentage of average civil compensation taken is calculated before any benefit recovery, which depresses the net amount received by claimants. Can the Minister let us have a note of the overall savings to government from these proposals—not only the estimated benefit recoveries but from not having to make payments under the 1979 scheme in the first instance?

There is much we need to know about these matters before we sign off the Bill. As well as ensuring proper updating, will the Minister tell us why the proposed percentage of civil compensation amounts payable under the scheme has been reduced from the original impact assessment of, I think, 76% to 70%? Which of the various averages or means from the national institute’s calculations has been used to drive the tariff in the new document, and why? The levy rate for the first four years is calculated in that document at 2.61% at the 70% payout rate. Is this consistent with an overall average of 2.24%, which is in the updated impact assessment? Further, the updated impact assessment puts overall cost as a percentage of GWP at 2.74% for the first four years. The current impact assessment, in a footnote, suggests that this was due to basing the average only on settled and withdrawn cases. Why is this, other than the fact that it is to the advantage of the insurers? Our concern is that even in the past few months the insurance sector has been chipping away at the scheme in order to reduce its obligations. That is why we need to strengthen the primary legislation. I beg to move.

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

My Lords, before I address the noble Lord’s amendment, I shall clarify a couple of points that were raised when we last met on Wednesday, to put noble Lords’ minds at rest and to aid today’s discussions. In the case of people who contracted mesothelioma from exposure to asbestos fibres that were on another person’s clothes, or were brought into the household by other means, the question was raised whether these people, too, were covered by employer’s liability. This is a complicated area and I will do my best to be succinct.

In cases of secondary exposure, the claim will be of negligence against the person who exposed the primary victim. Theoretically, that person could have public liability insurance, employer’s liability insurance, or both, or none. We have contacted the ABI on this matter and I understand that it is not aware of any cases where anyone other than the employee has been compensated under the employer’s liability policy. Therefore, we return to the point that the scheme will raise funds from the employer liability market to cover those who would ordinarily have been covered by those insurers. In this case, it seems that, historically, instances of secondary exposure have not been covered by employer’s liability insurance, so the scheme cannot provide for them.

--- Later in debate ---

[Lord Freud]

In the interests of time, the best thing I can do today is to accept the fantastic offer of future forgiveness for anything I may say, and in return I promise to reflect on the consequences of the change.

Let me move on to all the other points that have been made. I promised to write to the noble Baroness, Lady Golding, about the Prison Service’s work, to the noble Lord, Lord Browne, on Clause 2, and to the noble Lord, Lord McKenzie, on three counts. A letter is now being sent to Peers and a copy has been placed in the Library. Judging from some side conversations that I have overheard, I am sure there will be further discussion on one or two of those matters. Having dealt with those issues, let me turn to the subject under discussion as set out in Amendment 16.

I understand noble Lords’ wish to ensure that if we are to express payment amounts in relation to civil damages, the data we hold on average civil damages in mesothelioma cases should be current. However, I must reject the proposal to require a yearly review on the grounds that it would not be fruitful due to the volume of mesothelioma cases. Reviewing civil cases on a yearly basis would be too frequent to show any trends or changes in the awards. Indeed, the data that we hold on the initial trawl for the period 2007 to 2012 show this. In this case, it takes a bit longer for meaningful trends to appear.

It should also be said that gathering the data is pretty costly, and in the interests of value for money we need to make sure that they are gathered at intervals that allow us to identify change. One year is too short a period for this, so a review of the data every five years is more appropriate. If we were to accept the amendment, costs would be incurred from gathering data on an annual basis, and further costs would be involved through the requirement for these reviews to be carried out by an independent body. As part of the monitoring planned, civil compensation amounts in mesothelioma cases will be reviewed, but there is no need for a separate body or for annual reports. Furthermore, I can give my assurance that this area will not go ignored.

I also offer the reassurance that we shall not just assign a fixed tariff to this and then ignore it. Far from it. Along with the monitoring of data from civil cases that I have just mentioned, I can confirm for the noble Lord, Lord McKenzie, that we intend to uprate the tariff on an annual basis in line with the consumer prices index. The noble Lord went on to put a vast number of specific questions to me, and we shall touch on quite a few of them later. However, perhaps I may pick up the point about legal fees, although we will deal with them in due course. A figure of £7,000 was mentioned, and more recently £2,000 was mentioned. In practice, it will probably come in at something in between, but we will deal with fees in the fullness of time.

A set of questions was based on what will happen if we collect more or less than we expected. The DWP will underwrite any under levy after the first four years through smoothing. Any over levy will be paid to the Consolidated Fund, as required by HMT.

Clearly, we will be setting a figure initially, then reviewing it. That is our best guess of the right kind of figure that we will be using. We moved the 76% figure to 70% on the basis of what the likely amount was that would minimise the risk of those costs being passed to British industry. This became clearer during the process of negotiation. Rather than go into the specifics about the 2.61% being consistent with the 2.24%, I will add that to a letter.

I hope with the commitments that I have made on how we are planning to set this levy, I reassure both the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, on this matter, and I urge them not to press their amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his clarifications on some of our earlier debates. I am sure we will return to each of the substantive issues about who should be entitled under this scheme and, indeed, about the start date. I am grateful for what he has said this afternoon.

Perhaps the purpose of the amendment was not as clear as it might have been and the Government did not anticipate or expect that there would be an annual updating of the civil compensation analysis. That would have to be done periodically, and how often that would be done might be driven in part by what is going to happen on annual uprating. The noble Lord has reassured us that there will be an annual uprating of the starting tariff by CPI. I think that is consistent with the statutory schemes at the moment. I took it that he was also supportive of a periodic updating of the data that underpin the tariff. I think that meets the purposes of the amendment.

I note that any over levy will accrue to the Consolidated Fund and make the Treasury happy, I am sure. The noble Lord said that the move from 76% to 70% was driven by the assessment of whether amounts were going to be passed on to the customers of the employer liability insurance providers. I take it from the impact assessment that it was to do with quite what cases were included in the analysis and those that were not. Perhaps I need to look at the record and go back on that analysis. It seemed that for no justifiable reason there has been a 6% reduction in the support that is going to be available for those availing themselves of this scheme, quite apart from the further loss, because of the change in the support for legal costs. We will come on to these things later this afternoon. Having said that, unless the noble Lord has anything further—

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[Lord Freud]

That is a good point. I should have made it in response. Just to make it absolutely clear, the legal costs, whether they are £7,000 or £2,000, will be on top of the levy that we are talking about.

[Lord McKenzie of Luton]

I am grateful for that, and I understood that position. I guess that the insurer in that respect have to pay £5,000 less per case than they otherwise would have done, so they are in pocket as a result of this change.

[Lord Freud]

There are two points there. We have not determined the £2,000. We are looking at those two figures and have not yet made a decision. There are two bits of clarification there.

[Lord McKenzie of Luton]

I look forward to the final figures when they do come out. Can the Minister assure us that we will get at least a draft of the levy regulations before we get to Report? Without carping too much, if we are going to do that, it would be really helpful to have it at least in time so that we can spend a few hours getting our minds round what it all means.

[Lord Freud]

With the smallest of caveats, I am most hopeful that I will get that information to the noble Lord before Report.

[Lord McKenzie of Luton]

I am most grateful to the Minister, and I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, we have Amendment 42 in this group, about which I can be brief. Before speaking to it, I will say that I support the thrust of the amendments moved by my noble friend Lord Howarth and the questions posed by the noble Lord, Lord German. Specifically, the amendment seeks to ensure that the definition of the costs of the diffuse mesothelioma payment scheme includes legal costs incurred by a person bringing proceedings, including appeal costs, and in particular that it covers the costs of proceedings brought as a consequence of Clause 10. Where Clause 10 proceedings are facilitated, can the Minister confirm that the financial help referred to will cover the legal costs of proceedings, including appeal costs? How is the funding for this to be organised? Presumably it will come from the levy but, like other amounts in respect of legal costs, not in a way that reduces the tariff amount. I will not probe further the issue of the reduction in estimated legal costs as the Minister has enough queries about that already. However, I look forward to the answer.

[Lord Freud]

My Lords, these amendments look to allow for legal fees to be paid by the scheme without limit. Amendment 17, tabled by the noble Lord, Lord Howarth, looks to reimburse in full all legal costs incurred either through applying to the scheme or through bringing proceedings against an employer or insurer. The noble Lord, Lord Howarth, has also tabled Amendment 28 to cover the cost of legal advice obtained in respect of appeals to the First-tier Tribunal. Amendment 42, in the name of the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, also seeks to cover any legal costs, including the cost of appeals.

The introduction of the scheme is aimed at making the receipt of payment as quick and simple as possible. The amount that a successful scheme applicant is paid will include an amount for legal costs. This will be a fixed amount and will be included as part of the scheme payment received by an applicant and specified in the regulations. In the impact assessment, we used the working assumption of roughly £7,000 to go towards legal fees for each successful application. Since then, we have revised the numbers, using the working assumption of £2,000. The final amount will likely fall somewhere between the two. For clarity, the schedule will show the amount of the actual payment and the amount of legal fees, which will be on top of the 70% figure, to be absolutely clear in response to the question from my noble friend Lord German and the noble Lord, Lord Howarth.

I reassure the noble Lord, Lord Howarth, that the MoJ and the DWP are at least on the same planetary system—some of the time, anyway. The specific regulations will be laid after the Bill receives Royal Assent. The MoJ will conduct elaborate, complicated consultation. To update the noble Lord, Lord Howarth, on timing—I hear his strength of feeling on this—the consultation will be launched in July 2013, next month, and will contain specific options. Clearly, it is recognised that this is a complex issue. The consultation period will last 12 weeks as it will go through the summer, and the response will be published in the winter of 2013. Some of the issues around the right kind of fixed costs will be dealt with in that consultation.

The aim of the scheme is to make the receipt of payment as quick and simple as possible. In response to my noble friend Lord German’s question about the level of information that is required, the eligibility criteria are specified in Clauses 2 and 3 of the Bill. The scheme is not a no-fault scheme, so the applicant will be required to establish the eligibility criteria. However, they are in practice much simpler and more straightforward than in a civil claim. Rather than go through all the specifics of that, in the interests of time I would prefer to set it out in writing.

The reasons for wanting to set a fixed amount of legal costs that can be recovered by lawyers are threefold. First, it is important that applicants are not charged unreasonable or disproportionate legal costs by their lawyers, as we have seen happen in other instances. Any legal work would be in respect of an application to a statutory scheme, which is non-contentious and much quicker and simpler than civil litigation. Secondly, we hope that fixed costs will deter scheme applicants being pressured into entering no-win no-fee agreements, potentially reducing the amount of scheme payment paid in respect of their disease. Thirdly, it is important that the scheme is not overburdened with high legal costs, which would raise the levy and jeopardise the scheme in its entirety.

In respect of any legal costs associated with appealing to the First-tier Tribunal, if these were to be paid in every case that could act as incentive for anyone who was unsuccessful in receiving a scheme payment launching an appeal, even if the appeal was without merit. This would significantly increase the amount of money needed to fund legal fees, requiring the levy to be set higher. Any significant increase in costs could prevent the scheme being set up. It could also overburden the tribunals system with unnecessary appeals.

[Lord Freud]

It is important to highlight that higher rights are not required in the First-tier Tribunal or the Upper Tribunal as they are in civil courts. That means that scheme applicants could represent themselves, or that their solicitor could conduct any advocacy on their behalf; they would not need to instruct expensive legal counsel. There will be no legal aid for appeals to the First-tier Tribunal following the review scheme decision unless exceptionally it is necessary to make legal aid available to avoid a breach of an individual’s rights under the ECHR or under European Union law relating to the provision of legal services. This will keep costs to a manageable level.

Picking up on the point about the tribunal system, it is traditionally an inquisitorial rather than adversarial system and is designed to make things easier for those representing themselves. For those who do wish to obtain legal representation, it is hoped that lawyers will charge a fair and proportionate rate. The work will be non-contentious and there will be no defendant as there is in a civil case. The tribunal system is there to assist appellants. There is therefore every incentive for lawyers to carry out work on scheme appeals required efficiently and in a way that keeps costs proportionate.

Picking up the question from the noble Lord, Lord Howarth, on the level of fixed fees, clearly the MoJ consultation will consult on both the principle and the structure of such a regime to support a dedicated pre-action protocol. I hope noble Lords can see the need for pragmatism here—the need to keep costs at a proportionate amount and to protect the money that an applicant receives in respect of the disease from high legal costs, as far as possible. I urge the noble Lords not to press the amendment.

[Lord McKenzie of Luton]

Could the Minister deal with the point about proceedings that could arise under Clause 10? These are proceedings which the scheme administrator may help a person to undertake,

“for example, by conducting proceedings or by giving advice or financial help”.

Presumably the costs of that help would be outside the fixed fee arrangements. Would the levy make some sort of provision for those costs? Otherwise that would come off the tariff announcement.

[Lord Freud]

We will deal with this issue in some detail in debate on a later amendment. In practice, where the scheme decides that it is a sensible thing to do, it will of course by definition take on the costs of pursuing that application.

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[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response and his consideration of this matter. I am not sure that we had formally heard that the rules will go before Parliament by way of regulations. We had anticipated that from our debate last week, but I am grateful for the assurance.

[Lord Freud]

My Lords, I must withdraw that completely. I meant to say that we are considering very deeply the suggestion made by the Committee that the rules will go into regulations.

[Lord McKenzie of Luton]

I am most grateful to the Minister for his further clarification. Of course, this was a probing amendment, and we have common cause in seeking to make sure that vulnerable people are safeguarded in relation to these payments. I thank my noble friend Lord Browne for his support—he made a very telling point about the interpretation of things as they stand—and the noble Lord, Lord Avebury. I am grateful for the fact that the Minister will take this away and give it further thought. I hope he will consider putting a provision into primary legislation that will make clear the intent of this decision-making power and the conditions that could be imposed by the administrator. Even if the rules are to be dealt with by regulations, they are likely to be dealt with by the negative procedure, which is what the Delegated Powers Committee recommended. Obviously, that is a less satisfactory forum in which to address these details. Having said that, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, my noble friend Lord Howarth opened up an important area for consideration, and was strongly supported by my noble friend Lord Browne. I start by asking the Minister about the computation of the benefit recovery amounts in the impact assessment. Does he have an analysis that distinguishes between the recovery of lump sums and the recovery of a benefit, and, if so, what is included in the second list?

In principle, we should seek from the Bill a scheme that will place claimants in the same position as they would have been had they received compensation in the normal manner, notwithstanding the fact, as my noble friend outlined, that it is a payments scheme. This position is fettered in two key respects. First, average compensation in age bands is used as a proxy for actual compensation. We accept this as a practical matter. Secondly, only a percentage—70% is the figure that is currently suggested—of relevant average compensation will be used. We strenuously reject this and will continue to press for 100% payment.

On benefit recovery, we do not challenge the current broad approach in the benefits system, although there is always scope for a review to see how it is working in practice. However, I suggest that any change should not be fundamentally a matter for the Bill. However, neither should we see it as a mechanism to redress any shortfall in the payments scheme. That should be addressed by paying at 100%. To do otherwise would relieve insurers of their obligations and impose a cost on the state. However, it is absolutely right, if our benchmark is normal compensation arrangements, to ensure that a scheme payment should attract no greater benefit recovery than a payment received as compensation. If our benchmark is 100% payment, we would not want to see any compensation recovery that was greater than it would be with a formal compensation scheme.

One key difference is that a scheme payment, absent my noble friend’s amendments, is not allocated over various heads. We received a helpful note on this from the Bill team with some illustrative examples, and were grateful for a further meeting this morning that helped to clarify some issues. As for lump sums recoverable in respect of the 1979 and 2008 Acts, it is understood that there is no difference between the payment scheme and normal compensation, although if paid at less than 100% there might in extremis be a shortfall for a scheme payment. The recovery of other benefits is more convoluted, and a whole range of benefits are potentially recoverable. The rules were helpfully summarised in the briefing note, which says:

“The compensator may reduce the amount of payment he makes to the injured person to take into account … any amounts he is required to pay the SoS. The injured person is never required to repay the SoS recoverable benefits or lump sums. If the compensator cannot reduce the compensation he is still required to repay the SoS”.

Two things are happening here: there is an amount that has to be paid by the compensator to the Secretary of State, and there is a second question about the extent to which any of that can be recovered from claimants. The note continues:

“Compensation can only be reduced to offset amounts to be repaid to the SoS where the compensation and the benefit are both paid to meet the same need”.

So,

“compensation paid for loss of earnings can only be reduced to offset benefits paid for loss of earnings”,

such as IIDB, while,

“compensation paid for cost of care can only be reduced to offset benefits paid for cost of care”.

Further, compensation paid for general damages such as pain and suffering—the thrust of a number of my noble friend’s amendments—cannot,

“be reduced to offset any recoverable benefits”.

On principle, since what is being paid here is not allocable over any of those amounts, it would seem difficult to justify any benefit recovery as a result. I think it was suggested in our meeting this morning that this is a practical matter and that these things are somehow fixed by the insurers in how they allocate payments. I am bound to say that I struggle to see how that might happen.

There is a further issue. Again, I am grateful for a note from the officials on this. I just want to press a point of principle to clarify the situation. If the scheme payment was 100% for pain and suffering, would the compensation recovery work as follows? If the scheme payment was £100,000, the claimant received IIDB of £10,000, and a 2008 scheme payment of £10,000, the benefits of IIDB could not be recovered from payments for pain and suffering but the 2008 scheme lumps could be, so the outcome would be that the claimant received £90,000—that is, the £100,000 scheme payment minus the £10,000 deduction for the lump sum—but the cost to the scheme administrator would be £110,000: the £20,000 to DWP and the £90,000 to the claimant. In those circumstances, the claimant actually meets more than the gross cost of the scheme payment. I do not know the extent to which that is factored into the noble Lord’s calculations. It seems that we need clarity about how this will all work. We would be reluctant to go down the path of tweaking the benefit recovery as a means of letting insurers off the hook. It is their obligation to pay 100% compensation. If we do otherwise, we in effect ask the state to meet that shortfall, when insurers should be doing that.

[Lord Freud]

My Lords, I thank the noble Lord for these amendments. Clearly, the general intention behind them is to place restrictions on the ability of the Secretary of State to recover both social security benefits and existing lump-sum payments made in accordance with the 1979 and 2008 Acts. This would then prevent the scheme administrator from reducing scheme payments to offset the cost of repaying recoverable benefits and lump sums to the Secretary of State. Actually, it may be the case that two of the amendments would restrict the scheme administrator from seeking repayment where sums were paid incorrectly due to error, mistake, misrepresentation or fraud. Clearly, where a scheme payment is falsely claimed it is only right that it should be repaid. Broadly, we think—as the noble Lord pointed out in his cogent remarks—that the amendments are aimed at restricting the recovery of benefits from scheme payments.

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[Lord Freud]

That is clearly the theoretical position. The reality is that, of course, in practical terms, the payments in the scheme we are introducing dwarf any other payments that have already been made and any of the lump-sum and other benefit payments. They absolutely dwarf them, given that typical payments under the 2008 Act run at, I think, approximately £15,000. It would inevitably be worth anyone’s while, in terms of money, to go after a promising claim.

On the trusts mechanism, we are using the existing mechanisms to protect these kinds of payments, or to isolate them and see what they are. As the years stretch out, it would be taking a sledgehammer to crack a nut to change all that legislation. As noble Lords know, I am trying to do my best to keep the benefits system coherent and as simple as possible.

With that, I hope that I have covered most of the ground there—

[Lord McKenzie of Luton]

I think that the Minister is about to wind up his remarks. Can he confirm that if one is dealing with benefits, not lump sums, a scheme payment can only be reduced to offset amounts to be repaid to the Secretary of State where the scheme payment and the benefit are both paid to meet the same need? As the scheme payment is not allocated to meet any particular needs to do with mobility, the cost of care, loss of earnings or pain and suffering, it would seem logically to follow that there can be no withholding from the scheme payment in respect of those benefits. Is that correct? It is a different issue for lump sums.

[Lord Freud]

I shall speak slightly off the cuff. We do not look backwards to those payments anyway, so only the payments in respect of mesothelioma would be offset. Looking ahead, there may be some payments, but they would have to be specifically for mesothelioma. I do not think that I have misrepresented the position, but I will write to get it precisely right for the noble Lord.

[Lord McKenzie of Luton]

I am most grateful.

[Lord Freud]

These amendments do not achieve their aim in many cases, and they could have some deeply unintended consequences. In particular, they would change the way in which the long-established benefit recovery system operates, and I therefore urge the noble Lord to withdraw them.

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[Lord Freud]

I thank the noble Lord and the noble Baroness for their amendments. I assure them that all diligence will be observed during the setting up and monitoring of the administrative body. Irrespective of the background of the scheme administrator, the body will have to administer the scheme in a way that satisfies the requirements of the legislation and apply scheme rules that will ensure that the administrator is sufficiently tied to a set of rules as determined by the Secretary of State and not by the insurance industry. What matters is not whether the body administering the scheme is formally independent of the insurance industry but whether it is controlled by the arrangements put in place by the Secretary of State and whether it is properly monitored. The arrangements will achieve that.

The insurance industry is setting up a company to meet the requirements of the scheme rules. There would be time advantages to using such a body, with it potentially being able to make payments more quickly than if the Government had to establish a body. However, any body with which the Secretary of State makes arrangements will be subject to the standard call-off contract that gives us the power to change a supplier should it fail to operate as required.

I make it clear that we will undertake due diligence in ensuring that whoever ends up delivering the scheme does so in compliance with the rules that we set out. If any body does not meet our requirements, we will not make arrangements with it, and, if it fails to deliver, we will make arrangements with another one. I will respond to Amendment 32 when the noble Lord moves it. It may be relevant, and I will make a further statement at that point.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his response and am grateful to the noble Lord, Lord Wigley, for his support. He said it was important that the administrator was seen as, and respected for, being impartial and particularly important that he had the confidence of beneficiaries. I was less than satisfied with the Minister’s response. He said that it might be quicker to get things under way because the insurance industry was actively engaged in putting together a body now, but that does not cut much ice because it will be April 2014 before any payments are made, which gives ample time to set up all sorts of bodies in the interim.

Also, we still do not have a response as to who the members of the body are likely to be. I do not know whether the Minister can at least share his initial thoughts on that. We accept entirely that, ultimately, it is the Secretary of State who must be satisfied that the scheme is being run properly but that is quite different from having someone with overall responsibility and having confidence in the routine operation of the scheme. As the noble Lord, Lord Wigley, said, both the beneficiaries and the industry itself must have confidence in the way its routine operation is undertaken.

I think that this is outstanding business that may overlap in part with the next amendment but, for the time being, I shall withdraw the amendment after the noble Lord has dealt with the issue of the likely membership of the vehicle, whether it is set up by the insurance companies or someone else.

[Lord Freud]

Perhaps I may deal with it under the next amendment.

[Lord McKenzie of Luton]

That is fine. I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, this amendment calls for the establishment of an oversight committee to monitor, review and report to the Secretary of State on the overall aspects of the scheme and related arrangements. Those arrangements cover not only the scheme, but its administration.

[Lord Freud]

My Lords, in the interests of time, I thought I might pre-empt the noble Lord on this, although I think that he must move the amendment first.

[The Deputy Speaker]

The noble Lord, Lord McKenzie, must beg to move the amendment, and I will then put the question. If that is in order, the noble Lord, Lord Freud, can then speak.

[Lord McKenzie of Luton]

I beg to move.

[Lord Freud]

I apologise to the noble Lord for cutting him off in full flow. I understand that the level of independence of the scheme administrator is of some concern and clearly it is one of the things that have prompted the amendment. I can reassure the noble Lord that whoever the Secretary of State makes arrangements with to administer the scheme will be bound by agreements to comply with the scheme rules and departmental standards of implementation and administration. However, I am attracted to the idea of having some oversight of the scheme set out more formally. We could, for example, put something about reviewing and monitoring the scheme in the scheme rules and set this out in more detail in the arrangements for the scheme administration. I am minded to do more work on this to consider further whether we should bring forward an amendment on oversight of the scheme. I am not able to agree to the amendment today because I need to do the work first, but I would be grateful if I could consult the noble Lord, Lord McKenzie, and get his wisdom on this. I shall then come back to noble Lords at a later stage. On that basis, I urge him to withdraw the amendment.

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[Lord Freud]

To answer in just one minute: I will take the whole package and look at it. That is what I am committing to do.

[Lord McKenzie of Luton]

My Lords, just before I formally withdraw the amendment, I should say that I am grateful to the noble Lord for his offer to take this away and consider it. I am happy to engage with him in doing so, as I am sure are other noble Lords who have spoken in support of this: the noble Lords, Lord Wigley and Lord Avebury, and the right reverend Prelate the Bishop of Ripon and Leeds. To make the point clear: I see this as an oversight not only of the scheme but also the wider components of the ELTO technical committee. We know that the insurance industry sees all these arrangements as an integrated package. It is important that the oversight that we set in train covers all the components. I would certainly be keen to see those people involved in the victim support groups having some role in this, as well as the insurers.

[Lord Freud]

I can assure noble Lords that I will enter negotiations with them without any preconditions. Basically, we will have a look at this issue and then discuss it with noble Lords to determine the best way forward.

[Lord McKenzie of Luton]

I am grateful to the Minister and beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I will speak also to Amendments 34, 35 and 44 in this group. Clause 10 gives the power to the scheme administrator to help a person bring proceedings. However, this is only the case where a payment is first made under the scheme. Under Clause 2(1)(c), eligibility for the scheme depends on a person not bringing or being unable to bring an action against a negligent employer or insurer. Perhaps the Minister would expand on the circumstances envisaged where a payment has been made but proceedings may now be possible. Is it to do with the subsequent discovery of the possibility of proceedings in light of new information? Why is there the requirement that a payment be made before these provisions apply?

On Amendment 35, the Bill suggests an enabling power for the administrator to help a person bring proceedings. Our amendment requires the administrator to give this help, provided they have the agreement of the claimant. In pressing the point, we are mindful of the prospect of the insurance sector itself running the scheme, and thus of potential conflicts of interest. Where proceedings are possible that might garner a higher reward for the claimant, then, unless the claimant stipulates otherwise, that help must be provided. I accept that it may be necessary to stop any spurious or vexatious requirements by claimants, but that could be built into any amendments.

The proceedings in question can be brought against an employer for negligence or breach of statutory duty, or against an insurance company. Amendment 34 includes those against whom proceedings might be taken, such as the Financial Services Compensation Scheme. I am bound to say that this is rather a tentative amendment, but it is understood that the FSCS compensates those covered by insolvent insurers. However, perhaps that is what the Minister has in mind in Clause 10(5).

Amendment 44 in this group addresses a different point. It requires the arrangements for establishing a technical committee to be in accordance with regulations; that is, that the committee should be subject to a parliamentary process. The Delegated Powers and Regulatory Reform Committee has addressed this point, but having seen the Government’s response to it, I am minded not to press the amendment. I beg to move.

[Lord Freud]

I thank the noble Lord and the noble Baroness, Lady Sherlock, for these amendments. Amendments 33 and 35 cover the scheme administrator’s ability to help a person bring relevant proceedings through the courts. The amendments allow the scheme administrator to help a person bring relevant proceedings against particular employers or insurers whether or not a scheme payment has been made. They also provide that the Secretary of State’s scheme rules may include the circumstances where the scheme administrator is required to help a person bring proceedings with that person’s consent.

Where bringing relevant proceedings will benefit both the applicant and the scheme by allowing a scheme payment to be recovered from an award of civil damages, it is right that the scheme should be allowed to help a person bring relevant proceedings. We want to allow flexibility in the scheme so that the scheme administrator can decide, based on an individual’s circumstances, whether it is in the interests both of that person and of the scheme to help that person bring proceedings. We want to avoid inflexibility where a scheme administrator is obliged to help a person bring proceedings with that person’s consent. It is also not appropriate for the scheme administrator to use scheme funds to bring proceedings where the scheme may not benefit from such action.

Amendment 34 allows the scheme administrator to help someone bring a claim against the Financial Services Compensation Scheme where they have already received a scheme payment. The Financial Services Compensation Scheme makes compensation payments when insurers are insolvent. In cases prior to 1972, the Financial Services Compensation Scheme will pay compensation only where both the employer and the employer’s liability insurer are insolvent. Where both an employer and insurer are insolvent, a person may also be eligible for a payment under the Bill. So it is possible for a scheme payment to be made where a person may also be eligible for compensation from the Financial Services Compensation Scheme. If a scheme payment has already been made and it is subsequently established that a Financial Services Compensation Scheme payment can be made, it could be in the interests of the scheme to help a person make an application for an FSCS payment so that the scheme payment can be recovered from the FSCS payment.

This amendment is an interesting proposition. I am minded to do more work on it to consider further whether we should bring an amendment to allow the scheme administrator to help a person make a claim to the Financial Services Compensation Scheme. However, since I have not done the work, I am not able to agree to the amendment today.

Amendment 44 means that regulations will be needed for the Secretary of State’s arrangements with a body to establish a technical committee. The committee will make decisions on questions arising between a potential claimant and an insurer as to whether an employer maintained employer’s liability insurance with that insurer at a particular time. The technical committee is separate from the scheme and will decide an issue prior to any application being made for a scheme payment. The scheme may in fact never be involved with some cases, if insurance cover can be determined by the committee. The committee is therefore still essentially determining a private dispute between two parties, albeit facilitated by legislation, and is not directly making any decision about the allocation of public money to individuals. For that reason, it is appropriate that it will be outside government and that it should be set up under non-statutory arrangements.

We also want the procedure of applying for a technical committee decision to be simple, straightforward and as flexible as the law will allow. We believe that the best way to achieve that is for the Secretary of State to make arrangements with a body that will have the expertise to decide questions on insurance, rather than to enshrine the technical committee’s functions in statute. I therefore urge the noble Lord to withdraw the amendment and to not press the others.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister. As I think I said in moving the amendment, I had already gone cold on Amendment 44. The exchanges with the Delegated Powers Committee have dealt with that. I am grateful to the Minister for taking away the point about the Financial Services Compensation Scheme and I hope that we will see an amendment on Report. On the other amendments, I am not totally convinced that there should be a “may” rather than a requirement but I am not minded to press the matter and beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, our Amendment 46 is in this group. I will say at the start that I thoroughly support the amendments of my noble friend Lord Howarth. I agree with the noble Lord, Lord Alton, that the Minister has almost made a rod for his own back in raising hopes and expectations. Those are challenges that he will have to face, and I am sure he is well up to the task. The noble Lord, Lord James, should not apologise for having brought forward his amendment. He is right to say that what he seeks is not an insurance-based solution, but there are issues around inviting comparisons with the progress that has been made.

As we have discussed, the payments scheme relates to those diagnosed with diffuse mesothelioma. It therefore excludes other asbestos-related diseases such as asbestos-related lung cancer and asbestosis. It also excludes other work-related, non-asbestos diseases such as pneuomoconiosis. The DWP’s June 2013 analysis quotes the HSE data on industrial diseases, which has an annual estimate of sufferers of asbestos-related diseases of some 3,500—that excludes those suffering from mesothelioma—and of non-asbestos-related industrial diseases of some 4,200. Many of these will face the same problem in identifying a negligent employer, or an employer liability insurer. The DWP’s June note acknowledges that many of the diseases covered do not share the same characteristics as mesothelioma, and that their severity and progression may vary, depending on the heaviness of exposure to asbestos.

It also highlights the fact that, for example, only a small proportion of asbestos-related lung cancers are compensated through government schemes, because of the range of different causes of lung cancer that mask an asbestos cause. Notwithstanding this, and perhaps somewhat strangely, in computing the effect of extending the scheme, it has been assumed in the data that the same proportion of those with diffuse mesothelioma who can access the scheme proposed by the Bill will be able to access an extended scheme, that the same level of scheme payment will be received, and that the same amount of benefit will be recovered. Those are fairly broad-brush assumptions, to say the least. In resisting the amendment, the Minister will doubtless point to the costs of bringing forward an extension of the scheme. On the basis of their estimates over a 10-year period, they suggest that there will be 5,100 successful applicants for other asbestos-related diseases, and 6,100 non-asbestos work-related diseases. There will be an additional levy on insurers of £478 million and £564 million respectively.

At face value, the figures are shocking. It is not so much the amounts as the suggestion that over 10 years, some 11,200 people will miss out. By how much will depend on benefit recovery arrangements, but they could miss out to the tune of £1 billion. If the concentration were just on the other asbestos-related diseases, not expanding the scheme will deny 5,100 people, who will miss out just because an employer has gone out of business or cannot be located and a relevant insurer cannot be established.

The amendment requires the Secretary of State to bring forward proposals within a year to establish other schemes to cover these other diseases. On reflection, limiting this to diseases covered by the 1979 Act may not be the most appropriate approach, and we might seek a different definition on Report. We have been clear that we do not want the pursuit of broader coverage to hold up the scheme of diffuse mesothelioma, and there is no reason why acceptance of the amendment, or my noble friend’s variations, should cause this to happen. It is accepted that it will be difficult to graft on to the mesothelioma scheme the tariff approach, given the varying degrees of suffering that some of the other diseases entail, and that there may be convoluted issues around causation. Therefore, while continuing to acknowledge the merits of the mesothelioma scheme, we should no longer look aside from those people—many thousands on the Government’s own figures—who face terrible suffering because of the negligence or breach of statutory duty of an employer. This is all the more important where access to the state lump sum and social security support is more difficult, as it is for some.

The Minister has come thus far and we have supported and congratulated him on doing so. Indeed, he has expressed sympathy for a broader scheme. Accepting the thrust of these amendments would add to that journey, which I beg him to undertake.

[Lord Freud]

My Lords, I thank the noble Lord for these amendments, and clearly I am sympathetic to the desire to provide for as many people as possible. Let me deal with the amendments tabled by the noble Lords, Lord Howarth and Lord McKenzie, and the noble Baroness, Lady Sherlock, in the first instance, and then perhaps I may turn to the amendment tabled by my noble friend Lord James regarding members of the Armed Forces.

I recognise the wish to provide for other groups of people who fall foul of poor record-keeping by the insurance industry and so cannot bring a claim for civil damages. There could be another scheme for these people in the future, but as the noble Lord, Lord McKenzie, has just acknowledged, it cannot and will not be this particular scheme. It is neither possible nor realistic to extend it in this way, and that is the reason I must reject these amendments.

The remit of the Bill is strictly related to mesothelioma. However, like many noble Lords, I hope that the momentum generated by this legislation will not dissipate and that further work will be done in the future. Perhaps I may explain why we cannot be flexible on this. I should start by reminding noble Lords about the distinctive characteristics of mesothelioma. The Bill allows for a relatively straightforward and quick scheme to be established. The key points are mesothelioma’s undeniable link to asbestos exposure and lack of co-causality with other factors such as smoking. The unique elements of diffuse mesothelioma allow us to establish a tariff payment scheme of this nature. A streamlined scheme like this would not work for other long-tail diseases. The law of causation is favourable to mesothelioma victims in the sense that it is an indivisible injury. It does not matter who exposed the victim or how many people exposed him, they will all be jointly and severally liable for the same damage. This allows for simplicity when assessing whether someone is eligible for a payment. Assessing liability for other diseases where the causation rules are not the same would involve a degree of complexity that this scheme has not been designed to allow for.

I join noble Lords in their hope that, in the future, other people will be provided for. Until such time, there remain state payments that sufferers of other long-tail diseases can apply for, such as payments made under the 1979 and 2008 Acts. I hope that I have explained and made it clear why this scheme will succeed only if it deals exclusively with mesothelioma, and I urge the noble Lord to withdraw his amendment.

Let me now turn my attention to the amendment tabled by my noble friend Lord James of Blackheath regarding the creation of a scheme to cover retired or current members of the Armed Forces who were exposed to asbestos and have since developed a related disease. I should clarify that, when I denied the 10 o’clock meeting, one of my representatives sitting behind me today will be at that meeting, and so I will be given good intelligence on what happens.

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[Lord Freud]

The noble Lord has put that on the record. Clearly, there is a difference in the sense that the MoD as a public authority does not use employer liability; it effectively self-insures. The noble Lord is concerned about the terms of when it pays compensation; I know that he is looking to address that issue with the MoD.

I share the concern of noble Lords in the Committee to help to provide for as many people as possible who have a terrible disease through absolutely no fault of their own. However, this scheme is addressed precisely at one part of that. It is not stretchable in that way.

[Lord McKenzie of Luton]

My Lords, I do not think that anybody is suggesting that we should stretch the scheme in the Bill to encompass other arrangements. Certainly, however, Amendment 46 would require a commitment from the Government that they will bring before Parliament within a period of time other arrangements to deal with these other situations. It is accepted that it cannot be readily grafted on to the existing diffuse mesothelioma scheme for the reasons that the Minister has advanced. We are looking for the commitment to saying, “Let us move on and bring forward a scheme or schemes to deal with these other issues”.

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[Lord Freud]

I apologise if I abused the Aunt Sally—if I did so, I did so unintentionally. I want to make absolutely clear that we have had recommendations from the Delegated Powers Committee that we are obviously taking with great seriousness. One of the two big recommendations is resisting widening this Bill in the context of the technical committee. The noble Lord in this amendment goes directly against the thrust of the Delegated Powers Committee, which said we should keep this specific rather than giving wider, extra powers to the Secretary of State. I neglected to put my finger on that point, but it is a substantial one for that amendment.

[Lord McKenzie of Luton]

If my noble friend will allow, is that a fair representation of what the Delegated Powers Committee said? I thought its point was that, in the context of this Bill, the reference to other kinds of disease or bodily injury when it referred specifically to a definition of a potential insurance claimant was too broad and could be made more specific. Indeed, if the noble Lord felt able to adopt one or more of the amendments before him, that would tie nicely in with that. I did not think the committee’s point was that a broader reference was inherently inconsistent with the Bill, simply that the specifics of this clause were not specific enough to identify the other kinds of disease that might be involved. If the problem is not being specific about the other types of disease that ought to be covered by the scheme, that could be rectified quite readily by drafting. Would the Minister be more comfortable with that?

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[Lord McKenzie of Luton]

My Lords, I wish to be brief and I am slightly hesitant about whether I should move the amendment. It was pressed on us by ACOR. It concerns the definition of dependants, and the suggestion is that rather than live with the definition we have, which I think is based on what is set out in the 1979 Act, we should pick up the definition used in the Damages (Scotland) Act 2011, which ACOR suggests is fairer, more flexible and less prescriptive. It includes, for example, siblings, grandparents and grandchildren. It seems to me that this can cut both ways. The wider the group of dependants, the less each will get, although the wider the group, the more likely it is that a dependant will be spotted and available to benefit. On balance, living with the existing definition is probably the better route, but perhaps the Minister will give us the benefit of his wisdom. I beg to move.

[Lord Freud]

My Lords, I think I will treat this as an extremely probing amendment, and in that spirit I am happy to go through our thinking; indeed, there is some value in doing so. The amendment seeks to replace the definition from the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 that we have used in the Bill with the definition of “relative” set out in Section 14 of the Damages (Scotland) Act 2011.

The definition in the 1979 Act provides an order of priority and is not just a straightforward list. In other words, the first dependant on the list is a spouse or civil partner and it is that person, if they exist, who must make the application for a scheme payment. If there is no spouse, the next on the list is a child or children and they must make the application, and so on. The scheme payment would then be made to that applicant or applicants, and it would be up to those applicants if they wanted to share the scheme payment with any other relatives further down the list.

The definition in the 2011 Act is a straightforward list. The effect of the amendment would be that anyone on the list may make an application for a scheme payment. The 2011 list includes some relatives who are not defined as dependants in the 1979 Act. They are uncles, aunts, nephews, nieces, cousins, and former spouses or civil partners. If all these people make an application for a scheme payment, the payment made in accordance with regulations under Clause 4 under the scheme must be divided equally between them. It is right that there is a hierarchy of those who can make an application for a scheme payment as it provides certainty to those who may want to make such an application, and certainty to those administering the scheme who would not be in a position to identify all the other relatives who might want to make an application.

Most applications for a scheme payment are likely to be made by a surviving spouse or civil partner. In these cases, the amendment would dilute the amount available to that spouse or civil partner by compelling the scheme payment to be divided up between other relatives who are less close, either legally or by blood, to the deceased person with mesothelioma. That could mean that a former spouse or cousin, for example, would receive the same amount as the current spouse. Without the amendment, the current spouse would receive the whole payment. I do not think that it is right that a scheme payment should be divided up in this way so that those closer to the deceased person with mesothelioma would receive less in order that a proportion could be paid to more distant relatives.

I can tell that the noble Lord was already concerned about the effects of the amendment. With this explanation, I hope that he will be encouraged to withdraw it and that we will perhaps not see it again.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of and response to the amendment. I beg leave to withdraw it, and I can assure him that he will not see it again; not from us, anyway.

Mesothelioma Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 5th June 2013 Grand Committee

[Lord McKenzie of Luton]

My Lords, I would like to add a few points to the very extensive and knowledgeable debate that has taken place. It seems that some very telling points have been made and pressed upon the Minister about the scope of the scheme before us, which it seems reasonable to address. I would just say that we would want to be doing so in a way which does not hold up the core of this scheme. I hope that we have common ground on that issue.

In relation to the self-employed, can the Minister clarify quite what definitions we are using here? Over the years in various circumstances, the differentiation between somebody who is employed and somebody who is self-employed is quite narrow. We know that in some industries—the construction industry in particular—self-employment arrangements were, in a sense, manufactured when the reality was that there was an employment. That might have been done for tax reasons or for other reasons, so clarification of the definition of “employee” and “employer” for the purposes of the Bill would be helpful.

The issues raised by my noble friend Lord Browne are of particular interest in relation to those who were not necessarily formally employed but for whom the negligence of an employer might have caused them to contract mesothelioma. That is important because through the Child Maintenance and Other Payments Act 2008—it was the other payments that related to mesothelioma—the last Government introduced a support scheme for those who contracted mesothelioma but not directly because of employment. If those employers or their insurers can now or could in the future be reached, it seems that the Government themselves have an interest in recouping some of the compensation paid, which I hope can be redeployed to improve those schemes for others.

In relation to Northern Ireland, as I understand it this provision in the Act does apply there. I also understand that the two statutory schemes which we have, in the 1979 Act and the 2008 Act, are in fact replicated by legislation in Northern Ireland. Certainly, that was negotiated at the time. There have been some very important issues raised, which I know will create some challenges for the Minister. In doing so, I hope that we will keep our eye on ensuring that we make progress on the scheme that is before us.

[Lord Freud]

I thank the noble Lord, Lord Howarth, for these amendments. Clearly, their intention is to make the payments under this scheme available to a wider group. The two groups, specifically, are the self-employed and those who caught it on a secondary basis by living in the same household as a person exposed to asbestos.

The way in which Clause 2(1)(a) works is that it requires the person with diffuse mesothelioma to have been an employee of an employer who was required, at the time of the person’s exposure to asbestos, by the compulsory insurance legislation to maintain insurance covering any liability arising because of exposure to asbestos, or who would have been had that legislation been in force at the time. I hear my noble friend Lord Empey saying, “Solve the whole thing once and for all”, but this Bill is, regrettably, designed to fix a market failure. There is a failure of insurers and employers to retain adequate records of the employer’s liability insurance, and to make sure that those employees who cannot trace through in order to bring a civil claim actually get a payment. So, widening the list of people who receive payments beyond the legal position would impose a disproportionate burden on the employer liability insurers who will fund the scheme through a levy.

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[Lord Freud]

What happens is that insurers have to provide that they have sufficient funds to meet their liabilities. The levy is a hypothecated tax that they have to pay so that their ability to meet their liabilities is monitored by the Financial Conduct Authority, the FCA—or the FSA, to those of us using old money. The insurer could not pre-empt the outcome of the consultation. That was something that they could not do and did not do, as I understand it.

[Lord McKenzie of Luton]

Can the Minister expand on that point? I understand the need to provide for liabilities, but is that not separate from the scheme payment? We only get a scheme payment if in fact the insurer is not liable, or only liable in respect of paying the levy. I do not understand the analysis that he has just made.

[Lord Freud]

What the insurer has to do, as I understand it, is to provide for future liabilities. Through an elaborate process with its accountants and the FCA, it has to provide the appropriate amount on reasonable assumptions. It is quite a formalised process. That is the process that we are looking at here.

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[Lord Freud]

That is one of the central issues with imposing a levy based on the existing market share. There is a risk that that will happen if we push up the levy too much, particularly if there is a sharp increase. As noble Lords are aware, the way in which these matters normally work is through a sharing of the levy. The likelihood is that some of the levy may be passed on in the marketplace. However, the levels at which we have established the levy—and the smoothing mechanism to which the noble Lord, Lord Browne, referred was part of it—were achieved by taking some of those other payments and circulating them in the first year to give us the best possible chance that the insurance industry will absorb the bulk of the levy.

I shall now provide the figures that noble Lords have been waiting for so incredibly patiently. If this scheme started on 20 or 21 February 2010, the extra costs would be £119 million. As to the undated amendment of the noble Lord, Lord Howarth, our best estimate is that if we went back to 1968, the figure would be £747 million. Clearly, a large number of assumptions were made in reaching that figure.

I would just like to finish off the figures. I am not going to spend too much time going over the noble Lord’s “cornucopia” argument. I just want to make this simple point: one of the things that the insurance industry does, at least when it is in a competitive position, is look to build in what the returns on its reserves and its income may be when it sets rates. It is not just a kind of a surprise—“We got all this extra money out of those returns!”—but is built into the marketplace. Otherwise, everyone in the whole world would become an insurance operator, and we would all have been wasting our time because it would have been a free lunch. There is some competition in the market. Clearly it is a very interesting and complicated market, and it depends on how much capital goes in and out of it. Let us not go into that. We have had a lot of debate about the more general issues, but I just thought that I would touch on that.

As insurers were able to start the reserve only from 25 July last year, any attempt to back-date eligibility further could jeopardise the scheme and bog it down in legal challenges from insurers on the costs. I know that noble Lords would like to do more, as indeed would the Government, but we need to consider the effect of an open-ended scheme against one that can be afforded whose costs can be absorbed as much as possible by the insurance industry without putting pressure on it to increase insurance premiums and transfer the extra costs on to current employers.

Clearly, any date will mean that some people miss out. Choosing the dates in the amendments would mean that more people received the payment, but there would still be people who did not. On balance, I believe that pinning eligibility to a date when people with diffuse mesothelioma had a reasonable expectation of payment and insurers knew when they needed to start to reserve the levy, represents the best that we can do. I am not in a position to provide or mention anything on legal advice that we may or may not have received by convention, which noble Lords will be fully aware of.

I need to make the point that social security benefits and existing lump-sum schemes will continue to provide early support for people with the disease who were diagnosed from before the 25 July date. I therefore urge the noble Lord—

[Lord McKenzie of Luton]

Will the Minister confirm whether the £119 million is gross or net of benefit recovery?

[Lord Freud]

I think that it is net, but I will have to write with the right answer to that. I urge the noble Lords and the noble Baroness to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, we support the concept of insurers contributing to fund research to find new treatments for mesothelioma. Indeed, three years ago we were involved in encouraging the industry in what was originally a £3 million commitment over three years. However, we do that principally because of the passionate, compelling and authoritative case that we have heard over the past hour, led by the noble Lord, Lord Alton, and stimulated by the comparison between the stark number that this dreadful disease kills and the funding that has gone to address and ameliorate it. The issue of stimulating a national research effort is hugely important.

Like other noble Lords, I do not know whether this is the appropriate mechanism and I shall be interested to hear the Minister’s comments, but the noble Lord, Lord Alton, seems to have covered all the issues on hypothecation, the Human Rights Act and a fee rather than a levy. That is a pretty impressive effort. Like the noble Lord, Lord Wigley, I support a variable approach rather than a fixed amount, but those are points of detail.

Will the Minister share with us his discussions with the Department of Health, which he has referred to before? In particular, have any of his extensive negotiations with the insurance industry about the payment scheme focused on ongoing contributions to research? What is the current attitude of the industry?

[Lord Freud]

Well, my Lords, I feel like adding my name to the amendment.

I have spent an enormous amount of time on this issue, for exactly the reason that noble Lords have all focused on. Something very odd is happening here when so little money has gone into research in this area. Bluntly, I was pursuing the concept of a one-for-one match, where the insurance industry and the state would come in. I will go into why I have hit a brick wall at every turn on that, which is why it is not in the Bill.

However, rather than being negative, I have talked to everyone but, in particular, tried to understand why we have not had state research on this. I have talked to Dame Sally Davies and the Department of Health, trying to work a way through. There is currently a bit of a chicken-and-egg situation as, before the Medical Research Council will accept research, it has to be of what the council calls “high-quality propositions”. I buy the point made by the noble Lord, Lord Kakkar, on some of the quality research that is now on offer, so there is an opportunity to go forward there. The odd thing is that this is a Bill about the insurance industry and its contribution to that particular levy, when it is actually the insurance industry that has ponied up £3 million of its money and got this research going. What seems odd to me is the way that this is not happening on the other side.

I will now do what I do not want to do, which is to go into why that is so difficult with this Bill and why I have not been able to incorporate something like this. I was going to have a strap on the levy that we could just throw in and match up, but the limitation is that my department is allowed to raise funds only within its own remit, and medical research lies within the auspices of the Department of Health. We do not have the freedom to raise funds for research within a DWP-sponsored Bill. One of the issues with hypothecated research like this is that, from the point of view of the Department of Health, that cuts across its strategy of directing funds at quality research. This is how we have ended up in this odd chicken-and-egg position. I have simply not been able to find a way, in terms of the levy, to get this into the Bill.

So what is to be done? I have discussed this with my noble friend Lord Howe at considerable length. There needs to be a kick-start process to get research going here. We are proposing to get a conference going, which we will jointly host—and I would welcome as much support as possible from noble Lords—to try to get this on the agenda so that it gets the kind of support that it should.

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[Lord Freud]

I take from this a weight of feeling and, bluntly, the best thing that I can do is to take it back in to Government; my department is almost not relevant in this area. In a sense, I do not think that that is the issue. The irony is that those in the insurance industry are the only ones who have been paying anything of any substance in this area. This is, if you like, directed at the wrong area. As the noble Lord, Lord Kakkar, said, why is this not of some strategic importance?

My feedback from the Department of Health and Sally Davies is that they are aware that it is odd that so little is spent on this disease. However, I think that that is where the problem lies and that it is a kind of chicken-and-egg situation. In a way, the insurance industry is in the position of the gambling industry, which has a voluntary scheme and has been spending money voluntarily. It does not need this pressure. What we need to worry about is: how much, as a country, are we spending on this disease?

I hope that noble Lords can hear that I am enormously sympathetic to what lies behind the amendment, and I am not only sympathetic because I have had a hard time this afternoon; I have been spending six months of the year running around on this issue, a bit like a mad mouse in a wheel, trying to find a way through.

This debate has been valuable. The next stage is to have a major event—my noble friend Lord Howe and I even have a date in the diary—where we start to do something about this and get something going. That is really what we are looking for, rather than something more mechanistic, such as what is proposed here, which I cannot do.

[Lord McKenzie of Luton]

I think that we all recognise the Minister’s commitment to this issue. However, has any thought been given to whether this could be channelled through the HSE, which falls within the purview of the DWP?

[Lord Freud]

To be honest, I do not think that we have looked at that as an option. I will have another look around the wheel to see what there is, but where I have come out is that we need a mainstream effort with the people who are interested in this matter to push it up the agenda of the country. We need to say, “This needs research and it will take a decent share of the budget that is available for cancers in this country”.

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[Lord McKenzie of Luton]

My Lords, Amendment 13 is another probing amendment which addresses another aspect of eligibility. Under Clause 2(1)(d), it is a requirement that a person has not received damages or a specified payment in respect of diffuse mesothelioma, specified payments to be defined in regulations. This probing amendment is to clarify that any payments receivable under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 and Section 47 of the Child Maintenance and Other Payments Act 2008 are not to be treated as specified payments. Such payments may be recoverable under benefit recovery provisions, but their receipt would not deny access to the scheme.

From a discussion with the Bill team a few days ago, I understand that that is the case, but it would be very helpful if the Minister could put that on the record and say something about what other types of arrangement—I think that term of renewal has been mentioned—will be included in specified payments.

Amendment 41 is grouped and is another probing amendment. Clause 13(2)(b) enables the Secretary of State in setting the levy to deduct the amount of any recovery of benefits. That would therefore reduce the amount borne by insurers. Clearly, the principle which should apply generally is that any benefit recovery accrues to the Government, not to insurers. However, it is understood that this provision is to apply only to the initial period of the scheme, where benefit recovery in respect of cases diagnosed from July 2012 to March 2015 will be used to fund the scheme. If that is the case, again, perhaps we can have that on the record. In any event, perhaps the Minister can explain the analysis behind the government contribution and why in the scheme of things any contribution should be made. I beg to move.

[Lord Freud]

I thank the noble Lord for the amendments. The intention of Amendment 13 is to ensure that a person who receives a state lump sum payment under the Pneumoconiosis etc. (Workers’ Compensation) Act 1979 or the Section 47 of the Child Maintenance and Other Payments Act 2008 would not be excluded from receiving a scheme payment.

One of the conditions for entitlement for a payment under the scheme was that a person has not received damages or a specified payment in respect of diffuse mesothelioma and is not eligible to receive a specified payment. The meaning of “a specified payment” will be given by regulation. Broadly speaking, specified payments are those which are not compensation but are paid in respect of the person’s mesothelioma. That does not include government lump-sum payments. Therefore, the amendment has no effect on our intentions.

The amendment does not cover the equivalent Northern Ireland legislation, so it creates an imbalance between how applications in Northern Ireland will be dealt with compared to applications made elsewhere in the United Kingdom. To go through which payments will be specified, as the noble Lord requested—it may be easier for me to supply a letter—they are the naval, military and air forces, the Armed Forces and Reserve Forces, the UK Asbestos Trust and the EL Scheme Trust established in 2006. I will write to him to get that on the record.

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[Lord McKenzie of Luton]

I am grateful to the noble Lord for his explanation. It has confirmed the position, which was the reason for the probe. Could he say a little more about the imbalance with Northern Ireland? I am not sure that I altogether follow the point that he was making.

[Lord Freud]

We do not have the legislation to match. I am not sure that, off the top of my head, I can be precise about what the practical implications of that are. Let me come back in writing on that. Northern Ireland has its own schemes. I must be precise on how they interrelate in responding to the noble Lord.

[Lord McKenzie of Luton]

I am grateful to the noble Lord and happy to receive a letter in due course. I beg leave to withdraw the amendment.

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[Lord Freud]

It is always a dangerous thing to base it on a moral argument, particularly in this area. It is a differentiated industry. There is a group which we are now looking at to shoulder this. There was an enormous amount of negotiation in getting to this level of levy. That then feeds into the amount that we can pay eligible people. You could have an infinite amount of levy but if we went too high, the risk would be very clear. The genuine danger is that it would just go straight to British industry. Many of the insurers who will be paying it were not in business at the time or may have kept good records, so there is a differentiation within the industry.

If we could pay people more, of course we would. This is a balancing act and 70% is the compromise that we have arrived at after long negotiations. I hope that noble Lords can appreciate that there is a real achievement here in getting very substantial payments to people who are eligible, if they are afflicted by this terrible disease. I urge the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply, none of which comes as a surprise. I thank all noble Lords who have participated in this debate and supported the amendment. My noble friend Lord Wills urged the Minister to convey the strength of opinion about the level of payment. The noble Lord, Lord Wigley, referred to the fact that this sort of horse-trading did not go on when the 1979 Act scheme was being put in place. I think that my noble friend Lord Howarth dealt with the point about why it is not unreasonable for the insurers still in the market to bear the full costs of compensation. The noble Lord, Lord Avebury, reminded us that everybody who spoke at Second Reading opposed this 70% level. I was rather attracted to my noble friend Lady Donaghy’s proposition of 130%; perhaps we might try that.

The Minister says that it is wrong to deal with this as a moral issue. I am not sure that that is right or something that I would agree with. I took it from what he said that the negotiation was around the rate of the levy, which then drove the compensation levels, rather than the rest. In that case, I am interested in a negotiation that would end up with a levy of 2.24%. How on earth was that arrived at? Why was it not 2.25% or 2.26%, or 3%? To have that driving the outcome seems a little strange, but in any event it is unacceptable.

I am grateful for the fact that it looks as though we will get the tariff tables tomorrow. That is obviously a key part of this. The percentage is key, but it depends what it is a percentage of. We will have to see how that all works out and which of those averages have been taken in compiling that schedule.

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[Lord Freud]

Perhaps I may quickly clear up that matter. When you look at the totals, you have to take into account the effect of the extra two years, because we are starting with two years in hand. So the first year counts as three years, which we are going to smooth over the first four years. Therefore, in practice we start off with a much bigger amount of money. The 2.24% is a raw figure, if you like; it is not going to affect how much the levy will be when it is smoothed.

[Lord McKenzie of Luton]

I accept that point, but is not part of the smoothing in the early years being done by government contribution?

[Lord Freud]

It is a very small amount. We will actually do the smoothing over the years. Turning round the recoveries is only one year’s work, so that is a small amount of it.

[Lord McKenzie of Luton]

I think that £17 million is the cost of the government contribution. I still do not think that we have had a definitive answer to the question of the impact on all this, if any, of what is happening in the pre-action protocol and all the negotiations that are going on there. From submissions that we have had from the ABI, it is clear that it sees that as part of a wider integrated package. I do not know whether the Minister can say anything about the extent, if any, to which the negotiations took account of what was happening there or was likely to happen and how that impacted on the negotiations.

However, ultimately we have heard nothing that convinces us that the 2.24% is where we stop in this calculation. We will continue to press for an increase. We will help the Minister in taking this back to the industry and making it understand how strongly we feel about it, and how it must not, and cannot, rest where it does.

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[Lord McKenzie of Luton]

I do not know whether the Minister has anything further to say.

[Lord Freud]

I simply urge the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

Before I do, is the Minister going to say anything about the MoJ consultation?

[Lord Freud]

There is not much that I can add to what I said at Second Reading. Clearly, there is a consultation on the level of costs, on the pre-action protocol and on the portal, but I cannot pre-judge what that might come out with. It is clearly an extensive consultation and it will be starting in a matter of months.

[Lord McKenzie of Luton]

Can the Minister just say whether any of that featured in the discussions and negotiations that he had around the levy?

[Lord Freud]

Yes. It was important to the industry that the MoJ undertook to look at those issues. That was reinforced by the amendment of the noble Lord, Lord Alton, to the LASPO Bill, which was predicated on there being a consultation ahead of pulling the mesothelioma cases inside the LASPO framework.

[Lord McKenzie of Luton]

I shall read the record on that and I may return to the point in due course. However, given the hour, I beg leave to withdraw the amendment.

UK: Poverty

Debate between Lord McKenzie of Luton and Lord Freud

Monday 25th March 2013 Lords Chamber

[Lord Freud]

My Lords, we provide very significant support to families in need. Working-age benefits stood at £96 billion in 2010 and have been moving up faster than average earnings. Disability payments now stand at 2.4% of GDP, which is much higher than the norm in the EU where the average is 1.4%. We are designing universal credit to target our support efficiently on the poorest families.

[Lord McKenzie of Luton]

My Lords, would the Minister include in his definition of poverty circumstances where families have routinely to resort to food banks to survive?

[Lord Freud]

My Lords, we have a benefits system that is designed to provide the basic needs of people who are poor. Clearly, there is increasing local provision of food banks. Actually, it expanded very dramatically under the previous Government. Interestingly, the really big expansion has been since September 2011 when jobcentre advisers were allowed for the first time to direct people towards them.

Jobseekers (Back to Work Schemes) Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 25th March 2013 Lords Chamber

[Lord Freud]

Yes, but there are six billion people around. I am trying to refer to a particular group. I hope that by the time we get to the next amendment I will have found a better word, so bear with me for a little while if I cannot work that one out on my feet.

On the point about people going into work: if a claimant has been off jobseeker’s allowance for longer than the length of their sanction then they will be deemed to have served their sanction, and therefore will face no penalty. I cannot go through the absolute detail of the proportionate amount but it is likely that we will do this proportionately for those who have been in work, so there will be a record of that.

On the points made by the noble Baroness, Lady Hollis, a lot of the issues surrounding what the tribunals are doing are in ESA cases, while we are dealing here with JSA cases. We are talking about rather small numbers; I will go into more detail on them. This is a very small group of people, and the concerns about how quickly they may go through the tribunals, and the pressure they put on those tribunals, are to that extent much more manageable than if theirs were the more complicated ESA cases. Likewise, much of the concern around those cases has been around the medical area and that, of course, will not arise in this particular instance.

The decision-makers receive in-depth training, including on the importance of impartiality, what constitutes evidence, and the balance of probabilities. Clearly a large number of their decisions—three-quarters—are upheld. By putting decision-makers in between, for instance, the WCA and the tribunal, we were trying to weed out those areas where the DWP considered that the tribunal would find against, and thereby reduce the volume. That is what has been happening, and clearly we watch that very carefully. Having dealt, I hope, with all the issues raised, I beg the noble Lord not to press his amendment.

[Lord McKenzie of Luton]

My Lords, I indicated at the start that these are probing amendments. That highlights part of the problem of having this truncated process: that we do not have the chance to take away and read the Minister’s comments. We have to try to absorb both what is said and what is not covered this evening.

In relation to deferred decisions, I will not use the term to which my colleagues objected. The Minister said that these would be dealt with in a timely manner. However, the thrust of the presentation made by my noble friend Lady Hollis was to ask whether there was the capacity to deal with this. Decision-makers are struggling under current arrangements, and adding this extra burden will make life more difficult.

On national insurance credits, I was trying to probe the point that when they are withheld because of sanctions, post October, in circumstances where the regulations that underpin the sanctions were originally found to be unlawful, the Bill switches lawfulness back on in respect of the sanctions component. Does that automatically run where national insurance credits have been withheld? What is the connection between the two? Does it automatically flow from whether a sanction has been levied, or does it require another process that authorises the withholding of the national insurance credit? If the original decision was based on an unlawful position in respect of the regulations, is the restoration of the lawfulness of those provisions under the Bill enough to authorise the withholding of national insurance credits? That was the point I was probing, perhaps not in sufficient detail.

On those cases that have been deferred where no decision has been made, I think that what the Minister said was a change from what we previously understood the position to be. I thought that the point had been made very clearly before that if somebody was in work, there would be no sanction. It seems that some nuances to that have been introduced by the Minister’s reply. Now it will depend on how long they have been in work in comparison to the length of the sanction that has been levied. That seems to be a new formulation, which we have not heard articulated before.

I did not hear from the Minister an assurance that we were seeking. Leaving aside the issue of making the regulations and notices retrospectively lawful, is it the Government’s intention that individuals should otherwise be in a worse position than they would have been had the regulations and notices been lawful ab initio? How does that interact with the appeals process? We have not unpicked all those issues this evening.

Having said all that, I do not think that we can get any further. I hope that the Minister will reflect on this discussion. If we could get something further in writing before we rise later this week, it might give us some reassurance. For the moment, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, before I deal with this amendment, I ask the Committee to indulge me as I answer a couple of questions on the last round from the noble Lord, Lord McKenzie of Luton, which may be relevant.

On the question of what sanctions mean for national insurance, if the failure to participate was after 22 October 2012, national insurance is not credited but if it was before 22 October 2012 then it is. On going into work, no sanctions will be applied to people who no longer receive jobseeker’s allowance. That might save some writing.

[Lord McKenzie of Luton]

On the point about national insurance credit, I am not sure that the Minister’s answer deals fully with the issue that I raised. Perhaps the noble Lord will look at the record tomorrow and write in due course.

--- Later in debate ---

[Lord Freud]

My Lords, clearly, I cannot talk about examples when I am not familiar with the particular example. It may have been a strategy. As I said, there is a general strategy to prevent non-compliance by using the device of asking people to come in on different days. Sometimes people are asked to come in on every day of the week. The example I am thinking of is the five workings days, but I have seen examples of that. I saw that example under the previous Government to be honest. I do not know why noble Lords opposite are looking aghast as this was absolutely standard procedure under the previous Government and nothing has changed. It was standard procedure and has been maintained because it works in areas where we are concerned about benefit fraud.

On Amendment 4, it is worth noting that for sanctions more broadly much of the information that the noble Lord, Lord McKenzie, sets out in his amendment is already published by the department. For example, we have published, and will publish every six months, tables setting out the number of sanctions issued and the number of reconsiderations and appeals. The latest figures published for employment, skills and enterprise schemes and mandatory work activity show that up to October 2012 around 170,000 sanctions were issued. There were just over 50,000 reconsiderations, with claimants being successful in just over half of them. Following this there were about 5,000 appeals to the First-tier Tribunal, with claimants being successful in around a quarter of them. I hope that gives enough reassurance to the noble Lord and the noble Baroness that the independent review will be comprehensive and in the spirit of Clause 2. I therefore urge them to reconsider the position and not press their amendments.

The noble Baroness, Lady Lister, raised a point on hardship and the new hardship regime. The new hardship regime will not apply to these jobseeker allowance claimants. It will come into effect only when universal credit is in place. The lone parent’s caring responsibilities are taken into account when setting work search requirements. In the example used by the noble Baroness, they can be used in citing a good reason for non-compliance.

I turn now to the linked Amendment 6, the purpose of which is to ensure that there is an interim report on the operation of the provisions relating to the imposition of a penalty, as well as the report after 12 months that the Bill already requires. I am as keen as the noble Lord, Lord McKenzie, that the review is expedited and we will endeavour to complete it as quickly as possible. However, it may help if I set out why an interim report would be unhelpful in providing a complete picture. A claimant who has a sanction imposed on them has 13 months to bring an appeal against that sanction, so by imposing a six-month deadline for an interim report we would miss those appeals made at a later point. That could then give a misleading view of the overall picture in a way that could be unhelpful. As I said earlier, we are committed to producing a report as soon as is reasonably practicable and it would be far better to wait for the full annual report. I hope that the noble Lord will reconsider the position and not press that amendment.

[Lord McKenzie of Luton]

My Lords, first, I thank my noble friend Lady Lister for her support for this amendment. I believe that my noble friend made a powerful contribution and painted what I think we would all agree is a very troublesome picture of what is happening on the ground in too many instances. She specifically asked whether the review would receive evidence from outside bodies, and I do not think that the Minister has addressed that point. I thank the noble Lord, Lord Kirkwood, too, for his support, at least in spirit. I believe that he is absolutely right that the projected cost of £130 million is excessive. Of course, from the Government’s point of view, the higher that figure, the greater the weight given to the opportunity of retrospective legislation. But I think that the noble Lord’s analysis is right.

The Minister’s response was desperately disappointing generally. On the question of targets, let me be clear about what Amendment 5A says. It seeks a report that,

“will include an assessment of the extent to which jobcentre managers have applied targets on the issue of sanctions”.

I accept the Minister’s words—he would not wish to mislead us—on whether Ministers have targets, but the question is whether as a practical matter targets are being applied within certain Jobcentre Plus premises. The noble Lord says that it is about business information and that it is necessary to spot outliers, but the one document that we have as an example is worth reading. It says:

“I have until 15 February, along with other area managers, to show an improvement, and then it is a performance improvement plan for me”.

A PIP is the first stage of the disciplinary process, as my noble friend Lady Hollis identified. It goes on to say that,

“if I am on a PIP to improve my team’s Stricter Benefit Regime referral rate I will not have a choice but to consider implementing PIPs for those individuals who are clearly not delivering SBR within the team”.

It seems to me that there is an awful lot of pressure there, whether you label it as pressure driven by targets or by some other means. It is pressure, and it is changing the culture of the organisation. What does it lead to? It leads to advice like,

“listen for telltale phrases ‘I pick up the kids’, ‘I look after my neighbour’s children/my grandchildren’ or just ‘I am busy’—all of which suggest that the customer may not be fully available for work, even cases where a parent shares custody can be considered if the arrangement is informal. Not that I am suggesting you go there, but you need to consider each case individually”.

Is not the Minister troubled to understand that those sorts of memos are floating around within Jobcentre Plus? Is that not entirely contrary to what he himself has asserted? I cannot believe that he would feel comfortable about that happening. That is the purpose of the amendment—to find out what is happening or has happened in Jobcentre Plus generally. It is not a question of whether the Minister has set down a particular target but what is happening within those Jobcentre Plus premises and the impact that it is having on people being referred for sanctions.

Again, the hour is late, and I will withdraw the amendment, although when it is called I propose to test the opinion of the House on Amendment 5A, which is the key issue dealing with the sanctions and the revelations that the press have identified, because there is a pressing and clear need for that to be addressed.

Jobseeker’s Allowance Regulations 2013

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 13th February 2013 Lords Chamber

[Lord Freud]

My Lords, I again thank noble Lords for a somewhat briefer debate although the quality remained high. Clearly, I do not have to remind the House what these regulations do. They remove the income-related element and make provision for an award of JSA based solely on national insurance contributions.

I will touch on some of the questions that were raised. I start with the issues raised by the noble Baroness, Lady Donaghy. She brought some matters to the discussion which are entirely irrelevant to this set of regulations, thereby rather skilfully avoiding the shorter answers that I suspect would have been given in the previous debate, given the pressure of time. I therefore take my hat off to her. She made one or two very valuable suggestions, which I have stolen from her, as she knows. I shall go on doing that. There are some interesting issues on timing. For example, do we have the luxury of time with the self-employed? I am very conscious that we may get the odd one or two people coming in, who I suspect are probably not on the pathfinder, because one of the things that the noble Baroness, Lady Sherlock, teased me on as regards our exclusions was that they made this provision difficult for a self-employed couple to obtain. We therefore have a little time plus the six-months’ grace. Given that we are starting with people probably even in the next phase who are coming in and will find a self-employed job, we would give them the year. All I am saying is that I am absolutely conscious of the noble Baroness’s main point relating to the one-month period and the need for a carryover. I have been looking at that closely, and what she said gave me a good hint about how long that carryover should last, which in her view should be a year. Noble Lords will be pleased to know that that is the kind of period that I am currently exploring.

I am talking to Defra, which is working with the NFU, on how all this works for farmers generally, and so I am very conscious of that issue. As regards the point on the construction industry, which is one of the more interesting industries, what I heard from the noble Baroness was, “Don’t get a Catch-22 situation here about people because of the way we define things”. That is a good point and one of the benefits of guidance is that we can quite flexibly get that in. I commit here to making sure that in that guidance we do not have a Catch-22 situation for this industry which I know has some odd things. If you are working, it should not matter how the position is actually defined if people are making the effort. I will look at that matter seriously.

We have dealt with the irrelevant stuff and I will now move on to the points made by my noble friend Lord Kirkwood. It is interesting, when you look at the figures, that of the approximately 1.5 million on income-related JSA or UC, only 200,000 receive the contracted amount that we are talking about, based on their contributions. Of those, only 70,000 receive it on its own, without a UC or income-related top-up. We have therefore moved a long way into means-testing, as my noble friend observed.

My noble friend’s point about feeling in control was smack right. You do not get a response of the kind that you want if people do not feel part of it. If they do not understand and have not been part of the process that has generated it, the sanction will not work as well and create the right behavioural response. That is what the claimant commitment is doing. Interestingly, the early trials of the claimant commitment are finding that it is working much better than our existing contract.

The noble Baroness, Lady Lister, asked me for another guarantee. I will give the noble Baroness a guarantee that any changes to the ESA and JSA as part of UC would require regulations. There will therefore be a chance to debate that. As to the point about having a contributor on a different platform, the reality is that any Government looking ahead would want to have as few platforms as possible. One will probably end up with the same platform but approval of the process of who gets paid and how would have to go through this House.

In response to the question of the noble Lord, Lord McKenzie, the two areas that were not carried forward were those where the time allowance to attend an interview was moved from seven days to 48 hours. Claimants with children over the age of 13 are expected to show that they have reasonable prospects of getting a job, but they can still have tailored requirements in line with their caring responsibilities. Those are the two specific changes. Regarding the point about national insurance credits, everyone on universal credit will have national insurance credits that count towards the state pension. The difference is that there are class 3 credits for UC, whereas JSA claimants currently get class 1 credits.

[Lord McKenzie of Luton]

Will the Minister drop me a line on the point he made about class 1 and class 3 contributions? I should like to reflect on it because I am not sure that I understood the import of it.

[Lord Freud]

Yes, I would be pleased to provide a letter laying that out for the noble Lord to consider in depth.

We started last year to align the JSA regime and universal credit with the sanctions model. These changes pull them even closer together. We will thereby have a clearer system of requirements and sanctions that are robust and appropriate, underpinned by safeguards for claimants. I seek approval of the regulations and commend them to the House.

Employment and Support Allowance Regulations 2013

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 13th February 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord for introducing these regulations, which run parallel with those relating to JSA, which we have just considered. Before going further with my script, I would like to say that I do not think the Minister dealt with the point I raised earlier about flexibilities being included in the claimant commitment document. Perhaps he might pick up that issue when he responds to this debate.

As we have heard, these regulations relate to contributory ESA, which means that they are generally limited to 12 months, except for people in the support group. Can the Minister confirm that these regulations correctly reflect that position and that days in the support group do not count towards the 365-day maximum, or the days in the assessment period, followed by a period in the support group? Can he further confirm that they reflect the entitlement for someone in the support group to reconnect the contributory entitlement as provided for by Section 52 of the Welfare Reform Act 2012? It would also be helpful if the Minister could put into context the provisions in the regulations relating to youth, given the provisions of Section 53 of the 2012 Act, which preclude further claims under the youth condition.

As for JSA, the Explanatory Memorandum states that any allowance will be paid either alone or together with universal credit, a point probed by my noble friend Lady Donaghy in the earlier debate. How will this work, and who is to decide whether it is paid separately or with universal credit? Currently, universal credit is payable fortnightly in arrears, and the allowance is to be treated as unearned income for the purposes of universal credit. Presumably it is not impacted by the actual payment date. Can the Minister tell us whether ESA is to be sanctioned and whether it is the gross or net amount that is to be taken into account as unearned income? What about hardship payments and repayable hardship payments? How will they work?

The Explanatory Notes make it clear that, with the exception of the conditionality and sanctions regime, the rules will be very similar to the existing rules. I think the Minister repeated that. For the purposes of the record, can he be a little more precise about the lack of similarity?

As regards claimant obligations, the Explanatory Notes at paragraph 7.63 record that the UC model requires more of the claimant than ESA does. In particular, the paragraph suggests that claimants may be required to look for and be available for work that they are capable of doing, which is a more onerous test. Perhaps I can go back to that paragraph. I do not think it accords with what the Minister said in introducing these regulations. It states:

“The requirements placed on Employment and Support Allowance claimants are also based on the Universal Credit model, though there are again some significant differences. For example, claimants can be required to prepare for work and attend work-focused interviews, but are not required to look for work or be available for work whereas in Universal Credit, within limits, claimants may be required to look for or be available for work that they are capable of. The requirements to prepare for work and attend interviews are broadly equivalent to those requirements placed on claimants in the Universal Credit work preparation and work-focused interview only groups”.

I read that to suggest that if the universal credit rules are to apply, claimants may be required to look for, and be available for, work that they are capable of. If that is not the case, it is fine, but if that is correct, one has to ask how these more onerous requirements are to be derived, or are they to be derived from the same WCA process? Will revised guidance be given to Atos and decision-makers?

Similarly, in relation to sanctions, where there is an entitlement to both benefits—contributory ESA and universal credit—the latter will apply. Given that the universal credit requirement on the claimant may be higher than the ESA requirement, what will ensure that there will not be movement up the sanctions scale?

[Lord Freud]

The Employment and Support Allowance Regulations remove the means-tested provisions, because in future universal credit will replace the incremented employment and support allowance. With the exception of the conditionality and sanctions regime, the rules for the new employment and support allowance will be very similar to the existing rules for the contributory element of ESA under the 2008 regulations.

I will pick up some of the questions. The first was from the noble Baroness, Lady Turner, who asked about appeals. As she said, about 37% of appeals overturn the original decision. However, in the context of the total number of decisions made, the tribunal overturned around 15% of around 741,000 fit-for-work decisions. Therefore, the original decision on benefits stood in 85% of cases. Clearly, we will have a further chance to debate this issue later this evening.

All the remaining questions were asked by the noble Lord, Lord McKenzie. He asked about flexibilities for lone parents. Claimants will meet their personal adviser and discuss their circumstances, which will include the hours that the claimant is able to work, taking into account their caring responsibilities. Clearly, the claimant commitment is a living document that will change with people’s circumstances.

There will be separate payments of JSA, ESA and UC. The contributory benefits will not be paid with the same frequency as universal credit, although the monthly amount will be equivalised, and the monthly amount of the contributory benefit will be taken into account as offsetting unearned income. In other words, it will knock out the equivalent amount of UC.

I confirm that days in the support group—the WRAG—will not count towards the 365-day limit. The way in which sanctions will operate if a claimant receives both universal credit and a contributory element is that the relevant sanction will apply to their universal credit award and not to their JSA or ESA award unless they close their UC claim.

The hardship provisions have been removed from both the JSA and the support allowance because it will now be for contribution-based claimants, who will have other income and savings to live on. The noble Lord is correct that there will be no new claims for youth conditions.

I make it absolutely clear that the requirements are for work preparation such as attending a training course, preparing a CV or taking part in the Work Programme. They do not relate specifically to searching for work. Perhaps I may say that there is a bit of clumsy drafting in that paragraph, which states that UC has other elements that are not in the ESA. I know exactly the issue that the noble Lord seized on because I was puzzled by it myself when I read it. However, I can reassure him on that point.

As with the JSA, we are now moving the ESA and UC regimes closer together after the start last year. I commend the regulations to the House.

Universal Credit, Personal Independence Payment, Jobseeker’s Allowance and Employment and Support Allowance (Decisions and Appeals) Regulations 2013

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 13th February 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I again thank the Minister for introducing the regulations. I wish him well in dealing with those incisive inquiries from my noble friend Lady Lister about the monthly assessment, the monthly payment and supported housing. She gave us a very powerful analysis.

We acknowledge that an updated framework for decisions and appeals that encompasses universal credit, PIP, JSA and ESA is needed. As the Minister will doubtless anticipate, there are two key matters that we will pursue, mirroring those discussed in the other place: mandatory reconsideration and the payment of benefits in the interim. Noble Lords will recall the debates that we had in Committee and on Report on the Welfare Reform Bill on what has ended up as Section 102 of the Act, and a degree of scepticism about why it was necessary to have two powers when a power was already available to decision-makers to revise a decision prior to the determination of appeal. However, we are where are, with two time limits within the system. If a claimant disagrees with a decision, they have one month to ask for a reconsideration. When the result of that is known, they will have one month from the date of the new decision to appeal.

As the Minister has identified, there is no statutory time within which decision-makers are obligated to complete a reconsideration. This is important because it reflects on how long a claimant’s interim benefit position will endure. We therefore register our concerns about the strictness of the time limits imposed on claimants in the current climate.

My noble friend Lord Bach gave a tour de force speech about the current situation, in which legal aid is being denied and advice agencies are being stretched and hit with redundancies and closures. We received last Friday the Universal Credit Local Support Services Framework, with not enough time to peruse it in any detail for today. Perhaps the Minister will tell us whether its envisaged remit will include advice on a decision or a reconsideration. Will the local support services be available to advise and assist on that? Of course, this pressure on advice surgeries is compounded by the raft of changes that we have discussed today and will doubtless continue to discuss, and which are about to enter the system shortly. Can the Minister say something about any discretion that might be available in respect of the time limits imposed by the provision?

It is understood that benefit entitlement pending a reconsideration will be on hold. I think that is what the Minister said: that if someone is seeking a benefit for the first time, they will be left without benefit if and until the claim is settled positively. For those claiming ESA and going through a reconsideration process, this would appear to herald the change. Is it not the case that an ESA claimant will currently be paid at the assessment rate equivalent to the JSA rate pending a reconsideration and appeal? Will the Minister confirm that this will not be the case in the future? The remedy in the short term, as has been suggested, appears to be a claim for JSA in due course where contributory ESA is involved, presumably a claim for universal credit. This appears to be what the Minister still advises. How does that deal with the point that this may require an individual to sign up to a claimant commitment and undertake work for which they are not suited?

Can the Minister please confirm the position for someone in receipt of ESA who, on a reassessment under the WCA, is assessed as being fit for work or subject to all work-related requirements? If someone who is currently on ESA and at risk of being downgraded to universal credit or JSA is subjected to the reconsideration appeal process, what benefit is paid before that appeal is concluded?

These questions touch on the timeliness of the reconsideration process. It is accepted that if a reconsideration and appeal process is successful, any due award will be backdated to the original claim, but that does not help the claimant in the interim. My honourable friend Anne McGuire MP made the point in another place that where high levels of appeals are successful, such as on ESA and DLA, a protracted reconsideration and appeals process will disadvantage claimants, driving them into debt and into the arms of the food banks.

We note that the Government have declined to place time limits on the reconsideration process—the Minister confirmed that tonight—but it seems from their response to the public consultation on mandatory consideration that they will consider making proposals for an interim performance indicator. Perhaps, therefore, I can take the opportunity to repeat some questions posed by my honourable friend Anne McGuire that remain unanswered. What do the Government envisage as the standard length of time for a revision prior to appeal? Will customers be told how long they should expect to wait? What action can be taken if projected timescales are exceeded, and will the department monitor and publish statistics on waiting times for appeal?

My honourable friend also took us back to earlier deliberations in Grand Committee, when the noble Lord, Lord De Mauley, was at the Dispatch Box. In response to an inquiry, he said:

“Alongside implementation of this power, we intend to make further improvements to the reconsideration process, which will include suitable arrangements for monitoring and, where appropriate, improving the speed of the process”.—[Official Report, 23 November 2011; col. GC 456.]

Perhaps we can be told what progress has been made on that.

Finally, I ask a question about the routine publication of appeals data—again going back to our debates on the Welfare Reform Act. At one stage, I think it was envisaged that there would be a cessation of the routine publication of those data. Perhaps the Minister can confirm that that is not the case.

We do not oppose the regulations, but we need to monitor them closely to see that their implementation does not create unfairness.

[Lord Freud]

Again, I thank noble Lords for some very good contributions. This is not the easiest or most digestible set of regulations. They very much replicate the existing decisions and appeals provisions but, just as the welfare reform agenda has provided an opportunity to reduce the complex range of income-related benefits, with the introduction of UC, it has also provided an opportunity to rationalise the rules governing the administration of these new benefits. This consolidated set of regulations does that by ensuring that the rules underpinning decisions and appeal rights are clearer and more accessible, benefiting both claimants and, indeed, the department.

On the detail of mandatory reconsideration, I reassure the noble Lord, Lord McKenzie, in particular, that we will closely monitor the impact on claimants, the quality of decision-making and appeal rates during the early stages of implementation. It is a key change that will improve claimants’ experience of the appeals process if we get it right. We will also monitor appeal volumes more broadly, particularly with the introduction of the new benefits, UC and PIP. We will review and amend the advice for decision-makers guidance as necessary, and if we find that the regulations are at fault there is an option to amend them.

On the point raised by the noble Lord, Lord McKenzie, regarding the time limit, the key issue is that we will be able to handle some cases with extreme speed while others may take more time, particularly where we need to ask for more evidence. I will commit to keeping noble Lords updated on that matter. On reconsiderations, we envisage that the first point of call will be to our staff, but some people may choose to go to an independent advice centre, although we had not been envisaging this as part of the role of the local support service.

--- Later in debate ---

[Lord McKenzie of Luton]

I think I understood what the Minister said, but if during the process somebody has applied for or been in receipt of ESA and there is a challenge, it will have to go through a mandatory reconsideration process first and then out on to an appeal. Once you get to the appeal, you will get ESA at the assessment rate—I would guess until it is settled; is that right?—which is equivalent to JSA. Is that not a change from the current position, under which you in effect go straight to an appeal, however long or short that reconsideration period is?

[Lord Freud]

Under the current position, there is a voluntary process whereby people can go for reconsideration and the ESA is not payable until the decision is taken to go formally to an appeal. The difference is that we are moving from a voluntary process that some people do to a mandatory process that all people will have to do, and there is a gap. That is where concern has been expressed, and my response to that concern is that we need to keep it under control and look at how long that timing really is. I take that specific point, but on a more general point my understanding is that there was a bit of concern from the noble Lord that there was actually a change in payment from appeal. As I say, that is not happening.

Social Security (Loss of Benefit) (Amendment) Regulations 2013

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 13th February 2013 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his introduction to these regulations. As has been stated, they are narrowly focused and address particularly the issues of fraud. We share with the Government a strong intolerance of those who, through fraud, deliberately set out to cheat the benefit system. However, the three-year sanction—loss of benefit for three years—driven by non-compliance with conditionality requirements is a serious matter and demands careful scrutiny.

It is understood that these regulations are focused just on situations regarding fraud. The wider issue of sanctions and hardship provisions will be the subject of continuing debate. When we challenged the higher-level sanctions applicable to universal credit, we were told that they should apply only to a handful of individuals. Perhaps the Minister can give us some indication of the likely numbers of individuals expected to be subject to the three-year loss of benefit penalty provided for in these regulations.

The debate on these regulations in the other place covered a number of issues, which I do not propose to range over again in detail this evening. We are better informed about the offence of uttering. We know that these provisions will apply also, as does the sanctions regime, to those in receipt of universal credit who are in work. As the Explanatory Note makes clear, these regulations deal with a new three-year loss of benefit on a first offence following a benefit fraud conviction. The conviction must relate to a serious case of organised or identity-related fraud. The Minister has set out the criteria for that loss of benefit to apply.

We understand why, for universal credit, the measure of any sanction will be related to the standard component and that amounts, for example, for children and housing will continue to be paid, together with any hardship payment. The concern is that when these situations arise, the whole household, including children, will suffer, not only the individual who has committed the fraud. Amounts allocated for children and housing, for example, could be used in whole or in part for daily living expenses, with the increased risk of rent arrears and homelessness. It seems to us that there is an argument that, where there are joint claimants, there should be a presumption that in these circumstances payment should automatically flow to the main carer.

The Minister has touched on the availability of hardship payments and we have already spent some time on those this evening. I do not now propose to raise any further questions on them.

As we are probably at the end of our proceedings, I ought just to take the opportunity to thank the Minister for his display of stamina at the Dispatch Box today and for his determination to do whatever he can to answer the whole array of questions that have been directed at him, which he has done probably with minimal follow-up required in correspondence, so we thank him for that. There are obviously many issues around universal credit, which will run and run, and I am sure that we will revisit them on many occasions over the upcoming months and possibly years. But I think that we should conclude by thanking him for what he has done today.

[Lord Freud]

My Lords, I am particularly grateful that this has been quite a short debate. I appreciate the words of the noble Lord, Lord McKenzie. I do think that the debates we have on these matters are of an extraordinarily high quality. One of the reasons for that is that my department makes an effort to get information out to noble Lords so that these quite complicated matters can be understood and we do not waste a lot of time on points that are just misunderstood. However, I am deeply impressed by the number of people who have expended so much intellectual energy on gaining an understanding of what is in effect a rebuild of our social affairs. I appreciate that very much. As I say, I have taken a lot of ideas from noble Lords and I hope to be able to go on doing so. I therefore thank all noble Lords who have taken part in these debates.

I have one bit of information and one idea to steal from the noble Lord. We think that with the immediate three-year penalty for serious fraud, we estimate that there will be something in the order of 400 cases a year by 2020. The idea I want to take from the noble Lord is one that I do not think we have at the moment. It concerns the redirection of the payment away from the fraudster. That is actually a smart idea in these cases, and perhaps we shall claim it.

Universal Credit

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 6th November 2012 Lords Chamber

[Lord Freud]

My Lords, I am happy to confirm that the Treasury is whole-heartedly in support of this radical transformation of our welfare system. Part of the system relies on real time information through HMRC networks, and HMRC is driving ahead with a series of expanding pathfinders. It currently has 2 million employees or pensioners on the system today and is ramping it up into April and October next year.

[Lord McKenzie of Luton]

My Lords, the Minister will be aware, no doubt, of the KMPG survey undertaken recently. It concludes that:

“Moving to real-time information (RTI) reporting in which employers send payroll information to HMRC on or before every payday instead of after the end of the tax year is an enormous change. In the main, the larger employers are putting plans in place, or at least thinking about it. But many small and medium-sized businesses are likely to be blissfully unaware of this radical change”.

Is that not a cause for concern?

[Lord Freud]

My Lords, there is naturally a programme to get employers on board. HMRC has launched a major campaign—for instance, writing to 1.4 million employers so that they are ready in time. Even in the KPMG report, 75% of employers were aware of the change over and that was before this campaign got going.

Benefit Cap (Housing Benefit) Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 6th November 2012 Grand Committee

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

My Lords, these regulations will allow for the introduction of a benefit cap, as set out in Sections 96 and 97 of the Welfare Reform Act 2012. From October 2013, the benefit cap will form a key part of our plans for universal credit and we will shortly be bringing regulations to the House to support the introduction of this. However, we do not believe that it is right to wait until all existing claimants have migrated to universal credit before taking action. We are, therefore, bringing these regulations forward now, which will enable us to introduce the benefit cap from April 2013 by working with local authorities to reduce the amount of housing benefit in payment. The regulations are regarded as being compatible with rights under the European Convention on Human Rights.

The regulations set out the detail of the cap, including the level that it will be set at; how we will calculate a household’s overall entitlement to welfare benefits for the purpose of applying the cap; what benefits will be taken into account; how any reduction will be applied; exemptions from the cap; the relationship between the cap and benefit sanctions and other deductions; and rules on decision-making and appeals.

The level of the benefit cap will be set with reference to average earnings for working families. On its introduction in 2013, the cap will be set at £500 per week for couples and single parent households and £350 per week for single adult households. For couples and lone parents, that is a weekly income from benefits equivalent to earnings of £26,000 a year net or £35,000 gross. Exempting those entitled to working tax credit and setting the level on an earnings basis ensures that we incentivise work even further by not including in-work benefits in the cap.

This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the Summer Recess. I am grateful for their input. Noble Lords will by now be well aware of the Government’s reasons for introducing a benefit cap. It is about incentivising work and promoting fairness. As it is currently designed, we know that we pay some claimants more money when they are out of work than they could reasonably expect to earn from working full time, making it hard for people to see that they are better off in work. We are trying to tackle this with the introduction of universal credit and, alongside it, the benefit cap. The core principle is that the state should not pay more in benefits than the average family earns from work.

We have said from the start that there are certain groups to whom it would not be appropriate to apply the cap. We are exempting households which are in receipt of disability living allowance, personal independence payment, attendance allowance and the support component of employment and support allowance, as well as households entitled to working tax credit and war widows and war widowers. Since the debate on the Welfare Reform Bill, the Government have announced some additional easements: namely, those relating to industrial injuries benefits and war disablement pensions and their equivalents under the Armed Forces Compensation Scheme.

We do not want to penalise those who have recently found themselves out of work and are doing the right thing to find new employment. Therefore, we have put in place a 39-week grace period for those who have been in work for the 12 months previous to losing their job. This will allow people time to find alternative employment or consider alternative options in order to avoid the cap. Following the point raised very helpfully by the noble Lord, Lord McKenzie, during the Welfare Reform Bill debates, we have made sure that this grace period will run from whenever a person’s job comes to an end, whether or not the job finished before or after the introduction of the cap. We have consulted with stakeholders and the Social Security Advisory Committee, which considered the regulations and subsequently consulted on the impact of the cap. This has informed our plans for evaluation. We have already announced that we will publish a review after the first year of operation.

It was inevitable that our proposal for a cap would raise concerns about how it would be delivered and the impacts it might have. Many of the concerns that have arisen around the cap are based on an assumption that people will not change their circumstances. We do not believe that this is right, although sometimes people will need help and encouragement to make these changes. In the run-up to April 2013 we are working with claimants who may be affected by the cap to do exactly that.

Since May this year, those households which may be affected by the cap have been offered support from Jobcentre Plus. To date we have written to over 85,000 claimants potentially affected by the cap. We have followed this up with over 150,000 phone calls to make sure that claimants understand what the benefit cap means for them and to offer them the opportunity to work with Jobcentre Plus for employment support or to speak to their local authority for housing advice. We are also engaging across government and with local authorities to ensure that households are given the assistance they need to avoid the cap or mitigate its impact.

This Government firmly believe that those in the local area are in the best position to make decisions which impact people in their locality. That is why we are providing up to an additional £75 million for discretionary housing payments in 2013-14 and up to a further £45 million in 2014-15. This will be divided among local areas based on which has the greatest need. It will be used by local authorities to support those claimants affected by the benefit cap who, as a result of a number of complex challenges, cannot immediately move into work or more affordable accommodation, providing support to those who need it most, such as those fleeing domestic violence, and to prevent homelessness.

Finally, the Government firmly believe that there has to be a limit on the overall levels of benefit it is appropriate for the state to provide to those who are not working. The benefit cap aims to encourage long-term positive behavioural effects through changed attitudes to welfare, responsible life choices and strong work incentives. I commend these regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for the way in which he introduced these regulations. They will inflict profound hardship on many households—according to the department’s own impact assessment, nearly 60,000 households, including 80,000 adults and 190,000 children. Next year the average reduction in benefit is estimated to be some £91 a week. Our opposition to these regulations should be clear from consideration which took place just this morning in another place. It is clear, and has been since our debates on the Welfare Reform Bill, that a one-size cap never fits all—we believe that people should be better off in work than on benefit, but these regulations are flawed and likely, in our view, to increase homelessness with a likelihood also of the cap costing more than it would save.

Having said that, we welcome the commitment to the 2014 review and, as far as they go, to the categories of persons who are exempt from these and the limited DHP top-up—the loaves and fishes as they will for ever be known as a result of my noble friend Lady Lister. The Minister’s department says that it is giving early notice to all claimants who could be affected by the cap. We have heard that 85,000 claimants have been contacted, with 150,000 phone calls made, so that they can change their circumstances and perhaps move into work. In addressing the inequities of the underoccupation provisions, the Government expect households to cope with this loss of income by starting work, reducing non-rent expenditure, using other income and moving to cheaper accommodation or a cheaper area. Given the work which the department has done to identify those households affected, can the Minister tell us how many households have other income to ameliorate the effect of the cap, what types of income are involved and what the average amounts involved are?

Some 64% of those affected are claiming either ESA or income support; that is, they are not required to be available for or seeking work. Some 50% of the households likely to be affected are lone parents. The criteria under which people are characterised at the moment under the welfare system are stringent. They are not spurious, so on what basis is the department seeking to override these designations? Is the department seeking to differentiate between individuals for this purpose and, if so, on what basis? We know that some 5,200 affected by the cap are in receipt of carer’s allowance because the qualification for carer’s allowance depends, among other things, on a person not being gainfully employed. What advice would the Minister give to these households and what is their route to avoiding the impact of this cap?

So far as reducing non-rent expenditure is concerned, can the Minister tell us what the department’s detailed engagement with those affected has concluded to date? How many households has it assessed as having scope to reduce non-rent expenditure and what are the main types of expenditure involved? So far as moving to cheaper accommodation is concerned, we note that nearly half of the households affected—46%—are in the social rented sector. What cheaper accommodation does the Minister think can be accessed and how does he consider that local authority allocation policies, which would typically have a local connection requirement, will assist in these circumstances? As for uprooting and going to other areas, has any assessment of the impact of this on families been made, especially the consequences of fracturing local support arrangements with the impact on health and educational outcomes? From the work undertaken to identify those families currently likely to be affected by the cap, how many such households have someone with a mental health condition and how many occupy housing that has been the subject of a disabled facilities grant?

We are indebted to the National Housing Federation for its briefing notes and the points that it raises, which I would like to go over. So far as discretionary housing payments are concerned, it says that the announced increase to help people hit by the cap after losing their jobs is welcome but that it is not appropriate to rely upon a discretionary, time-limited scheme to cover ongoing and legitimate higher housing costs. Concerns have also been raised about the levels of DHP available. In its report on the impact of housing benefit changes, published this month, the NAO said:

“It is not clear how the current level of funding for Discretionary Housing Payments has been determined or whether it is likely to be sufficient for local authorities in tackling the impacts of reform”.

Perhaps the Minister can therefore give us a breakdown of those calculations and the assessment.

The issue of temporary accommodation has, I think, exercised a lot of people. The National Housing Federation says:

“Temporary accommodation is a vital part of the homelessness safety net. It saves money by minimising the need for more costly emergency interventions such as housing families in Bed and Breakfast accommodation. However, it is more expensive to procure and manage than mainstream private sector accommodation.

It is for this reason that the Federation has argued for it to be exempted from the benefit cap. Due to these additional costs, without an exemption from the cap, many families will find themselves unable to meet their rent.

Households are placed in temporary accommodation by local authorities and as a result will have little scope to move to reduce their housing costs. These families, who have been made homeless through no fault of their own, could be forced to move long distances or cut back on essentials in order to pay for accommodation which they themselves have not chosen”.

How does the Minister respond to that point? The federation goes on to say:

“The cost of exempting temporary accommodation from the cap is £30 million—a small proportion of the estimated £270 million savings expected to be gained from the imposition of the benefit cap itself”.

What is the Minister’s response to that? It continues:

“While Government has said that under Universal Credit it will fund the management costs, if not the housing costs, of temporary accommodation outside the benefits system—helping some families avoid the cap—this will not protect claimants before they transfer to Universal Credit”.

--- Later in debate ---

[Lord Freud]

I am trying to say that if you read the stories carefully, as I have been, you will see that they refer to preparatory moves about what councils may do and what they are preparing for. The stories are fairly evanescent, if you look at them closely. Clearly one reason for that is that these changes have not happened yet. Through this year, we have had the introduction of the LHA reduction from 50% to 30%, which my noble friend Lord German talked about. There has not been a huge flood of changes as a result of that. The stories are about councils being worried and their preparatory plans. They are about plans to move people around councils, but local authorities have always done that, for the reasons that I have given. They have always had this problem in London—people arrive and the councils have had to do something about them. Let me repeat the obligation in the 9 November regulations. Under the regulations, local authorities are required to keep people in the local area whenever they can and to carry out a full impact assessment before moving people out to other boroughs. We have strengthened that localism point in recognition of the same sentiments that are concerning noble Lords today.

[Lord McKenzie of Luton]

Could the noble Lord just remind us which regulations these are? Is it right that they have already been laid and will come into effect? Under which provisions are they?

[Lord Freud]

They were DCLG regulations—I cannot remember the exact title, so forgive me. They have been laid and cleared and they are due to come into effect on 9 November. They are under the Localism Act—the noble Lord may be more familiar with them than I am.

On whether people will be treated as intentionally homeless if they are evicted as a result of rent arrears caused by the cap, again, it is for local authorities to make decisions on individual homelessness applications, as they do now. Under the statutory legislation, if the only reason for a person’s homelessness is a reduction in benefit that is outside their control, they should not be considered intentionally homeless by their local authority. The help available includes cases where the reduction is not much; it includes help in renegotiating rent or making up small shortfalls, help with moving to more affordable accommodation, other means of trying to help people back into the workforce, and so on.

There was a group of questions around the delivery process, which I will try to gather up into one. The department will identify cases through scans of analytical data, which will be clerically checked against live IT systems to see whether any exemptions or grace periods are in place, and it will obtain up-to-date benefit amounts. Data will then be transferred electronically to local authorities via ATLAS. The LA will confirm the correct amount of housing benefit and can apply the cap via an automated system. It will issue a notification to the claimant informing them that their housing benefit is being capped and the amount of their new housing benefit award. This notification will also give information on support available and who they should contact if they have a query about the decision.

[Lord McKenzie of Luton]

Before the Minister leaves that point, I am interested to understand the process, the mechanics. He said that there will be scanning of all the data. Of course, some of that would have to be of benefits that do not currently feature in housing benefit calculation. Will that be an ongoing scanning? I see that the Government are going to do something upfront to try to identify people, but people’s circumstances change. Will it be a real-time scanning?

[Lord Freud]

When there is a change in circumstance, it is up to the claimant to inform us of that, as it is now. We are still in the old world, or the existing world before universal credit. To ensure that all changes of circumstance are applied in a timely manner, we will use CIS, the customer information system, to report them. I think that the noble Lord is referring to that system, which holds a record of most benefits included in the benefit cap calculation. As the noble Lord pointed out, some of them are not included in CIS—especially child benefit, which will be identified by a further data match with the monthly IGS scans.

[Lord McKenzie of Luton]

I know that the noble Lord has a lot to get through, but is the obligation to report a change of circumstances an obligation arising from a change of circumstances which would affect the application of the cap, quite apart from obligations in respect of other benefits? Is that what we are talking about here?

[Lord Freud]

I was referring to the change of circumstance to the individual. Clearly, if we are changing benefit structures in some way, we will know that and be able to make that adjustment and send the new information over to ATLAS, but the important facts are the changes of circumstance of the individual, who will make the application for the benefit in the normal way. It will come through the systems and be scanned, checked, compared and sent over.

[Lord McKenzie of Luton]

A change of circumstance that would put someone within the benefit cap when they were not currently? Would an individual making a housing benefit claim have to say, not only, “I have applied for a change of circumstances that may change the level of housing benefit”, but, “I think I am therefore liable for the cap? Can you do me for it?”?

[Lord Freud]

It will not be exactly like that. It will be no change from the present position, where you should inform us of changes in your benefits in the normal way. When that happens, it will work through in the normal way into our systems. There is an obligation on all benefit recipients to inform us of changes in circumstances. There is no obligation on the part of the benefit recipient to inform us in relation to the cap; it is only to inform us in the normal way of changes in circumstance, as applies to the rest of his or her benefits.

[Lord McKenzie of Luton]

I apologise; I promise not to intervene again after this one, but that obligation, for example in relation to housing benefit, would be to report the change of circumstance to the local authority, not to the DWP. How does that fit with the notion that it is basically the DWP which has to notify the local authority, “We’ve got somebody here who may be subject to the cap”? Seemingly, there is no ongoing separate obligation on the local authority to report back in the opposite direction?

[Lord Freud]

I will be corrected on this if I am wrong, but ATLAS works both ways, so the information flows both ways, so we will have the information and will be able to notify and go through the normal process. We will know what is happening on housing benefit. That is how it will flow back and forth. There had to be an adaptation to ATLAS to make it a two-way flow. When it started, as the noble Lord probably remembers, I hope with nostalgia, it was a one-way process.

How and when are the guidelines being produced? The local authority Practitioners Operational Group, with a subgroup based on the benefit cap, has been briefed at working level on detailed procedures and guidance. Members have confirmed that people will develop detailed guidance and products which will supplement those to be published via the DWP intranet and the LGA’s knowledge hub.

The way that the benefit cap interacts with financial sanctions is that the benefit cap will apply to the overall level of household benefits. If the sanction is imposed, any reduction will be applied to the sanctioned benefit after the application of the cap. Otherwise, clearly, the impact of the sanction would be negated.

My noble friend Lord German and the noble Lord, Lord McKenzie, raised the issue of ESA. The specific exemption is to do with the people in the support group of ESA, not in the WRAG group. Several noble Lords mentioned carers. The benefits system is designed to provide financial support where caring responsibilities prevent carers working full-time. As such, the carer’s allowance should be treated in the same way, for the purposes of the cap, as other income-maintenance benefits. Clearly, where the carer is in the same household as someone entitled to DLA or ESA support, the whole household, including the carer, will be exempt. Most carers of working age want to retain a foothold in the labour market where possible. We know that more than nine in 10 claimants receiving carer’s allowance are claiming another out-of-work benefit. In other words, they are looking for work. Carers who move into work clearly become eligible for the working tax credit and will be exempt from the cap.

--- Later in debate ---

[Lord McKenzie of Luton]

Can the Minister help me on one more point on the period of grace? If somebody is employed but falls out of work completely, and would otherwise fall within the benefit cap, the period of grace would operate. One of my questions is to do with circumstances where somebody is outwith the benefit cap because they are fully employed and then they fall below the level at which working tax credit kicks in. They are not unemployed at that stage, but their earnings are lower, their benefits are higher and they are potentially within the cap. Does the period of grace protect them in those circumstances? It would be logical that it should, but I am not sure that it does.

[Lord Freud]

Yes, effectively, in the current system, going below the 16 hours would take you into the benefit system, so formally out of work. Clearly, under universal credit it would be a very different system, and we would have to have a notional figure of what the equivalent of work is, which we will introduce when we have the universal credit. The noble Lord is absolutely right in his analysis and his conclusion that there is no other way of doing it when you think about it, given our existing system.

My noble friend asked when we will publish our guidance. We had consultation on that guidance in August and we will make it available towards the end of the year. I can confirm that DHP will be allocated on the basis of greatest need. We are consulting with local authority representatives right now—in November—and we will make an announcement at the end of that time.

I am taking a long time, but with the forgiveness of noble Lords I will keep going, because there are a lot of interesting questions to answer. I could end up writing, but I would prefer to deal with them now if noble Lords will indulge me. My noble friend raised the cumulative impact of the changes on the housing market. We are monitoring this really robustly; I think we have one of the best assessments on what happened to housing changes in terms of the LHA changes that we have made. I think the noble Lord, Lord Best, would agree that it is one of the most thorough examinations of what really happens in a housing market when you make these changes and it will be valuable for a lot of the purposes. Clearly there is an overlap when we look at the effects of the benefit cap as well.

On the issue of the calculator not working, we have had stringent availability standards and there were two short periods when it was down for maintenance. There is a lot of help available to use it. On behavioural change, one of the things you can never predict when putting in these pressures is how people’s behaviour will change. However, we really are working with a lot of stakeholders to make sure that decisions are made such that people respond positively to the implication of the cap for them.

I can confirm to my noble friend that we are committed to tackling child poverty, but clearly our focus is on trying to tackle the causes of that poverty and not just moving people around on slightly artificial income lines. One of the things that universal credit will do is to move a lot of adults and children out of poverty. I make the same point to the noble Baroness, Lady Lister. We are looking for better measures and clearly the negative impact on child poverty may be mitigated if affected adults in the family move into work and the benefit cap supports our plans to make work pay. The £500 per week limit for couples and households with children is above the poverty line for a lone parent with up to four children, and broadly equates to the poverty line for a couple with four children; looking at the mechanics, that is where it is.

Unemployment: Young People

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 24th October 2012 Lords Chamber

[Lord Freud]

My Lords, the figure I have on apprenticeships for 19 to 24 year-olds is 31% of the total, which is 457,000 starts. I cannot work out the 31% in my head, but I might be able to do it later.

[Lord McKenzie of Luton]

My Lords, on the matter of the youth contract, how many wage subsidies have been taken up to date? How does the Minister consider that sustainable employment opportunities for young people would be enhanced by denying the right for under-25s to access housing benefit?

Housing Benefit (Amendment) Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Monday 15th October 2012 Grand Committee

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

My Lords, these regulations introduce the underoccupancy reductions for working-age social sector tenants. They also support the implementation of the annual CPI uprating of local housing allowance. The regulations are regarded as being compatible with rights under the European Convention on Human Rights. This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the summer Recess. I am grateful for their input. I do not intend to go over old ground. There is nothing new in the regulations that we did not debate during the passage of the Act. The purpose of today is to look in detail at the working of the regulations.

As I have said, there are two main purposes to the regulations. First, they make two changes to support implementation of the measure to uprate the local housing allowance by CPI from April 2013. The current provision to review existing LHA cases on the anniversary date of the claim will be abolished from January 2013. Instead, all claims will be reviewed annually on 1 April when the new LHA rates are set. This brings LHA in line with annual changes to other benefits. There will also be provision to review a case if the rent changes throughout the year, so that tenants will not have to wait until the annual review date.

Secondly, the regulations introduce restrictions to housing benefit for working-age claimants who are living in the social rented sector and occupying accommodation larger than their household size requires. The same size criteria that are applied to claimants living in the private rented sector will be used to determine whether accommodation is being underoccupied. These changes will result in a 14% reduction to housing benefit for those underoccupying by one bedroom and a 25% reduction for those underoccupying by two bedrooms or more. The average reduction in housing benefit will be £14 per week for those affected.

The reasons for reform are clear. As noble Lords are aware, this is part of a package to contain housing benefit expenditure. Importantly, there are more than 250,000 households living in overcrowded accommodation in the social rented sector in England—they need more space. We cannot justify paying housing benefit to cover the cost of extra bedrooms while others struggle in cramped accommodation. People who rent from a registered social landlord or local authority have in large part had their rent paid in full through housing benefit. This is not the case for those who receive housing benefit for a privately rented property. They have to make hard decisions about what is affordable to them and where to live, as do people who pay their own rent in full. It is time for those in the social rented sector to make similar choices. Some tenants may look to meet any shortfall in housing benefit by increasing their hours of work or taking in a lodger.

Crucially, this change will provide an impetus for landlords to manage their stock more effectively and help us address the real shortage of homes. There are approaching 1 million extra bedrooms in the social sector that are being paid for by housing benefit for working-age customers. This is indefensible. It is a waste of valuable housing stock. Interestingly, there is already evidence within the industry of a change in management of stock since the policy was announced. Seven local authorities and 11 housing associations in the West Midlands have come together as the West Midlands Making Best Use of Stock partnership and agreed to pool at least 150,000 homes to allow tenants easy access to properties across the region. The partnership hopes that this will enable people to find a house with the exact number of bedrooms that they need in order to avoid underoccupation.

Landlords across Merseyside have also developed a region-wide home swap scheme in response to the size criteria. Twenty housing associations and five councils are taking part; they own a total of 107,000 homes between them. Of these homes, 2,000 have been identified as underoccupied and they believe that another 5,200 could be underoccupied.

We expect to see positive behavioural changes among housing benefit tenants in the private rented sector, following our earlier reforms. Some claimants have said that they will look for a job to make up any difference between their rent and housing benefit and others will look for more affordable tenancies. This supports our view that the changes are both proportionate and measured.

During the debates on the Welfare Reform Act, I made a number of commitments to noble Lords and I will take a moment to update you on these issues. I know that some are concerned because the regulations do not define what constitutes a bedroom, including the room size. However, in practice, others take a different view. After discussions with the National Housing Federation, the Riverside Housing Association and others, we have concluded that most welcome the flexibility that comes with not including in the regulations a definition of what constitutes a bedroom. Some landlords made it clear that defining this in legislation would introduce a system that might involve them having to measure every room. So we are leaving it to landlords to specify the size of property, as they are best placed to do that. We expect the information that they provide to be reflected in the level of rent charged and to match what is agreed in the tenancy agreement.

In previous debates I said that we would think about costs to landlords as part of our engagement with other departments. We are working through the financial impacts on local authorities with the Department for Communities and Local Government as part of the new burdens protocol. That department has also funded the Chartered Institute of Housing to produce guidance for landlords. Making it Fit was published in May and included information on how to model and assess any risk to rental income. My department has met local authorities and advice organisations during the development of this policy. We have also produced comprehensive guidance to help them prepare for the changes in April next year. This includes a toolkit with model letters, leaflets and posters designed to heighten awareness among claimants.

On the next issue, we are adding £30 million to the discretionary housing payments fund from 2013-14. This is aimed at helping claimants living in significantly adapted accommodation and foster carers. I said that I would keep a watchful eye on this. We are currently talking to local authorities and are considering carefully how best to allocate this money. A decision will be made later in the year. I will also keep the discretionary housing payments funding under review.

There has been much debate over whether there should be specific exemptions from the underoccupation reductions for different groups. A presiding principle in the development of this policy has been simplification. For a policy to be administered easily and simply there must be few exceptions.

I have heard concerns that we are relying too heavily on the DHP fund and that there is not enough in the fund to help all those who will be affected. But we do not expect DHPs to be available to everyone who sees a reduction in their housing benefit due to underoccupation. The additional £30 million is targeted at those in adapted accommodation and foster carers. We have added a realistic sum based on what we can afford.

Finally, I should like to confirm that as far as the research timescales are concerned, the monitoring and evaluation will be for two years from April 2013 to March 2015. Initial findings will be available in 2014 and the final report in late 2015. We hope to start the formal commissioning process in the next month or so. We currently envisage that the evaluation will include small-scale primary research with a range of social landlords in local authorities across England, Scotland and Wales. Different types of authority, including a range of urban, rural, county and district local authorities, will be included. These will be selected to cover a range of different housing market demands so that we can explore the effects of the size criteria effectively.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his introduction to these regulations, which as he has explained cover two main areas: the introduction of size criteria into the social rented sector and the process for uprating the local housing allowance by CPI. I should say at the start that we oppose the regulations, particularly those related to underoccupation. The introduction of the size criteria— I think that we should adopt the Lord Best terminology and call them the bedroom tax—via the Welfare Reform Bill was hotly contested and rightly the subject of government defeats in your Lordships’ House. As noble Lords will recall, the hammer of financial privilege was ultimately deployed by the Government to get their way on the bedroom tax, and a £13 million top-up to the discretionary housing budget paid for by increased pain on the bedroom tax does not adequately address the strong reservations that are being expressed. Nor does it compensate for the misery that these regulations will bring to potentially hundreds of thousands of households. As the Minister has explained, the impact assessments make it clear that the regulations could affect 660,000 housing benefit claimants living in the social rented sector. They could mean an average loss of housing benefit of £14 per week, which is £700 a year.

Of course underoccupation in the social rented sector should be tackled, and many councils have a variety of schemes to do this. We would certainly support the arrangements and partnerships referred to by the noble Lord in presenting the regulations, but seeking to tackle it by curtailing housing benefit, as these regulations provide, is simply not acceptable. Indeed, it does not address the situation where under-occupation as defined is most prevalent—among older tenants. One of our objections to this policy is the lack of practical alternatives that tenants face. The uprated impact assessments make it clear that there is generally a surplus of three-bedroom properties and a lack of one-bedroom accommodation, so in many areas there are simply insufficient smaller properties for tenants to move into. I would also ask the Minister how far the Government think it reasonable for someone to move and thus uproot their family from existing networks of support—100 miles, 200 miles or perhaps 300 miles. If someone has to leave a job to move to a smaller property, will that be treated as good reason for the purposes of a claim for JSA, and does the Minister have any data on the average cost of moving home?

How practical does the Minister consider some of the various options that are laid out for tenants to consider, such as making up a shortfall from income? What other income does the Minister have in mind which is not taken into account in a housing benefit calculation in the first place, and which would of course gradually have a 65% taper in any event? Does the Minister specifically include disability benefits in this consideration? If it is savings, perhaps the Minister can tell us what the average working-age household savings are and how many weeks’ shortfall in housing benefit at £14 a week they would cover? It is suggested that moving into work or increasing working hours would be a solution. So far as moving into work is concerned, what happens if there is no work, and why does the Minister consider that the incentives to come in with universal credit are insufficient of themselves to encourage people into work? For how many households does the application of the WCA determine that somebody is not fit for work?

Child Support Maintenance Calculation Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Monday 15th October 2012 Grand Committee

[Lord Freud]

Yes, my Lords. The approach is to bring in a new system, which is efficient and automated, at a level that does not consume a lot of resource to start with. You are running your existing systems with the resource that they require. As you ramp up the new system, it starts to establish itself, because you are doing it on a careful pathfinder basis that maintains that automation and efficiency. Then you can start, in practice, reducing the load on the other three systems. That is how you get the gains by doing it, and that is why it is so important to ramp up the new system so that it does not throw a huge amount of clerical work back into the system to compound the clerical overload. We are still running 100,000 cases clerically in one way or another. It may appear a bit smoother to the outside world now, but every £100 transferred is costing the state £35, and that is not something that any Government can tolerate. That is the process: get something efficient; roll it out when you know that it works; build it up; and then start to work down your existing portfolio. That is the process.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, asked about assets and lifestyles. The reality is that that provision was very difficult to use, as everyone involved knows. It was not a successful mechanism for the parent with care to use. Capturing actual income is far more meaningful for parents and far more administratively achievable, which is why we switched over to that approach.

The minimum flat rate of £5 has not increased since 2003 and will remain until the new scheme is fully open to all new applicants. I fully accept the point made by the noble Baroness, Lady Sherlock, about whether it is compatible with UC. At some stage in the future, it may be possible to look at tapers and matching it up, but it is too soon to do that. I accept the general point, but I do not think we are there yet.

The noble Lord, Lord McKenzie, asked about ignoring unearned income in the calculation. We are making the main calculation on taxable employment income, trading income or pension income because HMRC holds that information for the vast majority of taxpayers. Taxpayers who are not liable for self-assessment are not required to declare income of less than £10,000 per year from savings and investments. It would be unfair to take account of unearned income details sourced from HMRC and not pursue parents who had that income but were not required to declare it. Asking non-resident parents to supply that information would be to repeat the delays of the current schemes where non-resident parents are often unco-operative. A parent with care can apply for a variation to take account of unearned income. It is the same with shared care. The noble Lord was right that where it was agreed that there was shared care and the disagreement was about how much it was, the one-seventh assumption would come in. Where there was no agreement that there was sharing, it would have to be done by way of variation.

On taking account of pension schemes, the new scheme will, as now, allow contributions to an occupational pension scheme to be deducted from income, with the resulting figure used to calculate child maintenance. There is no limit on the amount of contributions that can be deducted. That is not a change in the existing system.

[Lord McKenzie of Luton]

I apologise for interrupting the Minister. The question I asked there was: if it is a net pay arrangement, does it get dealt with automatically via HMRC? If it is not, then it requires the non-resident parent to do something, to say, “I am making these contributions and want that reflected”. My question was whether there would be any prompt to the non-resident parent because many would not necessarily know that that was available to them.

While I am on my feet, perhaps I can go back a bit to this issue of variations, lifestyle and all that. We accept the difficulty in identifying unearned income, particularly that which does not have to be reported to HMRC. Why would it not be in every parent with care’s interest automatically to seek a variation on the basis that the non-resident parent may well have some unearned income, simply to see what comes out of the pot? Effectively, HMRC will automatically have to look at that.

[Lord Freud]

May I offer to write on that issue? We are layers down. Rather than dealing with that impromptu I will aim to write, as I will on how the prompts might work for the non-resident parent on their pensions. Again, that is getting to a level of technicality that I do not have at my fingertips. On tax credits, ignoring that loses 100,000 families about £6 a week in maintenance. Both noble Lords made that point. Again, that is an attempt to get rid of a level of complexity and drive through simplicity. We have set the percentages and thresholds to ensure that changes in liability are minimised except where, as a flat rate, we deliberately intended to raise them. We expect more than half of non-resident parents to pay more than under the current scheme.

--- Later in debate ---

[Lord Freud]

I will either produce information or a justification.

On the war pension point made by the noble Lord, Lord McKenzie, a war disablement pension is considered a prescribed benefit, in which case the flat rate of maintenance will apply. A parent with care can apply for a variation to take account of any additional income received by the non-resident parent.

On the 12-month rule and the position with the Scottish minutes of agreement, we are in discussion with the Ministry of Justice and colleagues in the Scottish Government to ensure that the statutory maintenance system and the family justice system both north and south of the border work together as effectively as possible in the interests of parents and children. We are hoping to meet family lawyers’ representatives in England and Wales and Scotland to discuss this soon. However, I should say that at this point we are yet to be convinced that there is a compelling case for legislative change.

In reply to the question from the noble Baroness, Lady Sherlock, on the level of information and evidence required from a parent with care to make an application for variation, the link with HMRC means that the department has immediate access to a non-resident parent’s income information, which removes the requirement for the parent with care to supply substantial evidence of the non-resident parent’s financial circumstances. That means that fewer applications will be rejected at the preliminary stage and makes it easier for the parent with care to apply for variations. I believe that I have dealt with all the questions.

[Lord McKenzie of Luton]

Perhaps I may briefly revert to the issue of shared care when it is equal shared care. Obviously if both parties agree that there is equal shared care, they would not be in the system anyway because no maintenance would flow from it. Clearly it is potentially in the interest of the non-resident parent to claim equal shared care because then there would be no maintenance liability. What will the process be for determination of that and whether any form of appeal is attached to it?

Public Bodies (Child Maintenance and Enforcement Commission: Abolition and Transfer of Functions) Order 2012

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 12th July 2012 Grand Committee

[Lord Freud]

Actually, I would like to turn that around on the noble Baroness; I will accept a letter from her on the lessons from history, and I will pass it on and make sure that they are applied. I look forward to receiving that.

On my noble friend Lord Kirkwood’s question about how we will achieve the savings, we are talking about securing ministerial accountability—this is not about driving savings. The amount of savings from this measure is pretty modest: direct savings are probably running at about £500,000 a year, and that is due to changes to IT systems and one-off costs. We would hope to see longer-term savings from integrating services more deeply into the department. I think, and this point was raised by my noble friend Lord German, that there are some real opportunities here to get holistic support. The longer that I have been in this job, the more I have realised that bringing support together for people and families in trouble is the way to go. There is an opportunity for us to pull the services together in this context as well as in other contexts.

I am tempted to offer to write to the noble Lord, Lord McKenzie. I always feel that it is a triumph if I can get out without offering him a letter because I can answer all his very clever questions. I think that I am down to the one on adverse tax consequences. Although it is always difficult to prove a negative, I cannot imagine how there can be adverse tax consequences because we do something in the middle of the year, when they are both effectively Crown bodies. If that is a wrong tentative statement, I will commit to write, but I hope that I will have avoided any need to put pen to paper for him on this occasion; that would be one of my personal targets. This is about making sure that Ministers are fully accountable to Parliament.

[Lord McKenzie of Luton]

So that the Minister does not have to commit anything to paper, will he deal with the question about the enforcement powers? There is a whole raft of them in the 2008 Act. Those are all presumably going to be taken over by DWP. Where is the department on bringing those into effect?

[Lord Freud]

My Lords, the noble Lord is right: we just transfer those powers over. There is no change in them. As to the detailed timetabling of all that, we are preparing to show that to noble Lords. The easiest way is if I come to that, unless I have a miraculous answer—which I do not think that I have to this specific question. I will deal with that when we assemble, quite soon, on that issue. I will not write.

I close by reassuring noble Lords that ensuring that children get the support that they require, both financial and otherwise, when their parents cannot live together and ensuring that they have the best opportunity to thrive during their childhood is what this is about.

Social Security (Civil Penalties) Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 12th July 2012 Grand Committee

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

My Lords, I can confirm that, in my view, the statutory instrument is compatible with the European Convention on Human Rights.

These regulations support the powers introduced by Section 116 of the Welfare Reform Act 2012, which allow both the Secretary of State and local authorities to impose civil penalties in relation to benefit claims and awards in certain circumstances. That section allows for the amount of the penalty to be set by regulations. Our reason for bringing forward these regulations is straightforward. It is right that claimants should take responsibility for the information which they provide in order to receive benefit, or to notify us of important information affecting their entitlement. Claimants are in the best position to tell us of these facts and of these changes as soon as they occur. When you consider that £1.3 billion is lost each year as a result of claimants who fail to do this, it is clear that we have an immediate issue to address.

Introducing a civil penalty will help to make claimants more personally responsible for the overpayments they incur and encourage a positive change in future behaviour. We remain committed to tackling the intolerable financial loss through claimant error and the regulations before the Committee support that aim, the detail of which I will now explain.

In bringing forward these supporting regulations, we have set the civil penalty at £50 in all three cases where a penalty may be imposed. The amount of £50 was previously announced in government publications and was stated by me and my honourable friend in another place during the passage of the 2012 Act. I trust, therefore, that the penalty level is no great surprise today. In setting the penalty at £50, we aim to be tough but fair in our approach. It is also a significantly lower amount than the harsher consequences which would apply to those who commit benefit fraud offences. The penalty is directed at a failure to take proper care of a benefit claim, as distinct from fraud. We believe that £50 is an appropriate amount for the penalty level. It is high enough to encourage claimants to take more personal responsibility for overpayments incurred through their negligence as well as encouraging a positive behaviour change in any future dealings with the department. The penalty will be simple to calculate and easy for the claimant to understand and recognise. Providing for the same penalty to be imposed in all three cases where they can be imposed will allow for this.

I reassure noble Lords that we will always consider the individual circumstances of the case when deciding whether to impose a civil penalty. To be clear, we must tackle claimant errors which results in losing as much as £1.3 billion each year. This penalty will help us to achieve that. Those who continue not to take proper care of their claim in future will also risk incurring a £50 civil penalty on top of having to pay back the overpaid money. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of these regulations. They have of course already been considered in another place. We do not object in principle to what is proposed, given that some £1.3 billion is lost through claimant error each year. I do not know if the Minister has an update on estimates of benefit overpaid through official error; if he does, it would be of interest to hear what that number is.

As we have heard, the civil penalty is set at £50 for each of three types of error, namely incorrect statements, failure to provide information and failure to notify changes of circumstances. So far as incorrect statements are concerned, they must have been made negligently and reasonable steps not taken to correct the error. In the case of disclosure of information and failure to provide details of changes of circumstances, there is the defence of “reasonable excuse”. It is therefore acknowledged that application of the civil penalty should always require a judgment to be made; the Minister confirmed that.

Can the Minister confirm first that, except in the case of housing benefit and council tax benefit, the judgment will always be made by Jobcentre Plus decision makers and not by contractors? The Minister of State in the other place confirmed that guidance would be available to staff, but we would be grateful if the noble Lord, Lord Freud, could say a little more about that guidance. We have discussed many times the situations of those with mental health conditions, especially those with fluctuating conditions, in connection with the issue of sanctions. The same issues must surely run for the issue of penalties. Can the Minister say specifically what the guidance is likely to cover in this respect?

The Explanatory Note says that DWP will,

“draw on the expertise of interested outside stakeholders to ensure that guidance, communication products and decision making processes are suitably tailored to meet the needs of the range of claimants”.

Might we be told what this has amounted to, to date?

In passing, we had a very helpful presentation on progress on universal credit earlier today. I did not spot anything flagged as part of the claimant process issues around the prospect of civil penalties in the various bits of information we had, but perhaps we missed it in that presentation.

The Explanatory Memorandum states at paragraph 7.7 that where a failure to disclose could cause an overpayment of more than one benefit,

“only one civil penalty will apply”.

What is the situation where the failure relates to an assessment of, say, jobseeker’s allowance and housing benefit? Prior to universal credit being introduced, the appropriate authority for the latter will be the local authority, not the DWP. How will it be ensured that only one civil penalty will arise?

We debated this during the passage of the Welfare Reform Act, but will the amounts collected in penalties accrue to the Treasury, to the DWP or to local authorities? If the latter, how will a single civil penalty be divvied up?

There was discussion in the other place during the passage of the Welfare Reform Act about the anticipated volume of civil penalties—in excess of 500,000—especially in contrast to HMRC data concerning parallel provisions. If this is right, it is a worryingly high volume and calls into question the real level of discretion that will be available in judging whether someone has been negligent or has failed to take reasonable steps to correct an error. What assessment has the department made of the time and cost involved in making these judgments? There must surely be an impact also on the volume of appeals. What does the Minister think this might be?

The provisions apply to the administration of council tax benefit also. As I indicated earlier, we are doing our best for the Minister to have its replacement inculcated within the universal credit through our deliberations on the government Finance Bill but, I am bound to say, some of our arguments are, unusually, falling on stony ground. Should council tax support be localised, the provisions of this order would presumably cease to have effect for local schemes, even the default ones. Presumably one would have to look to the powers in that Bill to see what alternatives might be available.

Because the universal credit is intended to be the great simplification, one would hope that that would make claims and associated issues easier to deal with and would therefore ease the circumstances in which these penalties might be applicable. However, that remains to be seen. We will not oppose these regulations.

--- Later in debate ---

[Lord Freud]

My Lords, I shall try to deal with as many questions and to avoid writing as many letters as possible. The noble Lord, Lord McKenzie, asked about the latest figure on official error. The latest figure is £0.8 billion. As regards making sure that one civil penalty will apply, we have put in place processes for decision-makers to check whether a penalty has already been applied for the same failure or error resulting in the overpayment. Only the JCP and the decision-makers, PDCS, are dealing with the non-housing matters. The way in which we ensure that we do not get a double whammy with local authorities and DWP is for local authorities to apply their penalties only when the standard housing benefit or council tax benefit is the only benefit in payment. In that way, there is no possibility of an overlap.

We are drafting the guidance and we hope to share the final draft guidance with SSAC by the end of this month. We will look to share it with other relevant stakeholders at that time to take on board their comments. The guidance will cover the obvious examples of negligence, reasonable steps and reasonable excuses. As one would expect, there will be intensive training, which will explore definitions of the penalty criteria. I do not think that the figures have changed from the impact assessment that we discussed when we were looking at the Bill. The cost is £19 million over 2014-15. The appeals estimate, which we discussed, remains purely an estimate.

In response to my noble friend Lord German’s question on the difficult mix of discretion and consistency, it is important that we have clear guidance about what constitutes the penalty criteria. Each case will be individually considered by a decision-maker. They will have general duties, such as to look at only what is relevant and to explain their decisions to claimants. My noble friend’s idea had not occurred to me. He is more devious than me about using this process to make sure that we do not have different information going to decision-makers and later to tribunals. I think that I shall take that away and think about it, as it is rather clever. That is a design issue that we shall explore.

I say in answer to the noble Lord, Lord McKenzie, that we will monitor the new penalty to ensure that it is effective—and to what extent—and that there is equality of treatment. We will use evidence from a range of sources such as administrative data and wider data sets. In practice, one of the main success criteria will be that we impose fewer penalties as time goes by.

We talked in the past about the fact that we now have a framework for conducting trials much more coherently right through the system. Clearly, we will pick out the key behavioural impacts of different aspects of the policy. How sanctions will work in that area is something that we will look at with randomised control trials. It is a very obvious test and there will be mechanisms for conducting it. We will look at the results very closely, and rather earlier than at the results of other tests, once UC has come in. I hope that I have dealt with all the issues.

[Lord McKenzie of Luton]

Perhaps the Minister would just confirm whether the penalty revenue accrues to the department or to the Treasury.

[Lord Freud]

My Lords, I distinctly remember writing a letter to the noble Lord on this matter—and I really regret that I cannot remember what I said. So I will let my letter on the matter stand. Perhaps the noble Lord would look through his files. I have just received a note to say that penalty revenue will go into the Consolidated Fund. I remember writing that now; I laid it out in detail. If the noble Lord would like amplification on that letter, which was quite long, I would be happy to give it to him, perhaps over a cup of tea.

[Lord McKenzie of Luton]

I am grateful to the noble Lord. That means that the costs associated with the system will fall on the department and the revenue will go to the Treasury.

[Lord Freud]

Yes, but in reality there will be a transfer one way and then a transfer the other way within the overall DEL settlement. There may be some minor timing discontinuities, but my officials in the DWP are extraordinarily well versed in discussing these matters with equally well versed Treasury officials and getting the flows of funds to work together—so not even tea on that issue.

As ever, noble Lords asked very informed questions. I hope that I have dealt with all of them and welcome the fact that there is general support in principle for the regulations. I commend them to the Committee.

Child Poverty

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 26th June 2012 Lords Chamber

[Lord Freud]

My Lords, I will pass that view on to the Department of Education.

[Lord McKenzie of Luton]

My Lords, as we have heard from the Minister, universal credit was supposed to be the last word in welfare reform and the route to tackling worklessness and child poverty. It is clear from recent information that it seems to be behind schedule and heading for being overbudget. Is that the reason for the Prime Minister’s latest foray into welfare reform? There are 17 ideas, which are apparently his and some of which he said could be implemented before the next election if he gained the support of his Liberal Democrat coalition partners. On which of the 17 ideas in particular is he trying to get the agreement of his coalition partners? Do they include removing access to housing benefit and the change in the link with inflation?

[Lord Freud]

I am really pleased to take this opportunity to reply and to tell noble Lords that universal credit is on time and on budget. The Prime Minister is looking at how to pull the welfare system into the future by asking some fundamental questions that we all need to think about.

Health: Needlestick Injuries

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 12th June 2012 Lords Chamber

[Lord Freud]

My Lords, I am not aware of underreporting. The reporting figures are actually rather low. In the past decade, fewer than 10 people have reported getting infected from being hit by a needle or other sharp object. Usually the infection, particularly more recently, is hepatitis B or C.

[Lord McKenzie of Luton]

My Lords, in March last year the Government set out their plans for reform of the health and safety system in Britain, and these included reductions in inspections. The document they published talked about:

“Areas of concern but where proactive inspection is unlikely to be effective and is not proposed”,

which included the health and social care sector. On what basis was that judgment made?

[Lord Freud]

The judgment was made on the basis of the number of injuries or incidents. Industries with a higher proportion of these were clearly ones on which one would target scarce resources. As I have just explained, the declared figures for injuries from sharps with infection are that 100,000 people a year cut themselves. However, the real concern is how many are infected, and that number is rather low.

Automatic Enrolment (Earnings Trigger and Qualifying Earnings Band) Order 2012

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 22nd May 2012 Grand Committee

[Lord McKenzie of Luton]

My Lords, I begin by thanking the Minister for the manner in which he introduced the order—and I think I spotted a few kind words as well.

My noble friend Lady Drake set out our position with her usual precision and focus, so I will be brief. Auto-enrolment goes live in a few months and we should take this opportunity to reflect on the tremendous efforts that have been brought to bear, not least by my noble friend, to make it a reality. Although we do not have an identity of view with the Government on all aspects of its implementation, we acknowledge their role in taking this forward in challenging times. The introduction of auto-enrolment may not be preceded by a torch relay but its effect and indeed its legacy have the potential to outshine the other exciting event that we expect to experience later in the year.

Appendix A to the Explanatory Note sets out the impact of changing the earnings trigger and the upper and lower limits of the qualifying earnings band. My noble friend Lady Drake focused on our major concern: the impact of the raised earnings trigger. As she explained, far and away the biggest number of losers are women. There seems to be an implicit assumption—which was in a sense reiterated by the noble Lord, Lord German—that these would be persistent low earners. I would be interested to know what evidence there is for that. If we wanted to align it with something that had a PAYE component, what about the primary threshold, for example?

I looked at the Government’s response to the consultation. The reason given for excluding the primary threshold was that there was no tax relief at the lower end. How much work have the Government done on this? I went to the HMRC website to remind myself of the rules on tax relief for pensions. It states:

“Usually, your employer takes the pension contributions from your pay before deducting tax (but not National Insurance contributions). You only pay tax on what’s left. So whether you pay tax at basic, higher or additional rate you get the full relief straightaway. However, some employers use the same method of paying pension contributions that personal pension scheme payers use—read more in the section on 'Personal pensions'”.

That section states:

“You pay Income Tax on your earnings before any pension contribution, but the pension provider”—

this is for personal pensions—

“claims tax back from the government at the basic rate of 20 per cent. In practice, this means that for every £80 you pay into your pension, you end up with £100 in your pension pot. If you pay tax at higher rate, you can claim the difference through your tax return”.

What happens if you do not pay tax?

“If you don't pay tax you can still pay into a personal pension scheme and benefit from basic rate tax relief … on the first £2,880 a year you put in. In practice this means that if you pay £2,880 the government will top up your contribution to make it £3,600. There is no tax relief for contributions above this amount”.

So the assertion that there is no tax component available simply because you are below the tax threshold is not true. I recall that the proposition was that NEST would adopt that alternative means of generating tax relief for people who went into the NEST scheme. Will the Minister outline in some detail the extent to which that issue was factored into the considerations; and confirm what the position of NEST is intended to be in relation to the routes by which people may get tax relief when it is introduced?

It is a great pity that the issue of the trigger has left us apart. The noble Lord, Lord German, instanced the fact that the tax threshold may rise to £10,000—part of a wider deal, I understand. We will see whether and when that comes to fruition, but it will simply exacerbate the problem that my noble friend Lady Drake outlined in such detail. I hope the Minister can deal with that point.

[Lord Freud]

My Lords, I said I was expecting a robust debate. It has been short but typically robust. What has clearly come through is that the figures around the earnings band seemed to get general acceptance in this Committee, and the real issue we are discussing is the trigger level. It is common ground that it would be pretty hard to find an earnings trigger that would target auto-enrolment perfectly. Our aim is to maximise pension saving for those for whom it is valuable, and minimise the number captured of those for whom it is not. Clearly this is not a perfect science.

The rise in the value of the trigger takes us to the impact on the low paid. As noble Lords pointed out, on balance many more women are in this category—in particular years, though it may not be a continuous position. I should put on the record that the rise from the £7,475 threshold to £8,105 excludes does not exclude 75,000 women; the figure I have is 100,000. We might as well get that on the record. Of those affected, my information is that 82% are women. We recognise that women are more likely to work part time or work less than men, and that they will be disproportionately represented in the group excluded from automatic enrolment by the increase in the trigger.

With the trigger, and automatic enrolment generally, we are talking about soft compulsion. We have developed a system that aims to capitalise on inertia—the default is saving, but we have left people who are new to pension saving to opt out if they consider that they really cannot afford it. Automatic enrolment with an employer contribution is an incentive to save. For the first year, certainly, we do not want to encourage people who do not earn enough to pay tax to divert wages into a pension pot unless their circumstances mean that it makes financial sense.

A question was asked based on reading three pages of the HMRC site, which was very assiduous. Tax relief was one of the factors considered, but not the only one. Maintaining an adequate gap between the trigger and the bottom of the earnings band was also relevant. We also needed to make sure that the right people—those who could afford to save—were enrolled.

There are two ways for a pension scheme to access tax relief for individuals. As the noble Lord, Lord McKenzie, said, schemes using relief at source can get tax relief at the basic rate even if the individual is not a taxpayer. However, where a scheme uses a net-pay arrangement, individuals can get tax relief only if they have taxable earnings. To answer the specific question, NEST will use the former, so that all members can get that tax relief.

[Lord McKenzie of Luton]

Does that mean that the tabulation in the Government’s response—which says that if the trigger is set at the primary threshold, it is not tax relievable at the lower end—would only run in some circumstances and would not run for many scheme members, particularly if they were members of NEST?

[Lord Freud]

Yes, on the basis of what I have just said, that is quite clear. For those saving in NEST, the figures would not work, while those saving in some other way, as the legislation currently stands, would not get the relief. NEST: yes; others: no. I think the silence behind me suggests a good spot there and I suspect we may look at that particular issue or anomaly —we may.

With the gently-gently approach of phased contributions starting at a modest level, we hope that we will not trigger a rush to the exit, but we do not know. We know what people tell researchers when they are asked. We can look at the opt-out rates in those countries that have similar systems. However, in the end, the evidence shows that if people feel they cannot afford it they are more likely to walk away, and the whole issue of pensions stays in the “too difficult to think about” pile. We are feeling our way here and there will be chances to make adjustments.

Youth Unemployment

Debate between Lord McKenzie of Luton and Lord Freud

Monday 14th May 2012 Lords Chamber

[Lord Freud]

I will look at that because one of the central thrusts of our policy is to ramp up apprenticeships. One of the most encouraging signs I saw when I visited a work programme contractor the other day was the way that having sustained outcomes—long-term jobs—is driving it towards putting youngsters into apprenticeships. That is a very happy fact pulling them together, and I will very happily look at anything we can do to reinforce the drive to apprenticeships.

[Lord McKenzie of Luton]

My Lords, will the Minister explain why the Government have taken the decision to exclude disabled young people on the work choice scheme from accessing wage subsidies under the youth contract? Does that not mean that they will be doubly disadvantaged?

[Lord Freud]

My Lords, we are trying to tier a structure of programmes where work choice, which is supported with its funding, is the way that young disabled people are supported.

Workers’ Memorial Day

Debate between Lord McKenzie of Luton and Lord Freud

Monday 23rd April 2012 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government what plans they have to mark Workers’ Memorial Day on 28 April.

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

My Lords, the Government extend their sympathy to all those for whom Workers’ Memorial Day is especially poignant. It is right to commemorate those killed, injured or made ill through work. The day also highlights the importance of good health and safety in the workplace. The Government continue to recognise Workers’ Memorial Day and consider that families and friends of those affected, and organisations representing workers, are best placed to decide how the day should be commemorated.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply, which I take to be personally sympathetic to Workers’ Memorial Day—which, as he said, is about remembering those who have been damaged by health and safety failures, and renewing the case for good health and safety provision. The Minister will have been availed of the report of Professor Löfstedt, which the Government commissioned. It states that,

“the vast majority of employers and employer organisations acknowledged the importance of health and safety regulation in their responses to the call for evidence and felt that, in general, the regulations were broadly fit for purpose. During the course of my review, I have neither seen nor heard any evidence to suggest that there is a case for radically altering or stripping back current health and safety regulation”.

Does the Minister agree with that? If he does, will he encourage the Prime Minister to refrain from such unhelpful utterances as “killing off the monster of health and safety”, and to act responsibly in these matters?

[Lord Freud]

My Lords, we are very supportive of the report by Professor Löfstedt. He made the point in the report that legislation,

“can contribute to the confusion, through its overall structure, a lack of clarity, or apparent duplication in some areas”.

That is why we are driving through reforms designed to make the system easy to understand, easy to administer and easy to enforce.

Occupational Health Services

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 1st March 2012 Lords Chamber

[Lord Freud]

My Lords, that is absolutely smack on what the sickness absence review is looking at and whose recommendations we will be examining. The noble Baroness mentioned Rhyl. There have indeed been some quite remarkable improvements in this area. The project with which I was most impressed was in Lincolnshire, where triage was available on the same day. Advice, triage and signposting dramatically reduced the level of absence from work and, indeed, reduced the number of sessions of prodding that were required.

[Lord McKenzie of Luton]

My Lords, one of the long-standing issues around occupational health services and intervention physiotherapy, particularly those which are accessible through the workplace, is the tax treatment of the cost, and in particular, whether it is an assessable benefit on individuals. I imagine that the likes of Barclays Bank have a way round this, but can the Minister say what the Government’s general approach is?

[Lord Freud]

As you know, my Lords, I always find it difficult to say what the Chancellor may or may not do at any time in the future, so I will avoid that. However, I will point out that there was a recommendation in the sickness absence review to have some of those services tax-allowed by the employer. The recommendation is there and we will clearly look at it.

Health: Pneumoconiosis

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 29th February 2012 Lords Chamber

[Lord Freud]

My Lords, if there are discrepancies between miners and quarrymen, I will go back and look at them. I was not aware that there were such discrepancies. I will look at them and take whatever measures are required.

[Lord McKenzie of Luton]

My Lords, as we know, one of the challenges of long-latency diseases is the tracing of old employer liability insurance policies. The noble Lord referred to that a moment ago. Will he be more specific about progress on the Employers’ Liability Tracing Office, and in particular whether it is now accepted that there should be back-filling of policies to November 1999—the start of the code—rather than applying it only to future policies? Will the Minister also say whether there has been progress on ELIB, the bureau of last resort when employer liability policies cannot be traced?

[Lord Freud]

My Lords, although there has been silence since the document came out in May 2010, I assure the noble Lord that there has been a lot of activity behind the scenes. I am holding discussions with all the relevant parties and I hope that I am making progress on the matter of tracing. Noble Lords will be aware that when a company disappears some claimants simply cannot find their insurance. That matter is under active discussion.

Employment: Work Programme

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 29th February 2012 Lords Chamber

[Lord McKenzie of Luton]

To ask Her Majesty’s Government what progress is being made by the Work Programme in assisting benefit claimants to find employment.

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

My Lords, the Work Programme provides personalised support for the long-term unemployed and those at risk of long-term unemployment. By the end of October 2011, 332,000 people were already receiving this support. We will publish the first statistics on job outcomes in the autumn.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply. As the recent NAO report made clear, the Work Programme has been bedevilled by the speed of its introduction, which included a lack of piloting, going live before the IT was in place, and compiling the business case after the decision to proceed. Perhaps this is why the Government are a little coy about releasing data, although such relevant data as we have show that benefit off-flow rates are down, not up; that referrals to the Work Programme include only a trickle of the hardest to help; and the haemorrhaging of voluntary and community sector providers. Will the Government now at least permit providers to publish their own performance data and, under the Government’s own data work programme, arrange for the publication of user satisfaction information?

[Lord Freud]

My Lords, I must point out that the NAO acknowledged that the Work Programme addressed significant weaknesses of previous programmes; that key elements within it improved affordability and drove value for money; and that it was a significant achievement to introduce it in a year. It is expected to help more people more effectively and for less money than previous programmes. As for information, ERSA has put out some information about what happened to the first cohort. It said that people got into jobs at a rate of between 18 per cent and 23 per cent, which was more or less in line with the expectations of the industry.

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[Lord McKenzie of Luton]

My Lords, perhaps I may ask the Minister to answer the question I posed. Will the Government now permit providers to publish their own performance data?

[Lord Freud]

My Lords, I thought that I had made that clear. Some performance data have been put out by ERSA. We are discussing with ERSA what kind of performance data it can put out. Clearly, we have to be careful that the information that goes out from the providers cannot undermine what the national statistics will say. That is the issue.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 29th February 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we support the Motion proposed by the noble Lord, Lord Best, and I, like others, thank him for the persistence, diligence, precision and passion with which he has pursued this subject from the start of our proceedings. I very much agree with the noble Lord, Lord Kirkwood, who said that this is no way to go about tackling issues of underoccupation; a much broader, more sophisticated approach is needed. It is a pity that we are stuck at this stage with, basically, having to live with what is in the Bill, subject to the review.

We have been told again that the amendment that we sent to the other place is an infringement of its financial privilege. It disdainfully clings to that financial privilege, which it could waive, without regard to the consequences for hundreds of thousands of households who will bear the financial burden of these cuts, in the same dismissive way that the Prime Minister today announced that the Bill would complete its parliamentary passage before noble Lords had even convened to consider it further. They brush aside our amendment, with its protection for families, notwithstanding that for some there are no smaller properties for them to move to; regardless of the fact that, for some, their disability involves them in additional costs which will be more difficult for them to meet and given their housing benefit reductions; and ignoring that many do not have a route to work to mitigate loss of benefit. The noble Lord, Lord Best, was absolutely right not to water down the amendment further and try to pick and choose which of those categories of individual is more deserving of escaping this iniquitous provision than the others.

Throughout the various stages of the Bill, we have sought to press on the Government the innate unfairness of the provisions concerning underoccupation. As we have heard, the arguments advanced have variously included the following. There is the appropriateness of adopting the CLG definition of underoccupation—a measure which provides sensible flexibility for households as family arrangements wax and wane, health conditions change, and young children grow older. There is the acceptance that only if there is suitable alternative smaller accommodation should families be expected to move, notwithstanding that that may be totally disruptive to their lives, and that meeting a housing benefit shortfall by getting a job or working more hours should not be insisted on where claimants are simply not able to work.

The losses in housing benefit a week, whether of £12, £13 or £14, cannot be borne without driving more households closer to or into poverty. Most are not sitting on substantial savings to cushion the loss of benefit; if they were, they would be ineligible for housing benefit in the first place. Moving to the private sector is likely to lead to increases in housing benefit costs for the Government rather than reductions. Taking in lodgers to contribute to the housing benefit shortfall will simply not be possible or desirable in many family circumstances. It is a false economy to force disabled people to move from a property which has been substantially adapted. To make it more difficult for those involved in foster caring makes no sense on many levels.

Your Lordships have supported those arguments, but they have been rejected by the Government in Committee, at Report and, now, at ping-pong. The only acknowledgement of the havoc, despair and poverty they will create is a £30 million annual top-up to discretionary housing benefit. Even that, as we heard from the noble Lord, Lord Best, is funded by an increase in the housing benefit reductions for all.

The Government know full well that these clauses will not solve the problem of underoccupation of social housing. They cynically do not want to solve it, otherwise their intended savings will simply not materialise. The offer they make is to move further afield, away from your community, support network, friends and jobs—not a sensible proposition, as we heard from my noble friend Lady Lister—to take a lodger, to use your savings or to earn more money. That is essentially a bogus offer, because most will simply not be able to take it up.

If we cannot persuade the Government, the least we can do is to have arrangements which will confront them with the consequences of what they implement. That is why we support the Motion tabled by the noble Lord, Lord Best, which requires an independent review of the consequences of Clauses 11 and 68. Of course, it will not be just that review which explains what is going on. Local authorities, councillors, MPs, and voluntary and community organisations—and, indeed, the courts—will get the blast from this in little over a year from now, as the cuts begin to bite.

We do not deny the need to tackle the deficit, nor that that means some hard choices, but it is genuinely difficult to understand why this contribution is sought in this way to this extent from this group of people. The alleged cost of our previous amendment, £100 million, is, when we think about it, just 20 per cent of one company’s tax avoidance schemes.

However, that is what both partners in government have chosen to do, and we have not been able to persuade them otherwise. We hope that an independent review will reinforce the points that we have made and still persuade the Government to a different view. If the review concludes otherwise, we can have no complaint.

This is not the end of the matter; it remains work in progress; but this debate marks the conclusion of our deliberations on the Bill, a Bill that we have been able to improve in some respects, but which, in too many ways, imposes unacceptable burdens on the most vulnerable. They are entitled to better from their Government.

[Lord Freud]

My Lords, let me start with two points. The first is that we plan to move ahead with these changes. The second is that I pick up the point made by my noble friend Lord Kirkwood. I heard very clearly what he said about housing strategy. On this measure, of the 3.3 million tenants living in the social rented sector and receiving housing benefit, only about one in five is expected to be affected by this change. Some will move to more suitably sized accommodation and will get support to do so. However, if social sector tenants choose to stay where they are and meet the shortfall through employment, we will offer them help in doing that. As noble Lords know, this measure applies only to working-age people. The substantial investment that we are making in the work programme and in universal credit will ensure that people are supported to find work and that work really will pay.

Jobseeker’s Allowance (Domestic Violence) (Amendment) Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Monday 27th February 2012 Grand Committee

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

My Lords, the Jobseeker’s Allowance (Domestic Violence) (Amendment) Regulations 2012 were laid in draft before the House on 19 January. They are regarded as being compatible with rights under the European Convention on Human Rights and are being introduced so that recipients of jobseeker’s allowance who have been victims of actual or threatened domestic violence can continue to receive jobseeker’s allowance without having to meet the requirements to be available for and actively seek employment, and to have a jobseeker’s agreement. The term “domestic violence” is defined in the regulations and includes physical, psychological, financial, emotional and sexual abuse.

The regulations apply to victims of actual or threatened domestic violence by a partner, former partner or certain family members of the claimant, their partner or former partner, and allow them to access the exemption from the jobseeking conditions for an initial period of four weeks if the incident took place within the 26 weeks before the claimant notifies Jobcentre Plus about it, provided that the claimant is not living at the same address as the perpetrator at the time of the notification. If the claimant then provides written evidence of the kind required by the regulations during the initial four-week period, the easement period will in effect be extended to 13 weeks. Claimants will be able to access the easement only once in any 12-month period.

During debates on the Welfare Reform Act 2009, the Lords requested an automatic 13-week period due to concerns that jobcentre advisers might refuse access to the existing domestic emergency exemption in such cases because they may not understand the impact of domestic abuse on individuals and their children. The domestic emergency deferrals are allowed at the discretion of Jobcentre Plus advisers and allow four one-week periods within 12 months for individual incidents of emergency, such as a death in the family or domestic violence. These four one-week periods can run consecutively, if appropriate. For those with dependent children, one of the weeks may be extended to eight weeks, resulting in a total maximum of 11 weeks’ deferral.

The main differences between the domestic emergency process and the new domestic violence process is the need for evidence in the 13-week deferral and the fact that victims without dependent children receive the same number of weeks’ exemption as those who do not have dependent children. Clearly the domestic emergency exemption also covers a wider range of situations. We would not expect victims of domestic violence to use both exemptions routinely, but the fact that they have an alternative available when they do not want to produce evidence, and in appropriate cases could use both exemptions in order to extend the time they are exempted from the jobseeking conditions, shows how seriously the Government take this issue.

During the debates on the Welfare Reform Bill 2009, noble Lords were concerned about the impact of domestic violence on lone parents with older children as, prior to the introduction of changes to entitlement to income support for lone parents, this group would have claimed income support and not have been required actively to seek work until their youngest child reached the age of 16.

Currently, a lone parent can claim income support only until their youngest child reaches the age of seven and this age is being lowered to five later this year, subject to Royal Assent of relevant provisions in the Welfare Reform Bill and the making of regulations. There is strong evidence to support the amendment. Although no research exists on the impact of domestic violence on JSA recipients in particular, there are data on the incidence of domestic violence in the wider community.

We are aware that 7 per cent of women and 5 per cent of men reported having experienced domestic abuse in 2010-11. This is the equivalent to an estimated 1.2 million female victims of domestic abuse and 800,000 male victims. We also know that non-physical abuse, such as emotional and financial abuse, was the most common type of abuse, with the figures showing around 57 per cent of women and 46 per cent of men being victims. Furthermore, the British Crime Survey 2010-11 showed that three-quarters of all incidents of domestic violence were experienced by previous victims. Of the victims interviewed, just under one-half had been victimised more than once and nearly one-quarter had been victimised three or more times. We are also aware that four out of 10 lone parents reported domestic abuse in their previous relationship.

The proposed exemption is designed to reflect the fact that victims may experience domestic abuse at the hands not just of partners but of other family members. This can include parents and a range of other relatives, including children. This is wider than the group originally envisaged by noble Lords in the original debates in 2009 as the Government recognise that domestic violence is not restricted to those in intimate relationships and believe that support should be offered to those victimised by family members, including members of a partner or a former partner’s family.

For victims on JSA to take advantage of the exemption they would need to disclose the abuse. There is a consensus within the evidence that domestic abuse is underreported and that victims may be unwilling to disclose abuse, particularly to officials. For example, figures from the British Crime Survey 2008-09 show that only 3 per cent of victims have disclosed abuse to a benefits agency. For this reason we think that the exemption may be taken up by about 3,000 JSA claimants per year.

In order to help formulate the policy, the department undertook informal consultations with specialist organisations, such as Women’s Aid and the Child Poverty Action Group. As a result, a number of changes were accepted. These included the first four weeks to be consecutive; all claimants will be able to access this time, if they meet the conditions, without the need to provide evidence. The remaining nine weeks need not be consecutive and can be accessed only on the production of relevant evidence.

Jobcentre Plus will introduce a pro forma for use by victims and organisations who wish to use it; and employers and trade union representatives were added to the list of those eligible to provide evidence. Those consulted expressed concern about imposing limits on the time a claimant can have to obtain evidence and about having a maximum allowable deferral period. This was because research on behaviour in abuse cases shows that victims may take two or three years to leave the abusive relationship permanently, there may be a number of incidents of abuse in that time and the victim may therefore need support over a longer period than 13 weeks.

The Government consider it unacceptable to offer longer periods on jobseeker’s allowance without the need to meet the jobseeking conditions, because JSA must remain a benefit for those able to seek and undertake work. It is therefore necessary to limit the time that claimants can be treated as meeting the jobseeking conditions. Those with problems that cannot be resolved within the 13 weeks of the deferral may be able to be treated as available for and actively seeking employment for up to a further 11 weeks under the procedures for claimants experiencing domestic emergencies. The Government consider that anyone who is not able to undertake jobseeking activity after the maximum periods that these two deferral periods allow should not be eligible for JSA.

Although the easement has much to commend it, thanks in large part to the research and consultation that have been undertaken since the introduction of the easement under the Welfare Reform Act 2009, it leaves us with duplicate processes that are more complex to operate than we would wish. I have therefore requested that, in advance of the introduction of universal credit in October 2013, staff should consider ways of streamlining the support system for victims of domestic violence who are jobseekers to keep the best of the two systems and to simplify the process.

I hope noble Lords will agree that these current changes are worth while and necessary to ensure that victims of domestic violence receive the support they require to help them achieve financial independence at a time when they are unable to take up work. With those words, I commend the regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for introducing these regulations so comprehensively and for setting out the scale of domestic violence, which sadly is prevalent in our society. As he says, the measure flows from the Welfare Reform Act 2009. I recall being pressed hard on some of the issues in which we engaged at that time.

I have a few questions for the Minister. I understood that he referred to a definition that included psychological pressure. However, the definition in the regulations states that,

“‘domestic violence’ means abuse of a kind specified on page 11 of section 2.2 of ‘Responding to domestic abuse: a handbook for health professionals’”.

I raise that in particular because a cross-government consultation has been undertaken to look at a general definition of “domestic violence” that could be shared across all departments. I want to be clear about that. I am not sure whether I have missed anything, but that is what I understand the position to be.

Why does the measure apply only once in a 12-month period? Why is that a “magic” cut-off point and does it reflect reality? Why can it operate only when the victim, or potential victim, of domestic violence is not living at the same address as the alleged perpetrator? That seems to me to be a valid point, particularly as part of the rationale for the four-week and 13-week periods was to enable someone to look for alternative accommodation. They may have short-term accommodation in a refuge, but I am not sure that an individual would be able to move out of a house in all circumstances, particularly if the abuse is threatened rather than actual. I wonder why that constraint is included. How will the measure be carried into universal credit? I accept entirely what the Minister said about rationalising the two systems so that they operate more effectively, which I think includes the assurance that the measure will be carried forward into universal credit.

In a similar vein, there are provisions in the housing benefit regulations that allow housing benefit to continue to be paid—I think sometimes for two addresses—when someone has had to move out of accommodation because of domestic violence or a threat of domestic violence. Do we have an alignment of the definitions for those purposes so that the two concepts sit together? The reforms to legal aid will restrict access to representation in family court proceedings, which makes these provisions all the more important. As regards legal aid, there are concerns about the high level of evidence that has to be produced. I do not know whether the Minister can comment further on the type of evidence that it is envisaged will be needed to access the benefit of these easements. I was pleased that, as I understand it, after 13 weeks there can be, if necessary, a further 11 weeks under the domestic emergency provisions, after which someone should cease to be on JSA if they are traumatised and in difficulty because of these circumstances.

As I understand it, the cross-government consultation has not just looked at making sure that coercive control using power and psychological control is brought within the definition of domestic violence or threats of domestic violence but at the age cut-off point. Currently, the definition extends only to someone who is 18 or over and not to 16 or 17 year-olds. Clearly there could be some circumstances in which 16 or 17 year-olds come within the scope and are able to claim JSA. There is a mismatch here, and I wonder how it will be dealt with.

All in all, I am pleased that the regulations have been brought forward and I congratulate the Government. However, I would be grateful for the answers to my few questions.

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[Lord Freud]

My Lords, as one would expect, this has been an interesting debate with some valuable contributions. I shall try to deal with the questions—slightly at random, if noble Lords will forgive me.

The evidence can be supplied by a very wide range of bodies: healthcare professionals, the police, registered social workers, employers, trade union reps, and public, voluntary or charitable bodies. My noble friend Lord German was concerned about the process being slow, but that is probably a pretty rare circumstance. Clearly there is the back-up of the domestic emergency discretion that is allowed to Jobcentre Plus when, after four weeks, the letter has not arrived and it looks as though the body is being slow in supplying it.

Both the noble Lord, Lord McKenzie, and the noble Baroness, Lady Lister, raised the issue of not living at the same address. Of course, that is how the primary legislation was framed; it says something about having to leave the address. The regulations provide financial support for a person when they have left the address, and the support is provided in order to help a person to move on. However, this is an interesting point. The noble Baroness, Lady Lister, talked about the interplay between conditionality and violence. I will bear that in mind as we look at universal credit, for which we are ramping up the conditionality. There might be households in which on the one hand the state says “go to work” and on the other hand the partner is using violence to prevent that. I suggest that that is an interesting, although I suspect rather narrow, group, but we need to keep it in mind. Overall, the purpose of this easement is to support changes in individual circumstances. That is what it is for, and clearly staying in the same place would not mean that such a change was made.

[Lord McKenzie of Luton]

It would be consistent with what the noble Lord has just said if a claim could be made without the claimant having had to have moved out of the accommodation. The claimant might wish to do that and be in the process of trying to move on. I am not sure how this is framed in the primary legislation and maybe that is where the problem lies. The prohibition seems to relate to living at the same address at the point when the claim is made, but that might just be a temporary transitional arrangement as someone seeks to move on for obvious reasons.

[Lord Freud]

I will come back with formal written confirmation, but my understanding is that the legislation is framed in terms of there having been a move rather than a move being contemplated. As I say, I will write to confirm that, but I feel relatively confident about that point.

I want to pick up on the point made by my noble friend Lord German and by the noble Lord, Lord McKenzie, about the definition. For technical reasons the word “abuse” was not used in 2009. The term used was “violence”, but I think that things are moving on. However, the substance of the title makes it clear that we are not referring to situations in which there is physical abuse—my noble friend read out the wide definition set out in the handbook. On the point made by the noble Lord, Lord McKenzie, we are using a wider definition than the cross-government one that is in current use. I refer in particular to the point about the under-18s because we do have people who are less than 18 years old and they are not excluded from this regulation. That is one of the issues that the Government are looking at in the cross-government discussion.

Social Security Benefits Up-rating Order 2012

Debate between Lord McKenzie of Luton and Lord Freud

Monday 27th February 2012 Grand Committee

[Lord Freud]

My Lords, the Social Security Benefits Up-rating Order 2012, the Guaranteed Minimum Pensions Increase Order 2012 and the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 were laid before the House on 30 January 2012, and I am satisfied that they are compatible with the European Convention on Human Rights. I will speak first to the two smaller orders: the first order makes minor amendments to protected rights; the second order increases guaranteed minimum pensions—GMPs. We will then discuss the up rating of state pensions and benefits.

The Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2012 makes minor amendments to the Pensions Act 2008 (Abolition of Protected Rights) (Consequential Amendments) (No. 2) Order 2011 in relation to amendments to be made to the Insolvency Act 1986 and the Pensions Schemes Act 1993 in respect of protected rights payments. By way of context, the 2011 order, which was approved by the House early in June last year, makes consequential amendments to primary legislation as a result of abolishing contracting out on a defined contribution basis on 6 April 2012, which is provided for in the Pensions Act 2007 and the Pensions Act 2008.

Just before the debate in the House last June, an issue was noted that related to how the proposed amendments in Article 3 of the 2011 order would work. When introducing the debate, I therefore outlined the background to the Committee and said that we would address the issue, which we are doing now. Having previously made that statement, I do not propose to take up more time with further explanation, other than to say that the instrument before the Committee amends the 2011 order, before it comes into force, to remove the exclusion of protected rights payments from what counts as income for the purposes of income payments orders made under Section 310 of the Insolvency Act 1986, and from the scope of Section 159 of the Pension Schemes Act 1993, which provides that GMPs and protected rights payments cannot be assigned or charged. Both the amendments will ensure consistency with changes made to the Bankruptcy (Scotland) Act 1985 by Article 2 of the 2011 order. This is consistent with our original policy intention that the tracking of protected rights would cease after the abolition of DC contracting out.

The Guaranteed Minimum Pensions Increase Order 2012 provides for contracted out, defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3 per cent. Such increases are in line with the growth in prices or 3 per cent, whichever is the lower, and this year the 3 per cent cap will apply as inflation is higher.

On the uprating order, I am sure noble Lords will welcome our decisions on increases to benefits in 2012. In total, the Government will spend £6.6 billion on uprating benefits in 2012. Alongside other measures that we have taken, it will deliver fairness to those who have worked hard all their lives, and protection to the most vulnerable in society during these difficult economic times.

The consumer prices index, the CPI, remains our preferred measure for pensions and benefits indexation. We made this change at last year’s uprating; some noble Lords may remember our extensive discussion on the relative merits of the price indices. I will not repeat myself on these points—despite the enjoyment I would gain—save to reiterate that the CPI is the Bank of England’s target and the headline measure of inflation in the UK. It relates to a basket of goods, which is more appropriate for pensioners and benefit recipients because it excludes mortgage interest and is less volatile than the retail prices index, the RPI, which fell negative two years ago, with the result that many pensioners had their additional state pension frozen. The CPI methodology takes into account how consumers respond to price changes—an advantage that has won the support of many experts. Last year, the High Court upheld the Government’s decision that the CPI could be used for pensions and benefits uprating, and we have robustly defended our case in the Court of Appeal. In April the Government will implement the full September CPI increase of 5.2 per cent across pensions and social security benefits.

I will now discuss in more detail the individual benefit rates amended by the legislation. One of this Government’s first actions was to restore the earnings link with the basic state pension. We went a step further and promised a triple guarantee to increase the basic state pension by the highest of the growth in earnings, the growth in prices or 2.5 per cent. In line with the triple guarantee, the basic state pension will rise 5.2 per cent to £107.45 per week, in line with the growth in the consumer prices index. This is an increase of £5.30—the largest ever cash increase to the basic state pension. This means that this year the basic state pension is forecast to increase to 17.1 per cent of average earnings, which is a higher share of average earnings than in any year since 1997.

The basic state pension goes to more than 11 million pensioners in this country, and both this year and in the long term the triple guarantee will ensure that the basic state pension will provide a solid foundation on which recipients can build a retirement income. The triple guarantee will protect the value of the basic state pension in the long term. It is estimated that the average pensioner retiring this year on a full basic state pension will gain £13,000 over the course of their retirement as a result of the triple guarantee, compared with the old prices link.

From April this year the additional state pension will also rise by 5.2 per cent, which will mean that those with a state second pension or state earnings-related pension, SERPs, will see the 5.2 per cent increase in both their basic and additional state pension income. This means that the increase in total state pension income for someone with a full basic state pension and an average additional state pension will be about £6.70 a week: £348 a year.

The standard minimum guarantee in pension credit is the means-tested support that ensures all pensioners a minimum level of income in retirement. The legislation requires us to increase the minimum guarantee at least in line with earnings, so that over the long term the poorest pensioners see their incomes rise in line with that of the working population. However, this year the relevant earnings index stood below inflation at 2.8 per cent. We judged it unacceptable that the poorest pensioners on the guarantee credit would see the lowest increases. We wanted to ensure that those pensioners saw the full increase given to the basic state pension, and we will therefore increase the single rate of the standard minimum guarantee by £5.35, taking it to £142.70 per week in 2012.

To ensure that the overindexation of the guaranteed credit is affordable, we will make some changes to the savings credit element of pension credit. In April, we will increase the savings credit threshold to £111.80 for individuals. This will mean that those with higher levels of income may see less of an increase, but no one should have a lower weekly income as a result of the uprating. This policy also enables us to focus spending on the poorest pensioners on guaranteed credit.

On working age benefits, the Government have ensured that, even in these difficult economic times, benefits for disabled people and their carers and for those out of work and seeking employment will see the full CPI increase of 5.2 per cent. This increase will ensure that the most vulnerable people in society are protected and that those looking for work get the support they need to move into the labour market.

Through the uprating order, the Government are spending an additional £6.6 billion in 2012. This means £4.5 billion more on pensioners, more than £1 billion more on disabled people and their carers, and more than £1 billion more on people who are unable to work through sickness or unemployment. Even in these tough economic times, the uprating commitment that I have outlined today will give real support to the poorest and most vulnerable in society. I therefore commend the orders to the House. I beg to move.

[Lord McKenzie of Luton]

My Lords, at the start, we acknowledge that the Government have rejected the voices within their ranks that would have watered down even the full CPI increase for these upratings. The order before us deals with most out-of-work benefits, but it of course does not deal with changes to tax credits, which we shall debate shortly.

We have heard from the Minister that the upratings order amounts to increasing benefits by £6.6 billion, but that is dealing on one basis with the effects of inflation; it is not addressing the real cuts that are being made to employment support allowance, housing benefit, support for disabled children, DLA, council tax benefit, child benefit and tax credits. By 2015-16, just three years hence, the Government will be pocketing £10 billion-plus per year from the CPI switch to benefits, tax credits and public service pensions.

We have no points to raise on the Guaranteed Minimum Pensions Increase Order, and support it.

On the abolition of protected rights consequential amendments order, we have some brief questions. Post-abolition of contracting out on a DC basis, schemes will not be required to keep track of protected rights payments, so, as we have heard, the court will not be able to identify them when setting income payment orders for a debtor. Consequently, protection of accrued rights payments from income payment orders will now be retrospectively removed. Does that mean that creditors can ask for income payment orders to be revisited in the light of that loss of protection? If trustees amend their scheme rules to reflect the abolition of protected rights and a scheme member is subsequently subject to an income payment order, could the trustees be in breach of Section 67 of the Pensions Act 1995, a section that protects accrued rights and for which there is no statutory override? The order has the consequence of retrospectively removing protected rights accrued, albeit in the instance of an income payments order being issued. Is a precedent being set here, and would it not have been possible to set some sort of pension income threshold below which the courts cannot take account of income when issuing income payment orders as an alternative approach?

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[Lord Freud]

My Lords, it is a lot easier to spend £6.6 billion extra than to remove it. I accept that noble Lords are pleased that we are sticking to the CPI September figure—the 5.2 per cent—even though it is a high figure. It is important for the Government to do that because once you start moving the figure around to suit your convenience the suspicion arises that there is no principle behind that decision and that it is done to save money. Therefore, you save money in one year but there is a lack of confidence in the longer-term strategy. The point about the CPI is that these things even out, although the figure that is arrived at in a particular year might be painful for the Government’s finances. Clearly, this year it is painful to stick with that figure. However, if you stick with the same month, given that it is an annualised figure—it lasts a whole year—it should even out. Albeit that this is a very difficult year, there were some siren voices demanding that we take a particular course, as the noble Baroness, Lady Lister, said. However, it was decided that to do something other than what we have done would undermine the principle of the measure.

I would like to pick up on the point about the triple lock. I think that the noble Lord, Lord McKenzie, has been a little grudging about what we are doing with that, which is trying to drive up, over the long term, the level of the basic pension compared with average earnings, because it has lost that relationship. The problem with that is that more and more people go on means-tested pension support, with all the complexity that noble Lords complain about. Clearly one thing that we are trying to do with the pension reform that we have consulted on is to get a liveable rate without all these special levels of support, and the triple lock is another mechanism to do that.

While I am on the topic, I confirm to my noble friend Lord German that the switch from the guaranteed credit to the savings credit and the closing of the thresholds was done precisely so there would not be a cut in the basic pension for those pensioners. While I am touching on CPI versus RPI—we will not have a major debate on that, although we all enjoy it—I want to make the point that there is work going on on the CPI. Only a relatively small proportion of the difference between RPI and CPI is because of the housing element; the rest is the substitution effect—the bulk, as noble Lords will all remember. When that work on a new CPI comes in, the Government will need to look at it and take a decision on what to do. I think that that is the best response I can give to the noble Lord, Lord McKenzie.

However, I need to defend myself slightly from the noble Baroness, Lady Lister, on what was a very interesting and excellent letter that I got on my description of the differences between CPI and RPI. I must point out that it was only one letter, which is unusual—I did not get every economist in the world writing to complain or differentiate—but I did enjoy it.

The noble Lord, Lord McKenzie, asked a large number of very good questions—as I would expect—some of which I can answer and others I will write to him about. In particular, I will write to him on the issue of guaranteed minimum protections on contracted-out pensions. That really is complex and I need to provide specific chapter and verse on those protected arrangements.

The noble Lord asked about the local housing allowance. It will be set in April 2012 to establish the baseline, and it will be uprated from a year on, based on September-to-September figures. On the migration from IB to ESA, these are technical provisions but there are some potential effects for individuals. Again, I think that that is a matter for a letter. On service charges, it is the elements of the individual items such as fuel that are raised in line with their particular price increases, and that is done—and has been done for some time—by convention rather than the aggregate.

On non-dependant deductions, as noble Lords will remember, there was an announcement that they would be moved up to match the level that they would have been at if they had not been frozen in 2001. The increases in 2012-13 have been calculated based on forecast rent growth. New income bands determine the amount of the deduction, based on earnings growth. Will passported benefits be taken into account? The answer is yes, when looking at the financial effects of uprating individual benefit elements that give rise to derived entitlements.

With regard to the effect of statutory payments on small businesses, again, I think that that is a matter for writing. We will discuss this with colleagues in BIS who are responsible for those payments and get the most up-to-date figure for the number of small businesses that have been reimbursed.

On the savings credit changes, the £200 million savings on savings credit are recycled into the guaranteed credit, so there is no net saving to the Government. This means that 30,000 fewer people will receive savings credit. Some will have their entitlement extinguished because their income is above the new maximum savings credit level. I say that in response to my noble friend Lord McKenzie—sorry, the noble Lord, Lord McKenzie. I was looking at my noble friend Lord Kirkwood, who is the other person who asks impossible questions.

The noble Lord, Lord McKenzie, asked about the impact assessment. In practice, last year’s assessment sets out the shape of the effects of applying CPI as the preferred index. That is why we have only conducted an additional equality impact assessment this year for the pension credit measures, as they are the novel measures.

I will talk to my noble friend Lord Kirkwood about his particular interest, the national insurance fund, where he looks at the way that the fund balance is moving. It is expected that it will be above the recommended level, which is a sixth of annual benefit expenditure, but I think that I will need to write to him about any change in the balance in recent years.

I think that I have dealt with all the questions. If I have missed anything, I will, of course, write. In the words of the Chancellor of the Exchequer, the uprating order of 2012 will provide support for those who have worked hard all their lives—

[Lord McKenzie of Luton]

Perhaps I may intervene. I am sorry, but I did not know whether the Minister was about to wind up, so perhaps I could revert to a couple of the questions which are left outstanding.

In relation to the savings credit and passported benefit, the issue is that if there are, as we now know, 30,000 fewer people claiming savings credit, presumably there are some savings in respect of passported benefits that would go with that. The question is whether those savings are factored into the savings needed to produce the guaranteed credit upratings.

There were a couple of other items. In relation to non-dependant deductions, it was asked whether we could be told what the reduction in housing benefit and council tax benefit is estimated to be as a result of those changes. In relation to the small business issue, and the £45,000 threshold, I was trying to determine whether, because of increases in national insurance and fiscal or national insurance drift, the same thing would happen as with tax drift, where effectively more people are being excluded from the benefit of 100 per cent reimbursement, because in real terms it is declining.

There is one other issue—perhaps the Minister could deal with it in writing—which is the relationship between the uprating of guaranteed credit and the basic state pension. I am indebted to my noble friend Lady Drake for bringing to my attention some interesting material produced by the PPI showing the impact of pension credit over several years. The component that would produce the biggest reduction in the percentage of pensioners living below 60 per cent of median income would be if the current policy plus guaranteed credit were indexed to the triple lock. That would have a more beneficial outcome than the current policy, where guaranteed credit is indexed to earnings, although I accept that this year it is earnings-plus, but that is still not the same as earnings plus the 5.2 per cent.

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[Lord Freud]

My Lords, I was talking about child benefit, which was an issue raised by the noble Baroness, Lady Lister. She referred to the relationship between child benefit and tax thresholds. As you move towards the universal credit system, that is the way you keep the incomes of the poorest in line. That can be done elegantly and in a more focused way than by using universal benefits, which of course is what child benefit is—using a lot of money and giving it to all in order to target the poorest. That is certainly the direction of travel that I am taking. We could possibly debate this at great length at some stage, and no doubt we will.

I will write to the noble Lord, Lord McKenzie, on the question of those excluded on the non-dependant deductions. That is a matter for a letter. I will also write on the point about small businesses because I do not have all the information to hand. On the point about passported benefits and savings credit, the 30,000 who will not receive savings credit would actually not have been passported to the full housing benefit or council tax benefit, so they could establish a claim on the ground of low income. However, the £200 million being recycled to the poorest pensioners includes an assessment of the additional cost of passporting more of those pensioners by disproportionately uprating the standard minimum guarantee.

As regards the triple lock on guaranteed credit, we are planning to retain the link with earnings. Clearly, our aims are to reduce reliance on means-testing, which is why we are protecting the position of those receiving the contributory state pension. But we do not have the funding to uprate the guarantee credit on the same basis as the underlying state pension. Depending on how we change the system, the basic pension would be larger and protected in that way.

This order will provide support for those who have worked hard all their lives, poorer pensioners, people who are not able to work through their disabilities and those who through no fault of their own have lost their jobs and are trying to find work.

[Lord McKenzie of Luton]

I tried to avoid getting to my feet but there is an outstanding issue related to the Work Programme and the reports on that.

[Lord Freud]

My concentration has been completely broken as to that point.

[Lord McKenzie of Luton]

Because there was no impact assessment with the orders and the issues around the Work Programme, can we have an update on its performance?

[Lord Freud]

I thank the noble Lord for reminding me. Because the Work Programme is a payment-by-results system, you see the results later than with those programmes paid for on a pro forma basis. I am not sure of the exact date but I think that we are looking to publish the entrants to the programme in the next couple of months. We expect to start publishing the performance figures of the Work Programme providers in the autumn. These figures are being done to the sophisticated standards required in order to become national statistics.

Perhaps I may correct myself as regards referrals. They are expected rather sooner than in two months’ time. The first set of figures is expected this month.

[Lord McKenzie of Luton]

Are they expected in February?

[Lord Freud]

Yes, so we are expecting them reasonably soon. I can say to the noble Lord—I cannot give anything away and I have only anecdotal feedback—that I am looking forward very much to these figures. I know that he will want, as he has in the past, to say that the Work Programme was a stepping stone from some of the programmes introduced by the previous Government. I am happy with that and I think that he will want to be associated with it. I feel that I will enjoy myself when I make some of these announcements later in the year. I just want to let him know that, because it is based on my own feelings.

Despite these difficult economic times, this year’s uprating will put an additional £6.6 billion into the pockets of the poorest in our society. We have discussed the GMP increase and the amendment order to the Pensions Act 2008. I commend the order to the House.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 14th February 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, like other noble Lords, I think we should be grateful to the noble Baroness, Lady Meacher, for keeping us focused on the issue of disabled children, and to all noble Lords who have spoken in this short debate with a great deal of expertise and knowledge on the subject. They reminded us that even in this rich country there are people and families who still live in poverty and are challenged by poverty. The deliberations that we bring to bear through legislation may seem somewhat detached from that, but that legislation has a real effect on real people’s lives.

Like my noble friend Lord Peston and the noble Baroness, Lady Howe, I was a bit confused as to how this amendment became caught up in the issue of financial privilege because I thought that the Minister was on record as saying that this was not an issue of money. Indeed, the noble Baroness, Lady Meacher, confirmed that. I did not intervene in the earlier exchanges on this issue but I am somewhat concerned about aggregate figures of costs flying around, whether we agree with them or not, and tagging on to them a provision that has no cost implication at all. If that is permitted under these arrangements, it is a bit of a slippery slope.

However, we should be grateful to the Minister for his engagement running right across the Bill, particularly on this issue, and for his promise of a review on definitions and access to the various benefits. I hope that he will take account of the point made by my noble friend Lady Hollis and others that the issue of costs does not correlate exactly with severity of disability. If I have to take issue with the Minister, I wish that he had not said that his commitment to undertake this programme was conditional on the noble Baroness withdrawing her amendment. Frankly, if it is right to do it, it is right to do it.

Perhaps I may pursue one point with the noble Lord. He previously stated that families would obtain the benefit of transitional protection so that the cash amount of support under universal credit would not reduce. That would not of course protect the position in real terms but perhaps we can at last understand a little more—on the record, I hope—about how transitional protection will work. Is it to be applied separately to the differing components of universal credit or will it be looked at in aggregate? Could an increase in the housing amount, for example, mean an effective reduction in the protected disability addition? Can we also get some clarity around changes of circumstances and what types of situation would cause the transitional protection to be removed? What about, for example, a move in accommodation that might have been caused by the underoccupation provisions that we debated previously and will debate again shortly? Could that represent a change of circumstances that could cut off that vital transitional protection?

I do not wish to go over all of our powerful debate on this issue. I acknowledge the commitments that the Minister has made but repeat that we should be thankful to the noble Baroness, Lady Meacher, for keeping us focused on this important issue.

[Lord Freud]

My Lords, many specific points have been made and I shall try to deal with them. We have debated this issue a lot and perhaps I may gently remind the noble Lord, Lord Peston, that we actually voted both ways on very similar issues. I recall that we had a plus two and a minus 16 on this issue—I think it was this issue. When we talk about the message coming from the Lords to the Commons, there were a number of votes in this area.

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[Lord Freud]

Nearly. I hope that I have made it clear that I really understand the concerns being expressed not just by the noble Baroness but right around the House. I think that our commitment to carry out this review—it is a significant review that will look at the issue properly—is the right way of approaching the matter. It is far better than adding an unnecessary and untested complication to the design of what is meant to be a universal credit system which people can instinctively understand. If it is an offer, I urge the noble Baroness to accept it and withdraw her amendment.

[Lord McKenzie of Luton]

Before the noble Lord sits down, will he write on the issue of transitional protection and changes of circumstances?

[Lord Freud]

Yes, my Lords. I am sorry; I forgot to answer that. At this stage, I am not in a position to lay out transitional protection because we are currently looking at how it will work. However, it will be a bundled up protection. The work in progress effectively involves taking someone’s existing entitlement, comparing it with their universal credit entitlement and paying the difference as a lump sum, which is then maintained. However, in the context of what we are talking about, the migration process is rather more important than the transitional protection. In the vast bulk of cases, it is when those families move on to universal credit that will matter more than transitional protection, which will be towards the tail end of this period, if at all.

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[Lord McKenzie of Luton]

My Lords, the Government have moved in a number of ways on the issues that have been returned from the other place. Along the way, they have also accepted a number of other changes that were pressed on them by your Lordships’ House. However, the Bill remains unchanged in some of its most unacceptable provisions, not least of which are those relating to underoccupancy. That is why we support the amendment in lieu, which was moved with such precision and expertise by the noble Lord, Lord Best. As we have heard, the amendment is less ambitious than that previously accepted on Report, reflecting our obligation to take account of the financial strictures of the Government. However, the amendment is not cost-free and cannot be if it is to provide protection for hundreds of thousands of households that, on average, could see their income fall by £14 a week.

It is clear that, under the guise of addressing underoccupation, the Government seek to make further savings on housing benefit on top of the multiplicity of restrictions—the CPI uprating, the 30 per cent percentile, the rent and size caps and the shared-room rate—that are already in play. Savings from some of these are being made in parallel with the benefit cap. The Government’s stated aims for the underoccupation rules are to encourage greater mobility within the social rented sector; to make better use of the available social housing stock; to improve work incentives; and to curtail housing benefit expenditure. The amendment in lieu addresses each of these issues. It is clear that, should a suitable offer of accommodation be forthcoming, there is an expectation that an underoccupying tenant should take it up, whether or not they have only one spare bedroom or fall into any of the exemption categories listed. If they did not, the housing benefit reduction would ensue. What is suitable would have to be defined in regulations and would have to reflect the circumstances of the household, including its need for adapted property, transport links, access to support services and appropriate schooling.

However, there is no merit at all in an economic incentive to move to smaller properties when there are no smaller properties to which people can move. Therefore, the amendment provides that, with no suitable alternative offer, the underoccupation deductions—the room tax, in the terms of the noble Lord, Lord Best—would apply unless there was no more than one spare bedroom and one or more of the other exemption criteria applied. As for improving work incentives, this can surely have no application for those who have no work requirement placed upon them, for example because of a severe disability. These are people who the Government themselves recognise cannot work and should not be expected to work, so what is the purpose of an economic work incentive for them?

We know that disabled people face extra costs in their daily lives and that it is harder for them to take the hit of reduced housing benefit. Indeed, the Government have already recognised this in the benefit cap by exempting certain categories of individuals from loss of housing benefit or universal credit. These are the self same categories listed in paragraph (b) in the amendment, mainly those on DLA or PIP. War widows or war widowers are similarly included in the exemption to parallel the arrangements in the benefit cap—no more, no less. The noble Lord, Lord Best, referred to the sources of funding on offer to deal with foster caring. It is hoped that the Minister will be able to dispel any suggestion that the new money to which he referred is just being cynically recycled. The Government’s other solution is for people to take in paying lodgers. Perhaps the Minister can say what assessment has been made of this possibility.

We agree that underoccupation in the social housing sector should be addressed and clearly the lack of social housing and the need to build more is part of that, but it is clear that the Government do not see these provisions as a route to doing so. Their assumption is that most people will not move and will take the hit and that is how the Government will get their savings. These amendments would stop them getting those savings from the most disadvantaged in our country. We support them.

[Lord Freud]

My Lords, the amendment in lieu of the noble Lord, Lord Best, seeks to exempt certain categories where the tenant underoccupies by one bedroom and no suitable alternative accommodation is available, those not required to seek work, carers, disabled people, war widows and foster carers. Our estimate of the cost of this amendment is slightly lower than that of the noble Lord. He suggested that it was £150 million. We estimate that it would cost up to around £100 million in 2013-14. We have already announced an increase of £30 million in the discretionary housing payments aimed at some of these categories—those living in adapted properties and foster carers. Others in vulnerable situations can also apply to the fund where they have difficulty meeting the shortfall.

I say to my noble friend Lord Kirkwood that that £30 million is an ongoing rate. The amount will be kept under review to see whether it is meeting the level of demand in different areas. We set the amount at £30 million based on the numbers likely to be affected by the measures. We think that the £30 million could help about 40,000 cases based on the average reduction of £14 a week. That figure is based on the group of 35,000 potentially affected claimants who are wheelchair users and live in accommodation that has been adapted to suit their needs, although, of course, not all of these would need to apply for a discretionary housing payment. We estimate that around 5,000 foster carers, including those in between assignments, could be affected by the measure.

My noble friend Lord German referred to the type of housing that would be affected by the measure. We decided to tackle this matter through discretionary housing payments, as introducing exemptions and classification is very difficult in practice. Therefore, we are leaving it to local authorities to make some very tough judgments on where it makes sense to offer that support as they have a lot of local knowledge. Regrettably, £100 million is a lot of money in the present climate, even though it is less than the £150 million figure estimated by the noble Lord, Lord Best. Clearly, it is difficult to agree amendments and send them to another place when they have such significant costs attached to them.

In summary, we believe it is right and fair to proceed with the measure as it is in the Bill. We will apply a percentage reduction of 14 per cent for those underoccupying by one bedroom and 25 per cent for those underoccupying by two or more bedrooms. That comes in in April 2013. The noble Lord, Lord McKenzie, asked me to disavow any cynical recycling. I am in a position to do that, as we announced a range of these reductions of between 10 and 15 per cent for one room and 20 to 25 per cent for two rooms. When I fixed the rates in December, I was able to do that within the bands that we had set.

[Lord McKenzie of Luton]

Is the noble Lord saying that those rates would be lower if the £30 million had not been made available?

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[Lord McKenzie of Luton]

My Lords, Amendments 17B, 17C, 17D and 19B relate to the time limit for the contributory employment and support allowance, and recommend that this can be increased by secondary legislation in the future.

The time-limiting of contributory ESA to just 365 days for those in the work-related activity group is one of the most indefensible provisions in the Bill. It is all about saving money and will bring what my right honourable friend Stephen Timms referred to in the other place as,

“a financial catastrophe for a very large number of people”.—[Official Report, Commons, 1/2/12; col. 836.]

I remind noble Lords that the number affected will rise by 2015-16 to something like 700,000, 40 per cent of whom will not be entitled to income-related ESA. It will hit some 100,000 claimants in a matter of a few weeks when they see their ESA disappear literally overnight, with losses in income of up to £90 a week and over half of those affected in the lowest three income deciles. The very manner in which this is being introduced, including the assessment period and time already on the clock, demonstrates that this is not about fairness but about money.

The arguments against this one-year limitation have been well rehearsed and I do not propose to develop them in detail again this evening. They were subject to a powerful amendment moved by the noble Lord, Lord Patel, on Report. The restriction has no credible evidence base, it undermines the contributory principle, it creates another couple penalty, and it simply fails to take proper account of the time that many will need to overcome their illness or disability so as to be able to access employment. The policy potentially overrides the WRAG conditionality, and the noble Lord, Lord Patel, is rightly pursuing the situation for cancer sufferers. We look forward to supporting him in his endeavours shortly.

Noble Lords sent a strong message to the House of Commons seeking a minimum of two years for the restriction, and for the restriction to be embodied in secondary legislation so that an evidence base could be brought to bear. That message fell on stony ground and the Government have brought the shutters down on our original amendment by claiming financial privilege. Of course, they did this with the full support of the Lib Dems, despite their party policy to oppose arbitrary time limits, but this is a reality that we have to face, if not forget.

In proposing this amendment in lieu, we do not abandon our determination to see this policy based on evidence; nor do we accept the 365-day arbitrary limit. Securing that an upward revision of this limit can be achieved by secondary legislation at least keeps the cause alive. The Minister has claimed international precedents—as he did a moment ago—as part of the evidence base for this policy. Perhaps we can ask the DWP to publish that research so we can share the benefit of it.

Nevertheless, I have some expectation that the Minister will feel able to accept this amendment and I thank him for his consideration if this is the case. For us, this is not the end of the issue.

[Lord Freud]

My Lords, Amendments 17B, 17C, 17D and 19B, tabled by the noble Lord, Lord McKenzie, mean that although a time limit of 365 days will still be applied to contributory ESA claimants in the WRAG, including those claiming under the youth provision, there would also be an order-making power that would allow the number of days to be increased in the future.

I thank the noble Lord, Lord McKenzie, for his amendment as this has given me the opportunity to consider again an order-making power for time-limiting. We have discussed at length our rationale for setting the time limit at 365 days. We have listened carefully to noble Lords’ concerns about this time limit. We have always said that, for clarity, we believe it is right to have the number of days specified in the Bill and that the time limit should not be subject to secondary legislation.

However, this amendment achieves an excellent balance of the two. A time limit of 365 days is still specified in the Bill, but with the added flexibility to increase the number of days by order. We welcome this amendment and I commend the noble Lord, Lord McKenzie, for tabling it.

To sum up, we have listened to the concerns raised by noble Lords and have made amendments to ensure that disabled people whose condition deteriorates are able to re-qualify for contributory ESA if they would be placed in the support group. This demonstrates our continued commitment to supporting those with the most severe health conditions or disabilities.

The noble Lord, Lord McKenzie, has tabled very well considered amendments, so I urge noble Lords to accept them. However, I need to make clear that accepting these amendments in no way changes the Government’s policy on the time-limiting of contributory ESA. The limit will remain 365 days. These amendments simply mean that a future Government—of any hue—would be able to change the limit by order, as well as by further legislation.

[Lord McKenzie of Luton]

My Lords, I am very grateful to the Minister for his acceptance of those amendments. He helped to draft them so he should accept them! I hear what he says about the Government sticking to their 365-day limit, but we will continue to work on him and his colleagues and hope to change their minds before we have a next Government.

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[Lord Freud]

My Lords, in my opening remarks I described the measures that the Government are putting in place to ensure that the cap operates fairly. I explained that the exemption of people in the ESA support group ensures that the cap affects only people who, taking account of their health and any disability, can reasonably be expected to do work or work-related activity. I explained that the nine-month grace period will ensure that those who have been in work for 12 months or more will have time to find alternative employment or consider alternative options before the cap applies.

I have been asked a series of questions and I shall try to deal with them rapidly. On the question where the money is coming from, I think we shall leave that to the Budget.

Where one member of a couple satisfies the criteria for the grace period, yes, it will apply. The grace period will apply where either member of the couple meets the criteria.

I was asked which payments would be ignored. The noble Lord, Lord McKenzie, went through what I said in Committee and I do not think there is any reason to change any of that. We have to work out the exact nature of the work exemption but, in principle, I see no reason why the grace period should not apply when hours are reduced.

The question of the noble Baroness, Lady Drake, is so detailed that we need to wait for the regulations. That is a very good reason not to put some of this stuff in primary legislation.

An important point was raised by my noble friend Lord Kirkwood about monitoring people. We will monitor these cases very closely and keep track of their destinations. We already know who they are and will engage proactively with them from now on.

The right reverend Prelate the Bishop of Ripon and Leeds and the noble and learned Baroness, Lady Butler-Sloss, raised a question about kinship carers. In practice, the grace period is particularly helpful for kinship carers. We have the conditionality issues. Having this £80 million on a discretionary basis means that we can target those families of exactly the kind that will need such support. Therefore, the way that we have done it is rather more satisfactory in that area.

The right reverend Prelate raised the question of what a benefits system is for. We are constructing the universal credit to make a modern benefits system that does what we need it to do. He can take that as read.

Amazingly, I think I might have answered all the questions. The right reverend Prelate mentioned sweetness and light in relation to Motion G1. Fundamentally, I think that there is sweetness and light. I hope so, in that we are providing a grace period through regulations. We have all the powers that we need to do it, so in practice this amendment is unnecessary. It is sweetness and light in that sense and I hope the Motion will be withdrawn.

To be absolutely honest, there is less sweetness and light over Motion G2. I am resisting having some political knockabout on this. I know that it is not proper in this Chamber; let us leave that to another place. However, I find it very hard to think about having regional limits set by a new quango. My noble friend Lord Newton and the noble Lord, Lord Empey, have made the point that this could be very confusing and complex. If the noble Lord were sitting on my side of the Table at some future point, I would give him some advice: “You don’t want to do this”. Looking at it with a slightly stricter hat on, if we were to vote the Motion through it would mess up and delay the application of the cap. We are talking there about real money. We simply could not make the saving of £200 million a year because it would be such a complicated thing to introduce. Therefore, I hope that Motion G2 will be withdrawn. My mouth will be open if it is not.

There is an important principle in this debate. It is not fair that families on benefits receive more than the average working family. It is not fair to taxpayers. Indeed, it is not fair to benefit recipients who are trapped in a cycle of welfare dependency. Therefore, I urge the noble Lord not to press either Motion G1 or Motion G2.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his detailed responses, as ever. It is all sweetness and light as far as Motion G1 is concerned. It was tabled to get the very detailed answers that we got from the Minister and I thank him for that. I thank all other noble Lords who have participated in this debate. It is always good to hear from the right reverend Prelate the Bishop of Ripon and Leeds, who brings us back to issues of homelessness and vulnerable people. It is all too easy for us to forget about them in this environment.

The noble Lord, Lord Kirkwood, expressed his view that he was less than pleased with the benefit cap. I am well aware that he is not alone in that view. Interestingly, he referred to the cap as a sticking plaster. There is an interesting issue over whether the Government see it as a continuing part of the benefit system. We took it that they did, which is why we made some of our proposals, but maybe it is just a short-term measure.

I thank my noble friend Lady Drake for her support. The noble Lord, Lord Newton, asked about how local we would get in all this. Fundamentally, Motion G2 tries to highlight that rent is the big issue in all this. There are big disparities, particularly the London phenomenon, and rent will never be equalised across the country. I see and understand the potential risks in that, to which the noble Lord, Lord Empey, and others, including the Minister, referred. However, the intent is to focus on rents and that huge disparity. In the instance that I cited, the disparity is so big that how you make one cap fit all on an ongoing basis, without having to pile in more money every year to deal with the effects, is a real issue. The Government will have to face that in the months to come.

However, I should make clear that it is not my intention to press the amendments in Motion G1. On Motion G2, I am bound to say that my colleagues in the other place were denied the opportunity to vote on this. Therefore, I intend to test the opinion of the House.

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[Lord Freud]

My Lords, clearly I am very aware of the strength of feeling that has featured in previous debates on child maintenance, and I look forward to hearing the views of noble Lords today.

Perhaps I may start from a rather different position from the one I took in the debate when we last looked at this issue. I shall quote the right honourable Frank Field, who is an acknowledged expert in this area. Even though he sits on a different side, he makes a point that is absolutely smack-on. He said:

“Is not the really big change that we are discussing the fact that when the CSA was first established, the maintenance moneys went to the Treasury to offset what taxpayers were putting up because, generally speaking, fathers were not prepared to do so, whereas now that money remains with the family? Is it not reasonable, in such circumstances, if people are going to get a top-up to their benefit that they should contribute to the cost of gaining that extra money? On the timing, should we not charge people once they are getting the money, not before?”.—[Official Report, Commons, 1/2/12; col. 910.]

That quote highlights the central point to the debate. We need to look at the proposed charges in the context of all the other financial support that the Government provide for lone parents. Child maintenance is only one aspect of that support.

I have made some rough calculations to give noble Lords a sense of the relative orders of magnitude involved. In the 12 months to December 2011, the CSA collected or arranged maintenance of more than £1 billion. However, by far the largest amount of money going from the Government to support lone parents is through the benefits and tax credits systems. The benefits system provides well over £5 billion of support to lone parents, and the Government provide more than £10 billion of further support through tax credits. Thereby, the total support going to lone parents—a few lone parents are bereaved but the bulk, 95 per cent, are not—in either direct state funding or with funds from state mechanisms is well over £16 billion.

Let us now look at the other end of the telescope. What are we asking the parent with care to pay for collecting that extra money? By the end of the next spending review we will collect each year between £50 million and £100 million in collection charges from parents with care. Those figures are based on the 7 per cent to 12 per cent range of collection charges set out in the Green Paper.

Let us take the figure of £75 million and compare it to the £16 billion of support that is being provided to this group, either directly or through the state. That ratio works out at less than one half of one per cent. I do not think that Barclaycard or other credit cards charge as little as that.

[Lord McKenzie of Luton]

To clarify the figures, is the £16 billion to which the noble Lord refers payable just to parents with care who are using the statutory CSA system, or to lone parents generally?

[Lord Freud]

This is paid over to lone parents as a group. That is what we are paying over to lone parents. Some of them have been bereaved, but the bulk of them have not. All of them could look to get support from the non-resident parent, whether or not they had lived with them at one stage. That is the figure I am trying to explain. All of them could look to get some maintenance.

Is it unfair or unreasonable to ask for a small contribution to the cost of running a child maintenance system against a backdrop of that financial support? I remind noble Lords that, as Frank Field said, there is no offset any more; it is money on top; it is disregarded. A lot of the debate we had when CSA started in the 1990s and was so controversial, and in the early 2000s, was framed by the concept that it was money going from the non-resident to the Treasury. Between 2000 and 2010, we moved to a 100 per cent disregard. That is the fundamental difference of which I remind noble Lords.

The next point is that we have committed to reviewing the charging powers and laying the review before Parliament 30 months after introduction. That is to ensure that we are able to test properly whether the intended incentive effects of the charges are realised and that we get the behavioural impact of the charging regime.

Again, simply, we are looking at a 1:2 charging regime in round terms, which is intended to incentivise both sides to reach agreement between them rather than going through the state system as the first option. One reason that it is so important that we encourage both sides to go independently is because research tells us that the children are better off if the parents can agree between them rather than using the state system.

I, and the Government, have the utmost respect for my noble and learned friend, Lord Mackay, and the intention behind the original amendment laid on charging for child maintenance services. The problem of asking for a test to establish when the parent with care has gone through a process is that it may not be a real test—anyone can say, “Yes, I have been through a process”. If that is the case, we will end up with everyone using the system as the first option. If it is a real test, we will have to go through all the work of checking whether they have made efforts and the rights and wrongs, and we will be pulled down the slippery slope that we are so keen to avoid. Because we would be pulling people into the system, that would have a substantial cost because of the pure volumes.

Charging must have a role in the new system to ensure that we do not repeat the failings of the CSA. The proposed charges create an incentive for parents to collaborate and take responsibility.

As a direct result of the concerns expressed in this House, we have also changed the fees to enter the system, to avoid the parent with care being deterred from using the state system. We have announced that we are reducing the maximum charge from £100 to £20 across the piece to ensure that it is not a potential barrier to entry. We are offering a very good service for that £20 in that we will be looking at the non-resident parent’s earnings, and that will be a real benefit for the parent with care.

With regard to reducing the maximum charge and completing the review, when we know how the system has shaken out we can ask whether we have got the figures right and whether the charges are right. That is the point of the review: we can ask whether we are getting the behavioural responses that we need. I hope that I have laid out the issues adequately. I beg to move.

--- Later in debate ---

[Lord Freud]

My Lords, I shall start by addressing Amendment 73C, tabled by the noble and learned Baroness, Lady Butler-Sloss, which relates to limiting collection charges for parents with care. This is a substantial amendment that is similar to my noble and learned friend Lord Mackay’s, and it would represent a similarly substantial level of cost.

Before I get into the figures—I know that my figures have not been popular today—I want to highlight an element of the proposed charges that I do not think we have conveyed with sufficient clarity to noble Lords: parents have the option of avoiding collection charges altogether by using maintenance direct. My noble friend Lord Boswell asked a series of questions on this.

[Lord McKenzie of Luton]

Is it not right that under the new proposals the non-resident parent makes the decision to use maintenance direct but that is no longer available to the parent with care? The parent with care cannot opt for that arrangement.

[Lord Freud]

I think it is clear that the way that maintenance direct works is that the two parents have to agree on it. That is the point of maintenance direct. Under that system the Government calculate how much child maintenance is payable, but the payments themselves are made directly by the non-resident parent to the parent with care. If the payments are made in that way, no collection charges apply. It is a mutual decision.

The Government will ensure that a service is provided that enables maintenance direct to be used without the need for any contact to be made or personal information to be divulged. By using this system, the parent with care has the security of knowing that where it is established that payment has not been made in full and on time by the non-resident parent, the case will be moved into the collection service and swift action can be taken to reinstate payments. They can switch back and forth into that system. I take my noble friend’s point that there is a lot of attraction in that system and it may be underpublicised. To the extent that it is, we need to do something about it.

Where the payments move back into the collection service, charges will then be imposed for its use and they are heavily weighted on the non-resident parent. That acts as a real incentive for non-resident parents to pay in full and on time, and indeed by the charge-free method of maintenance direct. On the question of some non-residents wanting to go on punishing their ex, the parent with care, that would be a very expensive way of doing it—it costs the non-resident roughly twice as much as it does the resident.

I want to come back to the noble Baroness, Lady Sherlock, who said that she would deal with my argument piece by piece. I did not particularly agree with her. I was adding up the benefits system but also the tax credits system, which presumably many of the others who were not on the benefits system would have been on. Tax credits were invented in the early 2000s. I am talking about what it was like in the 1990s. The process by which the state supplied money for lone parents grew gradually through the 2000s until there was a total disregard. Early on, that was in the form of tax credits. From 2008, a proportion was in the form of benefits. The full disregard came in 2010. Therefore, I do not particularly buy the dismantling of the noble Baroness, Lady Sherlock.

I want to go into the costs. We estimate that the cost of Amendment 73C would be around £190 million, although it would depend on the exact level of the collection charge. There are assumptions around that. Therefore, in response to the question of my noble friend Lord Higgins, I say that it would be only a little less than the cost of the original amendment tabled by my noble and learned friend Lord Mackay, which was £220 million.

I also acknowledge the serious and considered concerns that have been set out by noble Lords both today and in our previous debate on this. I am prepared to make some specific commitments to the House on the development and oversight of the regulations, along the lines suggested by my noble friends Lord Boswell and Lord Newton. Later this year we will bring forward the regulations. At that point, other Ministers and I would like to offer Peers the opportunity to meet in a special session in Parliament to gather their views. We envisage an agenda based around the regulations, covering those that relate to the key concerns expressed during the passage of the Bill. I will of course take direction from interested Peers—there are a lot of them—as to the structure of that session. We will set that up as required.

We will also conduct a public consultation on the regulations. Following the finalisation of regulations after consultation, we will bring them back to the House. At that point, we will again offer a session for Peers to complement consideration by the committees of the House. That will not be the last time that the House debates charging; we will bring the affirmative regulations forward for debate.

We also acknowledge the need to evaluate and review constantly the impact of charges on parents. In respect of that, we have already amended the Bill to ensure that the review is published within 30 months of its introduction. Again, I here commit that we will seek the input of Peers during the course of that review in advance of a report being laid before Parliament.

Let me also be specific about what we intend to look at as part of that review. We will want to look at the impact of the application and collection charges on the behaviour of both parents and at the outcomes in terms of establishing effective maintenance arrangements. In our report to Parliament, we will make clear our intentions, including a specific view on the position of the poorest parents.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 31st January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we support the amendment moved so comprehensively and eloquently by the noble Baroness, Lady Meacher. This has been a powerful debate with a strong ethical strand, as my noble friend Lord Peston said that it should be. My job is made easier by the contribution we have just heard from my noble friend Lady Hollis, who dealt comprehensively with those who argue that we should deal with this in regulations. The fact is that we have tried at earlier stages to reach the position that the amendment now provides and have been unsuccessful—as my noble friend said, possibly not because that is where the Minister wants to be but because that is the policy imposed on him. I think that my noble friend is absolutely right: if we pass this amendment today, we will put down a clear marker on proportionality, which will strengthen those who have to go and argue with the Treasury about resources.

As we have heard, the amendment seeks to prevent the interests of one group of disabled people being played off against those of another by limiting the ratio between the higher and lower levels of disability support. At present, as we have heard, the Government’s proposals would lead to a significant cut in the amount of support for disabled children on the lower rate of support, amounting to some £27 a week, or over £1,300 a year, with around 100,000 families seeing this drop in their support. We have heard some graphic descriptions from my noble friend Lady Wilkins about what support meant for her family. We also heard from the noble Lord, Lord Wigley, and the noble Baroness, Lady Browning, who made the very telling point that this is about the whole family—siblings as well—for whom the level of support can make a real difference.

The Government have suggested that this money would be recycled into higher levels of support for disabled adults on the higher rate, but we do not believe that this is a trade-off that anyone wants to see. The interests of adults with severe disabilities should not be played off against those of children with lower-level disabilities, which, as we have heard, may well include conditions such as Down’s syndrome and profound deafness. Such children have no opportunities themselves to increase their income, and we know the problems that parents caring for these children can face when trying to find paid work or increase their hours.

The amendment does not seek to prescribe the levels of support, which will of course be a matter for the Government of the day and will depend on what resources allow, but it does seek to embed the principle that, although there is a need to recognise that some conditions require a higher level of support than others, this should not be used as a reason to downgrade the needs of the many disabled children—and their families—who currently rely on the lower level. Perhaps the Minister could outline in his response, first, what he believes the ratio between the two rates should be and, secondly, how he intends to ensure that those on the lower level do not see a dramatic fall in the support that they receive.

We will doubtless hear again that transitional relief will protect some claimants. However, we know that this is not a protection in real terms and in any event it does not help new claimants. Perhaps we can hear from the Minister what changes in household circumstances he considers would break even this partial protection. In making these judgments, what weight do the Government give to the fact that disabled children are more likely to live in poverty than other children? The Minister may justify the current ratio as aligning support for adults and children. However, is it not the case—a point made by the noble Baroness, Lady Meacher—that the routes into the benefit are quite different: for disabled children through the DLA and for adults through the WCA? Is there not a disability disregard for disabled adults who can access work?

Much of our debate on the Bill has focused on its impact on children. We would all, I hope, recognise the necessity of combating poverty among children because it carries with it the prospect of greater poverty in later life. However, it would seem that on this matter the Government are shifting resources in the other direction from children to adults.

It is perhaps appropriate that today we heard from the UK’s four Children’s Commissioners, who have put out a notice. I should like to finish by quoting them:

“Families who receive welfare benefits are particularly vulnerable because they live in poverty—small changes in their household income can have a big effect on their welfare. We are concerned that many more families and their children will be pushed into absolute poverty over the coming years if these proposed changes go ahead”.

We support the amendment.

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

My Lords, I think that I have to take up the challenge of the noble Baroness, Lady Hollis, and try not to read anything at all in order to convince her that I actually believe in what I am going to say.

I preface my remarks by reminding noble Lords that the amendment is in the same territory as the one we discussed on Report that was moved by the noble Baroness, Lady Grey-Thompson, and on which there was a Division. I confess to feeling slight surprise when I saw it come back in such a similar guise. If my arguments sound somewhat familiar to noble Lords, it will be because they have heard many of them before. I need to go through them in the context of this skilfully drawn-up amendment.

I start by making it absolutely clear to all noble Lords—in particular, to my noble friend Lady Browning—that this is not about deficit reduction. Every penny of the money will be recycled to increase support for severely disabled children and adults. None of the money that we are talking about will go to Her Majesty's Treasury, with which I have absolutely cordial relations at all times. The principle that was picked up by my noble friends Lord German, Lord Newton and Lady Thomas concerns the cliff edge that exists at 16 when youngsters transition from childhood to adulthood. As my noble friend Lady Browning pointed out, many of these youngsters are in practice dependent on their families for a long time. The cliff edge is something that we wanted to smooth out. This will be essential to protect work incentives in adulthood.

I said many times in the debate that we are overhauling the whole support system for people who rely on benefits. It simply does not make sense to concentrate on any one element. The universal credit will provide a package of support for families to meet a range of their needs. That is why we need to look at the overall impact of universal credit on families rather than look at individual components. If some families get a bit less on one component, it does not mean that they will get less overall. I will pick up on the point raised by the noble Baronesses, Lady Meacher and Lady Wilkins, about some of the social activities that are required to have a good quality of life. The intention is for DLA to pay for those facilities. The purpose of universal credit is income replacement. The two benefits do different things.

I also remind noble Lords that, contrary to some estimates that have gone around this afternoon on the impact of universal credit, clearly the impact will be that families will be much better off. I remind noble Lords that I and my friends in the Treasury are managing on a steady-state basis to put £4 billion a year into the pockets of the poorest people through universal credit. That is the context in which we are making these changes. Noble Lords should not underestimate what it took to get that out through a government process: a steady-state £4 billion a year in universal credit for the poorest.

--- Later in debate ---

[Lord Freud]

I am very grateful for the applause. I am not hearing a lot of it. The modelling that we have done in the department shows that, as a result of this measure on the reform of disability payments, the number of disabled children living in relative poverty will be negligible. The support for families in the universal credit package includes generous disregards for parents, plus the disability addition to the child element. Of course, we are also supporting formal childcare costs right the way down the hours spectrum in universal credit.

[Lord McKenzie of Luton]

I do not know whether the Minister is going to say anything further about poverty figures, but how does he deal with the report from the Family and Parenting Institute, prepared by the IFS, showing that relative child poverty will increase between 2010-11 and 2015-16 by around 400,000, and that absolute child poverty, as defined in the Child Poverty Act, will increase between those years by around 500,000? Does he dispute those figures?

[Lord Freud]

My Lords, we have spent a lot of time on child poverty, and the IFS projections do not take account of quite a few matters. They certainly do not take account of any change in government policy. Child poverty, to people’s surprise generally, actually went down last year, and it is projected to go down this year. What happens in future will depend on how we respond. I should point out to the noble Lord that the IFS had some very positive things to say about the impact of universal credit on child poverty, and it has pointed out the impact that universal credit will have as it goes in the direction that he and indeed I want to see.

Let me go through some of the figures on what happens under universal credit for a parent with a disabled child who works 20 hours a week on minimum wage. That parent, and that family unit, is likely to be £73 a week better off in work under universal credit, compared with £13 in the present system under tax credits. There are some 30,000 more families with a disabled child in work than out of work, so that extra money is being targeted pretty effectively.

Let me remind noble Lords again about the figures for the support that we are providing. Under universal credit, an out-of-work family with a disabled child can receive just over £8,000 a year in benefits for its child after introduction of universal credit, compared with just over £4,000 for an out-of-work family with a non-disabled child and around £1,000 for a family that receives only child benefit.

--- Later in debate ---

[Lord Freud]

No, my Lords. Without wanting to get into a huge constitutional debate about this, my understanding is that if the House of Lords threw them out, there would at some stage have to be a satisfactory set of regulations that both Houses could agree. So it is a very powerful thing to do. Clearly, I would hope never to get into that position, which is why—

[Lord McKenzie of Luton]

What the Minister says about affirmative regulations is right, but is he aware that it is the stated position of the Conservative Party in this House that it does not vote against affirmative regulations? In recent times we have had several such debates, and the Conservative Party has declined to do this on principle.

[Lord Freud]

When we were in opposition we certainly did not vote on a fatal basis, which was our policy. If the House feels strongly about a set of regulations and the Opposition do not have such a self-denying ordinance—which I think they do not—they can express their view in a vote on the regulations.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 31st January 2012 Lords Chamber

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

My Lords, on 22 December last year, the Scottish Parliament voted on a legislative consent Motion to the Bill. Legislative consent was given in relation to several provisions. However, the Scottish Parliament did not give consent in respect of the provisions of the Bill that give Scottish Ministers the power to make consequential, supplementary, incidental or transitional provisions by regulation in relation to universal credit and the personal independence payment. I indicated on Report that I intended to bring forward these amendments, removing the relevant provisions from the Bill, to ensure that the UK Government adhere to the principles of the Sewel convention. As social security is a reserved matter, it will not have an impact on the introduction of universal credit or the personal independence payment. Scottish Ministers will still need to make changes to legislation within the competence of the Scottish Parliament—for example, to add references to these benefits to legislation for housing, health and education, and to remove references to existing benefits that will be abolished in due course. Where necessary, they will do this through a Bill in the Scottish Parliament instead of through regulations. I beg to move.

[Lord McKenzie of Luton]

My Lords, I do not believe that we have a problem with the amendments in this group, but perhaps the noble Lord will clarify something. If we are removing the power of Scottish Ministers to deal with consequential amendments, where does the power lie—or is the Minister saying that there is no need for the power?

[Lord Freud]

No, my Lords, I am saying the opposite. The Scottish Parliament has decided that it wants to make the consequential amendments and not rely on us making them. If Scottish Ministers want to do it that way round, that is a matter for them. We were trying to make life more convenient for them.

[Lord McKenzie of Luton]

I am grateful to the noble Lord. Obviously we support the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, one issue that lacks clarity at present concerns “work”, “better paid work” and “more work”. We are using the opportunity of Third Reading to elicit further information on this important matter. The amendment seeks to ensure that not only “work” must be defined for the purposes of universal credit, but that there should be clarity on “more paid work” and “better paid work”, and on how the requirements would be applied. The definition of work is relevant to the current benefit system as well as to universal credit. It is relevant for the application of the benefit cap—or cliff edge—on one side of which one is free and, on the other, one is within its grasp. For the benefit cap, we know that initially receipt of working tax credit will be sufficient to take somebody out of its grasp. Perhaps the Minister will say whether there is any further news on what the threshold for work will be in these circumstances in the world of universal credit.

The amendment is principally focused on getting an update on how in-work conditionality will work. It is some three months since we debated this in Committee, when the development of how things would work in practice was pretty sketchy. What appeared to be settled was that in-work conditionality would cease when somebody was earning the equivalent of 35 hours at the national minimum wage: approximately £11,000. The threshold for a couple may be double that of an individual, and the threshold for a lone parent may be lower. It is accepted that having a universal benefit that removes the distinction between in-work and out-of-work benefits raises the issue of in-work conditionality. Universal credit claimants will have an entitlement regardless of the hours they work, up to a limit. Before we leave the Bill, or it leaves us, we seek an update on the latest thinking. Presumably, for universal credit to be effective, this is not an optional extra.

On 26 October in Grand Committee, the noble Lord told us that there were a range of complicated issues to work through. He said:

“Critically, we will need to build our understanding of what can help claimants progress—when we should require claimants to look for more work and what role other interventions, such as skills assessments or careers advice sessions, can play … We are not rushing in here ... We recognise that we need to tread carefully in this new area”.—[Official Report, 26/10/11. cols. GC295-96.]

That was fine, but is there any progress to report? My noble friend Lady Drake put the issue very succinctly in the Committee debate. She referred to the significant discretion that the Government would have under the new arrangements: a discretion that would potentially impact on a sizeable section of the workforce and on existing in-work relationships, and would require Jobcentre Plus or outside providers to engage with a large number of companies.

In Committee there was vagueness also in respect of the roles of Jobcentre Plus staff and external providers, and on issues of capacity. In particular, there was no clarity on how this would fit in with the work programme. We know that remuneration for providers under the work programme will come in three ways: an attachment payment, a job outcome payment and a sustainment payment. The latter will be the biggest element of the fees in each of the eight claimant groups. How will in-work conditionality interrelate with the work programme? Will sustainable payments be due only when providers have not only helped somebody into work and sustained them in work, but sustained them in work at a level that meets the requirements of in-work conditionality? Presumably this was not effectively factored into contract negotiations ab initio because of the vagueness around these concepts. Do the work outcomes for which providers are paid align with the in-work conditionality that is proposed, and include the claimant commitment on a case-by-case basis?

In Committee, there was a hint that in-work conditionality might be applied only when somebody has left the work programme. The Minister said:

“Once claimants have left the work programme, we could then look to continue working with them to help them progress”.—[Official Report, 26/10/11; cols. GC 295-96.]

There was also a hint that there might be a future work programme to which individuals would migrate. What is happening on that? If one is to be developed, can we be assured that the lessons of the first work programme and the comments of the National Audit Office are taken fully into account, especially on compiling a business case before a decision is taken to proceed and on going live before the IT is in place?

The definition of “work” and, especially, new issues around “more paid work” and “better paid work” are important to how universal credit is to operate. This is an opportunity to provide up-to-date information to noble Lords at this last stage of our deliberations. I invite the Minister to do so. I beg to move.

[Lord Freud]

My Lords, before I start on the specific matter, I shall take a short period to thank the noble Countess, Lady Mar, for her remarks a few minutes ago which I appreciate.

This amendment relates to the definitions of “better paid work” and “more paid work” and would require the regulations to be subject to the affirmative procedure. The first point I want to make is that it is not necessary to define these terms. They have their natural meaning: working for more hours, increasing your pay and so on. To that extent, we cannot accept the amendment, but I understand that it is a way of looking for information and I am very happy to have the opportunity to provide it.

These phrases are important. Their inclusion in Clauses 15 to 18 allows us to impose work-related requirements on claimants who are already in work. We are currently able to impose requirements on existing JSA claimants who are in some work and we need to retain this capability. Obviously, we are interested in doing more and extending conditionality to claimants who are in relatively substantive levels of work but who are nevertheless capable of working more. A conditionality regime can play an important role in encouraging such claimants to progress towards more self-sufficiency and to raise their standard of living and general status. Clearly, I understand noble Lords’ concerns about the extension of conditionality in this way. It is new and it is a difficult area. I also understand the way that noble Lords want to stay in touch with developments as they progress, so let me reiterate and perhaps expand on the remarks I made on Report.

At the launch of universal credit, we will not be imposing conditionality on claimants in substantive employment. In other words, there will be no conditionality for claimants with income or earnings which would, broadly speaking, have taken them over the cut-off point for current out-of-work benefits. We will retain our emphasis on those claimants who would be eligible for JSA, ESA or income support now. The existing system, in that sense, will continue.

As a general point about how we are going to introduce universal credit, we are trying to be incremental and to lock in gradually the opportunities that it represents. Before we extend conditionality to claimants with earnings above this level, we will run pilots. We want to gather views on the approaches that could be taken in these pilots and we will therefore be consulting widely. Depending on the design, we expect such pilots to require regulations. They will be subject to the affirmative resolution procedure and therefore to debate in Parliament. I think we have had enough discussion about what that means. I thank the noble Baroness, Lady Hollis, on that point. I have committed to publishing details of any pilots, to monitoring the results of the pilots, in particular, the outcomes for claimants, and to making those results available for scrutiny. We will reflect on this before adopting any national approach. I remind noble Lords that we considered and passed an amendment that I tabled earlier to allow us to test every aspect of universal credit to see how it would change. This is clearly one area where we could do a lot of testing about how different things work.

--- Later in debate ---

[Lord Freud]

No, my Lords, I am not aware that we have locked that down at this time. It is an issue that we are going to have to address when we lock down universal credit. I cannot update the noble Lord on that matter.

[Lord McKenzie of Luton]

My Lords, I am grateful for the update that we have had. I guess that we just look forward to further developments on those issues. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, Amendment 14 is designed to place a caveat on the amendment to Section 9 of the Child Poverty Act which is already included in the Welfare Reform Bill. As I discussed on Report last week, the amendment to Section 9 is a clarification which confirms the Government’s existing understanding that the requirement in Section 9(7) of the Child Poverty Act for a UK strategy to describe progress can be met with a description of progress in narrative or policy terms, rather than in numerical or statistical terms.

This amendment appears to seek clarification that the changes already agreed by the House will not undermine three requirements on the Secretary of State which are included in Section 9 of the Child Poverty Act; namely, first, that he must publish and lay before Parliament a child poverty strategy; secondly, that he must describe in that strategy the progress that he considers necessary to meet the four child poverty targets by the target year of 2020-21; and, thirdly, that he must describe in that strategy the progress he intends to make over the period of the strategy to reduce socioeconomic disadvantage as far as possible.

I can state clearly on the record that our amendment to Section 9 is not designed to remove the requirement on the Secretary of State to do any of those things. The Secretary of State will continue to have a duty to produce a strategy every three years which sets out the measures that will be taken, and the progress that needs to be achieved, in that period in order to meet the targets by the target year and reduce socioeconomic disadvantage as far as possible. The purpose of our amendment to Section 9 is not to change the substance or effect of the law. The amendments simply clarify how progress can be described—in particular, that it can be described in policy or narrative terms rather than statistical or numerical terms if the Secretary of State so wishes.

I discussed on Report the reasons why we think that this clarification is important. We believe that a requirement to set out the progress required in statistical terms is equivalent to a requirement for interim targets on child poverty towards the 2020 target. Interim targets incentivise the short-term, income-transfer approach that we have seen in the past. That approach has not worked and completely fails to address the underlying problems. This can lead therefore to small amounts of money being given to families just to lift them over the poverty line.

The Government remain committed to eradicating child poverty and improving social mobility. We do not believe, however, that the right way to achieve these aims is by using income transfers to move people above an arbitrary line, so we must focus on tackling the root causes of poverty and changing behaviour. In the long term, those with the lowest level of income can only improve their life chances by keeping pace with those at the top. This is why we must take long-term sustainable measures to improve skills, abilities and aspirations. An income-transfer approach does not work because it is unsustainable and does not deal with or address the underlying causes of long-term deprivation. We will continue to monitor progress through the annual publication of the Household Below Average Income Statistics, the beloved HBAI. However, we think it is very important to clarify that the law does not require the child poverty strategies to set out interim income targets. It is because of this that we cannot accept the amendment. By reintroducing the wording of the original Child Poverty Act, in effect it would remove the clarification that we introduced using the amendment to Section 9.

I emphasise that we remain fully committed to eradicating child poverty, and that amendment does not alter current government policy. We will continue to be required to produce a strategy every three years which sets out the measures that will be taken and the progress that needs to be achieved over the period. This amendment is unnecessary and unhelpful. The requirements it seeks to place on the Secretary of State already exist. All it will do is reintroduce lack of clarity regarding how progress is to be described, and I therefore urge the noble Lord to withdraw it.

[Lord McKenzie of Luton]

From what the noble Lord has just said, it seems that what the Government did on Report sought to change the import of what is set out in the Child Poverty Act. If it removes what the noble Lord thought might be the need to have interim targets along the way, surely that is a change, otherwise what is the clarification about? Part of the strategy is to hit some very clear targets by the end of 2020, and I presume the noble Lord is not seeking to change that requirement, but what is it about the current wording that has been changed? I am sorry that I am not being very clear on this, but the Minister has said that there is no change and it is all the same as before and this is just a clarification. However, I thought he said when explaining it that it obviated the prospect of having to put in interim targets when the strategy is developed along the way towards 2020. If that is the case and the requirement for those interim targets is removed, that is a change. It may be that that is what the Minister and the Government want, but it is a change. If it is not a change, can the Minister have another go at explaining why not?

[Lord Freud]

My Lords, what I hoped that I had explained, although I failed to do so adequately, was this. As currently written, the Act is somewhat ambiguous. We and, I imagine, the previous Government have always interpreted this as needing to describe the progress we are making in policy terms in a way that does not require interim targets because such targets, when set every year, become absolutely tyrannical. They are particularly tyrannical when you are trying to change people’s lives and behaviours in a fundamental way. If you are worrying about interim targets every year, your efforts are undermined. This is a clarification to make it crystal clear that our understanding of the Act, and to be honest what I think was the previous Government’s understanding of the Act—the noble Lord and I spent many happy hours going over every word of it, although I am still not sure that I understand the word “socioeconomic” in it, but let us put that to one side—is that we can progress in the way we think is best, which is pursuing fundamental change for people, without the tyranny of interim targets. The previous Government did not want them and we do not want them. We want to be able to describe our progress towards the main target. I hope that the noble Lord will agree that that is the desirable way to go with this.

It is not an easy thing to do. Dealing with child poverty is really tough. The noble Lord knows it and I know it, as do we all. Let us not mess about with it, but try to do the fundamentals, and this is what we need for that. We need to be absolutely clear that this approach will work.

[Lord McKenzie of Luton]

My Lords, it is a pity that this came up at the end of the Report stage and that we do not have another chance to review the record. I am minded not to press the matter this evening, but frankly I am not sure whether colleagues in another place or we in another situation might not wish to re-engage on the issue. The key issue along the way is what the Government will be prepared to commit to and how progress towards the 2020 objective is going to be measured. That, to my mind, is what is missing from what we have just heard from the Minister. However, I do not think it would be productive to test the opinion of the House on what is quite a narrow debate, so we must try to find another way of clarifying this. I accept the assurance given by the Minister. He has put it clearly on the record that this is not meant to change the law or the duty on the Government, and it is not meant to change the obligation that the Government have. On that basis, I will withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, we have brought forward this amendment to ensure that where we have an obligation under EU treaties to allow the free movement of workers, those who have a right to reside here under EU treaties, particularly as jobseekers, may be subject to the full work-related conditionality requirements of universal credit. This amendment enables us to make regulations so that EU migrants cannot fall into groups which are not subject to the work search and work availability requirements. We must meet the UK’s obligations under EU law while ensuring that, when people come here, they do not take inappropriate advantage of our benefit system. We must maintain protections against non-active migrants who travel for the purpose of accessing state support.

We have always maintained that non-active migrants who want to come to the UK should be self-sufficient, and EU law supports this. The amendment will allow us to make sure that jobseekers who exercise their EU treaty right to come to the UK are in fact searching and available for work, as is the case now. I beg to move.

[Lord McKenzie of Luton]

My Lords, we support the thrust of this amendment. Perhaps I may ask one question. We had a helpful briefing note from the Box which reads as follows: “This amendment therefore is designed through this regulation-making power to enable the Secretary of State, so far as possible within the unified structure of universal credit, to maintain the current position in relation to the obligation placed on EU jobseekers”. The phrase “so far as possible” seems to be a qualification on what the Government are seeking to achieve here, and I wonder if the Minister might just expand on what that qualification amounts to.

--- Later in debate ---

[Lord McKenzie of Luton]

Before the Minister answers the question that I posed earlier, perhaps I may take the opportunity to add our thanks. The Minister’s enthusiasm for universal credit and his commitment to evidence-based policy have been evident to all of us. He has borne a very heavy load in bringing the Bill through your Lordships' House and has done so, as has just been said, with good humour throughout our proceedings. The fact that noble Lords have sought to beg to differ on a number of provisions does not lessen our respect for him or for the determination that he brings to his role. He has of course been ably supported by the noble Lord, Lord De Mauley, and other colleagues. Our thanks go also to the Bill team for their extensive briefings and provision of information, and the helpful way in which they have engaged. I have seen the operation of a Bill team as a Minister and am aware that we see just part of a huge operation which underpins the calm presence that we see in the Box. The scope, the size and the innovative context of the Bill will have added to this challenge. Of course, I thank my team on these Benches for their expertise, passion and support. As I have said previously, I would not have wished to face such a battery when I was a Minister.

The important changes that we have made to the Bill do not belong to us; they are the result of the voices, votes, knowledge, experience and compassion on all Benches in your Lordships' House. I have no doubt that what we send back to the other place is a much better Bill but also one which does not fundamentally undermine universal credit. It remains to be seen what returns in due course. Thus far, I have no doubt that your Lordships' House has done its job in holding the Government to account. What we are dealing with in this Bill touches the lives of millions, including many of the most disadvantaged and vulnerable in our country. Our duty to them is not yet concluded.

[Lord Freud]

My Lords, before I say a few words of my own, I have to admit that the very last question from the noble Lord, Lord McKenzie, was a tribute to him. It is quite difficult to answer; it is in a tricky area. We are pretty confident that we can maintain the position whereby it is only EU jobseekers whom we have to support and not others. As the noble Lord will know, we are moving from providing particular support in JSA to providing general support. That is where the protection is. We are hopeful that, by and large, we can maintain it, but there may be some shadowing of that position.

It is a shame that the crowds trying to get out of our deliberations earlier on slowed down the noble Baroness, Lady Morgan. I can clarify that we had a useful conversation on monitoring cancer patients and I said that the statistics which come out quarterly would become national statistics. I committed to look at what they would show in order to assess how the face-to-face process and other issues were dealt with. She very kindly said that she would help me with that after the consultation. Although we did not debate it, the position is now sufficiently clear on the record.

I do not think that we have seen the last of this Bill, but we have passed a significant point at Third Reading. Perhaps I may use this opportunity to place on record my thanks to noble Lords right around the House for the way in which they have been so constructive, have thought through the issues and been absolutely on the point. I have seen in other Bills a lot of grabbing of the wrong end of the stick and waving it about vigorously, but we have not had that here. Our deliberations have been outstanding. I shall not name all the contributors because it would take all evening—and I would forget someone, which would be invidious.

I was going to say how pleased I was that we had got universal credit through unchanged, but I cannot say that any more. Had it not been for today, we would have had it through. I know that what we are trying to do with universal credit has been understood. The complexity of universal credit is such that, if noble Lords had not appreciated it, it could have been cut to shreds and rendered completely unworkable and basically a disaster. I really appreciate the fact that it has not happened, except on one occasion.

Employment: Sickness Absence

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 25th January 2012 Lords Chamber

[Lord Freud]

Yes, my Lords. The recommendations in the report were very supportive of maintaining the GP’s role. The independent assessment service could be a supplement to that, which a lot of GPs would find very welcome in helping to get people back into the workplace.

[Lord McKenzie of Luton]

My Lords, if we are going to prevent people becoming ill at work and accidents at work, should we not do more to promote and applaud the health and safety system that we have in the UK? Would the Minister have a word with his right honourable friend the Prime Minister to ask him to stop making ill informed comments that undermine the system?

[Lord Freud]

My Lords, in practice there has been a lot of emphasis on the safety aspects of work and too little on health in work. One of the things that we are trying to encourage is the ramping up of health support, both in work and as people fall out of work. That is why this set of recommendations is so interesting.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 25th January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we are supportive of Amendments 62G, 62H and 62K. As we have heard, Amendments 62G and 62H clarify the position with regard to the devolved Administrations and Amendments 62J and 62L do so with regard to Northern Ireland. The briefing note explains that Amendments 62G and 62J ensure that there is no overlap between the role of the commission and the devolved Administrations by ensuring that the commission describes rather than assesses progress on each of the devolved Administration’s strategies. Could the Minister confirm, however, that the commission will still take a UK-wide view and ensure that it assesses progress across the whole country, including assessing where central government may need to take specific actions on those policies within its remit in a particular nation?

I listened carefully to what the Minister said about Amendment 62EA, clarifying the requirement in the Child Poverty Act for UK child poverty strategies to describe the process that the Secretary of State considers needs to be made by the end of the period. The department says that the amendment will confirm the Government’s existing understanding that a description of the progress in narrative or policy terms meets the requirements of the Act. Perhaps the Minister can say a little bit more about this amendment. As I understand it, the intention of the Child Poverty Act was to ensure that the Government set out a strategy to ensure that this progress was made rather than simply describe, perhaps in numerical terms, what that progress would look like. We would be concerned if the effect of the amendment was to weaken the duty on the Government to set out such a strategy.

[Lord Freud]

My Lords, the amendment is intended to clarify the Child Poverty Act, not to change the substance or affect the law. It will make it absolutely clear that describing progress in terms of policy is entirely in line with the requirements of the Act. It does not alter current government policy on child poverty. The Government will continue to be required to produce a child poverty strategy every three years, setting out the measures that will be taken and the progress that needs to be achieved in that period. The purpose of the latter two amendments is simply to clarify how progress can be described.

To pick up on the point made by the noble Lord, Lord Wigley, the amendment will ensure that scrutiny of devolved matters relating to child poverty remains with the devolved Administrations, thus respecting devolution conventions. We will continue to work closely with the devolved Administrations to ensure that both the commission and the devolved strategies contribute to continued progress against the goal of ending child poverty.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 23rd January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, this amendment, moved so ably by my noble friend Lady Donaghy, goes to the heart of fairness. It does not challenge the concept of a cap or indeed the level of the cap. As my noble friend clearly said, it does not undermine the stated aims of the Government for its introduction—whether we agree with them or not. We have heard that the industrial injuries scheme is a system of no-fault compensation. As the noble Lord, Lord Wigley, said, to qualify for the benefit, the claimant must have had a personal injury in an industrial accident or he must have a prescribed industrial disease. That must have arisen when the claimant was an employed earner. The amount of the benefit depends on the extent of disablement. An award is made for a period during which the claimant has suffered or may be expected to continue to suffer from the relevant loss of faculty.

On the rationale for the cap the Government alternate between reducing benefit expenditure and changing attitudes. The cost of the industrial benefits scheme, applicable to working-age claimants, as my noble friend said in moving the amendment, is below 0.5 per cent of DWP AME. As for encouraging the benefits of work, claimants would have had to have been in work in the first place to get the benefit. In a sense, they would have had to have been exposed to both the benefits and the risks of work. This raises broader questions about health and safety, but perhaps that is a topic for another day’s debate. The benefit would be payable to those able to return to or stay in work as well as to those whose loss of faculty prevents it. In essence, the Government are saying that the greater the suffering an individual endures from an accident doing what the Government want—being in work—the tighter the cap should bite. That does not have a ring of fairness.

In Committee, the Minister left the door slightly ajar and indicated the possibility of further consideration. It would be good to hear that the door remains open and that he will be able to make appropriate commitments today or at Third Reading.

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

My Lords, before I speak to the specific amendment, I would like to make some general points about the rationale for the household benefit cap. First, there is a principled point that households should not be able to receive more on benefits than the average working family in Great Britain earns in work. Secondly, people on benefits should face the same choices as working families, including about where they can afford to live. Thirdly, someone in work should always be better off than someone on benefits. The proposed cap of £500 a week is equivalent to an annual salary of £35,000 a year before tax. We have set the cap at the median earned income for working families after tax and national insurance. We think this is a reasonable representation of average household earnings.

I ask noble Lords to consider how well these principles are received by the public at large. They will have seen press reports of a YouGov survey that found that 76 per cent of the public are in favour of the benefits cap. The overwhelming majority of people think there should be a limit to the amount of benefit those out of work can receive. We have received many representations that we are pitching the level of the cap far too high. In fact, only 7 per cent of respondents in today’s YouGov survey think that the cap should be higher than £26,000. Another 9 per cent think there should be no cap, so of the people who answered the survey, 69 per cent thought that the cap as we have set it or below that amount is the right figure. Of those who expressed an opinion, the figure is above 80 per cent, or above four-fifths. The truth is that people do not understand why we pay claimants more money when they are out of work than they could reasonably expect to earn from working full time.

I accept that arguments can be made for special treatment for a whole range of groups and benefit payments. Indeed, many such arguments were eloquently expressed previously in Grand Committee, and this amendment moved by the noble Baroness, Lady Donaghy, is an example. However, we must be wary of such arguments clouding the bigger picture of the need to reform a complex benefits system, which is failing those people on benefit who want to work but, equally importantly, is placing a costly burden on the taxpayers in work who pay for it.

We have today published an updated impact assessment with more detailed and robust estimates for the numbers and characteristics of people who may be affected by the cap. The high-level figures are broadly in line with the figures in the previous assessment, but there are some important differences. In particular, we now estimate that in nearly 40 per cent of households the claimant will be subject to JSA conditionality. We also estimate that the proportion of social rented sector households is 44 per cent, which is substantially less than we thought previously. The new figures are derived from the administrative records held by the department on benefit recipients. Thus, they are much more robust than the previous survey-based estimates. They provide a much firmer basis than before for considering transitional measures. Crucially, the methodology here means that we know who is likely to be affected by the cap and can start working with them and local authorities to minimise the problems for individual households when the cap is introduced.

Amendment 58C would require us to disregard payments of industrial injuries disablement benefits when operating the benefit cap. The noble Baroness, Lady Donaghy, has argued that these payments are worthy of special consideration because they take the form of compensation payments in lieu of injury or disability caused at work. I recognise the nature in which these payments are made, but I am afraid that I do not believe that it should override the need for a limit to the amount of welfare payments households should receive. Disregarding payments of IIDB would serve only to undermine that fundamental principle and create a precedent for others to argue for such special treatment.

We have previously been asked to reconsider the position of IIDB recipients in light of the fact that we have announced that we will fully exempt from the cap recipients of disability living allowance, personal independence payment, attendance allowance and constant attendance allowance. I have to say that I do not find these groups analogous. DLA, PIP and equivalent benefits are paid to people to help with the extra costs arising from their disability. Their receipt provides an appropriate means of identifying those disabled people who should be exempted from the cap. Many people receiving industrial injuries benefits will be exempt because they get constant attendance allowance as part of their industrial injuries entitlement or DLA.

I take the point about vaccine damage payments raised by the noble Baroness, Lady Donaghy. These lump-sum payments will be taken into account as capital and not income in assessing means-tested benefits. In other words, vaccine damage payments are not comparable to weekly income payments through IIDB. But, as has been said in debate today, the basic IIDB payments are compensation payments and do not reflect whether the disability or illness necessarily brings extra financial costs. I cannot agree that there is any reason to provide an automatic exemption in these circumstances.

On the disincentive to work, any IIDB recipient in work who is entitled to working tax credit will be exempt from the cap, as will any households in receipt of working tax credit. The cap of course will not apply to pensioners. I therefore ask the noble Baroness to withdraw her amendment.

--- Later in debate ---

[Lord Freud]

We have looked at the human rights issues, putting particular emphasis on households with children and making sure that the arrangements are effective. I shall speak later about payments for children being earmarked. The structure of the universal credit means that it is an overall payment and that there are not different segments going for different purposes. That will simply not be practicable in the universal credit world whereas it is practicable in today’s benefit world. I ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I should like to thank everyone who has participated in this very extensive debate. Given the time, I will not seek to answer each of the points raised but I will try to touch on some of them. I start with the noble Lord, Lord Freud, who talked about a change in psychology. A lot was said about the universal credit in the debate. We have made clear our support for the universal credit given that it can help people into the labour market but it is very unclear what extra benefit derives from this cap. If such a benefit exists, can the Minister explain the psychology that 54 per cent of the people affected by it are going to be in London and only 3 per cent will be in Wales? What is it about the psychology of those in London and Wales that causes such disparity? Is it possibly something to do with the cost of accommodation and nothing to do with a change in psychology?

The noble Lord, Lord German, asked for an assurance that there would always be a property available for someone who was not able to stay in their current home. I do not believe we heard one. I do not know whether the noble and learned Baroness, Lady Butler-Sloss, or the noble Lord, Lord Ashdown, will be comforted by the transitional arrangements; I certainly was not. I thought they were weak and generalised and have not taken us forward at all. I would say to the noble Lord, Lord Empey, that of course changes in the benefit system are bound to give rise to circumstances where somebody loses out. But the question is not whether you can avoid that; the question is who is losing out, is it fair, and is the construct of the change fair? We challenge whether it is, particularly in relation to homelessness.

The noble Lords, Lord Newton and Lord Fowler, focused on the universal credit. I have made our position clear on that. I was going to ask whether there were any spare badges, but possibly not. Of course, public spending needs to be addressed. We have made our position very clear both on that and on the cap. We support the cap and its level but it must be dealt with in a fair manner. We are perfectly entitled to probe when it is not and to challenge and seek change to its application in relation to homelessness.

The noble Baroness, Lady Hussein-Ece, made a very powerful speech which differentiated between what actually happens on the ground and what affects people’s housing circumstances. The noble Lord, Lord Best, gave us the benefit of his huge experience to say what is happening in the housing market and what these changes can give rise to. The right reverend Prelate the Bishop of Ripon and Leeds reminded us that, quite apart from these changes, homelessness is on the increase. Let us be clear. We are dealing with all those housing benefit changes which we have debated previously. This amendment does not seek to challenge those; it seeks to challenge the consequences of the cap in relation to homelessness.

The points made by the noble Lord, Lord Hamilton, were very effectively addressed by the noble Lord, Lord Winston. The noble Lord, Lord Wigley, questioned how it helps the economy if people move to areas that are cheaper because there are no jobs. Part of the problem is that the Government look at only one side of the equation. They look at what they see as benefit savings forgone, not at the costs generated by the policies they seek to implement. That is the fundamental flaw on this aspect of the cap. I have detained your Lordships long enough. I wish to test the opinion of the House.

--- Later in debate ---

[Lord Freud]

My Lords, the right reverend Prelate the Bishop of Ripon and Leeds made the point that the job of a member of the church is to look after children in need, but one needs to ask the question about children in need at a slightly different level. For instance, if we leave families with rents that they could never afford in work, what does that do for the children? What does it do for the children in those families when there is no working role model in them? We know what happens to those children. What does it mean to leave them in workless families given the much higher level of poverty that we know exists in them? What does it mean for the generational worklessness that we see in those families? The question that, from a religious point of view, you need to come from is much wider—what is the best thing for those families?—rather than looking at it from a narrow financial basis.

Let me supply the figures because they were just slightly misquoted. We estimate that the savings generated by the cap will be £120 million in 2013-14 and £130 million in subsequent years. I think I heard £113 million. Putting those figures to one side for the moment, the reality is that the savings on this measure are not the core point. We are trying to change behaviours. If we do not cut the benefit bill by the amount we have in the estimate, that is a good thing because we will have got people into work and changed their behaviour.

This measure does something different: it cuts the number of families affected by the cap from 67,000 to about 40,000. That is the real cost of this amendment. It takes the pressure away from those 20,000 families that will go on in the same way that they have been going, and we will not have the behavioural change that we want and need from those families.

[Lord McKenzie of Luton]

The Minister is not dealing with the point. On the latest updated assessment, something like a quarter of the people who will be caught by this cap are on employment and support allowance. Depending on which category they are in, it requires people to move closer to the labour market, but does not require them to work. Why are the Government using this leverage on people in that group? Thirty-eight per cent of them are on income support, which is again a category of people who, for all the reasons we have debated, are not required to work. For people on JSA, you could see this might be an extra spur, but why does this measure cover those people who, under the Government’s assessment and on the basis on which they are going to construct universal credit, are not required to work?

[Lord Freud]

My Lords, on the figures in that new impact assessment, the majority of people have full or partial conditionality in ESA, given the proportions of ESA. Most people on ESA in the support group will, in practice, be on DLA and therefore will not be affected by this cap, so we can look at the majority looking for work. Even if there is no formal conditionality, the message to families is that work is a solution in this circumstance. I need to remind the House that the coalition Government firmly believe that there has to be a limit on the overall level of benefit it is appropriate for the state to provide for those who are not working. Let me be absolutely clear about the structure because this is a point raised by several noble Lords. The noble Baroness, Lady Corston, made the point most emphatically. The structure of this does not take money out of the carer’s pocket because we are not stopping payments of child benefits. Those families will still continue to obtain their child benefit, and there is an offset in the other benefits to get the cap to work. It will not work through child benefit. I know all money is fungible and households will operate within the same overall money, but there is no need for this concern that the money is taken away from the carer directly.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 23rd January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, Amendment 60A seeks to protect carers from the impact of the benefit cap in cases in which they are not living with the person for whom they care. On the last day on which we debated the Bill, the Minister told us of the value that the Government place on carers and their work. However, the Bill is drafted in such a way that this work will be valued only when the carer lives with the person for whom they care and thus excluded from the benefit cap by virtue of that person’s eligibility for DLA or PIP. Carers who are not part of the DLA claimant’s household, as we have heard, will be subject to the benefit cap. They are therefore likely to lose their carer’s allowance, suggesting that the Government place no value on their care.

As we have heard, the latest impact assessment estimates that 5,000 carers will be affected by the cap—that is the number provided by my noble friend Lady Lister—and yet not only does such care save the taxpayer thousands of pounds but the carer will be almost unable to work—or at least full time—by virtue of their caring. So they may face the choice of ending their care role in order to live. This is not theoretical. One in six carers has made the difficult decision to give up work to care, leading to an average loss of £11,000 a year. Many such families struggle to make ends meet as they cope with both a drop in income and the increased costs of caring—for example, through buying extra support and equipment and travelling to hospital and doctors’ appointments.

The impact of the cap will be to make this struggle significantly more difficult. Carers affected could lose £87 a week. Indeed, it may mean that some carers are faced with a tough choice between giving up caring—imposing significant costs on health and social care services—or taking a significant financial hit.

The Secretary of State for Work and Pensions told the BBC on Friday that people were “not suffering” as a result of his welfare reforms. Perhaps he would like to reconsider whether carers are likely to suffer if the amendment is not passed.

The Secretary of State might also consider the case of some of our service personnel. War widows are excluded—quite rightly—from the benefit cap, but should a mother helping to look after her son, injured in Kabul or Iraq, and claiming carer’s allowance for this, still be subject to the cap? Is that fair? I look forward to the Minister’s response.

Amendment 61, which relates to temporary accommodation, was to a degree dealt with in the first amendment we discussed today. It was a component of that broader amendment. We certainly support the amendment. I took it from what the Minister said in response to that general debate that something was afoot to address this issue but, without having had the chance to read Hansard yet, it was not totally clear what. Perhaps he will take the opportunity of saying it again, expanding, promising to write or whichever of those options he feels appropriate. It sounded as though there was a recognition of the need to address the issue that has been raised by the amendment. I certainly support the fact that there should be a move to address this and I look forward to receiving further information.

We very much support Amendment 60 and a period of grace. We would have been happy to support 52 weeks, but if 26 weeks is what the noble Lord, Lord Best, is pressing for, we would certainly support that should he wish to press the matter.

I say to the noble Lord, Lord Stoneham, that there are two things here. There are issues around transition. I see that the Lib Dem Benches are placing great faith in what might flow from transition and the offers that might come. However, I think that is different from an ongoing period of grace. The purpose of this, as the noble Lord, Lord Best, and my noble friend Lady Drake have enunciated, is to help people who fall out of work and to allow them a period of adjustment or a period of grace before the cap hits. There might be a transitional component to that, but this needs to be something of a permanent feature of the arrangements to make sense.

I suppose that six months corresponds with the contributory JSA period. My noble friend Lady Drake may be more up to date than I am on the data. It used to be 50 per cent back in work in three months and 75 per cent in six months. The data may have moved on. Certainly, given the unemployment figures that are around, I think even the longer period suggested by my noble friend must be somewhat difficult. The arguments in favour of a period of grace seem to be overwhelming. For someone to have to cope with all the traumas of losing their job and at the same time have to face changes in accommodation and moving to a new area, which could be a direct consequence of the cap, would be unforgivable. I hope that the Minister can say something positive on that as well.

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

My Lords, Amendment 60 would require us to provide for a period of 26 weeks during which we could not apply the benefit cap. The period would start from the date that a claimant’s welfare benefits first exceeded the level of the cap. It would therefore not only apply to new claimants, but also to existing claimants who have a change of circumstance that results in the level of the benefits that they receive exceeding that of the cap. We have said all along that we would look at ways of easing the transition for families. We do not want families to be taken by surprise by the cap or to create problems that people can avoid by taking appropriate steps. We want to ensure that people who might be affected by the cap know what to expect and can consider the options open to them.

There has been a lot of speculation in the press about whether a grace period is what the Government have in mind. Clearly, a grace period could be a way of easing transitions, especially for people who have recently been in work and can be expected to return to work within a short period. A grace period would mean that their benefit entitlement would not be affected when they first leave work. This would avoid the risk that they would be prevented from looking for work because of the need to adjust their circumstances because of the cap. That point has been made in the debate.

However, people who have recently enjoyed a high income are better able to deal with temporary shortfall and can and should be expected to have made their own provision if they know that there are limits on benefit entitlement. A grace period also carries the risk that people are likely to stay on benefits for longer than they would otherwise simply because a higher rate of benefit is temporarily available to them, so while the grace period approach is clearly one possible approach, it needs careful consideration. Issues with run-ons and things like that would need to be looked at very carefully. We also need to consider whether other approaches may be just as effective or indeed more effective for some groups. What I can say today, as I said in Grand Committee, is that we are well aware of the issues, we are confident that we have the powers we need to ease transitions and we will consider the case for a grace period along with the other options that might be available.

Amendment 60A seeks to exclude carers from the benefit cap. For carers the benefit system is designed to provide financial support where caring responsibilities prevent carers working full time and, as such, carer’s allowance should be treated in the same way for the purposes of the cap alongside other income maintenance benefits. However, households which include a member who is in receipt of DLA, PIP on its introduction, attendance allowance or constant attendance allowance, will be exempt from the impact of the benefits cap. Households where a member receives carer’s allowance but no members receive DLA, attendance allowance or constant attendance allowance, will not be so exempt. As the noble Baroness, Lady Lister, who is a fast reader, pointed out, the revised impact assessment states that 5,000 claimants fall into this group. One of the reasons that the number is rather less than one might have expected—or that I suspect the noble Baroness, Lady Hollins, expected—is because we are looking at two benefit units, so the disabled person retains all their disability benefits and the rest of the benefits are received by the other householder. That is one of the reasons why the figures net down to rather a small number.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, for the sake of brevity, I can say that I also concur with my noble friend and with the noble Lord, Lord Kirkwood. My noble friend is simply seeking to have the issue on the record.

[Lord Freud]

My Lords, I shall speak to Amendments 62ZA and 62B. I could almost do so like my noble friend Lord Kirkwood, but I will speak at slightly greater length.

I would like to assure noble Lords that we are in agreement on the need to ensure that a claimant’s childcare responsibilities are taken into account when setting work-related requirements and when determining whether a claimant has good reason for failing to meet a requirement. For the record, let me set out how we intend to do this.

The legislation will provide clear safeguards. When a child is under one, support will be unconditional. When a claimant’s child is under five, we will ask the claimant only to attend work-focused interviews. If claimants fail to meet this requirement for no good reason, they will be subject to the lowest level sanction; the sanctionable amount for these claimants will be limited to 40 per cent of the sanctionable amount for other claimants.

Secondly, advisers will take childcare responsibilities into account when setting work-related requirements, and we intend to set out some specific safeguards on this issue in regulations. Regulations will prescribe that claimants with a child under 13 will be able to limit their work search to jobs that fit around their children’s school hours. This is key. The best way to prevent the inappropriate application of sanctions is to ensure that requirements are reasonable in the first instance.

Amendment 62B seeks to introduce a blanket exemption from conditionality sanctions for claimants who can demonstrate that they did not have guaranteed and predictable access to suitable childcare. We do not think such a legislative exemption is needed. As I have previously explained, when a claimant fails to meet a requirement, a sanction will be imposed only if the claimant does not demonstrate that there was a good reason. In considering whether there is good reason, we will consider all relevant matters raised by the claimant, which could include the availability and cost of suitable childcare. This flexible, case-by-case approach is the right one, but to be absolutely clear, when a claimant demonstrates that a lack suitable childcare meant that the claimant was unable to meet a work-related requirement, a decision-maker should determine that the claimant has good reason and a sanction will not be applied.

Noble Lords have previously raised concerns about where the responsibilities lie in relation to the provision of good reason. I would like to take this opportunity to clarify the position. We have a responsibility to ensure that claimants understand the decision-making process and that they have an opportunity to explain the reason for a failure to meet a requirement. The onus is then on the claimant to tell us the reasons and provide supporting evidence where necessary. The department must then determine whether the reasons raised are relevant and whether any of those reasons constitute a good reason. The current practice of visiting ESA claimants with a mental health condition or learning disability before the application of a sanction is a good example of the proactive process required to collect evidence of good reason in some cases. I can assure noble Lords that we will review our approach to collecting evidence of good reason for all claimants to ensure that we get this process right.

The final safeguard is the appeals system. Any decision to reduce an award as a result of a sanction can be appealed to the First-tier Tribunal. Amendment 62ZA seeks to require the tribunal to consider whether the claimant had guaranteed and predictable access to childcare. We do not want to go down the route of prescribing specific matters to be taken into account by an independent body; the existing legislation is clear and sufficient. The First-tier Tribunal must consider any issue or circumstance raised by the claimant that is relevant to a valid appeal, so in an appeal against a decision to reduce an award of benefit because of a sanction where a claimant cites lack of suitable childcare as a good reason for failure, this should be considered by the tribunal because it is plainly relevant to whether the award ought to have been reduced.

Given the safeguards we have in place and the commitment I have made to reviewing our processes for collecting evidence for good reasons, I hope I have provided the assurances on the record that were required by the noble Baroness and I urge her to withdraw this amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 17th January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we have strong sympathy with these amendments, spoken to so effectively by the noble Baronesses, Lady Meacher and Lady Finlay. We had a bit of a canter around this issue in Committee, focusing particularly on 16 to 24 year-olds. I took from that debate, and the Minister may take the opportunity to confirm or deny it, that there is potentially scope within the Bill for a regulation not to require 16 year-olds inevitably to move towards PIP. If that is not the case, it is important that we clarify it, because it impacts on how we approach the amendment.

A number of questions have been posed which I should like to emphasise. The first is whether the Minister contends that the PIP assessment as currently constructed is fit. Does he believe that it would be appropriate for most 16 year-olds? The assertion is that it is not. Another issue is the extent to which there is alignment of ages for a range of things—the UN convention certainly, but care generally and education and training. Would it not be better if that alignment were brought into effect also for the purposes of the PIP and the DLA cut-off?

When somebody aged 15 is about to become 16, that is the point at which things change on the DLA journey and we move into a somewhat different regime. If somebody reaches that once PIP is up and running, do they inevitably have to apply and go through the PIP process at that point, or is there an opportunity for them to remain within DLA or perhaps migrate at a subsequent point? Otherwise, there is a real risk that these young people will the first to test the new PIP arrangements. What is the technical position there? Does somebody who wishes to make their first claim after the age of 16 have the route only to PIP and not to DLA? Would somebody currently claiming DLA necessarily be denied the opportunity to continue with that until, perhaps, the migration plan has run its course? I thought part of the noble Lord’s response to our Committee debates was that you could deal with this in part by the way people in the DLA system migrated towards PIP. One way of dealing with some of the issues that have been very validly raised in this amendment would be to use that flexibility, if it exists. If not, it seems doubly important to lock into the 18 year-old cut-off point, which is being pressed.

[Lord Freud]

My Lords, I welcome these amendments tabled by the noble Baroness, Lady Meacher, and the noble Lord, Lord Patel. They allow me just to go through how the Government intend to introduce PIP successfully for young disabled people from the age of 16. Clearly, the central question is whether 16 or 18 is the right age. In one sense, all ages are a little arbitrary here. Adulthood is defined at different ages in different contexts. The key to the decision to start PIP at 16 was based around the assessment criteria and at what stage people fit in with those, in terms of the activities that they can undergo and how we can look at them. When we looked at it with a range of experts, we concluded that you would normally expect individuals without disabilities to be able to carry out these activities independently from the age of 16. For example, you would expect a 16 year-old to be able to wash and dress themselves, to communicate with others, to plan, and to follow and make a journey. It is the age at which, currently, you expect individuals to be able to be employed full-time. There is a general expectation that they have the capabilities of adults.

The group looked at whether you would expect even younger people—I had better use that word now, rather than adults or children—to fit this assessment. They concluded that children go through several developmental stages under the age of 16, and they do that at uneven speeds. So, there was a cut-off in developmental terms between the two stages, for the purposes of this test, at 16. The other way of looking at this is that it is about trying to move people into adulthood and independence. A lot of these youngsters are living in their households but need to move to independence. Having their own independent help and their own funding in PIP at that age matches their aspirations to move into adulthood, and allows them to make their own decisions about aspects of their lives.

This is an area where, as we described in our policy document, we have set out our intentions and outlined the key principles that we have debated and agreed with stakeholders. We have set up a subgroup of the PIP implementation development group specifically to help and inform the design and testing of the new system in relation to disabled young adults. Together with the focus group work and the interviews that we have held with disabled young people, their appointees and representatives, this is the process that we have under way to get the system right. One of the most important areas where we are using the development group is around the question of how we look at the process of moving people into the 16 category and how we signpost, communicate and get awareness of the changes and then join up the support for disabled young adults and their families.

Clearly, this is not the only testing that disabled youngsters undergo in this phase of their lives. There are a number of assessments as they move from childhood to adulthood. We will ensure that all young people claiming PIP or moving on to it at age 16 have the appropriate support to allow them fully to express their needs. We know it is important that they have a parent, an advocate or a friend to accompany them to that face-to-face consultation. We are not changing anything in terms of DLA in this area. We are changing a lot of things by moving DLA to PIP, and we will be discussing some of them, but in this area we are sticking with the same age as the existing DLA arrangements.

There was an anomaly that the noble Baroness, Lady Meacher, tried to pin me down on and defied me to find a good explanation for. I have been challenged and I shall do my best. On the point about the difference between the universal credit at 18 and PIP at 16, the blunt answer is that these are different benefits for different purposes. It is important that we do not think of PIP as an income supplement; that is not what it is, and nor is it for someone who is out of work. PIP is a payment to people who are disabled who will always need extra money to live because their costs of living are higher, and we will pay it regardless of whether people are in work or out of work. That is why it is a different argument. By giving PIP earlier, we are giving youngsters their independent funding to run their own lives from that point—not from the point when they are meant to be in the workforce and fully independent—when, if they do not have a job, they will need an income supplement. That is the difference. I hope that I have risen to the challenge; I am sure that the noble Baroness will say that I have not, but I have done my best.

We are working closely with the Department for Education to explore evidence gathered so that we can have a single assessment for an education, health and care plan that can be used to support a personal independence payment claim. We are trying to get rid of all the multiple assessments.

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[Lord McKenzie of Luton]

It is clear that the Government are going to have to do some of this anyway, but in terms of an overall time period it is clearly a matter of some months rather than weeks, but not a matter of years. It depends on the determination and effort that the Government bring to bear. They have the levers and the resources to cause this to happen quite quickly, I would suggest, but there has to be full engagement with disabled people for it to be meaningful. This does not mean endless delay in the introduction but it does mean a real level of reassurance before we embark upon this very significant change.

[Lord Freud]

I will come to my conclusion first. Basically, we are doing a lot of trialling in this process and the way that this particular amendment is drawn would delay us very significantly. At the end of my speech, I will give the noble Lord the actual cost that we estimate the delays will represent.

I will spend a bit of time highlighting our approach to developing, testing and refining the assessment criteria that we already have. We have been developing those in collaboration with a group of independent experts, including disabled people and disability organisations. We had initial proposals on which we then carried out 16 weeks of consultation. We met 60 disability organisations; had 170 written responses; and carried out testing involving sample assessments of around 900 volunteers selected from current or recent DLA claimants. Both the testing and the consultation were very effective and allowed us to review, revise and improve the draft assessment criteria from that published in May. We provided a second draft in November in advance of discussing the PIP clauses in Grand Committee. Since publication, we sought the initial views of disabled people and the organisations that represent them in an informal way to listen to their thoughts. Yesterday, as promised, we published a further document detailing our initial thinking on entitlement thresholds for the rates and components of PIP. We have now commenced a formal consultation on the entire assessment criteria, including the weightings and entitlement thresholds which will last for 15 weeks.

That gives disabled people and disability representative groups the opportunity to tell us what they think the criteria will mean to them and their members and what amendments might be needed before we finalise the regulations. I can assure my noble friend Lord Newton that those regulations, which we will lay later this year, will be subject to the full affirmative procedure of both Houses. We are confident that we will be able to test the impact of these using the data we gathered during our earlier exercise. If for any reason this is insufficient, we will carry out additional testing to support our analysis. In response to a specific request from my noble friend Lady Browning, I will personally look at the impact of this on our autism obligations and I will make sure that that is done as a key part of this process.

There have been, and there remain, significant opportunities for involvement from disabled people and their organisations, and significant opportunities to influence our proposals to ensure we get them right. That, however, is not all. In terms of the delivery and operation of PIP, we intend to continue to develop a number of our operational processes in conjunction with disabled people and their representative groups through our implementation development group, which I talked about a little earlier this evening. This group has already played such an important role that it is our intention to retain its services after April 2013 in order to work with it to help evaluate the new delivery arrangements.

We have also created a number of customer research panels, made up of groups of disabled people who share similar characteristics, in order to understand, and gain an insight on, how the process impacts upon them. We will also test our operational processes in a model office environment, allowing us to see how they work without affecting individuals’ benefit entitlement. The trouble with a formal trial, of course, is that it would change what people actually get even though we are trialling. Here, by doing it in a model office, we can do it in a way that does not actually affect what they receive, but we know exactly how it will work.

We want similar arrangements to be in place with regard to the processes of the eventual supplier of the assessments of the benefit. We will be making it clear to bidding organisations that we expect them to work with disability organisations on the design of their processes, to improve the customer experience. This will be before, during and post-implementation. This will be a clear requirement in the contracts.

As well as getting the whole development process right, I recognise the value in moving away from a big-bang approach to implementation which would see both new claims and reassessments beginning in April 2013. Since the Committee stage, a significant amount of work has been undertaken to investigate the options for ensuring a sensible implementation which allows us to learn from early experience. Therefore, I can inform the House that, in addition to the pre-implementation testing work that I have already mentioned, we will limit the number of new claims for personal independence payment to a few thousand per month for the first few months of implementation. This will allow us fully to trial all the processes in a truly live environment. We are still developing the details on how we can meet our claimant target over the first few months.

Once we are satisfied that the new processes are working as intended with this reduced number, we will allow all new claims for personal independence payment to enter into the process. We will continue monitoring and reviewing the processes to ensure they are working effectively and appropriately and to see how claimants are finding the experience. We will begin to reassess existing DLA claimants in a co-ordinated way six months after the initial implementation. Again, we will stagger this process. We expect the first stage of reassessment to start in the autumn of 2013, beginning with individuals on a DLA fixed award who will need to renew their claim and those claimants who report a change of circumstances on their existing DLA claims.

At the same time, we intend to conduct a pathfinder trial reassessing individuals who would not, in the ordinary course of events, come up for reassessment. We expect the pathfinder to run for around three months to ensure the processes for identifying and contacting people and taking them through the claim processes are working satisfactorily. Allowing a small number of existing DLA claimants to advance through the reassessment process ahead of full national implementation will enable us to be sure that our approach to engaging these customers into the claims process is working effectively ahead of widening the selection. Also very relevant here is the independent review and report on the assessment that we are legislating for in Clause 87.

During Committee, the noble Lord, Lord Rix, laid an amendment seeking to increase the number of independent reviews carried out. Noble Lords will remember that I promised to take this matter away and consider it further, and I have done that. Our revised proposal is that we legislate for two biennial independent reviews within the first four years of the implementation of PIP. The first would report within two years, beginning with the date on which the first assessment regulations come into force, and the second within four years of that date. Although it is only two reviews formally in legislation, we commit to undertake a third if the second review demonstrates ongoing issues with the operation of the assessment which need to be addressed in this manner. That is a firm commitment from me and my ministerial colleagues.

In reality, in the way that we are structuring this, we are trialling it in any real sense; we are doing it on a gradual basis. If we do it in this way, we will get the assessment and wider benefit processes right; we will involve disabled people and we will learn from the earlier delivery of the benefit. We do not think, therefore, that the formal trial proposal in this amendment is necessary. However, if we do it that way, the House should know that it would push back the implementation of the benefit. Our estimate is that the loss will be £1.4 billion of savings over the reassessment window. Clearly, that has to be found somewhere else. I know that noble Lords opposite think that is funny.

[Lord McKenzie of Luton]

Could the noble Lord give us a bit more detail of that estimate? The figure of £1.4 billion seems to trip off the tongue as the cost of any amendment that we pursue.

[Lord Freud]

That is an assessment based on the delays that we anticipate from this amendment, which is actually similar to the previous amendment where I used the same figure. It would have the same effect of delaying the whole process. That is the Government’s position, having worked through the implications of the amendment.

I remind the House of where the Opposition have got to with their amendments. We estimate that as a result of the votes on amendments so far, over five years they have imposed £3.8 billion-worth of extra costs, and this amendment will take that figure to £5.2 billion.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 17th January 2012 Lords Chamber

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

My Lords—

[Lord McKenzie of Luton]

My Lords, I, too, shall be brief because, as the noble Baroness, Lady Thomas, has said, the Minister has flagged his acceptance of the amendments in this group.

The debate in Committee led by the noble Baroness, Lady Thomas, centred in particular on the importance of keeping a qualifying period for PIP at three months, but obviously the concept of increasing the prospective period from six to nine months to align PIP with the definition of “long-term disability” in the Equality Act has been helpful to the process. However, the arguments for a three-month qualifying period are strong, and it is commendable that the Government have accepted the case. We have not heard them today but those arguments concerned conditions of a long-term nature having a sudden onset, conditions which are not diagnosable immediately after the onset of symptoms, and conditions which have an immediate devastating impact.

I have just one question for the Minister on the required period condition. This has been touched on before but is not the subject of an amendment today. On the basis of what is before us as an amendment, to be eligible for PIP it has to be determined whether, as respects every time in the previous three months,

“it is likely that if the relevant ability had been assessed at that time that ability would have been determined to be limited or … severely limited by the person’s physical or mental condition”.

The issue is how this requirement is to be interpreted for those with fluctuating conditions. At a recent meeting to consider how things should work for those on the autistic spectrum, we were assured that, although the wording was a bit clumsy, it covered the situation. It would be helpful if the Minister could confirm that or, as we are at one on this issue, commit to tidying it up at Third Reading.

However, all in all, the Government are to be commended for doing the right thing on this, as indeed is the noble Baroness, Lady Thomas, for having led the charge and continued to press the matter.

[Lord Freud]

My Lords, I tried to rise to speak earlier because my name is added to this group of amendments tabled by my noble friend Lady Thomas, and I am very pleased that I have been able to support them. We have had a lot of responses from people whom we respect and whose advice we find very useful, including Macmillan and CLIC Sargent, and I thank them for the time that they have given.

When we looked at this issue in Committee, I think it was generally agreed that an overall 12-month required period condition was right, but there was a lot of concern that the six-month period in question here was too long. Bluntly, we were trying to balance two factors: payments being made sooner against the potential for more assessments to ensure that ongoing payments were correct. That is why we ended up with periods of six months plus six months. However, we have been listening to the arguments and have been persuaded that the balance should shift. There was a clear consensus that a three-month qualifying period and a nine-month prospective test offered the fairest solution, and that is why we are able to support the amendments.

On the point raise by the noble Lord, Lord McKenzie, I think it is easier if I write to him, as this is a fairly technical matter. On that basis I am very happy to support the amendment tabled by my noble friend.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I will speak briefly in support of the amendment. The case has been very clearly made. The amendment is seeking the assurance of something written in primary legislation rather than the comfort that was given that this could be dealt with in regulations.

Perhaps I may take the opportunity to clarify a part of the debate we had in Committee. The Minister said:

“Turning to the current rules, broadly speaking, current DLA provisions have a one-year linking rule. This allows individuals over 65 to renew an award within one year of their previous award without losing DLA entitlement. Similarly, we intend to allow a linking period for PIP. This will support those individuals who reach the upper age limit and have a break in their claim through temporary improvement, provided the individual makes a claim within a defined period and continues to fulfil the eligibility criteria for PIP”.

I understand all of that. The next sentence says:

“As with DLA, there will be restrictions on new and existing claims for those over the age of 65”.—[Official Report, 16/11/11; col. GC 305.]

Can the Minister expand on what particular restrictions on existing claims for those over the age of 65 he is intending to implement?

[Lord Freud]

My Lords, I should like to take the opportunity to set out our position in relation to people who are approaching 65 and over the age of 65 and, I hope, give a degree of reassurance as to what we are aiming to do and, if people could accept our firm stated intention, explain why that would be a better and more flexible way of proceeding. I hope that some of the things I said in Grand Committee and what was in our policy briefing document in May will have reassured the noble Baroness, Lady Wilkins, at least to some extent, although I am not absolutely confident of that, given the slightly questioning tenor of her remarks.

People in receipt of DLA who are aged 65 or over when PIP is introduced will not be reassessed for the new benefit from 2013. These reforms will initially be focused on people of working age. This will enable us to ensure that learning from the reassessment of working-age recipients is properly considered before any further changes are developed and implemented.

I understand that the purpose of this amendment is to ensure that financial support continues into pension age for individuals who may have had less opportunity to work and save during their working life due to their condition. I can reassure noble Lords that this is also our objective and can be achieved without amendment to the Bill, but instead through regulations, much as the detail for DLA pensioners is provided for in regulations. We intend to make regulations for the personal independence payment that will allow people who have reached the upper age limit to continue to receive it for as long as they continue to meet the entitlement conditions. Our priority is to support those individuals with established, long-term health conditions or impairments that would put them at a financial disadvantage over a long period. As we indicated in our entitlement thresholds and consultation document, we expect to consult formally on a range of issues to help inform the regulations. This is such an area and we expect to begin consultation in the spring.

It is also our intention that the rules for people over the age of 65 should be broadly similar to those that currently apply to DLA. For example, DLA provisions allow a one-year linking rule which lets those aged 65 or over renew an award within one year of their previous award expiring without losing DLA entitlement or having to satisfy a qualifying period. This provision is intended to allow for those on a fixed-term award to renew their award on a new claim or to reclaim where their condition previously improved and subsequently deteriorated.

I turn to the link question raised by the noble Lord, Lord McKenzie. Under DLA, claimants over the age of 65 cannot move up or down the mobility component rates or move to the lowest rate care component. In the main, these rules match up with attendance allowance and that is an example of the kind of restrictions currently in DLA, which we will look to and consult on maintaining in PIP. Our commitment is to maintain support for those individuals who have relied on DLA or PIP for their working lives into retirement. People who develop care needs during retirement as part of the natural ageing process, for example, and who are not receiving PIP, will be able to claim attendance allowance.

The effects of this amendment are important. It could allow an individual aged over 65 who had previously, at any point in the past, received PIP to make a new claim for the benefit. This could have the effect of allowing people over 65 to receive PIP if they have previously been awarded it, even if there was a very long break in the claim—a break of decades. We would not want that to be the case.

Under the powers we have in Clause 82, we can ensure that the regulations can be flexible to respond to future changes. The changes in the social care system were raised as an example by the noble Baroness, Lady Wilkins. Clearly, if there is a rebuild of the entire support system, that is one thing that we might want to take account of. It could, of course, go both ways: it might affect pensioners.

In terms of developing the rules and how we implement them, I would like to assure the House that we will continue to work closely with the PIP implementation development group to ensure that policy design and delivery in respect of people aged 65 and over are informed by disabled people and their representatives. We intend to consult fully on our proposals during the spring as part of that commitment to involve disabled people. Given these assurances on our approach, I urge the noble Lord to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, I am happy finally to place in the Bill the Government’s intention to continue to enable disabled people who live in care homes to be mobile. I am equally pleased to have the noble Lord, Lord McKenzie, joining me on this amendment.

The amendments in this group put our position beyond doubt by removing from the Bill the power to make regulations to stop payment of the mobility component of PIP to people who live in residential care homes and whose costs are borne from public funds.

As noble Lords will know, we examined the evidence base, sought contributions to the debate from many disabled people and disability groups, and considered in detail the excellent report produced by the noble Lord, Lord Low, which was published in November. We established, as did the noble Lord, Lord Low, that while there was some duplication, the overall picture meant that in order to access mobility provisions within a care home environment, which we have steadfastly said we are committed to protect, the fairest outcome was to retain payability of the mobility component in those settings.

I am pleased to be able today to act upon these findings and to introduce a new, separate clause for people undergoing treatment in hospitals or similar institutions. I hope that noble Lords will feel that this reflects the fact that we do listen—sometimes, especially when people shout very loud—and that we try to get things right in this area.

I can go through each provision in turn, but I hope that noble Lords will trust my assurance that the overall effect of the amendments is that the mobility component of PIP for people in care homes will remain on the same basis as it currently is for DLA, including for those in residential schools and colleges. I commend the amendments to the House and urge noble Lords not to press theirs.

[Lord McKenzie of Luton]

My Lords, as the Minister said, we have an amendment in this group that I do not propose to move as I accept it has been superseded by the Government’s formulation—this listening Government that we have on this issue.

It is to be welcomed that the Government have accepted the arguments that have been put forward over many months and from many quarters. As the Minister indicated, we should be particularly thankful to the noble Lord, Lord Low, for his leading on the independent—I would stress the importance of independent—review of personal mobility in state-funded residential care. The report does not just focus on the narrow issue of the availability of the mobility component of DLA—soon to be PIP—but on wider issues of the mobility needs of disabled people, the role of local authorities and care home providers, and the importance of mobility to disabled people’s rights. The clear conclusion in that review found no significant evidence of overlap in the support offered by the mobility complement of DLA and that offered by local authorities and providers. If the rights of disabled people are to be preserved, it is vital that DLA mobility and its successor under PIP are retained for people living in residential care. The report offered a very clear analysis, which I would suggest the Government, frankly, had no option but to accept. Perhaps we should leave unanswered the question of what the position today might have been if the initiative by Mencap and Leonard Cheshire had not been undertaken and the noble Lord, Lord Low, had not assembled such a knowledgeable team to produce this report.

We always give voice to the proposition that disabled people are the experts in their own affairs. It is just a pity that it took so long for their voices to be heard on this occasion, but we should welcome the fact that that has now happened.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I simply say that some compelling and moving personal circumstances have been advanced in support of the amendment and I hope that the noble Lord will feel able to accept it, or a version of it.

[Lord Freud]

My Lords, I first want to put absolutely on the record that we are not talking about the constant assessment of everyone. That is simply not how it is going to work. To the extent that there is concern about people being dragged in to face assessors every year, that is simply not how it is going to work.

When we talk about having another assessment for some people who have deteriorating conditions, noble Lords have to remember that they might have started on the lower rate of PIP and that in practice the assessment will move them to the higher rate at that time. DLA is an understudied phenomenon. It was studied by the previous Government in 2004-05 and it was found that £630 million was overpaid. That was not as a result of fraud; it was just that people no longer fitted the rather easier criteria of DLA that were in place when they applied, although we do not know where they fitted when they did apply. Just as worrying was the finding in that year that £190 million was underpaid. We want to make sure that the money goes to people in the right way in both ways.

Jobseeker’s Allowance (Jobseeking and Work for Your Benefit) (Amendment and Revocation) Regulations 2012

Debate between Lord McKenzie of Luton and Lord Freud

Monday 16th January 2012 Grand Committee

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

My Lords, I must start with the formalities: it is a requirement that I confirm for the Grand Committee that I consider that these provisions are compatible with the European Convention on Human Rights, and I am happy so to confirm.

The Department for Work and Pensions is fully committed to supporting the Government’s commitments to the rehabilitation of prison leavers. Our main aim in the cross-government work to reduce reoffending is to increase employment outcomes for ex-offenders and prison leavers. We will do this by using the work programme—the biggest single payment-by-results welfare-to-work programme that this country has ever seen—as the primary vehicle for help and support.

We recognise that offenders face significant barriers to employment. The Government believe that there is a strong social and economic case to provide additional employment support at the earliest point to individuals who leave prison without employment. Most prison leavers have much greater difficulty in finding and retaining work than unemployed people with no criminal conviction. This can be due to a number of factors, including: employer prejudice against people with a criminal conviction; problems with accommodation; high prevalence of health conditions—especially mental health; motivation; and low educational and skills achievements. These factors all contribute to high rates of unemployment among prison leavers, which in turn increases social exclusion and has a detrimental effect on other issues, including reoffending levels and long-term benefit dependency.

That is why the Deputy Prime Minister announced on 16 August last year the Government’s intention to bring forward the work programme entry point for prison leavers to immediately on release from custody for those claiming jobseeker’s allowance. Currently, offenders are mandated on to the work programme after nine or 12 months on jobseeker’s allowance, depending on their age, although they are able to volunteer for the programme early—after three months. From March, all prison leavers who make a claim for jobseeker’s allowance can be mandated on to the work programme immediately on release from prison.

The regulation changes will provide the legal framework to allow prison leavers to be mandated on to the work programme immediately on release. This will give them the appropriate support at the point that they need it most, by taking those referred to the work programme out of the coverage of the “treated as available and actively seeking employment” provisions in the Jobseeker’s Allowance Regulations 1996. The “treated as” provisions excuse the prison leaver from having to be available for or actively seeking work for the first seven days without this impacting on the prison leaver’s eligibility for jobseeker’s allowance.

Under current legislation, the earliest that prison leavers can be mandated to participate in the work programme is the eighth day after leaving custody. During the first seven days, when the prison leaver is treated as available and actively seeking work, the prison leaver cannot be attached to the work programme. Regulation 2 removes this seven-day period for those who have been given notice to participate in the work programme. The Jobseeker’s Allowance (Employment, Skills and Enterprise Scheme) Regulations 2011 provide the legislative framework necessary to mandate JSA claimants to participate in the work programme. Those who have not been given notice to participate in the work programme will still be provided with a seven-day period under the Jobseeker’s Allowance Regulations 1996. As an example, those prison leavers who are aged 16 and 17 and claim jobseeker’s allowance under special circumstances will not be mandated on to the work programme immediately on release.

To ensure that prison leavers who are attached to the work programme will still benefit from the seven-day period, where they are treated as being available and actively seeking employment, Regulation 3 of these draft regulations amends Regulation 5A of the Jobseeker’s Allowance (Employment, Skills and Enterprise Scheme) Regulations 2011. This means that prison leavers will benefit from the support provided by the work programme provided immediately on release, but will still be excused from having to be available for or actively seeking work for the first seven days from release without this affecting their eligibility for jobseeker’s allowance. We fully recognise that prison leavers will need to settle back into the community and re-establish their basic needs, including accommodation.

I would expect that during the first week after leaving prison, the primary focus of the work programme provider will be to support those activities that will provide a secure base from which later work preparation and job search activities can ensue. This would not, however, stop the work programme provider and the prison leaver working directly on employment issues straightaway if they both thought it appropriate.

I am happy to say that, in order to facilitate this change and mandate prison leavers on to the work programme, we are proposing that the Jobcentre Plus adviser would take the claim for jobseeker’s allowance in prison to start entitlement immediately on release, allowing mandatory referral to the work programme. Jobcentre Plus will only discuss claims for jobseeker’s allowance with prisoners on a voluntary basis, as at present. There will be no mandatory interviews with prisoners.

Where a prisoner opts not to make a jobseeker’s allowance claim while in prison and subsequently turns up at the job centre office within 13 weeks of leaving prison, then they will be mandated to the work programme from their date of claim. This change will essentially bring forward the activity that Jobcentre Plus currently conducts at the new jobseeker’s interview following release. The claim will be put in hand to be triggered immediately on release. This will help to contribute to putting prison leavers on to a sounder financial footing, enabling them to resettle more quickly, concentrate on finding a job and reduce their chances of reoffending.

In introducing this additional support for prison leavers through the work programme, we are working closely with other government departments, in particular the Ministry of Justice and its executive agency, the National Offender Management Service. We also have the support of the Scottish Prison Service. The support and co-operation of these partner organisations will be crucial in our efforts to implement this help and support our Jobcentre staff working in prisons.

To this end, we currently have around 140 Jobcentre Plus advisers in all prisons that require their service. Their work focuses on prisoners’ needs, both upon induction and in pre-release from prison. Jobcentre Plus advisers work alongside the Prison Service and other organisations providing support to offenders in prison. Taking jobseeker’s allowance claims from prison leavers who voluntarily opt to obtain the benefit will be an extension of their current work in the prison.

I would like to cover briefly the other element of these regulatory changes. The previous administration introduced the Jobseeker’s Allowance (Work for Your Benefit Pilot Scheme) Regulations 2010 to provide a legal framework for a pilot in certain Jobcentre Plus districts. These regulations allowed the Secretary of State to select claimants in specified pilot areas for participation in the work-for-your-benefit scheme if they met certain conditions. They also provided for the loss or reduction of benefit if persons selected failed to participate without good cause. The regulations came into force on 22 November 2010 and are due to lapse on 21 November 2013. The Minister for Employment’s Statement to the Commons on 19 November 2010, which I laid before this House on 22 November 2010, confirmed that this scheme would not go ahead. As a result of this decision, no jobseeker’s allowance claimants were selected for participation in the scheme. The Minister for Employment had previously made it clear that the work-for-your-benefit pilot scheme would not proceed and that the regulations for the scheme would be revoked when the opportunity arose. Regulation 4 revokes the Jobseeker’s Allowance (Work for Your Benefit Pilot Scheme) Regulations 2010. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of this order, which has our support. Enabling prison leavers to be referred to the work programme immediately upon release, rather than at the earliest after seven days, is to be welcomed. As the Explanatory Memorandum recites, those in employment are much less likely to reoffend, and the importance of this first week is acknowledged even though, as the Minister said, the focus will be on reintegration and securing a base rather than work preparation and job search. From the Explanatory Memorandum, it also appears that the JSA claim process will be conducted in prison so that entitlement can begin on release. Again, the Minister covered that. It is proposed to make use of the provisions of what I think is now Clause 96(2)(1) of the Welfare Reform Bill. What will the position be in the interim before the Clause 96 provisions can be brought into effect? What payment will be due to individuals between release and the otherwise first payment date?

The Minister might be relieved to know that I do not propose to reiterate the detailed inquiry about the work programme which was taken up in the other place. However, when is it expected that the Government will be releasing comprehensive data on its operation, about referral levels, categories, outcomes, cost et cetera? It would be helpful if the Minister would say a little more about the process of these additional referral opportunities. Will this become the main approach for those leaving prison? I note from the Explanatory Memorandum and the Minister’s confirmation that 16 and 17 year-olds will not be referred by this process. Will he say a little more about why? How many prison leavers have been referred to the work programme at day eight to date—from what the Minister said, it may be that the answer is nil—and certainly within 13 weeks of their claim? We understand that there is going to be a new category in the work programme. I am not sure whether it is just for those day one referrals rather than perhaps day eight referrals, week 13 referrals or any others.

In particular, will the Minister confirm that this will not be an automatic process that will squeeze out other programmes? I am sure that, if he were in his place, the noble Lord, Lord Ramsbotham, would talk about some of the programmes of which he is aware. I certainly remember sessions where we had presentations—I think that the Forestry Commission was engaged in employing people even before release from prison. These were imaginative programmes that really made a difference to people, and I would not wish to see these opportunities trump them and squeeze them out.

Subject to any points arising from those questions, we support the order and wish the Government well with this initiative.

--- Later in debate ---

[Lord Freud]

Well my Lords, it is very nice to have that support, and I am looking forward to lots more of it. There were a range of questions and I will try to deal with as many as I can. Where I cannot, I will of course write.

Picking up points from the noble Lord, Lord McKenzie, I think that he catches me, as he always does, on a technicality around Clause 96. We were looking to use Clause 96 in this way but, having looked at it again in legal terms, we have concluded that it is not necessary to rely on that particular amendment and that this regulation is adequate. Therefore, we do not have the timetabling issues that he was concerned about.

I have to disappoint on the numbers. We simply do not have the information on how many prisoners have been referred to the work programme to date. We will start to collect that information, clearly, when this programme comes into effect.

On the question of when more general data on the work programme are coming out, we are planning now to provide a level of information on the attachments and referrals to the work programme next month, although because of the back-ended way that payments are made, the figures on actual job outcomes will probably not come out until the autumn.

The reason that 16 and 17 year-olds are not referred is that the work programme is available to those from age 18 and over—that is just how it is structured. One of the things that the noble Lord, Lord Kirkwood, was urging was to look at ways of using this in an expanded way, as it is only for JSA whereas there is also ESA for youngsters. Clearly, if this starts to work I will certainly be looking very closely at the other areas where we can expand it.

On the question of squeezing out other programmes, we would expect the work programme providers to work with other local initiatives, especially when they have established a track record. The noble Lord, Lord Kirkwood, talked about the experience of the Wise Group, which would clearly be very valuable. The Ministry of Justice has a range of pilots going on at the moment, experimenting in this area using social impact bonds—in Peterborough there is a rehabilitation payment and in Doncaster there is a justice reinvestment pilot. There are also community pilots. There is an enormous level of activity going on in this area, for the obvious reason that it is one where we need to make a lot of improvements.

I can confirm that the programme is entirely voluntary and that those who want to claim—both those who claim in prison and those who claim up to 13 weeks after release—are all in that same group of payment by results. This is a new category and we are looking to negotiate the terms and to get that new category with the work programme providers. The total amount of earnings that providers can make for a successful placement is £5,600 for an extended period. We all understand the structure of the work programme.

I think that I have covered all of the questions—

[Lord McKenzie of Luton]

Indeed, the Minister has, and that has been very helpful, but I want to clarify a couple of points. I think he said that the programme is voluntary. Is it voluntary whether or not somebody claims JSA? It would be voluntary because if there are other programmes associated with prisons going on, such as the one that the noble Lord, Lord Kirkwood, instanced, the referrals or the route to go via the work programme would not preclude those continuing. Where does the decision-making lie in respect of that? Is it for the individual as to which programme they attach themselves to or seek to get the benefit of, or is it the decision-makers at Jobcentre Plus—the providers? How does that all work? Although this clearly has great potential, it would be a pity if it squeezed out those good examples that already exist.

[Lord Freud]

My Lords, to be blunt, it is voluntary to make the claim for JSA in prison, then once you do that as a prisoner there is immediate mandation. To the extent that voluntary charitable endeavours have been doing this with their own funding, this will displace some of that. However, I think that those who are experienced at this work will find a way to continue and to start earning money. This is stopping being a charitable endeavour now and becoming something that the state is willing to pay for, so I expect some readjustment of who does what. Clearly, there always will be that, but I would expect people who are experienced and have a track record in this area to be very well placed to continue to do it.

The transition from prison to the community is a key transition point in the journey from crime to resettlement. We have a much too large benefits bill in this country and prison leavers are significantly more likely than the average person to claim those benefits, so it is essential to put in the work and support required to get them back into the workplace so that they can start to pay their own way in society. The figures suggest that those individuals who are in employment are between one-third and one-half less likely to reoffend, so we could make a real difference by providing help not just to those individuals but also to society as a whole.

[Lord McKenzie of Luton]

I started off wholeheartedly supporting this but now my support is slightly qualified, as, I expect, is the support of the noble Lord, Lord Kirkwood, in relation to the Minister's response on the issue of mandation. I can see that it is voluntary whether someone claims JSA or not, but if you have no other source of income, that is not a particularly helpful designation. Once you do, you have the inevitable route in the work programme and there may be a chance of existing providers being wrapped up in that but there is no certainty. That seems to be a great pity if it risks destroying the experience of good programmes that are out there. I accept that that is not universal and I accept that they may be driven in large measure by charitable organisations but there is real work involved. I enter my qualification without necessarily withdrawing support for the regulations.

[Lord Freud]

There is a genuine dilemma when you go from a cottage industry, where there are individual examples of really excellent work, to trying to provide a universal, lock-down service to everyone in the category. I do not want to sugar-coat this—it is very easy to over-sugar-coat—as I think there are going to be changes in the provision here, and there may be some groups that have been in very good individual work that does not translate into the universal service that we are aiming for. I think there is every opportunity and every incentive for those who have been affected to remain in this part of the provision. Rather than worrying about individual groups and their position, it is much more important to deal with what is a running sore and a long-term tragedy of not looking after these people properly. That is what this is doing and I hope that most of the good provision is wrapped in, but clearly that cannot be guaranteed. I think this is vital and I hope that it is the smallest of cavils from the noble Lord, Lord McKenzie, but you cannot change things without changing things—tautology is very useful sometimes.

With those words, I commend the regulations to the Committee.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 11th January 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I start by also thanking the Minister for Amendment 43 and wishing him a happy new year. I am sure it will become happier when we get into February. That is the case for several of us. Perhaps I can comment first on some of the other amendments to which the noble Lord referred. I understand that Amendments 33 and 34 are consequential. The fact that they include references to provisions that cover 365 days or the clock for counting those days already being under way does not imply our acceptance of them. They are the subject of subsequent amendments that we are about to come to. Similarly, as we have heard, Amendments 37, 39, 40 and 41 are the formulation to confirm the intention that the limit should apply to contributory claims under the youth condition. Again, as will be clear, we do not support the 365-day limit or the future denial of claims under the third condition, and we will address this by amendments in the next group. Therefore, our not challenging these amendments should not be taken as accepting this as the final position; likewise in relation to Amendments 63, 64, 65, 66 and 67.

Amendment 43, tabled by the Minister, obviates the need for Amendment 42. It covers the same point and, as he said, goes further in that there is no time limit. This is to be welcomed. This enables someone to reconnect with contributory ESA after time-limiting should their condition deteriorate and they become eligible for the support group. It would appear that this applies equally to those with an existing youth condition claim and those accessing contributory ESA via the first and second national insurance contributions. Perhaps the Minister would just confirm that. It would appear that there is no time-limiting factor—I think that he confirmed this—so the gap between the time limiting of the contributory allowance and arrival in the support group could be five or 10 years or, in theory, even longer. I touch on this particularly because I am bound to say that this is not something to which the Minister warmed in Committee. On 8 November, at col. 33 of Hansard, he stated in relation to Amendment 71P:

“However, this could mean benefits being reinstated 10 or more years after the claimant last worked, which is not reasonable”. —[Official Report, 8/11/11; col. GC 33.]

Further, he stated that,

“people in the WRAG who have gone through their time-limited period do not then have a right to go into the support group on a contributory basis”.—[Official Report, 8/11/11; col. GC 36.]

I do not wish to be churlish about this but that is why we included the five-year limitation in Amendment 42, which sought to meet the Government at least part way. However, the Government are to be congratulated on Amendment 43, which deals with the disconnect from the national insurance contributions and also addresses the concerns powerfully expressed in Committee about people with deteriorating conditions who are initially placed in the WRAG. My noble friend Lady Morgan of Drefelin spoke about people with Parkinson’s disease, motor neurone disease and some forms of cancer. The Government will fulfil their stated intent that the time limiting of contributory ESA will not affect those in the support group.

However, as ever, I have a couple of questions. Amendment 43 states that the employment and support allowance entitlement,

“is to be regarded as a contributory allowance for the purposes of this Part”.

Why is “regarded as” used rather than “is”? Is it or is it not a contributory allowance? The requirement is that the person remains assessed as having limited capability for work. How is this to work in practice in circumstances where entitlement to the contributory allowance has lapsed and income or capital levels preclude entitlement to income-related ESA? Does it require the individual to be subject to the crediting-only arrangements? Would a claimant commitment still have to be in place? If somebody’s prognosis of limited capability for work has lapsed but there has been no reassessment because nothing is due, how does this affect the position in practice? Where someone’s reassessment has initially led to a fit-for-work designation but this has been overturned on a reconsideration or appeal, will the claimant be treated as being continuously in the WRAG and remain entitled to the benefit conferred by the government amendment? The noble Lord’s letter of 8 January, which I received yesterday, suggests that around 4,000 people will benefit from this measure by 2016-17. This may be only a small proportion of those damaged by the general time limiting. Nevertheless, I stress that it is welcome.

Amendment 42A, spoken to by the noble Baroness, Lady Meacher, and supported by my noble friend Lady Morgan and the noble Baroness, Lady Finlay, raises an extremely important point about individuals with life-threatening diseases where there is evidence that their diseases are uncontrollable or uncontrolled by a recognised therapeutic procedure. It requires them to be treated as being in the support group to obtain the benefit of the easements in the Government’s legislation. I would be interested to know how often such individuals would not be assessed as being in that group anyway. I think that we heard some examples from the noble Baroness, Lady Meacher. I await the noble Lord’s reply but I hope that he can give her a sympathetic response to this important issue.

[Lord Freud]

My Lords, picking up the point of the noble Lord, Lord McKenzie, about the discrepancy between Amendments 42 and 43, sometimes when a powerful argument is made in Committee, it succeeds even more than do the proponents of that argument. In this case we went back, thought about the measure and said, “If we are going to do it, let us do it properly”. That is why the measure is indefinite and not for five years. The noble Lord asked whether Section 1B on further entitlement after time-limiting covered contributory ESA under the first and second contribution conditions and the ESA youth awards. The answer is yes

Let me turn to Amendment 42A. I very much understand noble Lords’ concerns on this, but the amendment would not achieve the stated aims of placing in the support group individuals with conditions that reduce life expectancy to two or three years. Substantial provision is already available to ensure that individuals with life-limiting diseases are provided with appropriate support. The amendment seeks to ensure that individuals with uncontrollable diseases who do not meet the support group criteria of the WCA, set out in regulations, are treated as having limited capability for work-related activity. Under the current system, individuals who meet this provision and are treated only as having limited capability for work will have a condition that does not significantly limit their functional ability such that it would be reasonable to expect them to undertake work-related activity. However, anyone who has an uncontrollable condition may still meet the current support group criteria if, as a result of their condition, there would be a substantial risk to their health if they were held to be capable of work-related activity. A large number of protections are therefore built in.

Perhaps I may provide an example of how that might work—and does work. Consider an individual with extremely severe uncontrolled hypertension, who has little or no symptoms or functional impairment. This individual will not meet the test of limited capability for work-related activity necessary to go into the support group, or even the test of limited capability for work to go into the WRAG. As a result of their condition, work-related activity is likely to pose a substantial risk to their health.

--- Later in debate ---

[Lord Freud]

My Lords, we have had a pretty good Socratic debate on the welfare Bill for some time. I hope that I can get over to noble Lords that the move from an automatic payment system, which is what we have for these youngsters, to one based on their income needs will pay them effectively the same amount depending on the position of their disability, will cover 90 per cent of the same people and will leave out the last 10 per cent who have their own means of one kind or another. That is the solution that works best in terms of the European legislation.

[Lord McKenzie of Luton]

Before the Minister sits down, is the ruling in question a concern only in relation to the youth condition that we are discussing today, or does it have a wider implication? If the latter, how are the Government proposing to address that?

[Lord Freud]

My Lords, I am being dragged a long way away from my brief. This is a widespread concern that runs to benefit tourism. We are currently challenging the Commission in the Court on one of its findings and trying to build a constituency with other European countries that are also enormously concerned at the implications of this. As I say, though, the principles are that these automatic payments leave us far more vulnerable than income support in this area.

I know that noble Lords are listening very hard to this, because it is an important concern that we all have. I hope that I have been as clear as I possibly could have been on this issue. It is a moving target and changing all the time. It is not settled at all, so I cannot lay it out absolutely—I can talk only about the risks involved.

[Lord McKenzie of Luton]

I think that we all understand that, but the Minister is praying this EU ruling in aid of his desire to stop the youth condition continuing in future. He has already said that that ruling has much wider implications, and that there will be a wider need to look at how it can be fully addressed. In those circumstances, is it not unfair of him simply to target this particular benefit and say, “This can be dealt with by stopping it”, rather than addressing a wider solution in due course?

[Lord Freud]

My Lords, not really. This is a prime area in which we have automaticity without any payment system. This is one of the areas where we are very vulnerable so it makes enormous sense to look at it now and as it comes up. Therefore, I would not agree with that point. Shall I rattle along?

Amendment 46 would create considerable and unwanted uncertainty for claimants and operational difficulties for the department. A claimant would need to claim ESA and go through the assessment phase without any entitlement to ESA at all until the question of limited capability for work-related activity was determined at their WCA. This is because, under Amendment 46, only claimants who were found to have limited capability for work-related activity at the end of the assessment phase would be entitled to ESA on the grounds of youth. As I have already said, the amendment would save rather less—£17 million until 2016-17. The discrepancy is in the SAR, which is covered by a very similar amendment, to pick up the point of the noble Baroness, Lady Lister.

I confirm that the Government see Amendment 46 as linked to Amendment 36A, but none of the amendments in this group is consequential on any other. We would expect the House to make a decision on each individually. In due course I will move the amendment in my name, Amendment 45A, and I urge noble Lords not to press theirs.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 11th January 2012 Lords Chamber

[Lord Freud]

My Lords, it was a reasonably well publicised announcement by the Chancellor. There was no formal process of warning afterwards. That process began, as my noble friend points out, in September. How much warning people had is an issue, but the essential fact is that we are redefining the terms for entitlement to ESA. That happens quite a lot. Examples of future changes to entitlement include, among others, changing the descriptors to the work capability assessment.

I understand noble Lords having concerns about the fairness of the measure. Again, fairness is a matter of achieving a balance in our policy, so that as many claimants as possible who are in the WRAG are entitled to ESA for the same period.

The noble Lord, Lord McKenzie, asked for figures. We expect that, by April 2012, around 100,000 people will have been receiving contributory ESA and been members of the WRAG for more than 12 months. If the amendment were accepted, we would have another substantial decrease in our savings forecast and a real problem.

Amendment 41A would enable claimants to start a fresh 365-day period if they moved from the support group back to the WRAG—I am not sure whether we are now talking about 365 days or 730 days, so let us leave that on one side for a minute. In practice, for those claimants moving between the two groups regularly—it is funny how, when things are encouraged financially, regularity seems to increase—the amendment would be likely to mean that they would be able to remain on contributory ESA indefinitely.

We have always made it clear that, when addressing claimants in the WRAG, our aim is for as many people as possible to receive contributory ESA for the same period. This will be a period of 365 days on our original formulation and at least 730 days on the basis of the amendment that passed. Restarting that period each time a claimant moved from the support group to the WRAG would lead to inconsistent periods on benefit for claimants.

I accept the amendment that has just gone through, but, on the basis of the period—whether one year or at least 730 days—we do not think that we need to make any of these additional changes, particularly given their high cost in the current fiscal climate. I urge noble Lords not to press these three amendments. We do not consider them consequential upon each other.

[Lord McKenzie of Luton]

I thank the Minister for that reply and all noble Lords who have contributed to this short and rather interesting debate.

I suppose that whether something is retrospective depends on what one’s definition is, but if somebody’s entitlement was put in place at a certain time and under a certain set of rules, to have that entitlement restricted by subsequent legislation and to have the clock running from that earlier date would be, in most common parlance, retrospective. We can argue about the semantics all night and not change anything, but the way in which the Government have gone about this is particularly unfortunate.

I acknowledge the contribution and concerns of the noble Lord, Lord Kirkwood, and my noble friend Lady Lister over the assessment phase. My noble friend instanced the concern that the Minister expressed about this in Committee; I think that he has gone a little further today. As I understood it, he said that the assessment phase, when put in the context of a sickness absence policy, perhaps did not make a lot of sense. If that is the case, I presume that these issues will have to be addressed at some stage and some adjustment made to the process.

Rather than put us in a position where we would wish to test this issue by a vote—there is clearly a degree of support behind me on this and a strong degree of support on the Liberal Democrat Benches—can the Minister offer some comfort that there will be a chance to review this before we sign off the Bill? The consensus of those who have participated is that things are not satisfactory as they stand. Quite what would have to change in the light of any sickness absence policy which is developed would depend on where that policy is heading.

Certainly on issues of fairness, by taking account of the assessment period you are docking three months of someone’s employment and support allowance. Most people would see that as being the period when you get the addition because you are in one of the two ESA categories and therefore the Government are restricting it to only nine months.

[Lord Freud]

Let me clarify that—I hoped I had. Clearly you may not know what category of ESA you are in but you receive the money for the full 12-month period once it is decided. So there is not a problem like that. It is not nine months; it is a full 12 months.

On the question of what is to happen to the assessment phase, I will not be in a position by Third Reading, which is not far away, to give an answer. I am sure the noble Lord will have read the sickness absence review. It is an interesting piece of work which severely criticises the assessment phase. If we need to change it, we will give our response later this year. It is a substantial piece of work and it will take time to work through. It seems that it will become an area for regulations and if one is going to tie a lot of weight on this particular formulation it would probably be easier for the noble Lord to add another three months to his 24 months, if that is what he is trying to do. If it is a formulation of protection to add on another three months, it is not one that anyone would want to rely on for that reason.

[Lord McKenzie of Luton]

Tagging on three months is not the purpose of the amendment or of anyone who has spoken to this. There is concern about unfairness. The Minister said that you get the money from day one, but the point is that you get the money only at the basic JSA rate for the first 13 weeks. You do not get the enhanced funding that comes with the employment and support allowance when you are in either the not-fit-for-work group or not-fit-for work-related activity group. Those premiums do not kick in until after week 13. The Minister is frowning. Someone will correct me if that is wrong but I am getting support from the Liberal Democrat Benches.

I realise that we are not going to get definitive answers on any potentially significant policy development and change in the sickness absence report between now and Third Reading. However, rather than cause us to press this to a vote tonight, could not the Minister at least agree that we can have some further engagement between now and Third Reading to understand a little better the parameters of what is happening on sickness absence and how it might affect the assessment phase?

Seeking to press an issue that, given the hour and whose troops are available, we may or may not win would not be particularly constructive. People are trying to end up in the same place on this issue, which is very much the thrust of what the noble Lord, Lord Kirkwood, is saying, so could the Minister at least assure us of further engagement so that we can understand where this may be heading and the parameters within which it will be considered? Otherwise we move to Third Reading stuck with an assessment phase that we do not think is particularly fair and, in the Minister’s own words, not particularly sustainable. That does not seem a very sensible position to be in.

I do not propose to press the amendments tonight on the other two issues, retrospection and not accumulating the time spent in the work-related activity group, but I am seriously minded to press the issue of the assessment period, because we could have further engagement on that that might be of benefit to noble Lords, some of whom may be more supportive of these measures than others. We are genuinely trying to help the Government, and if they do not want to be helped we might have to look at the alternative. Perhaps the Minister can help us.

--- Later in debate ---

[Lord Freud]

My Lords, I am in a difficult position here. My view on the assessment phase is not going to have developed much further in the next two weeks. All I can say is that—well, let me just say what I would say in two or three weeks. I do not think that the assessment phase adds any value to the process; it puts people in limbo. It was meant to be a period in which people adjusted and settled down, and then they had their assessment. It does not seem to be working in that way at all, so we have had the very firm advice that we should get rid of the sickness absence review. If you want to be on ESA you apply for ESA, and if you pass the WCA you are on it, but you do not have all this messing around. That is what our firm advice was from an extraordinarily interesting and important piece of work, and that is where we will end up. If we start sticking other things on to a very shaky process that we want to get rid of, it does not seem a very useful thing to do at all.

[Lord McKenzie of Luton]

The Minister has advised us of an extremely helpful point. Would it follow that if the assessment phase disappeared, once the assessment had taken place and someone was assessed as being appropriate for putting into the WRAG or support group, the levels of funding under the ESA would kick in from day one? If they would, and that is the implication of what the Minister says, and the assessment phase went, that would be the difference between what we are facing at the moment and what might be the future. It would mean in effect that there would be no assessment phase and no period when people were paid at a lower rate than the work-related activity group component rate or the support group rate. If that is the case, we will not have quite the beef that we have at the moment with including the assessment phase.

The noble Lord has been helpful. We are just trying to see here and now how that formulation and prospect features in the Bill before us. At the very least, I ask that we agree to have another look at this, given what the Minister has said and that he is not going to be able to say anything much further between now and Third Reading, rather than having to take a decision on something tonight on which we would have only three-quarters of the information that we need. The Minister has been genuinely helpful, and we have to see how that translates into what we are considering.

[Lord Freud]

My Lords, I do not want to reopen this matter at Third Reading on the basis of things that I will have no further information on at all. That does not make much sense. The noble Lord is absolutely right that if we were to get rid of the assessment phase—and clearly that is something on which, as those who know how government works will know, we would have to do some work—it would be a big change. It would tie in with a lot of other changes, with work that we are going to be doing this year. We are utterly committed to this sickness absence review, which has been a very important document for us. My noble friend said that there was some value in using this assessment phase in this way in the future. I am trying to say that I do not think there is, because I would not want to put any weight on it. There might be other things that we can do to get out of a hole—if we are in a hole—but I honestly do not think that this is a promising line. I do not want to have this debate again at Third Reading. I have said everything I can on it, but I hope that I have said enough.

[Lord Freud]

I am clearly not in a position, and it would take more than a couple of weeks to get into a position, to make that kind of assurance. I know how skilfully your Lordships ask me these questions, and I deeply appreciate it, but I cannot do that. All I can tell the noble Baroness is that we have had a very powerful report on sickness absence, which I am personally very closely associated with and have sponsored. It made this recommendation, and most people in this Chamber who understand these matters would say that that is the way to go—as I would. Noble Lords must take their conclusions from that, but I cannot go much further or make promises on hypotheticals, because that is not how the system works.

[Lord McKenzie of Luton]

I understand the noble Lord’s dilemma; he is creating a bit of a dilemma for us. Can we at least agree that if we do not press the amendment tonight we preserve the right to bring back the issue at Third Reading, while accepting that the Minister might not be able to say anything further? It would at least give those of us who are not as close as the Minister is to the detail of the sickness absence stuff and where that might be heading a chance to reflect on what that might mean for this; and in particular if there were to be a change—as the Minister seems to want—and the assessment phase went, how that would be accomplished within the framework of the legislation.

[Lord Freud]

My Lords, I do not think that I can do that. We need to take a view now on this. All I can say is that Third Reading is probably not the time anyway for some of this stuff to come to a head. It is not the point at which my noble friend is thinking about it coming to a head. This kind of thing will probably come to a head when we have the debate between the Commons and the Lords. That is when some of these issues need to be looked at, so it is not helpful or productive to think of it happening at Third Reading. This kind of thing may become more relevant at a later stage, but not at Third Reading.

--- Later in debate ---

[Lord McKenzie of Luton]

That was an extremely pertinent question. If in essence we can deal with this in due course when further analysis has been undertaken though regulation, that is fine; we would be happy to rest our case there. If the Minister is saying that primary legislation would be needed to deal with this —if that is the message coming from the Box—we are unlikely to have that opportunity for some little while.

[Lord Freud]

We are looking at the sickness absence review process, which is what this is about, and that is a substantial change that will need primary legislation. So I think my reply is to presume primary legislation.

[Lord McKenzie of Luton]

The Minister has not made this easy. I have been trying as best I can to avoid having a vote on this today.

--- Later in debate ---

[Lord McKenzie of Luton]

This amendment was in the same group as the amendment on which the Government were defeated but runs contrary to the decision that the House made previously. The assumption is that this matter will not be pressed. Otherwise, the Government give us no alternative but to force a vote on it.

[Lord Freud]

Yes, my Lords, we would like to take this to a vote.

--- Later in debate ---

[Baroness Hollis of Heigham]

My Lords, I was the person who drafted Amendment 36A. The noble Baroness, Lady Meacher, clearly introduced it as the paving amendment to Amendment 46. So the Government cannot do as they are now suggesting.

[Lord Freud]

My Lords, let me read out what I said in my speech. I said that I confirm that the Government see Amendment 46 as linked to Amendment 36A, but separate Divisions will be required on all amendments in this group.

[Lord McKenzie of Luton]

My Lords, the noble Lord does not make that happen just by asserting it. One amendment is consequential on the other. We have had a very clear and substantial vote on this, and it is quite disgraceful that the Government are seeking to undermine that.

Universal Credit

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 21st December 2011 Lords Chamber

[Lord Freud]

My Lords, basically our categorisation in the latest plan is that urgent actions are still required. We are tending towards the problems appearing to be manageable with the actions in hand. That is the position that we are in, which will probably be no surprise at this stage in the project.

[Lord McKenzie of Luton]

My Lords, can the Minister confirm that the major projects review to which he has referred encompasses not only the universal credit component but the HMRC RTI component, which is a vital part, as the noble Lord has explained? What further assurances can he give us that continuing HMRC job cuts will not deflect progress, especially given this week’s news from the Public Accounts Committee about the need to deploy resources for urgent action to resolve uncollected tax of £25 billion from large companies?

[Lord Freud]

My Lords, there are two processes: the assurance of the RTI programme and that of the universal credit programme. The RTI programme went through its latest assurance rather earlier than the UC assurance process, which was reviewed between 9 and 11 November. The review said that the engagement between the DWP and HMRC represented an exemplar of how these things should be done. I am looking through this project very closely, as noble Lords can imagine, and one area that I am pretty confident about is that the relationship between these two departments is right and working well.

Energy: Winter Fuel Payment

Debate between Lord McKenzie of Luton and Lord Freud

Monday 19th December 2011 Lords Chamber

[Lord Freud]

No, I do not think so. This is just a universal benefit that is paid on a simple basis to households that need it. Older people above 80 receive rather more than those below that age.

[Lord McKenzie of Luton]

My Lords, for the winter fuel allowance to be put to good effect, you have to have a home to heat. Sadly, we know that homelessness is on the increase in our country. The Minister is always keen to look at funding within fixed envelopes, but on what does he base his philosophy for supporting the retention of tax-free winter fuel allowances for higher-rate taxpayers, rather than providing more support for the homeless?

[Lord Freud]

My Lords, I hope that I have made it quite clear that when you have a universal benefit you pay it out on a simplified basis. Because it is a household payment, it would be enormously complicated to change that. Clearly, it could be done. There has been a small increase in homelessness but it remains at historically low levels. We are watching the figures very closely and it is a priority for this Government that we do not see an excessive rise in homelessness.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 14th December 2011 Lords Chamber

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

My Lords, I need to thank noble Lords to start with for a thoughtful and insightful debate.

The introduction of size criteria into the social rented sector from April 2013 is essential to reduce housing benefit expenditure, which without reform would reach £25 billion in cash terms by 2014-15. With savings from this measure estimated to be around £500 million per annum, it will play a key role in our efforts to control housing benefit expenditure and to tackle the budget deficit. In these difficult economic times, we cannot avoid having to make these choices. I assure noble Lords that these decisions have not been taken lightly.

In case there is any doubt, let me remind noble Lords that the size criteria measure will affect only working-age housing benefit claimants living in the social rented sector who are underoccupying their accommodation. For a family of four, with two adults and a teenage boy and girl, we are proposing that they will be entitled to housing benefit for a three-bedroom property with a living room, kitchen, bathroom and possibly even other rooms, such as an extra bathroom and study. This is the same as we allow for people living in the private rented sector. Those in a property that has more bedrooms than the size criteria allow will receive a percentage reduction in their eligible rent, meaning, on average, a shortfall of around £14 per week.

It is only fair that everyone plays their part, but we will, of course, ensure that we maintain safeguards for those in the most vulnerable circumstances. However, even with the reforms that we have started making to housing benefit, we are still expecting to spend nearly £23 billion on housing benefit this year. By the end of the spending review, we expect to achieve £2 billion in annual savings from the package of housing benefit reform. That is £2 billion off the £25 billion that I referred to. The Government believe that it is right that those living in oversized properties in the social rented sector contribute to those savings. Claimants in this sector make up over two-thirds of all housing benefit claimants, although most of the £2 billion in annual savings will still come from claimants living in private rented accommodation.

In England, approximately 420,000 households in the social rented sector underoccupy their accommodation by two bedrooms or more, while over a quarter of million households are overcrowded. What is more, 1.8 million households are currently on the housing waiting list in England. Over 700,000 of these households belong to reasonable preference groups, which means that they are treated as having a higher priority on the waiting list. This includes the homeless, people living in insanitary or overcrowded housing, and those needing to move because of a medical condition.

This measure is necessary to control spending. It is necessary because spending was allowed to spiral out of control under the previous Government, but we also believe that it will encourage greater mobility among households living in the social rented sector. It will help local authorities and other social housing providers to make the best use of their existing housing stock. It runs alongside and in support of measures introduced as part of the Localism Act, such as increased flexibility for local authorities to manage their housing waiting lists and the development of the national home swap scheme.

We have discussed this measure in detail and I have listened to and thought at length about the important issues that have been raised. We have various amendments to get through, but it might be helpful if I first set out what conclusions the Government have arrived at and what we intend to do. Noble Lords will understand that there is limited scope for manoeuvre within such a tight fiscal context, but I am pleased to announce today an additional £30 million that we will add to the discretionary housing payment budget from 2013-14, in support of the introduction of the size criteria into the social rented sector from April 2013. We believe that the amount made available is reasonable, based on what we know about the numbers likely to be affected by the measure. We think that £30 million could assist around 40,000 cases. It could help even more if local authorities choose to use DHPs to make up some, but not all, of a claimant's shortfall.

My noble friend Lord German asked what that funding is for. It is specifically aimed at two groups. The first group is disabled people who live in significantly adapted accommodation, and the funding is to enable them to remain in their existing homes. I hope that goes some way to satisfying the noble Lord, Lord Wigley, as well on that matter. The second group, which a number of noble Lords mentioned, is that of foster carers. We have carefully assessed the number of foster carers who will need to keep an extra room for when they are in between fostering, and we have an amount for them. I hope that goes some way to satisfying my noble friends Lord German and Lord Kirkwood on that matter, and indeed the right reverend Prelate the Bishop of Ripon and Leeds, who I hope feels that there is some room at the inn for this very vulnerable and important group.

The case for providing some mitigation for these two groups is clear, but we have decided that the way to do it is through the discretionary housing payment route rather than through specific amendments. We need rules in the benefit system that do not increase administrative complexity. We need to be able to make and deliver effective legislation not just within housing benefit but within universal credit. Such exemptions might, for example, include those who would otherwise have met the shortfall themselves, and might miss others who would have had a stronger case for additional support. I am convinced that a more localised, discretionary approach is the best way forward. It means that the limited resources that we have can be efficiently targeted at those who need them most. Of course we would like to do more, but there is simply no more money available.

Discretionary housing payments can be paid only where there is a linked claim to housing or council tax benefit. This is in effect, therefore, ring-fenced funding, although we cannot tell local authorities precisely who they should spend it on or how much they should spend. That is for local authorities to decide. However, we provide further guidance for local authorities through the DHP good practice guide. We have an illustrative draft of that, which I can share with noble Lords this evening, and we look forward to refining that with the input both of noble Lords and key stakeholders.

[Lord McKenzie of Luton]

Would the Minister clarify whether that £30 million is a one-off figure or an annual figure, and from when does it commence?

[Lord Freud]

I am pleased to clarify that that is an annual figure that starts in the year 2013-14, when the actual provision comes in.

Next, I would like to clarify the rates of reduction to be applied under this measure. In setting the percentage reduction rates, we have considered the sorts of rent differentials seen in the social rented sector alongside the question of affordability for the taxpayer. We intend to set the percentage reduction rates at 14 per cent for underoccupiers with one additional bedroom, and 25 per cent for underoccupiers with two or more additional bedrooms.

We think that the average cost to affected claimants, in terms of reduced housing benefit entitlement, will be around £14 a week in 2013-14. The majority of claimants affected—just over three-quarters of the total—are underoccupying their accommodation by just one bedroom. For this group, the average reduction will be around £12 a week. For those underoccupying by two or more bedrooms, the average reduction will be around £22 a week.

I would like to assure noble Lords that discussions within the coalition Government in designing this measure were thorough and productive, and these will continue through implementation. My officials are working closely with the Department for Communities and Local Government, the Department for Education, and the devolved Administrations.

It is worth picking up the issue, which my noble friends Lord German and Lord Stoneham raised, of whether we can make the transition easier. It is technically possible to stagger implementation arrangements, based on the anniversary of the claimant’s tenancy, but this move is not cost-neutral, and the planned savings will be reduced, albeit modestly.

I must be clear that, principally, I am more concerned about the ability to deliver the proposal because it might be very difficult to police and monitor. I am concerned that some landlords will offer new tenancy agreements to existing tenants, so that implementation of this change is delayed, and then the costs would spiral very substantially.

We are, however, determined to make maximum use of the time available between now and the measure coming into force to help prepare local authorities and social landlords for the changes, which in turn will benefit those who are affected. I am sorry if I rather loosely used the term “two years”, on which my noble friend picked me up.

Amendments 14 and 49, from the noble Lord, Lord Best, would exempt claimants from the measure where they underoccupy by just one bedroom. Amendment 12 would appear to tie Amendment 14 in with the housing costs calculation for universal credit.

There is a tension here between the bedroom standard, which is a widely used standard which views underoccupation as having two or more extra bedrooms, and the local housing allowance size criteria, which we propose to use for housing benefit purposes and which we already use for the private rented sector.

Our size criteria take a more generous view on the age at which someone is entitled to their own bedroom. Since the deregulation of rents in 1989, we have been using 16 as the adult threshold in size criteria for housing benefit purposes. The bedroom standard, on the other hand, sets the threshold at 21. Against these stricter criteria, however, the English Housing Survey and other similar surveys then consider the household to be underoccupying their accommodation only if they have more than one additional bedroom above the bedroom standard, a point the noble Lord, Lord Best, made. The size criteria that we propose to introduce into the social sector consider any number of spare bedrooms to be underoccupation. Neither approach is right or wrong. In some cases, the bedroom standard plus one will be more generous than the local housing allowance size criteria, in some they will work out the same and in a few cases the LHA size criteria would actually prove to be more generous.

On the point made by the noble Baroness, Lady Hollis, about the person who needs an overnight carer, I need to make it clear to the House that where someone needs an overnight carer we allow an additional bedroom for that non-resident carer, and we have done so from June this year.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we have Amendment 14ZA in this group, which concerns foster carers seeking exemption from the underoccupancy penalties. We know—indeed, we heard a short while ago—that the Government are sympathetic. When we discussed this in Committee, the Minister told us that it was not possible both to disregard foster allowances as income and to include foster children in the assessment of housing need. However, the National Housing Federation has suggested that discussions between fostering organisations and DWP officials have not shed any light on why the trade-off would be inevitable and has suggested that it could be sorted out by legislation.

As we heard earlier, the Minister’s solution to supporting foster carers was the use of discretionary housing payments and the additional funds that have been made available, and it would be churlish not to welcome that. However, it is hard to see how this can adequately address the problem, given the many other calls on these payments that are likely to be made. Of course, these payments are discretionary, so there would be no certainty for those looking to foster a child that their housing benefit would be covered. It is suggested that the Minister cannot possibly see the inclusion of foster carers within the underoccupancy penalties as a cost-saving measure. As the LGA has put it, if these penalties apply, foster carers could be forced to give up this role at a time when there is a national shortage of 10,000 foster families across the UK. I urge the Minister to give due consideration to this matter, but in doing so I welcome the announcement that he made earlier.

My noble friend Lady Turner introduced amendments that covered three issues. The first was about adaptations to properties, which has been fully covered. My noble friend Lady Wilkins made the important point that this is not just about the physical adaptations to properties but about the support that people need in their community.

My noble friend also referred to someone in the work-related activity group being exempt unless there was suitable employment within easy access of alternative accommodation. We need to know that someone in the WRAG would not necessarily need to be in employment but to be working closer to the labour market. Nevertheless, my noble friend makes a valid point.

My noble friend’s third point was about claimants agreeing to any proposed relocation to alternative accommodation. In the debate on the last group of amendments, we debated a little the issue of suitable alternative accommodation for people, what “suitable” might mean and the complexity that might come with that. To the extent that it features in these arrangements, the opportunity for the claimant to be able to agree to what is reasonable is a fairly fundamental point as well, so I support my noble friend’s contention.

[Lord Freud]

My Lords, Amendment 13—and Amendment 48, which is a repeat of Amendment 13 but relates to Clause 68—tabled by the noble Baroness, Lady Turner, seeks to make a number of changes. I spoke earlier about how I propose to address the noble Baroness’s valid concerns about those living in adapted accommodation, and I hope that that has satisfied that particular position. On the related point raised by my noble friend Lady Thomas, the disabled facilities grants are quite separate from this; they are administered by local authorities to meet those costs. It is a separate pot, if you like, run by local authorities and not by the DWP.

Amendment 13 would create a new Section (3A). Proposed new paragraph (b) deals with the availability of work in an area and seeks to exempt claimants from the underoccupation measure by their not being relocated to an area where there is no suitable employment, or from a reduction if there is no suitable employment near their current home. We are not in the business of dictating to people where they can or cannot live and we have no intention of doing so. We expect that most people will choose to stay where they are and meet the shortfall. This was supported in the research from the housing futures network, which we have already discussed.

Let me put into perspective the numbers of people who are looking to increase their hours of work. We are talking about between two and four hours per week at the national minimum wage to meet these shortfalls. The amendment links an exemption to the availability of suitable employment, which would be hugely complicated to administer. We would need to define suitable employment and easy access, and in our view those are decisions for the tenants themselves to make, just as those people who live in the private rented sector or who are buying their own properties make such decisions. The labour market is constantly evolving. From a practical point of view, the exemption would be unworkable.

Proposed new paragraph (b), which would be inserted by Amendment 13, would appear to ensure that claimants are not forced to downsize against their will. The amendment would achieve that, but in practice it would go even further. It would enable claimants to block relocations by their landlord regardless of the circumstances. It is unusual for a social landlord to relocate a tenant without their consent, but they can do so in some circumstances, such as where they plan to redevelop the area. We do not intend to interfere in the relationship between landlord and tenant, and nothing in our legislation would force a tenant to move against their will.

On the size criteria measure, we are not seeking to force people to move, but we are asking people to consider the affordability of their accommodation where it is larger than they require, and I beg the noble Baroness, Lady Turner, to withdraw her amendment.

On Amendment 14ZA, which was tabled by the noble Lord, Lord McKenzie, I have set out our intention to increase the DHP budget with the specific aim of helping foster carers as well as disabled people in adapted accommodation. We very much value the work done by foster carers who care for and welcome children into their homes. That is why the benefit system already treats them more favourably by not taking those children, and, as a result, any fostering allowances, into account in their assessment. However, we recognise that there might be circumstances in which a reduction in the housing element of their benefit might act as a disincentive to fostering, and in such circumstances a local authority will have additional funds to award a DHP.

I should make the point here that local authorities will have a direct interest in applying those discretionary funds because they will make a saving by keeping the fostering market open. This is not one of the areas where one worries about discretionary funds being used in other ways; this is an incentive for the local authority. Just to reinforce that natural incentive, we are going to make sure that children’s services within local authorities will be made aware of the availability of DHPs and will input locally on their priorities. I know there are many concerns in this area, but I really think that we have closed the circle.

This amendment seems to go further and would not allow any deduction to the housing element, thereby prohibiting deductions for other income or non-dependant deductions. It also does not cover foster carers who are between placements and who therefore have no income from fostering allowances. The flexibility of DHPs will allow for such circumstances, if it is felt necessary.

The noble Baroness, Lady Wilkins, raised a point on the JCHR. We have just received that report and will be considering it very closely.

I consider that we are meeting the needs of this group through the increase to DHPs, and I therefore beg the noble Lord, Lord McKenzie, not to move his amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, the amendment deals with mortgage interest relief. When we raised this issue in Committee, the Minister told us that it was actively under review. We have now had a chance to see the results of that review with the publication this month of a call for evidence on support with mortgage interest and we have some concerns about what it contains.

The main proposals outlined include placing a charge on the property of any long-term claimant of mortgage interest support, which, with an additional sum for interest and an administration fee, would be recouped on the sale of that property; paying the support directly to the claimant rather than to the lender as at present; introducing a zero-earnings rule for eligibility for mortgage interest support to prevent in-work claimants on universal credit from qualifying; and extending the current two-year restriction for JSA claimants on claiming support for mortgage interest to those previously entitled to some transitional protection.

The Government’s stated rationale for the changes is, once again, to encourage claimants into work. The document states:

“A core aim of Universal Credit is that working age claimants have strong incentives to take up work in order to maintain their choice of housing tenure”.

However, the proposals to place a charge on the property of MIS recipients at present apply only to those who are not expected to move back into work—those who, in the words of the call for evidence,

“need long-term help with their mortgages because they are disabled or have retired with outstanding mortgage liabilities”,

and whom, the document states, it is not fair for the taxpayer to support indefinitely. Perhaps the Minister in his response could outline the key rationale for these changes. Are they intended to ensure that anyone who wants to remain in their home must move into work? Or are they intended primarily as a cost-saving measure? What are the expected savings from the scheme to put a charge on the property, and how do these compare to the potential added expenditure on housing benefit if people decide that they would rather not pay this charge and move into the private rented sector?

On direct payments to lenders, we have had significant representations from landlords who are worried about the impact of direct payments to tenants of housing benefit—we discussed this in Committee on a number of occasions and will discuss it again shortly. The Council of Mortgage lenders seems similarly concerned about these proposals, with its director, Paul Smee, stating that,

“the principle of paying the benefit to claimants rather than lenders is dangerous in terms of potentially reducing its effectiveness in meeting its intended purpose”.

Could the Minister let us know what discussions he has so far had with lenders about these proposals?

The Minister will doubtless say that the proposals in this document are out for consultation—that is, they are just that: proposals—and that he will consider views on them. Perhaps he could therefore let us know the expected timetable for any changes to support with mortgage interest payments. It would be particularly useful to know when he intends to make decisions about eligibility for this support under universal credit, as the level of support provided will make a significant difference to whether work pays for home owners.

We look forward to further detail on these measures, but it would be extremely helpful if the Minister could take a moment to outline the principles behind them and the expected timescale for their introduction. I beg to move.

[Lord Freud]

My Lords, I thank the noble Lord for this opportunity to debate the way in which we will provide help with mortgage costs alongside, or as part of, universal credit. As I have said previously, housing support is critical to the success of universal credit. It will recognise that people need support across a range of different tenure types whether they live in the private rented sector or the social sector, or whether they are owner-occupiers.

Noble Lords will have seen the illustrative regulations on the universal credit housing element which set out our broad approach to support for housing costs. The regulations will indeed make provision for help towards mortgage interest payments.

I also mentioned in Committee that we would be consulting on possible future reforms of the support for mortgage interest rules. As the noble Lord pointed out, we published not a consultation but a call for evidence on 6 December which contained a number of ideas on simplifying the help provided towards mortgage interest payments for working age and pensioner home owners. One of the reasons that it is a call for evidence and not a consultation is that there are much less backing data in terms of impact assessments around a call for evidence than a consultation. Therefore the noble Lord will forgive me if I do not supply the answers to some of the questions he asked me. That is the difference in the process.

We intend to provide support for owner-occupiers, as the call for evidence makes clear, whether this sits inside or outside of universal credit and pension credit. The call for evidence seeks views to help inform the appropriate way forward in determining how financial support towards mortgage interest costs should be changed in both the shorter term and longer term. We are looking at a different model to deal with the longer-term costs of supporting home owners. Essentially, we are looking for a way in which we can keep people in their homes when it is long term, but not at an exorbitant, open-ended cost to the taxpayer. That is the point of exploring these issues: we want to make sure that it delivers fairness to taxpayers.

For support for mortgage interest, we intend to have a rule that provides that help with mortgage costs will stop once a claimant starts work, as is broadly the case now. We believe that the position of claimants with mortgages is different from that of tenants. Owner-occupier claimants have been in work—clearly lenders would not advance money for house purchase unless the borrower could service that debt through income from work. If owner-occupiers are to be able to service their mortgage debt in the future, then they need to return to full-time work and our proposals, or our evidence call, reflect this reality.

The call for evidence runs for 12 weeks until 27 February 2012 and we will of course consider carefully the responses, whether from the CML or anyone else—noble Lords are welcome to add their views, at which I shall look with great interest—and, based on those responses, we will then develop our detailed policy proposals. I can assure the House that we are continuing to provide help with mortgage interest costs. With that assurance, I hope the noble Lord will withdraw the amendment.

[Lord McKenzie of Luton]

I am grateful to the Minister for that reply. I certainly do not intend to press the amendment. As he explained, this is very much work in progress. Can he say a little more about the reactions to date—particularly from the Council of Mortgage Lenders—in respect of the direct payment issue.

[Lord Freud]

To be absolutely honest, I have talked to the CML about this matter but I have not had a direct conversation with it since we issued the call for evidence. One of the reasons we had that as one of the questions is specifically to get a considered view from it as to how that might work.

There are a number of issues. At the moment, we pay a fixed rate for everyone based on the average mortgage. The Council of Mortgage Lenders has said in the past that it prefers the actual amounts. So there are a lot of issues. It is administratively complex. I know I am telling the noble Lord things he already knows because he was in situ while some of this was being developed. There is a nest of complicated issues. We are trying to flesh this out in the next few months.

[Lord McKenzie of Luton]

I am grateful for that further clarification and beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I shall be brief, because it is very rarely possible to add to something that my noble friend has said in moving an amendment. However, I will try in two respects.

Amendment 15 deals with a relevant change in circumstances. How would that feed through into changes of circumstances that may impact on transitional relief for universal credit? Would a change in rent level support be a change of circumstance that would have to be taken into account?

As for non-dependant deductions, under existing arrangements there are a range of circumstances whereby people who might be treated as non-dependants are not and where some non-dependants do not generate a deduction under the provisions. For example, in respect of the latter, no deduction is made in respect of any non-dependant who is staying with someone but whose normal home is elsewhere, who is receiving a training allowance in connection with youth training under specific provisions or is a full-time student during his or her period of study or is in hospital for more than 52 weeks. There are those sorts of exemptions. Is it planned that those will be carried forward into the new world of universal credit?

[Lord Freud]

My Lords, local housing allowance rates are set each year at the anniversary date of the claim. In many cases, they coincide with claimants’ annual rent increases, but as the noble Baroness, Lady Hollis, will recall, during the LHA pathfinder some landlords increased rents mid-year to take advantage of increasing LHA rates. That is why we will operate a common uprating date of 1 April.

I would like to consider this matter further. I do not believe that it is appropriate to provide regulations in the Bill, and we will have an opportunity to debate the regulations in this area. However, I can assure the noble Baroness that we will consider the implications of a common uprating date for this group of claimants as part of the continuing work on the treatment of change of circumstances in universal credit. I am not able to get to a conclusion on what we define as a change of circumstances. Again, it is an interconnected group of things. On the basis that I am working on it, I hope that the noble Baroness will agree to withdraw the amendment.

The next area is on non-dependants. We debated a similar amendment in Committee, and I remember blushing with pride when the noble Baroness said that I made an intelligent response. It is a rare accolade that I get from some members of the opposite Benches, but not all.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 14th December 2011 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we should be grateful to the noble Baronesses, Lady Meacher and Lady Grey-Thompson, for introducing this important issue on which we have all received representations. Quite a lot of numbers have been bandied around with particular reference to benefits, and I will be interested in the Minister’s response. As I understand it, in the current system the severe disability premium is paid to people, whether in or out of work, who receive at least middle-rate care, live on their own and do not have a carer. It is payable only as a means-tested benefit so it supports those with a severe disability who have a low income and face many extra costs as a result of living alone.

Alongside that is the disability element of the working tax credit, so under the present system someone who is entitled to DLA or has recently been receiving a long-term sickness benefit would be entitled to the disability element of working tax credit if they worked for at least 16 hours a week. That is where we start from. As we have heard, though, the proposed support for adults in the universal credit depends upon the gateway of the WCA. This is what will drive the new arrangements. The briefing that we have had says that only those with a level of impairment sufficient to be found not fit for work will receive any extra help. I am not totally clear whether in that context “not fit for work” means someone who would only be going to the support group or someone who was going to the WRAG as well. I think the Minister is shaking his head, or rather he is nodding to say that only those in the support group would receive that.

That creates the difficulties that have been spoken about. The changes would mean that someone who could self-propel a wheelchair 50 metres or was registered blind but could undertake a journey unaccompanied could be found fit for work or, presumably, for work-related activity. Of course no one would want to claim that such individuals could not be encouraged to work if they wanted to, but that does not mean that they do not face considerable disadvantage and cost compared with someone with no impairment. So if they are out of work but found fit for work they face the same conditionality as everyone else, but if they are in work, because the gateway for extra support within the universal credit is the WCA, someone who is found fit for work will receive no extra support in work. The juxtaposition of the present and the future is concerning.

I am sure that the Minister will have seen the briefing that we have had. It says that the following are some of the ways in which different groups will be affected. Those who are terminally ill or who develop a severe level of impairment and live on their own could be disadvantaged to a significant degree—by something like £50 a week. Someone who is entitled to a middle rate of the care component but found fit for work—for example, someone who is severely visually impaired—will in many cases be found fit for work. However, if they are living on their own and doing some work, they are likely to have considerable extra costs that are not met by the DLA or by PIP when it comes along. Currently, most would be entitled to at least the middle rate of the DLA care component and therefore the SDP.

Under the current system, a severely visually impaired person in the work-related activity group and living on their own earning £100 a week will be left with a disposable income of £188 a week plus their DLA, after housing costs are paid. Under the universal credit, the same person will be left with a disposable income of less than £100 a week plus whatever PIP is payable after housing costs. There are plenty of other examples and we have heard some of them today from the noble Baronesses. These sorts of disparities are quite disturbing. The Minister might say that these are quite specific and narrow examples of the full spectrum of people who are affected by this, but a serious issue has been raised here and we need to understand fully how people are being protected in comparison with the current system under the new world of the universal credit.

[Lord Freud]

My Lords, this amendment seeks to put an additional element into the amount of universal credit that is payable for those who are severely disabled and who have no one receiving either carer’s allowance or a carer’s premium for looking after them. In essence it seeks to recreate the current severe disability premium within universal credit. As such it would involve a significant increase in cost compared with the Government’s plans. That increase stands at £400 million, unless there were other readjustments. However, let us just take it at face value. At face value, it is unaffordable.

On Monday the House approved the Government’s plans to simplify the disability-related additions. Instead of the seven different components within the current system of benefits and tax credits for adults, and two further rates in child tax credits for disabled children, universal credit will just have two rates for both adults and children. By restructuring the rates in this way, we are not looking to make any savings. We are redistributing around £800 million of current spend without returning any savings at all to the Exchequer. The full amount will be reinvested by increasing the higher rate for more severely disabled people. In our policy briefing note we made it clear that there would be some phasing. I know that I owe the noble Lord, Lord McKenzie, a letter on that matter.

Once resources became fully available, we expected to be able to provide a higher rate, at around £77 a week. This is significantly higher than the current £32.35 payable as the support component within ESA: £44.65, to give the noble Baroness, Lady Meacher, the exact figure she was seeking. It will provide a much more meaningful amount to severely disabled people than the current patchwork of premiums, which gives some people more than others and makes it difficult for people to understand and obtain their full entitlement. I should make it clear that one of the features of the universal credit as a whole is that we are expecting a substantial amount of the gains to the poorer people to come from much better take-up. The simplicity of a system with automatic provision of everything that people are entitled to will mean that more people in this category are likely to be recipients and get what they deserve.

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[Lord McKenzie of Luton]

My Lords, I speak initially to Amendment 26. The amendment takes us into the as-yet uncharted waters of in-work conditionality—waters into which my noble friend Lady Drake has at least dipped her toe.

The Bill introduces for the first time the requirement on claimants who already have a job to take action to secure more paid or better paid work. We understand the need, within a system that has no clear distinction between in-work and out-of-work benefits, to have some mechanism to ensure that people do not simply reduce their hours of work to take advantage of the more generous support for lower-hours jobs that universal credit provides, but there are a host of unanswered questions about how in-work conditionality will work. The amendment is intended to ensure that Parliament has an opportunity to review the arrangements once they have come into force.

We debated these questions at some length in Committee, and the Minister's response was basically, “We are thinking about this”, with some indication that he would not be in a huge hurry to introduce this element of the Bill. The most fundamental of those questions is: what exactly is taken to be work in the context of universal credit? When will the state judge that someone is doing enough to be free of the requirement to report on their activity to the jobcentre? Although we have some indication that single people with no caring responsibility or health issues will be expected to work for 35 hours a week, and couples in the same situation for 70 hours, we have no idea what flexibility will be given to those whose circumstances mean that that is not reasonable.

For example, what will happen if one partner of a couple decides to reduce their hours—perhaps to look after children? The way that the incentives are structured within universal credit may encourage many second earners to do just that. Will they then face a jobcentre penalty for not engaging in sufficient work?

It is also unclear exactly how the in-work conditionality provisions will impact on the employment relationship. How will it impact on the likelihood of employers offering somebody a part-time job if they know that the jobcentre will be encouraging them to leave their job for one with longer hours? We know that, despite today's employment figures, some unemployment was avoided at the start of the recession due to employers reducing people's working hours rather than making redundancies. Would they have been penalised for reducing hours in that way under the Bill? The in-work conditionality proposals will bring many more people into the orbit of Jobcentre Plus at a time when the agency is being asked to make challenging efficiency savings. Can the Minister outline what estimate he has made of the additional resource that will be needed to deliver conditionality for in-work claimants and whether he expects to be able to secure that?

In Committee we discussed the position of the work programme providers under these provisions. The Minister assured us that the fact that work programme providers must get somebody into work for 16 hours and keep them there for two years was not in conflict with the aim of this part of the Bill to ensure that somebody leaves a 16-hour job and goes into one that either pays more or has more hours of work each week. A review of this provision after a year will enable us to see whether the Minister’s confidence is justified.

Finally, we have had no equality impact assessment on this proposal. A review would enable us to assess its impact on different groups. As the proposal intends to assess whether somebody is fulfilling their in-work conditionality requirements by looking at how much they are earning rather than how many hours they are working, for those who earn more these requirements will obviously be easier to meet. I hardly need remind noble Lords of the substantial pay penalties faced by women, by people with disabilities and by certain ethnic groups. We will need to look carefully at whether people within these groups are significantly disadvantaged by these proposals.

This amendment in effect accepts the assurances that the Minister gave us in Committee that these matters are under consideration and simply asks him to report back to Parliament on how the proposals are operating in practice. I am sure that he will want to accept it, if only in order to be able to demonstrate that, as we all hope, this policy is achieving its intended aim of supporting people to move on in work.

I move on briefly to the contributions of my two colleagues. As well as talking about the very important issue of the focus on children being the driver of these provisions, the noble Baroness, Lady Drake, referred again to kinship carers. The amendment that she spoke to seeks to add kinship carers, carefully defined, and limited to the first year in which they are caring for a child, to the existing list of exemptions. When we debated this issue in Committee, my noble friend Lady Hayter said that she was able to rip up her speech given the willingness of the Minister to recognise this issue, suggesting that he was looking to address it. My noble friend, who has provided me with the text this evening, says that she is perfectly happy to rip up another one if the Minister can let us know the results of his deliberations and what these have been.

I will not repeat the powerful case made by my noble friend Lady Drake. As she emphasised, kinship carers can play a vitally important role, offering children in extremely vulnerable situations some family continuity and, in doing so, saving the state the considerable costs of taking a child into care—some £40,000 a year in independent foster care. The Who Cares? Trust has highlighted the difficult experiences of many children cared for by their parents, estimating that one-quarter will have lived with abuse, neglect and violence and one in four will have been deserted by their parents, often after drug and alcohol abuse. Sixteen per cent go to their grandparents after family breakdown, one in 10 after a parent’s illness—often mental illness—and one in 10 after the death of a parent.

Although the existing conditionality arrangements provide some protection to those caring for young children, with no conditionality until the child is one, and then work-focused interviews until the child is five, many of the children who move to live with kinship carers will be older than five, as older children—indeed, those over 12 years old—make up a higher proportion of those in kinship care than in the wider population. Despite not being babies, for obvious reasons they need pretty much full-time attention and care. They will be new family members when they arrive, yet, not being adopted, will have no equivalent recognition. They also usually arrive after some sort of trauma and are therefore likely to take time to settle down. The amendment my noble friend spoke to simply seeks to provide for those who take on the care of a related child a year in which they will not be asked to look for work. This will give those considering taking on this huge task some certainty about their income and security during this first year and a chance to focus on their care for the child. A year’s exemption from looking for work would give them time to manage the upheaval in their lives before starting to juggle work and care.

Our concern, expressed by my noble friend, is that, without this amendment, the Bill risks undermining families’ capacity to care for children and increases the likelihood of those arrangements breaking down. Unlike with formal adoption, there is no adjustment period for family carers, despite the needs of the children. Furthermore, carers often have to give up work as a condition of a placement. We are aware that, as my noble friend said, the Minister is sympathetic to this case and we look forward to hearing his response.

Finally, I should like to refer briefly to the contribution of my noble friend Lady Turner of Camden in relation to Amendment 23. As she explained, this amendment seeks to ensure that evidence from a health professional will be accepted as good reason for failing to attend a work-focused interview—a requirement that will, under the Bill, be placed primarily on lone parents with children aged between one and three. We hope that this will be a simple amendment to accept, as my noble friend has explained. In Committee, the Minister told us:

“We will not sanction claimants with limited capability for work, or those who have learning difficulties or mental health conditions, without first making every effort to contact them, their carer or healthcare professional to ensure that they have fully understood the requirement placed on them and had no good reason for failing to meet it”.—[Official Report, 1/11/11; col. GC 417.]

We hope that the Minister will be able to extend this to include those who provide their adviser with evidence that they have a health-related reason for failing to comply with the work-related requirement.

This amendment also enables us briefly to revisit the question that arose in Committee about the relationship between Jobcentre Plus advisers, Atos assessors and the healthcare professionals who deal with a claimant. It also enables us to ask the Minister again to clarify exactly what information is available to Jobcentre Plus and work programme advisers, who have to decide on the type of requirements to which the claimant should be subject. Will they have access to information about a claimant’s health and capability for work that has been uncovered during the assessment phase for employment and support allowance?

We want this whole scheme to work to help those who can be helped but not to waste advisers’ time, nor to bring the system into disrepute by demanding inappropriate behaviours of claimants where evidence of their health needs exists within the system. Therefore, we hope that the Government will feel able to accept my noble friend’s amendment.

[Lord Freud]

My Lords, this group of amendments contains a number of measures that align with our intentions, so we are apparently in agreement. Indeed, many are in line with current practice and we intend to carry them forward into universal credit. I shall take each of them in turn.

With regard to Amendment 23, we recognise that there may be medical reasons that prevent a claimant attending a work-focused interview. We do not need expressly to legislate for this to be recognised. If a claimant gives advance notice that he will be unable to make an appointment and has good reason for this, the interview can be rearranged. If a claimant fails to attend an interview, he will have a reasonable period of time to explain why. As part of that explanation, the claimant will be able to provide any relevant information, including any medical evidence. If the claimant has a good reason, then obviously no sanction will be imposed. This is essentially what happens already and it will continue.

I turn to Amendment 23A in the name of the noble Baroness, Lady Drake. I appreciate the sentiment behind the amendment and agree that it is important to balance the requirements placed on claimants with any childcare responsibilities they may have. Therefore, legislation will provide clear safeguards, ensuring that no claimant who is responsible for a child under five can be made to look for or take a job, and no claimant with a child under 13 will be required to look for a job that does not fit with their child’s school hours, including a reasonable allowance for travel time.

Advisers will have flexibility to tailor the requirements placed on claimants—including allowing limitations to the work that claimants must search and be available for—to take account of their circumstances and the needs of any children for whom they are responsible. Where the child is over 13, advisers will continue to have discretion to permit the claimant to limit their availability if the child’s needs make it necessary. We do not intend to make blanket rules for this age group in legislation, as the children’s maturity and need for parental supervision will vary widely. Therefore, although we agree with the spirit behind the amendment, we do not think it necessary.

On Amendment 25, we are now making provisions in the jobseeker’s allowance on domestic violence. The regulations giving effect to this policy will be subject to affirmative debate early next year as parliamentary time allows. The changes will take effect soon afterwards. The draft jobseeker’s regulations will provide that where a claimant has left the abuser because of violence or the threat of domestic violence, they will be treated as complying. This will be automatic whenever the claimant provides evidence of violence or the threat of violence and may be extended through existing domestic emergency provisions to up to 17 weeks, or to 24 weeks for claimants with childcare responsibilities. The amendment would allow an exemption from work-related requirements only while the threat continues. Our proposal recognises that claimants may need unconditional support for a period after the actual threat has receded.

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[Lord Freud]

Can I leave it like this, without giving a hard commitment right now, on my feet? When we get to the regulations on this, I will look very hard at exactly what the protection is. I cannot offer any more now but I am sure we will debate this in the months to come. My main point here is that overall duties, rather than lots of specific ones, are the way to go.

Let me turn now to Amendment 36, which proposes an exemption from the sanction for losing employment due to misconduct where the claimant disputes that the dismissal is fair and has instituted proceedings—in other words, is taking a case to an employment tribunal. First, I assure noble Lords that the decision-making process around sanctions for misconduct is rigorous and rounded. We are proposing nothing in this Bill that changes the current process. Decision-makers will take all relevant matters into account when determining whether a sanction should apply, including evidence about whether claimants have left employment through misconduct or been unfairly dismissed. If a tribunal finds that there has been no misconduct by the claimant, this will be very compelling evidence. Where a decision-maker decides that there has been no misconduct, a sanction will not be applied.

However, we do not consider that there can be a blanket rule which says that, where a claimant has instituted proceedings for unfair dismissal, sanctions cannot be applied in that case. One of the reasons for this is that we want to avoid creating a perverse incentive for claimants to make claims to employment tribunals, which would put a burden straight on to employers for no fundamental reason. Decision-makers must have the flexibility to look at each case on its facts and to assess the strength of the evidence. I trust noble Lords will agree that this flexible, case-by-case approach is the right one.

The final amendment, which the noble Lord touched on right at the beginning, and which seemed like a game of tiddlywinks between us, is on targets. He knows what I am going to say—his side likes targets, we do not like targets—so I will say it, as it just keeps the night going. We will continue to collect this information to support our work. We need to know how many sanctions are being imposed, but collecting information is not the same as using it to target. It helps us to assess the consistency of approach in this area and to monitor and evaluate the impact of those sanctions, so that is what we are collecting.

On the basis of that rather rapid, somewhat biblical, summary I would ask noble Lords to withdraw or not move these amendments.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply. I thought we were going to have a quicker canter through these issues, and we may wish to return to at least one of them at Third Reading. In relation to the mitigation issue, I am obviously grateful for the Minister’s consideration of that and recognition that there is an issue to address. However, like my noble friend, I am a bit dismayed that the route to dealing with it is the six months—

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[Lord McKenzie of Luton]

My Lords, my noble friend Lady Donaghy has made a very strong case, and I look forward to the Minister's response. What she said warmed the cockles of my heart. She referred to generally accepted accounting principles—the true and fair view—and it took me back to another life, but she raises a real issue: rather than having artificial rules for assessing what people are deemed to earn, is it not better to try to capture the actual profits and to target resources on those who seek to abuse the position? That seems a very straightforward matter.

My noble friend raises once more, as she did in Committee, the matter of bogus self-employment. We all know that that is a continuing issue. I have always believed that it rests particularly with HMRC, together with BIS and other departments of government, to make progress on that. It is primarily HMRC that could begin to make a real difference. She wrote reports for the Government, as did the Minister, on the construction sector, and health and safety in particular. There is bogus self-employment in that sector, so she is an expert on that matter. We support the thrust of her amendment.

[Lord Freud]

My Lords, when we discussed a similar amendment to this in Grand Committee, I explained that we intend to retain the existing practice in the benefit system whereby claimants can be treated as having income or capital in cases of deliberate deprivation. However, we believe that different issues arise in relation to self-employment. We think that it is right in principle to apply a minimum income floor to claimants who choose to be self-employed but whose earnings do not make them financially self-sufficient. I confirmed in Committee that the floor will not be based on the hours claimants work. We assume that claimants’ earnings are at a level that we would expect from claimants with similar circumstances in employed work.

Claimants will not be forced to take reduced benefit payments by accepting the minimum income floor. Self-employed claimants will have the choice in universal credit. Some will choose to continue solely with their existing activity with the expectation of increasing their earnings. They will accept the minimum income floor. Those who do not will need to satisfy conditionality requirements. The conditionality regime will aim to guide the claimant towards the most appropriate form of gainful work. For some claimants, this would combine their self-employed activity with part-time employed work. In other situations, the regime may very well encourage the self-employed to keep going in their self-employed efforts. We will need to build a quite sophisticated regime to manage this.

This approach differs from tax credits, which allow claimants to receive maximum support so long as they declare that they are working a minimum number of hours. However, in 2009-10, for example, around 60,000 of the households claiming tax credits that received some or all of their earnings from self-employment declared earnings of under £2,500 a year—less than £50 a week. While this is legitimate under current rules, we believe that some intervention to guide claimants towards increasing their income is justified in return for state support.

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[Lord McKenzie of Luton]

My Lords, the noble Baroness has brought an important point to our attention. I have only two questions for the Minister. Can he explain the extent to which the current rules are going to be translated and taken up in universal credit? The position at the moment is that the compensation recovery scheme does not apply to criminal injuries compensation. Can the Minister say whether that would continue under universal credit?

[Lord Freud]

My Lords, Amendments 32A and 34A seek to use primary legislation to exclude criminal injuries compensation from the capital test for universal credit. The existing benefit system does not have a specific disregard for criminal injuries compensation. However, such payments will usually fall under the rules governing personal injury payments where they relate to physical or psychological injuries suffered by the claimant. As indicated in the illustrative draft regulations on capital and income, shared with noble Lords in September, we intend to replicate these personal injury payment provisions in the universal credit regulations. I hope that that answers the question of the noble Lord, Lord McKenzie.

Personal injury payments are disregarded in the current benefit system for a period of 52 weeks from the date that they are paid. Even after that period, remaining capital will continue to be disregarded if it is placed in a trust, as the noble Baroness, Lady Hollins, indicated. This rule allows us to distinguish the personal injuries payment from other savings. If the payment is not separated by placing it into a trust, it becomes increasingly difficult to identify the source of the capital as time goes by. Ultimately, any capital test must consider the balance in a claimant’s account, and over time it becomes impossible to say whether it is from one source or another unless it is held in a different form. That is the reason for the way that this is structured.

The current arrangements are long-standing, and we are not aware of significant practical problems with their use. In any case, the details of capital disregards are a matter we will address in the universal credit regulations. If there are particular problems, we will have a further opportunity to consider them when drafting regulations, and I will bear in mind the points the noble Baroness has made.

In answer to the question asked by the noble Lord, Lord McKenzie, I agree that the compensation recovery scheme does not apply to criminal injuries compensation.

I hope I have made clear why the Government cannot support Amendments 32A and 34A. I hope the noble Baroness will withdraw her amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 12th December 2011 Lords Chamber

[Noble Lords]

No!

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

My Lords, as I understand it, Amendment 1 has not been moved, but Amendment 2 has. I think that the noble Baroness, Lady Meacher, will speak to Amendment 1, but I do not think that she is in a position to move it. That is my understanding.

[Lord McKenzie of Luton]

My Lords, I do not want an endless wrangle on this. I think that that is being a little tough on the calling of amendments. My noble friend did not immediately realise that the noble Baroness, Lady Meacher, was not in her place, so it perhaps took her a little while to move the amendment on the noble Baroness’s behalf. Frankly, if we are denied the opportunity to proceed with Amendment 1 today, we will simply bring it back at Third Reading. However, I do not think that that is in anyone’s interest.

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[Lord McKenzie of Luton]

We understand the enthusiasm that the noble Lord brings to this project and I think that we accept the thrust of it. However, will he make clear the following issue? If there is to be a degree of flexibility and if he wants people to be in control of their own finances, why is that inconsistent with them having a choice of how they get paid? Is he saying that the flexibility that he is prepared to countenance does not include the right for individuals to choose, within parameters, certainly perhaps to get paid on a fortnightly basis?

[Lord Freud]

My Lords, this is a technical issue about the level at which people choose and the extent to which we treat universal credit as a bank account—some would argue that that is what it is as regards budgeting advances, for instance—or drop it down into banking apps that will available for people on universal credit. I do not want those flexibilities to apply at the higher level in the formal process. I want those flexibilities, whether they are direct debits or anything else, to apply at a lower level in banking and budgeting products which will float away with people when they are outside universal credit. That is the issue. That is why I do not want my hands to be tied. I do not want to be forced to give the flexibility at the core level, not the lower level. Therefore, I beg the noble Baroness to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 12th December 2011 Lords Chamber

[Lord McKenzie of Luton]

Can the noble Lord say by when he expects to have moved to that figure of £77 for adults?

[Lord Freud]

As we move people on to the universal credit and take people off the other systems we will be gradually putting people on to that amount. But I am better off writing to the noble Lord on that particular matter of timing because it is quite a complicated equation. Basically, we are looking to maintain an overall fixed level of spend in this area, and as we pull down one element we can move up the other elements—that is essentially what is happening, so there is a periodicity there.

We are trying to get money to the most severely disabled in our community. There is a real decision here: maintaining the existing rates for children without doing that—without finding this money—would cost an extra £200 million a year. I simply do not have that money. If this amendment is passed, it will not be possible to increase the addition for the most severely disabled people to £77. So there is a decision to be made here: do you agree with the way we want to rebalance the system—

[Lord McKenzie of Luton]

I am sorry to interrupt the noble Lord again, but is it not right that that equation only follows if you look at those two together? You do not have to operate within that envelope; there are other envelopes, as my noble friend Lady Sherlock mentioned in her contribution.

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[Lord McKenzie of Luton]

Very good. Of course, this issue is having to be considered, as has been said, against the backdrop of the overall funding for council tax benefit being reduced by 10 per cent but with commitments to protect awards of council tax support for pensioners and possibly for other vulnerable groups. This means, as has been said, that support for working age claimants is to be squeezed dramatically.

The consultation on this proposition, the Localism Bill, closed two months ago, and perhaps we can know when the Government’s response to this will be forthcoming. Quite apart from the administrative consequences of the proposed localism of the benefit, there is, as my noble friend pointed out, a fundamental difference compared with what happens currently. Under present arrangements, council tax benefit is demand led. Whatever the calculation shows is due is made available to the claimant, by offset against the council tax bill, with full reimbursement from the DWP. It is, as my noble friend explained, the AME—annually managed expenditure—bit of government spending.

This will in effect change under a localised system. If claims under a localised system exceed the budgetary amount locally, authorities will have much more limited resources from which to meet the increased demand. They might dip into reserves, if they have any, or they might make the system less generous in a subsequent period. They might switch expenditure from other local authority spend, but given the savage cuts to local authority budgets that have been made recently, there does not seem to be much room for manoeuvre to do that.

It is suggested that local authorities might approach a localised system on some consortium basis, and therefore that other local authorities will help out. I suggest that the prospects for this are not strong. One consequence of these constraints will be that local authorities will inevitably budget on a prudent basis, building in contingencies that will further diminish the resources available to claimants of a localised system. That indeed is what the risk assessment will dictate.

The main reason advanced by the Minister, Grant Shapps MP, in evidence to the CLG Committee for the localisation of council tax benefit was that for local authorities,

“the big advantage is that they will have a stake for the first time in what people who live in those homes are doing; in other words, an incentive to help get the person back into work”.

This is a rather strange view: that it takes possible savings from a benefit pot for local authorities to have an incentive to help people back to work. It is a view that ignores, or is ignorant of, the proactive and imaginative work that many local authorities do to help local residents into work. However, in any event, the driver for having clear incentives to support work is supposed to be the universal credit itself. If there is any incentive in the system, there is a risk that local take-up campaigns will diminish, as any wider take-up will come from the resources of the council.

We have yet to know how much central direction there will be for a localised system. If the Government run true to form, there will be quite a lot. This was certainly the outcome of the Localism Bill, which espoused localism and gave additional powers to local authorities but came with lots of strings attached, as the noble Lord, Lord Newton, will recall, despite some of those strings being removed in your Lordships’ House. There will clearly have to be central direction if the position of pensioners is to be protected, and some form of direction to deal with tapers and work incentives.

We understand, to follow the line of questioning by the noble Lord, Lord German, that the Minister will say that he cannot support a change to the universal credit to include a council tax benefit now. However, there is nothing to stop it being included in the future, as the Bill now stands. If this is the Government’s position, will the Minister confirm that he considers that regulations under Clause 11 will be the route to effect this?

The noble Lord, Lord German, also raised some fascinating questions about how this works for Wales and Scotland. Can the Minister say whether the proposition that he will advance tonight will be, “Don’t worry about it now—you can get it all back in due course.”? What changes would have to be made to the systems that are currently being built to put this into effect? Including council tax support as part of universal credit is of course not without its challenges, particularly the payment issue, so perhaps we can hear whether there has been any thinking around that matter.

However, we support my noble friend’s strong contention that the sensible, practical and principled way to deal with council tax benefit is to include it as part of universal credit. We believe that the Minister, a very logical person, must have come to the same conclusion. If a strong vote today will help his cause, we are more than prepared to play our part.

[Lord Freud]

Beware Greeks. My Lords, noble Lords will be aware from previous debates that we are proposing to abolish council tax benefit before the introduction of universal credit and replace it with local schemes of support. Localising support for council tax is part of a wider policy of decentralisation, which will give councils increased financial autonomy and a greater stake in the economic future of their local area. Localisation also reintroduces the link between council tax levels and the costs of providing support, thus reinforcing local financial accountability.

This reform will give local authorities a significant degree of control over how a 10 per cent reduction in expenditure on the current council tax benefit bill is achieved, enabling them to balance local priorities and their own financial circumstances as they see fit. This saving is an important contribution to the Government’s vital programme of deficit reduction. We need to ensure that localisation supports the improved work incentives that universal credit will bring. However, the Government believe that the key principles required to incentivise work can be delivered through local schemes with the help of technical guidance provided by central government. Local authorities will have a greater stake in getting people back into work than ever before.

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[Lord McKenzie of Luton]

My Lords, perhaps the noble Lord would reiterate a point. I thought I heard him say that a Bill for the localisation of council tax benefits or whatever it is called will be introduced in this Session. Does he have any more precise detail?

[Lord Freud]

I am afraid that I do not have any more precise detail but, although I do not think that in the consideration of the Welfare Reform Bill I can say soon, I can probably say that it will be between January and May or June, or something like that. I have no more precise information.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 12th December 2011 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I propose to speak briefly in support of Amendments 7 and 11 as my noble friend is a renowned expert on pensions and it is never possible to add much, if anything, of substance to what she has said. My noble friend has made an important point about the breaking of the consensus on encouraging saving. On the one hand she instanced the huge sums that will be garnered by the changes to the state pension age and, at the other end of the spectrum, the deferral of automatic enrolment and this measure, which changes the basis on which pension contributions are treated in universal credit compared with working tax credits.

I wish to probe again a point in respect of the 50 per cent only deduction, which I do not think that the Minister dealt with significantly in Committee. Universal credit will obviously be based on real-time information—the information which will flow from employer returns to HMRC, and the data flowing back. That data will be based on 100 per cent deductions of occupational pension schemes, so if universal credit is going to rely on a 50 per cent deduction only, there is going to have to be some other process or loop which is not naturally there in the data flows at the moment. I think the Minister instanced that this was something that was being commissioned. I can imagine the work involved in seeing how that might be derived. I hope that he will take the opportunity tonight to be a little clearer on that. Quite apart from the principle of the measure which my noble friend has raised, I raise the actual practicalities of implementing it. When we looked at recasting the child maintenance system, which we shall come on to on a subsequent Report day, what was determined and debated in your Lordships' Chamber was that it would be based on gross income data provided by HMRC but net of 100 per cent of employee occupational pension contributions, as that was the natural flow of data. I would be grateful if the Minister could deal with the practicalities of that point.

Amendment 11 seeks to ensure that measures can be put in place to address one of the significant couple penalties introduced by the Welfare Reform Bill—a penalty that means that a couple, where one person is over and one under pension age, could lose as much as £100 a week compared to the current system. This sits alongside the couple penalty introduced by the limiting of contributory employment and support allowance and that introduced by the benefit cap in a series of changes that, perhaps unintentionally, mean that couples may see themselves as better off financially, as my noble friend has said, living apart.

The policy change being introduced means that whereas at present couples where one member has reached pension age are eligible for pension credit, following the coming into effect of the Bill, if one member of the couple is below pension age, they will be forced to claim universal credit until both of them qualify for a pension. We have been given no specific figures on the impact of this policy although we know that there are currently 93,000 couples where one person is over and one under pension age. Not all of these will be affected as those who are already receiving pension credit will be able to remain on that benefit. However, as the revised impact assessment points out, those who are affected are likely to be hit hard, stating that the heaviest notional losers for couples without children,

“are in cases where one member is of working-age and one is currently eligible for Pension Credit”.

Perhaps the Minister can tell us how many people he estimates that this change will affect and how much they stand to lose. Bringing pensioners within the orbit of universal credit will also mean, as my noble friend has said, subjecting them to many of the new and harsher rules that accompany the new benefit. The Minister has not yet told us how he expects pensioners to be affected by the new capital limits that will be introduced for universal credit, and also for pension credit when housing benefit is abolished. As Age UK points out, nearly 150,000 people claiming pension credit have more than £16,000 in savings. In the future those with a low income but over £16,000 of savings who have a younger partner will not only be excluded from pension credit, they will not be entitled to universal credit due to their savings.

The Government have argued that the purpose of the policy change is to ensure that working-age claimants are subject to working-age conditionality and asked to look for work. However, many of the working-age claimants who fall into this group and have an older partner may in fact be subject to no work-related requirements—a matter we discussed in Committee—whether because they are caring for someone or have a disability themselves. These couples too will see a £100 a week hit on their income as well as potentially losing other support linked to pension credits, such as the winter fuel payments.

The Government have said that this is not a savings measure so there should be some flexibility within the system to ensure that couples in this situation have their income protected. This policy has not been consulted on and we have not received sufficient information fully to assess who it will affect and how. Therefore, the amendment proposed by my noble friend would give the Government the flexibility to look again at the options in this area and to ensure that couples in this situation do not lose out.

[Lord Freud]

My Lords, Amendment 7 would take a power to disregard the full amount of any pension contributions from the assessment of both single and joint claimants’ income. As I made clear at Committee, this is a matter for regulations and we do not need any additional regulation-making powers. Our stated policy since the Universal Credit White Paper has been a 50 per cent disregard of pension contributions, in line with the current approach in the benefit system, as opposed to the tax credit system. We are taking the middle path between supporting pension saving for people on low incomes and fairness to the taxpayer. It is important to remember that many taxpayers who do not claim benefits do not have occupational or private pensions. A full disregard of all pension contributions would cost an additional £200 million a year.

Noble Lords have characterised our approach as worsening the position when compared with tax credits, where there is a full disregard of pension contributions. However, this oversimplifies the comparison between universal credit, based on net income after tax, and tax credits, based on gross taxable income. Frankly, we are not comparing like with like. We also need to take account of the new employer contribution duties to be introduced from next year. We previously said that when taking account of employer contributions, the cost to an individual for each pound of pension would be 34 pence. Since Committee, we have looked again at these figures and I should like to take this opportunity to correct that one, which we have now calculated out at 38 pence. I apologise for that mistake, which I hope is not too substantial directionally.

If one considers putting £1 today into a pension, the cost in the tax credit system is 39 pence. One can see that that represents 61 pence pure universal credit. However, if one combines that universal credit calculation with the employer pension duties, the figure reduces to the 38 pence that I talked of. The middle way, when considered in combination with what else is happening, is actually not quite as mean or extreme as the noble Baroness, whose expertise I acknowledge and have suffered from in the past, might imply. If you are outside the system entirely, it costs you 80 pence for every £1 of savings. That provides a balance on why we have come to that figure.

Picking up the question from the noble Lord, Lord McKenzie, on the RTI feed, I can inform him that payroll data do identify pension contributions from salary. They have to do that because the pension contributions will be subject to national insurance. That is the feed element we will use to make this calculation, and we are currently working out the detail. Taking all these factors into account, we believe that a 50 per cent disregard is an appropriate balance between encouraging saving and a fair deal for the taxpayer.

Amendment 11 would amend the regulation-making power in Clause 9 relating to the standard allowance. This would allow us to provide an exception for couples with one member above state pension age by excluding the standard allowance from the calculation of their universal credit award. As I explained in Grand Committee, the Government have taken the view that couples with one member above and one under the qualifying age for state pension credit should claim universal credit. Following that debate, I sent the noble Baroness, Lady Hollis, and other noble Lords some worked examples showing the entitlement of different couples on the two benefits. They showed that there will be a range of outcomes depending on individual circumstances. We calculated that more than 90,000 couples with one partner under pension credit age are on pension credit—that was in answer to the noble Lord, Lord McKenzie. However, transitional protection will apply, and all those couples currently on pension credit will stay on it while circumstances remain the same.

We are not convinced that it is necessary to have special rules or different amounts of standard allowance where one partner is above pension age. Universal credit also includes additional amounts for those people who have limited capability for work or regular and substantial caring responsibilities for a severely disabled person. It remains the Government’s view that people of working age who are able to work should prepare for or look for work in return for receiving support from the state. The earnings rules and disregards in universal credit provide a clear incentive to do so. I therefore urge the noble Baroness, Lady Drake, to withdraw her amendment.

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[Lord McKenzie of Luton]

This amendment raises the question of the amount of capital that will be taken into account when calculating universal credit. The Government's proposals at present are that those with savings of above £16,000 will not be able to claim universal credit and that capital above £6,000 will attract a tariff income of £1 for every £250 above the £6,000 floor.

Our amendment seeks to enable differential treatment of capital for those in and out of work, reflecting the current arrangements, under which the universal credit rules replicate current benefit arrangements. Tax credits claimed by those who are in work have no limits on capital nor assume any tariff income, but obviously take account of the actual or taxable investment income. The Minister has talked about universal credit encouraging a culture change in how people manage their money. We fear that the current proposals will discourage low-income people in work from accumulating savings and building assets.

This is not just our view about the capital rules, but that of one of the main architects of universal credit, the Centre for Social Justice. As Deven Ghelani, a senior researcher at the centre said when giving evidence to the House of Commons Bill Committee:

“It is fundamentally a disincentive to save. I think that the savings limit for people who are not working and are on benefits has been £16,000 for I am not sure how many years, but certainly rather a lot”.

It is nice to know that the centre has such precision.

“The limit has not been uprated for at least a decade I would say, and possibly a lot longer. By extending that to people who are working, people who get close to that threshold might suddenly realise that it does not pay to save and that there are perhaps other things that they should be doing with the money, whereas saving is in itself a protection against dependency”.—[Official Report, Commons, Welfare Reform Bill Committee; 22/3/11, col. 19.]

The proposals will act as a barrier for those on modest incomes who are trying to save, whether for a house, for their children's tuition fees for university or against the possibility that they may lose their job and need a cushion of income to fall back on. The Government propose to encourage more tenants to buy their council accommodation. Under these proposals, tenants who wish to save to take up the offer will first be penalised for those savings and then, if they are able to build up their savings sufficiently, barred from accessing universal credit at all. That does not seem to be in line with the Government’s message that, under universal credit, work will always pay.

The department’s briefing assessment of the changes suggests that there will be between 100,000 and 200,000 people who will lose eligibility to universal credit altogether because of the new capital cut-off rules, and that between 200,000 and 300,000 people will have reduced eligibility due to the rules on tariff income. The briefing note states:

“People with substantial savings or other capital clearly have sufficient income to meet their needs”.

It is right that they should draw on these resources before looking to the taxpayer for support, particularly as many taxpayers themselves have savings well below these limits, but the vast majority of low-income workers who are claiming universal credit will also be taxpayers, and their taxes will be used to support other incentives to save in the tax system, including, as we discussed in Committee, the considerable tax relief on pension contributions.

The current proposals punish those on low incomes who are working and trying to build assets for the future. The amendment proposes a modest change to enable differential treatment of capital for those in and out of work. When we debated the issues in Committee, the Minister told us that these are not necessarily issues of principle; they are issues of affordability and the envelope that we have to introduce universal credit. By accepting the amendments, he could signal that he recognises the importance of enabling those who move into paid work to begin to build up their assets and avoid sending the wrong message that those on low incomes should not expect to be able to save. I beg to move.

[Lord Freud]

My Lords, Amendment 8 would require different tariff incomes to be set against the capital of people in and out of work. I understand the noble Lord’s desire to continue to treat the capital of people in work differently in order to encourage low-income workers to save. I remind the noble Lord and the House that I was able to provide somewhat more precision than the IFS on the last time the figure of £6,000 or £16,000 was raised. To be absolutely honest, I forget the date that I provided in Committee, but it is now on the record in Hansard. The date was 2006. I am pleased to keep just marginally ahead of the IFS every now and then.

This amendment is at odds with our shared ambition for a simpler system. It is also, as it stands, unaffordable. We estimate that it would cost around an additional £70 million a year to remove tariff income for everyone in work with capital up to £16,000. We estimate that it would cost an additional £30 million a year to set tariff income at £1 for every £500, instead of the current £1 for every £250, for everyone in work with capital up to £16,000. That gives you a context of cost. This is a cost matter, as I made clear in Committee. There are quite a lot of nice-to-dos in the universal credit; I would like to do many of them myself, I assure you, but we have got to focus on where we can put the scarce resource and where it is absolutely needed. The debate around that is based on the fact that we estimate that around 80 per cent of those claimants who will have a higher benefit entitlement under universal credit will be in the bottom two income quintiles. Now is not the time to do anything other than to retain the existing threshold of £6,000.

The shocking reality is that if you go to the median household with a working-age adult in it the figure of savings in that household is £300. That is across all working ages in the FRS. That is a shocking figure, but it just shows you where the debate is against the reality of what is happening in this community group. I am using median not average here, because I think it is a better figure.

That is the issue. We have limited resources; we need to focus them on those least able to support themselves. I hope that explains why we are where we are with these particular figures for tariff income and capital and why we cannot support this amendment, and I ask the noble Lord to withdraw it.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for his response. I should just say that it was not the IFS which gave that evidence; it was the Centre for Social Justice, which I thought was an organisation quite close to the noble Lord’s heart.

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[Lord Freud]

I should have known I would never be ahead of the IFS; I apologise to it.

[Lord McKenzie of Luton]

I understand the Minister’s response. It really reiterated what he said in Committee: this is an issue of affordability, not necessarily one of principle. On that basis I do not see why he could not accept the amendment—it would signal the Government’s intent on this—but given the hour I beg leave to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 28th November 2011 Grand Committee

[Lord Freud]

“Negligence” and “reasonable steps” are legally bound words. There is a huge case law about what they imply. One needs not to be negligent when filling in an application and to take reasonable steps to correct mistakes. If you do not know that you have made a mistake, you cannot expect to be able to correct it. That would not be a reasonable step. However, there is a legal framework around these words. I go back to the point I was trying to make about the incentives on the system as opposed to on the individual. On the penalty rates that I gave noble Lords, we expect that the amount collected in a year, for example 2014-15, will be roughly £9 million and the cost of delivering that system of civil penalties the same figure, £9 million, so there is no incentive in the structure to have unnecessary civil penalties. That is not the point. The point is to—

[Lord McKenzie of Luton]

Will the noble Lord help me? Do the penalties accrue to the department or to the consolidated fund?

[Lord Freud]

That is as I would expect from the noble Lord. It is such a wicked question that I am baffled as to the answer. I think everyone is baffled. It is a magnificent question. It has bowled me out on my middle stump. I will have to find out the answer. I will not even hypothesise about where the different funds go. The right analogy for this is when you go to the dentist, having made an appointment, and you fail to attend. The dentist will charge you an amount in many cases in order to discourage that behaviour. When you are giving out a free good, it is very easy for the recipient to abuse it. You counterbalance that by making that somewhat expensive. When you go beyond a free good and you are giving out a positive good, that is even more the case.

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[Lord Freud]

My Lords, I buy the point about the delicacy of the run-in. I have a tool with which to monitor it very carefully. However, we must have a system that tells people that they must take care with their application. This is an application on which tens or hundreds of thousands of pounds are riding. It is no good people just putting in slapdash figures and not caring; this is really important information and it must be put down carefully. That is what we are trying to ensure with this relatively modest civil penalty.

[Lord McKenzie of Luton]

My Lords, I am very happy for the Minister to write to us on this rather than to spend more time today, because we need to make progress. This is about the practicalities. He has already indicated that the system could cost £9 million a year to operate. If a local authority seeks to collect both an overpayment and a penalty, the overpayment presumably reverts to the local authority. We do not know whether the penalty reverts to the Consolidated Fund or the DWP, but I presume that it is not to the local authority. The Minister will see that, in those circumstances, which may be quite common, one needs rules about how what is collected in respect of the two components is allocated between them. That presumably creates some administrative costs as well.

[Lord Freud]

I will need to write.

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[Lord McKenzie of Luton]

My Lords, as has been said by my noble friend Lady Sherlock, the noble Lord, Lord Ramsbotham, has made a powerful case in principle. Like the noble and learned Lord, Lord Mackay, I am not quite sure that the formulation set down here is quite right, as it lumps together sanctions, penalties and recovery of overpayments, and there might be arguments for unpicking those. It would be helpful, in any event, if, following this debate, we could have in writing a note as to what information decision-makers would routinely have in front of them when they make the decision with regard to each of those various categories. That would help us as we move to Report.

We debated issues around the claimant commitment earlier, as has been said. My noble friend Lady Lister made the important point again about that being more about co-production rather than something that is delivered and given to the claimant. That is an important point. As my noble friend Lady Sherlock said, we are dealing with people whose resources are, almost by definition, incredibly stretched. In many cases they are on the edge. If we are going to further reduce the means that they have, then we ought to be very clear that we do that in the knowledge of all of the circumstances and the impact on their well-being.

[Lord Freud]

My Lords, I agree that it is right and proper that a decision-maker gives full consideration to all the relevant facts provided by a claimant when deciding whether to impose a sanction or penalty. It is also important that claimants have appeal rights when sanctions and penalties are imposed. I believe that the amendments are unnecessary because we have adequate protections in place, but I am very happy to meet the noble Lord on this matter. Let us go through it, because it is important that we get it right.

The essential difference between us—although, as the noble Lord, Lord McKenzie pointed out, we need to tease out three different things here—is that the noble Lord, Lord Ramsbotham, is looking for a specific process, whereas we are aiming, in the legal framework as it stands, at a general process of cover. The noble Lord will be aware that, if you have a whole load of specific things, you have a problem when you get the special case that is not covered, whereas if you have a general protection you are covered. I think there is a fruitful discussion to be had around that, and I would welcome a discussion to see that we have the right protections because, again, I do not think there is a huge difference between us here. We want to have the right protections for a vulnerable group. We do not want arbitrary behaviour; we want common sense. It is just a question of looking through. I will circulate the note on this matter to the noble Lord, Lord McKenzie, as well.

We are training decision-makers on a number of areas: retaining impartiality; identifying what constitutes evidence and where the burden of proof lies; on the concept of the balance of probabilities; and on an understanding of social security law. It is vital that we do this.

--- Later in debate ---

[Lord Freud]

The answer to the first question is that interest is not ticking.

On the second question, I share the noble Baroness’s concern about how the present childcare system works on reporting, which is why we are producing an entirely new system with a monthly report and a monthly payment system. Basically, how the system will work is that you put in the receipt for what you have paid, and then that payment is repaid on a monthly basis. The problem presented by a change of circumstances will go. Roughly 15 per cent of problems are caused at the initial stage of the original application. It does not seem sensible to privilege one set of mistakes against another when it is a reasonably substantial proportion.

I am very happy to meet the noble Lord, Lord Ramsbotham, to go through these issues in some detail, because I share his and other noble Lords’ concern that we get this right.

[Lord McKenzie of Luton]

My Lords, if the noble Lord, Lord Ramsbotham, agrees, might we join in with those discussions or reflections?

[Lord Freud]

I would be utterly delighted to invite noble Lords, but not too many. Perhaps the noble Lord, Lord Ramsbotham, will give permission for the Official Opposition team to join him. If he does, I would be delighted to see you all.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we have a good deal of sympathy for the amendment of the noble Lord, Lord Kirkwood, and the noble Baroness, Lady Thomas. My understanding is that draft regulations—or proposals for regulations—have to be submitted to the SSAC except in certain circumstances. One of them, which has been mentioned, is that regulations made within six months of the enactment of primary powers do not have to be submitted.

This amendment seeks to say that the six-month clock should start when the Bill becomes an Act, not when the particular provisions are drawn down. That could widen the scope of what the SSAC should review. I support that. It is sometimes uncomfortable as a Minister being on the receiving end of a report from the SSAC, but in a sense that is part of the process that we need to engage in. Clearly there would be issues of capacity if this change were to happen overnight, particularly given the Bill that we are now considering. It seems that Bills of this nature will inevitably be framework Bills. Our Bills were. There is always tension between working on the basis of draft SIs, trusting to luck or assurances as to what eventually comes through, and having a degree of certainty.

It is not our official position but it seems to me that one way round this would be for Parliament to be able to amend SIs. It would take us away from some of the debates that we have about trying to get stuff into primary legislation, but that is probably a debate for another day. We should take seriously the prospect of the SSAC looking at SIs more widely and not being pre-empted by the six-month rule. There is clearly an issue not only about the capacity of the SSAC but about its expertise. It is very important that that is maintained.

[Lord Freud]

My Lords, I am not alone, I know, in acknowledging the vast knowledge of my noble friend Lord Kirkwood in this area. He was, of course, chair of both the Social Security Advisory Committee and the Work and Pensions Committee in the House of Commons—I think I can say that now, if I am not pre-empting. His involvement in this important subject stretches much further than that. I welcome the probe and hope that I will be able to persuade him that the amendment is unnecessary.

The SSAC provides a valuable function and goes about its work very effectively. From my perspective and that of my ministerial colleagues, the relationship between the department and the committee is productive. We enjoy a similar relationship to the one that the noble Lord, Lord McKenzie, had. More specifically, the SSAC is currently working on a major study of passport of benefits in the light of the impact of these reforms. As my noble friend acknowledged, this is really the most significant ad hoc study by the committee that Ministers have commissioned for many years. It is a wish to look at situations in the widest possible way.

The committee’s current remit does not include the scrutiny of draft regulations made under powers recently enacted by Parliament. As my noble friend pointed out, this is for a period of six months, beginning from the commencement of the relevant enabling power. The amendment would therefore set the clock ticking from Royal Assent in all cases rather than from the commencement of the relevant enabling power. It follows that if an enabling power was commenced at a point more than six months after Royal Assent, regulations under that power would automatically be referred to the committee. I believe that that would be unnecessary. Informal arrangements are already in place in this area. As I explained when we debated Clause 1, we will continue to talk to the SSAC as we move to the implementation stage of this Bill and use the arrangements that are currently in place and that allow us to provide it with information on new powers and regulations made within six months of the commencement of those powers.

Noble Lords are aware that when the Government implement major welfare reforms, the relevant primary powers are sometimes commenced at different times, reflecting the staggered implementation process that can apply in such circumstances. Under the amendment, some of the regulations brought forward in this scenario—those brought forward within six months of Royal Assent—would not be subject to the committee’s scrutiny, but others brought forward subsequently would be, even though Parliament would have approved the primary powers applicable to the reform as a whole. That inconsistency would be undesirable and we do not believe that adding to the committee’s former role in this way would be warranted. Implementing the reforms in this Bill is an enormous undertaking.

A huge number of officials in the department are working on it, and others are working on changes to a very challenging timetable. It follows that the weight of draft regulations following the reforms would place an unreasonable burden on the SSAC if the Secretary of State were required to refer all regulations to the committee made six months after Royal Assent. That point was touched on by the noble Lord, Lord McKenzie, and I need to confirm that this is an overwhelming process, particularly right now.

I have emphasised that we already have effective informal processes in place in this area. I also believe that the application of the affirmative procedure to, for example, the first core set of universal credit regulations is another safeguard, making it less necessary to consult the SSAC on a formalised basis in respect of those regulations in particular.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 23rd November 2011 Grand Committee

[Lord Freud]

All I am able to say at this moment is that there will be transitional arrangements and help for hard cases.

[Lord McKenzie of Luton]

The noble Lord again raises the issue of help in hard cases. Can he give us some indication of what he counts as hard cases, and of which, within the potential group of people who will be hit by the cap, he would say were soft cases?

[Lord Freud]

My Lords, I am being enticed by the velvet tones of the noble Lord. I am afraid that as we build the regulations to tackle the issue of hard cases, I can only say that we are looking at transitional arrangements. I am sorry but I cannot go any further at this stage.

[Lord McKenzie of Luton]

I think that we understand that. However, does the Minister recognise the dilemma with which the Committee is faced? We have a broad framework which the Minister says gives the opportunity of reducing the cap, but we have none of the detail which is absolutely crucial to understanding how it will work and who it will impact. Without providing that he is facing the Committee with an impossible dilemma. Perhaps the noble Lord, Lord Kirkwood, is right and these clauses are irredeemable.

[Baroness Hollis of Heigham]

My Lords, it also means that the noble Lord will face a lot of amendments on Report, which he would not need to face, calling for breathing spaces or a transitional period of one year for people who suddenly lose their jobs or are suddenly exposed, at 27 or 28, to living in a single room, and so on. If he were able to give some clarity about what he proposes, he could wipe out possibly a dozen amendments.

[Lord Freud]

My Lords, I have been set a challenge and a reward. It would be lovely to collect on that, but I cannot make any further assurances.

I shall continue to speak to the amendment in the name of the noble Lord, Lord Best. Apart from the transitional arrangements that I have talked about, the underlying position is to ensure that people understand that they have to take responsibility for the decisions that they make in their lives in the light of what they can afford, and they cannot always look forward to the state stepping in to make good any financial shortfall.

I shall continue on to the more technical areas raised by the noble Lord, Lord Best, on temporary accommodation and supported and sheltered housing. The amendments provide an exemption for households to which local authorities owe a duty because they are homeless, or threatened with homelessness, and for those living in supported or sheltered accommodation. As I said on Monday, discretionary housing payments will not be included as part of the cap, but in wider terms it is too early to say how we shall treat those cases for housing cost purposes in 2013 and beyond. We are exploring options for the treatment of housing benefit for people living in temporary accommodation within universal credit and the overall benefit cap.

Noble Lords may be aware that we recently consulted on high-level proposals to change the method by which help with rent is calculated for those who live in certain supported housing in the social and voluntary sector. As the noble Baroness, Lady Hollis, indicated, there is a series of issues here. We are working very closely with local authorities, housing associations and other government departments, including the devolved Administrations, on these very issues. Our considerations will, obviously, include possible interactions with the benefit cap.

Finally, Amendment 99C, in the name of the right reverend Prelate the Bishop of Ripon and Leeds, would place a requirement on the face of the Bill for exemptions for a range of groups. These include groups that we will provide exemptions for through regulations, and others that we have already discussed during the course of our debates today. The amendment also includes an exemption for lone parents with a child under five. I have made it clear that the cap is intended to act as an incentive to work. I acknowledge that we currently do not require lone parents with children under seven to work, although we are seeking to reduce this to five, but that does not mean that we do not want to encourage them to find employment Indeed that is the very reason why we provide extra support through work-focused interviews.

Each of these amendments would undermine the fundamental principles underpinning the cap—that ultimately there has to be a limit to the amount of benefit that a household can receive and that work should always pay. I have listened carefully to the measured and detailed arguments put forward today and will take them into account when deciding on the final design of the cap. In the mean time, I urge the noble Lords and the right reverend Prelate not to press their amendments.

[Lord McKenzie of Luton]

If I may say so, several questions remain unanswered by the Minister. First, if it were established that the cost and consequences of the cap outweighed the benefits savings, would he still support and seek to introduce the cap?

[Lord Freud]

My Lords, we have done an estimate of the cost and benefits savings of the cap and we have looked clearly at the wider ramifications. The question is theoretical in practice. Clearly the message that we are trying to get over is a behavioural one much more than a cost-based one.

[Lord McKenzie of Luton]

If that is the case, and the Minister has made that point on several occasions, what does the benefit cap provide that is not catered for within the new world of universal credit? I thought that universal credit was all about merging in and out of work benefits, simplicity, making sure that work always pays and changing people's attitudes to work. That is all that the universal credit is about. How does the cap sit with that and what does it produce in terms of policy outcomes in addition to what the universal credit produces?

[Lord Freud]

My Lords, the main difference is the simple message behind the cap: in the end, there is a limit to how much the state is prepared to support someone. That is a clear and simple message that can be readily understood in a way that, however simple universal credit is, that message would not be.

[Lord McKenzie of Luton]

One accepts that it is a simple message, but I am trying to understand the policy outcomes that the Government expect to achieve from that, which are different and in addition to the policy outcomes that they expect from universal credit.

[Lord Freud]

My Lords, what we are looking at now is a three-tier persuasion towards behavioural change. We have a conditionality regime; we have a universal credit that removes the concern of many welfare recipients that if they go to work they will be worse off; and we have a specific limit on how much benefit people can actually earn. That acts as a very precise work incentive, which is a long-term work incentive.

--- Later in debate ---

[Lord Freud]

I welcome my noble friend’s support because he has expressed the argument much better than I possibly could.

[Lord McKenzie of Luton]

Is the Minister telling us that this is just an interim, transitional arrangement? I thought it was a permanent proposition.

[Lord Freud]

I return to the principle. As I understand it, this is a principle with which the Opposition agree: that there should be a limit on the amount of benefit a household can obtain. We have set that limit at the equivalent of £35,000 of earnings before tax and national insurance.

--- Later in debate ---

[Lord Freud]

My Lords, I think I am reduced to making the mainstream point that the amount that such families can look to is the equivalent of what up to half the households in the country earn, which is £35,000.

[Lord McKenzie of Luton]

My Lords, the noble Lord, Lord Best, spelled out the challenges that some 200,000 people could face. The Minister may dispute the precise numbers, but he said that we are looking at a lot of measures to make sure that it is not 200,000 people. Can the Minister explain what types of measures are involved? What sort of measures are going to alleviate the challenges that the noble Lord, Lord Best, spelled out?

[Lord Freud]

Clearly one of the most important areas of support that we can supply is helping people find work. One of the areas of support here is clearly Jobcentre Plus, and we are exploring that area pretty actively.

[Lord McKenzie of Luton]

Are we seriously saying that, whether it is 90 per cent or two-thirds of the people affected by this who, under all the other rules and constructs that the Government have brought forward, are not required to get in to work, they are going to use this as a lever to force them in to work? Is that what they are saying?

[Lord Freud]

That is one of the areas of support. If we have about one-third of families who are subject to full conditionality and others subject to partial conditionality, by which we mean moving towards work over a period, a very substantial proportion of the group can be helped into the workplace.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I suspect that we have taken this as far as we can today, but I am sure that we will return to it on Report—perhaps we should already be thinking of booking an extra couple of days for that. I have a technical question for the Minister. As I understand it, before we get to universal credit, the variety of benefits that people have will be looked at. That will go into the calculation on one side. We will compare that with the earnings comparator and the difference will be withdrawn by way of reduction of housing benefit. Is that right? So that will be administered by local authorities.

What if people are in receipt of mortgage interest support or the housing benefit element is not necessarily sufficient to cover the shortfall? What happens with all the local authorities that have outsourced their housing benefit and council tax arrangements? There are a lot of them. Have they been engaged? Presumably, there are extracontractual costs because they will be required to do things in excess of current entitlements.

On universal credit, is it likely that the withdrawal will be in respect of only the housing component of the credit or will the broader range of support that is in universal credit be subject to the clawback?

[Lord Freud]

No; we have made it clear that it would apply to housing benefit and not to other benefits. The cap will not have full coverage until universal credit comes in.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I imagine that this will be extremely brief. This is a genuinely probing amendment on a point of detail. Clause 98 covers payments on account and under the Bill there are three different legs under which those payments can be made. The first mirrors the existing provision of SSAA 1992. The second provides for payment to be made where a claimant is in need. Examples of how it might be applied apparently include where benefit has been claimed but the first pay day has not yet been reached. Regulations will provide the detail of the test of need. New Section 5(1)(r)(iii) enables the Secretary of State to make a payment on account where, again, subject to criteria set out in regulations, it can reasonably be expected to be recovered. I think such payments will replace the existing social fund budgeting loans. However, part of what this clause does is to repeal Section 22 of the Welfare Reform Act 2009, a provision which is not yet commenced.

The thrust of the question really springs from a sentence in the Explanatory Notes which says in respect of that provision that, had it been commenced,

“it would have extended the range of situations in which a payment on account could be made beyond the existing section 5(1)(r) … It would have extended making payments on account to situations similar to those that will be covered by new section 5(1)(r)(ii)”.

My question is: is there anything that Section 22 of the Welfare Reform Act 2009 would have permitted in terms of payments on account which are not now facilitated by those three legs in Clause 98? I beg to move.

[Lord Freud]

In the interests of time, I can give an assurance that there is nothing extra to worry about.

[Lord McKenzie of Luton]

Nothing extra to worry about is good enough to worry about with this Bill. I am grateful for that. Perhaps it can be dealt with in correspondence. It was a genuine inquiry about whether that swapping of the provisions precluded something which would have been allowed. I accept the noble Lord’s assurance on that. I beg leave to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 21st November 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, we have a degree of sympathy with the amendment moved by my noble friend Lord Touhig and spoken to by the noble Countess, Lady Mar, and the noble Lord, Lord Wigley. As I understand it, it goes with the grain of what the Government are seeking to do. When we debated similar issues last week, I thought the term “exceptional circumstances” was somewhat broader than a strict reading of it might lead one to conclude. Therefore, I ask the Minister to expand on that when dealing with this amendment and to say whether he accepts the proposition that there will be those with long-term degenerative conditions that are unlikely to improve.

The noble Lord, Lord Skelmersdale, makes the reasonable point that we never know if there might be medical scientific breakthroughs, but, as my noble friend said, these matters could always be revisited. It seems to be important to try to give some comfort to people whose condition is sadly not going to improve. What is the purpose of bringing them in simply to pile stress on to their lives and use resources that could be deployed elsewhere?

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

My Lords, we think it is right that an individual’s benefit entitlement is based on the degree to which he or she is participating in society. This level of participation can vary as health conditions or impairments improve or deteriorate, their impact changes or individuals adapt to their circumstances. We want the benefit accurately to reflect relevant changes in circumstances to ensure that people receive the right level of support. The 2004-05 national benefit review found that about £630 million a year of DLA is overpaid as a result of unreported changes in circumstances. This cannot be right. However, it is equally about ensuring that, when people’s circumstances deteriorate, the benefit keeps track with them.

The same study estimated that around £190 million of DLA is underpaid each year—vital money that is not reaching the people for whom it was intended. There is no one-size-fits-all answer; our approach will involve a combination of awards that, in some cases, will be fixed for a short time and in others will be longer term, depending on the individual, the impact of their disability and the extent to which they are able to live independently. In many circumstances, this can change for better or indeed for worse during someone’s lifetime, and this will be different for different people. We think that an active management regime that involves planned reviews is the most appropriate way of responding to this.

However, it is important—and on this I feel we agree—that we do not undertake inappropriate or unnecessary assessments and interventions where there is unlikely to be a change in award. Key to this is ensuring that decisions on award duration and interventions are evidence based. Here I refer back to comments I made during the debate on the noble Lord’s previous amendments. In PIP assessment, we want to get the best mix of evidence from a variety of sources. This will be partly about what the claimants tell us about themselves, partly what can be gathered at face-to-face consultations and partly what we can obtain from relevant people who support them. Moreover, as I said, we want individuals to tell us who is best placed to advise us on these matters.

Therefore, I think we are fundamentally in the same place as the noble Lords and the noble Baroness. The one key difference is that we do not think that an individual’s type of health condition or impairment matters—for example, whether or not it is a lifelong condition; what matters is the likely impact of the condition going forwards and whether it is likely to affect benefit entitlement. Conditions and impairments—even ones that are usually degenerative—can affect people in very different ways. That is why we want decisions on award durations to be based on individual circumstances following consideration of all the evidence of the case.

--- Later in debate ---

[Lord Freud]

Yes, my Lords. That is what I said and it has not changed. Noble Lords might be reassured by the fact that, even where awards are fixed term and periodic reassessment is required, this does not have to be burdensome. As I have just said, in some cases the assessments will involve scrutiny of paper evidence only and will not require a face-to-face consultation. This will especially be the case where there is considerable supporting evidence on which to base decisions. Conditions or impairments which are life-long and/or degenerative are particularly likely to have such supporting evidence.

We will provide guidance on the duration of an award, including when an ongoing award would be appropriate and with what frequency that award would be reviewed. We are committed to developing the duration assessment in consultation with disabled people and their representatives to ensure that we get it right. We recognise how important this is to ensure that the process of deciding award durations remains both fair and transparent.

I should also like to tackle a misconception that seems to have built up in relation to this issue—that is, that there will be a requirement for everyone to be reviewed on a yearly basis. This is simply not true. While some people will receive one-year awards where their circumstances warrant it, the vast majority of awards are likely to be longer than this, with some being much longer and some indefinite.

I hope that I have reassured noble Lords that we are in the same place as them on this issue. We want award durations to be based on individuals’ circumstances and the likelihood of change; we do not want unnecessary reviews or assessments; and we want decisions on these issues to be based on the best evidence, including that from the professionals involved in supporting claimants. On that basis, I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

Can the Minister clarify one point? He said that some awards might be long- term and some short-term. Can he give us an inkling as to the department’s thinking about that spectrum and what long-term awards may mean?

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of these amendments, which I think I understand and accept. I wondered at first when I saw them whether we had done something to upset Treasury Ministers, and they no longer wanted to come before us. To be clear, we have provisions in here relating to tax which we are simply moving out of the Bill because they are going to go back in a Finance Act. If they remained in the Bill in their current form, would that in any way invalidate them? There might be a procedural issue that has gone awry in this case, but I am still a little unclear as to why it is necessary in the event, given that those provisions are there, they could not remain.

More importantly, I am anxious that if these provisions come out of this Bill, there is certainty that they will end up in a Finance Bill. Can the Minister give us any assurance as to which Bill that is likely to be and what processes, given the oversight that we dealt with a couple of Committee sittings ago, there are in place to make sure that these are followed through and put into effect?

[Lord Freud]

When you look at these detailed measures, which is something that I do not encourage anyone to do who wants to retain their sang-froid, you can see that they are closely associated with taxation and trust funds. It is much more coherent for them to be dealt with in a Finance Bill or another finance Act rather than one dealing with welfare reform. That is simply the reason, because it means that if you restructure a piece of tax trust law, you can do the whole thing in one, rather than having to go to different Acts. That is the reason.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, these are useful probing amendments to understand fully what is happening or proposed in respect of this group of young people. I imagine that the Minister will say that, as the Bill stands, there are already powers to make regulations as proposed for 16 to 24 year-olds, but it is an opportunity to get something on the record. We certainly support the thrust of this and the needs for regulations that are affirmative—not just the first set. I think that we will hear from the noble Lord, Lord German, on that in a moment.

The age 16 already has ramifications in the DLA system. Below that age, young people cannot qualify for the lower-rate care component via the cooking test, and there are additional tests for the lower-rate mobility test. So there is already a potentially stressful transition under DLA that could be compounded with the transition to PIP. The figures that have been mentioned are that over the next three years 173,000 disabled children will turn 16. If they have to seek or apply for PIP immediately, that is a big challenge. There was a hint in the other place when this was debated that that would not necessarily be the case and that, in the scheduling of young people in this age group, they would go directly on to PIP. Perhaps we can have the Minister’s reassurance or an update on that point.

The briefing note that we got from the DWP sets out the work undertaken to date, seeking to base the assessment on the education health and care plan that is being developed across government, which we would support. But I am not quite sure how it fits together on timing, particularly over the next couple of years, with PIP being relatively close by and due to be with us shortly. Can the Minister confirm to us the process of assessment for young adults and say what the likely migration process is? What happens to 16 year-olds who are on DLA at the point when PIP is introduced?

[Lord Freud]

My Lords, I am grateful to the noble Lord, Lord Patel, for tabling these amendments and to the noble Baroness, Lady Sherlock, for moving them in his absence. The amendments allow me to set out the Government’s position on how we will deliver PIP effectively for young disabled people in a way that is sensitive to their needs. Noble Lords may be aware that the Government published a briefing document that specifically considered the position of young people. The briefing document set out some of the main insights that we have learned from them and their representatives, which are informing our design work.

Let me be clear from the outset. I know that there are particular issues and sensitivities when dealing with disabled young adults at what can be a particularly challenging period of their life. That is why we have been working closely with people aged 16 to 24 and their representative organisations in order to understand how we can ensure that the benefit is administered in a way that best meets their needs. Two main considerations that young people have raised with us are: whether 16 is too young an age to begin the process of moving from DLA to PIP; and making sure that the transition arrangements for moving on to the new benefit are easy to understand and transparent—the role of advocates and information needs, for example, being particularly important.

Under current arrangements for DLA, the child-related rules fall away at the age of 16 and the entitlement conditions to the care component are extended. The age of 16 therefore forms a natural touch-point to re-examine entitlement and take young people through to entitlement and receipt of DLA in their own right, where that is appropriate. Paying young people directly gives them direct control over how the benefit can enable them to live independent lives. It is our firm belief that the principle of giving individuals control over how they can tackle the barriers to their independence should be brought forward into PIP.

In developing our proposals for PIP, we know that there are particular issues that we need to address concerning its delivery to young adults. For example, young disabled people can expect to go through a number of assessments as they move from childhood to adulthood, and many of them will require varying degrees of support to negotiate those assessments. That is why we will ensure that all young people who claim, or transition on to, PIP will have the appropriate support to allow them fully to express their needs. This could be, for example, by allowing a parent, advocate or friend to accompany them to their face-to-face consultation.

We are fully involving young disabled people and their representatives as we design and build the delivery mechanisms. For example, we are working with user-led organisations through the PIP implementation development group, which is made up of a wide range of organisations including those that represent young people. We have also begun work with focus groups and have conducted one-to-one interviews directly with young people, appointees and their representatives to inform both the way in which PIP will be delivered and the transition arrangements for those moving from DLA to PIP.

As I mentioned, the transition from childhood to adulthood brings with it numerous assessments at different ages. We are therefore also working across government, in particular with the Department of Education, to see what more we may be able to join up and share information with the proposed single assessment process for education, health and social care. This means, for example, that if an individual is still in education or training, exploring whether we may be able to use evidence from special educational needs assessments or information from the school or college to inform the determination of a PIP claim. But we need to look carefully at this so that we get the right balance between not overassessing someone and having an approach that is too general to identify a person’s specific needs. My officials are therefore working closely with officials in the Department of Education so that we get this right.

To ensure transparency, credibility and a smooth transition from DLA to PIP, we know that we will need to build in processes, with appropriate information and engagement, that let young people and their families know what to expect and understand what they have to do. Our intention is to ensure continuity of payment, with no gap between DLA ending and PIP starting when an individual makes a claim and subject to their meeting the eligibility conditions. We are continuing to consider how the detailed rules should work and, as with all the changes that we are making, we will continue to involve disabled people and their representatives in the design.

--- Later in debate ---

[Lord McKenzie of Luton]

Could the Minister clarify a point? I apologise if I have missed this. In the case of someone who at the moment is under 16 and on DLA, if they reach the age of 16 before PIP is introduced, will they undergo the normal reassessment to adult DLA? If they reach 16 after PIP has been introduced, will they automatically go through the PIP process, or could they potentially stay on the DLA adult process for a period, whatever that may be?

[Lord Freud]

My Lords, we have not done a detailed migration strategy. When people are effectively on adult DLA, even though they have transitioned from child DLA, we will have to work out the exact timings for when to take them. We do not have those precise details yet.

[Lord McKenzie of Luton]

I am grateful for that. The Minister will see that the issue that that highlights is the one that was probed: if people reaching 16 are going to go straight on to PIP, given what is going to happen with the number of young people achieving the age of 16 over the next couple of years, they are in large measure going to be first through the gate for PIP. That was the concern.

--- Later in debate ---

[Lord Freud]

My Lords, these amendments seek to increase the amount of welfare benefits that households which are out of work will be able to receive to above the level that we have said we will be introducing for the new benefit cap. Before I speak to the specific points that they raise, I need to make it clear that the coalition Government believe that there has to be a limit on the overall levels of benefit that it is appropriate for the state to provide to those who are not working. Indeed, I understand from the comment of Liam Byrne MP in yesterday’s Observer that this is also the position of the Opposition. Perhaps the noble Lord, Lord McKenzie, will be happy to confirm that.

A welfare system that provides payment at unrestricted rates ultimately serves nobody—not those paying taxes to fund it and often not those it traps in welfare dependency by providing little or no incentive to move off benefit and into employment. It is important that the benefits system is fair and is seen to be fair. We do not believe that it is appropriate that households getting out-of-work benefits should receive a greater income from benefits than the average weekly net wage for working households.

We believe that the cap for lone-parent and couple households should be around £500 a week, which is the level of median household earnings. This is the equivalent of a net salary of £26,000 per year, or a gross figure of £35,000 per year. There will be a cap of around £350 per week for single-adult households. Therefore, even within the limits of the cap, households will still be able to receive significant amounts of financial assistance from state welfare payments—an amount equal to the median national wage without going out to work. To make that explicit, it is the equivalent of what more than half the households in the country are earning.

The right reverend Prelate’s Amendment 99ZA and several of his other amendments seek to differentiate and improve the position of families with children in the way that the cap is calculated and applied. I acknowledge that, because of in-work benefits, there will be some working households that earn at the level of the average weekly wage whose total income will exceed the level that we are setting for the cap. However, we believe that work should always pay more than out-of-work benefits. That is one of the driving principles of the Bill and at the heart of our welfare reform.

When we introduce the cap, we intend to use a method that looks at median earnings after tax and national insurance for all working families, which will strike the right balance between providing support for families, promoting fairness between those out of work on benefits and those in work and, crucially, ensuring that there are clear financial incentives to work because work is the best route out of poverty. The benefit cap provides a clear, simple message that there has to be a maximum level of financial support that claimants can expect the state to provide. The aim of this policy is to achieve positive effects through changed attitudes to welfare, responsible life choices and strong work incentives. People must be encouraged to take responsibility for their decisions in light of what they can afford. I accept that a case can be made for making the estimate in a variety of ways. However, I should make it clear that the clause would provide us with flexibility, should it be necessary in future to adapt how we estimate average earnings if it is felt that we are no longer achieving the correct balance.

I will address Amendments 99ABAA, 99AC and 99ACA together, as they are all concerned with housing-related benefits. Each of these amendments would undermine the fundamental principles underpinning the cap—that, ultimately, there must be a limit to the amount of benefit that a household can receive and that work should pay. It is not right that some families on benefits have been able to live in homes that most working families could not afford. With the introduction of the cap, people receiving benefit will have to make the same choices about their housing that people who do not get benefit make.

The noble Lord, Lord Best, raised a point about whether the cap will force families to move. It will not necessarily mean that people need to move but they will have to make the same choices about affordability as those in work. While some may well choose to move, there are a number of ways in which they might be able to meet any such shortfall, such as moving into employment, trying to negotiate a reduction in their rent—I accept the noble Lord’s point that in some cases that may not be possible—and meeting it from other income or capital. The Government are looking at ways of easing the transition for families and providing assistance in hard cases. We recognise that there are households for which it would be inappropriate to restrict the amount of benefit that they can receive. We have announced the groups that we intend to exempt and will discuss these groups further as we move on to the next debate.

The noble Lord, Lord McKenzie, asked about childcare—specifically whether those working a small number of hours will be eligible for support for childcare costs through the universal credit. I confirm that support for childcare through the universal credit will not be affected by the cap.

[Lord McKenzie of Luton]

Could the noble Lord clarify whether he is saying that it will not be included in the total of benefits that is judged against the cap, or whether it cannot be withdrawn from that component of the benefit?

[Lord Freud]

It is the former. It may be helpful if I explain now that we feel that the best way to support these households is to exempt them completely from the impacts of the cap, rather than attempt, as these amendments do, to alter its design to accommodate their particular circumstances. For the groups to whom the cap applies, this measure creates a very strong incentive to work. The most effective way of smoothing transition will be to engage closely with those families likely to be affected by the cap in the year before it is implemented. We are having initial discussions with local authorities and will provide them with guidance on the implications of the caps so that they can take account of this when working with affected households, especially those affected by the LHA cap.

On the council tax benefit question, I confirm that we are looking at the implications of localised support for council tax, including the implications of decisions taken by the devolved Administrations.

--- Later in debate ---

[Lord Freud]

Regrettably, yes, it may or it may not. That will depend on how we reach our design by taking in the implications of localised support. I cannot design a system on the spot when we do not know several of the components, but we have the powers here to take that into account and we are planning to do so.

[Lord McKenzie of Luton]

Will discretionary housing payments be included as benefits for these purposes?

[Lord Freud]

They will not be included. Moving on, with regard to the couple penalty, we should not assume any automatic link between the benefit cap and family breakdown. One of the key drivers of family breakdown is long-term unemployment, which puts considerable pressure on vulnerable families. One of the most supportive things that we can do for these families is ensure that work always pays and that the transition to work is as smooth as possible.

The benefit cap is intended to support our new universal credit, which will improve the incentive to work and the level of support for many low-income families, especially couples with children in rented accommodation. At the same time, we will also look to offer additional support through Jobcentre Plus. This would include working with local providers to support claimants with budgeting and the management of their housing costs, and encouraging families affected to engage with more employment support, particularly the work programme. We have always made clear that we would look at ways of easing the transition for families and providing assistance in hard cases.

Picking up the remarks of my noble friend Lord German, where he read from a putative letter—

--- Later in debate ---

[Lord Freud]

Putative is a good word. The figures to which he was referring came from internal modelling from the Department for Communities and Local Government which had not been externally validated. That analysis was out of date, having been produced in January and before we announced that we were looking at transitional arrangements for dealing with particularly hard cases. It is not possible to predict robustly the effects of this policy on homelessness as we cannot anticipate the resulting behaviours of tenants or their landlords. We will think carefully about all these matters, but the clause is drafted so that we have all the powers we need to ensure, through regulations, that the cap achieves its purpose in the fairest way possible.

Picking up the question of the noble Lord, Lord McKenzie, on the devolved Administrations, under Clause 93(9) we will be able to reduce only payments that are the responsibility of the United Kingdom Parliament. No payments that are within the legislative competence of the Scottish Parliament, the National Assembly for Wales or the Welsh Ministers will be reduced by the cap.

[Lord McKenzie of Luton]

I understand that; I have read the clause. I was trying to understand what might be included in the items that cannot be capped in Wales and Scotland.

[Lord Freud]

Such payments could, however, be taken into account when determining whether the cap itself should apply and whether the non-devolved payment should be reduced. Presently, we expect the cap to apply to housing benefit and ultimately to universal credit, which are the responsibility of the UK Parliament.

The next, or rather the last, question put by the noble Lord, Lord McKenzie, was on whether the Government accept that there would be an increased burden on local authorities as a result of this measure. The impact assessment recognised that there could be a cost to local authorities in connection with temporary accommodation. That is why we intend to work closely with local authorities on the implementation of the cap.

[Lord Freud]

My Lords, the principle, as noble Lords will know, is that the grants to particular local authorities reflect the number of people living in those authorities. Therefore, there is an automatic adjustment process. I accept there are some timing issues if there are sudden movements, but the DWP is talking very closely to DCLG about these practical implementation matters.

I come to an end with this question. As I understand it, certainly the parties in the Committee—I am not sure whether that covers all the Back-Benchers—are all signed up to the principle of the cap. We believe that the cap is the right approach. In the light of these comments, I hope that the right reverend Prelate and the other noble Lords will withdraw their amendments.

[Lord McKenzie of Luton]

My Lords, I thank the Minister as ever for his detailed response but there are still a few questions left unanswered. I can confirm that he correctly sets out the position of the Labour Party in respect of the cap, but we want to see something that is evidence-based, properly analysed and fair to people. This is our great concern with what is on the table at the moment. The Minister did not deal with the analysis of the 50,000 households to be affected by this and the extent to which they are in a group which is subject to full work conditionality. If a big thrust of this is to look at work incentives but it then applies only to a minority of those people, where does that leave the policy?

[Lord Freud]

I think that we have a scattering of figures in this area. It is a minority, which I think is around 10 per cent. If the noble Lord is after a detailed response, I ought to offer to write on that matter if it would be satisfactory to him.

[Lord McKenzie of Luton]

That would certainly be satisfactory but even if that 10 per cent estimate is roughly right, it means that 90 per cent of the people who will be affected by this cap are under no obligation, under the Government's policies, to have full work conditionality. How does that square with the big thrust of this being about work incentives? I should also like to follow up on another point which the Minister did not touch upon: the profile of those, again within that 50,000, who would be tenants and paying rent of one sort or another. Is it the case that a significant proportion of that 50,000 are tenants of social landlords, RSLs or councils?

--- Later in debate ---

[Lord McKenzie of Luton]

I am sorry to press the Minister but, for us, the percentage of people affected by the cap who might be tenants of social landlords is a hugely important issue. I accept that the information has been updated but perhaps he can at least confirm the original estimate. Does he not understand that it is impossible for those people to get lower-cost housing? Generally you cannot get housing that costs less than social housing, so what are those people meant to do?

[Lord Freud]

The best I can say is that according to the current published impact assessment roughly 70 per cent of those affected are in social housing. However, the direction of travel of those figures in the new assessment is downwards, although I do not know by how much.

--- Later in debate ---

[Lord Freud]

As to the first question asked by the right reverend Prelate on where all the people in social housing have gone, the situation is, to be honest, probably nothing more than a result of greater depth of analysis. I do not think that there is any real movement there but, as we have homed in and obtained more information, that is our understanding.

On his second question, the interesting reality is that childless couples have higher earnings than couples with kids. Perversely, therefore, having a differentiation based on what actually happens would have the opposite effect to the one that I imagine the right reverend Prelate wants. That is the point. It is not a useful approach because it would do exactly the opposite.

[Lord McKenzie of Luton]

My Lords, is that right? It might be right if you are looking at earnings, but if you are looking at income, which was part of the proposition, it might not be the case.

[Lord Freud]

I very elegantly have a wonderful piece of paper to hand. On the median, it works for total income—all gross and net household income—and it works for the mean. I can give noble Lords all the figures but it would bore them.

[Lord Freud]

I am sure that noble Lords probably have them at their fingertips anyway. They are meant to be accessible figures, but if noble Lords would like some help and for me to use up another Scandinavian forest, I will circulate them. I will put them in an e-mail instead. That would be cheaper.

[Lord McKenzie of Luton]

I am sorry to come back to this but there are still some unanswered questions. I do not think the noble Lord dealt with the definition of “in-work” and when the cap will apply. Is the threshold set at 16 hours, as it is for working tax credit at the moment? How will that change from April? I think for couples there is a joint requirement for 24 hours a week, rather than 16. How will that all work?

[Lord Freud]

That is a matter that we will look at very closely. We want to encourage work and one of the main aspects of universal credit is to encourage smaller amounts of work. We will look at that issue very precisely.

[Lord McKenzie of Luton]

In which case, I have one final question. In relation to homelessness, I asked whether we might have a detailed note setting out all the obligations of local authorities when people present as homeless or when they are evicted.

[Lord Freud]

I will be happy to do that.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 16th November 2011 Grand Committee

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

My Lords, if I may intervene briefly, I promised on Monday to provide some timetabling indicators of provision of information about entitlement thresholds for PIP and passporting arrangements for carers. I am happy to confirm our intention to provide entitlement thresholds for PIP and information on the likely impact of these ahead of the consideration of this part at Report stage.

Noble Lords will wish to be aware that we are looking carefully at the interaction between universal credit and carers’ allowance. In the interests of providing a smooth taper of benefit provision as carers return to work, a carers’ element is included within the universal credit structure, which of course removes the cliff-edge effect. That is why we have done that. In order for noble Lords to have the fullest possible picture of provision for carers as we debate universal credit, I will also aim to provide more information about the passporting arrangements from PIP to carers’ allowance prior to the start of Report stage. Thank you for your indulgence.

[Lord McKenzie of Luton]

I thank the Minister for that statement. It is very helpful in being able to schedule and make progress on Report.

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[Lord McKenzie of Luton]

My Lord, this is an important group of amendments which addresses aspects of the assessment process. As we have heard, some of the underlining concerns which the amendments seek to address are drawn from experience of the work capability assessment and the difficulties which this has created for disabled people. They all raise points which deserve our support, although I expect the Minister will say that, at least in part, they can be covered in regulations. To the extent that he does so, I hope the noble Lord will take the opportunity to put clearly on the record how each of these matters will be addressed.

The noble Baroness, Lady Grey-Thompson, cited WCA examples to emphasise the importance of evidence from the claimant’s healthcare professionals being part of the assessment process, with the obligation on the DWP to organise this. Notwithstanding that we now have a bio-psycho-social model and that the condition or impairment that an individual has may in some cases be of limited value in assessing an individual’s ability to participate in society, this will not always be the case, and there is a clear risk that without it the assessment could be significantly adrift. A process which does not incur the kind of charges which individuals face, to which the noble Baroness, referred, is important.

The amendment of the noble Lord, Lord German, concerning advocacy is also to be supported. As he acknowledged, the explanatory note to the draft assessment criteria is clear that an individual will be able to bring a friend or advocate to a face-to-face consultation. The implication is that such a person could be there to help with the process and not be just silent company. Indeed, I believe that was confirmed by the Minister in the other place when the matter was raised there. Presumably training for staff will enable assessors to sort out advocates who are trying to lead individuals. Claimants must be entitled to know that there is a right for them to be accompanied.

On Monday, my noble friend Lord Touhig gave a clear example of how this could be important. He raised the example of when someone was asked about a bus journey and gave an answer, which of itself would have been extremely unhelpful and misleading to the assessment process. Having an advocate there to help with that explanation would have been hugely important.

The noble Lord, Lord Addington, is a consistent advocate for those with autism and I have no doubt that his plea that those undertaking assessments should be properly trained in mental, intellectual and cognitive disorders will be supported by the Minister. Can the Minister confirm that this will be the case for decision-makers? Perhaps he can also say what is the planned position in respect of access to specialists, which is another key component of the noble Lord’s amendment.

It is understood that the department has recently begun a tendering exercise for the assessments to be undertaken by a third-party supplier. Will the Minister say what specifically is being sought in respect of access to this type of expertise? Presumably, the specification has been developed at this stage. Therefore, can he also tell us what that specification indicates in respect of the numbers, the likely volume of face-to-face assessments and the numbers of likely exceptions to those face-to-face assessments? Perhaps he can also say something about the overall numbers. When this issue was debated in another place, reference was made to the prospect of some of the assessments being able to be undertaken at home—a more comforting and aware environment for some claimants. Perhaps the Minister can update us on this and also say how it is being dealt with in the specification.

We had a number of detailed and knowledgeable explanations from those concerned with autism, including from my noble friends Lord Touhig and Lady Healy and again, this afternoon, from the noble Lord, Lord Wigley. Their amendments seek relief from face-to-face assessment in certain circumstances where there is sufficient medical and other evidence on which to base a clear judgment. The challenges which face-to-face interviews can present for individuals with an autism spectrum condition were graphically described by my noble friend Lady Healy. She said that it is not just the nervousness or anxiety that is experienced at the approach of a difficult event, but dread and terror. The Minister demonstrated sympathy with this point of view at Second Reading. We hope that these amendments will enable him to say a little more in support of that proposition.

[Lord Freud]

My Lords, I would like to start by responding to the noble Baroness, Lady Grey-Thompson, on her Amendment 86ZZZUA. Obtaining the right evidence for assessors and decision-makers will be a key part of the assessment process for personal independence payment, enabling us to make the best decisions regarding an individual’s claim. Such evidence might come from a range of sources, but in particular from the healthcare professionals involved in supporting disabled people on a regular basis. This may sometimes be the individual’s GP, but in other cases will not be. Many individuals, particularly those with longer-term conditions, may not have not seen their GP for some time and another professional might be much more relevant. This is why we want individuals to tell us who we should be seeking evidence from, as they will know best.

We will encourage individuals to provide this evidence to support their claim or, if they cannot, to let us know who it would be best for us to approach directly. We do not wish to create a two-tier system, as feared by the noble Baroness. However, I do not necessarily think that we need to gather such evidence in every case. In some cases what the claimant has already told us, or provided alongside their claim, will be sufficient. In other cases, information from a health professional might be likely to add only limited value. We must remember here that what the condition or impairment is, or its severity, is often not critical in the assessment; it is the impact of it that matters. The gathering of additional evidence should be decided on the merits of individual cases.

The noble Baroness referred to learning from the work capability assessment used in employment and support allowance. Although it is important to be clear that ESA and personal independence payment are very different benefits paid for very different reasons, we are seeking to learn from the experience of delivering the work capability assessment. As part of this we are looking closely at the findings of the independent review of the assessment carried out by Professor Malcolm Harrington to see where we can improve the design of the personal independence payment claim and assessment processes. For example, we recognise the need to ensure that these processes are empathetic, that we gather the best possible evidence and that assessors are given the training and support they need.

I turn now to the amendments tabled by the noble Lord, Lord Touhig, and the noble Baroness, Lady Gardner. Evidence will also enable us to make the best decisions about how an individual's claim should be dealt with, including whether a face-to-face consultation is necessary.

We recognise the importance of the assessment process being carried out sensitively and proportionately. We have made it clear that we believe that face-to-face consultations should form part of the claim process for most individuals. Consultation will play a key role in creating a fairer, more objective and transparent assessment, providing individuals with the opportunity to put across their views on how their impairment affects their everyday lives.

However, where there is already sufficient evidence on which to make a decision on entitlement, we completely agree with noble Lords who argue that a face-to-face consultation should not be required. In such cases, entitlement would be considered on the basis of paper evidence only, and we have the flexibility in legislation to allow for that.

In doing so, we are ensuring that we will have a tiered assessment—as recommended by the National Autistic Society, and referred to by the noble Baroness, Lady Healy and the noble Lord, Lord Wigley—a process where we consider evidence provided by the claimant first, then any additional evidence gathered and then carry out a face-to-face consultation only if needed.

However, we do not agree that there should be different rules or processes for different groups of people, and especially not on the basis of impairment type. Exempting individuals from the face-to-face consultation on the basis of their impairment would undermine one of the key principles of the new benefit, which is to treat the individual as an individual. The noble Lord, Lord Touhig, argued the point well when he said that when you have seen one person with autism, you have seen only one person and that no two people with autism are the same.

The only exception to that principle is where individuals are claiming under the terminal illness provisions, whom we will not expect to attend face-to-face consultations. I am sure that all noble Lords will accept the need to make an exception under those circumstances.

Picking up the point made by the noble Lord, Lord Wigley, on the frequency of reassessments, we will take a personalised approach to setting the length of awards, varying the frequency and formats of awards and reviews depending on the individual’s needs and the likelihood of the impact of their health condition or impairment changing. Some people will have short-term awards; others longer; and some will receive ongoing awards. It is also important to state that reviews may not always necessarily involve face-to-face consultation. We recognise that it will be important to ensure that the review process is applied sensitively and appropriately.

Having discussed the need for face-to-face consultation, I feel that this is an appropriate juncture at which to turn our attention to my noble friend Lord German’s amendment regarding the attendance at a face-to-face consultation of a suitable person alongside the claimant. We appreciate that some individuals will be able to participate in a face-to-face consultation only with the additional support of someone whom they know and trust. It has always been our intention that individuals should be advised that they can bring with them another person—be it a relation, friend or professional who supports them—in order to help them or to remove any anxiety that they may feel in undertaking a face-to-face consultation. Indeed, the Minister for Disabled People made that exact point during debate in the Commons. That will apply to all claimants.

I agree with my noble friend that the suitable person should not just be a bystander to proceedings. They should be able to play an active role in supporting the claimant and ensuring that they understand the assessor’s questions and requests in order to help them to answer them on their own. Where the claimant is not able to speak for themselves as they should, with the claimant’s consent, they should be able to engage with, and respond to, the assessor directly to ensure that they are provided with the necessary information—particularly in the context of all of our concerns with the community on the autistic spectrum. I hope that that reassures my noble friend and noble Lords more generally on this critical point.

This important measure does not need legislation. We have already made a clear commitment to it and are building it into our processes, guidance and within the commercial framework with the successful assessment supplier.

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[Lord McKenzie of Luton]

My Lords, a compelling case has been made for a trial period before the system goes live in its fullest extent. When this was debated at the other end there was some debate around the difference between a pilot and testing, and what that meant in government legalese. The proposition seems very clear: we want to see it working in practice before it is more widely available, for all the reasons that have been advanced by noble Lords about confidence, which I link with the issues of co-production, value for money and testing the capacity of providers. If it is to be meaningful, this would have to be done together with whoever will end up being the provider. It could not be done just with DWP staff, with providers coming in later. We acknowledge what is clear from the documentation we have: there has been an enormous amount of testing and engagement to date. However, that is not the same as or a substitute for having the final subject of the trial criteria in place and knowing where the thresholds are.

The amendment says that the trial period should be in respect only of those new claimants. I wonder quite why we are adopting that cut-off point. Is there not also going to be an issue for existing DLA recipients who have to go through the process and how that is handled, with all the communications and sensitivities around that? In particular, I think we know there will be some who are in receipt of DLA at the moment who will go through an assessment process and not be able to end up on PIP. I would be interested in the noble Baroness’s view on why she has pitched it at just new claimants, rather than people currently on DLA who will have to, in a sense, be recycled through the new process.

I want to make a point about capacity as well. We do not know who the new providers will be. Certainly, if they can earn the sums that my noble friend Lady Wilkins referred to, you would think that there should not be a capacity issue—certainly not in terms of numbers. However, I recall an instance a couple of years ago when, for industrial injuries benefit, the condition of miner’s knee was recognised as something that had to be compensated. Trying to pull in capacity to get those assessments done was, frankly, the devil’s own job because the existing providers did not have enough people to help out, certainly not in the timeframe that was wanted. Although, in a sense, the system will not be fully up and running even in that one-year trial period, this seems to be an important opportunity to test that capacity—not only in terms of the numbers but the processes and how people are being dealt with, and the levels of expertise that we expect to be available. This is a real opportunity to try it.

One thing that strikes me—it has been part of the whole debate over this Bill—is how pervasive the problems with the WCA are right across the spectrum. If we knew when that was introduced what we know now, there would have been much more careful testing of it, as is requested and sought by this amendment. Therefore, I do believe it is important to see how it is happening in practice before it is rolled out more widely, whether that is over one year or a different period.

[Lord Freud]

Let me take each of the noble Baroness’s amendments in turn. On the trialling of the assessment, I am sure that noble Lords are aware that it is possible to test out and evaluate the assessment process without trialling it. There is, indeed, an advantage to testing over trialling, because the former can be done without affecting an individual’s entitlement to benefit.

The noble Baroness will be aware of the testing we undertook throughout the summer with more than 900 disabled volunteers, and the informal consultation that took place alongside it. Both were very effective, and allowed us to review, revise and improve the draft assessment criteria from the draft published in May to the draft with which noble Lords have recently been provided. We are now seeking further views on that.

For our testing, using independent experts has demonstrated that our proposed approach to assessment is both reliable and valid. This testing included individuals on the autistic spectrum. This is not the end of the matter, though, as we believe the development of the benefit processes, including the assessment, should be and will be an iterative process. Therefore, in addition to testing of the assessment, we have created a specific development group to engage with a broad spectrum of disability organisations, to understand their views on a range of issues related to the delivery of the benefit. We have also created a number of customer research panels made up of groups of disabled people who share similar characteristics. We will seek to test our processes in a model office environment, allowing us to see how they work without affecting individuals. These processes will be vital in helping us gather insight first-hand from individuals on whom the process may impact.

Turning to the independent review of the trial referred to in the amendment, I first state that I do appreciate the importance of such reviews, and will talk about that in more detail later. However, undertaking this after only one year of operation would not provide adequate time for the assessment process to bed in. It would not allow enough time for sufficient data to be captured, as it requires people to go through the full claims process in this time, and there are inevitable lags in the production of statistics. Any subsequent analysis would therefore provide an unrealistic impression of how the benefit was operating.

There are, of course, other means by which we seek to evaluate and improve the operation of the new assessment. The assessment and its associated process will remain living tools, and we will continually carry out internal evaluation work to monitor their performance. We will therefore not have to wait for the outcome of the independent review to learn from and take action based on operational and individual experiences.

The second element of the noble Baroness’s amendment is the involvement of disabled people’s organisations in the assessment process. Let me assure the noble Baroness that we have involved disabled people’s organisations in the development of this policy from day one. We are trying to approach this work in a co-produced way, seeking the views of disabled people and their organisations at each stage. I have mentioned in earlier debates that our assessment development group comprises members of Equality 2025 and Radar. Both have provided critical support, direction and challenge throughout the process of developing the assessment criteria.

We also held a 16-week informal consultation on our initial draft of the assessment criteria, which sought the views and opinions of disabled people and their organisations. This process helped us to revise the initial draft assessment criteria and develop the second draft, which has lately been made available. Most of the changes that we have made have been as a direct result of the input of disability organisations. We are now seeking views on the second draft and, importantly, the proposed weightings, before we reach any firm views on the entitlement thresholds. We then intend to carry out a full consultation on the entire assessment criteria, including the weightings and thresholds.

Equally, we are involving disabled people and the organisations that represent them as we design the operational processes for personal independence payment. To achieve this, we have created a dedicated working group specifically for this purpose. The group’s membership has been drawn from a wide number of national and grass-roots, user-led organisations, and it is currently working with us on a range of operational issues. We also see disabled people’s organisations playing a key role in the delivery of the new benefit, helping to inform individuals and guide them through the process. This could include assisting them in making claims, providing evidence to help support their case and/or attending assessments with them to provide support and reassurance. We are undertaking work to strengthen and expand our partnership arrangements with local organisations that represent disabled people and ensure that they have all the relevant information about PIP.

Meanwhile, there is nothing in the legislation to prevent disabled people’s organisations being involved in the delivery of assessments. The key for us is ensuring that, regardless of which organisation or organisations deliver the assessment, they have the capacity to do so, and that individual assessors have the requisite skills and experience. Disability organisations have been free to participate in the procurement exercise for the assessment, which is now under way, either as prime contractors or as partners of such organisations. Whatever the outcome of this exercise, we will ask the assessment provider to work with disability organisations and seek their input, so that we can deliver the best possible service to claimants.

The final element of the noble Baroness’s amendment is intended to ensure that individuals whose condition is unlikely to change over five years should not have to undergo an assessment more often than once every five years. We will discuss this issue in more detail in a later group of amendments. However, we know that disabled people’s lives are varied and that health conditions and impairments affect people in many different ways. As I have said before, we therefore do not feel it would be appropriate to make blanket rules for particular groups of people.

Under personal independence payment, we want individuals’ treatment to be tailored to fit their personal circumstances. This includes our approach to award length and review date, which should also be personalised. Such an approach would be able to take into account the likelihood of the impact of an individual’s health condition or impairment changing. We know that for some people a shorter-term award might be appropriate. For others, a longer-term award might be appropriate, while, for those with the severest disabilities, an ongoing award might be right. We absolutely do not want unnecessary reviews of claims, both to reduce the impact on individuals and to ensure that we do not waste money.

The noble Baroness, Lady Wilkins, raised the question of the overall cost of delivering DLA reform over three years. This was included in the 2010 Budget Red Book at £675 million.

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[Lord Freud]

My Lords, I am very happy to reflect on that rather interesting point. I will go back and think about that very hard.

[Lord McKenzie of Luton]

I wonder if the Minister just could deal with this point also. In his response he explained—and I think we would accept—that a lot of testing, engagement and assessment is going on. That is what you would expect of the noble Lord. However, what it does not achieve—and I think the amendment is trying to—is a gentle start to the process, so that it does not start fully over a condensed period. A key lesson from the WCA is not so much its background philosophy or some of the assessment processes, although they have been refined by Harrington, but what happened in practice. There was a disconnect between the two to a certain extent. The thrust of this and perhaps the challenge is calling it a trial period. It is really the timeframe in which it is introduced which seems to be particularly important.

[Lord Freud]

My Lords, I am very sympathetic to the thrust of the noble Lord’s point. Noble Lords will be aware that when we designed the universal credit we did it on a trajectory. It is really important that we get the right trajectory on all these introductions. In that context, rather than having a formal trial which has some very specific implications around that process, I take the point about a trajectory of introduction. Indeed, we are looking very hard at the optimum trajectory of introduction.

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[Lord McKenzie of Luton]

My Lords, it is with a degree of trepidation that I rise to speak, having just heard those contributions. This issue presents a real conundrum. There is an argument that asks, if the social model is to identify the broader challenges to living that confront disabled people, is it unreasonable to take account of provisions and innovations of aids and appliances that society has developed to help people in their daily living? However, it is easy to state that; as the contributions we have just heard made clear, there is a question of what that will mean in practice.

We could recognise that the use of aids and appliances will not always remove the barriers that people face; we have certainly heard that explained. We should also recognise that not everyone will have access to aids and appliances, or indeed adaptations, which could enhance their quality of life. There is a conundrum that is recognised in the November 2011 Explanatory Note. If account is taken only of aids and appliances that people have and—other things being equal—that produces a low award, there is a potential disincentive to acquire those very aids and appliances that will improve people’s lives.

As I understand, what is currently proposed—as the noble Baroness, Lady Thomas, identified, this mirrors the current DLA formulation—is that the assessment will take account of aids and appliances that are normally used and can reasonably be expected to be worn or used. This seems to penalise those who have not yet acquired those aids and appliances. They will have a zero or low award, and not have the money to acquire the facilities. I wonder if it would not be a more reasonable approach, if there is to be some recognition of aids and appliances in the assessment, to take account of what people have initially, with some acknowledgement that, at a reassessment at some stage in the future, you might add those that people might be reasonably expected to use. At least that way, there is a transition.

We know that some aids can be differentiated from others on the basis that in themselves they do not overcome all the issues of mobility. Attaching higher scores for these circumstances—although we do not know what the tariff will be—does not seem unreasonable. The more I have thought about this, and the more contributions I have heard, the more difficult an issue I think it is.

[Lord Freud]

My Lords, I owe my noble friend Lady Thomas an apology and a clarification. I incorrectly attributed her question about reconsiderations in the previous group to ESA, when of course it applied to PIP. The new provisions on reconsiderations contained in Clause 99 will make a difference, but I suggest that we have a separate debate on that later clause, as it is a wider issue than just in relation to PIP.

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[Lord Freud]

My Lords, this is a matter to be revealed at a somewhat later date. I am pleased to have provided a timetable of when this matter will become clear. However, the direction of travel is clear: the maximum number of points on that one is 15.

I almost want to call the noble Baroness, Lady Campbell, my noble friend, but I am not allowed to do so. I invite the noble Baroness to join me; I have to find an appropriate enticement so that I can call her my noble friend. However, I must disagree with her concerns. I suggest that she is likely to score very highly in the assessment by way of the very aids and appliances that she has highlighted. As I said, electric wheelchairs are right at the top of that measure at 15 points. We will produce case studies by the time PIP is debated on Report which clearly illustrate how individuals who successfully use aids and appliances will continue to receive PIP in a similar way as they do with DLA.

I turn to the noble Baroness’s second amendment. We are committed to personal independence payment, like disability living allowance, being an extra-costs benefit for disabled people, to spend on whatever they see fit. Our experience of DLA tells us that in some cases the money will go towards the cost and upkeep of specific purchases or activities, such as aids or appliances, or that it may simply become part of the disabled person’s budget paying for things as and when they come up, such as the need for shopping deliveries or taxis. The clear intent is that the mobility component should be used to help improve the disabled person’s ability to get around but we have no wish to prescribe how they should spend the money.

Given that the purpose of the benefit is to contribute to disability-related costs such as aids and appliances, and that there are other support means available, we do not think we should be paying for aids and appliances in addition to this. Given these comments and the reassurances that I hope I have given on how aids and appliances will be treated in the assessment, I urge the noble Baroness to withdraw her amendments.

[Lord McKenzie of Luton]

I do not think that the noble Lord has helped me with my conundrum. Is it not the case that the assessment will take account of aids and appliances that people have as well as aids and appliances that it might be reasonable for them to have? If that is the case, in that latter category is that not a double whammy as, other things being equal, people would get a lower assessment and a lower or zero award, and therefore would not have the wherewithal to acquire some of the aids and appliances which would positively improve their lives?

[Lord Freud]

This is the Catch-22 that a number of noble Lords have pointed out today and in the past, whereby denying oneself an obvious aid is used as a method or device to maintain a higher level of PIP. Clearly, we want to discourage that because we want people to maximise their opportunities in life. The noble Lord referred to a period in which to obtain an aid. However, that drives straight down the other path of starting to multiply the number of reassessments, which we do not want to do. There is a balance to be struck here but most people are able to get aids and appliances. They may not get the four-and-a-half kilo device of the noble Baroness, Lady Grey-Thompson. That is half the weight of my bike.

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[Lord McKenzie of Luton]

My Lords, we have had a powerful set of contributions on the amendments. I hope that the Minister will have ringing in his ears the important question: if it is not about cost savings, why on earth are the Government seeking to do this? We have heard powerful presentations, especially from my noble friend Lady Morgan, about the costs that confront people. My noble friend Lady Lister has just made an extremely important point about the interrelation of this with the benefit, as well as the other challenges that come with the proposals.

The amendments are intended to deal, first, with the issue of fluctuating conditions; and, secondly, to alter the assessment period for access to personal independence payments. Looking first at fluctuating conditions, the amendments would ensure that those whose physical or mental condition limits their ability for the majority of the time, rather than continuously, would still be eligible. As drafted, the Bill suggests that people with fluctuating conditions would not qualify if they are not consistently ill for the required length of time, regardless of the severity of their condition. That is the case with the current work capability assessment, which, as we know, consistently fails people with fluctuating conditions such as mental health problems or multiple sclerosis.

The new draft criteria published on Friday contain some welcome recognition of the need to ensure that people with fluctuating conditions are not disadvantaged under the PIP assessment, so that where someone needs more than one descriptor within an activity, the time period can be counted cumulatively towards the thresholds of 50 per cent of days needed to satisfy one descriptor. However, what evidence is there to show that the method of taking account of the needs of people with fluctuating conditions will be both accurate and fair while meeting the aim of not disadvantaging those people during the assessment?

The Bill will extend the qualifying period before claimants can receive PIP from the current three months under DLA to six months. People will continue to have to demonstrate that their impairment or health condition will last through a further six months to qualify. That increases the total period for which individuals will have to demonstrate need from nine months to one year. The amendments would retain the one-year period, but split it so that claimants will have a three-month waiting period only but will have to demonstrate that their impairment is likely to last for an additional nine months. We support the amendments.

A wide range of organisations have expressed their concerns about that change. As the Disability Benefits Consortium put it, DLA eligibility is based on individuals experiencing additional costs as a consequence of their impairment or health condition.

“Making people wait longer will place further burdens on those adjusting to sudden onset conditions such as stroke, or people who experience the immediate debilitating effects of treatment such as cancer”—

we have heard strong testimony to that this afternoon—

“as well as penalising those whose impairment or condition has gradually worsened over a period of time and have already had to deal with additional costs prior to passing the threshold for PIP. To require additional costs to exist for six months before offering any financial assistance will push even more disabled people into debt”.

The noble Baroness, Lady Thomas, made that point very strongly.

If applied to disabled children, it will also place increased pressure on families trying to adjust to their child's impairment or health needs. The Government have stated that that change will not bring about any significant savings, but we believe that it will have a significant impact on disabled people. As we have heard, the Equality and Human Rights Commission has also raised concerns in this area, stating that the change from a three to a six-month waiting period may also undermine the Government's stated aim to support disabled people into work and enable them to remain in work. Further, newly disabled people without support for the six months may not be able to continue in their current employment or be able to find suitable alternatives.

Macmillan has highlighted the particular problems of people with cancer, as did my noble friend Lady Morgan. Macmillan states:

“For people with cancer, where treatment and its debilitating effects can begin very quickly after diagnosis, support needs are often immediate. Macmillan believes people with sudden-onset, long-term conditions should be able to claim support as soon as their support needs arise. We are flatly opposed to increasing the qualifying period from three to six months”.

Macmillan also points out that DLA is the only non-means-tested support available to cover the immediate costs of a person’s illness or disability during this period, and says:

“The outcome of delaying payment by yet another three months will be that cancer patients who are struggling to pay their bills or mortgage payments will face more debt and more stress”.

As we have heard, the Government’s policy briefing note for this proposal gives the justification for this change that of aligning the definition of disability with that used in attendance allowance, and with that,

“generally used for the Equality Act 2010”.

The guidance in the Equality Act in fact specifies that someone is to be considered as having a disability if they have an impairment that will last at least 12 months, or for the rest of their life, but this says nothing about how long somebody should have to wait before they are assessed as having this disability.

The policy briefing note also states:

“While we acknowledge that some impairments or conditions may appear long-term at their outset, and that additional costs may arise as a result, this may not always be the case. Where disability-related costs do arise early on, for instance as a result of having to make frequent hospital visits for treatment, additional support mechanisms provide an element of coverage before the qualifying period is satisfied, for example through the NHS travel costs scheme or other social security benefits”.

However, as Macmillan states, these types of support are usually means tested, unlike disability living allowance—or PIP, which is intended to meet the additional costs that arise through a disability for somebody, whatever their income level. Will the Minister please list the types of support that the Government think will be available to people in this situation, and which will be available to those people who have built up savings which exclude them from normal means-tested benefits? Can the Minister say whether any additional cost would be expected from changing from a six-month waiting period and a six-month expected disability to a three-month waiting period and a nine-month expected disability? If this would not be an additional cost, what on earth is the rationale for asking people to wait an additional three months in order to receive vital support?

[Lord Freud]

My Lords, I thank noble Lords for tabling these amendments and welcome the opportunity to respond on this important feature of personal independence payment. The required period condition has given rise to a great deal of considered and reasoned debate today. The debate has also been informed by the not inconsiderable assistance of briefing provided by the likes of Macmillan Cancer Support and the Disability Benefits Consortium, as well as many others over the past few months.

The amendments seek primarily to shorten the qualifying period before the personal independence payment can be paid. They also increase the onward period over which someone must be expected to satisfy the conditions of entitlement and modify how someone can satisfy the required period condition. Taken together, I was pleased to see that Amendments 86A to D preserve the overall required period condition of 12 months. I therefore welcome the fact that these amendments explicitly accept the principle that personal independence payment should be paid only to people whose needs arise from long-term conditions. This is a fundamental aim of personal independence payment and ties our definition of long-term disability in with that used in the Equality Act.

Under disability living allowance, people currently have to satisfy a three-month qualifying period and a six-month prospective test. These rules were put in place when the old attendance allowance and mobility allowance were merged to form DLA in 1992. However, for personal independence payment we are designing a new benefit; one fit for the 21st century, so it is only right that we looked at what it is the most appropriate length of the qualifying period and prospective test.

I know how much these changes to the qualifying period have worried certain groups of disabled people and their representatives, most particularly those representing people who have been diagnosed with cancer or who have experienced sudden-onset conditions. Noble Lords may be interested to learn that the changes found support in our consultation, in particular the link with the Equality Act definition.

Perhaps it may help to reassure noble Lords further if I set out that the required period condition is not a money-saving measure, nor is it meant to deny disabled people support where the impact of their condition is long-term. This is about having a mechanism which can identify, assess and pay a valuable cash benefit to individuals who have a long-term health condition or impairment which results in burdensome financial costs, regardless of income. Personal independence payment is not designed to assist individuals dealing with short-term needs.

Where there are immediate and ongoing costs which can cause financial difficulties, or have an effect on someone’s ability to participate fully so that their levels of independence may begin to suffer, there is a range of means-tested and non-means-tested support to help people through some of the shorter-term burdens, both financial and practical. I acknowledge that this help may not be available to all, but all provision has to be dictated by balancing need and an individual’s capacity to meet it from their own resources.

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[Lord McKenzie of Luton]

My Lords, I can be brief on this. The noble Baroness has covered pretty much every point that I had in my script. We support this and the proposition that it should be in the Bill.

I take the opportunity to ask a couple of questions. In terms of transition, what is the position of someone aged 65 or over who is in receipt of DLA, which expires because it is time-limited? Will somebody in those circumstances be able to refresh that claim, including a mobility element, or will they have to move on to PIP or attendance allowance? In respect of attendance allowance, is it the intention to align the lower and higher rates of that benefit with the enhanced and standard daily living components of PIP?

[Lord Freud]

My Lords, we have made a number of commitments in relation to people aged 65 and over. Noble Lords may be aware that alongside the Government’s response to the consultation on DLA reform, we also published a policy briefing in May that set out our policy objectives and proposals. We intend to make regulations for personal independence payment that will allow people who have reached the upper age limit to continue to receive personal independence payment. Our priority is to support those individuals with established, long-term health conditions or impairments that would put them at a financial disadvantage over a long period. We fully understand that receiving this benefit is important for those aged 65 and over, particularly for those in receipt of the mobility component. We also know about their concern that the loss of entitlement could affect their independence.

The intention behind this amendment is to ensure ongoing support throughout later life for individuals whose abilities are limited earlier in life, recognising that they may have had less opportunity to earn and save for later life. I can assure noble Lords that this is also our intention and that it can be achieved without amendment to the Bill, but instead through regulations. As it currently stands, the amendment would potentially widen the scope of the personal independence payment and undermine our intention of creating a more affordable and sustainable benefit.

Turning to the current rules, broadly speaking, current DLA provisions have a one-year linking rule. This allows individuals over 65 to renew an award within one year of their previous award without losing DLA entitlement. Similarly, we intend to allow a linking period for PIP. This will support those individuals who reach the upper age limit and have a break in their claim through temporary improvement, provided the individual makes a claim within a defined period and continues to fulfil the eligibility criteria for PIP. As with DLA, there will be restrictions on new and existing claims for those over the age of 65. As I have said, our priority is to target support, through PIP, on disabled individuals with established, long-term health conditions or impairments, who may incur extra costs throughout their early lives and would have had less opportunity to save for retirement. Those individuals who develop care needs later in life, as part of the natural ageing process, will continue to be able to claim attendance allowance provided they meet the eligibility criteria.

Under Clause 81 we already have a power to make secondary legislation and to provide for exceptions. By setting out these provisions in regulations we can ensure that the legislation can be adapted in response to any future changes in the social care system which might affect pensioners. The Personal Independence Payment Implementation Development Group will strive to ensure that policy design and delivery in respect of people aged 65 and over is informed by disabled people and their representatives.

On the question raised by the noble Lord, Lord McKenzie, on what happens to DLA recipients over the age of 65 whose fixed term expires, we have made it clear that they will not be within the scope of PIP for the time being. That means that existing recipients of DLA aged 64 or over at April 2013 would be invited to reclaim DLA towards the end of an existing fixed-term award. At this stage we have made no decisions on the rates of PIP or how these will compare with other benefits.

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[Lord McKenzie of Luton]

My Lords, I am happy to give way to the Minister, who I think wants to say something.

[Lord Freud]

If the noble Lord agrees, it might be valuable if I make clear where we stand on this issue. We have already announced that we will not remove the mobility component of DLA from people in residential care from October 2012, as was originally planned. We have also said that we will review the position on the personal independence payment. This is precisely what we have done. We are now considering the findings of the recently published review into provision for the mobility needs of care home residents by the noble Lord, Lord Low, before we announce our final decision.

We have listened to what disabled people and organisations of and for people with disabilities have said. I will ensure that, when we introduce the personal independence payment from April 2013, disabled people are treated fairly regardless of their place of residence. Our final decision will take account of this, of the findings from the Low review and of our own work within the department. I am sorry that I am unable to give noble Lords the final decision today but—I will not use “soon” or “very soon”—I hope to get it to them in the not too distant future. With this reassurance, I urge the noble Lord to withdraw the amendment at the appropriate moment.

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[Lord McKenzie of Luton]

In which case, I beg to move Amendment 86DD.

[Lord Freud]

My Lords, I am sorry for the delay. I was trying to work out whether we were sympathetic or very sympathetic to the report from the noble Lord, Lord Low; I think it is somewhere between those two.

[Lord McKenzie of Luton]

This is a rather odd process where we have the answers before the proposition; perhaps we should move to that procedure.

I shall try to truncate what I was going to say because we take encouragement from what the Minister said. I start by asking when we get to hear the announcement. The Minister has given us a very clear indication about that. I hope that it will reflect the clear findings of the review of the noble Lord, Lord Low: that removing the mobility component of disability living allowance from those in residential care would be unfair and irrational.

The justification given for the policy proposal is that there has been an overlap with the support provided by local authorities to help with mobility costs, but the review has shown comprehensively that no such overlap exists. Having received responses from 46 local authorities, with an impressive total of 828 written submissions, the review found that, in general, the support provided by local authorities was aimed at meeting a different category of mobility need from that supported by DLA mobility. It states:

“Local authority funding for mobility focused on the support needed to meet assessed care needs, for example travel to a day service, rather than a personal need like visiting friends and family. There was therefore no overlap between the support provided by DLA mobility and that offered by local authorities”.

The review also found that DLA mobility is key to meeting the personal mobility needs of care, stating that the evidence received by the review overwhelmingly showed that DLA offers personalised support and provides the individual with choice and control over how their mobility needs are met. As the review concludes,

“it is DLA mobility that provides the most appropriate means of meeting personal mobility needs. If the rights of disabled people are to be preserved then it is vital that DLA mobility, and its successor under PIP, are retained for people living in residential care”.

I will not develop that point further, although we should place on record our appreciation to the noble Lord, Lord Low, for all the work that has gone into the review, including the clarity of the conclusion and analysis included in the report.

I shall deal with just one further point. We hear a lot about the Government having no money throughout this Committee stage. We should remind ourselves, especially in view of the encouragement that the Minister has just given us, that savings to the tune of £160 million a year from 2013-14 onwards have been booked in respect of this matter. There was a hint from the debate in the other place that those savings were, if not specifically arising from this proposal, of a general nature and, in so far as they could not be achieved by changes to the mobility payments would otherwise have to be met by DLA claimants. Can the Minister be clear on that? If the Government are persuaded to change their stance on mobility payments, will any budgetary shortfall have to be met from elsewhere within the DLA/PIP projections, or will additional funding be provided elsewhere by the Government to meet the fact that that saving, which was never real, will not arise?

[Lord Freud]

My Lords, that is a leading question, as I have learnt to appreciate from the noble Lord, Lord McKenzie. Clearly, it is a substantial amount of money and one reason that it is so difficult to come up with the early warmth and sympathy that people want to hear is because this is tough to find. We have been doing a lot of work in this area. As your Lordships saw with the restructuring of the universal credit, we took all of our projections in a unit and it is completely impossible to balance them all off. You could pick anything on the balancing act but there is no specific direct link into DLA overall because, as I said, we are doing PIP on a bottom-up basis, not the top-down basis of a target. We are trying to find the level at which people need genuine support. It is not a link in the budgetary, top-down way implied by what is behind that question: have we just taken it from another bit of the DLA? No, we have not.

[Lord McKenzie of Luton]

In which case, I am doubly grateful for the Minister’s response. I think that was clear in relation to the budgetary item, although I will read the record to make sure that my understanding is correct. However, I am sure that the tenor of his indications will be warmly and widely welcomed. It would be helpful, particularly for all those people who have been made very fearful by the original proposals, if those conclusions could be announced as soon as possible. In which case, I beg leave to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 14th November 2011 Grand Committee

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

My Lords, the noble Baroness is seeking to replace the name “personal independence payment” with “disability living costs allowance”. We have also had my noble friend’s suggestion that we replace it with “personal disability costs payment”. I am very grateful for all the contributions on this genuinely important issue. Before dealing with the noble Baroness’s amendment, I should like to take the opportunity to talk about why we are reforming the disability living allowance and the Government’s policy intentions that underpin the personal independence payment. We believe that now is the right time to replace DLA by creating an affordable and sustainable system to support those disabled people who experience the greatest barriers to living full, active and independent lives. DLA has failed to keep pace with the changing approach to disability in society. It lacks consistency in the way it supports disabled people with similar needs, and we know from feedback received from claimants and their representatives that the application process is unduly complex.

Personal independence payment will be different from its predecessor. It will be a more dynamic, objectively assessed and transparent benefit based upon people’s daily living and/or mobility needs. It will consider the impact an individual’s impairment or health condition has on their daily life. It will take account of changes in individual circumstances and in the impact of underlying disabilities. It will reflect the wider changes in society that have taken place since 1992, when DLA was introduced, such as social attitudes, advances in aids and adaptations, and equality legislation. We will prioritise support on those individuals who face the greatest day-to-day challenges and who are therefore likely to experience higher costs.

The changes we are making through the introduction of personal independence payment will ensure that the benefit remains sustainable for the future. Currently, 3.2 million people receive DLA. This is an increase of around 30 per cent in the past eight years and it is important to note that for the DLA caseload overall only around one-third of that 30 per cent growth can be attributed to demographic factors. Personal independence payment will not be linked to an individual’s impairment, but will instead focus on the ability of an individual to carry out a range of activities necessary for everyday life and the extra costs arising because of their impairment. It will be payable to people who are in work as well as to those who are out of work.

I turn to the noble Baroness’s amendment, the name “personal independence payment” is intended to communicate the purpose of a benefit that continues to make a contribution to the extra costs that some disabled people face to help them to lead full, active and independent lives. I can reassure the noble Baroness that we have not yet incurred artwork costs for personal independence payment, nor, I need to confess, did we invest heavily in private sector consultants to come up with options for the change of name. I guess one can be excoriated and congratulated on both those facts.

Before announcing our plans for personal independence payment, we conducted a series of focus group sessions in which we were able to discuss the name of the new benefit. People felt that the word “disability”, although broadly understood and accepted as an umbrella term, was generally seen as relating to physical disability and was a more difficult term for mental health conditions. As noble Lords know, one of the big changes in personal independence payment is the swing in favour of people with mental health conditions. “Living” was felt simply to imply existing or surviving, and ‘allowance’ was deemed to be old-fashioned and paternalistic, as my noble friend Lord Skelmersdale suggested. It was because of these negative connotations that we decided, as part of the reform of DLA, to rename the benefit. Clearly, people will continue to have mixed views on the name “personal independence payment”, but it has found favour in many quarters. Through the DLA reform consultation, we received some positive comments on the new name for the benefit. I will quote one correspondent—if I do not, I suspect that no one else in the Committee will—who stated:

“I love the new name”,

and added that it seemed,

“more dignified than being given an ‘allowance’ for being disabled”.

We have always been clear that we will have greater regard for the social model when reforming DLA. The name “personal independence payment” reflects that intent rather than focusing on medical model terminology.

It is clear that noble Lords have differing views on the name of the benefit. I emphasise that our view is that “personal independence payment” reflects the principles and intention of the benefit. However, having heard the debate today, I am happy to take back noble Lords’ views, which were put very powerfully, to the Minister for Disabled People. I will ask her to consider how we might seek further feedback from disabled people on the proposed name. On that basis, I urge the noble Baroness to withdraw the amendment.

[Lord McKenzie of Luton]

In responding to the debate, on a couple of occasions the Minister used the formulation “greatest barriers”, which carried the implication that people who face lesser barriers will fall outside the help of the new benefit. Could he be more specific about who is likely to fall into that category?

[Lord Freud]

My Lords, as the noble Lord knows, we have published the criteria and weightings but have not yet gone into any further definition of how the system might work in terms of thresholds. I will aim to bring some more definition around that by Report.

--- Later in debate ---

[Lord Freud]

My Lords, the proposition is that we need to have this locked down ahead of the rest of the Bill. Regrettably, we are not expecting to have the passporting elements of this ready for the time we consider it. I will go into some detail. The timing issue is that there would be no gain, if that is the real concern, in pulling this information earlier and hurrying the consideration process artificially.

[Lord McKenzie of Luton]

I think that it would be very helpful if immediately following today’s sitting we have an update on what is and is not going to be ready because there are serious issues about consideration. Rather than prolong the process today, if the Minister would undertake to do that, it would be helpful.

[Lord Freud]

Perhaps I could undertake to do that ahead of Wednesday’s sitting and go through what we are expecting to have when.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, these amendments are about encompassing the social model in the Bill. We support them. I have come to this issue somewhat later than some noble Lords here such as the noble Lord, Lord Wigley, my noble friend Lady Wilkins and others. I found the Scope document, which has been referred to, particularly helpful not only because it laid out a route to a different process of assessment, but because it took the assessment and criteria in the DWP’s document and tried to point out in practical terms why they may not have encompassed these wider issues. I say to the Minister, as others have said, that this should not be a difficulty for the Government because they have on the record their commitment to the social model. It is in Hansard for 30 November 2010. I think it was the Minister, Maria Miller. It is clearly on the record and not a matter of dispute.

Indeed, the DLA consultation paper referred to the social model in the following terms:

“The social model of disability says that disability is created by barriers in society. These barriers generally fall into three categories: the environment—including inaccessible buildings and services…people’s attitudes—stereotyping, discrimination and prejudice…organisations—inflexible policies, practices and procedures”.

Of course, the model argues that these barriers can be changed or removed. We accept that dealing with these barriers is not just a matter for a DLA or PIP or whatever it is called, but the consequences of these barriers need to be taken into account in assessing entitlement. I ask the Minister how the approach to PIP is reflected in the social model of disability and how the Government would counter criticisms that their approach is still driven by the medical model which concentrated on the inability to undertake activities due to a physical, mental or cognitive impairment.

Paragraph 4.9 on page 29 of the explanatory notes to the second draft of the assessment criteria says,

“Furthermore, we remain concerned that taking greater account of issues such as housing, access to transport, informal support and utilities would make the assessment more subjective and lead to inconsistent outcomes for individuals. Many of these issues will be dependent on local circumstances and availability of services, meaning that results might differ depending on location across the country”.

Of course we understand the difficulty that taking account of a wider range of factors would involve an expanded and different process. However, any process that involves a points-based approach will have a degree of subjectivity to it.

The Minister will be aware of proposals from Scope, which other noble Lords have mentioned, that recommend the trial of a more extensive process that has co-operation with the claimant at its heart. I will not run through the detail except perhaps to comment on the last bit of the process as it sees it, which is the production of a local support plan to capture the evidence and information brought up over the course of the assessment process in order to help highlight where in the individual’s life the barriers and the needs tend to arise. This could help the claimant to identify particular areas in which PIP might provide valuable support in meeting disability costs, but would not take the form of an outcome-based agreement binding the individual to use their PIP for specific purposes. Do the Government have any plans to test this approach, together with input from disability groups? We acknowledge that a good deal of work, thought and engagement has gone into updating the assessment criteria, and this has also been recognised by the Disability Benefits Consortium, but inevitably questions arise about the rules of engagement going forward, what further consultation will be taking place, and particularly about why the Government are confident that the current proposals will take account of the full range of barriers and costs that disabled people face. I think that that is a particular bone of contention that may have been eased by the current document, but that has certainly not been fully answered. That is why it is important to have these issues in the Bill.

[Lord Freud]

My Lords, the noble Baroness is seeking to ensure that the assessment for PIP reflects the social model of disability, which would mean that assessors would not just consider the impact of impairment on an individual, but also the social, practical and environmental barriers they face. On the question raised on the support we have, I should say that we have the Assessment Development Group whose role is to advise on the detail of the new criteria we are developing, so the group is necessarily technical in nature. However, the members of the group have a wide range of experience in working with and supporting disabled people, including two representatives of disabled people and disability organisations. Several of the group members are disabled people. The group includes individuals from a range of professions including occupational therapists, psychiatrists, physiotherapists, expert social workers and GPs. We also have representatives from RADAR and Equality 2025. We know it is important to hear wider views, which is why we have been talking to disability organisations throughout the development of the assessment and why we will continue to do so.

The amendment reflects a commonly held view that the assessment we are developing is a medical assessment. I am pleased to have this opportunity to state that that is not the case. The assessment is not fully based on the medical model, with the impairment or health condition that the individual has or its severity determining the entitlement. Indeed, the type of condition or impairment an individual has is of limited relevance as this assessment focuses on the activities essential to daily living and on outcomes. By looking at holistic activities and participation outcomes, this assessment will better reflect the social model of disability than did previous assessments. I do accept that it is not a full social model assessment; it is not intended to be. However, neither is it a medical model. The reality is that it is somewhere in between. It is perhaps more of a bio-psycho-social model. That is not a term that I have coined; it was coined by Professor Gordon Waddle whose work in the field of health and disability we have discussed in this House before. It recognises that there are biological, psychological and social factors to disability, which we have tried to capture in the assessment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 10th November 2011 Grand Committee

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

My Lords, this summer we increased conditionality for ESA claimants in the work-related activity group with the introduction of the work-related activity regulations. For the first time, those who are able to prepare for a return to work will be required to do so, where it is reasonable.

This measure is another aspect of work-related activity, and thus those groups—such as support group claimants, lone parents with children under the age of five and those with caring responsibilities—who are not required to undertake work-related activity will not be required to do work experience or work placements.

Noble Lords asked, in relation to Clause 16, whether this measure extends the definition of work-related activity, which is one of the questions asked by the noble Lord, Lord McKenzie. The Bill seeks to clarify what may be included by way of work-related activity, rather than extend its meaning. Work-related activity is already defined in the Welfare Reform Act 2007 as,

“activity which makes it more likely that the person will obtain or remain in work or be able to do so”,

and Clause 54 makes expressly clear that this may include work experience or a work placement.

However, an adviser will only place a claimant on a work experience placement if he judges that it will help support the claimant back to work, and if it is suitable. If a claimant feels that the requirements placed upon them are unreasonable, they can request that the adviser reconsider whether an activity is appropriate. Claimants are also able to follow a rigorous complaints procedure if they do not think that they are receiving a satisfactory service. I hope that that explains what the formal protections are to the noble Lord, Lord McKenzie.

The focus of work experience and work placements will be on learning new skills and gaining valuable experience to get a flavour of the workplace environment. They will provide claimants who may have a limited work history with the opportunity to increase their confidence and employability. The precise nature of such placements will depend on what is deemed suitable for the individual, bearing in mind their physical and mental capabilities, and ensuring that necessary adjustments are made.

Placements would normally be short term, but there is currently no set duration, and this will normally be agreed between the adviser and the customer. Work experience and placements must be appropriate to the individual’s circumstances and need not be full-time. For instance, if a person’s health condition means that their mobility and pain levels improve over the course of the day, an adviser might find them a placement for two or three hours in the afternoon. This is quite different from the more challenging demands of paid work, which would normally be a longer-term and less flexible commitment with higher expectations placed on the worker.

The requirement to undertake work experience or work placements will be used flexibly by advisers as part of a range of work-related activities. It is not intended that such placements would necessarily replace other aspects of work preparation. It may be one of a number of work-related activities required of an individual which, in combination, best support a claimant to move closer to the labour market.

In response to concerns that work experience may be used to judge whether an individual is in fact capable of work, this is not the case. A claimant cannot be found capable of work unless they are found capable following a work capability assessment. This new measure will therefore not affect anyone’s underlying entitlement to benefit.

On the question raised by the noble Lord, Lord McKenzie, on access to work, the answer is that it is not available to claimants undertaking work-related activity. For claimants participating in sector-based work academies, funding will be available to help with reasonable adjustments during their participation in that provision. For work experience arranged through alternative sources, reasonable adjustments will be made where necessary to ensure that claimants are able to undertake any work experience or work placement in a safe environment which meets the needs of the claimant. Where necessary, Jobcentre Plus could assist employers with reasonable adjustments, using the flexible fund which is available to an adviser.

I shall clarify the issue of job outcomes for work programme providers. Work programme providers will not be paid for work placements and, therefore, there is no incentive for the provider to encourage a claimant to undertake long-term unpaid work experience, which I think is the underlying concern that the noble Lord has in raising this point. Payment arises for work placement providers only if a sustained, paid, full job outcome is achieved. Furthermore, sustainment payments also ensure that it is not profitable for providers to encourage claimants to undertake unreasonable work-related activity with the aim of making them enter the labour market before they are ready, as that is unlikely to lead to a positive long-term job outcome. I hope that I have described a series of formal protections but also an incentive structure that means that this is not going to lead to any abuse or, if it did, that it would be smack against the financial incentives that we have set up.

In response to my noble friend Lord Skelmersdale’s question on substitute Section 11(3)(c) in Clause 56, I can confirm that the definition of “work preparation” will be the same and will include work experience or a work placement in both clauses.

I owe the noble Earl, Lord Listowel, an answer on mentors. I wish to express our interest in mentors. I am absolutely with him on the importance of mentoring, and as he may or may not know, I have developed my own project with CSV, called Grandmentors, where we test how older, retired people can support youngsters making the transition to adulthood, along precisely that thinking. That project, which I think is one of the very few formal projects with research around it, tries to establish the real economic value to the country of mentoring. I have put my own wallet behind it. I look forward to reporting to him when I have some decent findings.

[Lord McKenzie of Luton]

I am grateful to the Minister for that reply. I am comforted that my concern was not so much about what providers might be up to as about whether work and work experience generally might be almost a way round the WCA for those who are otherwise in the WRAG. I think that the Minister has given us enough comfort on the key distinctions between work experience and work placements, although I note that he said that they do not necessarily need to be full time and that normally paid work would be more onerous. I accept the generality of what he says and that gives me the comfort that I was seeking. I am not sure whether he dealt with the question of employment rights, which is an interesting one, and presumably part of the distinction between work and work placements, but that is satisfactory for my purposes.

--- Later in debate ---

[Lord Freud]

My Lords, I like to be able to flesh out these adverbs—no, they are not adverbs. My grammar is slightly frail. The answer is that I cannot be any more specific. If that is news, I am not in a position to provide any more definition.

Clause 59 removes Section 11 and Schedule 3 from the 2009 Act, and also removes the provisions which Schedule 3 inserted into the Jobseekers Act 1995 and the Welfare Reform Act 2007. We know that the vast majority of people with substance dependency issues eventually want to break free of their addiction. The National Treatment Agency reports that, last year, more than 200,000 people in England entered treatment. That represents about two-thirds of all those with dependency issues. In 2010-11, 27,969 adults left treatment in England free of dependency, which is an increase of 150 per cent compared with 2005-06. Waiting times continue to reduce—96 per cent get into treatment within three weeks of referral. In England, we spend more than £400 million on drug treatment and this budget has not been cut. We want to build on that. We believe that the right approach is to offer support and encouragement for those who want to tackle their substance addiction. We are therefore ensuring that our advisers have the confidence to engage in the often difficult conversations with those who they believe have dependency problems, that they understand the issues that addicts face and that they work in partnership with local treatment agencies to improve referral rates. By encouraging closer working between Jobcentre advisers and treatment service providers we will increase the number of people moving into sustained recovery.

If claimants decide to take up the treatment opportunities available to them, we will look to ensure that they have the opportunity to focus on that treatment and make it succeed. This is not being soft on addicts. The choice to tackle addiction is not an easy one, as anyone who has tried will confirm. Claimants who decline the offer of treatment will be expected to comply with their ordinary full labour-market conditions as a requirement for continuing to be entitled to their benefit.

The noble Lord, Lord McKenzie, asked about universal credit. We are clear that the imposition of work-related requirements under universal credit must not conflict with an individual’s treatment regime. We want to maximise every individual’s chances of an early move into work. For those with substance dependency, the first logical step will often to be to confront their addition, and we do not want simultaneously to impose labour market requirements that make it challenging or even impossible to complete treatment. This will be our guiding principle under universal credit and we will make sure that this can be achieved. The structure of universal credit legislation makes this relatively straightforward. We have considerable flexibility in the powers we are taking in the Bill to ensure that we can tailor work-related requirements to fit with the circumstances and capability of an individual. We will be considering how best this can be done as we develop regulations.

The provisions inserted by the Welfare Reform Act 2009 are inappropriate and likely to have unintended adverse consequences for substance or alcohol-dependent claimants, their communities and the public purse. The provisions have not been commenced and do not reflect this Government’s direction of travel in dealing with the very difficult question of drug and alcohol addiction, nor do they take account of the introduction of universal credit, which will replace both the income-related strands of JSA and ESA in due course. Hence we seek to repeal them. I beg to move that Clause 59 stand part of the Bill.

[Lord McKenzie of Luton]

I am grateful to the Minister. I should say that the purpose of raising this issue was not to mourn the passing of Schedule 3 but to understand where the Government were heading in its place. Perhaps the noble Lord dealt with it by saying that this can be accomplished by regulations, but the strategy says that those who are undertaking residential treatment would be deemed as not having been in the work-related activity group or its equivalent in universal credit. Would he say that the Bill provides the necessary flexibility to achieve that or is something else expected to deal with that?

Perhaps the Minister could also say something about the protections, which was one of the important features of the 2009 Act, that if somebody declares that they have a drug dependency—effectively owning up to something that could be a criminal offence—what safeguards does the noble Lord have in the current arrangements that would provide protections for individuals in those circumstances, assuming that the noble Lord believes that those protections should be there?

[Lord Freud]

To take the first question, we already have amended the regulations. We did that from 28 March 2011, amending the regulations relating to employment and support allowance. It is clear that those in residential rehabilitation for alcohol or drugs should be automatically treated as having limited capability for work while they are in residential rehabilitation, and this will help them have access to benefit at a time when they are focusing on their treatment.

On the matter of the protections, I am going to have to offer to write to the noble Lord. That is a pretty complicated matter. When we are not doing the things for which the protections were incorporated, it is difficult to understand where we might need some protections. I will have a think about that and write to the noble Lord.

[Lord McKenzie of Luton]

I am grateful to the Minister for that and I think that this deals satisfactorily with the purpose of the probe.

--- Later in debate ---

[Lord Freud]

My Lords, the current discretionary Social Fund is clearly in need of reform, as several noble Lords agreed today. From 2006 to 2011, the number of crisis loan awards tripled. The evidence does not suggest, however, that this increase reflected an underlying increase in genuine need, as it was largely independent of the recession. Analysis of the increased demand showed that it was driven by young single people on jobseeker’s allowance, many of them still living at home, rather than reflecting a more general trend across all benefit client groups. Strong action has already been taken to get spending under control, and demand has already reduced markedly.

Analysis of the current community care grants scheme shows that the remote operation of a highly discretionary scheme may not deliver the best use of a limited resource. The scheme is often poorly targeted due to the lack of integration with the wider social care agenda. Local authorities and the devolved Administrations are better placed to determine and support the needs of local vulnerable people than the current centralised system.

Clause 69 paves the way for reform of the discretionary Social Fund. Community care grants and crisis loans for general living expenses will be replaced by new local provision designed and delivered by local authorities in England and the devolved Administrations in Scotland and Wales. Budgeting loans and crisis loans for alignment to benefit or wages will be replaced by a national system of advances of benefit through the payments-on-account provisions set out in Clause 98. So the majority of the discretionary element of the Social Fund money will still be administered at national level because it is closely aligned to the ongoing benefit system: that is the most efficient way to do it. That discretionary loan fund pot at national level, which revolves, is currently standing, I believe, at £1.2 billion. I compare that with the £178 million going locally which is divided into grants, currently at £141 million, and general living expenses at £36 million. That does not add up to the full £178 million because there is another £1 million of transition funding.

[Lord McKenzie of Luton]

Will the Minister explain where the figure of £36 million comes from? The 2009-10 figure for crisis loans for general living expenses is £67 million. The Minister is clearly one year on from that, but has the figure halved over that period?

[Lord Freud]

If the noble Lord looks at page 11 of the government response document, it shows that the tripling was clearly driven by a phone-based service. As I said, we are getting that more under control. The 10-year average spend is £30 million, and clearly we are aiming to get back down to more sensible levels through this method, as I said.

--- Later in debate ---

[Lord Freud]

Local authorities have a number of duties under which they are bound, and those are the duties to which I am referring. Let me continue.

[Lord McKenzie of Luton]

Could we ask the Minister to provide us with a list of the duties and the statutory references to them so that we have them on the record? We will then be able to see clearly what is covered and what is not.

--- Later in debate ---

[Lord McKenzie of Luton]

I think there are two issues. First, what is the total pot for the rest of the spending review? I think the noble Lord has confirmed that that is £178 million—fixed or to be uprated by inflation?

[Lord Freud]

Fixed.

[Lord McKenzie of Luton]

So it is declining in real terms. The second issue is how it is allocated among local authorities. Will it be done as part of the general revenue support grant, so that it gets mixed up with all the other things, or will it be dealt with separately?

[Lord Freud]

I understand that it is fixed for two years, which takes us to the end of this spending review.

I turn now to a number of questions raised by my noble friend Lord German, who asked about the devolution aspects. The Scottish Government have consulted on the approach that they might take to deliver the new local provision. They considered local as well as Scotland-wide approaches and they now have to decide whether the local approach, in line with the English approach, or the centralised approach is best. If the Scottish Government decide to go down the centralised route, that would be an interesting test case of whether devolving down to the local level, to populations of between 12,000 in the City of London and 1.4 million in Kent, or centralised to cover 5.2 million people across Scotland, is the best way to administer this sort of discretionary support. Clearly, we have taken the view that the closer to the populations served, the better.

If the Scottish Government choose to divert funding from other sources to top up the funding they receive from the UK Government, that is their choice, but they will have to tell the Scottish people from where the money has been diverted. My noble friend asked about legislative consent motions, but those are not necessarily for Social Fund reform. On the accounting officer question, for the national payments on account provisions that will clearly be the DWP Permanent Secretary. I shall come back to him on the devolved moneys.

I hope that I have adequately explained why these amendments are necessary. I shall reflect on the points that have been made so powerfully. Meanwhile, I would urge the noble Baroness to withdraw her amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 8th November 2011 Grand Committee

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

My Lords, I thought it would be convenient to touch on the timetable. There has been discussion between the usual channels on the best way to take the rest of proceedings. We have agreed, subject to our best endeavours and without overriding anything, that there will be 17 Committee sittings, finishing on 28 November. The main items will be taken as follows. ESA time-limiting will be debated today; the Social Fund issues on 10 November; the PIP on 14 and 16 November; the benefit cap on 21 November; fraud and error on 23 November; and child maintenance and changes to the Child Poverty Commission on the last day, 28 November. I will circulate this timetable to all Peers after today.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for running through that timetable. Our Front Bench is signed up to using our best intentions to make sure that we stick to it. It is helpful for those who are not necessarily here for every bit of the Bill to know roughly what the schedule is. My Whip, my noble friend Lord McAvoy, has asked me to stress that these are firm intentions but not a straitjacket.

--- Later in debate ---

[Lord Freud]

My Lords, I had just begun to address the question raised by the noble Lord, Lord McKenzie, on national insurance contributions. The person who has transferred to contributory benefit from incapacity benefit will be treated as having met the contribution conditions from the point of migration. Claimants will be entitled for a year to ESA if they are placed in the work-related activity group. National insurance credits will continue to be awarded to people who continue to have limited capacity for work, even if they receive no ESA at all.

Through these changes we are sending out a clear message. To the most vulnerable, we will provide the support when it is needed for as long as it is needed.

[Lord McKenzie of Luton]

If the Minister has moved on from national insurance, perhaps he might just address this point of circumstances where somebody starts off in the WRAG and at the start of their claim meets the national insurance contributions, because they have been both credited in and paid sufficient in one of those years. That claim is terminated or ceases after 365 days and the person then moves into the support group. Would that be a new claim for the purposes of attachment to the national insurance contributions? If people had to look afresh at that point, they may well have been credited insufficiently, but they would not be able to pay in, because they would not have been in the labour market and would not have had earnings. They would therefore be disconnected from contributory ESA.

--- Later in debate ---

[Lord Freud]

The noble Baroness has got that absolutely right. It is both for people who are currently on income-related ESA and those who have been recipients of contributory ESA.

There will clearly be a financial cost to Amendment 71P, but I am afraid that in the short time available I have not been able to produce a robust costing.

[Lord McKenzie of Luton]

I thought the Minister said in his earlier remarks that, effectively, these things did not need the amendment because they were dealt with by way of easement. Therefore, presumably they are already factored into the cost and no additional cost would arise from this. Is that not what he said?

[Lord Freud]

No, that is not what I am saying. The noble Lord’s amendment raises the example of someone who has been in the WRAG for a year, falls off it and in five years’ time falls ill. The amendment would allow them to go onto the contributory support element of ESA as of right. That carries a cost for which I do not have the exact figure. We are working on it.

[Lord McKenzie of Luton]

I am sorry but I thought the noble Lord, in responding earlier, said that there were easements to address this so that you effectively reconnected people because of their national insurance contributions. That was the issue that was being raised. We are dealing here with people who, but for the 365-day time-limiting, would currently have a continual claim to ESA.

[Lord Freud]

My Lords, I am convinced that I did not say that this particular easement was built in. I was talking about national insurance contributions. Once they are through the time-limited period, individuals cannot then switch back into the support group on a contributory basis.

[Lord McKenzie of Luton]

Forgive me, but that means that people in the support group are disadvantaged by these provisions, contrary to the Government’s assertion.

[Lord Freud]

My Lords, people in the WRAG who have gone through their time-limited period do not then have a right to go into the support group on a contributory basis. Clearly, they have a right to go into it on an income-related basis, but not on a contributory basis.

--- Later in debate ---

[Lord Freud]

Yes, that is precisely the position.

[Lord McKenzie of Luton]

Surely that is not right. Is it backdated to the end of the assessment period?

[Lord Freud]

Sorry, I withdraw that.

--- Later in debate ---

[Lord Freud]

I have to admit that I am not particularly happy about the assessment phase of ESA and how it is working. It is becoming a separate benefit in practice. I would like to look at it. It is difficult to have a set of principles around something that one is somewhat unhappy about.

I shall go on with the costs. Amendment 74 would reduce savings by around £430 million in total by 2016-17. Amendment 75A would increase expenditure on ESA by approximately £500 million per year, plus up to £50 million more on other income-related benefits. I cannot accept that we should make these amendments. They would place a very high financial cost on us in the current fiscal climate. I believe our proposed changes are right in principle and fair to the taxpayer. I urge noble Lords not to press these amendments.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his very extensive reply dealing with a whole host of interruptions. That must certainly be a record for this Committee.

--- Later in debate ---

[Lord McKenzie of Luton]

Driven by bankers—thankfully not accountants. With great respect, I normally find the Minister convincing but he was not convincing on the assessment period, and at the end of the day acknowledged that he had concerns about that. As to the definition of whether the proposal is backdated or not, starting this process up to 12 months before the legislation comes into effect is a very unusual way to proceed.

Part of the reason why we are going down this path is that the Minister said right at the start of his response that we should expect people to avail themselves of the help and support available. He also said that a lifetime on benefits is no longer an option. I would not disagree one iota with that, but no one is arguing for a lifetime on benefits—certainly not for those who can move closer to the labour market and into work. That is not a matter between us, but the noble Lord did not deal with the point about the WCA, around which there is a lot of discussion. We all want it to work as it should do, but is there not, when people are allocated to the WRAG or the support group—certainly the WRAG—a prognosis that goes with them that says how long they are likely to be in that group and, therefore, when they are likely to be fit to join what is currently the JSA group? That is the hope and that is how it works. The Minister has said that in the past and told us that that prognosis is tested before someone is moved off benefit. We therefore have a process by which an individual judgment is made about how long people will be assumed to be in the WRAG, and then ultimately, when that time is up, whether they should remain in the WRAG, go into the support group or join JSA. We have an individualised process, do we not? Why can that not be used?

This is where we fundamentally differ from the Government: if the object is to ensure that people can stay in the WRAG for as long as they need to and have the benefit of the contributory ESA system for as long as is necessary, is that not a fair way of proceeding? On the other hand—I think that this is probably the Government’s position because we need to save money—is the Minister saying, “We do not care how long you need to stay in the WRAG; after a period your contributory benefit will be chopped”? It seems that the position is not related in the Government’s mind to how long people should need support in the WRAG.

[Lord Freud]

If the noble Lord would like me to, I can give him a little information on that. The latest data show that among all those assessed to be in the work-related activity group at their initial WCA, 91 per cent have a prognosis of 12 months or less. However, it is placing an awful lot of weight on such a prognosis to build a system around it. I would personally feel pretty uncomfortable about it. However, the data make the point about the expectation that the curve is rather similar to what you would expect regarding the potential for people to come off—certainly, the WRAG element—on that prognosis.

[Lord McKenzie of Luton]

Is it not the case that the same prognosis is used for remuneration of providers in the work programme because that determines which remuneration slot they are in?

[Lord Freud]

The standard position on the work programme is that people whose prognosis goes into the three-month phase then go into work programme, which provides a heavy incentive at that stage to help those people back into the workplace.

[Lord McKenzie of Luton]

Perhaps I might move on. The noble Lord has stacked up the costs of these various amendments. However, the Government have not reflected on who is bearing those costs. That is a point made by several noble Lords during the debate. It is not just spread equally across the population or pro rata to resources across the population. It is concentrated on a range of people who are in the work-related activity group, who we want to move closer to the labour market but who are currently neither in work nor, according to the analysis, fit for work. That is the fundamental issue that we are trying to get to grips with. I am sure that the amendments that we have discussed in Grand Committee today will all be withdrawn but I have no doubt that we will revisit them in one form or another when we get to Report.

I thought that the noble Lord had reassured me on the decoupling of people in the support group when he first spoke. When we followed that up, I was much less reassured. The claim that this does not affect people in the support group could be difficult to sustain in circumstances where they get disconnected by the national insurance rules. I urge the Minister at least to reflect on that to see whether there should be some change in or expansion of the linking rules. We are dealing here with a situation where, currently, there would be a continual claim whether someone was in the WRAG or the support group. We seek only to establish that if that link in the WRAG is broken because of the 365-day rule, when people end up in the support group they are not disconnected from those earlier national insurance contribution conditions, particularly the first one. We will certainly want to come back to that in detail.

We will not have a meeting of minds on this today but I am sure the Minister will reflect, as he always does, on the data, facts and arguments that have been put to him. It seems very clear today that, overwhelmingly, those arguments have been against what the Government are proposing. Having said that, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, on this occasion I am happy to be at one with my noble friend Lady Lister and the noble Lord, Lord Patel. I am not sure that I am happy to be reminded about being assailed from the left by the noble Lord, Lord Skelmersdale; I try to put those memories far behind me. These are two important amendments and I hope that the Government will consider them seriously and take them on board. As my honourable friend Stephen Timms said in another place, it is,

“very hard to understand the Government’s justification for abolishing ESA for those people”.—[Official Report, Commons, Welfare Reform Bill Committee, 3/5/11; col. 645.]

He said that it is a measure that seems “unreasonably punitive”. I agree.

[Lord Freud]

My Lords, I shall briefly explain what the existing rules are for young people. Special conditions for young people who are exempt from meeting the usual PAYE national insurance conditions are set out in paragraph 4 to Schedule 1 to the Welfare Reform Act 2007. These provide that a person aged 16 to 19, or 20 to 25 in certain prescribed circumstances, who is not in full-time education and has had a limited capability for work for 196 consecutive days, will be entitled to contributory ESA. No other age group can qualify for contributory ESA without having paid or being treated as having paid national insurance contributions. Nor does any other contributory benefit have similar arrangements. The vast majority of claimants who presently receive contributory ESA on the grounds of youth—around 90 per cent—are expected to receive income-related ESA. Those who do not qualify for income-related ESA are likely to have capital in excess of £16,000 or a partner in full-time work who may be entitled to working tax credit. Clause 52 removes these special rules.

Benefits: EU Nationals

Debate between Lord McKenzie of Luton and Lord Freud

Monday 7th November 2011 Lords Chamber

[Lord Freud]

My Lords, we are going to take a pretty robust line on this matter. We have an opt-out from the Lisbon treaty which we have been using for African nationals where there are third-country agreements, in particular Morocco, Algeria and Tunisia. Again, currently we have legal differences with the Commission on this matter, which is looking for ways to get around our opt-out, but we are determined that we will retain it.

[Lord McKenzie of Luton]

My Lords, can the Minister tell us what the uprating arrangements are for benefits that are exported? We are aware that by generally switching uprating to CPI, the Government are seeking to reduce the income mostly of poor people by some £10 billion a year in 2015-16. Will the Minister take this opportunity to denounce any suggestion that benefit uprating in the UK for upcoming years will not at least keep pace with CPI?

[Lord Freud]

My Lords, we have had this discussion during the Committee stage of the Welfare Reform Bill and I have made it absolutely clear that I am not going to comment on that particular question in any way.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 3rd November 2011 Grand Committee

[Lord McKenzie of Luton]

Can the Minister help us on one point? I am interested in the practicalities and operation. He said that we could not do all this through the RTI system. I am trying to understand how much of it can be done, given that the RTI system is going to produce either a gross income figure or a net of tax and national insurance figure.

[Lord Freud]

My Lords, we had a session earlier today trying to go through what the universal credit shows. Without being overprecise, a lot more information is available but effectively you need the net and the gross figures. Clearly, the personal pensions are not captured on that payslip, but the pension contributions through auto-enrolment, for example, would be captured.

[Lord McKenzie of Luton]

I accept that you might have the net and the gross figures, but do you not now need another figure, which is half the occupational pension payment? That is not readily thrown up in the pay-as-you-earn system or any other system.

[Lord Freud]

Yes, we have commissioned that as part of the requirements.

--- Later in debate ---

[Lord McKenzie of Luton]

Could the noble Lord arrange to send us copies of the earlier advice, because there is some confusion and I am not clear in my mind?

[Lord Freud]

My Lords, I will have an early meeting with my noble friend on this, and we will take it from there. Subject to that meeting, I will provide that particular advice, otherwise we may go round the houses on this very technical matter. I hope it is one we can resolve pretty fast, with a letter.

--- Later in debate ---

[Lord Freud]

We are looking very closely at the support for mortgage interest. I can let the Committee know that we are planning to consult on how we do that. Rather than include that point in the letter, I will make sure that noble Lords are informed when that consultation paper comes out.

[Lord McKenzie of Luton]

I am most grateful to the noble Lord for a number of detailed replies, with some follow-up, but can he just be a little more specific around the capital rules? From his answer, it was very unclear what is intended. We have two systems for housing benefit: we have the cut-off at £16,000, whereas for the pension credit we do not. I am not sure whether those two systems will sit side by side in the new arrangements, or whether there will be some common approach to capital, and whether that will adopt the pension credit approach or the current housing benefit approach.

[Lord Freud]

My Lords, it will go somewhere in between. It will be a capital limit as opposed to a tariff income approach, but it will be a higher capital limit than that for working-age claimants.

[Lord McKenzie of Luton]

As I understand it, that will operate for pension credit as well as the housing component.

[Lord Freud]

Yes, that is correct.

[Lord McKenzie of Luton]

I am grateful for that—well, I am grateful for the answer, not necessarily the information. It is the lowest common denominator again. I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

Indeed. Perhaps I may finish off with a question. I think that earlier in our deliberations we touched on what would happen if someone sought to challenge the WCA determination, as well as concerns about the fact that their benefit would be withheld during that process. I do not know whether the Minister has anything further to say on that. I think that there was an exchange in the Commons on which I had a note on a piece of paper, which I have lost, but it seemed to give some credence to press reports that people were being actively discouraged from going to appeal. If that were the case, it would be an absolute disgrace.

I think that there is great merit in the amendment. Like the noble Lord, Lord Wigley, and perhaps some other noble Lords, I would not accept it quite as it says. However, when someone says that a person should be in the WRAG group but they should be capable of coming out of it in three months or six months, there ought to be a test of what they would be capable of at that point and whether that would amount to work under this sort of description. I should be interested in the noble Lord’s comments on that.

[Lord Freud]

My Lords, I should start by making a point about the overall attitude of the Government to people who are disabled or who have difficult medical conditions. We are committed to unequivocal support for those people, and that is what the support group is about. There is extra funding for the group and we are absolutely determined to provide that support. In the midst of the concerns about particular things, and as we try to make sure that the gateway works and that we can find the people who really need our support, that fact can be lost. However, I want noble Lords in this Committee Room to be under no illusion that we want to support the people who need our support. I have already expressed my concern about the fear factor, which I find very disturbing. I also acknowledge that the press in this country sometimes writes articles that none of us in this room find appropriate. I certainly do not find them appropriate and my colleagues in the department find them deeply disturbing. We do not control the press, regrettably, and things are written that we do not like to see. However, I am pleased to put on the record where we stand.

We debate the WCA a lot. We have debated it in this Committee and elsewhere, but, if noble Lords will forgive me, on this occasion I want to try to keep the debate in the context of the Bill.

The work capability assessment uses a number of specific, measurable criteria, covering all types of disability and health conditions, to provide an assessment of whether an individual has limited capability for work. The assessment was designed to take account of chronic and fluctuating conditions. It is not intended to be a snapshot but looks at what someone can do reliably, repeatedly and safely. It takes account of the effects of pain and fatigue. The healthcare professionals conducting the assessment are fully trained in understanding fluctuating conditions. Claimants get a full opportunity to explain how their condition varies over time.

The criteria were developed in conjunction with disability experts, medical professionals and a significant number of disability representative groups. They focus on physical and mental function. Examples of criteria include whether someone can stand or sit for periods of time, their ability to lift and reach, how they learn new tasks and whether they have problems engaging socially. The criteria fully take account of the fluctuating nature of many conditions. The training and guidance for the assessment is clear that where an individual is unable to complete an activity repeatedly or reliably, they will score points against the relevant criteria.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we should thank the noble Lord, Lord Wigley, for reminding us of the scope there is in the Bill and the profound consequences that it may have, not only for the universal credit but for all the other parts that are before us today and will be before us in subsequent Committees. I thought the noble Lord, Lord German, was on the point of distinguishing between relevant Ministers and irrelevant Ministers, but he did not quite go there.

We saw today—I am afraid I did not see it all—some of the detailed work that has gone on in preparation for, certainly, a big part of what is in the Bill. However, the point has been made by both previous speakers that it is not only about DWP and England; there is lots of work for others to do, particularly local authorities, who are about to reel under the impact of the Localism Bill and all that Mr Pickles has sought to visit on them.

Questions were raised about new burdens and how they work. It is important that that is factored in and that there is fairness and equity in how these matters are rolled out.

I acknowledge receipt of the Low review. Unlike the noble Lord, Lord Wigley, I have not had a chance to read it yet or to quote from it, but it looks to be a particularly valuable document. I hope I have a chance to read it before we get to DLA later in the Bill.

[Lord Freud]

My Lords, I am also looking forward to reading the Low review but I have been listening with great intensity to everything said in this Committee today. Social security is a reserved matter, although it will clearly have a limited, tangential impact on areas of policy where the Welsh Assembly and Scottish Parliament have competence, the obvious examples being childcare and housing. It does not, however, include DLA, which was one of the issues raised by the noble Lord, Lord Wigley.

I can reassure noble Lords that we have held, and will continue to hold, regular discussions with Ministers in the devolved Administrations and their officials. We are committed to the smooth and successful implementation of universal credit. To achieve that we are working closely with devolved Administrations and relevant local authorities to help them identify and address the impact that the introduction of universal credit will have on any services that they deliver. We are doing so in line with devolution guidance. My department is continuing to work through the detailed design aspects of universal credit which will be covered in regulations. Throughout this process they will continue to have discussions with the devolved Administrations, as appropriate, on these provisions and on others in the Bill. I can assure the noble Lord, Lord Wigley, that whatever I am saying here is relevant to the whole of the Bill.

I am concerned that this amendment would introduce a new and unnecessary level of bureaucracy. My noble friend Lord German hinted at some of the problems that it would result in. In practice, that would hamper progress and potentially delay the introduction of universal credit, let alone other aspects of the Bill.

--- Later in debate ---

[Lord Kirkwood of Kirkhope]

I have no idea—it was a thought in my bath. I confessed that at the beginning. However, it is worth reflecting on. Of course the noble Lord is absolutely right—as soon you start thinking about it, you start putting in layers of complexity. I think a challenge to Ministers is not a bad idea, even if it was just on the wall or behind the desk—I would settle for that. I beg to move.

[Lord Freud]

My Lords, in some areas I broadly agree with the Delegated Powers and Regulatory Reform Committee’s suggestions, and the Government have brought forward amendments to make these changes. Where key principles are established the first time the powers are used, these amendments will make the regulations subject to the affirmative procedure in the first instance. As to Amendment 66, Clause 6(1)(a) allows for regulations to set out circumstances in which a claimant will not be entitled to universal credit even though they meet the conditions of entitlement. I am grateful for the opportunity to reassure the Committee that the negative procedure will afford Parliament adequate control over the use of this power.

As I set out during our debate on Clause 6, there will be a number of specific groups who will not be able to access universal credit. These may include certain prisoners and children leaving full-time care who remain the responsibility of the local authority where payment of universal credit would lead to duplication of provision. This will broadly reflect similar rules in current benefits.

Similarly, I would like to reassure noble Lords that it is appropriate for the regulations on hardship and claimants falling into the no work-related requirements group to be subject to the affirmative procedure only in the first instance. In both cases, our intention is that the initial set of regulations will clearly establish the key principles of the new system. We have already provided noble Lords with a draft of the regulations to be made under Clause 19(2)(d). We have also published a briefing note on the conditionality threshold. We have debated these matters at some length earlier in Committee. Once the system that we have set out is in place, it is unlikely that the regulations will change significantly, and I hope that is the assurance that my noble friend Lord German was looking for.

There are three areas where I am unable to accept the committee’s recommendations or the noble Lord’s amendments. First, the committee and the noble Lord have suggested that Clause 47 should be removed from the Bill. Clause 47 relates to the parliamentary procedure for regulations relating to the requirements on jobseeker’s allowance claimants to be actively seeking, and available for, work. These powers are currently subject to the affirmative procedure. The clause makes them subject to the negative procedure.

These powers were groundbreaking when first introduced in 1995, as the noble Lord pointed out. However, the House now has had more than 15 years experience of how these powers are used. There is a wide understanding of what the phrases “actively seeking” and “available for work” mean; in fact, it fundamentally underpins our active labour market approach. We believe that this experience means that it is now far more appropriate that this power is subject to the negative procedure. Their use is now well established and we have no intention of departing from that precedent.

Secondly, Clauses 33 and 89 allow for supplementary, incidental, transitional and consequential amendments to other legislation to be made through regulations. To pick up on the point that my noble friend made about the Scottish Government, who have powers under Clause 33 to make consequential amendments in their area of remit, they specifically requested that these regulations be made by affirmative procedure in the Scottish Parliament. This was the result of one of our helpful non-statutory discussions, which I am sure an FOI request will show in all its glory. Amendments 70 and 99 would make any regulations that amend primary legislation subject to the affirmative procedure.

It is likely that a large number of minor amendments to other legislation will be necessary as a result of the importance and scale of the changes that the Bill introduces. It is not unusual for some of these changes to be made through secondary legislation, and such consequential powers are usually subject to the negative procedure. Moving away from this precedent would take up a very significant amount of parliamentary time and could pose a risk to the timetables for both universal credit and personal independence payment. We therefore feel that the negative procedure remains appropriate.

Amendments 55E to 55G and 69ZA seek to make regulations that contain definitions of “disabled”, “severely disabled” or “work” subject to the affirmative resolution procedure. It inserts a new subsection into Clause 43 and consequential amendments to the terms where they arise in Clause 41. I can reassure the noble Lord that these amendments are not necessary. Clause 43(3) already provides that a wide range of regulations will be subject to the affirmative procedure the first time that the power is exercised. This includes the regulations to be made under Clause 12 providing for additional amounts that will include the definitions of the terms mentioned in the amendment. Noble Lords may recall that the illustrative draft regulations on elements provided to your Lordships already contain a draft definition of “disabled” and “severely disabled”.

Under Amendment 69ZA, the noble Lord seeks to significantly widen the scope of regulations subject to debate in both Houses, covering consequential amendments and changes to working age benefits and pension credit. It would be completely impractical for this House to debate the numerous consequential amendments being made to both primary and secondary legislation, and a poor use of parliamentary time. I have already explained why it is more appropriate that Clause 33 should remain subject to negative procedures, but none of the other provisions identified by this amendment was covered by the report of the Delegated Powers and Regulatory Reform Committee. We are therefore satisfied that the negative procedure is appropriate.

With regard to universal credit, I should also point out that all the regulations on entitlement, awards and claimant responsibilities will be in a single set of regulations. They will necessarily be affirmative in the first instance because if any regulations within a set are affirmative they all are. So, even if the Bill does not require the affirmative procedure for specific points, it will apply in practice.

Amendment 71 would introduce a different form of scrutiny for universal credit regulations requiring the Secretary of State to avoid creating any unnecessary complexity into the system. I strongly support the spirit of the amendment in the name of the noble Lord, Lord Kirkwood. A key aim of universal credit is to simplify the benefit system. Simplification is a publicly stated, fundamental principle that has guided the design of the new system. Any requirement for simplicity would have to be finely balanced against other considerations, such as affordability or easing the transition to work. I acknowledge that this is a probing amendment, but perhaps a duty to consider the simplicity of any changes, as suggested by the noble Lord, would be a better approach than that in the amendment. However, any Government would clearly have to be concerned about the detailed interpretation of simplicity, which, as the noble Lord, Lord McKenzie, took delight in pointing out, is a subjective term.

Nevertheless, I will look at this idea very closely. I can assure the noble Lord that we will put in place a number of non-legislative safeguards to protect universal credit from unnecessary complexity. These include governance processes to ensure simplification and consistency in policy design, and working with claimants to ensure that universal credit is simple to understand and administer.

Given these explanations, I urge noble Lords to withdraw or not move their amendments.

[Lord McKenzie of Luton]

My Lords, I am happy to do so. However, I should like to comment on the issue of avoidable complexity. The Minister said that he had to balance that against issues of affordability and ease in transition. I accept that, but you also have to strike a balance around issues of fairness. One of the problems of simplicity and standard systems is that they do not necessarily take account of some of the individual circumstances that have to be addressed. You see it perhaps more acutely in the tax system, but it applies equally to the benefits system. Although I clearly support getting things as simple and straightforward as they can be, fairness should also be one of the balancing factors. I beg leave to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 1st November 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I will speak briefly in support of the thrust of the amendment. It raises issues about the right age at which full conditionality should apply, and perhaps takes us back to debates we had on another Bill. Perhaps today is not the occasion to revisit them. However, I am not sure that we have debated thus far in the Bill the basic conditions for accessing universal credit. This is predicated on the fact that somebody is within the system and subject to full conditionality. This is what the amendment seeks to ameliorate. One basic condition for accessing universal credit is that somebody should not be receiving education. I presume that that is meant to cover broadly the same arrangements as exist under JSA. Perhaps the Minister will clarify that.

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

My Lords, we recognise the value of further education and training. In England, the Department for Education is committed to fully funding education and training for all young people up to the age of 19. Everyone aged 19 and over is eligible for fully funded provision to achieve basic literacy and numeracy as a minimum to the equivalent of five GCSEs at grades A* to C. This is funded by the Department for Business, Innovation and Skills.

Higher education, as noble Lords will be well aware, is funded through a system of loans and grants intended to cover the cost not just of courses but of living expenses. Typically, the benefit system does not allow students in full-time education to claim benefits. That is in recognition that such individuals have access to other forms of financial support, either through the education system itself or because they are living at home with their parents. However, the existing system recognises that there are some circumstances where additional financial support is necessary. In particular, in income support, certain young people, for example, those who are estranged from their parents or lone parents with a child under seven, may be entitled to benefit while studying. Students who are themselves parents can also claim child tax credits.

Under universal credit, we are looking to maintain the status quo. I hope that that gives some reassurance to the noble Lord.

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[Lord Freud]

My Lords, currently when a single JSA claimant is sanctioned we stop payment of the entire benefit, which is usually around £67 a week. Under the universal credit, sanctions will reduce the award rather than stop payment. The amount of the reduction will be set with reference to the standard allowance.

[Lord McKenzie of Luton]

If the Minister will permit me, is that not simply because the housing component is added in as part of the universal credit? The sanction would not apply to housing benefit currently, it is the core standard amount which is equivalent to the JSA amount.

[Lord Freud]

Yes, the noble Lord has got it precisely right and I am grateful to him for summarising it for me. Where a claimant is in receipt of the maximum amount of universal credit, that universal credit will not be reduced below any amount included in their maximum amount for housing, children, disability and so forth. However, where a claimant is earning money and has other earnings over the disregard levels, the sanctionable amount will be a fixed amount not dependent on the level of the award. In circumstances where a claimant’s award is less than their maximum amount because of earnings, a sanction could reduce universal credit to less than the additional amounts for children and housing included in it. That, I hope, is obvious from the numerical examples I shared with noble Lords yesterday. Claimants’ other income will offset such reductions.

Fundamentally, the sanctions regime is designed to do what it does currently, albeit within the universal credit structure. We want to create a clearer and stronger system which provides clarity about the consequences of non-compliance and a more effective deterrent against repeated non-compliance. I can confirm to the noble Lord, Lord McKenzie, that the sanction regime and a sanction decision will not be contracted out. Clause 29, headed, “Delegation and contracting out”, does not include sanctions.

Clause 26 provides for higher-level sanctions of up to three years for claimants subject to all work-related requirements who fail to meet their most important requirements such as accepting a job offer. Failures sanctionable under Clause 26 clearly damage a claimant’s employment prospects and it is right that we have strong sanctions in place to deter such behaviour. Amendment 51FZD seeks to limit the duration of higher-level sanctions to one year. I can assure the Committee that we expect that three-year sanctions will apply only to a very small proportion of claimants who have repeatedly breached their most important requirements and where earlier sanctions have not worked to change behaviour.

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[Lord Freud]

I shall deal with the second point from the noble Baroness, Lady Sherlock, first. The point that noble Lords are concerned about is whether we are going to have any more private traffic-warden incentive systems—that is the issue. That is why noble Lords are concerned that we do not incentivise people to “clamp” claimants. I make an absolute assurance that we understand how unacceptable that is or would be, and we are determined that there will be no incentivisation in Jobcentre Plus to sanction. We have trained our advisers—the decision-makers, rather—to make these decisions in as neutral and considered a way as possible, in the interests of changing the behaviour of the individuals to make them do something that in the end will be of benefit to them. Getting them into a job is vital, and we are keeping the regime of conditionality. I make that assurance to noble Lords.

On the noble Baroness’s second question—or rather the first one, if I learn to count—we are able to vary the rate of recovery depending on personal circumstances so we would be able to take that into account and, conversely, courts would be able to take that into account.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his detailed response. I am comforted—indeed, I recognise some of the script—about the protections that are in the system to support disabled people, people with mental health problems and particularly those with fluctuating conditions; that has been a long-running theme in our debates over a number of years. I accept that the disability employment advisers are not necessarily the right people to do this, for so long as there is capacity in the system, it is part of the process.

I also accept what the Minister says about no targets or any other incentives to encourage sanctions, but we are entitled to a better explanation of what I understood the figures to be: last year the number of people sanctioned was 490,000, while now it is 760,000. Something is happening out there, is it not? The schedule that I have, which was a Parliamentary Answer that looked at the 40 per cent increase over that period—March 2010 to September 2010—is headed “Sanctions and Disallowance Decisions”, so the switch between sanctions and disallowance that the Minister prayed in aid does not seem to have affected that outcome. It is, in anyone’s language, quite a dramatic increase. We should remain very worried about that. I accept the point that my amendment in relation to people with disabilities was focused on Clause 26 but it is within Clause 27 that their work-related activity falls.

Could the Minister also take us through the various sanctions and say in respect of each what happens to conditionality while the sanction is being applied? Is there an ongoing obligation to comply? What is the sanction if you do not? In what circumstances can those sanctions be switched off—and which of them can be—by re-engagement and rejoining conditionality by individuals? Particularly for the longer sanctions, if there were no obligation to engage in conditionality over that period, what ramifications would that have for, for example, on the job programme? Could the Minister let us have his views on that?

I was going to raise the issue of the £25 additional possible deduction in relation to the next amendment on hardship payments and may revisit that. The Minister made reference to people’s rights of reconsideration and appeal. How would he judge the impact of the impending changes to legal aid cuts, where there will no support to go to an independent tribunal because legal aid for help in welfare benefits is being removed entirely? What compensating arrangements are proposed to address that quite vital withdrawal?

[Lord Freud]

First, one of the drivers of the increase in sanctions was the introduction and phased roll-out first of the jobseeker’s regime and then of flexible New Deal. In one way, we are looking at the history of some of the changes made by the last Government. Secondly, conditionality still applies through the sanctions regime.

Next, the noble Lord asked for a breakdown of the different sanctions regimes. That is rather complicated. I can send him a table of that, rather than going through it in great detail. The summary is that the lower-level sanctions switch off on compliance. Those are one-week to three-week sanctions—rather short by comparison with the higher-level sanctions. Those are essentially grouped around the more vulnerable people. They take those and when they start to comply the sanction comes off and there is a short period. I should remind your Lordships that the table I suggested is sitting there in front of the noble Lord. It is beautiful that he is so far ahead of me. I will not go through that in entire detail. I remember that it took a long time to assemble that table. I spent a lot of time on it.

On legal aid, the point is that one does not need legal issues to be debated here with all the paraphernalia of a legal case. These are practical, fact-finding tribunals where, in our view, one does not need that paraphernalia. It is not particularly helpful.

[Lord McKenzie of Luton]

Will the noble Lord accept that people in those circumstances may need advocacy, which is being withdrawn?

[Lord Freud]

My Lords, they may need advocacy but they can find supporters and bring them along. However, it is not a legal process; it is a fact-finding process.

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[Lord Freud]

I think that I can give good news and bad news. There are two issues here. The first is the person who had a disguised problem which then emerges. We have a solution to that: if it emerges that there was good reason, the decision-maker can reverse the position. The bad news is that we do not have a position where, once someone recants, they are forgiven instantly.

[Lord McKenzie of Luton]

I thank my noble friends for raising additional issues, following on from our earlier debate. My noble friend Lady Hollis seems to have posed a fundamental question which, with respect, the Minister has not fully dealt with. The question was posed to be helpful to the Government, not to try to undermine what they are seeking to achieve.

To the noble Lord, Lord Boswell, I say that no one is talking about being a “softie” in all this. We are upfront; we recognise that sanctions have a role to play in reinforcing conditionality.

The issue about a small group of people who might be sanctioned for three years, with the withdrawal of their benefit unaffected whatever they do in terms of recanting, puts them in a desperate situation. It means that they will be further away from the workplace. I do not know whether they can volunteer or would be involved in the work programme—these are issues that we can pick up in due course—but I urge the Minister to reconsider around this issue because there is something that could benefit the Government in what they are trying to achieve.

Having said that to the Minister and suggested that he might frame his diagram and put it alongside the Pensions Bill that he got last night, I beg leave to withdraw the amendment.

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[Lord Freud]

At the risk of being a little repetitious, I will try to summarise. Obviously, hardship payments are there to ensure that claimants and their dependants are not left in hardship as a consequence of a sanction. We do not want the existence of those payments to make people feel that they can ignore their responsibilities. That is why we are looking at what reform we can make to the current system. We will continue to provide the safety net for claimants and their children.

[Lord McKenzie of Luton]

My Lords, I welcome the Minister's response. I think it indicates some going slow on the issue, and that is the right course of action. The Minister said that there had to be a financial safety net for individuals. I certainly agree with that. If the financial safety net is 60 per cent of the basic amount, just under £40, I suggest that there is really no room to pursue any repayments of the hardship payment. The noble Lord's assertion that they would not start until after the sanction period had ended is to be welcomed, but that rather reinforces the point made by the noble Lord, Lord Kirkwood. It is all very well for the Prime Minister out in Australia to make great pronouncements about docking £25 from people's benefits. That is another example—we see too much of it from some members of this Government; although I certainly do not include the noble Lord in this—of using those sort of issues to get headlines and to berate people on benefits. That is deeply unpalatable.

[Lord Freud]

I cannot let the Prime Minister go undefended. He was emphasising the fact that unless a financial penalty for a crime actually hurts the person and has the impact of a punishment, it is not doing its job. He is concerned that the very modest rate of £5 a week is hardly an impact. Although I glow with delight at the separation that the noble Lord is trying to put between me and notional hard statements, I must say that the Prime Minister is clearly right in this matter.

[Lord McKenzie of Luton]

The noble Lord is secure in his position but, to be honest, he is anyway, given all the good work that he has done on the universal credit. Five pounds may not seem very much, but if, because you have been sanctioned, you are down to 40 quid a week or less, £5 will be very difficult to find; £25 impossible. We ought to have this debate at a much more mature level. Having said that, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I support the very powerful case that my noble friend Lady Donaghy made, and what the noble Lord, Lord Wigley, said. The case of self-employment is clearly very substantial. My noble friend Lady Donaghy spoke about two issues: how the self-employed should be treated, and the problems of those who are not technically self-employed but who are treated as such. I confirm that my noble friend wrote a very important and powerful report that she presented to the DWP. It gave the Minister at the time a lot of food for thought, from which he has not totally recovered.

I will press the Minister on a couple of points that my noble friend raised. What will the process be for self-employment? Will it be based on the accounting profits of the business or on the tax profits? The noble Lord will be aware that they do not necessarily amount to the same thing in the same time period: for example, because of depreciation allowances for plant and machinery. How will that work? For example, if a start-up records a loss in year 1, that will be a zero rather than a minus for universal credit purposes—but does the minus get carried forward to year 2 to reduce year 2 profits? Generally it would be for tax purposes, but will it for universal credit purposes?

The period of assessment that will be taken into account—the reporting process for self-employment—clearly is a significant issue. I am very unclear about the plans, and in particular whether they will specify tax profits or profits computed for tax purposes. Obviously over time the two ought to align, but they will not necessarily align in the same period. How they are treated for universal credit purposes will be of significance.

[Lord Freud]

My Lords, after spending four years writing the Lex column, I am absolutely aware that I cannot answer the question of the noble Lord, Lord McKenzie, off the top of my head. The definition of profits is a knotty and complicated issue that he is absolutely right to focus on. We need to get it right after detailed consideration. Of course it is a long-standing policy that people should be treated as having income or capital in cases of deliberate deprivation. This will continue under universal credit. However, we also think that it is right in principle to apply a minimum income floor to claimants who choose to be self-employed but whose earnings do not make them financially self-sufficient. Because universal credit is a benefit for people in and out of work, the issues around self-employment are different from the issues faced in the current system.

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[Lord Freud]

My Lords, because universal credit is a benefit for people in and out of work, the issues of self-employment are different from those faced under the current system. We need to have clear rules—in particular, on when conditionality requirements do or do not apply to people who are working for themselves and so have a degree of control over their hours and earnings.

Clearly, we need to avoid requirements that will add unnecessary burdens, especially for people who are starting out in business, but we cannot have a situation where people can be treated as being in full-time work for the conditionality purpose but, because they declare no earnings, receive as much benefit as if they were not working at all.

I appreciate that noble Lords have many questions about the detailed rules on the treatment of self-employment income. This is a complex area and we are still working through all the details. The experts in this field are in HMRC and we are working closely with them to develop our proposals. I can confirm that the level of assumed earnings will not be based on the number of hours that the claimant works. Instead, we would assume that a claimant’s earnings are at the level we would expect of claimants with similar circumstances in employed work. In response to the question by the noble Baroness, Lady Donaghy, and the observation of the noble Lord, Lord Wigley, this includes whether they are disabled. As part of our work with HMRC we are considering the assessment of self-employed earnings. It will be important to determine which rules from the current benefit and tax credit systems give the most appropriate framework for universal credit.

The rules on the treatment of self-employed claimants will be set out in regulations and the Bill provides expressly that the regulations on the minimum income floor will be subject to the affirmative procedure in the first instance. The House will have the opportunity to scrutinise the details in this area at a future date.

With regard to the noble Baroness’s amendment, the wider application of notional income capital rules rightly considers whether the claimant has manipulated their income in order to become eligible for universal credit. We believe that different issues arise in relation to self-employment and it would not be right to limit the scope to assume a minimum income in this way. I hope this explanation will allow the noble Baroness to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, I wonder if the Minister can help us further. In a situation where you have a start-up, where an individual sole trader is working all the hours there are to make a success of the business, doing all sorts of groundwork that often needs to be done, how is an assessment going to be made by the department that this is insufficient? What judgments are going to be made and how is that going to proceed?

[Lord Freud]

My Lords, the noble Lord makes a very important point and it is related to the point of the noble Baroness, Lady Donaghy. There are two areas where we will have to have specific rules. First, in the start-up phase, what are the rules for that and how long does one allow for it? Secondly, in the period when something goes badly wrong, when you have had a business going very well with profits and then you have a sudden collapse, what do you do about that period? That was the example that the noble Baroness, Lady Donaghy, raised. Those are two of the issues that we are looking at very closely and how to get that right.

One of the things we want to get out of this is the most business-friendly suite of support that we can put together. In this sense, working tax credit for the self-employed does become a support for entrepreneurial endeavour, tied with other support for new business such as the new enterprise allowance.

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[Lord McKenzie of Luton]

I do not usually come to the Minister’s aid but if you have two people in business together, that would be a partnership and you would typically look at each person’s share of the profits and presumably aggregate those if they are part of the same household, not if they are in different households.

[Lord Freud]

My Lords, this is one area where a single earner disregard makes life rather easy. I hope that we will be congratulated on that structure.

[Lord McKenzie of Luton]

Can I just make one other point? It is wrong of us to press the Minister as I know that this is embryonic and a lot of work is going on. If the process is to be some early report in that has to be assessed against what is eventually a tax assessment or consistent with VAT accounts, that sort of presupposes that there has to be some look-back or process of adjustment—in a sense the tax credit-type arrangement, which is quite different from the real-time earnings for employed people. Does the noble Lord envisage that as part of the system?

[Lord Freud]

It is clear that we cannot use real-time information for the self-employed. It is another system. It will be much closer to the kind of reporting systems for tax credits in this area—and for that reason.

Pensions Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 31st October 2011 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of this group of amendments, the helpful background he has given us and his kind words. As the Minister said, the amendments focus on the auto-enrolment provisions, and we put on record our support for the Government’s commitment to take these forward. My noble friend Lady Drake asked the question that I was going to ask, about timing. Could the Minister confirm that it is on track? I do not know whether the Minister can update us on issues around self-certification arrangements, and whether any progress has been made, but maybe that is a matter for correspondence outside the debate.

We remain unhappy with some of the changes to the scheme introduced by the Bill, particularly the hike in the earnings threshold, but now, frankly, is the time to make progress. Turning to the specific amendments, there are just a few points. Amendment 3 deals with continuity of scheme membership and achieves this by requiring automatic re-enrolment to take effect from the day after the day on which the jobholder ceases to be an active member of a qualifying scheme. However, the alternative of allowing a period of time for re-enrolment is preserved whereby the Secretary of State can allow for that period. Given the “day after” requirement, when is the alternative approach likely to be invoked? A similar point arises in connection with Amendment 7.

We support the extended protections dealt with by Amendments 4 and 8. My noble friend Lady Drake has given her welcome to Amendment 11, which has my welcome as well. She talked authoritatively about how important this issue is and about the changes happening in the marketplace. That is therefore a particularly important amendment.

We have no problems with Amendment 12, which deals with a test scheme for certain types of defined benefit schemes, or with Amendments 13 and 14, which deal with certification of schemes where the main administration is within the EEA.

A clarification on protections of back payments for jobholders enrolled into workplace personal pension schemes obviously has our support, but perhaps the Minister could provide us with a little more detail about the scope of Amendment 17, which provides a regulation-making power to exempt employers from auto-enrolment duties where a person is a European employer. What assurances do we have that employers would not be able to organise in such a way as to bring themselves within those “European employer” provisions and therefore be outwith auto-enrolment? An assurance on that point would be helpful but, subject to anything arising from these points, we are content and will support these amendments.

[Lord Freud]

First, I thank noble Lords for their stamina in listening to this debate on a very technical set of amendments indeed. They are about making sure that the legislation works, as the devil is in the detail. I repeat my thanks for all the help and support that I have had across the House on some of that detail. The important principle underpinning these refinements to automatic enrolment is that we ensure that individuals are preparing and saving for their retirement. Automatic enrolment will mean that 5 million to 8 million people will start newly saving, or saving more. This is a positive move, on which I know there is consensus across the House.

Turning to the specific questions, I will start with timing, which was raised by the noble Baroness, Lady Drake. She asked when the new duty for employers will come in. I am happy to confirm that automatic enrolment will begin, as planned, next year. On self-certification, which was raised by the noble Lord, Lord McKenzie, we recently finished a formal consultation on draft regulations, which are on track to be in place for next year.

On the issue raised by the noble Baroness, Lady Drake, of the deferred member charge cap, we are extending a reserve power which we have to set a charge cap for pension schemes used for automatic enrolment. This reserve power is intended to be a safety net and to allow the Government to step in and protect all members of automatic enrolment schemes from inappropriate high charges. I am sure noble Lords will agree that it is not right that members are charged higher fees just because they move jobs. We remain vigilant about charges in the pensions industry. We see the market as broadly competitive at the moment, with the majority of workplace pension schemes having annual management charges of less than 1 per cent. We expect NEST and competitive forces to keep the downward pressure on charges but this power will enable us to intervene if necessary and make sure that members are not charged excessive fees. The stakeholder group Which? has strongly supported this amendment. I thank the noble Baroness for her support on this important issue and am confident that it will gain support across the House.

The noble Baronesses, Lady Drake and Lady Hollis, raised the issue of small pension pots, which perhaps goes slightly wider than this set of amendments and on which we spent a lot of time in Committee. On average, individuals will change employers 11 times during their working lives. DWP modelling suggests that after 2017 this will lead to in excess of 200,000 small pension pots of less than £2,000 being created each year. We want to ensure that people can get control of their pensions, build up a single substantive pot and be able to purchase a good annuity. In the interim government response to the call for evidence on regulatory differences that we have published, we have committed to setting out a decision on short-service refunds and addressing small pension pots. We know that this will be difficult, which is why need to work with employers, the pensions industry and consumer organisations on tackling this. For this reason, we intend to publish the full set of proposals in the autumn and to consult widely on possible options. These will include considering whether an individual’s pension pot could follow them from job to job as they move employers. The action for this would be behind the scenes and would require little action from the individual. Perhaps it is too early to say whether this will be possible, but this is an important issue, as the noble Baronesses pointed out, and one that we need to get right.

I turn to some of the more technical issues on which the noble Lord, Lord McKenzie, sought assurances. Continuity in automatic enrolment is covered by Amendments 3 and 7 to Clause 4. They create the default position that, in continuity of scheme membership cases—where an individual ceases to be a member of a qualifying scheme through no fault of their own—an employer must automatically re-enrol the jobholder from the day after the day on which they ceased to be a member of a qualifying scheme. The clause, as amended, still allows for a period to be prescribed during which the enrolment must occur. We do not intend to prescribe a period. This is purely a precaution in case it becomes clear that circumstances exist in which it is not possible for an employer to comply within the one-day timescale.

The noble Lord, Lord McKenzie, was also looking for an assurance on cross-border provision around Amendment 17. The amendment provides for a power to make regulations. It does not change our policy on automatic enrolment. If the power is exercised, the regulations will exclude a jobholder from automatic enrolment only if they are an individual in relation to whom their employer is a European employer, as set out in regulations under the 2004 Act. An employer is a European employer only if he has worker who, by virtue of his contract of employment, is sufficiently located in another EEA state for the social and labour laws relevant to the occupational pensions of that state to apply. The risk of a jobholder being in this position is relatively small. The definition does not cover workers who are posted to another EEA state for a limited period to work in that state for their UK-based employer.

[Lord McKenzie of Luton]

I think the Minister said that auto-enrolment was due to start on time next year? Could he confirm that the proposed and published timetable for staging will remain as it is?

[Lord Freud]

My Lords, yes, I can confirm that we currently plan to move along the timetable as set out.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 26th October 2011 Grand Committee

[Lord Freud]

As I say, that will depend on the particular circumstances of that family. That is the point I am endeavouring to make.

I would like to finish with the point about the cost to the claimant of being employed. That is an issue that we are going to pick up in later amendments so I will not go into it in great detail. However, we recognise the need to take account of those employment costs, and I will pick that up more generally later.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his responses to a lot of detailed questions. I will just touch upon the issue of the management of our affairs. As the noble Lord has said, the proximity of briefings to Committee sittings has not helped. The situation was not helped by accelerating our start in Committee. I accept the point made by the noble Lord, Lord Wigley, that putting amendments down late in the day does not help our deliberations. I suggest—and this will send shivers down the spine of usual channels—that we ought to defer next Tuesday’s sitting so we could spend the time getting on an even keel and perhaps get back to business as usual. I offer that to the Minister without any great expectation that he may be tempted by it.

I thank all noble Lords who have participated in this debate. The noble Lord, Lord Skelmersdale, posed the question of whether this would be claimant-driven or Jobcentre Plus- or provider-driven. I understand, and I think the Minister confirmed, that this goes into the claimant commitment right on day one. There might be a discussion around that but it is something that is very much going to be driven by Jobcentre Plus or the providers.

--- Later in debate ---

[Lord Freud]

My Lords, clearly there are circumstances where the main barrier to an individual getting work is an inability or reluctance to interface with online systems. They may need some pressure, because people sometimes do need pressure. We find that mandatory processes get much higher outputs that voluntary ones in many cases. In those circumstances, I can imagine that outright refusal could earn a sanction. However, it will not be used in circumstances where clearly it is not appropriate or where there is a genuine inability to use those services. On that basis, I urge the noble Lord to withdraw the amendment.

[Lord McKenzie of Luton]

I am grateful to the Minister for his explanation but I would like to press him on a few points. I share the concerns of the noble Lord, Lord Wigley, concerning the online profile. The Minister said that this would not be imposed on somebody, but if it is going to be such a valuable tool to help people into the labour market there is still the residual question of what support is going to be given to people who do not have the innate ability.

[Lord Freud]

At the risk of the noble Lord, Lord McKenzie, saying that we have not developed the whole system, I should say that it has not sprung, like Athena out of Zeus’s head, fully formed.

--- Later in debate ---

[Lord McKenzie of Luton]

I thank the Minister for that and I understand his explanation of personal presentation. However, I press him on issues of work experience and work placement, because I do not believe that he Minister dealt with the question I posed about Clause 54, where an amendment to the Welfare Reform Act 2007 states:

“The reference to activity in subsection (7) includes work experience or a work placement.”

That adds something to that description, which presumably is done for a purpose. We would all, I am sure, recognise the benefit of work experience and work placements; but the issue is the extent to which those people who have limited capability for work, but are capable of work-related activity, can be caused to undertake them. That would be a departure from the current position. Are those part of what ESA claimants can be encouraged to do? I am trying to understand what the distinction between those and work is. When we debated issues of work for benefits under, I think, the Welfare Reform Act 2009, we debated workfare and the benefits or otherwise of all of that—generally otherwise—and the extent to which that was close to or tied up with work placements and work experience. If those issues relate to those who are fit for work, that is one thing; but is there not a risk that, under this legislation, we are importing that into another group, after those people have gone through the WCA assessment? That is my concern.

[Lord Freud]

My Lords, clearly preparing for work shades across a number of aspects. Perhaps the most interesting area here is the way that some work providers in the work programme actually help people. One of provider actually sets up the whole experience of work in its own operation. The actual experience of work for people who are in the WRAG group, if it is properly controlled in terms of work experience and work placement—I know the noble Lord will have concerns on this—and does not become a work substitute, is part of the building-up for that person; just as developing some skills would be. That could be an immensely valuable stepping stone for people, and that is the stepping stone we are aiming to introduce in this legislation.

[Lord McKenzie of Luton]

I understand that point, and I think we share an understanding of the benefits of those sorts of arrangements. However, we are here introducing a term that has hitherto largely been attached to those who are in work, without any protections around it. In so far as work placements can effectively be the same as work—at least at one end of the spectrum—what is to stop providers putting people in the WRAG group through that process, and thereby effectively causing them to work, when the designation under the WCA is that they should not be in that group?

[Lord Freud]

My Lords, I cannot write in protections today but I give the assurance that this measure is intended to be a building block for the individual, not a substitute for work. I will think about how we can make that absolutely clear to offer comfort in that regard. I might be able to do that through a formal statement. I want noble Lords to be absolutely clear that this measure is a supportive element. It is not designed to be anything but supportive in allowing the claimant to take key steps to get back into the workplace.

[Lord McKenzie of Luton]

I thank the Minister for those comments and look forward to a fuller response on the protections later, as I remain concerned that we are opening a gate as regards people not being required to undertake work. This is effectively a step in that direction, if not in some instances a step into it. There are issues about how those protections might be organised. If we are going down the route of work placements, what assurances do we have in respect of providers of those work placements that they are not simply using this measure to churn staff and not do what they should do, which is to employ them properly in the first place? However, perhaps those issues can be dealt with further down the track, given that the Minister has given an undertaking to see how he can provide us with assurances in that regard. Having said that—

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[Lord Freud]

Yes, soothe fears but also put this matter into context. We are essentially importing the existing arrangements, subject to the work experience issue that the noble Lord, Lord McKenzie, raised. We have drawn up an illustrative list. The noble Lord, Lord Wigley, referred to a draconian power. That is the structure that we have imported into this Bill. That structure has been debated thoroughly by many noble Lords in this Room over a number of Bills, so we are not trying to do anything dramatically new here, albeit with a nudge towards work experience. I said to the noble Lord, Lord McKenzie, that I would make absolutely clear what the protections are and how we intend to run the system. I think that the noble Lord, Lord Wigley, is looking at the whole thing as if it was a dramatically new and draconian way of doing things, but it is not. We are importing the existing methodology into the context of the universal credit.

[Lord McKenzie of Luton]

My noble friend says that it is all my fault; I am not sure I ever introduced anything like this, but perhaps she did.

The key issue here is that the requirements are not necessarily blanket impositions on individuals, and where they are particularly beneficial there is support for those who are not able, without that support, to benefit from them. Otherwise they could be excluded from some job opportunities.

We have given these amendments a good run through. I look forward to the follow-up from the Minister, but beg leave to withdraw.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I will be brief. The amendment is intended to ensure that actions taken by or on behalf of the Secretary of State relating to work preparation requirements are determined after consultation with the claimant, and take account of activity the claimant is already undertaking which contributes to gaining experience, skills and aptitude for work.

Reflecting on our deliberations at the last Committee sitting, I should stress that this should involve consultation. It does not have to be a process of agreement, although hopefully it would be. This has special relevance in relation to volunteering. For example, we have had material, as I am sure other noble Lords have, from an organisation called Catch22, which refers to its intensive volunteering programmes with young people. They contribute to preparing young people for work.

We acknowledge that Jobcentre Plus should not be required to take account of every pastime or whim of individual claimants, but structured programmes, such as the volunteering opportunities identified, appear helpful. It must be better to work with the grain of such activity. That is all that the amendment seeks to achieve. I beg to move.

[Lord Freud]

My Lords, work preparation requirements will be imposed only where it is appropriate in the circumstances of the claimant. This will always involve a discussion between an adviser and the claimant, to determine any barriers to work and the steps required to address them. Where a claimant has already taken steps to improve their experience, skills and aptitude for work, this will of course be reflected in the requirements placed on them.

We will ask claimants only to do things that we believe will make it more likely that they will move into work. Asking them to go on a course to gain skills that they already have, for example, would be a waste of the claimant’s time and, indeed, of our scarce resources. We therefore agree with the spirit of this amendment. We disagree on whether it is necessary to put it into primary legislation. We do not have provisions of this kind in legislation now, and, similarly, we do not think it appropriate for universal credit.

On the volunteering point, clearly we have expanded or enlarged the opportunity for work search claimants to volunteer, as long as it does not affect their ability to continue to search for work. I therefore urge the noble Lord to withdraw this amendment.

[Lord McKenzie of Luton]

I thank the Minister for his reply and will certainly withdraw the amendment. One point pressed on us was that if there is a recognition that volunteering programmes can be beneficial, perhaps that could be recognised by Jobcentre Plus in the other programmes that it is structuring for individuals. There have been suggestions that sometimes people slip out of volunteering programmes because they cannot keep the commitments, because they have work-focused interviews or other mandatory activity.

--- Later in debate ---

[Lord Freud]

My Lords, I was finishing my response to the noble Baroness, Lady Sherlock. We are fixing a broken system in structural terms so that the benefit system which currently does not reward work will now do so. There will be a consistent taper and more generous disregards, so this is a big move. One can overcomplicate it but that is a sterile debate which we do not need to go into.

I shall turn to the question raised by the noble Baroness, Lady Hollis, on the importance of how skilled Jobcentre Plus advisers are. This is an important point and one that the noble Baroness will have recognised from her time in the department. We are now positioning Jobcentre Plus advisory services as a profession with a clear career path, accredited learning and ongoing professional development while delivering to a set of standards recognised as best in class. The learning programme for Jobcentre Plus advisers is regularly updated to reflect changes in policy. This ensures that they have up to date skills to deal with any claimant interaction and supports them in making relevant and appropriate decisions in individual cases.

We are making sure that a range of supportive products, guidance, assessment tools and management frameworks are produced to assist understanding and aid delivery of a more personalised service. As I said the other day, the satisfaction of claimants is now running at 88 per cent, and clearly the objective is to get that figure as high as we possibly can.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply, and all noble Lords who participated in this short debate. I think he would have heard the issues about difficulties with travel and costs from my noble friend Lady Hollis, my noble friend Lady Sherlock, and the noble Lord, Lord Wigley. We take the point that these things need to be looked at on a case-by-case basis, and that there will be elements of discretion and judgment in that, but my noble friend Lady Hollis pressed on the issue of training. I do not know how hot the news is that the Minister has just given us, but the professionalisation of Jobcentre Plus is to be welcomed. Is he going to tell me that he started this a couple of years ago?

[Lord Freud]

It is not that hot.

[Lord McKenzie of Luton]

It is a good move, because it is important. However, I do not think I can let the noble Lord get away with the constant assertion that the current system that they are seeking to replace by universal credit does not reflect the fact that work can pay. Overwhelmingly, is it not the case that it does? It may be that a very complicated calculation has to be gone through in order to prove it. I accept entirely that simplification of how to deal with the in-work, out-work issue is to be welcomed and is something we support. However, I do not think it is right to say that, overwhelmingly, work under the current system does not pay.

I would hang on to the point that if there is to be discretion in the system, then why is there not protection at the individual level so that someone cannot be forced to undertake work that would make them worse off? Is there going to be some reassurance at the individual level? There can be regulations which have appropriate caveats around timing issues; it is not beyond the wit of the Government to do that. In all of this change and uncertainty which still has to be resolved in many areas, would it not be reassuring to individuals that if it was clear that they would be worse off, they could not be forced down a path? That seems entirely reasonable to me.

--- Later in debate ---

[Lord Freud]

We will get there soon.

[Lord McKenzie of Luton]

The noble Lord makes a fair point and we will be perfectly happy to pick up the discussion on these issues when we debate the clause. However, the noble Lord for his part might like to recognise a couple of suggestions that have come forward. He might like to add them to the list of things that will be included in the pilots. In the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

I thank my noble friend for that, although I think in practice paragraph (d) allows a Government not to impose conditionality. This measure protects the individual. Of course, I absolutely understand my noble friend’s suspicion that the measure might overrestrict what another Government might do, which would not favour getting people into work. I am sorry; that was meant to be a joke.

Let me come back to the matter in hand. Given that we expect the first use to set the principles and to remain broadly unchanged, I hope I can assure noble Lords that affirmative for the first use is appropriate. We have set out how we intend to use this power. We define a threshold, as we have set out in our note, and add in the additional groups, as in the draft regulations. I can assure the noble Lord, Lord McKenzie, that we do not expect significant changes to this. For this reason, I ask him to withdraw this particular amendment.

[Lord McKenzie of Luton]

I thank the Minister for that reply. As we discussed earlier, we understand the need for the sort of thresholds that are envisaged here, and why they are there. We also understand the need for scope for a further category of claimants who will be subject to no work-related requirements at all.

The noble Lord, Lord Skelmersdale, is right that this is a fairly broad power. I would not put it in quite the terms that the noble Lord does, and I am not sure why, if he envisages that there may be a different Government in the future, it might not be made up of people on this side of the Chamber, although perhaps that is a debate for another day.

This was raised because we wanted to focus on the issue that subsequent uses of the power will only make minor adjustments—since that was what the Delegated Powers and Regulatory Reform Committee were seeking in the noble Lord’s answer—particularly in relation to thresholds of hours-worked earnings, and the amount of universal credit payable. If the assurance is that it will only move in a minor way from the starting position, then it addresses precisely the issue that we were probing. On that basis, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

This is another set of amendments that are probing amendments only, and should be straightforward for the Minister. It may be easier for him to commit to write. The probe is about getting clarity on conditionality and couples. It relates to the whole hierarchy of the circumstances where there is no work-related requirement, there are work-focused interview requirements, work preparation, work search and work availability.

We understand that the principle is that each member of a couple will have an independent conditionality determined according to their circumstances, although there will be situations—for example, for couples with young children between the ages of five and 12—where couples can nominate a principal carer to be treated as a lone parent for conditionality purposes. That seems to be the situation as I understand it, even in circumstances where the one with the more onerous conditionality requirements can opt for that position. As we discussed earlier, this is notwithstanding that the joint income of the couple is taken into account; for example, in determining whether the conditionality threshold is reached. Sanctions will apply on an individual basis but obviously will be withheld from the couple claim.

There are doubtless all sorts of other nuances in this. I am just keen to get clarity on all of those things. If it is easier for the Minister to write, so be it but if he has got something there, that would be good. I beg to move.

[Lord Freud]

My Lords, given the time, rather than try to rush the next amendment, instead of writing I will go through the answers on this probing amendment.

As we increase support to make work pay, it is right that, where they are able, individual claimants do everything they reasonably can to find or prepare for work. In the current system, the support people can access and the requirements they have to meet depend to too great an extent on the benefit they or their partner claim. In the out-of-work benefits it is often the case that one member of a couple makes the claim and will be subject to conditionality. But their partner is not really considered and is not subject to any meaningful conditionality; for example, the partner of an ESA claimant may be fully capable of work but we do not ask them to take steps to find employment. Clearly this cannot be right.

Under universal credit we want to change this. We want to encourage and support all claimants who can work to take all reasonable steps to do so. Consequently, under universal credit conditionality will be applied to claimants on an individual basis. We will be able to ask each member of a couple, in a benefit unit that falls under the conditionality threshold, to meet work-related requirements. These will be tailored in line with their personal capability and circumstances. This includes taking account of any physical or mental conditions or caring responsibilities an individual may have.

Where a couple have children, they will be able to choose a nominated carer who will have access to the same limitations to requirements as a lone parent; for example, where the child is under five the nominated carer will fall into the group subject to a work-focused interview requirement only. Where they are work-ready, the other member of the couple will fall into the group subject to all work-related requirements and be expected to look and be available for work. As indicated in the policy briefing note published on work search and availability requirements, a couple may choose not to nominate, allowing scope for couples to share childcare and work responsibilities.

We are carefully considering the detail of how the nomination process will be implemented and, where necessary, we have scope to draft regulations. However, we do not believe any additional regulations are necessary to operate a conditionality regime where requirements are applied to claimants as individuals. To try and spell out in legislation all the permutations of different couples’ requirements would be complicated and inflexible. I hope I have explained the context of this adequately. If there are other issues, we can go to writing but I thought it was worth getting the core of this on the record. On this basis, I beg the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

I am grateful to the Minister for that response. I am happy to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 24th October 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I support each of these amendments. Perhaps I could start with a reply that was given by Mr Chris Grayling to Stephen Timms in the other place about the cost of this. He said:

“It is estimated that this policy could save up to £100 million over this spending review. Because of the interaction with other changes to support pensioners, which are still being developed, we are not yet able”,

to produce,

“a firm estimate for a long run figure for savings”.—[Official Report, Commons, 18/10/11; col. 936W.]

Notwithstanding the fact that the Government have apparently argued in favour of this policy, because it brings working-age claimants within the conditionality regime, that is the thrust behind this as I understand it.

We heard from my noble friend Lady Drake and the noble Baroness, Lady Greengross, about the possible cost implications for individuals who would have been within the pension credit regime now being forced into the universal credit regime and the losses that could produce. There are not necessarily losses for everyone. Yet the original proposition in the White Paper, as I understand it, was for there to be a choice: that in these circumstances a couple could choose universal credit if they wanted to, or otherwise stay within the pension credit regime. This matter was raised in the other place and I do not think that a satisfactory answer was given for that change of policy which was, by and large, unannounced. A number of points arise. I think it has been confirmed that those who are already in receipt of pension credit when these provisions are introduced will not have to back out of it. Perhaps the Minister can confirm that, but what about if there is a change in circumstances for somebody in that position? If they were perhaps dipping in and out of pension credit because of the savings threshold—or for any other reason—and if they were in at one stage, would they be able to stay in?

My noble friend Lady Drake dealt with the impact of savings. You could have somebody who has just retired and who would have been within the pension credit regime, and maybe just taking a tax-free sum from their pension scheme, now being precluded from being within pension credit and forced out of universal credit as well. On that point, there is a provision in the Bill—I think it is Clause 64—which lays the groundwork for caps to be introduced on capital amounts within pension credit. I am not clear whether that is just to address the issue of housing benefit being attached to pension credit in the future, which has a capital limit attached to it, or to bring the generality of pension credit within the regime that is otherwise going to operate. Perhaps the Minister will take the opportunity to clarify matters on that.

We heard about the impact of passporting, particularly with pension credit currently being a full passport to housing benefit and council tax benefit. However, if in fact the working-age partner does not have to be subject to any conditionality because of a caring responsibility, or for any other reason—perhaps they are subject to no work-related requirements under the assessments that take place—why then would the Government still force that couple through universal credit? If the rationale of using the universal credit to bring people within conditionality falls away, why should those couples not then have the opportunity of remaining in pension credit if they choose? It does not make any sense to say, “We are doing this because we want people to be subjected to conditionality”. If the conditionality rules do not impose any work-related activity or requirement on those individuals, why should they not be able to remain in the pension credit regime?

As has been mentioned, this provision is discriminating against somebody not on their age but on the age of their partner, which is somewhat of a departure from previous policy. I hope that the Minister will address these issues. I fear that this is something which we will have to come back to at Report, because it cannot rest as it stands.

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

My Lords, Amendments 50A and 53 concern couples where one member is above qualifying age for pension credit, and the other below. The Bill provides that such couples will in future claim universal credit rather than pension credit. I should stress that this change will not affect couples already in receipt of pension credit. It will apply only to new cases. The effect will therefore build up slowly and existing cases will not be disturbed.

In response to the point made by the noble Lord, Lord McKenzie, we still need to decide how to deal with cases which move on and off pension credit in future. To pick up on the point made by the noble Baroness, Lady Drake, about the impact assessment, this shows the long-term effect, and not the immediate impact.

I am grateful to the noble Baroness, Lady Greengross, for clarifying that she is not opposed to this change of emphasis in principle. The rationale is that while one member of the couple may be over the qualifying age for pension credit, the other member of the couple is of working age. Since all people of working age who can work should be expected to do so and there are no work-related requirements associated with pension credit, it follows that universal credit is the appropriate benefit. I should stress that the work-related requirements would apply only to the working-age partner.

I am grateful to the noble Baroness, Lady Greengross, for also acknowledging that in some cases the more generous earnings rules in universal credit may mean that it is a more advantageous benefit than pension credit. The disregards and earnings tapers in universal credit will mean that if one or both of the couple does work, they will keep much more of their earnings than they would in pension credit where earnings over £10 a week are deducted pound for pound from the guarantee credit.

The issue is about the rate of universal credit and how this compares with pension credit. Noble Lords will be aware that the levels of support through pension credit are significantly higher than levels of current benefits for people of working age. This is due in particular to the way in which pension-age benefits have been uprated at a faster rate than working-age benefits in recent years.

--- Later in debate ---

[Lord Freud]

My Lords, I do not think I can give a precise time on this because there are quite a lot of moving parts at the moment. All I can do is assure the Committee that we really do have this issue front and centre if we have these two sets of changes. I hope I have explained how we are planning to proceed, and I ask the noble Baroness, Lady Greengross, to withdraw her amendment.

[Lord McKenzie of Luton]

Will the Minister follow up on two points? First, in a situation where the Secretary of State cannot impose the work-related requirement on a claimant because the claimant has limited capability for work and work-related activity, there is nothing in forcing people away from pension credit and into universal credit because the working-age partner is not going to be subject to conditionality in any event. What is the rationale then for preventing people being in pension credit? It seems to me that it falls away completely.

There is a separate question about the impact of capital. My noble friend Lady Drake made the point that currently there is a big difference between the capital rules in pension credit and the capital rules that will operate in universal credit, but there is a provision in the Bill that looks as though a capital limit will be introduced for state pension credit. I do not know whether it is intended that that capital limit will mirror the £6,000 and £16,000 limits that are going to operate generally. If it is, I am not sure that I had cottoned on to that fact before. Or is it simply to deal with the housing component that is obviously going to be brought in and will work alongside pension credit?

[Lord Freud]

I think that I am safe in confirming to the noble Lord that we are bringing in capital limits. They are related to the housing issue, although I think that my colleague Chris Grayling said that they will be at a substantially higher level than those for universal credit. The noble Lord also probed the issue of people where no work conditionality is imposed. Clearly, within universal credit, other additions are going on. It is not a straight comparison. Under universal credit, the other person is likely to have a series of additions as well, so the imbalance is nothing like as great as the simple one.

[Lord McKenzie of Luton]

I accept that point entirely. But under those circumstances why should the option not be available to people, to couples, to go into one or the other, which I think was the original proposition in the White Paper?

[Lord Freud]

That is the nub of the change. When we looked at it, we thought that the appropriate policy was to put everyone below working age in that category. On looking at the noble Lord’s question of why do it when there is not work conditionality, there we have support in universal credit through the additions and the ability to keep a rather simple set of definitions working. That is the rationale.

[Baroness Greengross]

I thank the Minister for responding. Obviously, I am disappointed because I think that it would work in a society where at the age of 55 one could just go and get a job, but we know that that is not the case. Unfortunately, there is a still a lot of discrimination and barriers to older people who try to get a job. More flexibility would be very welcome. I think that the noble Lord said that he cannot do more but that he is still looking to see if things can be improved for these couples. I have hopes that he will look at this again and try to improve on something that seems fairly minor but which would help a lot of people.

--- Later in debate ---

[Lord Freud]

My Lords, I very much remember the debates we had last week. I am thinking very deeply about some of the observations made by noble Lords in this Committee, and I think that is probably as far as I should go today.

We operate in a world of finite resources, and we need to target them appropriately. Clearly, at the moment, we do not refer all claimants to the work programme until 12 months into their claim. We pull some further forward. So we need to ensure we continue to have flexibility to allocate resources in the most effective way.

The noble Lord, Lord McKenzie, asked what is happening to work-focused health-related assessments—WFHRAs. The suspension of the WFHRA allows us time to re-evaluate the assessment, particularly in the light of the new work programme, and to consider whether its operation can be improved better to support claimants or whether this support should continue to be provided in other ways. I do not propose to second-guess the outcome of that review or to place constraints on our ability to take the best course of action on that.

On training, we already have a system in place for the professional development and upskilling of advisers. This includes access to a learning framework endorsed by Edexcel, the UK’s largest qualification-awarding body, which will be updated to reflect changes in policy ahead of universal credit. We strongly believe that our advisers are up to the task of personalising requirements and support. We have some very experienced professionals in Jobcentre Plus and their decisions are supported by relevant training, tools and guidance. In a Jobcentre Plus customer survey carried out this year, 88 per cent of claimants reported that they were satisfied or very satisfied with their experience of Jobcentre Plus. The changes we are making in Jobcentre Plus are precisely intended to allow district managers and their advisory teams more freedom and autonomy rather than having to follow a tick-box, process-driven approach. It is critical that we maintain flexibility in legislation to tailor training and tools according to business need and developing strategy. For all the reasons outlined here, I urge the noble Earl to withdraw the amendment.

[Lord McKenzie of Luton]

I thank the Minister for his reply. I shall follow up on one or two points. I asked him if he would take us through the claimant journey at the moment, and he did that partially by saying that it is 12 months before claimants get into the work programme, although I am not sure whether that is right for everyone.

[Lord Freud]

I am sorry. I realise I did not answer that question fully. It is quite complicated, and it is probably easier to see on a graphic, which we have. I commit to making it available afterwards. I also realise that I failed to answer the series of questions asked by the noble Baroness, Lady Meacher, about the timing of the review process after the adjustments. It is pretty early days for those adjustments but, rather than detailing them again, I shall add them to the same letter and make that available.

[Lord McKenzie of Luton]

I thank the Minister for that. I revert to issues around the black box or the equivalent period before people are in the work programme. I was not arguing for lots of conditions other than, I guess, robust contractual conditions imposed upon providers, but providers within the flexibility that the black box gives them should be particularising in individual cases how they are going to support individuals. It is that that ought to be spelled out in some way.

[Lord Freud]

There is a genuine difference of approach with the work programme. I know that we agree that what we have done with it is evolutionary, and in some ways it is very evolutionary. We have learnt a lot from what has happened in the past decade. In particular, one of the things the work programme builds on is the employment zones, which were by far the best performing welfare-to-work programme in the past decade. That is the experience. The issue is that if you have a payment-by-results system, I strongly believe that it forces providers to provide an individualised service. What matters is that you get that one person in. I can say exactly what drove this insight for me, and it might have been someone from the Shaw Trust. They said to me, “If somebody needs these eight steps to get back into work, it is no good if you have a top-down system that says ‘these are the six things you have to do for everyone’. You can do those six things but that person who needed eight things will still not get into work”. That insight drove me towards payment by results as the model. If you want to get that person into work, you will need a particularised, individualised process to do that. You cannot legislate for that at the centre. It cannot be laid down. We must not put too many central requirements because it changes all the time. That is a difference of philosophy and the one that lies behind this issue.

[Lord McKenzie of Luton]

I do not think that we are apart on that issue. I am not arguing for six constraints to be placed on every provider which must be carried out in every case. The point is that if the black box enables eight steps to be provided in a particular case to get someone into work, that is fine, but why could not the provider simply ensure that those are set out for the claimant? What is so difficult in doing that so that the claimant has the reassurance of the journey that they will go through to get into work? There could be flexibility over that. It does not need to stay at those eight steps for ever. But if that is what the provider has concluded is needed to get someone into work, why should they not give an undertaking or commitment to the claims?

[Lord Freud]

My Lords, there is a simple answer to that. You start off on a journey thinking that there are eight steps, which you might write down. If it is a formalised process and you decide after three weeks that, “Actually, I do not need to do these two steps or I need to add another two”, you might change it. You might change it weekly, as people change. If we have an overformalised process, we just make that in management terms impossible and very expensive. I would resist it on those principles.

[Lord McKenzie of Luton]

I do not think that we are going to agree on this issue. But one is not arguing for rigidity: one is simply arguing for the fact that claimants ought to understand the process that they are being asked to go through. If some steps can be missed out or other steps added, that would be fine. No one is saying that that should not happen. Put simply, there should be some obligation as regards the claimants, who should know what is going on and what the provider is seeking to help and to support them with. Perhaps this is an issue on which we will not settle today and to which we will have to come back.

Part of the debate from the noble Baroness, Lady Meacher, who read the script of the noble Lord, Lord Skelmersdale, was about ESA. In a sense, it is a forerunner to the determinations that we are talking about because the categories that people find themselves in are a consequence of that WCA process. The claimant programme moves on from that, which I hope we will discuss in more depth later in our deliberations on Clause 38. On behalf of the noble Lord, the noble Baroness, Lady Meacher, made the point that Jobcentre Plus staff are well trained and highly qualified, which I accept entirely. We hope that providers would have robust training programmes. But what information from the WCA will they have before them when they are seeking to devise the individual programmes?

[Lord Freud]

The medical information in the WCA is sensitive and personal, which is gathered at an assessment. It informs benefit entitlement and does not provide comprehensive information about readiness or not. In practice, it is likely to be of limited use to advisers and, for that reason, is not shared.

--- Later in debate ---

[Lord Freud]

Let me clarify what information goes over. The former WCA is confidential and does not go over. How does the adviser build the revised requirements with the claimant? The evidence that he uses includes the claimant’s fit note, advice from Atos—not the former WCA, but some advice can go over—and other medical evidence. Those things come together to form the basis on which agreement is reached.

[Lord McKenzie of Luton]

My Lords, we have probably taken this as far as we can this afternoon. I would certainly like to read the record and reflect on it. We ended on a high note. The Minister made reference to a fit note, which is most welcome. There is a conundrum here which I do not think that we have bottomed out this afternoon. We propose to take it away and I imagine that we will wish to return to it on Report.

[Lord Freud]

There are quite a few moving parts to this. I have talked about the WFHRAs reviewing that and there is also a review coming out on the sickness absence regime in the not too distant future. There are areas that need to be brought together, which impact on this reasonably specifically.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 18th October 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I shall endeavour to speak up, George. I am not sure whether it is this camera that you want me to speak to.

This is by way of a probing amendment. It was prompted by an article in the Times of 14 October. The article suggested that people were to be denied their benefits if they appealed against the determination. That seemed to be in the context of the reassessment of incapacity benefit claimants, particularly those who were denied ESA— the work-related activity group— who could therefore qualify for jobseeker’s allowance. The article stated:

“Hundreds of thousands of welfare claimants face losing their benefits for months if they challenge a ruling that they are fit to work. Ministers are looking at removing payments during the appeals process in an attempt to slash the number of challenges that are threatening to derail the Government’s benefits reforms. The unprecedented move is being considered as one way to unclog the courts which are set to be inundated with appeals as the Government attempts to reduce the annual £7 billion incapacity benefit bill. A reassessment of all 1.6 million incapacity benefit claimants began in April, with ministers promising to move them on to a new system with narrower eligibility criteria for the sick and stricter requirements to find work. However, concerns over both the reliability of the test to find out whether people are ready for work and the scale of the project has prompted fears of a mountain of appeals. Judges have said privately that they could be facing 500,000 cases a year, some taking more than nine months to resolve”.

In view of the concerns that an article like that can generate, we consider it appropriate to give the Minister an early opportunity to set the record straight, and hopefully deny that that is the Government’s intent. To be clear, do the Government have any plans or otherwise contemplate, by amendment to this Bill or otherwise through regulation, the prospect of denying individuals their benefit should they appeal against a determination that denies them incapacity benefits or employment and support allowance?

At present, where there is an appeal against a decision not to include somebody in the work-related activity group, that causes benefit to be paid at the assessment period rate only, which is the JSA rate. Is this the type of arrangement which the Government are seeking to replicate, or are they proposing to go further and to deny benefit altogether? This raises wider issues which we shall come on to in subsequent clauses, but what conditionality would apply during the period when the appeal is outstanding? I hope that the Minister can set the record straight and clear on this. If he proposes to confirm that the article has some validity, we have some additional questions which we would pose to him. I will give him the opportunity to set the record straight and deny that this article identifies something which the Government propose to take forward. I beg to move.

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

My Lords, the amendment is slightly different from the question posed, and I shall deal with the question posed. The changes to the current appeal system are being taken forward in this Bill, as expressed in Clauses 99 and 100, so we will have an opportunity to discuss those in that consideration. We are, in those clauses, looking to introduce a period of reconsideration, or a reconsideration process, prior to a full appeal. We can have further discussion at that point, but regardless of what an article in a newspaper might say, clearly the practical difference, if one was to be extended in the way described, is purely a difference of conditionality, because as the noble Lord, Lord McKenzie, pointed out, the actual payment rate of the assessment phase of ESA is the same as JSA. That article has put out a lot of misinformation.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister if he is saying that what is being contemplated in effect replicates what currently exists. When an appeal is outstanding, the assessment period rate, which I think is the JSA rate, applies. If that is what is going to be replicated in the new world, I understand that and can see that the article was misleading on that basis. Broader questions are raised, however, given that there is going to be a universal credit, components of which would in due course be held back during an appeal. If we are talking just about the work-related activity equivalent components, I can understand parity with the existing situation, but obviously other components will go into that, including housing issues. However, I am happy to leave that debate for when we reach Clauses 99 and 100, supposing that we do reach them at some stage in our deliberations. I think the Minister has dealt fairly with the principal concern that the article generated, and I beg leave to withdraw.

--- Later in debate ---

[Lord Freud]

My Lords, this has been a very good debate. I am not saying I have welcomed anything anyone has said, but I am saying the quality of the debate has been very high. I thank noble Lords for the great expertise they have brought to these issues. In response to the request of my noble friend Lord Kirkwood and the noble Lord, Lord McKenzie, I shall try to answer on each of these amendments and justify the idea that we can group them and get the right answers through. I am grateful for the indulgence of Committee members in allowing some big groups to come through, which should help us, but I aim to answer all of these issues.

To go back to the essential core point, housing support is a critical element of universal credit. It will help people pay their housing costs and help prevent homelessness. It will recognise that people need support across a range of different tenure types whether they live in the private rented sector, the social sector or whether they are owner occupiers. However, to repeat the point I made earlier, it also needs to be affordable to the taxpayer. My noble friend Lord German made the point about the increases in pure cash terms—it is up from £11 billion to £22 billion in a decade, which is 40 per cent in real terms—and that rise was going to continue if we did nothing.

The noble Lord, Lord McKenzie, asked why is it this community that is taking the £2 billion saving we are looking at. I remind Committee Members that the way we are designing many of these particular housing reductions is not directed wholly or even mostly at tenants. Clearly, we are looking for landlords to take the strain in the private sector—I am on record as saying that—although we expect other responses in the social area which I have gone through.

[Lord McKenzie of Luton]

I quoted the figure of £2 billion. I thought that figure was for several years and related to these underoccupancy provisions. Is that right or is it a broader range?

[Lord Freud]

No, the figure of £2 billion applies to the total saving by the end of the period in 2015 of all the benefit changes, and the particular change here is £0.5 billion per annum on the social sector from 2013-14.

Tackling housing benefit expenditure is vital to our combined efforts to reduce the economic deficit. The measures within Clause 68 will help to deliver significant savings affecting housing benefit claims for those living in both the private and social rented sector. Clause 11 will allow us to carry these measures through into universal credit.

Starting with Amendment 36 from my noble friend Lord Kirkwood and the noble Lord, Lord Kennedy, I confess that it surprises me because it appears to call for a return to something akin to the local reference rent. This was a system that was difficult for claimants to understand, led to delays as individual rent officer determinations were sought, and it was expensive. It needed an army of rent officers to carry out these case-specific determinations. It is not a system that I would willingly go back to. This amendment would also maintain the status quo for housing benefit in the social rented sector, ignoring a property size in relation to the size of the household. As I have set out, we must take control of housing benefit expenditure across both sectors, but this amendment would do neither. In fact, it would increase costs.

I turn to my noble friend’s point on CPI. We will discuss this in more detail in a later group. The CPI uprating will apply across the spending review period, and if it becomes apparent that LHA rates and rents are moving out of step, they can be reconsidered at that point.

Amendments 38 and 79 would exclude anyone from this measure who is disabled and lives in adapted accommodation. Unlike Amendment 48 in the name of the noble Baroness, Lady Hollis, this exemption would apply regardless of the extent of the adaptations that have been made. It would also exempt anyone in accommodation who is “particularly suited” to the needs of that person. These are extremely broad categories. We have already heard in some detail the issues surrounding claimants living in adapted and specially suited accommodation. The terms of the exemption suggested in these amendments are simply too broad brush. However, as I said in relation to Amendment 48, I want to return to this matter once we have considered it further.

Amendments 43 and 83 also touch on similar issues to those discussed in relation to Amendment 48. They would exempt claimants where there is no suitable alternative accommodation, which is classified in the amendment as social rented housing that is also within the claimant’s locality. We cannot contemplate such a wide-ranging exemption. It would be costly to administer and would no doubt apply to those who would, in fact, have paid the shortfall regardless.

On Amendments 39 and 80, we estimate that around 200,000 claimants, where only they or their partner receive disability living allowance, will potentially be affected by the size criteria measure. However, this figure does not include other members of the household such as children and non-dependants. An exemption is simply not affordable and may well include many cases for whom an exemption would not be necessary, while missing out other hard cases. To provide a blanket exemption where claimants and partners receive DLA would lead to a reduction in savings of approximately between £130 million and £140 million in 2013-14, and this amendment goes further even than that.

Amendment 48C and the peculiarly titled Amendment 86ZZZA would exclude all households where there is a disabled child and again reduce the savings significantly and provide too broad an exemption. In response to the point made by my noble friend Lord German about exemptions for people who require an extra room as a result of a medical condition, we are looking at ways to potentially limit the impact of these changes in a way that is effective and affordable. The most appropriate course of action for the tenant and landlord in such cases will vary, depending on the individual circumstances of the claimant and his or her household. They may choose, for example, to apply for a discretionary housing payment.

As for the point raised by the noble Baroness, Lady Campbell, on fluctuating health conditions, local authorities can and do use discretionary housing payments for precisely that purpose. I can inform her that we have worked with the Department of Health on the extra room for a non-resident carer, which will cover that point in the guidance we issue to local authorities.

Amendments 40, 41 and 81 are relevant to foster carers. Within universal credit, our intention is to ignore any fostering income and therefore not to include any foster children within the assessment unit. To do otherwise, by treating the child as a family member and the fostering allowance as income, could result in the family being considerably worse off, and as such act as a deterrent to fostering.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Monday 10th October 2011 Grand Committee

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

My Lords, this is one of three amendments about capital. I shall start by explaining our intentions for the capital rules and universal credit. I will then be able to be briefer on that context and background when we come to the next two groups. The rules for the current income-rated benefits will be carried forward into universal credit. We intend to limit eligibility for universal credit to claimants who have less than £16,000 of capital. Claimants may save up to £6,000 before there is any impact whatever on their entitlement to universal credit. If they have between £6,000 and £16,000, we would assume a tariff income from this capital. These rules ensure that support is focused on those who really need it rather than on people who have significant resources on which they can draw. This is an important principle, which is essential to ensure that the system remains affordable. As noble Lords have pointed out, there is a slightly opaque area here in the sense that capital can be deferred income and vice versa. It is important to have some rules around the appropriate capital.

In order to be fair to the taxpayer, we have assessed how much families typically save. While nearly one in three pensioner households have savings in excess of £16,000, only 13 per cent of households with a working age adult in them have this much savings. A typical working age household has only £300 in savings. On the point about importing the tax credit system to universal credit, the noble Lord, Lord McKenzie, asked why it is this way around. The answer is simply that it would be unaffordable.

The first group of amendments seek to amend the financial conditions for universal credit by requiring capital derived from the sale of the claimant’s primary home to be excluded from the calculation of capital for up to 12 months when held in a deposit or a prescribed account. However, it is already our intention to provide claimants who have capital from the recent sale of their main home with a significant level of protection. This is clear from the illustrative draft regulations on capital and income recently shared with Peers. The illustrative schedule on capital to be disregarded sets out our intentions on this point.

Capital from the sale of the claimant’s main home received within the previous 26 weeks will be disregarded, which is to be used for the purchase of their new home. That period may be extended where the decision-maker determines that it will be reasonable to do so in the circumstances of the case. An example would be where accommodation suitable for a disabled member of the family has not yet been found. We believe that this approach balances our duty to be fair to the claimant with the need to safeguard universal credit.

Turning to the power in Schedule 1 to treat a claimant as having or not having capital, this is simply taken in order to replicate the notional capital rules that existed in the current benefits system and that guard against claimants deliberately depriving themselves of capital. The exemptions for types of capital covered by the rules in the existing benefits system will be maintained. Some types of payments cited by the noble Baroness, Lady Drake, are classed as income. It is not necessary to add a specific power taken by Amendment 52A. As I have said, the illustrative draft regulations demonstrate that we already have the power to limit the time period for which claimants are treated as having or not having capital where we choose to do so. I hope that this account has clarified the Government’s proposals for protecting the capital of claimants who have recently sold their main home and therefore explains why we could not support Amendments 22A, 22E and 52A.

[Lord McKenzie of Luton]

Perhaps the noble Lord can help me a little on some of the practicalities of that. We are saying that the existing exemption operates when someone has disposed of their main residence and reapplies it within a 26-week period. Is it a requirement that it is wholly reapplied for the purchase of a property? My noble friend Lady Turner made a point about someone who wanted to save some of that because they were downsizing for carers. Is this looked at retrospectively? Will someone look after the event and see as a matter of fact that it was so applied and, if it was not, what the ramifications are for the application of the universal credit?

[Lord Freud]

Yes, my Lords. The way it works is that the amount of money that is being reserved for the purchase of a new house is the amount of capital that would be exempted. Other capital would not be exempted. We are currently working on the exact workings of the system and getting these regulations—the next iteration—right. Therefore, I am not currently in a position to lay down clearly, as the noble Lord rightly says, the practical applications and fine tuning of how we apply this. That will come at the appropriate time.

--- Later in debate ---

[Lord Freud]

My Lords, Amendments 22B and 22F would exclude from the calculation of capital any savings placed into an individual savings account or other prescribed accounts of a claimant who is in work, or who has been in work in the past 12 months, up to a maximum limit to be set no lower than £50,000. It begs a really very simple question: should the taxpayer support someone who has savings of £50,000? That is the question that is being asked here, and I think it is a question about amounts. The figures we are using were taken over from the existing benefits system, and they were raised a little over five years ago in April 2006. Those figures were doubled from £8,000 at the top to £16,000, and the starting rate from £3,000 to £6,000, so those figures do move around. I accept that determining what the right figure is here is not an exact science. Indeed, one of the things I am keen to have is a responsive system that starts to get research and understand judgments such as what the right figure is here.

I understand exactly the motivation of the two amendments, which is to encourage low-income workers to save. The argument comes down to how much we and the taxpayer can afford. I gave some figures when we debated the previous group of amendments. I will remind noble Lords that if we had an upper capital limit of £50,000, it would cost £90 million a year, which we simply do not have. Under our proposals, only when a claimant, or joint claimants, has £16,000 or more will the entitlement to universal credit cease; and only 13 per cent of households have this much in savings. That is why the figure is not as arbitrary as some noble Lords indicated.

I was asked a series of questions. I will have to add to my letter to the noble Earl, Lord Listowel, to get right the position of children leaving care. Clearly, a child's income and capital are wholly disregarded in the system. The noble Lord, Lord McKenzie, asked about the treatment of ISA interest. Universal credit will replicate the capital rules for means-tested benefits by using a tariff income. It is not possible to read across from the tax credit system. As noble Lords know, tariff income is not—and is not meant to be—the equivalent of the actual income that you might earn on that amount of capital. The figure includes an estimate of how much you should be prepared to run down your capital while you look for support from the state.

[Lord McKenzie of Luton]

Will the Minister confirm that tax credits and ISA income are not included but are exempt? Is that right or not?

[Lord Freud]

I will have to write to the noble Lord on ISA income in tax credits. I do not know the exact position. I hope that that explains why we cannot support Amendments 22B and 22F. I ask the noble Lord to withdraw his amendment.

--- Later in debate ---

[Lord Freud]

My Lords, Amendments 22C and 22D would exclude from the calculation of capital prescribed amounts saved for a deposit on the purchase of accommodation for personal use where the claimant is in work or has been in work in the previous 12 months. I can of course see the benefits of encouraging low-earning families to become homeowners, but at present these amendments would be difficult if not impossible to implement efficiently in practice. As the noble Baroness, Lady Drake, pre-empted my argumentation, I will not go into this in depth, but I must say that one would need both the provision of a savings vehicle, which would in effect be exclusively for the purchase of a house, as well as adequate numbers of people wanting to save in this particular way, for that market to work. I do not think there is any necessary block on creating a vehicle like that at some stage in the future, and it would be up to a Government to look at that in the future. Right now, given our constraints, I do not think we are in a position to do it. As noble Lords have heard and as the noble Baroness suggested, these are not necessarily issues of principle; they are issues of affordability and the envelope that we have to introduce universal credit. I remind noble Lords that we have obtained an envelope of £4 billion per annum to give to people in receipt of universal credit. I am not netting it off against other changes, but that is what the universal credit does. Finding extra money for this, that and the other cannot be done just by a wave of the hand. It will be tough to get extra money for desirable things.

It is essential that we get the architecture of a structure that we can use to help and motivate people. If we cannot afford particular things or it would be desirable to develop particular processes, that is fine and we can do it, but right now we do not have those resources. For that core reason, I hope noble Lords will appreciate why we do not support these amendments, and I ask the noble Baroness to withdraw her amendment.

[Lord McKenzie of Luton]

The noble Lord may need to write to us to flesh out some detail about the £4 billion, a figure that he has used on several occasions. I accept that it is probably a gross figure and that there are some nettings off. Presumably the baseline for that is after taking account of the previous two Budgets and the spending review, and all the hits that occurred there.

[Lord Freud]

My Lords, I need not write to the noble Lord on this matter because I am trustful that the impact assessment that holds these figures will be on its way—

--- Later in debate ---

[Lord Freud]

My Lords, I will speak to Amendments 23 and 24. Amendment 23 removes the power to make regulations for there to be no entitlement to universal credit in prescribed circumstances. Amendment 24 removes a power for regulations to be made for there to be exceptions to any limited entitlement or waiting day rules. It might be helpful if I indicate the types of circumstances in which we envisage these powers being used.

The regulation-making power in subsection 1(a) will provide that there is no entitlement to universal credit in certain cases where the usual conditions of entitlement are otherwise satisfied. As is the case now, a number of specified groups will not be able to access universal credit. These may include certain prisoners and children leaving full-time care who remain the responsibility of the local authority, where payment of universal credit would lead to duplication of provision. This may include people involved in trade disputes. Amendment 23 would prevent us being able to restrict entitlement to people in these circumstances. This would result in duplication of provision in some cases, which I am sure is not the intention.

I will address the questions of the noble Lord, Lord McKenzie, about waiting days, which constituted the main thrust of his comments. Housing benefit is dependent on entitlement to means-tested benefit, which involves waiting days—for example, jobseeker’s allowance or employment and support allowance. There is also a waiting period in practice for housing benefits. In addition, where benefits such as housing benefit are paid for in complete weeks, there is no provision for short claims of a few days. In practice, when we move from the application of waiting days in the reality of the universal credit world, there will be far fewer instances of this start-up arrangement because people will go on to universal credit for their entire application and will stay on it.

The noble Lord asked about linking rules. Our intention is that people will work their way off the system—that would be a very good outcome—but would remain effectively known to the system for another two years. So that is effectively how the linking rules would work: you would come back onto your taper on an automatic basis. I have not actually thought this through. I imagine—I will check carefully now—that waiting days will not apply when you are on the system and it will be a kind of run-on effective link. I will double-check that waiting days will not apply in those circumstances because my understanding currently is that there is a run-on and that is the same effective claim. So the whole concern around waiting days would be very much diminished. In fact, I am reassured almost instantly that the intention is not to have waiting days as people move on and off the system in those circumstances. As to the question of when Clause 6(1)(b) would apply if not at the start of the claim, it would apply to the entire claim if it covered less than seven days.

Amendment 24 would prevent us having exceptions if we make provision for waiting days or to prevent very short periods of entitlement. We envisage that regulations under Clause 6(3) might be used in a claimant’s favour: for example, where there is only a short break between periods of entitlement, a claimant may not have to serve waiting days before becoming entitled again. I am sorry that I am repeating that point. Although we have made several changes moving from negative to affirmative resolutions, on this one we propose to stay with negative ones. Given this explanation, I hope that noble Lords will not press their amendments.

[Lord McKenzie of Luton]

I am grateful to the Minister for that response on the issue of negative or affirmative, to which we may wish to return. In order to be clear, perhaps I may use the trade disputes issue as an example. Under current arrangements, there are certain trade disputes under which benefits can be withheld. Under the universal credit, there is an amalgam of benefits, including housing. As regards the sort of exemption that it is envisaged would apply under Clause 6, does it cover all the separate benefits that could give rise to similar exclusions now? For example, would housing being included in the universal credit still be subject to the same trade dispute rules, or will separate rules apply to that? That is not a very elegant way of phrasing the question.

[Lord Freud]

My Lords, our intention is to have it broadly the same. We have to work through the exact detail of the regulations but our intention is not to change the main thrust of that set of regulations.

[Lord McKenzie of Luton]

Specifically, if housing benefit were not currently subject to those rules, how would that be unpicked? Perhaps the answer is that it is.

[Lord Freud]

We would wrap them together in the universal credit but maintain the same regime for trading disputes. That would be the intention. Clearly, we have not written this regulation in detail and we will have a chance to look at it in some detail before we do.

[Lord McKenzie of Luton]

I am grateful again to the Minister. We should like to reflect and read the record on that issue, and it is something to which we may wish to return. In the mean time, I beg leave to withdraw the amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I support the amendment of my noble friend Lady Lister and congratulate her on an incredibly impressive first amendment. We look forward to many more. I hope that the Minister can see that we are here to help. He has heard not only the voice of experience today but particular proposals from my noble friend Lady Hollis to help him on housing benefit issues. I hope that this well of experience and good will will enable us to move forward on universal credit.

One thing that came across very clearly in the debate was the almost universal voice of experience, whether it was people’s own household experience or that of people such as my noble friend Lord McAvoy who worked with poor people and helped them claim their benefits in the existing maze of complexity. We have heard powerful voices warning of the risks of imposing on everyone the monthly payment basis, for all the reasons that have been heard.

There are particular issues for women. My noble friend Lady Lister said that it is largely mothers who manage poverty in the household. The noble Lord, Lord Kirkwood, was on the same page on that. Studies show that by and large the male member of the household is more likely to be responsible for monthly bills, whereas women tend to do the weekly shop. Therefore, women are potentially particularly disadvantaged by these proposals.

A lot of work has gone into producing real-time data from HMRC. That is at the heart of delivering the universal credit project. Obviously, that is predicated on the formula of monthly payments. As a practical matter, how difficult would it be either to flex on to fortnightly payments or for people to have a choice? I am surprised by those who argue against choice. We all accept the benefits of simplicity, for the reasons that we have debated and will continue to debate. However, a balance must be struck. Simplicity can shut out fairness in a range of circumstances. That is perhaps the dilemma that the Minister faces today.

I think it was the noble Lord, Lord Boswell, who said that it would be a pity if we got this wrong and in doing so undermined the prize of the universal credit, and I very much agree with that. I hope that the Minister will listen to all those who have spoken. The noble Earl, Lord Listowel, spoke about his particular experience of dealing with poor and disadvantaged, chaotic families, as did the noble Lord, Lord Kirkwood, and my noble friend Lady Sherlock. What would happen if one partner spent unwisely in that relationship? What would be the outcome, particularly for children? I hope that the Minister has heard a powerful message today and that it will genuinely influence him in looking at this again. If we want universal credit to work, this could be the key stumbling block.

[Lord Freud]

My Lords, I start by congratulating the noble Baroness, Lady Lister, on her first amendment, and I hope that she does not have too many like it. I was very impressed when she said that she was a conservative, which was obviously supported because my noble friend Lord Kirkwood called her his noble friend. Clearly we have some cross-dressing going on.

In the policy briefing note published on 12 September, we confirmed that the universal credit will be paid monthly. However, we do not intend to specify the payment frequency in primary legislation. As with all existing benefits, this will be dealt with in regulations made under the existing powers in the Social Security Administration Act 1992. That approach gave us the flexibility, for example, to increase payment periods from weekly to two-weekly for most out-of-work benefits. The amended provision would require the Government to pay universal credit more frequently than monthly. Amendment 27, for instance, goes on to provide that in some cases payments would be made twice monthly.

I need to make the point about the difference between assessment periods and payment periods, which is important to bear in mind. Currently, existing out-of-work benefits are made on an assessment period of a week, with a fortnightly payment cycle. That is fairly typical. The universal credit benefit represents a new approach focused clearly on work, which encourages out-of-work households to budget on a monthly rather than a fortnightly basis in the belief that it will better prepare people for the reality of working life. The figures have already been used. Currently, 75 per cent of all those in employment and 51 per cent of those earning less than £10,000 a year receive earnings monthly. In addition, monthly direct debits for household bills are often cheaper than more frequent billing options.

Many noble Lords raised the evidence base. As noble Lords know, we are conducting qualitative and quantitative research with claimants on many issues but particularly on the payment frequency issue. As some noble Lords have pointed out, on 7 October we published a report, Perceptions of welfare reform and Universal Credit. This outlines findings from research we conducted with claimants, the public, employers and staff in December 2010 and January 2011. There were critical findings in that piece of research that we are looking at with great attention.

I understand that many people on low incomes will be used to managing the fortnightly payment of benefits, and I am determined to ensure that there will be appropriate budgeting support to meet the needs of claimants. We want families to be able to manage their financial affairs in a manner that best reflects the demands of modern life, whether they are in work or out of work, and we are working with stakeholders and benefit experts to that end. We are setting up a series of demonstrator projects, as they are called, with housing associations and local authorities to look at how to structure the payment of rents to landlords. These demonstrator projects will look at a wide range of budgeting support. We need to make sure that budgeting advice and support is available for those who need it in order to help them manage the change.

We also need to consider those exceptional circumstances where more frequent payments will be required. To pick up the point made by the noble Baroness, Lady Campbell, people with mental health problems are an example of a group that may need an exceptional service. To pick up the point made by the noble Earl, Lord Listowel, where there is proven abuse or risk to other members of the family, one would have to look at the payment arrangements.

If you separate assessment from payment, the monthly assessment is intended to reduce the burden on claimants and reduce the risk of overpayments compared with a system where benefits are reassessed on a weekly basis, so there is a separation between the assessment period and the payment period. To pick up a question from my noble friend Lord Kirkwood on the impact assessment—

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 6th October 2011 Grand Committee

[Lord McKenzie of Luton]

I thank the Minister for that detailed reply. Of course I will be withdrawing the amendment. I thank all noble Lords who have spoken in favour of it and even the noble Lord, Lord Newton, for occasionally being a loyalist. It would be helpful if he did not do it too often on my amendments. We will return in some detail to a lot of the issues that the amendment touches on over the weeks, if not months, ahead. I also accept that the precise wording of the amendment could be subject to challenge. If someone wants to offer an alternative, I am happy with that. It is an attempt to put something in which is trying to be indicative of what the universal credit is about, with the focus not only on work but also on support for those who are not opposed to moving closer to the labour market and, as the noble Lord, Lord Wigley, pointed out, for those who are very keen to get back into the labour market, but for whom there are no jobs.

A common feature of many noble Lords who contributed to the debate is about the WCA and concerns over how it is being used in the universal credit for access to the disability additions. I also raise the point about how I understand that it is being used in relation to the work programme. If there are concerns about how Atos is making assessments on whether somebody is fit for work, in the work-related activity group or the support group and is struggling to do that on a basis that people find acceptable, then the added precision that apparently it is being asked to provide about whether that person is going to be fit for work in three months or six months, which drives how some of them will enter the work programme, seems to me another dimension to what it is being asked to do and therefore somewhat worrying.

When we had a briefing from officials, I asked whether any of the appeals that had taken place were around that prognosis rather than the designation that was temporarily being visited on somebody. I am not quite sure what the answer to that is. If the work programme is a key part of helping people into work, which we agree is the intention of universal credit, how Atos or the work capability assessment features in that is of some importance. The noble Baroness, Lady Campbell, raised the concern that the current assessment processes have not been co-produced. We share some of the thinking about how the WCA has been developed. It was introduced under our legislation. A lot of effort went into focusing on it, just like the effort that is going into the assessment of DLA and PIP. But when it came to the practice of it, it turned out to be quite different. I accept that it is an evolving situation, but one can understand the fear that has been expressed today and how it represents the views of disabled people more generally about how this is featuring and working in the universal credit.

The Minister did not respond to the questions around the work programme. Would he like to do that now and give us an update on how it is progressing? That is particularly important at this juncture. The previous programmes we have talked about—my noble friend Lady Hollis mentioned some of their origins—by and large were developed in an economically vibrant situation where unemployment was reducing. We are not in that environment now.

[Lord Freud]

I can tell noble Lords that, regrettably, at this stage it is very early days. The noble Lord will be aware that it was launched on 10 June. I do not have any meaningful data to supply him. I am not sure when I will have some, but when I do, I will let the Committee know.

[Lord McKenzie of Luton]

Might I ask the Minister to use his best endeavours to see that we get that data soon?

[Lord Freud]

My Lords, I think the answer to that is no.

[Lord McKenzie of Luton]

Perhaps I can press on one or two other matters. I was interested in the noble Lord’s response about conditionality being associated with work-related activity. I accept the assurance that in respect of this Bill, that is what the focus is, but am I right in getting the hint that there may be some wider plans following this Bill where that conditionality might be applied more generally, not just in a work-related context? Perhaps the Minister would like to say something more about that.

[Lord Freud]

I have no information on any plans in that area at present. This Bill is about conditionality for employment purposes, and I have no information on any other such plans.

--- Later in debate ---

[Lord McKenzie of Luton]

Perhaps the Minister will let us have some information as soon as it is available to him. We are going to return to many of these issues in our further deliberations on this Bill.

The issue of travel costs has been released. Perhaps the Minister might reflect on the assertion that people should now be prepared to routinely travel an hour and a half each way to take up possibly low-paid work and how that fits with someone being better off in work if the costs of that travel are not covered or dealt with in some way.

We also had a bit of an historical debate about what various Governments did. My noble friend Lady Hollis was very clear about what happened on our watch, and as I said, the Minister was involved in some of that. I accept the assertion of the noble Lord, Lord Newton, that under his watch he did not just sit there and let the number of people on incapacity benefit accumulate. On that basis we should be in agreement that the Prime Minister’s statement was wholly misleading. It is a political point, and noble Lords may think it is a cheap political point, but it matters when the most senior politician in the land is happy to use language and examples that are simply not true. The impact of this is to stigmatise people on benefits, and we should be deeply worried about that.

[Lord Freud]

Let me just make it absolutely clear what the Prime Minister was saying in the slightly more technical language that we understand in this Committee. The Prime Minister was making the point that we had created a series of inactive benefits onto which people were put and then left without any route back into the workplace. That was a dereliction of duty by Government. Our understanding has now transformed. We know that work is part of the solution for people with disabilities, not part of the problem. A key thing that we are trying to do in this Bill is to integrate the work process for people, whether they have disabilities—whoever they are. That is what the Prime Minister was saying. We are making an enormous effort to get people back into the workforce, and we are spending a lot of money—up to £14,000—on the people who are hardest to help, many of whom will have a disability. Underneath the political rhetoric, I think all noble Lords would agree with that sentiment.

[Lord Freud]

I think we had the discussion about Remploy yesterday, and I will not go on about it again today.

[Lord McKenzie of Luton]

My Lords, I would just remark that if that is what the Prime Minister was intending to say, his usual high command of the English language eluded him on that occasion. My noble friend Baroness Wilkins emphasised the fear that people have about this process and about the WCA. My noble friend Lady Hollis was quite right to refer to carers. In fact, my shorthand amendment was meant to encompass that and I entirely accept the point. I am increasingly concerned about the impact of this on young carers as well. The noble Lord, Lord Wigley, referred to support for work. He is right, it should not only be about supporting people linked to the labour market. It is a question of how we are going to increase growth and create jobs as well, which is a much wider debate.

My noble friend Lord Beecham made reference to the housing benefit changes and the impact that those will have on labour mobility. I think that the noble Lord referred to people not losing out from universal credit. When you look at the impact of universal credit and some other measures in the Bill, particularly the benefit cap and housing changes, I am not sure that that assertion would necessarily hold true. Having had a good start to proceedings today, we will revisit many of these issues.

--- Later in debate ---

[Lord McKenzie of Luton]

I thank my noble friend Lord Foulkes for picking up the baton from the noble Lord, Lord Kirkwood, so that we have the chance to have the explanation of the points that were put by my noble friend and by the noble Lord, Lord Wigley. Doubtless the Minister will be able to tell us what consultation and engagement has taken place, but I think that the request is that it is not simply done at some formal stage, perhaps when policy is being formulated, but that we consider it as an integral part of our consideration of this Bill. If we can get nothing other than that from this amendment it will have been worthwhile preserving it for our brief debate.

[Lord Freud]

My Lords, I will deal with Amendment 3, which is the one noble Lords have concentrated on. Amendment 3 would introduce a requirement to consult the devolved Administrations before the introduction of universal credit. I must point out that social security is a reserved matter in Great Britain but the implementation of universal credit will have an impact on some matters of policy which are devolved, for example, housing, skills provision and childcare. For that reason, we are working closely with the devolved Administrations on the implementation of measures in the Bill and will continue to do so to ensure that the introduction of universal credit goes smoothly.

We have been discussing aspects of the Bill since well before its introduction during the latter part of 2010. The Secretary of State and I have had a number of meetings with Ministers in the devolved Administrations. A formal role has also been established for the Scottish, Welsh and Northern Irish Governments and for the Scottish and Welsh local authority associations on the universal credit senior stakeholder board. We have a concordat between DWP and the Scottish Government that sets out the commitment on communication and consultation; indeed, the Secretary of State met Scottish Ministers most recently a fortnight ago. I therefore hope that noble Lords will be reassured with regard to the concerns they have expressed. We are addressing these issues, we are consulting thoroughly, and on that basis—

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[Lord McKenzie of Luton]

My Lords, I am not quite sure what was in the mind of the noble Lord, Lord Kirkwood, when he drafted the amendment. He may want to take the opportunity to enlighten us. But looking at the distinction between “awarded” and “paid”, our attention was drawn in particular to Schedule 1, paragraph 6. This paragraph enables an award of universal credit to be paid in whole or in part by means of provision of a voucher. Perhaps the Minister could expand on the intention behind this paragraph, and on the circumstances in which it might apply. I am aware, of course, that there are existing programmes where vouchers are used: in health, for example, for specs and contact lenses and for the Healthy Start food initiative. I know that the Minister has turned his mind to vouchers in the past. I think it was in connection with the sanctions regime on an earlier piece of legislation we were debating. Does this provision herald a new approach, or does it simply look to replicate existing arrangements? If so, what are they? I beg to move.

[Lord Freud]

My Lords, regarding the reference to vouchers in paragraph 6 that the noble Lord, Lord McKenzie, picked up—very sharp-eyed, as I would expect—we are looking at an option of paying childcare through vouchers. It is similar to some of the ways currently used by employers. It allows the flexibility of a parallel system with the employer system. I have to tell noble Lords that it is not the approach we are expecting to use. It is very much an option, but as I intimated earlier, we will announce our childcare proposals very soon.

On the voucher system, we have used the term “award” here because it is widely used across social security legislation and therefore makes a link to other legislation that provides for claims, payments and appeals. Changing the word would remove those links and require major changes in legislation across the piece. For that reason I ask for the amendment to be withdrawn.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for that explanation. I have no particular problem with the term “award”: it was just the passing reference to the use of vouchers. I took it from the Minister’s reply that it is only in relation to childcare that this is to be developed, and that does not look as though it is the front runner. We will know that soon. The only plea I would make is that if we go down the path of vouchers, we should do so sensitively. The prospect of stigmatising people who access facilities by paying cash or providing a DWP voucher has significant ramifications. It appears from what the Minister says that we will not have to face that in practice. On that basis, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, I will speak briefly on this issue in support of the amendment proposed by my noble friend Lady Hollis and the exceptionally powerful case made by her and by pretty much every other the noble Lord who has spoken on the issue. The noble Lord, Lord Skelmersdale, raised an interesting point about how you would extract the payment. My noble friend Lady Turner asked whether it was a rebate, a discount or quite what it was.

I recollect that she pressed us in Government on behalf of the Royal British Legion, who were campaigning to have the term rebate replacing the benefit. We all signed up to that at the time. I am not quite sure what progress was made. I think that it went to local authorities. However, I remember that there was a potential price tag of tens of millions of pounds to local authorities just for that one system change. These are not inexpensive projects that we are dealing with. I cannot believe that this is what the noble Lord or the DWP want. The noble Lord is an exceptionally logical person. He analyses things. The scale of the problems that the localisation of council tax would bring seems to me to be totally out of kilter with all of the work and analysis that has gone on in producing plans for the universal credit. As everyone has said, it undermines the universal credit—the benefits of the single taper in particular. With all the raft of issues about how people would understand what their position was, the simplicity of the system would fall away.

We had a meeting with officials. As ever they were very helpful. We explored this issue a little bit. My understanding is that it was not until March of this year that the department started to contact local authorities to get their minds around how it would work. To produce something in a Bill and develop a policy on an assumption that this component can be dealt with separately without any clear knowledge as to how that will work in practice seems unusually foolhardy. Again, I cannot believe that the Minister believes that this is the best way forward. There are lots of practical issues. We know lots of local authorities will have outsourced their arrangements in respect of housing and council tax benefits. You would have to break the costs involved in the multiplicity of contracts. I do not know if the Minister has any idea of what would be involved in that exercise.

What we are seeing here is what we have seen in the Localism Bill writ large. There have been a lot of instances where the Government and the Secretary of State have said that they want to devolve power and give more freedoms to local authorities, but have then realised the consequences and drawn those back with all sorts of regulation powers, which, as my noble friend Lady Hollis said, would have to be there if you were going to make any sort of sense of this proposal to have any sort of understanding of whether it is regional systems, which are common.

There is another component as well. It relates to the cut in the total amount available. I agree with the noble Lord, Lord German, that in a sense there are two issues: the financing and what cash sum is available, and how it should be dealt with. This Government have a record of imposing on local authorities and getting them to take the pain, the heat and the difficult decisions, and seeking to walk away scot free. We will see and debate what is going to happen with the social fund. That is another example—no duties on local authorities and no ring-fenced funding from it.

My noble friend Lady Hollis made a telling point. If our understanding is correct—and the Minister will doubtless confirm this—this is switching AME to DEL, the reverse of what I think the Minister himself negotiated so effectively when he was dealing with work programmes. It does not make any sense. I know that the Minister has to do his job. We have all been in the position of defending the indefensible before. However, I cannot believe that it is going to end up as currently proposed because it would seriously undermine the universal credit and all the good work that the Government are trying to do on that.

[Lord Freud]

My Lords, I am grateful to noble Lords for raising this series of amendments. Clearly a point of real substance has been discussed this afternoon. The group of amendments would have the effect of incorporating help with council tax for those on low incomes into universal credit and state pension credit.

Noble Lords will be aware that we are proposing to abolish council tax benefit and replace it with localised schemes of support to be set up and run by local authorities. The Department for Communities and Local Government is currently consulting on proposals for local schemes in England, as a number of noble Lords have pointed out. This approach will allow local authorities, who determine and administer this tax, to have a say in how the burden of paying for services is shared across their local community, taking account of local priorities.

The Government’s approach addresses concerns that have often been expressed about the complexity of council tax benefit and, particularly, that council tax support should not be part of the social security system at all. Nevertheless, in localising support, we need to ensure that the improved work incentives that universal credit will bring are not undermined in any way. We believe that the key principles required to incentivise work can be delivered through local schemes and therefore that localisation is the right approach.

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[Lord McKenzie of Luton]

My Lords, this is a probing amendment, which would delete subsection (2), which states:

“Regulations may specify circumstances in which a member of a couple may make a claim as a single person”.

As I say, it is a probing amendment to seek some clarity as to the likely scope of such regulations. I accept that the Notes to the Bill refer to circumstances where one member of a couple does not have the right to reside in the UK and is not entitled, so the other member will be able to make a claim as a single person. My question is: what other circumstances might be envisaged? It is understood from the notes circulated that further work is ongoing in this regard, but perhaps the Minister can help us with the following questions. When, for example, a couple are in the process of separation or divorce, will they be treated as being a couple or two individuals? Under what circumstances will members of a couple be legally entitled to live separately and receive universal credit independently of each other? In particular, will there be any scope for individuals who are in an abusive relationship to receive universal credit independently of their partner?

These sorts of issues highlight how convoluted some people’s lives can be. There are circumstances where, under existing provisions, people are treated as no longer being a couple: for example, if either or both is in custody, has been released on temporary licence from prison or is a compulsory inpatient detained in hospital under mental health provisions. Those sorts of arrangements exist at the moment. Are they going to be built in to universal credit? In what other circumstances might a member of a couple claim as an individual? I beg to move.

[Lord Freud]

My Lords, to summarise, the general principle is that a couple should make a joint claim for universal credit to ensure that both members of the couple take responsibility for the claim and obtain support to find work, where appropriate. This principle is already established in jobseeker’s allowance for joint claims, and we are extending it to universal credit, so that both members of a couple will have equal opportunity to access the support.

As explained in the briefing material sent to Peers last week, there will be a fairly limited range of circumstances in which only one member of a couple is eligible for universal credit, such as the example that the noble Lord, Lord McKenzie, raised where a claimant’s partner is a person from abroad who has no right to reside here. However, there are other circumstances, such as when people are students and so forth, when they will not be eligible for benefit support.

This amendment would remove our ability to make these exemptions. I understand that it is a probing amendment implying a series of questions. We are currently developing detailed regulations on this. There is no intention to change some of the existing protections—the noble Lord mentioned people in custody and people detained in hospital. In the work we are doing, as we build a coherent single system, it is fascinating to see how many different definitions of the same thing there are scattered through the current system. One thing we are doing is trying to get a consistent definition. We have four meanings of the word “work”—or is it five? When you are writing a computer program in code, that kind of thing needs to be precise.

We are going to have to get the timing of when people separate and all that precisely right, and that is work in progress. We are aware of the issue. It is being addressed, and it will be much more coherent than it has been in the past for that reason. Therefore, I ask the noble Lord to withdraw this helpful probing amendment.

[Lord McKenzie of Luton]

I am grateful to the Minister for that information. I am going to have to allocate a bit more of the weekend to catching up on all the briefing material that we have. I understand that there is no basic intent to change the current provisions. I am interested in the range of different definitions. The next group of amendments will touch on that a little as well. I beg leave to withdraw the amendment.

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[Lord Freud]

My Lords, Amendments 18 and 19 seek to amend the basic conditions of entitlement to universal credit and would in effect limit our ability to provide for exceptions to those conditions. Amendment 20 would create a new regulation-making power to set out circumstances in which certain groups are to be treated as not receiving education: specifically, young people, parents and disabled students. Clause 4 sets out the basic conditions that must be met in order to be entitled to universal credit. These basic conditions are designed to be simple and easily understood, fitting together with the support for people in education and for older people through state pension credit. However, as I am sure noble Lords will agree, there are always exceptions to the general rule, and it has never been our intention that these basic conditions will be so prescriptive as to prevent certain groups of people being entitled to universal credit. In that sense, we are entirely in accordance with the sentiments just expressed by the noble Lord, Lord McAvoy.

Amendment 17 seeks to make universal credit adopt the principle that entitlement to support begins at 16 rather than at 18. We intend to maintain the current rules where 18 is the minimum age. This is consistent with the approach taken by the previous Administration, and we see no reason to change it. Equally, however, there are circumstances where people aged 16 or 17 should be entitled to universal credit in their own right. This includes people with responsibility for a child, disabled people and people estranged from their parents. Sixteen and 17 year-olds should be in education or training and not living on benefits. If we were to set the lower age limit to 16, we would send the wrong message to young people and their parents about the value of education and the strength of the family unit.

We will continue to support young people who find themselves in straitened and difficult circumstances through leaving care, family break-up or whatever, at the age of 16. We are not planning to change the rules for care leavers in any way. However, as a result of the last Government’s Children (Leaving Care) Act, care leavers cannot usually claim benefits until the age of 18. That is why the Bill makes provision in subsection (3) of this clause, and why I do not think that the amendment is necessary.

Amendment 18 seeks to remove the regulation-making powers that will allow us to provide for exceptions to the basic conditions. While we would still be able to specify some of them through other subsections of the clause, the amendment would limit our ability to make provision in all cases. I am sure that noble Lords will appreciate the importance of flexibility in these matters. The power can in any event be used only to extend eligibility, not restrict it.

Amendment 19 would remove subsection (5), which allows us to make regulations in respect of residence and presence. We have been clear that migrants will generally be able to claim universal credit only if they have a right to reside here and are habitually resident. This position has not changed—and was reiterated by the Secretary of State and Minister for Employment just last week. In the tough financial conditions we currently face, it is particularly important that UK taxpayers should not have to subsidise people with very tenuous links to this country. “In Great Britain” is the same formulation as in the primary legislation for income support. Nothing sinister is implied by the wording.

On the question of the noble Lord, Lord McKenzie, about the EU ramifications, we do not expect to have to renegotiate social security treaties, although he will be aware that there is considerable movement currently going on about export of benefits, which we are concerned about. Removing the powers in this subsection would also prevent us providing for circumstances in which a person can be treated as being in Great Britain although they are temporarily absent. Current provisions allow us, for example, to pay benefits to people who may have gone abroad for a short period of time to receive medical treatment for themselves or their children. They also, in the case of tax credits, ensure that service personnel and their families are not prevented from claiming because they have been posted overseas. We want to replicate this position within universal credit. The amendment would prevent us doing that. This is a valuable thing for us to be able to do: I am sure that that is not a contentious claim to make in this Committee.

Amendment 20 would require the Secretary of State to specify the circumstances in which certain groups will not be treated as receiving education. There is a long-standing principle that in general the benefits system should not be a source of financial support for those within the education system. Young people are primarily the responsibility of their parents until they leave school. Students in higher education have access to a comprehensive system of student loans and grants. However, there have always been exceptions to the general rule and, as the Minister for Employment made clear during debate in the other place—and I am happy to repeat here—the current boundaries that exist in relation to income-related benefits will not be redrawn.

We do not wish to widen the extent of support for those in education. Nor do we intend to remove support from those groups of young people and students who currently receive it under the current system, such as lone parents, disabled students and youngsters in non-advanced education who are living independently. The powers we need to do this are already contained in subsections (2) and (6)(b) of the clause. We do not need to make the extra provision that this amendment would provide.

I apologise if that was a lengthy summary of our position. I need to track back a little bit because I may have inadvertently misled noble Lords on the point of support for care leavers. I want to make absolutely clear with regard to care leavers that our support is constrained by the previous Government’s Children (Leaving Care) Act, which starts the clock for them at 18. I think that I inadvertently said 16 earlier and want to make sure that that is absolutely clear and on the record. With that explanation and assurance, I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

I am grateful to the Minister for that explanation. As I hope I explained, these were probing amendments to get answers on the record.

I shall follow up on two points. On Amendment 17 concerning16 and 17 year-olds, there are currently different rules for different benefits. There is the JSA rule and rules for other means-tested benefits. For the latter, you must be in a vulnerable group: for JSA, you must be facing severe hardship. Given that we end up with just one benefit, universal credit—plus a bit of council tax—will all the easements for 16 and 17 year-olds be reflected in the universal credit, or only some of them? As I understand it—I am not sure that I have my mind fully round this—there is currently a patchwork of provision, and it is a question of seeing whether that is brought forward in its totality.

That is the first question. I will pose a second one as I see that the team are working hard at the back there. In relation to definitions around residence, I think that the noble Lord said that “in Great Britain” is used for income support. Certainly, the text that I have is that you must satisfy the “habitual residence” and “right to reside” tests and be “present in Great Britain”. I accept that there is nothing sinister in it, but I am trying to understand what “in Great Britain” actually means. Does it mean physically here, and that you have to remain physically in Great Britain throughout the period for which you are seeking to claim? What about periods abroad for whatever reason? It looks to me as though that is a change of formulation. It may just be an attempt to simplify the language, but I am a little mystified by it. Perhaps the Minister can help.

[Lord Freud]

Yes. On the first question about all the rules, our intention, from the policy principle area, is to reflect the current rules. I am hesitant to make an absolute commitment because I am conscious of our work to smooth them out, and there may be some wrinkles. Wrinkles do appear in this area, surprisingly. The main principle and direction will be to take them over in their entirety in the universal credit. Clearly, to the extent that there are wrinkles, when we get to regulations—in some time—we will end up discussing them. We will be able to look at that and discuss it at the appropriate time, but that is the general policy intention.

The expression “habitual residence” is the one used in secondary legislation. That reflects what the primary legislation says, which is “present in Great Britain”. That is the relationship. Clearly, “present in Great Britain” now has a case-law framework around it to define what it really means. Can you pop over to Calais for lunch and still be present in Great Britain?

[Lord McKenzie of Luton]

Not on JSA rates.

[Lord Freud]

There are some very cheap fares now; £12 return on P&O, I think. So maybe even on JSA you can have the occasional treat. Joking apart, there is a context and an understanding. We are not planning to change that. Clearly, when one abandons those key words it has a lot of ripple effects, not least in the social security treaty network that we have.

[Lord McKenzie of Luton]

I am grateful to the Minister for each of those additional explanations. I understand the point about the terminology being primary and the secondary legislation having these other descriptions. Could I ask the noble Lord about this current debate on the exportability of benefits and their components? How, if at all, does he see the universal credit fitting in to that debate?

[Lord Freud]

We expect the universal credit to be treated as social assistance, which is within the rules, so we can keep a reasonable amount of control over it. This is something that is causing great concern to countries throughout Europe. The European Commission is taking infraction proceedings against us. Twenty members have expressed strong concern. Fourteen member states have joined the UK in calling for a debate on the matter with a view to amending EU social security rules as soon as possible. This is a live and changing issue but currently, as we understand it—nothing is locked down in this area—we have designed the universal credit in a way that it is protected from some of the exportability concerns. That is our intention.

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[Lord McKenzie of Luton]

I am grateful to the Minister for those explanations. At some stage may we have a little note which sets out the existing benefits and components that are going to go in to universal credit and what the exportability issues and access by non-residents are? That would be helpful to us. We accept that this is a moveable feast, but a note based on our best understanding as of today?

[Lord Freud]

Having checked with my officials, I am happy to provide a letter summarising the position. I have had a reasonably recent brief on it, and although I cannot remember the detail, I will get the salient points circulated.

[Lord McKenzie of Luton]

I am grateful for that and for the other explanations we have received. I beg leave to withdraw the amendment.

Welfare Reform Bill

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 4th October 2011 Grand Committee

[Lord Freud]

Yes. Picking up on that point from the noble Baroness, Lady Howe, one of the most complicated areas in practice is not the development of the IT system; it is the interface between the user and that system. We must develop, and are developing, a sophisticated set of gateways. There are a lot of issues to get right surrounding identity assurance, ease of use—which we are doing a lot of work on—and where you go to get access when you do not have broadband in your home or do not necessarily understand how to use programs. Getting that help right and balanced is something that we are spending a lot of time and energy on. I accept the noble Baroness’s point: that is one of the key issues to get right.

[Lord McKenzie of Luton]

The noble Lord is clearly impressively knowledgeable around all this. He said that the systems were being built in layers, and that he would be able to demonstrate to us that some of them are actually working now. Are they working on the basis of collecting real-time information for the individuals represented in those layers?

[Lord Freud]

No. I shall explain to the noble Lord, Lord McKenzie, exactly how this works. We are building a system so that certain types of people can apply and run their universal credit. That is not a small trial; that is the mainframe system equivalent. The first type is a simple claim; I think he is personified as “Tom”—I forget his surname. We have pulled in a lot of Toms and run a customer insight with them to run through how they would interrelate with the system. The next stage has been to work out how we have a joint claim. Yasmin and Liam are the two joint applicants. They are both committing as a joint claim because it is a household claim.

Noble Lords who are interested in this area—I suspect that quite a few are—will find this fascinating as we run through it. I am waving my hands to try to give the Committee an image, but I cannot do it. I much prefer to have a screen to run through things on.

I want to leave noble Lords with a reassurance that this is happening. The programme is going to time, and it is going to budget.

Autism: Personal Independence Payments

Debate between Lord McKenzie of Luton and Lord Freud

Monday 12th September 2011 Lords Chamber

[Lord Freud]

Yes, my Lords. I made absolutely clear in that response that I was talking in real terms, so it takes account of inflation.

[Lord McKenzie of Luton]

My Lords, the Minister said that he is in listening mode with the Welfare Reform Bill and is eager to learn lessons. Can he tell me what lessons he will learn from today’s IFS report, which states that when the tax and benefit programme of this Government is analysed the poorest 30 per cent of people are bearing the brunt?

[Lord Freud]

My Lords, this is a serious recession, and the IFS emphasised how it will impact. One thing we will discuss as we go through the Welfare Reform Bill is the way in which we direct a lot of resource precisely to the poorest people. On a like-for-like basis, the universal credit injects something over £4 billion extra a year to the poorest people, against the current benefit system.

Pensions Act 2007 (Abolition of Contracting-out for Defined Contribution Pension Schemes) (Consequential Amendments) (No. 2) Regulations 2011

Debate between Lord McKenzie of Luton and Lord Freud

Monday 27th June 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I do not propose to detain noble Lords for long with my contribution. I start by thanking the Minister for his introduction to and detailed explanation of the orders. As he indicated, they spring from the Pensions Acts 2007 and 2008, of which one has some fond memories and some other memories as well. He reminded us that they were based on the findings of the commission chaired by the noble Lord, Lord Turner. He will understand if we on this side now refer to the commission as the “Drake, Turner and Hills commission”. But he was right to say that there was a political consensus at the time, as indeed there is now. The date for implementation was identified by the previous Government, and we are grateful for the support of this Government in taking it forward. The noble Lord, Lord German, is in a sense right in his description of what is happening here. People are moving out of a DC scheme into something that is effectively a DB scheme—moving out of a funded scheme into something that is pay-as-you-go. That is the essence of the switch that is going on here.

I have about three questions for the Minister, all of which I hope are pretty straightforward. The first was touched on by the noble Lord, Lord German. The impact assessment talks about actuarial neutrality. It identifies for employers both a short-term and a long-term neutral component to this. For individual employees and for the Government, although there may be actuarial neutrality overall, the cash flow effect for each is different in the sense that the Government will generate cash flow from this in the early years, while of course the payback will be the extra state second pension paid in later years. If we look at the remainder of this CSR period and perhaps the next period, how do the cash flows pan out? What is the extra amount of revenue for the Government over the period, which they will pay for later with increased contributions to S2P? What are the Government planning to do with the headroom they will get from that cash flow? I might suggest that they could help out on dealing with adjustments to the state pension age, but that is probably a debate we ought not to have at this point.

My second query was partly prompted and indeed enhanced by what the noble Lord said about the Insolvency Act and Article 3, and why that will not operate in future because schemes post abolition will not be able to track protected rights. I suppose that my question is this: looking at what is happening here, most of the DC schemes involved are personal pensions and therefore do not have the trustee arrangements that some of the occupational schemes may have as part of their fiduciary duties. What will protect the legacy guaranteed minimum pensions of those who built up these rights in the past? As the noble Lord said in his introduction, at the moment protected rights have restrictions on scheme transfers, on the type of annuity that can be bought—a unisex annuity—on survivor benefits and on joint life annuities. I think that that is one of the requirements. If that is all swept away and we are left to deal with contract-based schemes without the protection of trustee arrangements, what protection will there be for people with legacy rights? Obviously for new entrants and for the future the issue does not arise.

My last point again picks up on a comment made by the noble Lord, Lord German. He said that he liked the direction of travel because it helped us towards the enhanced flat-rate pension. Perhaps the noble Lord can give us an update on that. In particular, will he explain how as a practical matter it will be possible to deal with that while there is still contracting out from DB schemes and whether, as the noble Lord asked, there are any proposals to accelerate the withdrawal of contracting out for DB schemes?

Those are the only questions I have, and I look forward to the Minister’s response. However, obviously we support the regulations.

[Lord Freud]

My Lords, I thank noble Lords for some pointed and excellent questions, which I will be pleased to deal with as best I can. The first, from my noble friend Lord German, on what happens outwith the three-year period, is relatively straightforward. That is rather simple: if there has been an overpayment, HMRC will consider some recovery if it is cost effective; I suspect that it costs rather more than £15, but if it is a reasonable sum it will do it. If there is an underpayment, the additional amount will be paid directly to the individual, obviously subject to de minimis, with the suggestion that they put it in their pension pot, as I said at the beginning. I think that that is more than a suggestion, as well.

My noble friend asked me about the critical issue of communication. When you are in the fourth league of complexity, explaining how you are undoing complexity can be even more complex, taking you down to the fifth league. We are well aware of that. DWP and HMRC are working with industry representatives on a pretty elaborate communication strategy so that the information is targeted at those who need to know. We have developed a number of fact sheets that will be online for members, for schemes, for employers and for trustees. On members, we have made changes in the negative instruments, as part of this package, to require schemes to inform individuals of the key impacts of the abolition.

Both my noble friend and the noble Lord, Lord McKenzie, went on a slight fishing expedition—is that the fairest way to describe it?—about what the implications and interconnections might be with S2P and the state pension, referring to our consultation, A state pension for the 21st century. Again, I have to be slightly boring on that matter because we have now had the responses to it. The closing day was in fact last Friday, 24 June. I think that “We are considering the responses”, is the way that that is expressed. There is clearly a highly interesting and relevant knock-on from this to that, depending on how it comes out.

Both my noble friend Lord German and the noble Lord, Lord McKenzie, asked about actuarial neutrality. The explanatory material makes it clear that there will effectively be an exchange with the uncertainty of the investment markets, where one can clearly get very good returns if one has the right investment strategy and equally appalling returns if one has the wrong strategy. Those risks are exchanged for the certainty of the state pension. I guess that that is what actuarial neutrality means, although it could be described in other ways as well.

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[Lord McKenzie of Luton]

That would be very helpful. I had a look at the impact assessment but could see only aggregate figures rather than year-by-year figures. It would be helpful to have those.

[Lord Freud]

We can do that. Obviously, there are many figures running around in various ways, but we will get the appropriate figures to the noble Lord in a letter. His connected question on the extent to which there will be increased revenue in the short term and where that might be spent is something on which I could not possibly comment—nor, I suspect, would I be expected to.

I turn to more general issues of insolvency. The noble Lord, Lord McKenzie, talked about some of the more general implications for protected rights. Effectively, they mean that an annuity will have to be purchased with similar provisions to the state scheme. Of course, for that reason very few people will get extraordinary returns and we will get back to neutrality. The removal of the rules on protected rights will increase the flexibility for members. The size of the fund will remain the same but they will have choice in the provision of retirement income.

The provisions contained in the statutory instruments will support the delivery of the abolition of defined contribution contracting out. I hope that I have dealt with all the questions satisfactorily. I commend the measures to the Committee and ask for its approval to implement them.

Employment and Support Allowance (Work-Related Activity) Regulations 2011

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 19th May 2011 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his clear explanation of the regulations, and also for the helpful meeting that he convened last week, the input of officials and the follow-up information. That is a productive way to deal with the issues that emanate from regulations such as these. If there is a downside to that approach, having lots more information just gives scope for further inquiry and questions. I shall try to be brief on that front.

It will come as no surprise that we support the underlying philosophy reflected in these regulations. As the Minister said, they derive from legislation of the previous Government—the 2007 and 2009 Welfare Reform Acts. I believe that we have a consensus on the importance of work and the obligations of government to help those who can work get into work and those who are not yet ready for work to get closer to the labour market. There should be an obligation on individuals to engage with the support available and, with appropriate safeguards, sanctions for those who unreasonably refuse. That consensus also acknowledges that there are some for whom it is not reasonable to expect engagement.

As ever, the devil is in the detail, as the noble Lord, Lord German, said. As we have heard, this is the first time that the Government have activated provisions that can require ESA customers to undertake specific work-related activity. For this to work, clearly it is important that the correct judgments emanate from the work capability assessment. As several noble Lords have recognised already, that has recently been the subject of considerable debate in your Lordships’ House. The appropriateness of the descriptors and the capacity of Atos remain issues. As with other noble Lords, such as the noble Lord, Lord German, and the noble Baroness, Lady Thomas, we await further developments on Professor Harrington’s work.

What is now required from the WCA is not only to advise on whether an individual is capable of work and therefore directed to JSA, or has limited capability for work-related activity and enters the support group, or has limited capability for work, but also, in the latter case, to make some judgment about how long it will be before the individual can be expected to be fit for work. Is this correct? In a sense, this is a new development. It is important because, as we have heard, those expected to be fit for work within six months will be required to access the support provided by the Work Programme rather than be able to volunteer for it or, presumably, potentially be subject to mandated work-related activity by JCP advisers. Is not the emphasis on the timescales adding another dimension to the challenges of the WCA, especially for those with mental health conditions, fluctuating conditions, autism et cetera?

Can the Minister say how the health professional at the WCA stage will be able to make an authoritative assessment of when an individual to be assigned to the work-related activity group will be fit for work in the absence, possibly, of knowledge of the sorts of work-related activity which are available to the individual? Can the Minister confirm—I think that this came from our meeting—that anyone assessed as being on ESA but with a prognosis of being fit for work in, say, six months will have to be reassessed through the WCA before the designation is changed?

Does not the designation of when someone is likely to be fit for work have a significant implication for providers? Someone going on the Work Programme from an ESA flow deemed likely to be fit for work within three months attracts a potential fee which is nearly double that of someone in broadly similar circumstances but who might be deemed fit for work in, say, six months. Is this right? The argument that the Minister advanced is that the difference is that somebody volunteers. But the judgment that seems to be made is that if somebody from an ESA flow is on a work-related activity group and likely to be fit for work within three months, that attracts something like double the fee to the provider of somebody who is broadly in the same circumstances but who will not be fit for work for a longer period, simply on the basis that they have volunteered for the programme. That second category of person could be argued to be a harder to reach person, yet attracts a smaller fee for the provider.

Obviously, someone deemed fit for work would move to the JSA regime and be subject to wider conditionality—for example, jobsearch. But for the purposes of the payment arrangements under the Work Programme, do they keep the status that they had when first referred to the programme? If so, the WCA assessment would have a particular significance for providers.

Incidentally I note that ESA self-employed customers—presumably, previously self employed—will not have access to the Work Programme. Why is this? The details of payment arrangements provided by the Minister under the Work Programme certainly demonstrate strong financial incentives for some groups, but could we be told the projected annual numbers for the first three years for the following ESA groups—on the ESA flow, those likely to be fit for work within three months, and the ex-IB likely to be fit for work within three months?

As the noble Baroness, Lady Thomas, and the noble Lord, Lord German, have said, the Merits Committee raised concerns over the capacity and training, which I share. The Minister touched on that in his presentation of these regulations. It is clearly of very great significance. The existence and application of sanctions has been the subject of considerable debate both during the passage of the legislation and since. We support the necessity of sanction arrangements as a means of ensuring compliance, provided they have due regard to good cause for non-compliance and are sensitive to the circumstances of vulnerable people. We support the Government in concluding that it will be JCP decision-makers who will make decisions about sanctions, not providers. But perhaps the Minister can clarify for us the policy in relation to vulnerable customers and where responsibility lies.

My understanding is that before any sanction could be levied on customers with a mental health condition, a learning disability or a condition affecting communication and cognitive skills, some personal contact should be made, if necessary a home visit. I detect some weakening of this, certainly in the response given by the Minister of State in the other place when these regulations were debated. What is the current policy? Where will responsibility fall between the provider and Jobcentre Plus? What contact will be made by the provider before referral for a sanction and what contact after but before a determination? Is there clarity on this in the contractual arrangements? What monitoring arrangements will be in place? Can the Minister take the opportunity categorically to confirm that there are no targets operated by Jobcentre Plus relating to numbers to be sanctioned, whether for ESA, JSA or any other benefit?

It is noted that the right of lone parents to restrict availability for work-related activity when there are children between the ages of 13 and 16 is to be considered on a case-by-case basis; again, the noble Lord, Lord German, touched upon this point. This consideration is to take account of the individual needs of the child and, among other things, their ability to remain unsupervised. What on earth sort of guidance is to be given to help with this consideration?

We have touched on the Work Programme a little in so far as it is relevant to ESA and work-related activity. I hope that we will have the opportunity for a fuller debate because it is an ambitious project that we want to see succeed. The flexibility of the black box approach and individually tailored support are to be welcomed. Strong financial incentives for helping the hardest hit to get to the labour market is obviously the right approach. Before we have this debate, though, perhaps the Minister can explain why the ex-IB work-related activity group who are unlikely to be fit for work within three months should have treble the potential reward for the providers than ESA customers who are further from the labour market. Will the Minister say a little more about why the Work Programme negates the need for the work-focused health-related assessment?

I look forward to the Minister’s reply on this and other matters, but these regulations are an important step forward and they have our support.

[Lord Freud]

My Lords, I thank all noble Lords who have taken part for the support for the general principle of what we are trying to do here. This is a component of a very large change, with quite a few moving parts. I note the accusation of the noble Baroness, Lady Thomas, that the only person who has all the moving parts in their head is me. We are slowly getting it out, and this is one element of that process. As I said at the start, those people who are disabled and cannot work will get unconditional support, but we have an obligation to support large numbers of people who could get into the labour market. Many disabled people are in the labour market—not enough, but I think that the figure is around 40 per cent of those who are disabled.

The noble Lord, Lord McKenzie, is very fond of quoting my work, which always makes me blush with embarrassed pride. I also said in the report to which he referred that if the Government do not engage with these people, it is a dereliction of duty. One of the things that we are trying to tackle here is to stop that dereliction and help these people get back to work. I emphasise that what we are talking about is not getting people to work and sanctioning them for not working; this is about work-related activity. We are talking not about the intensive requirements of taking a job but about preparing for that process.

I shall try to deal with the enormous number of questions. I am not sure that I will be able to answer all of them, just because of time and volume. One of the issues that noble Lords have raised is training. The training that we offer will provide much greater emphasis on the need for personalisation and flexibility, which my noble friends Lord German and Lady Thomas were concerned about. There are new demands on staff to do with flexibility. We will provide the products and tools to support the front line in diagnosing customer need precisely. As to decision-maker expertise and who takes these decisions, staff receive extensive training so that they are able to make decisions. They have access to comprehensive, up-to-date, clear procedures and guidance for ESA decision-making, which includes how to handle difficult situations and provide customer care. The delivery of that learning is supported by Atos Healthcare.

--- Later in debate ---

[Lord McKenzie of Luton]

I understand what the noble Lord has said about the category in which you end up. I accept that the evidence base is being built, but to a certain extent it is determined by clear objective factors such as whether you have been on IB or are on ESA, but also by the prognosis that the health professional has made at the WCA, which is much more subjective. A lot could hang on that decision—for example, whether the relevant period is three months or a bit longer. What is our experience of the ability of healthcare professionals to make those fine judgments?

[Lord Freud]

The noble Lord makes a very interesting and valid point. We have spent a lot of time on this. Health professionals find it very difficult to make accurate prognoses for periods lasting many months. One of the reasons why we have the three and six-month periods is because the prognosis in those cases is much better and much more reliable. Rather than handing everyone in the work-related activity group over to the providers we thought that we would de-risk the situation by having three and six-month periods. We spent a lot of time wrestling with that point as we devised the groups that were going to go into the Work Programme.

I will write to the noble Lord on his question about the flows as I do not have the relevant figures to hand. My noble friend Lady Thomas asked about the closure of some JCP offices. We are planning to offer all affected staff relocation. Many questions were asked but I hope that I have covered all the key ones. If I find that I have not, I will write to noble Lords.

Let me close by saying I am convinced that this is the right way forward. I mirror what my noble friend Lady Thomas said: get this right and there is a huge prize here. I think, genuinely, that we will do this right—and we will watch it. I was asked about assessment and evaluation by the noble Lord, Lord German. We have a pretty elaborate evaluation program running. We will get that evaluation in two waves, the first this autumn and the second in early 2012. We will look at seeing exactly how this customer experience works in some detail, so we will get some flavour of that pretty soon. I have no doubt that we will be debating it at that stage, which will be quite interesting. I commend these regulations to the House.

Child Poverty

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 17th May 2011 Lords Chamber

[Lord Freud]

Yes, my Lords. One of the peculiar things about what happened under the previous Government was that the Gini coefficient went up to an all-time record. It has moved slightly in the past year but not in any meaningful way. It is important that we address that as part of the context of looking at our poverty approaches but, as noble Lords opposite will know, this is not an easy thing to do.

[Lord McKenzie of Luton]

My Lords, the Minister referred to the importance of getting people back into work and I agree with that. Will he cast his mind back three or four years to a document that he wrote when the previous Government were in office? He wrote:

“The Government”—

that is a Labour Government—

“has made strong, and in some respects remarkable, progress over the last ten years … The New Deals have been enormously successful—helping over 1.7 million people into work since 1998. The creation of Jobcentre Plus in 2002 extended the rights and responsibilities regime for people on all benefits … and is widely seen as having been a model for effective public service delivery”.

Does the Minister still hold to that view?

[Lord Freud]

I used the expression “in some respects” and I stand by that. In some respects there was a great deal of success. Under the previous Government we discovered that active labour market policies worked, and when they were introduced—they were actually introduced by the previous Government—and pushed in they had a one-off effect. However, we are left with a huge problem of people on inactive benefits which the previous Government did nothing to solve. We are now trying to do that.

Disabled People: Disability Living Allowance

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 11th May 2011 Lords Chamber

[Lord Freud]

My Lords, it is probably premature to say how we are going to deal with this in detail. What we are going to do is publish an impact assessment—I am committed to doing that—on exactly what happens to passporting. We shall look at these issues, which are thoroughly complicated. DLA is not the only passport into many of these other benefits—there are other ways into them. We need to look at the issue in a very wide context.

[Lord McKenzie of Luton]

My Lords, the Minister will be aware that the Welfare Reform Bill proposes to extend the qualifying period before claimants can receive the personal independence payment from the current three months under DLA to six months under the PIP. Is it not the case that making people wait longer for financial support will place further burdens on those adjusting to sudden onset conditions such as stroke, and people who experience the immediate debilitating effects of treatments for diseases such as cancer, as well as penalising those whose impairment or condition has gradually worsened over time? How can the Government possibly justify that?

Pensions Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 27th April 2011 Lords Chamber

[Lord Freud]

My Lords, I am pleased to be returning to the topic of certification and even more so to be moving a government amendment that I believe will address the concerns of the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake. I understand those concerns to be twofold: first, on the scope of the Secretary of State’s powers and, secondly, on the risk of unscrupulous employers manipulating the certification test.

The aims of this amendment are: first, to strengthen the regulatory framework in which the alternative certification model will operate by imposing tougher preconditions before regulations can be introduced; and, secondly, to introduce an ongoing requirement for the Secretary of State to keep the test under review.

At the outset, before publishing any regulations, the Secretary of State must be confident that at least 90 per cent of jobholders will receive the same level of contributions under the certification test that they would have received if their scheme had satisfied the relevant quality requirement. This is more demanding than the previous requirement, which referred to,

“a majority of the individual relevant jobholders”.

In addition, the Secretary of State must periodically review the evidence base of the test. This is expected to involve analysing the dataset from the Annual Survey of Hours and Earnings, known as ASHE. These are the data that underpinned the development of the certification model and other relevant data on the rate of pension contributions required by schemes. This is tougher than the previous test, which relied on a snapshot of the data at the point of publishing regulations. If, as a result of review, we detect undesirable trends in pay and reward packages that suggest that more individuals than expected are receiving lower than minimum contributions, the Secretary of State can intervene to strengthen or repeal the test.

After the publication of the regulations, the review will take place first in 2017 and subsequently at least every three years. The review will form part of our ongoing evaluation strategy. Its publication will be considered in the context of the evaluation of the reforms. The noble Lord, Lord McKenzie, will note that we have pared back the Secretary of State’s power as far as we reasonably can, based on the available evidence. In view of this, I hope that the noble Lord will be reassured that the Secretary of State’s powers are proportionate to the task in hand. For clarity, I should add that the requirements fall to the Secretary of State and not to employers using the test.

The reconfigured regulation-making power aligns more closely with our dataset from the annual survey from ASHE, which we believe to be robust, representative and reliable. Thus, the Secretary of State will be able to deliver the certification model welcomed by employers and key stakeholders at the same time as affording scheme members the appropriate level of protection. A supplementary delegated powers memorandum has been sent to the Delegated Powers and Regulatory Reform Committee to reflect the tighter constraints on the Secretary of State’s regulation-making power.

I say in conclusion that we have ended up with the outcome broadly envisaged by the amendments that the noble Lord, Lord McKenzie, and the noble Baroness, Lady Drake, tabled on Report. I thank both noble Lords for the expertise that they brought to bear on the issue. The Bill has been improved by their intervention and I am grateful for it. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for his introduction and explanation of the amendment, and for his generous attribution. As he explained, when making regulations about the alternative certification test, the Secretary of State is required now to be satisfied that 90 per cent of individuals eligible for automatic enrolment will receive contributions to the level they would have received had the scheme satisfied the relevant quality requirement. The Secretary of State is required to be so satisfied when regulations are first made and at subsequent reviews. We support the amendments because they represent a significant tightening of the Secretary of State's regulation-making powers.

As we detailed, we support a certification process which gives employers an incentive to retain existing good-quality schemes, provided that it does not undermine the opportunity for relevant employees to benefit from auto-enrolment. We acknowledge that the certification scheme on which the Government are consulting appears already to be drawn within the parameters of the amendment. Perhaps the Minister will update us on that, and in particular on the phasing of employer contributions. Presumably such phasing now will have to be consistent with the amendment. Notwithstanding the constraining of the Secretary of State's powers, we should not lose sight of the fact that the Bill still allows the prospect of up to 10 per cent of jobholders missing out on contributions to which they would otherwise have been entitled.

We stated from the outset that we support the Government and congratulate them on their decision to proceed with auto-enrolment and with NEST. I do so again today. However, we do not do this with unconstrained joy, because a number of provisions in the Bill erode the intended coverage of the arrangements. Some employees might miss out because of the certification process under Clause 10; the three-month waiting period in Clause 6 could reduce an individual's accumulated years of savings by nearly three years; the introduction of the earnings trigger in Clause 5, as currently set, would exclude some 600,000 individuals; and the broad uprating powers in Clause 8 would allow the Government to achieve their aspiration of a trigger of £10,190. As my noble friend Lady Drake pointed out on Report, this would exclude a further 800,000 workers each year, three-quarters of whom would be women.

Collectively, the measures hit the low paid and those working part-time, especially women. They run counter to the overarching objective of auto-enrolment, which is to enable low and moderate earners to save. Should the trigger reach the level of £10,000, the reforms would begin seriously to undermine their original intent. All of this compounds the central unfairness in the Bill, which is the disproportionate way in which women are affected by the raising of the state pension age. As we have had no further comfort from the Minister on this issue today, the parliamentary campaign now moves to the other place.

I conclude by thanking the Minister for the concession that is embodied in the amendment, and his team for their efforts in enabling the matter to be dealt with at Third Reading. They have removed the potential for severe diminution of coverage via the certification process, which is to be welcomed. We look forward to the reviews of how the alternative requirement is working in practice. As this is the last time I will speak on the Bill, I will take the opportunity to thank the Minister for his open approach to handling this important piece of legislation, and the Bill team for the way that they have stepped up to the mark and been helpful to the Opposition as well as to the Minister.

[Lord Freud]

My Lords, I thank the noble Lord, Lord McKenzie, for that response. He had, as ever, a couple of questions—that is rather a low number for him. I shall do my best to summarise my answers.

On phasing and parameters, I can assure the noble Lord that it does work. Phasing will be consistent with the amendment, which probably does not surprise him. At the moment the figures are comfortably within the parameters, so there is a safety margin. Clearly, if they fall out of those parameters, it will be due to changes that we need to look at. The certification model will be reviewed in 2017 when the phasing of the contributions has ended.

As a result of this amendment the preconditions before the Secretary of State to make regulations will be a better check and balance on his powers due to two factors—that the percentage of job holders that must potentially receive at least minimum contributions is high, at least 90 per cent; and that the strength of the alternative certification requirements will be periodically reviewed. As there might be concern that this will add to the burden on employers, I should repeat for absolute clarity that the requirements fall to the Secretary of State, not to employers, using the test.

Although the government proposal will be more demanding for the Secretary of State, it should maintain the right balance between flexibility for employers and safeguards for individuals. I am very pleased that we have been able to reach common ground on this issue. In my turn, I must commend the close scrutiny to which the Bill as a whole has been subject in your Lordships’ House. The quality of the debate has demonstrated noble Lords’ accomplishment and high level of expertise. Once again, this House has performed its role with the distinction and spirit that are expected from it.

While I have the Floor I must take the opportunity to thank in particular those noble Lords who have made a significant contribution to the Bill’s journey through this House, notably, of course, the noble Lord, Lord McKenzie, in his role as opposition spokesman, and the noble Baroness, Lady Drake, for her accomplished performance at the Dispatch Box. I also thank my noble friends Lord German, Lord Stoneham and Lord Boswell, my noble and learned friend Lord Mackay, the noble Baronesses, Lady Greengross, Lady Hollis and Lady Turner, and the noble and learned Lord, Lord Falconer, for their participation in an active and often challenging debate. Finally, I thank my noble friend Lady Garden for her proficiency in covering a number of clauses in the Bill. I also thank the Bill team, who have supported the Bill throughout this process with the right material at the right time. I am very grateful to them.

The Bill now passes over to the other place, and a number of noble Lords have presaged a little of the activity that they expect to see there on particular matters. I am just grateful to get rid of any prospect of having to look at PUCODIs again.

Let me reiterate the principles of the Bill which I set out on Second Reading, as they are still absolutely applicable. We need a fair, sustainable and balanced system that adequately and accurately reflects the society we live in. Saving for retirement should not be a thought which occurs only when you first spot that grey hair. It should be a process that begins when you enter the labour market as an adult and continues over the years. The Bill does just that while not losing sight of the key tenet of providing a decent income for the individual in retirement.

Health and Safety at Work

Debate between Lord McKenzie of Luton and Lord Freud

Monday 4th April 2011 Grand Committee

[Lord Freud]

I apologise. That was an inadvertent miss-out. Clearly where there is a more responsive, not so proactive system, the unions would have a role in alerting the HSE where there were concerns. Clearly, the role of education and training in reducing health problems in many of these areas will be important.

One area in which I am most interested is what we will find from the sickness absence review. This has now been launched and will be looking at periods of sickness absence of 28 weeks. Stress-related and mental health-related issues account for around 40 per cent of such absence, and it will be very interesting to see whether we can use the new arrangements for managing sickness absence to ratchet up how employers look after their staff. I know that the sickness absence review team is actively looking at that. Therefore, there is a health and not just a safety angle here.

[Lord McKenzie of Luton]

I am sorry to intervene again and the Minister may wish to write to me, but perhaps I may clarify two points. First, can he confirm that the evidence base on which the categorisation has been determined takes account of evidence relating to propensity for ill health in sectors, as well as accidents and fatalities? Secondly, in relation to reactive, as well as proactive, inspections, the document, if I read it correctly, says that in both areas—that is, the high-risk areas and areas of concern, but not the low-risk areas—the HSE will continue to undertake inspection for enforcement purposes or to follow up complaints when such an intervention appears necessary. Can the Minister confirm that there is no intention of having reactive inspections for what are classed as lower-risk areas—for example, the transport sector, electrical engineering, and indeed education provision, as we know that asbestos in schools is a continuing problem?

[Lord Freud]

I am happy to confirm both those points. The first, concerning health, is clearly part of the statistical base that will alert the HSE. Secondly, where there is concern, the HSE will respond whether it is a lower risk or a higher risk, and that is exactly as I understood the section of the document to which the noble Lord referred. It says that in as many words.

[Lord McKenzie of Luton]

My Lords, perhaps we should pursue this matter outside the Committee, as I do not think that it does. The comment seems to relate to the first two areas—areas of concern and areas of high risk—but not those of low risk. However, perhaps we can deal with that in correspondence.

Pensions Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 30th March 2011 Lords Chamber

[Lord McKenzie of Luton]

My Lords, I thank my noble friend for her amendment. I know that she is very committed to this proposition and she has enunciated it with a particular focus on gender issues, which we understand. However, the noble Lords, Lord Boswell and Lord Flight, both pointed out that it is a wider issue and one that is not just for NEST but for pensions across the board. We support the Government’s call for evidence on allowing early access to pension savings, evidence which would consider benefits to individuals and the impact on aggregate saving levels. As my noble friend pointed out, there are various policy models—loans and withdrawals, permanent withdrawals, feeder funds and early access to lump sums—which I think is the model that my noble friend is particularly focused on. But of course these have different impacts and outcomes in terms of the propensity to increase savings, or indeed in some instances, the propensity to reduce savings.

There are few data on how an early access policy might impact on individual behaviour or the pensions industry. Behaviours in other countries—401(k) has been mentioned in respect of the US—give only a limited guide to the UK. The PPI says that for real conclusions for the UK, further research within the UK context is needed. Is there an appetite for early access? Would it encourage savers to save more? What proportion of people would access savings early? These questions need to be considered in the context of other current developments—auto-enrolment, the removal of the requirement to annuitise at 75, changes to taxation, and so on. Where is the balance between encouraging more saving and reducing pensions in retirement?

We need also to think about the application to DB schemes and how that would fit. If we have something that is attractive to DC, what does that mean in terms of DB schemes? I am quite sure that technically something could be provided to work for DB schemes as well, but I think it would be quite complex.

In terms of its application, the noble Baroness focused on pension pots of £10,000. I do not know what data there are about “running away money” at aged 30 or 40; I am not sure whether I was enthused by the concept or not. How many people would have a pension pot of £10,000? When we were debating annuitisation at 75 I remember data that showed that only 5 per cent of people had pension pots in excess of £100,000. Those data may be a little old, but they are illustrative. How many people at the age of 30 have a pension pot? If you are talking about 25 per cent of £10,000, that would not pay for one year’s worth of university fees. We have to explore what the appetite would be for this and how it would work, but it seems to me that it is not altogether straightforward.

There is an issue about whether it changes the paradigm with employers. If you have something which is seen more as a saving scheme than a pension scheme, that will impact on employers’ willingness to fund. I do not assert that it would, but it is an issue that ought to be explored as part of this journey. We all know the Treasury line—I am sure that the Minister has it in his file that pensions are about long-term savings. That is why there is generous tax relief and any deviation from that should not be contemplated. I do not have to follow that line any more as I am not in the noble Lord’s position, but there is an issue about how it would impact on the tax regime for pensions. We also need to be careful about the risks of tax avoidance by these mechanisms. If someone paying the 50 per cent rate gets half of that paid on the way into the pension pot and you can get 25 per cent of it out tax free straightaway, that would seem to be a pretty good deal. Rather than simplifying the tax system, one can see the complexity of the rules that would need to be put in place to deal with that and the constant challenges there would be to those parameters.

We should thank my noble friend for introducing the amendment. I hope and believe that it is probing in nature because the time is now right for this to be fully examined and it seems that the Government are on a path to do that. However, we need more information on a number of issues before I or my party would officially be able to say that this is something we support. But it is certainly something that deserves examination for the sort of reasons that my noble friend has advanced.

[Lord Freud]

I thank the noble Baroness, Lady Hollis, for raising this very important issue of allowing individuals early access to their pension saving. I was more or less as disconcerted as the noble Lord, Lord McKenzie, about the concept of it being “running away money”, not least because I thought that if the spouses of Members of this House got to hear of it, they might take advantage as we spent night after night in this place rather than at home with them.

The noble Baroness wishes to allow individuals to access a tax-free lump sum of up to 25 per cent, before the current minimum age of 55, when they have pension savings of at least £10,000. I am conscious that this is an issue to which the noble Baroness has repeatedly drawn our attention, and to which she returned at Second Reading when she asked where the Government's consultation paper on early access to pensions had got to. I can answer that particular question; I can report to my Lords that the Government published their call for evidence on early access to pension saving on 13 December last year. It set out the available evidence around early access and some of the potential benefits and risks, and then sought further evidence from interested parties. That call for evidence closed on 25 February. Drawing on the responses to the call for evidence, we will consider the arguments for and against allowing more flexible access to pension savings, based on firm evidence, before we consider further changes to the pensions tax framework.

It is too early to say what these changes might be. However, we need to bear in mind several principles. First, the purpose of tax-relieved pension saving should be, as the noble Lord would like me to say—I have to say it—primarily to provide an individual with an income in retirement. I think 75 per cent probably makes that point anyway. Secondly, any changes to the pensions tax rules must be affordable and sustainable for the Exchequer, and not, as the noble Lord, Lord McKenzie, pointed out rather vividly, create opportunities for tax avoidance. I was pretty impressed that he was able to knock up a tax avoidance scheme so quickly, but we can see where he is coming from. Thirdly, changes should not create disproportionate complexity or administrative burdens for individuals, pension providers and schemes, or indeed for Her Majesty’s Revenue and Customs.

I am sure the noble Baroness will agree with me that it is right for us to examine the evidence submitted before making changes to legislation. On that basis, I urge the noble Baroness to withdraw this amendment.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, it is a great pity that the Minister does not have to face the amendments of the noble Baroness, Lady Noakes. Some of us endured that for a couple of years. It seems to me quite outrageous that he does not have the opportunity to do so tonight.

[Lord Freud]

My Lords, I am very sad that the noble Lord is outraged.

Schedule 4 : Pension Protection Fund

Amendment 28

Pensions Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 15th March 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I shall also speak to Amendment 43. Concerns about levelling down have been raised throughout the development of the auto-enrolment proposals. In an attempt to predict the likely occurrence of this, a range of interested parties, including the DWP, have carried out surveys. The Johnson report summarises its view on the position on page 63. It says that,

“taken as a whole, the bulk of evidence suggests only limited reductions in pension contributions as a result of the reforms. Surveys by Fidelity, Capita Hartshead and the CBI consistently report that around seven in ten employers are not planning to revise or reduce their current levels of provision, and the National Association of Pension Funds found only three per cent of employers planning to reduce contributions for existing members”.

The thrust of this is to be broadly welcomed, but we accept that differing definitions of qualifying earnings and perhaps more traditional definitions of pensionable pay can add to uncertainty, although I believe that the previous Government made it clear that it was the quantum of contributions rather than the basis of calculation that was important. This issue prompted the search for a process of certification that allows an employer to certify overall that schemes satisfy the relevant quality criteria for defined contribution schemes. That in theory avoids the necessity of demonstrating in respect of each employee by detailed calculation that the minimum contribution on the basis of qualifying earnings as defined in the Bill has been met. That is easier said than done. I recall a number of meetings with stakeholders trying to unlock this conundrum of wanting to encourage employers to stay with existing but quality schemes on the one hand but being reassured that auto-enrolment worked for all, especially those who had been shut out of pension savings in the past.

Clause 10 introduces an alternative requirement to the quality requirement set down in existing legislation that will enable a scheme to be used for auto-enrolment. It is to this that Amendments 42 and 43 relate. The Bill states:

“In prescribing an alternative requirement … the Secretary of State must be satisfied that, in all or most cases, a scheme will be able to satisfy the requirement only if … for a majority of individual relevant jobholders, and … all relevant jobholders taken together”,

the relevant quality requirements in respect of employer and total contributions are met. Our amendment would require the Secretary of State to be satisfied in respect of all cases and for more than a majority of individual relevant jobholders. We have defined this as 95 per cent or all routinely.

My first question to the Minister is why the Secretary of State cannot seek to be satisfied in respect of all cases for which an alternative requirement is prescribed. What are the sort of exceptions considered desirable or acceptable, and why?

My second question relates to new subsection (2A). The alternative requirement needs to ensure that for all jobholders or a cohort—the relevant jobholders—sufficient employer and overall contributions are paid to satisfy the relevant quality requirement. However, it also requires this to be the case for individual relevant jobholders, but only for a majority of them—50 per cent plus one. Clearly, this could lead to significant numbers of individuals missing out. The aggregate requirement could be met by more generous contributions for some jobholders with less than qualifying amounts for others.

The Delegated Powers and Regulatory Reform Committee refers to this as a significant power, as, indeed, it is. We are obviously aware of the proposed certification model on which the DWP is working. The Minister may want to update us on progress. The proposal is based on employee’s pensionable pay from pound one and has three steps: a 9 per cent minimum for each jobholder; an 8 per cent minimum for each jobholder where pensionable pay in aggregate equals at least 85 per cent of total pay; and 7 per cent for each jobholder where 100 per cent of pay is pensionable. It is understood that this may give some 92 per cent coverage, but the Minister might like to explain precisely what this coverage is. What analysis has been undertaken of the 8 per cent who presumably would not, on an individual basis, have a minimum contribution paid on their behalf?

However, our focus is not only on how this particular scheme would work; it is crucially on the powers that it is proposed to enshrine in primary legislation. Should a Secretary of State be so minded—I certainly do not contend that this is the case at present—an alternative requirement could allow nearly half of all jobholders to be short-changed. This is simply not acceptable to us and we urge the Minister most strongly to look at these powers again. I beg to move.

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

My Lords, I thank the noble Lord, Lord McKenzie, for his amendments to Clause 10. These amendments would require the Secretary of State, before making regulations on certification, to be satisfied that in every scheme at least 95 per cent of individuals would receive contributions no less than the statutory minimum. It is my understanding that these amendments may have been introduced to seek assurances that individuals will not potentially lose out under the proposed certification arrangements. The noble Lord made that clear in his remarks. I very much share his concern. That is why we have developed a certification test that balances simplicity with safeguards. The high-level certification requirements in Clause 10 will allow for a straightforward test of scheme quality to be set out in regulations for employers who calculate their pension contributions on basic pay rather than qualifying earnings but offer good-quality money purchase pension schemes. These employers will be able to demonstrate that their schemes meet the minimum quality requirements.

It might help if I briefly describe the certification test in the form that it is envisaged it will take in regulations. Contributions start from pound one and the test itself is based on three graduated tiers. Setting the first tier of the certification test at 9 per cent of basic pay provides a straightforward benchmark for schemes. We expect that a contribution of 9 per cent of basic pay will be a better deal than 8 per cent of qualifying earnings for 95 per cent of individuals who work in the private sector and who are eligible for automatic enrolment. Employers who make slightly lower contributions of 8 per cent or 7 per cent of basic pay will be able to certify that contributions must be based on a set ratio of pensionable pay to total pay. In the latter case, all pay must be pensionable. Employers using certification will be able to increase their contributions gradually. The precise details of how this will work will be set out in secondary legislation.

We worked collaboratively with key stakeholders, including the National Association of Pension Funds, the Association of British Insurers, the Confederation of British Industry, the Society of Pension Consultants, accountants and lawyers in designing the certification model. Employers and trade unions have broadly welcomed the certification arrangements as a pragmatic solution to a difficult problem. I hope that we have managed to unlock the conundrum referred to by the noble Lord, Lord McKenzie.

In designing the certification model, we addressed two risks: first, that there would be a significant detriment to individuals; and, secondly, that any certification test would be too complex. It is important that we get the balance right, as we do not want to encourage employers to level down to the statutory minimum, resulting in lower contributions for many of their workers. To protect individuals, the certification test broadly equates to the statutory minimum quality requirements for money purchase schemes: a contribution equivalent to 8 per cent of qualifying earnings. However, it uses basic pay from pound one rather than qualifying earnings. Basic pay is the key to simplification and to risk, as it varies across employers. Based on the analysis that underpins the certification model, we estimate that, for more than 90 per cent of people employed in the private sector who are eligible for automatic enrolment, basic pay is greater than or equal to qualifying earnings—I hope that that answers the question posed by the noble Lord, Lord McKenzie. That is because the basic pay calculation is made from pound one, rather than on just a band of earnings. In view of this, we believe that many people will get higher contributions under basic pay. We can monitor and mitigate the risk to individuals and take action if necessary. The bigger risk here is levelling down.

The amendment would require the Secretary of State, before introducing certification in regulations, to be satisfied that for every relevant scheme 95 per cent of the individual jobholders receive at least minimum-level contributions. We would not be able to regulate for the certification test that we currently envisage, which has been welcomed by employers and key stakeholders. In effect, we would be back to square one and would have recreated the conundrum. To make regulations, the Secretary of State would have to introduce a test that required the individual checking of each jobholder’s contribution records. That would make the test more complicated. Alternatively, he would have to set a much higher bar. Employers have told us that the former would impose an unacceptable burden and they would seriously consider levelling down to the legal minimum.

We are aware of the risk of individuals losing out, as the noble Lord pointed out. We have made a commitment to fully evaluating the effects and implementation of the reforms. This will include a proportionate check to ensure that the regulations are operating as expected and that there are no unintended consequences for individuals, employers or industry as a result of the reforms. To minimise the number of individuals losing out, we will monitor trends in the various components that make up an individual’s wage packet in our annual surveys. The data will enable us to monitor trends in pay and reward packages to identify any significant shift in earnings patterns. Our data collection enables us to monitor pay patterns by firm size, occupation and industrial sector. If the data suggest that self-certification is being abused, or more individuals than expected are losing out, the Secretary of State will have the power to tighten or repeal the legislation.

The noble Lord asked about clarity and what Clause 10 means by “a majority”. In this case, a majority means 50 per cent plus. However, the analysis on which the certification model was developed suggests that we can surpass this and other conditions. As I said, we estimate that, for 90 per cent of people employed in the private sector, basic pay is greater than or equal to qualifying earnings.

I believe that we have the right balance that allows an administrative easement for employers and provides safeguards for individuals. I hope that this will go some way towards reassuring the noble Lord, Lord McKenzie. I therefore urge him to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am grateful to the Minister for his explanation of what is proposed for the certification model, its monitoring and the follow-up work that will be done. However, our basic concern is not the certification model, which has been worked up and, I accept, will be taken forward, but what is in primary legislation about what a Secretary of State can do. As it is written, a Secretary of State could bring forward alternative regulations that meant that only 50 per cent plus one of individual relevant jobholders would be provided for as they should be. It is the broad nature of the primary power that is our main cause of concern. It is a very wide power. What is to stop a Secretary of State bringing forward alternative models?

[Lord Freud]

I need to answer that, as it is clearly the noble Lord’s core question. The Bill circumscribes the Secretary of State’s powers by providing that, when prescribing certification requirements in regulations, the Secretary of State must be satisfied that, first, in respect of all or most cases, the total contributions paid by the employer and the jobholder together will not be less than if the scheme had met the relevant quality requirement; and, secondly, this must be the case both for a majority of the jobholders in a scheme and for all the jobholders in a scheme taken together.

[Lord McKenzie of Luton]

My Lords, I am grateful for that, but it does not help me. My problem is that there might be arrangements whereby some of the relevant jobholders—under the provision, you can choose what cohort of jobholders you want to look at; it is not all employees at any one time—could be well provided for and others not. The second part of the test, which looks in aggregate, would be met; all you have to do to satisfy the first part is for 50 per cent plus one of the individuals to be covered. Unless I am misreading that, and I do not think that I am, that is our bone of contention.

[Lord Freud]

I can give the noble Lord some reassurance. The regulations are affirmative, so we will have the opportunity to debate them at that point.

[Lord McKenzie of Luton]

With great respect to the Minister, I have trotted that one out myself a number of times. As we know full well, we cannot amend affirmative regulations, although they give an opportunity for debate.

This is a serious issue and a potential loophole in the legislation. I do not suggest for a moment that the Minister or his current colleagues would seek to exploit it; I accept that they are focused on working up a practical scheme. However, this is too wide a power to be left in primary legislation. I urge the Minister to reflect on that and perhaps discuss it with his colleagues to see whether it could be narrowed. We would be more reassured if the terms of the certification model were placed in primary legislation. We do not think that that is necessarily a perfect fit, but it would be a good deal better than the very wide discretion that the Secretary of State will have at present. I accept that that is not in the Government’s thinking at the moment, given the model that is being developed.

I am reassured about the monitoring of the model to be undertaken. I will need to read the record, but I thought that the Minister was saying that we could still end up with 10 per cent of people in schemes who would not fall within its ambit. If that is right, 10 per cent is a big chunk of the people whom we are trying to get into pensions saving. On that point, unless the Minister has anything further to say, I am happy to read the record, because I know that we will come back to this point on Report.

I seriously urge the Minister to consider my first point, because it is a serious problem with the clause and one that we want to follow through. Having said that, I am grateful for the information that the Minister has provided and beg leave to withdraw the amendment.

--- Later in debate ---

[Lord Freud]

My Lords, I thank the noble Baroness, Lady Turner, and the noble Lord, Lord McKenzie, for their amendments, which I will address in detail in a moment. Before I do, I would like to set the context.

The legislation covering statutory increases to private sector occupational pensions requires the Secretary of State to make a judgment about the increase in the general level of prices in Great Britain up to the end of September each year. This judgment forms the basis of an annual order setting minimum statutory indexation and revaluation percentages to be used by occupational pension schemes in the next calendar year. As noted yesterday by the noble Lord, Lord McKenzie, the revaluation order was laid in December last year and the order providing for public sector pension increases will be laid shortly. They are not the subject of the Bill.

Clause 14 could best be described as technical and consequential. It makes changes to important but relatively minor provisions. I know that many noble Lords hold strong views on the Government’s decision to use CPI; it was the topic of extensive debate on Second Reading, and it was discussed at length yesterday. In response to the question of the noble Lord, Lord McKenzie, about how much the hands of a future Secretary of State are tied, I can let him know that he is correct in his presumption that the Secretary of State can take a different view and go back to RPI without a Bill if that is their decision. The CPI is a matter of coalition policy now.

It is not my intention to labour any further the methodology or our reasons for adopting the CPI. I think that that is now a matter of record. I will just pick up the noble Lord on one little point that I cannot resist: he asked whether people really substitute. I tried to explain yesterday how there has been extensive research into whether the practice matches the theory, and the research has all come out to say yes, it does. That is how I respond to that point.

[Lord McKenzie of Luton]

That was not my own judgment; I am not a statistician. It was the Royal Statistical Society that raised that issue.

[Lord Freud]

I am most pleased to take this opportunity to inform the Royal Statistical Society of the results of extensive research, which I know it will take into its considerations when it looks at this again.

I think that it would help if I set out exactly what Clause 14 does and why. It does two things. First, it addresses some peripheral references to RPI in occupational pension legislation that need to be removed or amended to ensure that the Government’s decision to use CPI as the best measure of inflation is applied consistently from now on. Secondly, it addresses the so-called “CPI underpin” issue. That arises where a scheme carries on increasing pensions in payment by the RPI. As the statutory minimum is calculated by reference to the CPI, such schemes would be required to track both the CPI and RPI and pay the higher, a bit like the old escalator in the funhouse in Tivoli in Copenhagen. We have made it very clear that statutory increases are minima, and we do not want to discourage schemes from making higher increases. Consequently, the clause before us ensures that schemes that continue to increase by reference to RPI are not subject to this funhouse ratchet effect.

The first reference to RPI is in Section 84 of the Pension Schemes Act 1993. This is a fairly obscure provision that caters for special arrangements in schemes which provide full uncapped revaluation on the whole pension including the guaranteed minimum pension. Clause 14(1) to (3) replaces the explicit reference to RPI in Section 84 with a requirement that these schemes must maintain the value of the pension in line with the rise in the general level of prices. This ensures that Section 84 provides for uprating in the same way as the other pension legislation.

The noble Baroness’s first amendment, reinserting a reference to RPI, effectively does nothing more than revert Section 84(5) to what it already says. It will certainly not restore RPI indexation or revaluation more generally.

The second reference we are addressing in Clause 14 is in Section 40 of the Welfare Reform and Pensions Act 1999. This concerns the indexation of pension credit benefits, which are pension rights deriving from a pension sharing order made as part of a divorce settlement. Clause 14(6) to (8) replaces the existing reference to RPI with a cross-reference to the inflation percentage adopted by the Secretary of State for the purpose of the annual revaluation order. The remaining part of the clause concerns Section 51 of the Pensions Act 1995. Section 51 sets out the requirements for indexation of pensions in payment.

The amendments to Section 51 of the Pensions Act 1995 in Clause 14 will also ensure that where schemes continue to increase pensions by RPI they need not carry out an annual comparison of the RPI increase required under the scheme rules and the statutory increase using CPI and pay the higher of the two. If a scheme increases pensions by reference to RPI, and has done so since the start of January 2011, then it will escape the statutory requirements of Section 51(2). This deals with the CPI underpin issue to which I referred earlier.

The amendments in Clause 14 also make amendments to ensure that Section 51(3) continues to apply as intended now we are using the CPI to measure inflation. Section 51(3) exempts schemes from the statutory indexation requirement where they increase pensions in payment at least by capped RPI measured over an annual period defined in their rules. Inflation for statutory indexation is measured at 30 September, but some schemes want to continue measuring at a different time and that is fine—Section 51(3) currently allows them to do that. The clause has the effect that if schemes increase by CPI, RPI or a combination of the two under their rules, they will continue to be exempt from the statutory indexation requirements. At the moment it is only schemes with RPI rules that would be exempt. All we are doing is making sure that an existing provision, which is very convenient for a number of schemes, is carried forward into a world where some or all pensions in payment will be increased by reference to CPI as well as RPI.

I am afraid that the noble Baroness’s second amendment would undo the part of the clause that allows schemes that increase by reference to CPI to use their own inflation reference period. Again, it will do nothing to restore RPI indexation or revaluation more generally. For that reason, and for the reasons that I set out earlier in respect of Amendment 47, I urge the noble Baroness not to press her amendments.

On Amendment 48A, I stress again that deciding the increase in the general level of prices is an annual duty, and that as the Government have made clear many times over, we believe that the CPI is the most appropriate measure. Publishing a triennial report on the impact of using the CPI will not change that. That is not to say that we are not interested or do not care about the impact—of course we do—but it is important to look at the broader context, not one part of the picture in isolation.

We are also mindful of the impact on private sector pension schemes and their members. That is why we issued a consultation paper in December about the impact of using the CPI on private sector occupational pension schemes. That consultation finished on 2 March and we are currently considering the responses. The noble Lord, Lord McKenzie, has asked when we will be able to share those responses. I can only ask him to show us a little more patience. I think that we have around 150 submissions, and some of them are extremely detailed and complex. We are also conducting social research to investigate the impact of the change from RPI to CPI for statutory revaluation and indexation of private sector pensions. We hope to publish findings from this research before summer.

--- Later in debate ---

[Lord McKenzie of Luton]

Before my colleague withdraws her amendment, and I certainly do not intend to press mine, it seems a bit hard for the Government to say that their policy is fully evidence-based when they are only just gathering the responses to the survey and will take some while to analyse the consequences. The survey of the consequences of the switch to CPI for occupational schemes is an important one, and one might have hoped that the Government would wait for that analysis and research before they committed to the switch long-term.

[Lord Freud]

The consultation exercise informs how we do these things in some detail in regulatory terms, but it does not affect the decision and direction of travel.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I will be brief. I understand the thrust of the amendment. However, I have some concerns, mainly over the wording. To place on the regulator an objective to ensure the health and longevity of good pensions is stretching a point. The regulator is focused on workplace pensions. As written, “pensions” could range over a raft of different situations, including contract-based ones as well as DB ones.

From my experience, I challenge the assertion that the regulator is overly focused on protecting the PPF. Perhaps it is easy to forget the circumstances of 2004, when DB schemes were dropping out of the system like flies. The regulator's role then made a real difference. I recall also that over the past 18 months to two years there have been constant challenges to the regulator on the grounds that requirements under recovery plans were too severe. The regulator responded in a very effective way, being clear about what flexibility there was in the system but also recognising that what was important to DB schemes was the employer covenant. Unlike insurance-based contractor arrangements, these entities are capitalised and support the provision of annuities or whatever else through that structure. For DB schemes, it is the undertaking of the employer and sponsor that is the driver. Therefore, the regulator's role in holding them to account is good.

No one would object to anyone’s role in promoting the provision of good pensions. However, in this case I would not impose the obligation to ensure their health and longevity, because these will depend on a whole raft of things, not least the commercial situation of the sponsor and what their future may be. The regulator has played an important role, and I will be interested to hear if the Minister has any proposals to change their current remit and focus.

[Lord Freud]

My Lords, we have reached the last amendment in Committee on the Pensions Bill with a little nostalgia—and perhaps with relief for some. I will deal with my noble friend Lord Boswell’s amendment on the objectives of the Pensions Regulator, and will start by providing some background. Many noble Lords will be aware that Parliament legislated, through the Pensions Act 2004, to establish an independent, risk-based Pensions Regulator whose job was to regulate work-based pension schemes based in the UK. The Act gave the Pensions Regulator his main statutory objectives. These include protecting the benefits of members of work-based pension schemes and limiting calls on the Pension Protection Fund. Noble Lords may be interested to know that, in its 2007 report on the Pensions Regulator’s progress in establishing a regulatory approach, the National Audit Office found that the objectives provided a sound framework for pensions regulation.

Some of us may also be aware that the NAPF, in its 2010 report Vision for Pensions, recommended that the regulator’s activities should be reoriented. They proposed that this should be done by giving the regulator a new objective, to promote good pension provision and to ensure their health and longevity. My noble friend is well aware of the interests of the NAPF in this area, given the nature of this amendment.

Social Security Benefits Up-rating Order 2011

Debate between Lord McKenzie of Luton and Lord Freud

Monday 14th March 2011 Lords Chamber

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

My Lords, I also speak to the draft Guaranteed Minimum Pensions Increase Order 2011. I am satisfied that the orders are compatible with the European Convention on Human Rights.

The Guaranteed Minimum Pensions Increase Order provides for contracted-out defined benefit schemes to increase their members’ guaranteed minimum pensions that accrued between 1988 and 1997 by 3 per cent. Such increases are in line with the growth in prices or 3 per cent, whichever is the lower.

The uprating order embodies two notable changes this year. This is the first uprating after the restoration of the earnings link for the basic state pension, and the order introduces a clear and consistent approach to price measurement with the move to the consumer prices index, thereby putting the annual uprating of social security benefits on a sustainable footing for the future.

I know that noble Lords will welcome the coalition Government’s immediate fulfilment of the promise to restore the earnings link for the basic state pension. Not only that, but we have also given a triple guarantee which means that the basic state pension will be increased by the highest of earnings, prices or 2.5 per cent. As a result of those actions, it is estimated that the average person retiring on a full basic state pension in 2011 will receive £15,000 more in basic state pension income over their retirement than they would have done under the old prices link. Through these policies for the basic state pension, we will provide a solid financial foundation for people’s retirement income.

The basic state pension goes to more than 11 million pensioners in this country, and is the most efficient and equitable vehicle for distributing resources to pensioners. From this April, the standard rate for the basic state pension will increase by 4.6 per cent. That means an increase of £4.50 a week, taking the weekly rate from £97.65 to £102.15. This is in line with a promise made at the Budget to increase the basic state pension in line with the retail prices index in 2011. In subsequent years the triple guarantee, with the consumer prices index used to measure prices, will apply.

In the other place, there was an accusation that we have had to override the triple guarantee this year because the relevant CPI figure—3.1 per cent—would have resulted in too low an increase. This is not the case. We made a promise to increase the basic state pension in line with the RPI in April 2011 if it showed the highest growth. It did, so that is what we are doing. There is no override here; we are simply fulfilling a promise. We have also ensured that our poorer pensioners see the benefit of the increase in the basic state pension by ensuring that the standard minimum guarantee in pension credit rises by at least the cash increase for the basic state pension this year. Therefore, from April 2011 single people on pension credit will receive an above-earnings increase to their standard minimum guarantee of £4.75, which will take their weekly income to £137.35. For couples, the increase will be £7.30, taking their new total to £209.70 a week.

I will now turn to the second notable change I mentioned; namely, the switch to the consumer prices index as the measurement of prices for benefit and pension uprating. This is not the first occasion on which we have discussed the CPI and it will not be the last. Indeed, we will be returning to it tomorrow in our deliberations in Grand Committee on the Pensions Bill. Nonetheless, I hope noble Lords will permit me to take this opportunity to outline our thinking on the matter again. It has been said before but bears repeating that the purpose of the annual uprating exercise is to ensure that the purchasing power of social security benefits is protected against inflation. It is not to give the highest increase possible.

We believe that the CPI is the most appropriate measure of inflation and one that is fair to the taxpayer. As the Chancellor announced at the Budget, the move will save almost £6 billion a year by 2014-15. We do not claim that it is a perfect measure of inflation, but it is the most appropriate and is the measure used by the Bank of England to measure the general level of price inflation. The key difference between the RPI and the CPI is the so-called formula effect. Put simply, the CPI is calculated in a way that takes account of the choice available to consumers who can trade down to, or, in the jargon, substitute cheaper goods when prices rise. RPI is not and arguably overstates inflation as a result.

A basic principle of economics is the law of demand, which states that, all other factors being equal, a rise in the price of a good will cause consumption to fall and vice versa. A key driver of this is substitution: as prices rise, consumers will substitute away from higher-priced goods, choosing less costly alternatives. Substitution can occur in different forms. There can be substitution among brands or types of products, such as brands or types of ice cream; across different store outlets and across time. This is known as elementary or lower-level substitution. There can also be substitution among items in different product categories—such as between ice cream and cupcakes, or bus rides and train rides—referred to as substitution at higher levels of aggregation.

The geometric mean in the CPI is used only at the elementary aggregation, or lower level. There is no higher-level substitution assumed. A good way to think about substitution is to employ the concept of elasticity. Price elasticity is a measure of how responsive demand is to changes in price. Higher-price elasticity means that small changes in price lead to a large shifts in demand and vice versa. Where a good is described as having unit elasticity, a 1 per cent rise in price will lead to a 1 per cent fall in consumption and vice versa. This is a common way to represent demand behaviour in economic literature, in the form of the Cobb-Douglas utility function. For a given basket of goods, the Cobb-Douglas function assumes a unit elasticity of demand for all goods in the basket.

How does this relate to the geometric mean? Economists have shown that the geometric mean is an exact reflection of the cost of living if the elasticity of substitution is equal to one; that is to say, if a 1 per cent change in price leads to a 1 per cent change in consumption. The arithmetic mean is appropriate if the elasticity of substitution is equal to zero; in other words, if price change has no effect on consumption. Clearly, there are some goods for which price change will have little or no effect on consumption, because there is no recourse to a substitute good which has increased less in price. One example would be petrol. That is why the arithmetic mean is used in the CPI to combine petrol prices. In fact, the arithmetic mean is used in 30 per cent of the CPI’s basket of goods for precisely that reason. Other goods it covers include electricity, newspapers, transport and postal services.

What about the remainder of the index, the 70 per cent where substitution is implied by the use of the geometric mean? Do people really substitute away from goods which have risen sharply in price to those which have not? Is the geometric mean appropriate? Noble Lords will not be surprised to find that there is a body of empirical evidence that people do substitute and that the geometric mean is an appropriate reflection of that. In Australia in 2009 a study by Ivancic, Diewert and Fox found that, in the overwhelming majority of cases, elasticity of substitution was much closer to one than to zero and therefore that the geometric mean was a more appropriate reflection of consumer behaviour. One of their key findings was that consumers are very responsive to price changes at the elementary aggregate level, the level on which the geometric mean operates. However, the study went further, finding that even the geometric mean might not fully capture substitution, with some elasticities exceeding one. There is separate evidence, for example, that brand-level elasticity is often more in the one and a half to two range.

Closer to home, also in 2009, the Scottish Government published an overview of evidence on food prices. Within this, the use of TNS Worldpanel market data showed that consumers do respond to higher food prices by substituting within a general category of food. I hope that this reassures noble Lords that consumers do substitute when prices rise; not necessarily that they substitute all the time, for the geometric mean does not demand that; simply that some people will substitute when an item has risen sharply in price and there is a good substitute.

The CPI deals only with substitution on the elementary aggregate level, the lower level. In the United States a widespread view developed that their consumer prices index was overstating inflation by not taking account of substitution behaviour. The US Advisory Commission to Study the Consumer Prices Index, also known as the Boskin commission, was concerned about substitution bias—concerned that their CPI was overstating inflation by not taking into account consumer substitution. However, the commission’s report made the point that higher-level as well as lower-level substitution was an important part of consumer behaviour.

Suffice to say that the theory and evidence for consumer substitution is compelling, that the geometric mean is an appropriate method of capturing that behaviour and therefore that the CPI’s method of aggregation is superior. That is why the geometric mean is used in the consumer prices index of the United States, Canada, Australia, Denmark, Finland, Ireland, Italy, Luxembourg—I could go on; I will go on—France, Portugal, Spain, Sweden and Austria. You get the picture.

Once we accept that the use of the geometric mean, where appropriate, is superior, then we have accounted for most of the gap between the CPI and the RPI. In fact, it has accounted for an average 0.53 percentage points of the average 0.88 percentage point gap since 1997, or 60 per cent of the gap. Already it seems that the CPI is the more suitable index. People tend to gloss over the fact that most of the gap is contributed by methodology, which experts agree is superior, and concentrate on the basket of goods instead, so it is to that factor that I will now turn.

The CPI excludes mortgage interest payments, which are not relevant to the majority of pensioners and benefit recipients. Only 7 per cent of pensioners have a mortgage, and many working age benefit recipients can get help with their housing costs. As noble Lords will know, it was mortgage interest that caused the RPI to fall in 2009 and, consequently, many pensions to be frozen. Without mortgage interest, the RPI would have grown 1.3 per cent rather than fallen 1.4 per cent in the relevant period. The CPI grew by 1.1 per cent in that same period. This illustrates the significant effect that mortgage interest can have on RPI inflation, and it is not a cost relevant to most benefit and pension recipients. There are other housing costs, of course—rent, for example—but, since the CPI already includes rent, we need not concern ourselves with that.

What about owner-occupiers though? The ONS is working on incorporating owner-occupier housing costs in the CPI. It is not something that can simply be dropped in, and the work is currently at an early stage. We will monitor this work closely and look seriously at the new index when it is close to production.

In correspondence with the UK Statistics Authority, the Royal Statistical Society has made some suggestions with regard to the CPI. Naturally, we welcome the ONS’s continuing statistical development programme. However, let us not lose sight of the fact that the Royal Statistical Society has issues with the RPI, to which I shall return in a moment.

Increases in line with the growth in the CPI maintain benefit and pension value as well as putting the system on a more sustainable footing, allowing the Government to focus help where it is needed most. In short, it is fair to recipients and to the taxpayer. I mentioned the Royal Statistical Society. You will often see reports of its concerns with the CPI in correspondence to the UK Statistics Authority. Have any of those reports mentioned its repeated calls for the RPI’s methodology to be improved, given that it arguably overstates inflation? I suspect not. The Institute for Fiscal Studies’ report on the Budget said that the CPI’s methodology was,

“a sound rationale for the switch”.

For a final word on the CPI, let us look no further than that longstanding Chancellor, Mr Brown, who said:

“It is more reliable ... It is more precise”.—[Official Report, Commons, 10/12/03; col. 1063.]

That is the consumer prices index—not a perfect index, but more reliable, more precise and more appropriate. I commend these orders to the House. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing these orders and for that journey through geometric means, elasticity of demand and Cobb-Douglas. I am certainly reassured to know that the geometric mean works only at the elementary aggregate level. He has certainly given us plenty to read this evening in time for tomorrow’s further debate on this issue when we get to pensions.

The Guaranteed Minimum Pensions Increase Order presents no problem to us. Although the general level of price increase has been based on the CPI, not the RPI, the limiting factor is the 3 per cent cap, and we can support this order. However, the more substantive benefits uprating order is an altogether different proposition. Of course, we are not supposed to vote against it as it is includes matters that we support, such as the uprating of the basic state pension by the RPI, but we will not vote for it since, as we have heard, it is the start and signals the continuance of the switch to uprating by reference to the CPI. When it comes to debating these things, the Minister is right that there is no perfect index; an index measures what it measures.

The Minister made great play of the triple lock and the re-linking of the basic state pension with earnings. This is something that we support, and why not? After all, we locked it in as a requirement into primary legislation. We should remember that it was a Conservative Government who broke that link at a stroke. It was a consequence of this that when we came to government in 1997, our priority was to target maximum resources on the poorest pensioners. This was helped through measures such as pension credit, which meant that by 2007-08 there were 900,000 fewer pensioners in relative poverty than in 1998-99, as measured by the 60 per cent contemporary median income. On average, pensioner households were £1,500 a year better off in 2009-10 as a result of the tax and benefit changes than if the 1997 policies had simply been rolled forward. The poorest one-third of pensioner households were over £2,000 a year better off.

Pensions: Britons Living Abroad

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 9th March 2011 Lords Chamber

[Lord Freud]

My Lords, this is a much more complicated issue than it seems on the surface, because it is not a question of making a payment to a pensioner the entirety of which they then put into their pocket. The country where they are living will often supplement their pension, so it can often be a case, for instance, of us making a higher pension payment and the equivalent of pension credit being reduced. It is money out of the UK taxpayer’s pocket into the pocket of the taxpayers of another country. It is a far more complicated issue than it seems on the surface.

[Lord McKenzie of Luton]

My Lords, I agree with the Minister that now is not the time to change the uprating of pensions paid abroad. The priority should be to push back against the aggressive acceleration of the state pension age for women. However, does he agree that British pensioners overseas have the benefit of the reduced number of years of contributions to receive a full basic state pension, which came in under our legislation in April 2010, and still have the ability to top up entitlements by class 3 buy-backs on a basis whereby for £655 you can buy extra pension of about £170 a year for life? That seems a pretty generous deal.

[Lord Freud]

My Lords, I am happy to congratulate the noble Lord opposite on those changes, which I know that he was involved with. I think they have been valuable. The point about costs in the current environment is that this change to uprating in the frozen areas would cost us £620 million a year, and in the context of the austerity position that we are in—all noble Lords will be very familiar with the terrible dilemmas that we face as we look to get the budget under control—we should consider how much that £620 million represents.

Mesothelioma Lump Sum Payments (Conditions and Amounts) (Amendment) Regulations 2011

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 9th March 2011 Grand Committee

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

My Lords, I start with the formalities. It is a requirement that I confirm to the Committee that these provisions are compatible with the European Convention on Human Rights. I am happy to so confirm.

I am pleased to introduce two sets of regulations, increasing by 3.1 per cent the lump sum amounts paid under the Pneumoconiosis etc (Workers’ Compensation) Act 1979 and the mesothelioma scheme set up by the Child Maintenance and Other Payments Act 2008. These new amounts will be paid to those who first satisfy all the conditions of entitlement on or after 1 April 2011.

The increases in the amounts paid under these two schemes are not part of the process that increases the benefit rates across the whole range of social security benefits. As a result, there is no statutory obligation to increase the rates paid under these schemes. However, previous Ministers have made a commitment to annually increase the rate of payment benefit alongside the general increases applying to all social security benefits. I am very pleased to make the same commitment.

At this point I must briefly refer back to the increases made to the payments under these two schemes in 2010. As a result of the economic downturn, the retail prices index in September 2009—the date at which the rates for the following year are fixed—was negative for the first time in 50 years. Notwithstanding that negative figure, the rates were increased in 2010 by 1.5 per cent. It was planned that this increase would then be set against the amount of the increase in 2011—in other words, the planned increase for this year would be reduced from 3.1 per cent to 1.6 per cent. I am pleased to report that this reduction in the increase for this year will not be made. It is proposed instead to increase the rates under these two schemes by the full 3.1 per cent. I am sure that noble Lords will endorse this approach. I would also add that, as the retail prices index at September 2010 was 4.6 per cent, not seeking to offset the 1.5 per cent interim payment now means that people will not lose out from the change to using the 3.1 per cent CPI figure as the measure of inflation to increase the rates of payment in 2011-12. The figures happen to be the same.

Noble Lords will be aware of the background to these Acts but it might help if I briefly recap. A person who is injured or contracts an industrial disease as a result of their work may sue the employer for damages. However, some diseases can take a long time to develop and may not be diagnosed until many years after the exposure to the agent that caused the illness. This is particularly so for asbestos-related diseases such as mesothelioma.

The understanding of diseases linked to exposure to asbestos continues to expand. It is now recognised that it may be up to 40 years between the original exposure and the linked disease, which is longer than first thought. Because of that long latency period, the employer responsible may no longer exist and it may be very difficult for that person to obtain compensation. The Pneumoconiosis etc. (Workers’ Compensation) Act 1979 was introduced to help such people by paying lump sum compensation to sufferers of certain dust-related diseases, or their dependants, if they are unable to pursue civil action. The 1979 Act covers a number of respiratory diseases, many of which are directly related to asbestos exposure. The scheme also covers a number of non-asbestos-related diseases such as coal-workers’ pneumoconiosis.

Noble Lords will need no reminding that all of the terrible diseases covered by this scheme are a heavy legacy of our industrial past. Although people who develop mesothelioma through their employment have had access to lump sum payments through the 1979 Act for some time, there was previously no provision for people who developed mesothelioma outside the workplace. This weakness in the provision of compensation was remedied by the introduction of the mesothelioma scheme in 2008. This scheme provides, for the first time, lump sum payments for mesothelioma sufferers who have been exposed to asbestos outside the workplace.

As a result of these regulations, from April 2011 the amount payable to a person under both the 1979 Act and the 2008 mesothelioma scheme will, for a person suffering from mesothelioma, increase to £59,896 for a 50 year-old and £36,422 for one aged 60 at the date of diagnosis. As these two figures show, the amount of money paid as a lump sum varies depending on the age at which they are diagnosed. The highest amounts are paid for those diagnosed at an early age and for those with higher levels of disability.

All payments made in respect of mesothelioma are paid at the full 100 per cent rate appropriate to the age at diagnosis. Your Lordships will not be surprised to learn that about three-quarters of payments made under the 1979 Act are in respect of mesothelioma—a particularly unpleasant and fatal disease, caused almost exclusively by exposure to asbestos. Those diagnosed with mesothelioma usually have a short life expectancy, generally of between 12 and 18 months. It is common that the sufferer is severely disabled soon after diagnosis.

I am saddened to report that the number of deaths from mesothelioma in Great Britain continues to rise. In 1968, 153 people died from it; by contrast, more than 2,000 people a year are currently dying from the disease. I have a further great regret in stating that we will not reach the peak in the number of deaths from mesothelioma until around 2015. The latest estimates are that between 2006 and 2020, 30,000 people in the UK will die of the disease. Put another way, one out of every 100 men born between 1940 and 1950 will die from mesothelioma. These are chilling figures.

The rise in the number of deaths is reflected in the continued rise in the number of payments made under these schemes. In the year 2008-09, a total of 2,351 payments were made under the 1979 Act; the following year, there were 2,625 payments; and for the full year from April 2010 to March 2011, we expect to make about 2,900 payments.

It may also help if I briefly give you some figures to illustrate the important role fulfilled by the two schemes in providing financial support. In the three years from April 2008 to December 2010, 7,088 payments were made under the 1979 Act, amounting to over £95 million. In the time since the 2008 scheme was introduced in October 2008, about 1,200 payments have been made at a cost of just under £20 million.

These regulations increase the levels of support through the government compensation schemes; and noble Lords will, I am sure, agree that while no amount of money will ever compensate individuals and families for the suffering and loss caused by mesothelioma, those who are suffering rightly deserve some form of monetary compensation, and it is essential that sufferers receive compensation before it is too late. I commend the uprating of the payment scales to noble Lords and ask approval to implement them. I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the noble Lord, Lord Freud, for introducing these orders in a very sympathetic way. As we have heard, one of the orders increases the amount of compensation paid to sufferers of mesothelioma under the scheme legislated for in 2008, and the other uprates payments made under the Pneumoconiosis etc (Workers’ Compensation) Act 1979. My noble friend Lord Jones has spoken passionately about the scheme in the past and was involved in it from the start. I am sure that we will hear from him further this afternoon.

It is noted that in both cases the uprating is by reference to CPI, at 3.1 per cent. Given the Minister’s reference to what uprating by RPI—minus 1.5 per cent—would have done this year, we are in the same place on that issue. Nevertheless, had it been uprated by RPI at the top end of the scale, there would be something like an additional £1,000 of compensation. However, within the context of our overall position on the change to CPI, we can and do support both of these orders.

The scheme brings some relief to sufferers of certain industrial-related diseases. They are all terrible diseases. As the noble Lord said, they are a dire legacy of our industrial past. We have heard that the number of deaths from mesothelioma continues to rise and is still a few years away from its peak, which we were told will be in 2015. I was going to ask the Minister whether he could give us an update on the number of payments made to date in the current year under the 1979 and 2008 Act arrangements, with an estimate for both for next year. I think that he may have given us that, so I will look at the record. If it does not fully cover that query, perhaps he will drop me a line, unless he has the figures available today.

The resources for the 2008 Act payments were to be found from compensation recovery from civil claims related to the 1979 and 2008 Act schemes. Will the Minister give us an update on the current level of successful claims and the compensation recoverable? What amounts are estimated to be due to be received in the current year and next year? He will recall that last year we were able to announce an alignment of the 2008 Act scheme payments with those of the 1979 Act for sufferers of mesothelioma and their dependants. This was about a year earlier than we had originally expected. It would appear that this parity which has been obtained is to continue, and we welcome that.

However, we also took steps last year to reduce the gap between awards to sufferers and awards to dependants. Seemingly no further progress has been made in this regard with the current year's uprating. We should recognise the terrible effect that these diseases can have on families who have to cope with the effects of pain and suffering on their loved ones. Differential payments between sufferers and dependants can put pressure on the former at the most difficult time in their lives. What are the current Government's intentions in this matter? Is it still their intention to narrow or to close the gap, and when is further progress likely to be made?

--- Later in debate ---

[Lord Freud]

My Lords, this has been a debate in which I think we are all in exactly the same place. It is a very difficult area, as we all know. I shall try to deal with the issues that have arisen as well as I can.

With the consent of the noble Lord, Lord McKenzie, I think that we might just park CPI/RPI in this context. We will have another chance to look at it today, another on Monday and another on Tuesday. I shall say a few words on it later, but it is one of those things that, in this context, might feel slightly uncomfortable. I am very relieved that the figures are such that we do not need that debate.

The noble Lord, Lord McKenzie, asked for some figures on payments and so forth. I can give him some up-to-date figures. The payments made in 2009-10 amounted to £42.3 million. In 2008-09—I am sorry that I am going down the years—the payments amounted to £37 million. In the current year, up to January, in combination, they amounted to £38.8 million.

[Lord McKenzie of Luton]

Can the Minister clarify whether that was under both the 1979 Act and the 2008 Act?

[Lord Freud]

Yes; it is a combination of both Acts.

The recoveries picture is also improving. In 2008-09, it was £5.3 million; in the following year, 2009-10, it was £16.1 million—which, as a percentage, is 38 per cent; and in the year to January 2011, it was £12.4 million. We are estimating, next year, to get recoveries of £20.7 million. So recoveries are currently running at roughly one-third of the payments.

Both the noble Lords, Lord McKenzie and Lord German, were interested in the relationship between the sufferers’ and the dependants’ rate. As they both mentioned, historically, that has been lower. The gap was closed by £5,000 and because of the age factor in many cases, the dependants’ rate can be the same as the sufferers’ rate, and that might not be a particularly valid argument in people’s eyes. At the moment, all I am empowered to say is that raising those levels by CPI is what we have decided we can do. Currently, we are not looking at any acceleration of that gap.

I should perhaps emphasise that the department is currently engaging very actively with customer groups to try to ensure that claims are made before death. That maximises the rate at which payments are made at the sufferers’ rate rather than the dependants’ rate.

The noble Lord, Lord Jones, brought a historical perspective to the subject. One of the horrific things about mesothelioma is that a single fibre can trigger the disease; he talked about snowballs made with blue asbestos. That is almost overkill, but as we see, and as the noble Lord, Lord Boswell, pointed out, people can also get this disease without knowing where they have got it from. It could be contracted from air conditioning even when they had not been in work. I suspect it is the most dangerous thing that we have.

There were other questions on the regulations for small businesses. In practice, the regulations ensure that anyone suffering from mesothelioma can get compensation, so there is not a problem with employment.

On the matter of public versus private bodies, raised by my noble friend Lord German, I do not have the figures. We are trying to improve the tracing, but I shall write to interested Peers with that figure when I get it.

The noble Lord, Lord Boswell, asked about the profile of suffering. We expect it to peak in 2015 but, thereafter, we are expecting a gradual decline in the numbers. From earlier estimates, we might see a slight pushing back of the rates but the shape of the curve has not changed dramatically.

The most difficult questions, slightly wider than these regulations, concern what we do with the tracing and with the bureau. The ABI’s ELTO database will begin to operate from this April, which is a positive step.

The court case, as the noble Lord, Lord McKenzie, pointed out, is a real issue. The Court of Appeal handed down its judgment in October and said that insurance policies should be interpreted on actual policy wordings. That has thrown an important level of uncertainty into what we do about tracing and the bureau because if we do not know what the actual wording was, it creates an extra problem. The judgment has been appealed to the Supreme Court and for obvious reasons it is quite difficult to do anything absolute until we know where we are.

This area is part of my portfolio of responsibility; I am taking very seriously the idea of an insurance bureau or something to find out how we can get compensation for people for whom the records are no longer there. I know there has been a relatively long gap since the public consultation that closed in May 2010. I assure the Committee that I have been in very active talks with various interested parties. I am pursuing some strategies, and hope to be able to achieve an appropriate outcome and bring the proposals forward to the House in due course. Sometimes it is better to get a result than to do things in a hurry. That is what is happening here. I can only give a personal assurance that I am taking this very seriously.

I think I have dealt with virtually all the questions. There is just the public-private split to deal with. The Government recognise that these two schemes perform a very important role and that it is vital that the value of these payments is maintained. I am pleased to confirm the Government’s commitment to review the level of these payments on an annual basis and, where necessary, to increase the payment. I am sure that noble Lords are in full agreement with these sentiments. Indeed, they have expressed that. I therefore commend the uprating of the payment scales and ask for approval to implement them.

Occupational Pension Schemes (Levy Ceiling) Order 2011

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 9th March 2011 Grand Committee

[Lord Freud]

My Lords, again I thank noble Lords for taking such an active part in the debate and, as ever, looking at these issues in real detail. I will aim to answer as many of the questions as I can before I resort to the expedient of the letter.

The noble Lord, Lord McKenzie, is completely right about this being our last opportunity—last unforced opportunity, if you like—to do this under the affirmative procedure, so we should—and we are—taking advantage of that opportunity. He asked about the spilt between risk-based and scheme-based. Eighty per cent of the quantum is designed to be risk-based. That varies slightly, but the figures have held pretty firm over the years so, without going through endless figures, if we look at the £600 million for 2011-12, which I referred to at the outset, the risk-based element is estimated to be £480 million and the scheme-based element is £120 million.

The noble Lord, Lord McKenzie, and my noble friend Lord Boswell asked about the impact of raising the cap and about how many people are affected by it. As at January 2011, 92 scheme members receiving compensation were affected by the cap. The noble Lord, Lord McKenzie, asked about time in assessment. The real driver in that is legal action, which can take many years. As he saw, that is connected to the change in the Pension Bill. The problem we have is that resolving some of these issues can take a lot of time. On top of that, assessment is often delayed by poor scheme data and uncertainty about what the scheme rules are. It is not people being dilatory; there are genuine problems.

My team has just informed me that, in opening, I made a mistake. I said that the newer cap applies to people entitled to compensation before 2011 and I should have said after 2011. I am sure noble Lords knew what I meant. I apologise to the Committee.

The noble Lord, Lord McKenzie, asked whether the cap was overrated if it was linked to earnings. That is not the case because, to take an example, the comparator is the position of a 50 year-old at the insolvency of the employer. We want someone whose employer goes bust this year to be capped at the same relative level as someone whose employer went bust, for example, in 2005.

The calculation of the levy formula is something for the board of the Pension Protection Fund. The proposals concern the distribution of the levy between schemes and not the overall quantum. Will individuals be worse off due to the switch from RPI to CPI? The current market conditions mean that the cost of providing RPI or CPI are equal, but we have to recognise that there may be a divergence in future and we shall review that over the summer in the light of emerging evidence.

The noble Lord, Lord Stoneham, asked about indices. Without going into a full-blown techie analysis, the question was about whether we can make CPI a better fit with pensioner inflation. The ONS is working to include owner-occupied housing costs in its statistical programme. It is a very active programme. Rather than using mortgage costs, according to its research, the likely outcome—I may be jumping the odd hurdle to reach that conclusion, but bear with me—would be to take the cost of an average house and see how that moves up and down. I cannot see that happening much before two years, but an active process is taking place and the ONS will work very closely with European statistical organisations because it would need to be a general move.

One of the most interesting things is that the CPI has been adopted as the main measure, certainly for comparative purposes in Europe. The Americans took the decision to go down this route because of the geometric approach, which basically gets elasticities closer to one, which reflects substitution, as opposed to any elasticities closer to nought, which do not show much substitution, and that is seen in the arithmetic mean used mainly in the RPI. In the CPI, interestingly, about 70 per cent is done geometrically. The other 30 per cent of goods, which are hard to substitute—oil, for instance—are left at that low-elasticity arithmetic mean. We will have more of that next week.

The noble Lord, Lord McKenzie, asked whether the implications of this switch to CPI mean that some FAS members would find that the total value of their protection from the UK Government is reduced to a level that the European Court of Justice indicated would be below the minimum lawful percentage for protection. Perhaps I slightly overinterpret the question, but we have looked at that closely and we believe that the Government continue to meet their obligations under Article 8 of the European insolvency directive.

[Lord McKenzie of Luton]

My question was slightly broader. It was not just on the EU judgments but on whether, given any of the negotiations—there were quite complex and tortuous discussions with various lobby groups—the switch is true to that position as well.

[Lord Freud]

I think that I hesitate to answer that on the Floor. Is that sensible? Yes, my team is nodding, not vigorously, but gently. We should write the noble Lord a letter on that matter.

The last real question was on the impact assessment on FAS costs. The overall change to CPI for FAS purposes is estimated to deliver around a 10 per cent reduction in assistance costs over the lifetime of the FAS, which has been projected at about 90 years. Clearly, the impact on individuals will depend on the characteristics of the member, such as age and period of service.

On the economic situation, I think I have some data on what has been happening to the overall level of surplus in the PPF. I was asked about that and I know that I have those figures. It would be easier for me to tell the Committee than to write, but if I do not have them in a microsecond I will write. I cannot put my hand on them but the question raised was: where is the overall level of surplus, by schemes, and how many of them are in deficit and how many in surplus? I wanted to look at the overall risk levels but I cannot put my hand straight on that. If we could deal with that issue of economic conditions and the place that the market got to, that would also address the question from the noble Lord, Lord Stoneham. I am irritated with myself for not having it absolutely to hand.

As your Lordships know, the Government recognise the difficulties experienced by those who lost their pensions through no fault of their own.

[Lord McKenzie of Luton]

I am grateful for the full reply that the Minister has given us on a range of questions but I wanted to make sure that we had covered this point or that he was going to respond to it. Looking at the PPF before a judgment is made, for example, as I understand it before somebody enters the PPF you look and see what the market would have produced. If the market would have produced something which was at or above the PPF levels, that is what would happen. Presumably when those judgments were made, they were made on the assumption that PPF levels would be uprated by RPI—obviously, that is not going to happen, at least for a period—with the expectation that indexation would be lower than RPI. Is there the prospect that that means—at least with the benefit of hindsight, and it may not matter that it is hindsight—that judgments were made that might have been made differently? In some instances, the market would have been able to do better than the PPF on a CPI basis.

[Lord Freud]

The answer is that currently CPI is the same as RPI in terms of current annuity pricing. Clearly that may or may not be the case in the future. At the current time, that does not make a difference. The Pension Protection Fund and the Financial Assistance Scheme will continue to provide help to people whose pension schemes fail them. These regulations will enable the continued delivery of that help in a manner that is fair and equitable to both scheme members and the taxpayer. I commend these draft regulations to the Committee.

Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order 2011

Debate between Lord McKenzie of Luton and Lord Freud

Wednesday 9th March 2011 Grand Committee

[Lord Freud]

My Lords, I thank, in particular, the noble Lord, Lord McKenzie, for his interest in this and the noble Lord, Lord Stoneham, for making that point. To summarise, this sets out the level of contracted-out rebate rates that will apply to employers and employees within defined benefit contracted-out occupational pension schemes from April 2012. As I said earlier, while we have provided rates for defined contribution schemes, that is purely to meet the statutory requirement. As I said before, we are looking at a reduction for contracted-out defined benefit schemes from 5.3 per cent to 4.8 per cent.

As I understand it, the central question that the noble Lord, Lord McKenzie, put was about why we have picked that one rather than the funding basis or the gilts basis. I shall go a little into the concepts behind the three different approaches. Each approach is designed to provide the employer with a different level of guarantee about it being sufficient to cover the cost of the additional state pension foregone. Taking into account the considerable cost to the taxpayer of providing the reduction in national insurance contributions, the Secretary of State decided that adopting the best estimate approach was the most reasonable. When you think about it, the point about it working half the time is really saying that we have reached the point of indifference between whether you provide a pension scheme or do not do so and rely on the state. There is a rationale there. The other approaches in practice provide a much more powerful bias towards contracting out.

The noble Lord’s supplementary question was about defined benefit schemes. The risk is now essentially being run by the schemes. Different schemes will, of course, have different contributions rates for employers and employees, so there is no simple answer. The core answer is that moving to the point where, on balance, there is a point of indifference between whether you go in or out means that it is a neutral decision.

On the question about public versus private, for public sector schemes there is no extra cost to the employer as the Government are the employer so there is a degree of funds being recycled. Both public and private sector employees will see a slight reduction in take-home pay as a result.

[Lord McKenzie of Luton]

Perhaps I can clarify that. The note to the order, which I cannot now put my hands on, refers just to the public sector in that regard. It puzzled me because I understand that these rebates operate between the LEL and the upper accrual point, which is fixed in cash terms, in order to move towards a flat-rating of the state second pension, so I would have thought that there would potentially be a loss to all contracted-out employees. Therefore, I do not understand the distinction that is made in the Explanatory Memorandum between public and private sector.

[Lord Freud]

I think the noble Lord is right in saying that the loss is shared by the public and private sectors. Clearly, there is something slightly confusing in that note that has led him in a different direction. There should be an equalised effect.

[Lord McKenzie of Luton]

I am looking at the Explanatory Memorandum to the Social Security (Reduced Rates of Class 1 Contributions, Rebates and Minimum Contributions) Order that we are discussing. The impact paragraph states:

“There is no new impact of the changes to the contracted-out rebate rate. However, the reduction in the rebate rate will lead to a small increase in the National Insurance contributions of public sector employers and employees. The value of the increase will depend on individual employee earnings”.

[Lord Freud]

Which note is that?

[Lord McKenzie of Luton]

That is paragraph 10.1. Paragraph 10.2 states:

“A full impact assessment has not been published for this instrument as it has no new impact on the private sector and civil society organisations”.

[Lord Freud]

The impact is common across both the public and private sectors. The noble Lord asks about the impact assessment. I imagine that that is a reference to where the obligation to have an impact assessment is, rather than to the differential impact. By definition, we are saying that it does not have a new impact on the private sector and civil society organisations. By reference, that would also apply to the public sector.

[Lord McKenzie of Luton]

I am happy for the noble Lord to write to me on that. It is confusing. It specifically identifies public sector employees and employers as taking a hit. Paragraph 10.2 suggests no new impact on the private sector. That did not make sense to me.

[Lord Freud]

It is easy to see that confusion. I shall write to the noble Lord, but I am comfortable in stating that it is a reference to where the obligation to have an impact assessment is, not to who is getting the impact. That is the reason for the difference. However, I shall write to the noble Lord to lay that out very clearly. I am very impressed that anyone has got to note 10.2. I think I have dealt with all the outstanding issues.

[Lord McKenzie of Luton]

I am sorry to press the noble Lord but this may be part of the discussion we have just had. Is the £600 million saving by government just replicated as an extra £600 million of costs on employers and employees?

[Lord Freud]

Yes, I can confirm that, obviously. There is an argument there: it is a rather complicated sum, not just the sum of what has gone in and out in terms of all of the factors. To the extent that there is an extra cost, it is partly because it has become more expensive to get pensions for one reason or another. Some of that reflects the marketplace and what it costs to purchase annuities outside the Government’s scheme. Rather like me, the noble Lord will, I suspect, have gone through this understanding some, but not all, of the bits in it. However, that is the process, so the saving becomes a cost for employers and employees, given how we have split it.

I have one main item on which to write formally to noble Lords but, with that, I hope that I have dealt satisfactorily with the issues. As everyone in this Room will realise, they are highly technical. I commend the draft order to the Committee.

Women: Assistance in Pregnancy

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 8th March 2011 Lords Chamber

[Lord Freud]

I thank my noble friend for reinforcing this important point. There will be a gap, probably of around nine months, before we can formally change the budgeting loans. We are making the very firm point—I made that firm point formally in the Chamber yesterday—that we are encouraging people to use the scheme to the utmost extent that they can and to apply it to slightly wider items than those around budgeting for the baby.

[Lord McKenzie of Luton]

My Lords, the Minister has confirmed again, as he did in the debate yesterday, that families will eventually be able to access budgeting loans. However, is he aware that just last week the Minister for Pensions announced a further tightening of the screw on the availability of crisis loans from the Social Fund on the basis that this would enable the trickle of budgeting loans to continue? Is this not making the very poor pay for the poor?

[Lord Freud]

My Lords, the trouble was that the crisis loans were being used in a non-crisis context to buy ordinary items of household expenditure, so we were in danger of running out of funding for the whole system because of the way it was being used. Our concern with controlling the crisis loan situation was to make sure that funding was left available for budgeting loans for exactly this kind of thing.

Pensions Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 3rd March 2011 Grand Committee

[Lord McKenzie of Luton]

My Lords, I speak to Amendments 20 and 21 in this group, which concern the trigger. Their thrust is not dissimilar to that of the amendment moved by my noble friend, although they are perhaps less ambitious. We will shortly discuss changes to or, indeed, the deletion of the trigger, but these amendments are predicated on the trigger remaining at its current level.

Amendment 21 would give an opportunity for jobholders to bring to the attention of employers the fact that by including earnings from other employments the trigger is reached or exceeded. Therefore, if the other conditions for auto-enrolment were present, the employer would have a duty to act accordingly. I underline how modest this provision is, as it is effectively an alternative to opting in. The employer would have no auto-enrolment duty unless, among other things, the employee had qualifying earnings in respect of that particular employment. It would be of advantage only where, in respect of any particular employer, the trigger had not been reached but qualifying earnings with that employer had. As has been expressed—my noble friend Lady Drake will develop this when we discuss a subsequent group of amendments—we have concerns about the potential widening gap between the trigger and the start of the band of qualifying earnings. If that is right, being able to access contributions on that band, even though the trigger has not been met in respect of any employment, becomes more important.

Like the amendment moved by my noble friend, this amendment is in part about putting down a marker for the ambition that, at some stage in the future, the various thresholds—the trigger and the qualifying earnings—might be amalgamated with payments allocated among two or more employers, but this amendment does not seek that. However, we would be interested in the Minister’s view on the extent to which HMRC might routinely have a role in identifying where the trigger is reached for multiple earnings. In a sense, it is like the allocation of personal allowances across various notices of coding. Could that be done on a more systematic basis? The noble Lord’s work on the universal credit seems predicated on amalgamating on a real-time basis income from a range of sources, so we wonder whether there is a read-across to auto-enrolment. If there were, it would address the inertia issue that is present in the formulation of this amendment and the equivalent opt-in route.

The amendment in the name of my noble friend Lady Hollis is, as I said, pretty much on the same page, although I understand that it is not necessary for the earnings trigger to be reached for a jobholder to opt in. The right exists if the employee has qualifying earnings, but it would not allow the employee to specify a particular scheme, be it NEST or any other scheme. I think that that would be the employer’s choice, although the Minister may be able to enlarge on that. By and large, however, we are seeking to achieve the same thing. The prize for and the challenge to the Minister is to see, consistent with confidentiality of information, whether the systems that enable some more automatic notifications in some circumstances can be deployed where the trigger is in aggregate reached but not in any one employment.

[Lord Freud]

My Lords, on Tuesday we discussed the possible aggregation of many jobs for credit towards the basic state pension. I admit to being indebted to the ever persuasive arguments of the noble Baroness, Lady Hollis, about the effect of portfolios of many jobs, especially in rural communities, and her concern that as many low earners as possible should be able to qualify for auto-enrolment and an employer contribution.

I also note the wise cautions of the noble Lord, Lord Boswell, on Tuesday about the potential effect on employers—where aggregation is mooted—and on the labour market. As I said on Tuesday, I am sympathetic to the principle of aggregation for basic state pension purposes. I am cautious but optimistic that this could be possible in the new world of the universal credit. This is because, if Government systems can track information for universal credit, it may not be a huge leap from there to having national insurance contributions or making credits on a state pension record. However, we are now about to discuss a somewhat different issue—that of the aggregation of earnings from many jobs in relation to auto-enrolment into workplace pensions. I need to emphasise again that it is important to encourage part-time jobs and to look for a way of aggregation. However, there are greater barriers in this area than there are in the area of the state pension in terms of aggregation. That it is more complicated was stated by the noble Baroness, Lady Hollis, in her speech.

The main and unique barrier is a need not only to aggregate earnings across employers but also to apportion pension contributions between those different employers. This is quite a problem in terms of employer burden cost and complexity, which we would need to find a way to resolve. The automatic enrolment duty falls on each employer for the people they employ. There is no sharing of the duty between employers. If a person has two jobs, each of their employers is responsible for enrolling them as the legislation is presently set up. Workers who do not earn enough to qualify for automatic enrolment clearly may opt in. Those who have the qualifying earnings have the right to employer contributions, which is ground we went over just now.

The first amendment raised by the noble Baroness, Lady Hollis, seeks to increase voluntary pensions saving for people who do not earn enough to be automatically enrolled by enabling the aggregation of the many jobs and any earnings from self-employment for a person who also works on their own account. This would allow people who earn under the automatic enrolment earnings trigger, and opt in, to have their earnings for more than one job taken into account for calculating pension contributions. This looks like a straightforward proposal. However, there are considerable practical problems that would, in practice, increase employer administration burden.

Let me turn to the two amendments from the noble Baroness, Lady Drake, and the noble Lord, Lord McKenzie, which seek to enable aggregation by solving one of these practical difficulties about information sharing between employers. These amendments enable earnings from separate jobs for separate employers to be added together where the person can demonstrate to the employer that they have another job with other earnings in that week or month and that they are therefore entitled to be auto-enrolled. This is a very neat amendment that shifts the burden of proof from the employer. However, it is not quite as modest as the noble Lord suggested because it does not entirely solve the issue of the employer administration burden.

It is not immediately obvious how the employer contribution could be easily calculated or divided up. No mechanism currently exists to do that. Would multi-employers share the cost of the employer contribution? If so, how would that be done? Which employer takes responsibility for paying contributions to the pension scheme? If they share the cost, how would one employer recover the cost from the other employer? If they do not share the cost, is it fair that one employer bears the entire cost and the other none of it? Overall, we cannot see how it could be done without placing a significant and unfair burden on employers. I sympathise with the intention behind these amendments in terms of those with multiple jobs, and it is certainly an issue to keep an eye on as we go forward. It clearly—and noble Lords all acknowledge this—is not feasible with our present technology; but even if it became feasible, which it very well may, moving the burden of proof on to the worker is not the way to do it.

Standing back just a little, our first priority at this point must be to ensure that employers understand, and are able successfully to implement, their duties under automatic enrolment. That is the priority. This is not the right point to contemplate introducing significant changes to those duties, and I think noble Lords today recognise that. Introducing new and significant burdens would disrupt that process. However, noble Lords have successfully put down a marker for 2017. On that basis, we do not accept the amendment and invite noble Lords to withdraw it.

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[Lord Freud]

She would make an argument to that effect, no doubt. However, how that would happen and its timing would be very sensitive, so it is simply not appropriate at this stage to make any presumption which would drive one into this very uncertain territory.

[Lord McKenzie of Luton]

My Lords, I thank all noble Lords who have contributed to the debate on these amendments. I had intended to say at the start of these deliberations on auto-enrolment, but forgot to do so, that we obviously have a number of challenges in some areas. However, we should make it absolutely clear, as I hope we did at Second Reading, that we thoroughly support the Government’s decision to proceed with auto-enrolment and with NEST. Those are hugely important developments to the pensions landscape. Whatever our challenges might be now, they need to be seen in the context of our fundamental support on that issue.

The debate has almost conflated two issues: the it-pays-to-save issue, which the noble Lords, Lord Stoneham and Lord Boswell, touched on, and the practical issues around having small pots, which the Minister relied on and to which the noble Baroness, Lady Greengross, referred. We need to unpick those. Perhaps I may refer noble Lords to the Johnson report in relation to the “it pays to save” argument. Page 30 states:

“This analysis raises significant questions about the validity of an annual earnings threshold of £5,035. Even at earnings substantially above this level, individuals see very high replacement rates from the State. Based on this analysis alone, we might easily argue that an earnings threshold of over £10,000 would be more appropriate to encourage the right individuals (those who actually need to save) to begin saving into a workplace pension. There are two key reasons to question such a conclusion. Firstly, earnings are not static. For many, earnings could change dramatically over their lifetime. For these people, saving for a pension whilst on relatively low income could be beneficial as it improves persistency of saving and increases income in retirement. Secondly”—

this point has already been made—

“many individuals live in a family unit. It is the circumstances of the wider family that are more important in determining whether it is appropriate for a particular individual to save”.

So on the “it pays to save” argument, the report seems to support the contention that an earnings band starting at the current primary threshold is the right place to be. It is in relation to the practicalities that the report argues the trigger. Separating the earnings threshold and the manner in which contributions are paid will help to reduce the number of small pots of pension savings, which are disproportionately costly. The smallest contribution going into a pension pot will be £130 a year.

The Minister is right: of course you can always argue that someone can opt in, but the whole purpose of auto-enrolment is to challenge the inertia which has undermined our pension system for decades; it does not really help with that pot. In any event, it picks up the point about persistency of savings. There might be small pots to start with but if people save persistently, even in respect of low income for a period, that builds up a pot which might not be insignificant. However, using arguments about practicalities and small pots seems potentially to punish the wrong people, as we are saying that some 600,000 people are not going to benefit from auto-enrolment because we do not want to handle small pots. NEST was created, in part at least, to handle that very issue. There are questions about the profitability of the pension sector and pension providers, and there is a balance to be struck in all of that.

Therefore, I very much hang on to the point that the argument for the trigger seems to be based overwhelmingly on the question of the practicalities of dealing with small pots. It does not fully address “pays to save” and the question of whom we should be encouraging to save.

[Lord Freud]

Perhaps I may respond to the noble Lord on that and make absolutely clear the arguments that we will be taking from the Johnson review. It said that you needed to look at three things: replacement rates, earnings dynamics, and family make-up and characteristics. Looking at all three of those, on balance the recommendation was for a higher threshold of roughly £7,400, the reason being that it got the right people saving. That must be the core argument, along with the practical argument relating to costs. It is very expensive to manage small pots. The economics of running a NEST operation, let alone other operations, where it is important to get costs down, is an important secondary consideration. However, the primary one is to get the right people saving. After all, this is, as I have said previously, the biggest experiment in asymmetric paternalism. Let us get it right first and fine-tune it later.

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[Lord Freud]

A waiting period will also allow employers to align automatic enrolment processes with their existing processes and avoid part-period calculations of contributions. In addition, it will allow them to stagger auto-enrolment of large workforces. An employer will be able to apply a waiting period to all employees at their staging date. It will also be possible for an employer to apply a waiting period when a new employee joins the workforce or from the date when an employee becomes an eligible jobholder—for example, when they turn 22.

It is important to note that an employer will be allowed to apply a waiting period only if he gives the worker information about the waiting period within a certain deadline. This will ensure that workers are informed of their right to opt into pension saving during the waiting period. It is only right and fair that those who wish to start saving for retirement earlier are not prevented from doing so.

The waiting period is intended to ease the administrative burden and has been widely welcomed by employers. However, it means that, for those individuals who have frequent job changes, there could be a significant impact on their overall pension savings. This is particularly so, as the noble Baroness, Lady Hollis, pointed out, if they are subject to a waiting period in every post. Allowing individuals to opt in during the waiting period will address this imbalance so that no one is denied the opportunity to save. As I said, if auto-enrolment has the impact that it should have, the psychology of saving should change for many people.

Noble Lords will be pleased to hear that much of the detail is on the face of the Bill. We propose taking regulation-making powers in just two areas. First, we will specify in regulations how quickly the employer must give notice to the individual about the waiting period. Secondly, we will set out what information that notice must contain and any other accompanying information that the employer must provide. For example, workers will need to be provided with information about the right to opt in during the waiting period. It is important that we have the flexibility to set the period and to provide for additional accompanying information in regulations once we have had an in-depth consultation with our stakeholders.

As I said, a key aim of the reforms is to encourage more people to start saving for retirement. However, at the same time, we have been mindful of the costs for employers of implementing the reforms. We believe that a three-month waiting period provides the correct balance between easing employer burden and maximising individuals’ savings. This amendment introduces a variable length of waiting period depending on the circumstances. There are two main issues with such an approach. First, introducing a one-month waiting period for existing employees would remove some of the flexibility afforded to employers through waiting periods; for example, they would not be able to stagger automatic enrolment of large workforces. Secondly, we are keen to ensure that the introduction of waiting periods does not make the automatic enrolment process more complicated. We believe that a simple process is key to employers understanding and preserving their support. A two-tier waiting policy would add complexity and would be difficult for employers to understand or use. It would add to the burden on employers, which is not the intention of waiting periods.

Waiting periods were designed with employers in mind and have been welcomed. We believe that they will provide a real easement for employers, as well as ensuring that individuals’ savings are protected. I urge the noble Lord, Lord McKenzie, to withdraw the amendment.

[Lord McKenzie of Luton]

My Lords, of course I intend to withdraw the amendment. I thank the noble Lord, Lord Boswell, and my noble friend Lady Hollis for their participation. The noble Lord, Lord Boswell, made an interesting point about recyclable employees effectively coming back in one form or another. My noble friend Lady Hollis emphasised the issue of what this could mean in terms of savings for people who are perpetually caught up in this deferral. We accept the point about some flexibility on the alignment of processes. This does not seem unreasonable. I also acknowledge that there may be some amelioration of the lost savings years; if people are perpetually caught up in this, opting in may catch on. However, we know how damaging inertia around pensions has been, so that could not be assured.

With respect to the noble Lord, I do not think that he dealt with the point about the original provision in this clause, which I understood was there to be an incentive for good provision and to give people some extra leeway in their easement. This seems to have gone and, in effect, been replaced by a sort of blanket easement. Although I will not convince the Minister, I also hang on to my point that, if the fundamental easement for employers—and I understand that they would welcome this—is that it helps them with the problem and administrative costs of the coming and going of short-term employees, and if, as I accept, a three-month waiting period is needed to address that, why on earth should it be applied to somebody who has been employed for months or years who reaches the age of 22 and becomes a jobholder? There is no logic to the position. The employer will know the track record of that individual, yet they are being treated exactly the same as somebody who has just walked through the door. If the proposition is that you need a waiting period to deal with short-term employees, I still do not understand why you need to have it for people who have been employed for many years and who simply, by virtue of their age, become a jobholder.

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[Lord McKenzie of Luton]

My Lords, this amendment is very straightforward and simply seeks the publication of an annual monitoring report concerning the deferral provisions provided for in Clause 4. Noble Lords will have gathered from our earlier discussion that we have considerable concerns over these provisions and how they will be applied in practice, and whether their application will deter individuals from auto-enrolment. We are not prescriptive about the detail of the report or its timing but we need to be reassured that any provisions are working fairly. As I understand it, there is no requirement for all employees to be treated in the same manner under these provisions and therefore we need information about how this is working in practice. So the intent of this amendment is clear. There needs to be some process of reporting so that we can understand in practice how these provisions are working. I beg to move.

[Lord Freud]

My Lords, I thank the noble Lord, Lord McKenzie, for this amendment. As he has pointed out, it would compel us to publish a report every year on the implementation and impacts of the waiting-period provision under Clause 6. As we have just discussed, Clause 6 introduces the concept of an optional waiting period into the automatic enrolment process. We agree that the effects of the waiting period should be monitored. We have made a commitment to fully evaluate the effects of the reforms and how they are delivered. This will include a proportionate check that the legislation is operating as expected for individuals, employers and the pension industry. As part of this, we intend to monitor employers’ use of waiting periods and the effects on workers’ savings. It is important that we retain the flexibility to design appropriate methods and processes for this evaluation in response to changing circumstances. For example, our decisions about who we survey, how and how often may change over time.

Our plans for monitoring the progress and impacts of the reforms will be set out in a detailed evaluation strategy which we plan to publish this year. We also intend to publish key findings from our evaluation. We therefore feel that there is no need to legislate specifically to ensure monitoring of the waiting period provision, and that to do so may unintentionally constrain us from adopting the most appropriate approach to evaluation in future. I therefore urge the noble Lord, Lord McKenzie, to withdraw this amendment.

[Lord McKenzie of Luton]

I thank the noble Lord for his response. I was reflecting on how many times I have deployed exactly those same arguments in his position. I am not sure that they grow more convincing. However, I understand and am grateful for what the noble Lord said about an evaluation process. I understand that the strategy will be published later this year; we will see what sort of timeframe is attached to that. I am grateful for that and, accordingly, I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, the noble Lord, Lord German, has raised an interesting point, which I hope the Minister can clarify. I assume that the situation is that, if you have got to month 3 and you do not have qualifying earnings, there is nothing at that point to trigger automatic enrolment. When you next have your qualifying earnings is presumably when you would be automatically enrolled. Certainly, if you had to start again, that would add injustice to something about which we are already not very happy.

[Lord Freud]

My Lords, I thank my noble friend Lord German for this amendment, which would restrict an employer to using one waiting period per worker and would ensure that automatic enrolment would take place once a worker’s earnings had reached the earnings threshold for three months, whether those three months were consecutive or not. Thus the single three-month waiting period could be accrued over a far longer period of time where the individual’s earnings fluctuate. I should take this opportunity to clarify for the noble Lord, Lord McKenzie, how it would actually work. If you had low earnings for the first two months and hit the target at the third month, you would be auto-enrolled. However, if you did not hit it in that third month, you would effectively be back to your dinner problem and have to start again. That is how it would work.

As I explained, Clause 6 introduces the concept of an optional waiting period into the automatic enrolment process. This is central to our commitment in this Bill to rebalance the administrative burdens on employers while ensuring workers’ access to pensions saving. The waiting period is designed to meet employers’ requirements by being simple and easy to understand and use. This is clearly crucial to its success. At the point at which the employer applies a waiting period, they will not be required to undertake a check on whether the worker is eligible for automatic enrolment. The employer must check eligibility at the end of the waiting period and we are keen to avoid them having to check it twice or more.

The waiting period consists of a single block of time, regardless of whether the individual’s eligibility for automatic enrolment fluctuates during that period. If the worker satisfies the automatic enrolment eligibility criteria at the end of the period, they will be enrolled into the employer’s scheme on that date. If not, the employer will monitor the worker’s status until they satisfy the eligibility criteria. At that point, the employer may apply a further waiting period if they wish. It need not be for the full three months.

We recognise my noble friend’s concern that workers with fluctuating earnings could miss out on pension saving due to the use of multiple waiting periods. While it is difficult to estimate the likelihood of this occurrence, our analysis suggests that few people are likely to have fluctuating earnings around the level that they traverse in and out of automatic enrolment eligibility. Are we, therefore, devising something very complicated for a problem that is pretty small, which is what our analysis suggests? It is also the case that, for those on sustained low earnings throughout their working life, state benefits can replace most income in retirement. Common sense suggests that it would not be rational to lever such people into private savings. It is important to remember that they will have the right to opt in at any point during the waiting period.

This amendment would add a substantial additional burden and complexity to the waiting period process and would not be easy for employers to understand and use. It would require the employer to monitor an individual’s automatic enrolment eligibility continuously throughout the waiting period and to keep a record of the period of eligibility accrued during the waiting period.

Employers requested the waiting period as an administrative easement. To make the process so burdensome would negate its value. At this stage, it is crucial that we get the reforms bedded in and that we ensure that employers find it easy to comply with these new duties. It is therefore critical that the processes are simple for employers to understand and use. In the absence of any persuasive evidence of a problem, we feel that it would not be right to introduce greater complexity and a significant burden to a process whose very purpose is to offer administrative easements to employers.

I offer noble Lords my assurance, however, that we are committed to fully evaluating the effects of the reforms and how they are delivered. As part of this, we intend to monitor employers’ use of waiting periods and the effects on workers’ savings. I urge the noble Lord to withdraw this amendment.

[Lord German]

My Lords, I am still a little confused over the explanation. I understand fully the point about somebody hitting the relevant target in the third month. However, my question was the other way round—where someone hits the target in months one and two but does not hit it in month three. In seasonal worker terms, this could happen if someone was picked up and employed in May, perhaps worked through May, June and July and found a bad—wet or something—August, for which they could not get the money in. The important issue is simplicity but also understanding. It may be that a three-month period applies, but it was not absolutely clear from the Minister’s reply when, once you have a first waiting period, the second test would occur. What if you fail to meet the criteria that he has just described in that first three-month period? You will then need to have another piece of information made available to the employee to say, “You have not quite done it but this is the way you go next”. It seems to become far more complex if you cannot have it in some way accumulatively worked out. I will obviously withdraw the amendment. However, I hope that the Minister will come back at some stage with some further explanation of the anomaly of the people who are in the position that I have described, in which they pass the threshold in months 1 and 3 but not in month 2, yet wish to maintain their position within the company.

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[Lord Freud]

Perhaps I could just interrupt. What I have not made adequately clear, for which I apologise, is how big this problem might be. The universe of people who earn between £7,000 and £7,475 is 140,000 people, so we are talking about very small numbers. Moreover, they would have to be fluctuating at the wrong time. We could be setting up a very complicated system to look after a very small number of people. We cannot quantify this exactly but I give an order-of figure to give noble Lords a feel for it. We are talking about between 8 million and 9 million extra people going into pensions, so this may be just too much of a burden relative to the potential number of people whom we are protecting.

[Lord McKenzie of Luton]

Will the Minister just help me on one point? I do not want to prolong this. If the complexity he suggests arises from the need to monitor cumulative earnings over a two-month or three-month period, I can accept that, but we do not need that. If we just had the proposition that somebody waits for three months and if at the end of three months they do not have qualifying earnings and are therefore not auto-enrolled, you simply roll them on to the next point that they do have qualifying earnings. You put them in the pot the same as anyone else. Is that not a simpler system than having an alternative system whereby you have to see who has been previously deferred and had a waiting period and keep the clock running on them individually? I would have thought the simpler system was not to have to take account of cumulative earnings but, once you get past that three-month period, simply to check, as you would have to for everyone, whether they have reached the age of 22 or qualifying earnings, et cetera. There is quite a lot of disquiet around this. We are not trying to be difficult. I urge the Minister to take this away because I see it as something that could be brought back on Report.

[Lord Freud]

My Lords, I can see when I am up against the wall. I am not completely insensitive. I will look to see whether there is some simple fix and, if there is, I will write to noble Lords. However, it would have to be very simple, because the risk/reward in terms of burden versus people who are at risk is just on the wrong side. It does not seem to add up to me.

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[Lord McKenzie of Luton]

My Lords, perhaps I may comment briefly. I can see the thrust of my noble friend’s amendment. I remember that, when we debated the cap, we debated whether there should be an additional lifetime element as well. I think that, at one stage, we debated whether there could be a two or three-year period when one carried forward the unused amount. My recollection is that, other than the annual cap, which is as it now is, all that fell by the wayside, but the Minister may be able to update us on it.

It seems a good idea to me to be able to use the headroom in respect of unused bits, although I do not think there is anything that precludes someone who is, or might become, a member of NEST making a voluntary contribution up to the limit. The limit is not, as I understand it, an employee and an employer limit; there is a limit in respect of contributions for an individual. Certainly, for the reasons that my noble friend advances, if there were opportunities to use some headroom to get more into NEST, that would be good, so far as the removal of the cap supports the thrust of that. Again, given the consensus that was there and the existence of the cap, everything that has the potential to disturb that in the interim makes life a bit more difficult, although it would be good if it could go at the earliest opportunity.

[Lord Freud]

My Lords, I thank the noble Baroness and my noble friends for bringing the important issue of the NEST contribution limit to the attention of the Committee. I shall deal with the amendments in the order they were raised. The noble Baroness, Lady Hollis, has raised, through Amendment 36, a vital point about the ability of NEST members to make contributions to their retirement pots that exceed the minimum contributions required by automatic enrolment. NEST has been designed to provide a low-cost, portable pension scheme for low to moderate earners. We want to encourage people, where possible, to save more than the minimum. The NEST order and rules already allow a member to make contributions up to the annual contribution limit in the financial year in which the contributions are made, as the noble Lord, Lord McKenzie, pointed out.

The current limit is already set at such a level that it enables median earners to contribute as much as twice the minimum contribution requirement in a tax year. Allowing NEST members to make use of unused annual contribution limits in subsequent years would undermine the purpose of the annual contribution limit. This limit was designed to ensure that NEST does not adversely impact on existing good-quality pension provision. While I understand the principle behind this amendment, we should not forget the purpose of NEST. This is to enable millions of people to participate in pension saving from which they are currently excluded because they do not have access to suitable workplace pension provision. Filling this supply gap requires NEST to be both low-cost and as straightforward a scheme as possible. Adding to the complexity of administering NEST through complex arrangements for calculating the maximum annual contribution would undermine those aims.

Moving on to Amendment 37, the noble Baroness raises another important point, about how the annual contribution limit should be calculated. The limit, alongside the transfer restrictions, is designed to focus NEST on its target market of low to moderate earners. This is to ensure that NEST will complement existing good-quality pension provision, not replace it.

The baseline contribution limit was set at £3,600 in 2005 terms, following wide consultation on the proposals in the White Paper, Personal Accounts: A New Way to Save. Responses on the appropriate level for an annual contribution limit were based on analysis of several factors, in particular, the potential impact on existing schemes and the ability of individuals to save flexibly for their retirement. In line with the provisions in the scheme order, NEST Corporation has adjusted the contribution limit for 2011-12, prior to scheme launch, to £4,200. The current method of setting the annual contribution limit strikes the right balance. It ensures that NEST focuses on its target market of those excluded from pension savings as a result of market failure, while providing for a level of contributions that is sufficient to allow employers and individuals to contribute more than the minimum required.

I turn to Amendment 38, tabled by my noble friends Lord Stoneham and Lord German. This puts forward the recommendation from the Making Automatic Enrolment Work review that the Government legislate now to remove NEST’s annual contribution limit from 2017. That review recognised the importance of the NEST contribution limit during the introduction of the reforms. It acknowledged that there was broad consensus behind the reforms, and that NEST’s role was to fill the supply gap that those in the existing industry currently find difficult to serve. The review saw the contribution cap as a key lever in ensuring two things: that NEST remains focused on this target market as the reforms are staged; and that during this important period it does not adversely impact existing good-quality pension provision. However, the review team considered that once the reforms were fully implemented it may be appropriate to remove the cap. This is both to ease the administrative burden on NEST and to avoid any unintended message that there was somehow a maximum appropriate level of pension saving.

Great minds think alike. Section 74 of the Pensions Act 2008 already requires the Secretary of State to appoint a person to review the effect of the annual contribution limit in 2017. By this time, the reforms will have been fully implemented and we will have more evidence on the effect of the reforms as a whole, including the impact of NEST on the marketplace. I am not saying that the review team was wrong. I am saying that, given that it saw 2017 as the right time to remove the cap—by then we will have much more evidence of the impact of NEST in the real world—2017 is also a more sensible time to consider changing or removing the NEST annual contribution limit. Since this can be achieved by secondary legislation, there is no need to legislate now. I understand the principles behind these amendments. However, now is not the time and, given the scope individuals already have to make additional contributions and our intention to review the contribution limit in 2017, I urge the noble Baroness to withdraw this amendment.

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[Lord McKenzie of Luton]

My Lords, in relation to Amendment 40, from the earlier response that we got from the Minister in relation to small pots and all the activity that is going on there, I presume that the sort of protection that the noble Lord, Lord Stoneham, is looking for will be encompassed within that whole exercise. Accordingly, I should be interested to see the outcome of that in due course. Unless I am misunderstanding this, that is where it would be dealt with.

[Lord Freud]

My Lords, I thank my noble friend Lord Stoneham for these two amendments, which concern the same issue—that of protection. Amendment 40 seeks to give us the powers to make arrangements to support short-term workers to build their pension savings. It is particularly those individuals who will receive a refund when they leave an occupational scheme within two years who will lose that opportunity. Clearly, the refund can be a default action, although they can choose to transfer the whole pension pot to another scheme if that is appropriate. Clearly, there is a very legitimate concern here that the default refund may mean that some individuals do not build up any kind of decent pot over time.

These are the areas that we are considering through the call for evidence on regulatory differences between different types of pension schemes, so I confirm to the noble Lord, Lord McKenzie, that our activity here addresses this issue. It is a very complex area and there are many considerations on both sides that we need to take into account before making a decision or changing legislation. The issues are the trade-offs between helping employers and schemes and increasing pension savings. We cannot, for example, limit short-service refunds without considering appropriate processes to help occupational schemes to manage additional small pension pots. Therefore, everything connects to everything else. As I have already described, we issued a call for evidence on 31 January to initiate a debate on possible solutions. The response will come this summer.

Amendment 41 would ensure that employers take into account pension charges when calculating their employer contributions. I assure noble Lords that we are not complacent on this issue. We fully appreciate the impact that charges can have on an individual’s pension pot, particularly given the beta returns that we are currently seeing. We are taking steps to ensure that such charges do not have a disproportionate impact on members’ savings. We will publish guidance on default investment options on automatic enrolment schemes later in the spring. That will cover suitable charging structures, as I said. The guidance will encourage appropriate charges which, first, match members’ interests, and, secondly, protect individuals from charges that are excessive in relation to the product that they are paying for.

Pensions Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 1st March 2011 Grand Committee

[Lord Freud]

My Lords, I thank the noble Baroness, Lady Hollis, for that. I have to confess that I was not aware of those events in 1982. I was aware of some events—I think that I was writing a Lex column in 1982 so I was not completely out of the picture. The noble Baroness makes the point that there were five years of notice. Clearly, the smallest amount of notice that we have in this instance is 6.5 years for those who are affected at the tightest level. We believe that that period, which admittedly is shorter than other periods that we have seen, will still allow women to plan for their retirement.

[Lord McKenzie of Luton]

My Lords, I thank every noble Lord who has spoken in what has been a well informed debate. When I hear my noble friends in full flight, it almost makes me glad that I am not the Minister any more. Pretty much everyone who spoke, apart from the Minister, recognised the unfairness embedded in these proposals and was supportive of one way or another—either a timetable or mitigation factors—to address that unfairness. The Minister focused principally on the differential costs between our proposals in this amendment, the Government’s position and the proposals made by the noble Lord, Lord Boswell. Of course there is a cost, but judgments have to be made, and the Government will have made a judgment on this. Why did they not do things even faster than they proposed, which would have saved even more money? Presumably the answer is that they made a judgment about what they thought was fair and where the balance lay in all this. We are saying that see the balance lying in a somewhat different position. Let us put this in context. We are looking at about £10 billion not as an annual hit, but over a period of years and when we get to 2016-17, GDP will be of the order of £2 trillion a year. Of course, there needs to be fiscal responsibility, but we think that the Government have got the balance wrong in this.

The noble Lord said that he thinks that it is a good thing that one ramification is that women will be working longer, which will make them healthier and potentially better off. The issue is whether people have the time to adjust. Many of the case studies that we have are of people who have already made their dispositions on an assumption about when they can access the state pension. That upheaval is creating problems. I was interested in what the noble Lord said in response to my noble friend about the cliff edge and continuing entitlement to pension credit. That was particularly illuminating and I am grateful for it. I note that we are going to pick up the point made by the noble Lord, Lord Boswell, about the EU aspects of that later; I look forward to that.

Like the noble Lord and my noble friends Lady Turner and Lady Drake, I think that the people who are contacting us about this are not blind to the changes in longevity. People accept that the issue has to be addressed, but we come back to the speed and manner with which it is being done. That is the bone of contention. That is why we will continue to press the matter.

A number of the points raised in the debate—the pension credit point in particular—will feature in subsequent amendments, so I shall not go into detail on them. The noble Lord, Lord German, made a point that my noble friend Lady Hollis picked up on when he said that part of the mitigation would be to have a decent state pension of £140 a week. That would be good if it were achievable, but it is down the track on any basis. How far down the track, we may elicit a bit further during the course of our proceedings; or perhaps not. However, it does not mitigate what is happening to women now and over the next few years, with people not being able to access the state pension that they thought they were going to get, and which it had been legislated that they would get.

We are bound to return to this issue on Report. On one basis or another, I hope that we can find common cause, whether the middle route preferred by the noble Baroness, Lady Murphy, or our proposal. I hope that we can stick with this consensus and get some real change, because it will make a real difference. I beg leave to withdraw the amendment.

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[Lord Boswell of Aynho]

My Lords, the noble Lord, Lord McKenzie, has been kind enough both to mention my name and to tempt me. I shall disappoint the Committee, I am sure, by indicating that I have no intention whatever of explaining how PUCODIs work or how important they are to one’s lifestyle. All I can say is that I indicated at Second Reading, and a further reading of my recent annual pension statement appears to confirm this, that I think that I have one. However, rather in the manner of one of my masters at school who conducted a survey among the masters’ common room into the wearing of long johns in the winter and found that a significant number of people did not know, I am not absolutely sure that I have one. For the avoidance of doubt, it certainly is not in the range of £14 a week; it is much lower than that, although it is more than £1.

I simply make the point that this is an example of complexity and I am sure that we need to remove it. I am pleased to see the noble Lord who moved the amendment nodding to that. It is an example of how even people who know a modest amount about the system do not know everything that is applied. It creates problems that are almost in geometric progression: the more complex the system is, the less easy it is for people to understand it and the greater the chance of making mistakes. As one building block of the programme of simplification and consolidation, this is a modest but essential measure. I look forward to the Minister’s explanation—if he understands PUCODIs too.

[Lord Freud]

My Lords, I really am grateful to the noble Lord for giving me this incredible opportunity to talk about PUCODIs. I have to quote the noble Lord himself from 2007, when he said:

“This is a technical area and, despite the hour, I hope that the Committee will bear with me as I explain”.—[Official Report, 4/6/07; col. 875.]

He then gave an explanation, but I am convinced that, to his disgrace, he has forgotten every single word that he said to the Committee.

The essential point regarding the payable uprated contracted-out deduction increment is that these payments are very small. As the noble Lord pointed out, 77 per cent of recipients get less than £1 per week. Where it is in payment, it represents 0.6 per cent, on average, of an individual state pension income. Most of the people in receipt are women—93,000 out of 118,000 people are women—and the average received by women is slightly higher than by men. Bluntly, though, both are around 20p per week.

Around 6,000 of the 9,000 in receipt of inherited awards are women. The average received by women is again similar to men: around 30p per week. The original policy intention of the PUCODI was to ensure parity between those who were contracted out, and those who were not. However, as noble Lords will be aware, contracting-out on a defined contribution basis is being abolished from April 2012. The proposed abolition of new awards of PUCODIs for members of such schemes is linked to the abolition of defined contribution contracting-out. I shall not go into the detail of the timings, except to assure the noble Lord that it has never been the Government’s intention to bring the proposed legislation into force before 6 April 2012.

I am not sure that I have a reliable spread, although I am very happy to write making clear what the spread of payments is. However, given the averages we are talking about, there are going to be fairly few outliers. The point is that, as the name suggests, there is an element of choice for people when they take them. They are delaying payment of their contracted-out pension, and there is therefore an element of choice. If the loss is too much, they can start to take it, so there is an element of market balance for the outliers. I will write about that very specific point beyond the averages.

As the noble Lord said in his introduction, it is not his intention to do anything more than find out some of this detail, and I am sure that he will be pleased to withdraw the amendment.

[Lord McKenzie of Luton]

I thank the Minister and the noble Lord, Lord Boswell, for participating and will be delighted to withdraw the amendment. I will be very happy to receive a letter in due course. I remember reading out a script in 2008 or 2007 when I think it was the noble Lord, Lord Skelmersdale, who was leading on the opposition Benches. He assumed I did not understand it because I read the script very quickly. I beg leave to withdraw the amendment.

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[Lord McKenzie of Luton]

My Lords, my noble friend Lady Drake and I have put our name to this amendment because we support its thrust. Having heard my noble friend, I gather that, perhaps unsurprisingly, she is even more ambitious for this amendment than I took it to be on first reading. It is entirely consistent with the progress that has been made in crediting people into the pension system, in any event, over many years. It is highly relevant—we heard from the noble Lord, Lord Stoneham, and my noble friend Lady Hollis about the growing importance of part-time work in our economy.

When I first read the amendment, I thought that its thrust was to say that when you aggregate employment earnings, if you are above the lower earnings limit, you get credited in. That in itself would not require any payments from the individual or any payments on behalf of any employer. That, at least, would be progress from where we are. There are arrangements that you have to aggregate if you are within associated companies, but that is a separate case.

If it is possible, as my noble friend suggested, perhaps in discussion with the noble Lord, to go further and say that we could aggregate and then work out what the employee and employer contributions would be and how we divvied that up across employers, then that would be a significant improvement and an advance. That is not only because of the state pension arrangements, with credited and contributory benefits in any event, but for the point that the noble Lord, Lord Stoneham, made about auto-enrolment. If we can aggregate and reach qualifying earnings, particularly if qualifying earnings are going to be pitched at the primary threshold, or at the secondary threshold, which I think is the same thing at the moment, then we can also seek to ensure that people on part-time earnings who would not otherwise qualify in respect of a single employment could, on some basis or another, by aggregation and then divvying up across employers, be entitled to auto-enrolment. At its most basic, lowest level, the ability to aggregate and credit in, for the purposes of the state pension, would be a valuable gain. To be able to go further, as is the ambition of my noble friend, would be a very considerable advance, and if the Minister’s command of technology enables him to deliver on that, we would all be delighted.

[Lord Freud]

My Lords, I am very grateful to the noble Baroness, Lady Hollis, for raising this matter. Clearly this debate has been conducted before, although I was not present, but there is a potentially a new context for it. The fundamental issue of the aggregation of low earnings from multiple part-time jobs and how they could be made to qualify for basic state pension has been a matter of concern to her for some time. It was considered by the Pensions Commission and during the passage of the Pensions Act 2007.

Like her, I am keen to encourage mini-jobs, which I think are not just good in themselves for people in supplementing income, but are an invaluable stepping stone which we have made difficult for people to use in the current welfare system. A system that encourages that process and takes it out of the informal or grey economy and into the proper economy, will be immensely valuable for many people. What I am going to say at this stage and in this debate will be rather correct, in the sense that, in the present situation and in the context of our present systems, it is not be possible to go ahead with something like this. Until we have a new system defined, laid out, and understand its technology, we will not be able to look seriously at what we can do here, and it is an immensely complicated issue in practice. The structure of this answer may be negative as I go through it.

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[Lord McKenzie of Luton]

My Lords, we are back on a couple of probing amendments. In reverse order, Amendment 15 is merely probing whether the specified date would always be at the commencement of a tax year. I can see that it could be organised this way, but is it inevitable? If not, then something along the lines of this amendment would be appropriate. Amendment 14 is a more substantial probe, though I see that the date has come out as 2005, rather than as 2025, which was originally intended. It is not particularly significant, because it was just a peg on which to hang a question.

Clause 3 introduces Schedule 3, which changed some of the provisions in the Pensions Act 2008 concerning the consolidation of the additional pension. The idea is, at some point in time, to effectively bundle together the various contracted-out rights, and to apply actuarial factors to smooth the disparities in entitlement. We obviously support this approach, but as the notes to the Bill set out, a consequence of smoothing in cash-flow terms is that the Government are likely to pay more earlier and less later than under the current system. I understand that that is the thrust of it. Rather than lock in to the flat-rate introduction year for the start of this process, the Government now seek flexibility by way of an order. I would be grateful if the Minister could say how much flexibility they consider it necessary to have. By how many years is it estimated that the consolidation will have to be delayed or indeed advanced, if that is the thrust of it? Could he give us some indication of what this change means in terms of the likely process of consolidation? What does this mean for the wider aspiration, touched on earlier in our debates, of consolidating the basic state pension with the state second pension? I understand what the Minister said earlier about being unable to advance much on that, so I will not press him on that point, but there is a point about the interrelation of this with that process. Presumably, consolidation of the additional pension is a necessary prerequisite, and perhaps he will confirm that.

On one other practical point, I have a recollection that we were chided during the passage of the 2008 Act by the noble Baroness, Lady Noakes, who is not with us today, on our adherence to advice from actuaries. We had some discussion on whether the actuarial smoothing had to be effectively determined by the actuaries, or by Ministers on the basis of advice. Perhaps the Minister could remind me where we ended up on that issue. I beg to move.

[Lord Freud]

My Lords, I thank the noble Lord for the opportunities to speak to Amendments 14 and 15, which seek to define the latest possible group for whom the additional pension consolidation would be introduced. The amendments tabled by the noble Lord, Lord McKenzie, seek to fix the affected group in relation to a somewhat arbitrary date of 2025. It might be helpful if I provide some context as to why we have taken steps to replace the previous certainty as to the start date and the affected group with a power to define both by way of regulations. Clause 3 and Schedule 3 of the Bill provide flexibility around the implementation of consolidation, which, as provided for in the Pensions Act 2008, simplifies past earnings-related pension rights.

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[Lord McKenzie of Luton]

I thank the Minister for that response. I will read the record with interest, but I will certainly withdraw the amendment.

I just want to be clear on a couple of points. I think the Minister said that something like £200 million per year would be involved in the smoothing exercise. Did I understand that correctly?

[Lord Freud]

Yes. At the early stages there are some years where the figure peaks at around £210 million and then comes back later, so it is a net early annual cost to the state with that maximum, coming down later to a net present cost that is neutral. From memory, the peak year was coming out at—was it 1925? Sorry, 2025. I will get the right century soon. The peak would be early in the 2020s until 2025.

[Lord McKenzie of Luton]

I am grateful for that response. I rather took from reading the literature that the cash flow issue was the real driver in all this, but from what the Minister has said there are obviously broader ramifications. I will read the record.

Might the Minister deal with the point about the other minor amendment about defining a tax year? At the moment the Bill says,

“the tax year beginning with the specified date or a subsequent tax year”.

That presupposes that the specified date would be at the start of a tax year. My question was: does that inevitably follow?

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[Lord Freud]

The noble Lord, as ever, is spot on in his assumption. Yes, it is at the start of the tax year.

[Lord McKenzie of Luton]

I am grateful for that. I can see that it is meant to be at the start of the tax year. I suppose that I have a question about what makes it the start of the tax year, but perhaps we will leave that for another occasion. I am happy to beg leave to withdraw the amendment.

Disabled People: Disability Living Allowance

Debate between Lord McKenzie of Luton and Lord Freud

Monday 7th February 2011 Lords Chamber

[Lord Freud]

My Lords, we are taking a very close look at the mobility requirements of people in residential care. The existing arrangements are pretty patchy; the payments are used for different purposes in different places and are often pooled in a way that they are not designed for, in a very complex regulatory framework. We will be looking very closely, as part of the consultation exercise, at what the best form of support should be for people in residential care in this way.

[Lord McKenzie of Luton]

My Lords, following on from that question, has the Minister read the evidence in the report from 27 leading disability groups entitled, Don’t Limit Mobility? The report points out that mobility needs tend to be factored into care packages only to meet specific needs in the community care assessment and not generally to meet individuals’ personal mobility needs. Do the Government therefore accept that the proposal to withdraw the mobility component of DLA for those in residential care because of double funding is based on a false premise, is simply wrong and should be withdrawn?

[Lord Freud]

My Lords, I have indeed read with great interest that particular piece of research. We are talking to the lobby about it and are very interested in some of the data behind it. We are in the process now of collecting a lot of information about what is really happening. It is a very fragmented area in terms of regulatory support and practice, and when we have that information I will be very pleased to share it with the House.

Public Bodies Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 11th January 2011 Lords Chamber

[Lord Freud]

I ought to respond to that, especially to the creator of the board. The core point is that these advisory bodies are rather narrowly focused and we are now looking at a much wider set of obligations and a much wider capacity. We have the Office for Disability Issues, which was never thought of in the 1990s. That provides a whole range of channels into the community that did not exist. We are talking about moving from a narrowly focused piece of advice to a much wider set of interchanges with the disabled community. My noble friend was right. This has not been done for monetary reasons, but to reflect the world that we live in and to get advice on the broadest possible scale in the right way when we need it.

[Lord McKenzie of Luton]

My Lords, I am grateful to all noble Lords who spoke in this short but well informed debate. I am doubly grateful to the noble Lord, Lord Newton. I said when I introduced these amendments that I did not propose to press them today and I do not, but he has given me special food for thought when we come to Report. Like the noble Lord, Lord Newton, I was not totally convinced by the Minister's response although as ever he did a sterling job trying to hold the government line.

To summarise the contributions of all noble Lords other than the Minister, I say that they recognised the importance of hearing the voices of disabled people in these situations and not just a lone voice—a point made by the noble Lord, Lord Low. We need to hear about the full range of issues that disabled people face. We heard about the importance of an independent voice, as the noble Lord, Lord Newton, said—not just speaking when you are spoken to and asked a question. There needs to be an independent means for people to input. I agree with that point about not just responding when you are asked a question.

Each noble Lord who spoke did so from a particular standpoint. My noble friend Lady Turner spoke of her own challenges with mobility in recent times. She raised the issue of local authorities and the Minister reminded us of the equality duties imposed on local authorities. We have to recognise that the financial constraints currently imposed on local authorities are draconian—the worst they have faced for decades. That provides them with challenges.

I was not aware that the noble Lord, Lord Newton, was the creator of the DLA and DPTAC that we are discussing today. To date, before his Government’s measures, they have stood the test of time. We are not opposed to a recasting of DLA. I mentioned in my presentation the sort of issues we look to come out of the review. My noble friend Lord Knight of Weymouth raised some important issues. On the timing, I am delighted that DPTAC will at least outlast the 2012 Olympic Games. That is to be welcomed.

The other general theme on which all noble Lords focused was that of knowing, if you are going to get rid of something, what is going in its place. We had one veil lifted this afternoon in relation to the advisory board and the engagement on the recasting of DLA, although the noble Lord, Lord Low, rightly pointed out some of the problems with the consultation. If the input the Government are now getting is, as they argue, so important, valuable and different that it displaces the advisory board and DPTAC, how have they ended up with this huge challenge around the mobility component of DLA and the need to revisit and revise the numbers? There is an inconsistency in the Minister’s argument.

Prompted by the question on cost of my noble friend Lord Knight, the noble Lord, Lord Newton, said that if something costs nothing then we do not need to spend money on putting something in its place. We can get advice for free so why change it? I acknowledge the role of the ODI and the new engagement that it has brought to the whole issue of dealing with disabled people and their challenges. However, that in itself is not a reason for doing away with these bodies, particularly DPTAC. I was not aware of the issue raised by the noble Lord, Lord Low, about the Department for Transport having just one person along to their bus advisory board. How can that one person possibly represent the full range of issues faced by disabled people needing to access public transport and buses in particular?

There are some issues there that the Government need to be clearer on if we are not to take forward at least one of these amendments on Report. For the time being, I beg leave to withdraw Amendment 33 but we need to look at the record of this debate and think seriously about what we will do on Report.

Public Bodies Bill [HL]

Debate between Lord McKenzie of Luton and Lord Freud

Tuesday 21st December 2010 Lords Chamber

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

My Lords, this seems to be a relatively short debate, which has shown evidence of the great knowledge and experience that the noble Lord, Lord McKenzie, has in this field. There was a debate recently on the Child Maintenance and Other Payments Act 2008, which informs a lot of his questions and points. However, I have not heard anything in those arguments that undermines the primary objective of the coalition Government to restore ministerial accountability for child maintenance.

The amendment would remove the Child Maintenance and Enforcement Commission from the list of bodies to which the Public Bodies Bill applies. The Government’s intention is to increase the accountability of Ministers for public services. This amendment would go directly against that intention.

The change of status for CMEC from a non-departmental public body to an executive agency within the DWP is driven by the coalition Government’s desire to have greater accountability for the hugely important issue of child maintenance. We feel that it is important to strengthen ministerial accountability when the Government are considering the role that the child maintenance system can play in their overall commitment to support shared parenting and promote parental responsibility.

We acknowledge that CMEC has built a stable base, following on from the success of the operational improvement plan to which the noble Lord referred. As it currently stands, however, with CMEC operating at arm’s length from the Government, the Government feel that it does not have the right level of responsibility and ministerial accountability. In order to regain that control, this change in status will make that happen. Removing the commission from Schedule 1 to the Bill would adversely impact on that intention.

There is a long and often painful history of poor performance within the child support system, as the noble Lord pointed out. A simple picture could suggest that the Child Support Agency was a failure and that only the introduction of the Child Maintenance and Enforcement Commission turned performance around. I would like to point out that that is not entirely the case. From 2006 to 2009, the Child Support Agency’s operational improvement plan significantly improved the performance of the administration of child maintenance. That was because of the activity taken forward by the Child Support Agency, at that point an agency of the Department for Work and Pensions. Responsibility for child support functions transferred to the Child Maintenance and Enforcement Commission in November 2008, near the end of the period covered by the operational improvement plan.

Since its formation in 2008, CMEC has taken these improvements much further. It has also been given a much broader remit than the CSA ever had. Most notably, it has developed a very effective information and support service, Child Maintenance Options, which has received much praise in dealing sensitively with separating and separated parents. Indeed, the noble Lord endorsed it a few minutes ago. The Government want to maintain and build on the progress that CMEC has already delivered. In response to the noble Lord’s question, that is one of the areas where we want to see further progress.

Let me be clear: this is not about scrapping the commission, nor is it about undoing the progress that the commission has made through the hard work and dedication of its people. I can confirm, in answer to the noble Lord’s question in this area, that we are looking to see the progress made and the plans that it has. We are looking closely at our own plans for improving the position in this area.

As the noble Lord said, however, the major reforms that were set out in the Child Maintenance and Other Payments Act 2008 are still to come. The improvements that the Child Maintenance and Enforcement Commission has made to date have been despite the inadequacies of its IT infrastructure. The legacy of past problems still casts a long shadow over the administration of the child maintenance system.

The Government believe that it is right—indeed, essential—that Ministers are directly accountable for the significant changes that still need to happen within the child maintenance system, not least the introduction of a new scheme for calculating child maintenance and the associated new IT platform. This Government, in including CMEC in the Bill, are clear that we must avoid reintroducing the well catalogued problems of the past.

To avoid destabilising the organisation at such a critical time, the new executive agency would essentially have the structure and functions of CMEC. The key difference, and the key purpose of this reform, would be the direct accountability and governance lines to Ministers. Many of the questions that the noble Lord raised are answered in that assurance about what will be happening.

I recognise that noble Lords have a keen interest in this matter, given their involvement in the redesign of the child maintenance system in 2006. I am referring, of course, to the noble Lords, Lord Hunt and Lord Kirkwood, who, alongside the noble Lord, Lord McKenzie, have proposed the amendment.

The independent review undertaken by Sir David Henshaw made some strong recommendations about the steps required to reform child maintenance. However, the review recognised that the issue of whether or not that should be administered in a body positioned at arm’s length from the Government was a finely balanced debate. The key argument on which the Government rest our position was the need for a clean break, as it was then called—I think that it was referred to today as some other kind of break, but anyway those are the essential grounds on which the argument was made, in response to the well publicised problems that the CSA had been enduring.

I reiterate that this reform is not about dismantling the Child Maintenance and Enforcement Commission in its current form. Neither is it about jeopardising the performance improvements that have been made in recent years. It is fundamentally about restoring ministerial leadership and accountability at a time when child maintenance reforms are reaching a critical stage.

I shall pick up one or two of the questions that I have not already dealt with. The implications for staff are relatively few, given the nature of the transfer. What we are trying to do in the universal credit, in terms of information, may become highly relevant here. We still need to look at that; obviously, it is at a very early stage.

We have looked at costs overall as part of SR10. We are determined that, in undertaking the transfer, we do not divert attention away from the need to get systems up and running. Clearly, this area is vital in tackling child poverty. Family breakdown is one of the main drivers of child poverty. We are determined to move forward on this and maintain targets. As the noble Lord will know, the introduction of the universal credit will have a powerful impact on child poverty. That is not yet included in the IFS calculations, although I imagine that it is working on that. We will be looking closely at other ways of ensuring that we stem the problems arising from family breakdown. Given all this, I ask the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

My Lords, I am most grateful to the Minister for that very full reply. I have no intention of pressing this amendment, as I tabled it in order to seek information. I am comforted by what he said about the progress and planned progress of the child maintenance system and that it is still the objective to try to introduce the new basis of calculation next year and the systems that will support that. I understand that it is intended that all the CSA cases will eventually migrate to the new system by 2014.

However, I am still a little mystified by this issue of ministerial accountability, as there is accountability to Parliament through the Secretary of State. I am a little curious as to what difference the measure would make for Ministers in practice, as for most, if not all, NDPBs there is a way for Ministers to engage and influence. A framework agreement defines not only the financing of NDPBs but their governance arrangements and their relationship with Ministers, so the argument that the Government are switching just to achieve that purpose is a little thin.

I wish to make it clear that I certainly do not contend that improvements came about only once CMEC came into being. Improvements were made under the operational improvement plan before CMEC came into being. I certainly assert—I think that the Minister agreed with this—that CMEC has carried that on and has made continuing progress, although matters still remain to be resolved. I am comforted by the fact that this will not be done in a way that would disrupt the progress that has been made and disrupt the introduction of the new systems.

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[Lord McKenzie of Luton]

If the Minister wants to pick up those points now, perhaps I can come back to my points later.

[Lord Freud]

We want to move to the new arrangements as soon as we can. The details of the arrangements for the agency will be elaborated on, but our intention is basically to leave the CMEC structure unaffected. The accountability point is much more political. I imagine that it would delight any Opposition, and slightly worry any Minister, to be directly responsible for what this very important agency does. That is the key difference. There is direct accountability for what is happening across these Dispatch Boxes and, of course, those in another place. We think that that is right, given the very many millions of parents and children affected. The figure is not quite 10 million on my count but it is getting on for that. For that reason, it is vital that there is direct political responsibility.

Benefits

Debate between Lord McKenzie of Luton and Lord Freud

Monday 20th December 2010 Lords Chamber

[Lord McKenzie of Luton]

My Lords, in what way does the Minister consider that docking 10 per cent off someone’s housing benefit after they have been a year on JSA is meeting their individual needs?

[Lord Freud]

The purpose of our reforms is to make sure that there is a very strong incentive for people to find work and, once they find work, to work. That is the purpose of that reform.

Disabled People

Debate between Lord McKenzie of Luton and Lord Freud

Monday 13th December 2010 Lords Chamber

[Lord Freud]

Residential care homes have an obligation to meet residents’ mobility and other requirements, which are translated into individual care agreements with those in residential homes.

[Lord McKenzie of Luton]

I want to ask the Minister about Supporting People, which is a vital programme that has helped around 1 million of our most vulnerable citizens each year. The programme is a qualifying service for the purposes of the disabled person’s right to control regulations to the extent that it helps people to live independently. Given the 28 per cent cut in local authority expenditure—which we will hear about officially shortly—and given the fact that Supporting People funding is no longer ring-fenced, what assurances can the Minister give disabled people that there will be effective monitoring of the programme to ensure that their rights are protected and delivered?

[Lord Freud]

My Lords, we are protecting the Supporting People budget and are spending up to £6.5 billion until 2015, which is roughly the same as the current spend. Clearly, with the localisation agenda, it is for local authorities, particularly in their personal spending approach, to ensure that the money is spent in the most efficient way possible.

Energy: Nuclear Safety

Debate between Lord McKenzie of Luton and Lord Freud

Thursday 11th November 2010 Lords Chamber

[Lord Freud]

My Lords, I thank the noble Lord for that question. The important thing that we need is to have a body that is regarded as totally independent by the industry and that the industry can interact with it. Clearly, if the body is independent in that way, it will make its own decisions on who to recruit, whether they are retired, from abroad or from wherever. What is needed is an efficient capability.

[Lord McKenzie of Luton]

My Lords, a consequential benefit of the proposed change of status of the NII would be that it would be outside the Treasury pay remit, which obviously could potentially help with the recruitment of specialists and progress on the generic design assessment. Will the Minister update us on issues around recruitment for the NII and whether that is still a problem?

[Lord Freud]

My Lords, the nuclear inspectorate has been able successfully to fill some of the gaps that it has had in the past couple of years, so it is now much more strongly staffed. That is not a problem. The issue, looking forward, is whether it will be in a position to recruit people of the calibre that it needs. Whatever form it goes forward in, whether as a discrete agency or as a statutory body, it is essential that the inspectorate is able to make the appropriate recruitment.

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

Debate between Lord McKenzie of Luton and Lord Freud

Monday 8th November 2010 Grand Committee

[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.

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

Debate between Lord McKenzie of Luton and Lord Freud

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

Debate between Lord McKenzie of Luton and Lord Freud

Monday 5th July 2010 Lords Chamber

[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.