Oral Answers to Questions

Stephen Timms Excerpts

Monday 18th July 2011 Commons Chamber

[Mr Duncan Smith]

That is absolutely our intention. That is why we are listening carefully to what people have proposed. The whole point about child care is that it should be there to support particularly women going into work who have caring responsibilities. We are reviewing this to make sure that that continues to be the case under universal credit. That is the whole point about the consultation. In other words, where we may be wrong, we can get that corrected and make sure that we come forward with a really good package in time for the debates in the other place.

[Stephen Timms (East Ham) (Lab)]

What is now the Government’s policy on the benefit cap in universal credit? The Secretary of State has told us that the policy is not changing, but press reports from Liberal Democrat sources contradict that by saying that the issue is far from settled and that the cap might not apply to existing benefit recipients. Then, last week, the Minister with responsibility for employment confirmed in a letter to me that “easements” are indeed being considered for existing recipients. So was the Secretary of State mistaken, and is the policy changing or not?

[Mr Duncan Smith]

The policy is not changing. The right hon. Gentleman should have written to me and my colleague at the same time, and we would both have given exactly the same answer. We have always said that in the course of the cap, we will look at any difficult cases. [Hon. Members: “Ah!”] We have always said that. One would always do that in a transition, just as we are doing with housing benefit. I remind the right hon. Gentleman and his colleagues that the cap will come in at a gross level of £35,000 a year. I would very much like to know what their position is on the cap, because so far we have heard absolutely nothing about whether they support it or are opposed to it. Perhaps they will tell us now. Most people out there are in favour of it.

Youth Unemployment

Stephen Timms Excerpts

Wednesday 22nd June 2011 Westminster Hall

[Stephen Timms (East Ham) (Lab)]

The figure that the hon. Gentleman gave is a little bit misleading. Between October 2009 and January 2011, there were more than 90,000 starts thanks to the future jobs fund. Of course, the scheme did not run for the full two years, for reasons that we know about, but over the full period that it was in operation, a large number of young people got into work.

[Robert Halfon]

Yes, but the crucial thing is not just for someone to get initial work, but for them to stay in work. I hope that the Minister will announce later that our policies relate to giving people long-term jobs. The point is this: job creation schemes, however noble, will not break the poverty trap unless they give people new skills in real private sector jobs.

The Government’s skills strategy published last year sets out plans to refocus spending on apprenticeships and to make all vocational training free at the point of access, with costs repayable only once someone earns a decent salary. That will help many young people into training, especially single parents, people who have been made homeless, and ex-offenders. I strongly support the announcement that 250,000 new apprenticeships will be created over the next few years. I particularly support the establishment of 24 new university technical colleges, which are essentially pre-apprenticeship schools led by local employers.

In Harlow, we have applied for a UTC led by Harlow college. If we get it, that UTC will be a centre of excellence for engineering and journalism backed by local firms and Anglia Ruskin university. On top of that, I support the funding for 100,000 sponsored work experience placements for jobless 18 to 21-year olds. I hope that such policies will significantly reduce youth unemployment in the years ahead.

However, it is not just about national Government. In Parliament, I have often championed the pioneering wage-subsidy scheme run by Essex council and Harlow college. As I mention in early-day motion 1258, that scheme has boosted young apprentices in key growth industries, especially high-tech manufacturing. Essex council and Mr Dean Barclay have even helped to sponsor the apprentice in my Westminster office, Andy Huckle, who is combining a year in the House of Commons with a level 3 course in business administration. A few other MPs have taken on apprentices and I urge all hon. Members to do the same.

In Essex, that scheme is being taken to the next level by the Federation of Small Businesses, which has applied to the regional growth fund to sponsor 2,000 new apprentices, especially in the energy sector. That scheme will be similar to the targeted £2,500 wage subsidy proposed by the central business institute a few years ago. So despite the historic problem, a lot is being done to address the social injustice of young people who want to get on in life but cannot find a job.

Work experience and apprenticeships give young people a chance to see a busy workplace, and to make things happen in the real world. The hon. Member for Birmingham, Selly Oak mentioned the Prince’s Trust. As we speak, a young girl from the Prince’s Trust is doing some work experience with me. The Government must start to use their planning powers and their contracts to insist that there is a better uptake of apprenticeships in Britain. Harlow council is currently looking at ways of using planning law to require developers to employ young apprentices. In the same way, Essex council is exploring ways of putting clauses into contracts to boost apprenticeships for young people. The total value of public sector contracts is £175 billion a year. If even a fraction of those built in apprenticeships, it would make a huge dent in youth unemployment across the country.

The issue is not just about how to create job opportunities. Let us be honest: for too long apprenticeships have been seen as plan B if someone does not want to do A-levels, as the hon. Member for South Antrim (Dr McCrea) mentioned. That was the problem with the old technical schools of the past: attending them was seen as a lesser thing to do. That must be confronted, rather than swept under the carpet. The plans to enhance a level 3 apprenticeship to technician level will make a difference, but as I mentioned, we must give apprenticeships parity of esteem to make them more attractive to young people who are looking for work.

That is why at 3.30 pm today, in the Jubilee Room next door, I will launch a new apprentice card with the National Union of Students and businesses, who together have tens of thousands of apprentices on their books. The card has one simple aim: to give apprentices the same benefits as A-level and university students. I have worked for many months with the NUS and other organisations to establish a national society of apprentices. The card is the very first step towards such a scheme and it will give young apprentices discounts at restaurants, travel agents and high street stores, as well as access to free support services and legal advice. There will also be social events, mentoring, careers guidance and other planned benefits, including financial products such as interest-free overdrafts.

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[Stephen Timms (East Ham) (Lab)]

I, too, congratulate my hon. Friend the Member for Birmingham, Selly Oak (Steve McCabe) on securing this timely and important debate.

Unemployment is too high across the board, but young people are being disproportionately hit, and the impact of youth unemployment is particularly damaging. Long spells of unemployment early in somebody’s working life can permanently harm their future potential. Paul Gregg at the university of Bristol has shown how severe that scarring was after the 1980s recession, when my hon. Friend was working among unemployed young people in Wolverhampton and my hon. Friend the Member for Hartlepool (Mr Wright) was doing similar work in Hartlepool.

It is that long-term impact which makes this topic important and which explains why it is important that the Government tackle it. I have been looking at the Churches’ seminal 1996 report on unemployment and the future of work, which powerfully set out the key moral case for dealing with this issue:

“it is wrong, in such a prosperous society as ours, for large numbers of people to be denied for long periods the means to earn a living”.

On youth unemployment, the report said:

“The reason for special concern about youth unemployment is not just that it is relatively high, but also that it comes at a crucial stage in a lifetime. The anxiety must be that young people who fail to obtain work experience at this stage will miss out an essential induction into adult responsibility and independence…It is…the main focus for the initiatives proposed by the Labour Party for their ‘new deal’.”

Indeed it was; in 1997, the new Government recognised the imperative to change things for the better, and they did so through the new deal.

Fifteen years later, however, that job needs to be done again. If anything, the case for action is even greater now than it was then. We have a particularly large cohort of young people aged 18 to 24, and large youth cohorts need to be cared for; there is a big risk of social damage if they are not. We now run the serious risk that this large group’s entry into adulthood will be stunted by unemployment.

As we all know, being unemployed has an impact on short-term and long-term health and even on life expectancy. However, if a young person is unemployed, it can hurt even more. Falling at the first hurdle in working life can mean missing out on the fulfilment that comes from a meaningful career. As the hon. Member for Bradford East (Mr Ward), among others, said, high levels of youth unemployment also tend to be associated with poor social outcomes, including increases in crime, particularly property and street crime. We need to keep our focus on that, particularly when police numbers are being cut, as they are at the moment.

Youth unemployment means a loss of productive work, adds to the benefits bill and increases the costs of policing and long-term social exclusion. A couple of contributors to the debate have referred to the work of the Prince’s Trust, which estimated in 2010 that the cost to the public purse of a young jobseeker was up to £16,000 per year, which is too high a price.

In a recession, young people are most at risk in the labour market. Often, firms will operate a last-in, first-out policy, which naturally works to the detriment of their younger employees. Firms facing an uncertain future will often not take on new staff at all, which, again, disproportionately affects young people.

The problem is being exacerbated by the fact that the Government are cutting public spending too far and too fast, hitting families, costing jobs and running the serious risk that they will make it even harder to reduce the deficit. The Labour party’s case is that we should put jobs first. We do, of course, need tough decisions on tax and on spending cuts, and it is absolutely right to tackle inefficiency and waste. However, getting people off the dole and back into work is the best way to bring the deficit down. As the Prince’s Trust has said, keeping young people on the dole is a waste of money and talent, and it puts the future well-being of our economy and society at risk.

On the most recent figures, there were 935,000 unemployed 16 to 24-year-olds in the three months to March. That is a welcome fall on the quarter, but it means that there were 31,000 more young unemployed people than there were last summer.

[Chris Grayling]

The actual number in the last figures was 895,000, which is lower than at the general election.

[Stephen Timms]

Those were not the Office for National Statistics figures. The figure, as I read the release, was 935,000, which is 31,000 more than last summer.

Of course, it is no surprise that unemployment rose sharply in the downturn. However, a year ago, with the youth jobs guarantee and the future jobs fund in place, youth unemployment was starting to fall steadily, including in the constituency of my hon. Friend the Member for Kingston upon Hull East (Karl Turner). As we have heard, one of the new Government’s first acts was to scrap that successful programme, and we can see now some of the damage that has resulted. The rise in unemployment means the benefits bill is going up by more than £12 billion. As we have heard, that comes at a time when other Government decisions, such as scrapping education maintenance allowance and removing Connexions, are making it harder for young people who are starting out.

As my hon. Friend the Member for Birmingham, Selly Oak said in opening the debate, the Labour party is arguing for a second, one-off £2 billion tax on bankers’ bonuses. Of that, £600 million should be used to help create 90,000 more jobs for young people at this crucial time, when those jobs are so badly needed. The remainder of the funding should be used to build more affordable homes—that, in itself, would probably create about 20,000 jobs for young people—and to support small businesses by increasing the regional growth fund. Later this month, we shall seek to legislate for that proposal through an amendment to the Finance Bill.

Last year, the bankers’ bonus tax brought in £3.5 billion. By comparison, the current Government’s bank levy will yield less than £2 billion in the current financial year. It is estimated—conservatively, I think—that a repeat of the bonus tax could bring in an additional £2 billion this year. That funding could be put to extremely good use.

As my hon. Friend said, youth unemployment in the 1980s continued to rise for four years after the recession was over. We need to act now to avoid another lost generation of young people. A fair tax on bank bonuses can help to get young people off the dole and into work. It would be hypothecated, and people would see where the money was coming from, what it would do and where it was going.

Official figures show that between October 2009 and January 2011 there were, as I said in an intervention, 91,890 starts in future jobs fund vacancies. The hon. Member for Harlow (Robert Halfon) made some telling and important points, but his case was rather undermined by his suggestion that only 5,000 people started on the future jobs fund, which is not correct; it was well over 90,000, and the programme would have been well on track to achieve the 150,000 target had it been allowed to continue for the full two years for which it was planned.

A strikingly large proportion of those who started on the future jobs fund went on to other jobs when their placement ended. The crucial point, however, is that having a proper job for six months at an early stage potentially transforms a young person’s future career and life chances. That is why that intervention was so important and effective. More than 10,000 of the 90,000 were in the region of my hon. Friend the Member for Birmingham, Selly Oak—in the west midlands.

Of course the new youth jobs fund would be different. It would be linked with other schemes and with employers, to ensure that real jobs came out of it. No doubt lessons would need to be learned from the experience with the future jobs fund, and I agree about the importance of linking with apprenticeships; but the principle that substantial effort and investment are needed to safeguard the current generation of young people should be agreed across the House. The Government need to take that seriously, not just addressing the incentives for work, but taking responsibility also for there being jobs for young people to do.

[The Minister of State, Department for Work and Pensions (Chris Grayling)]

I too congratulate the hon. Member for Birmingham, Selly Oak (Steve McCabe) on securing the debate. I want to set out, as several hon. Members have requested, the details of the Government’s strategy to deal with youth unemployment, but I should start by giving a little context to the problem we now have.

Let me be clear, first, that the shadow Minister is plain wrong and a month out of date: the latest unemployment figures, published in the past month, show that the total number of young people who are unemployed in this country, according to the International Labour Organisation measure, is 895,000. That is 35,000 lower than at the general election. Let us put that in context. We have heard a lot of rhetoric and comments in the debate about the record of the previous and present Governments, but we should be clear that youth unemployment—happily, and long may this continue—has fallen since the general election.

[Stephen Timms]

The Minister made a case in an earlier intervention for perhaps taking some people out of that figure, because they are full-time students looking for part-time jobs. Is he suggesting also that the number of full-time students with part-time jobs should be taken out of the employment count?

[Chris Grayling]

I have issues generally with the way some of the ILO’s data are collected. Perhaps the right hon. Gentleman or some of his colleagues would like to request another debate, and we can consider the question at length. What pleased me most fundamentally about the last set of figures was that the drop occurred not in the group of those in full-time education, looking for a part-time job, but in the group of those not in full-time education or employment. That is a welcome development.

There is a big challenge for us.

Employment and Support Allowance

Stephen Timms Excerpts

Tuesday 21st June 2011 Ministerial Corrections

[Stephen Timms]

To ask the Secretary of State for Work and Pensions if he will estimate the number of recipients of employment and support allowance there would be in the (a) work related activity group and (b) assessment phase (i) with and (ii) without time-limiting in place for each financial year from 2011-12 to 2015-16.

[Official Report, 16 May 2011, Vol. 528, c. 94-5W.]

Letter of correction from Mr Chris Grayling:

An error has been identified in the written answer given to the right hon. Member for East Ham (Stephen Timms) on 16 May 2011.

The full answer given was as follows:

[Chris Grayling]

The first table shows the estimated future recipients of contributory employment and support allowance (ESA) in the work related activity group (WRAG) with and without time-limiting in force.

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[Chris Grayling]

The first table shows the estimated future recipients of contributory employment and support allowance (ESA) in the work related activity group (WRAG) with and without time-limiting in force.

[Stephen Timms]

To ask the Secretary of State for Work and Pensions if he will estimate the cost to the Exchequer of excluding from the 365 day period of eligibility for contributory employment and support allowance any days that the claimant spends in the assessment phase in each of the next five financial years.

[Official Report, 7 June 2011, Vol. 529, c. 266-67W.]

Letter of correction from Mr Chris Grayling:

An error has been identified in the written answer given to the right hon. Member for East Ham (Stephen Timms) on 7 June 2011.

The full answer given was as follows:

[Chris Grayling]

As part of the Welfare Reform Bill we have set out our intention to introduce a time limit of one year for those claiming contributory employment and support allowance (ESA) and who are placed in the Work Related Activity Group (WRAG). The intention is that time spent in the assessment phase will count towards the 365 day period of the time limit. In total the policy is expected to generate annual benefit savings of £400 million in 2012-13 rising to £1.1 billion by 2014-15.

If the proposal were to change so that the time limit period is extended by the length of time it takes for each person to undergo a work capability assessment to determine entitlement to ESA, this would reduce the expected benefit savings.

The following table shows the expected change in the annual savings if the time spent in the assessment phase were excluded from the period of the time limit. It shows estimated overall costs to the Exchequer of around £200 million by 2014-15.

Welfare Reform Bill

Stephen Timms Excerpts

Wednesday 15th June 2011 Commons Chamber

[Maria Miller]

The hon. Lady is obviously a mind reader, because I was just about to talk about whether the changes we are discussing will be a problem for victims of domestic violence—a group whom we all want to ensure get that support and are able to move to a place of safety, as is absolutely right. We do not believe that the new localised service will be a barrier to people in genuine need, particularly victims of domestic violence. It will provide an opportunity for more joined-up services on the ground while continuing to give individuals in that situation access to national payments on account through advances or alignment payments. The hon. Lady will be aware that under the current scheme victims of domestic violence must have fled the family home to qualify for support to set up home from the discretionary social fund.

A third and very important reason why keeping the status quo is not a sensible option is the need to align support with the wider changes that are happening in the welfare system. To continue running the current administratively burdensome system is no longer financially sustainable. Community care grants and crisis loans for general living expenses will be replaced by locally based support, which will be the responsibility of local authorities in England and the devolved Administrations in Scotland and Wales. That will deliver on the coalition’s commitment to implement the Calman commission’s recommendations and will tie in with the wider Government agenda on localism, as has been mentioned. Local authorities are better placed to understand the issues that people in their area face and to dovetail existing and needed services. Different areas face different issues and local authorities will be free to come up with the sort of innovative ideas that will address these issues and make sure that the money that is available is targeted at the right purposes so that we move away from a situation that allows the sort of abuse I have mentioned.

[Stephen Timms (East Ham) (Lab)]

We learned in Committee that although council tax is delegated to local authorities, investigations of fraud will be carried out nationally by the single fraud investigation service. The Minister has talked about abuse. In the case of the devolved social fund, where there is a worry about fraud will it be investigated by the local authority or by the single fraud investigation service?

[Maria Miller]

Local authorities will be free to consider whether they need to set up their own service locally or use the local government ombudsman. It really is for local authorities to look at the most effective way of dealing with levels of fraud or with any dissatisfaction with the way in which they are delivering services. The amendments do not really grasp the premise behind the Government’s proposals. We want to move to a situation in which local authorities are looking at the gaps in their services locally and are able to use the funding that is forthcoming as a result of these changes to fill those gaps and pull together the sort of service that is required by vulnerable groups such as those we have been discussing.

Crisis loans for alignment purposes and budgeting loans will be replaced by new national provision. As I have said, that accounts for half of all current crisis loan applications. That provision will be delivered nationally by the Department for Work and Pensions. The ending of the discretionary social fund and the implementation of replacement schemes, both nationally through payments on account and locally by local authorities and the devolved Administrations, is the best way to approach the reform. Amendments 53 and 54 would prevent those reforms from taking place and would leave us with an out-of-date and inefficient discretionary social fund scheme that would soon be unworkable with the introduction of the wider benefit reform we have already outlined.

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[Jenny Willott]

I am afraid that I am not taking any more interventions, as many Members want to participate in the debate and I do not want to run out of time. I am sure that those who have further comments will attempt to catch your eye, Mr Deputy Speaker.

We must not underestimate how important it is for people to be able to get out and about. I appreciate that those in residential care often do not have as many mobility needs as some people living on their own. For example, they do not need to shop regularly for food as it is usually provided, and they often do not need to make arrangements to get to a doctor’s appointment or the hairdresser’s because those services are often provided in the care home. However, they often need to shop for things other than food—for clothes and personal items—and they need to be able to maintain contact with friends and family. Younger people in residential care may often be in work and need to travel in and out of work as well. They have needs that need to be funded. It depends on the disability, but often public transport is not an option, so people rely on expensive taxis, on Motability scooters or on having access to their own vehicle, all of which add significant costs.

It is important that people have independence, keep up their social lives and live a full and valuable life. That is not possible on the £22 a week that people in residential care would be left with if they did not have the mobility element or any other support for their mobility needs. Although this part of the Bill is about PIPs, which will apply only to those who are over 18, I would be grateful if the Minister clarified the Government’s intention about extending PIPs to the under-18s, too, and whether the provisions will apply to families and young people with disabilities who are under that age.

My amendments would ensure that this important issue is decided by affirmative resolution, enabling proper parliamentary scrutiny, and that its implementation is monitored effectively through the production of a report after enough time has elapsed to show the impact and the effect. It is clear to me from the totality of the Government’s proposals that affect people with disabilities that the Government do not intend to restrict the independence of individuals. The move towards personal independence payments from disability living allowance goes in quite the opposite direction. We had a number of debates in Committee about the increased emphasis on individual needs and independence, and I sometimes found the Minister’s emphasis on taking every person as an individual and assessing their individual needs somewhat frustrating. Sometimes in debate it is easier to consider groups of people, but it is clear that the Minister’s intention is to consider individual needs and to take them into account when making decisions, as well as to ensure that individuals have independence.

[Stephen Timms]

The Minister has said that she does not envisage the results of the review being published. If I understand the hon. Lady correctly—she is making some telling points—she envisages the review being published so that there can be consultation. Will she confirm that she disagrees with the Minister on that point?

[Jenny Willott]

I have no idea whether the review will be published. I was commenting on the fact that the options on PIPs and DLA for the future should be consulted on. The Bill simply states that that will be decided in regulations, which is one reason I tabled an amendment requiring them to be subject to an affirmative resolution. The decisions will be made by regulations, which means that there is a further decision-making point. The Government will be able to publish their regulations and their intentions once they have done the information gathering and considered the funding situation across the board. At that point, I would like to see some broader involvement of people who are affected by these decisions. We will then have the information when we make a decision.

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[Dame Anne Begg]

That is exactly what I would like the Minister to clarify. I do not know whether there will be contributory ESA for those in the support group, whether it will be income related, or whether everyone will get it. If someone lives in a household with a working partner who earns £20,000 or £30,000 a year and then goes into the support group, having not worked before that and so having not made national insurance contributions in their own right, will they get any ESA? I am not sure they will, because ESA is an income replacement benefit, and of course to get such a benefit they need to have made national insurance contributions or have a low income.

[Stephen Timms]

My understanding is that, even though they are in the support group, if they have not met the contribution conditions they will not get the contributory benefit. Perhaps the Minister will confirm that when she responds.

[Dame Anne Begg]

That is my understanding also. There will be a group of people who will have paid the contributions in the two previous years and who will go straight into the support group and get to keep the benefit for life, but those with slowly degenerative diseases and those who come from better-off households will get nothing at all. It is that kind of unfairness and that sense of a two-tier system that frightens people.

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[Maria Miller]

My hon. Friend will know that we are looking at this matter in some detail, and at the evidence on the ground. If we do not feel that an overlap is in play, we will take the appropriate action. He can rest assured that any further action that we take in that regard will be defined in regulations and subject to further debate.

Amendment 73, to which my hon. Friend the Member for Cardiff Central (Jenny Willott) spoke, would require the Secretary of State to produce a report on the impact of regulations made under clause 83 within a year of their being laid. In the light of the explanation that I have just given, considering whether to produce a report on the impact of regulations made under the clause could be premature. I therefore hope that she does not press the amendment to a Division.

Similarly, on amendment 74, on regulations, I repeat my assurances that we take extremely seriously the concerns expressed earlier about care homes, and we are committed to responding to them in the right way. The House would expect the Government to look at the facts of how a policy would be implemented before they move forward with it, which is exactly what we are doing. The amendment would make regulations applying to the payment of the mobility component of PIP subject to the affirmative resolution in the first instance. We spoke at length about that in Committee, and I do not want to debate again whether a resolution should be affirmative or negative. We are subject to the scrutiny of Parliament in this. I would like to return to the commitment that I gave the hon. Member for Glasgow East in Committee when I said that I would reflect on whether other regulations should be subject to the affirmative procedure. I am happy to reiterate that, but at the moment I do not think that we need to go further.

[Stephen Timms]

The hon. Member for Cardiff Central (Jenny Willott) argued that when the review has been carried out and the Government have a proposal, it should at least be consulted on before it is put into effect. Will the Minister at least accept that point?

[Maria Miller]

We are not producing a report to consult on. What we will do is make our position clear, and then there will be the opportunity for people to give us their views on that.

Finally, I would like to speak to amendment 60. I believe that the intention of the amendment is to ensure that the new assessment for PIP is working effectively before it is used to reassess the existing disability living allowance caseload. I can reassure the hon. Member for Glasgow East that it is our intention to do that. But I can go further than that—the Government are committed to ensuring that the new assessment is working effectively before it is used for any individuals, new claimants or not.

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[Mr Duncan Smith]

I was not going to pick up on that, but given that my hon. Friend has asked me, I will say that the reality, which is clear, is that the Government inherited the employment and support allowance reform from the previous Government. It was this Government who exempted cancer patients on chemotherapy in hospitals; they were not exempted by the previous Government. Our record on this is therefore quite good. As for the exchange at Prime Minister’s Question Time, it is also important to say that if somebody cannot take work, they will remain on the support group or be moved to the support group, where they will continue to receive full support indefinitely—and it will not be income-related.

[Stephen Timms]

rose—

[Mr Duncan Smith]

One moment, one moment. Let me finish, all right?

In reality, therefore, people on the work-related activity group will already have been seen to be able to do some work with some assistance—that is the key—and of course, as has long been the case, those benefits are income-related. It is also important to note that the figure that Macmillan produced today—of 7,000 people losing everything—is not altogether accurate, because—[Interruption.] No, no, because 60% of the people it was talking about will continue to receive some form of support; they will not be losing all their money. We will not be moving those on chemo. We are looking to review the situation under Professor Harrington to see how much further we can go, but the fact is that if someone is not capable of work and is too ill, they will be on the support group.

[Stephen Timms]

Can the Secretary of State confirm, however, that people receiving oral chemotherapy and oral radiotherapy are in the work-related activity group, and that if they are halfway through their treatment and it gets to a year, they will lose all their contributory benefit?

[Mr Duncan Smith]

Not if they are on income-related benefit. Of course they will absolutely continue to get the income-related support. The point is that this— [Interruption.] Wait a minute. The right hon. Gentleman knows very well—he should stop playing silly games—that we have asked—[Interruption.] No, no—[Interruption.] Grow up, for God’s sake! He has to recognise that we have asked Professor Harrington to review that, because that is a later form of chemotherapy, and he will report back. Whatever his recommendations are, we have said that we will accept that. The right hon. Gentleman knows that, and I suspect that he should have said it when he got up at the Dispatch Box. [Interruption.] I think I have done that; I just wish that the Opposition would not play politics with people’s fears and concerns. They made no arrangements at all for cancer patients on ESA, so we will take no lessons whatever from them.

We are now paying as a result of Labour’s mismanagement of the economy, which is causing all the problems and which is why, even in this Bill, we are having to find savings, with an eye-watering £120 million a day going to pay off the interest alone on the debt that the last Government left us. It is because of the deficit reduction plan that Britain has put in place that we have managed to keep our borrowing costs low and comparable to Germany’s rather than to those faced by Portugal, Ireland or Greece. These need to be seen in context, but I want to—

Welfare Reform Bill

Stephen Timms Excerpts

Monday 13th June 2011 Commons Chamber

[Chris Grayling]

That would depend on the circumstances. It is obviously important that a deduction of earnings takes into account the potential impact on the individual, so we would need to take into account other payments. Ultimately, it is a basic principle that recovery of overpaid benefits should not cause undue hardship, so all circumstances would need to be taken into account. I should clarify that council tax benefit will be deducted from council tax liability, so it will not be administered in quite the same way.

Imposing a DEA is intended to be an administratively simple process that replaces the current practice of obtaining an attachment of earnings order by application to the court. The ability of the Department for Work and Pensions to make DEAs on its own authority sends out a strong signal to potential fraudsters and will prove a useful tool in the fraud and error strategy. I hope, particularly given the comments made today by the Leader of the Opposition, that the Opposition will welcome this as a sensible measure to take against people who defraud the system.

We think that the measures will also encourage claimants in debt to be more aware of the possibility of deduction at source, reducing any expectation that they will avoid repaying debt. There is always a concern that they will think that they can just pile money up and up, and that there will be no day of reckoning. The proposals make it much simpler for us to ensure that there is indeed a day of reckoning.

The measure will make use of an existing process used by the Child Maintenance and Enforcement Commission, with which businesses are already familiar. It is a matter of routine for an employer to make a child maintenance-related deduction from a person’s salary cheque each month, and this measure will use the same process. The provision also allows for the levy of an administration charge against the debtor by the employer administering the deduction, offsetting any increased administrative costs resulting from the increased use of earnings attachment as a recovery method.

Using a DEA to recover debt does not remove a debtor’s rights to challenge any decision relating to the recovery of benefits or the imposition of a civil penalty. This relates to the point just raised by the hon. Member for Banff and Buchan (Dr Whiteford). For example, when an overpayment occurs in relation to an award, an independent decision maker decides whether a recoverable overpayment exists. As I set out in Committee, there are circumstances in which overpayments will be recovered, and circumstances in which they will not. We will focus on offering discretion to our front-line staff in judging what is right and what is wrong. We accept that there will be times when an overpayment results from an administrative error within the Department, and that we should accept the blame for that and not seek recovery of the overpayment. The general position, however, is that if someone receives money that they should not have received, we will expect them to pay it back. If they refuse and have already started work, this mechanism will enable us to recover the money.

In addition, there will be a right of appeal to an independent appeal tribunal, should the person be unhappy with the original decision. So there is still a full judicial process available, similar to the one available when a sanction is imposed that could lead to the withdrawal of benefits. The claimant has the right first to go to the decision maker and then to a tribunal, and those rights will remain in this situation. However, we will not have to go to court to secure the original order to make a deduction of earnings.

Before taking action to impose a DEA, we will ensure that the debtor is aware that we are taking such action. We are also keen to remain mindful of our welfare obligations. We do not, for instance, want to push the debtor into leaving work in order to avoid a repayment under a DEA. This measure must be applied with common sense and care. In certain instances, it might be determined that another method of recovery should be employed, or that arrangements should be made so that the DEA commences only after other commitments have been cleared. This relates to the point that my hon. Friend the Member for Brigg and Goole (Andrew Percy) raised a moment ago: we will take into account other commitments.

The DEA is designed to recover debt from those who currently seek to avoid repayment—those who hope that they can avoid paying the money back. Those who comply with requests for repayment and who either come to a reasonable arrangement to repay or can show that they are currently unable to repay will not have a DEA imposed. I am sure that hon. Members will agree that when someone refuses to meet their obligations to repay benefit debt, such powers should be available to the relevant authorities to make recovery.

That is all that the new clause and the other amendments are designed to do. They are designed to ensure that we treat people fairly and appropriately within the system. When necessary we can recover benefits directly from people who are still on benefits, but we cannot currently do that easily, without going to court, from people who have moved into PAYE employment. These provisions will allow us to change that. I believe that this is a prudent and sensible step. It is very much in keeping with our anti-fraud strategy, and I hope that it will be in keeping with that of the Opposition as well. I hope that the new clause will command support on both sides of the House.

[Stephen Timms (East Ham) (Lab)]

I welcome this opportunity to respond to this first group of amendments. It is certainly one of the less contentious groups that we shall consider, and the Minister should not imagine that we will be equally amenable throughout the debate today. The new clause aims to amend the Social Security Administration Act 1992 to allow the Government to recover overpayments resulting from mistakes or fraud in out-of-work benefits and housing benefit, as well as in universal credit and the other contributory benefits.

I can well see why the Minister wants to make these changes. In particular, because universal credit will encompass people who are in work as well as those who are out of work, it makes sense for the recovery of overpayments to be extended into earnings received in work, as he has outlined.

However, a number of questions need to be asked about these plans. The Minister has already been pressed about the mechanism for appeals. The changes will certainly require a good deal of co-operation from employers, as those are the organisations on which the Government will be serving notices to deduct from earnings. Employers will bear the burden of the administration of these deductions through having to pay in amounts, keep records of those amounts, and keep the Secretary of State informed if the person concerned leaves their employment.

The Minister has made the perfectly reasonable point that a system already exists for child support payments, but in order to take into account the additional burden that he is imposing, the Government are allowing for the employer to deduct an amount in respect of their administration costs. We need to have some idea of the amount that employers will be permitted to deduct, which should be seen to be fair by the person whose pay is being deducted, while adequately compensating employers. Will the Minister tell us a little more about how that amount will be calculated, and how it relates to the existing arrangements for child support that he touched on?

The amendments allow for a level of earnings below which earnings must not be reduced by the deductions. Again, that seems appropriate, but we need to know how that level of earnings will be prescribed. There could be a significant impact on work incentives, particularly for people who have received overpayments and who may well have been acting entirely innocently, having been confused or having made a mistake—or perhaps the job centre has made a mistake. If the amount is too low, claimants who are out of work could see little gain from moving into work. Additionally, if the deductions are at a flat rate or not a percentage of hourly pay, the work incentives that the universal credit taper mechanism is designed to provide will be compromised. Will the Minister tell us how the minimum level of earnings will be calculated? Will he ensure that people who are repaying overpayments will still be better off if they increase their income through working additional hours?

Subsection (3)(i) of new section 71ZCA of the Social Security Administration Act 1992 creates a criminal offence for non-compliance with the regulations, with a fine of £1,000, which would be a hefty sum for a small business. Small businesses have less time and energy to spend on administration or human resources, so the additional burdens being placed on them could prove a significant disincentive to their recruiting new employees who have overpayments hanging over them. That would result in those people finding it more difficult to get into work. Will the Minister tell us a little more about how he thinks that the new provisions will affect people who are paying back overpayments while trying to find a job? How he will ensure that the provisions do not create a new barrier to those people getting back into work?

The move towards allowing deductions from earnings to repay benefits lost due to error or fraud is sensible, particularly because universal credit will be paid to people in work as well as out of work. The Government are already introducing several penalties for those whom they feel have negligently made incorrect statements. It is important that we do not penalise people who have made mistakes but have done so honestly, by placing new and unnecessary barriers to employment in their way. The minimum level of earnings and the red tape that this will mean for small businesses could have that result if the Government get the judgments wrong. I hope that the Minister will be able to give us some reassurances about how the measures will work in practice.

--- Later in debate ---

[Chris Grayling]

I start by saying that I very much appreciate the comments of the hon. Member for Stretford and Urmston (Kate Green). I listened carefully to her points, a number of which she made in Committee. She has given a great deal of thought to these matters, and although I cannot offer her a guarantee that we will do all the things she wishes, I can say to her that we will take great care, in the regulations attached to the Bill, to ensure that we get the right balance. It has been clear for a long time in this country, and remains absolutely clear under the current Government, that in setting the levels of any deduction we have to be extremely careful not to tip people into hardship. In particular, we must not encourage them to leave work and end up moving them and their families down the poverty scale.

The hon. Lady and the right hon. Member for East Ham (Stephen Timms) asked how we would determine the level of earnings below which deductions for overpayments cannot be made. Of course, there is no one-size-fits-all approach, and the circumstances of different families are very different. There may be a case in which, as my hon. Friend the Member for Brigg and Goole (Andrew Percy) suggested, there is a deduction for child support, or the number of children in a family or a disability may be factors. Great care therefore has to be exercised.

The minimum level that we will pursue will be determined to ensure that the debtor is left with sufficient income to maintain themselves and their family, in line with similar provisions in the Attachment of Earnings Act 1971. We therefore plan to use the same basis that the previous Government used—for example, to determine deductions from benefit payments.

In many cases, however, a direct earnings attachment will be implemented with little negotiation with the debtor. There will be a prescribed minimum level that will not take account of individual circumstances. We will try to create a system whereby we are mindful of the need to reflect the circumstances of the individual, but we cannot go the whole way, and we certainly cannot go quite as far as the hon. Member for Stretford and Urmston would wish.

If a debtor finds that they are unable to cope with the deductions being made from their earnings, they should contact us to discuss an alternative payment rate. Of course, they can avoid being placed in that situation, bearing in mind that we are discussing not people who are struggling to deal with something that they have already agreed but those who have wilfully refused to enter an agreement with us and are basically saying, “I’m not paying the money back”, or who have not even got to the point of saying anything to us at all.

Debtors who are repaying their overpayment by means of a direct earnings attachment will, in line with those repaying by other methods, be able to claim that the repayment rate causes them hardship and ask for it to be reduced. Although we of course have a responsibility to recover overpayments in order to protect public funds, we also take into account an individual’s financial and personal circumstances. The hon. Lady articulated a strong case for her points, but I cannot offer her quite as much as she would wish. However, I can offer her an assurance that we will always take an individual’s circumstances into account, particular where poverty, deprivation and hardship could arise.

The right hon. Member for East Ham made a point about employers. We will, of course, use the same mechanism for the attachment orders in the Bill as is used for child maintenance deductions. That process is well established through the Child Maintenance and Enforcement Commission system, and prior to that through the Child Support Agency, so it should not cause employers to recast their processes and do things very differently. On that basis, I am confident that it should not represent a significant additional burden on employers.

The right hon. Gentleman mentioned the provision for a £1,000 fine. In truth, there is no excuse for a refusal to engage in any part of the process. The orders will arise only because an individual claimant has refused to engage, and there is no real excuse for an employer to refuse to engage either. The matter should not be complicated, and it certainly should not be complex enough to cause an employer to decline an expansion in business or a recruitment to fill a vacancy. The process is established and many employers up and down the country are used to dealing with it, and I do not believe there will be significant extra burden on business.

The right hon. Gentleman asked how much employers could deduct for the administration charge, and the answer is an amount not in excess of £1 for each deduction. He asked for an assurance that the measure will not damage work incentives. The answer to that is that, as with all debt recovery, we must of course be mindful of the Department’s welfare obligations. As I said, recovery of overpaid benefits should not cause undue hardship. In the calculation of a repayment, we certainly would not want to push someone into a position in which they have to leave work to avoid payment under a DEA.

The operation of the DEA does not mean that the debtor will commence the repayment of their debt earlier than they would under another repayment method. The debtor will have had ample opportunity to make other arrangements to pay, or indeed to show that suspension of recovery was applicable in their case. We are not talking about people who have had no chance to engage and discuss.

[Stephen Timms]

Will people who receive pay rises always receive some benefit from it, or could they lose all of that increase in additional repayments required by the Department?

[Chris Grayling]

It is very difficult to give an absolute answer to that question. It is unlikely that we would seek to withdraw an entire pay rise, but clearly, if we had given somebody a lot of slack in making their repayments, and their financial circumstances improved, we would not allow them simply to continue paying at the hardship rate that they had previously paid. We would expect an improvement in the terms based on their improved circumstances.

The right hon. Gentleman, as a former Minister, knows the reality. Well-established hardship considerations are in place. If the customer engages with the Department, their circumstances could suggest that another method of recovery should be employed. Arrangements are made so that the DEA begins only after a period time, but only in exceptional circumstances would we waiver repayment.

Common sense lies at the heart of this measure. It is our job to recover funds that have been overpaid to a claimant when there is not a good reason for waiving the repayment because of departmental error. At the same time, it is not in any of our interests for the system to force people into severe hardship and poverty—the system should reflect the reality of people’s financial situations.

There is a clear obligation to repay. The Leader of the Opposition spoke this morning of responsibility, and he was right to do so. Those who we are talking about have a responsibility to repay the money that is due to us. However, the Department, and indeed the courts, must apply common sense to the process, achieve the right balance and ensure that we recover the money that is due to the taxpayer correctly and sensibly.

I welcome the Opposition spokesman’s positive comments. We are likely to have livelier debates as the hours go by, although I hope, having heard the Leader of the Opposition’s comments this morning, that such debate masks their willingness to support the Bill. It would be disappointing if the Opposition did not support the Bill. If they decline to support it, I will look forward to having a debate in public on who is right and who is wrong, but for now I am delighted that there is cross-party co-operation on this group of amendments and the new clause.

Question put and agreed to.

New clause 1 accordingly read a Second time, and added to the Bill.

Clause 102

Recovery of benefit payments

Amendments made: 1, page 67, line 35, at end insert—

‘() by deduction from earnings (section 71ZCA);’

Amendment 2, page 68, line 17, at end insert—

71ZCA Deduction from earnings

(1) Regulations may provide for amounts recoverable under section 71ZB to be recovered by deductions from earnings.

(2) In this section “earnings” has such meaning as may be prescribed.

(3) Regulations under subsection (1) may include provision—

(a) requiring the person from whom an amount is recoverable (“the beneficiary”) to disclose details of their employer, and any change of employer, to the Secretary of State;

(b) requiring the employer, on being served with a notice by the Secretary of State, to make deductions from the earnings of the beneficiary and to pay corresponding amounts to the Secretary of State;

(c) as to the matters to be contained in such a notice and the period for which a notice is to have effect;

(d) as to how payment is to be made to the Secretary of State;

(e) as to a level of earnings below which earnings must not be reduced;

(f) allowing the employer, where the employer makes deductions, to deduct a prescribed sum from the beneficiary’s earnings in respect of the employer’s administrative costs;

(g) requiring the employer to keep records of deductions;

(h) requiring the employer to notify the Secretary of State if the beneficiary is not, or ceases to be, employed by the employer;

(i) creating a criminal offence for non-compliance with the regulations, punishable on summary conviction by a fine not exceeding level 3 on the standard scale;

(j) with respect to the priority as between a requirement to deduct from earnings under this section and—

(i) any other such requirement;

(ii) an order under any other enactment relating to England and Wales which requires deduction from the beneficiary’s earnings;

(iii) any diligence against earnings.’

Amendment 3, page 69, line 22 , after ‘71ZC’ insert ‘, 71ZCA’

Amendment 4, page 70, line 13 , leave out from ‘etc)’ to end of line 15 and insert—

‘(a) for subsection (4) there is substituted—

(4) If the recipient of a notice under subsection (3) above agrees, in the specified manner, to pay the penalty—

(a) the amount of the penalty shall be recoverable from the recipient by the Secretary of State or authority; and

(b) no criminal proceedings shall be instituted against the recipient in respect of the conduct to which the notice relates.

(4A) Sections 71ZC, 71ZCA and 71ZD above apply in relation to amounts recoverable under subsection (4)(a) above as to amounts recoverable by the Secretary of State under section 71ZB above (and, where the notice is given by an authority administering housing benefit or council tax benefit, those sections so apply as if references to the Secretary of State were to that authority).’

(b) in subsection (9), the definition of “relevant benefit” is repealed.’—(Chris Grayling.)

Clause 112

Civil penalties for incorrect statements and failures to disclose information

Amendments made: 5, page 75, line 29, after ‘71ZC’ insert ‘, 71ZCA’

Amendment 6, page 75, line 31, at end insert—

‘(and, where the appropriate authority is not the Secretary of State, those sections so apply as if references to the Secretary of State were to that authority)’

Amendment 7, page 76, line 24, leave out ‘Secretary of State’ and insert ‘appropriate authority’

Amendment 8, page 76, line 26, leave out from ‘71ZC’ to end of line 27 and insert—

‘71ZCA and 71ZD apply in relation to amounts recoverable by the appropriate authority under subsection (4) as to amounts recoverable by the Secretary of State under section 71ZB (and, where the appropriate authority is not the Secretary of State, those sections so apply as if references to the Secretary of State were to that authority).’—(Chris Grayling.)

Schedule 14

Repeals

Amendments made: 9, page 155, line 37, at end insert—

--- Later in debate ---

[Stephen Timms]

I beg to move, That the clause be read a Second time.

[Mr Speaker]

With this it will be convenient to discuss the following:

New clause 3—School meals

‘(1) The amount in respect of other particular needs or circumstances, under section 12, shall include an amount in respect of school meals for any dependents of the claimant.

(2) The maximum award of the amount under this section shall be 100 per cent. of the cost that the claimant would expect to incur in respect of school meals, up to a prescribed maximum value per child.

(3) Regulations shall specify the circumstances under which a claimant shall be entitled to an amount under this section.

(4) Under no circumstances shall any amount payable under this section be included in the “relevant amount” specified in section 93(5) of this Act.’.

New clause 4—Health costs

‘(1) The amount in respect of other needs or circumstances, under section 12 of this Act, shall include an amount in respect of health costs.

(2) The maximum award of the amount under this section shall be 100 per cent. of the cost that the claimant would expect to incur in respect of prescribed health costs such as prescription, dental and optical charges, up to a prescribed maximum value.

(3) Regulations shall specify the circumstances under which a claimant shall be entitled to an amount under this section.

(4) Under no circumstances shall any amount payable under this section be included in the “relevant amount” specified in section 93(5) of this Act.’.

New clause 5—Universal credit printed statements

‘The Secretary of State will provide a record to the claimant detailing the amount and composition of the award, including amounts in respect of each of the elements specified in sections 9 to 12 of this Act and of any appropriate sub-elements as specified in regulations.’.

New clause 6—Payment of housing costs

‘(1) This Section applies to payments of the housing cost element of the universal credit.

(2) Payment of the housing costs element of the universal credit must be made to a person’s landlord where:

(a) that person has requested or consented to such payment;

(b) where sub-paragraph (a) does not apply and the person is in arrears pursuant to the terms of the tenancy agreement between that person and the landlord of an amount equivalent to two weeks or more of the amount he is liable to pay his landlord as rent if in either case the landlord requests or consents to payment to him.

(3) Regulations made by the Secretary of State may prescribe the circumstances in which subsection (2) does not apply.

(4) Regulations made by the Secretary of State shall prescribe the person who is to be treated as the landlord for the purposes of this section and shall make provision as to the discharge of liability consequent upon the making of any payments to the landlord.’.

Amendment 23, page 3, line 7, in clause 5, after ‘it’, insert

‘excluding any amount in an Individual Savings Account, up to a prescribed maximum of no less than £50,000, where the claimant is in work’.

Amendment 24, page 3, line 13, after ‘it’, insert—

‘excluding any amount in an Individual Savings Account, up to a prescribed maximum of no less than £50,000, where one of the claimants is in work’.

Amendment 30, in clause 10, page 4, line 36, at end insert—

‘subject to these amounts being not less than the additional support for disabled children provided through benefits and tax credits prior to the introduction of Universal Credit.’.

Amendment 27, in schedule 1, page 103, line 1, after ‘income,’, insert—

(ba) a person’s earned income from self-employment,’.

Amendment 28, page 103, line 3, at end insert—

‘(1A) Regulations under sub-paragraph (1)(ba) above may include provision for calculating profits and losses of a trade in accordance with generally accepted accounting practice, subject to any adjustments prescribed by regulations.’.

Amendment 29, page 103, line 20, at end insert—

‘(4A) Sub-paragraph (4) does not apply where a person has earned income from self-employment and the business from which the earned income in question is derived (or any larger undertaking of which the business in question forms part) is being carried on upon a commercial basis and with a view to the realisation of profits in the business or larger undertaking.’.

Amendment 68, page 103, line 20, at end insert

‘; and this will include an additional prescribed minimum level for claimants in receipt of the universal credit additional amount for caring responsibilities, and will be paid in addition to any other prescribed minimum level.’.

Amendment 33, in schedule 2, page 114, leave out lines 34 to 39.

Amendment 26, in schedule 6, page 123, line 10, at end insert—

‘(4) No less than six months before the appointed day the Secretary of State shall publish a report on the access to welfare advice, including advice for those unable to use the internet, that will be available at the appointed day, and shall satisfy himself on the basis of that report that provision is adequate to support migration to Universal Credit.’.

Government amendments 14 to 19.

Amendment 61, in clause 97, page 64, line 29, at end insert—

‘(3C) For the purposes of paragraph (3B), any element or sub-element of the universal credit award that is paid in respect of children, including childcare, shall be paid to the designated carer, except in prescribed circumstances. Regulations may provide further circumstances in which a proportion of universal credit may be payable to a particular individual.’.

Government amendments 20 and 21.

[Stephen Timms]

As this Bill returns to the Chamber on Report, it is astonishing how many policy gaps remain. This group of proposals addresses some of the worst holes in the policy on universal credit, and new clause 2 in particular deals with child care.

This is what has happened. Perhaps understandably, Ministers behaved naively, and with beginners’ enthusiasm they boasted that universal credit would solve all the problems in the benefit system: that it would always pay to be in work; that the system would be simpler; that thousands would be better off and nobody worse off; and that the benefits bill would be cut. In truth, one did not have to be Milton Friedman to work out that that did not all add up. That is now the Government’s problem: they cannot stand up their boasts. When it comes to the detail, they have been unable to deliver. Nowhere is that clearer than on child care support in universal credit.

--- Later in debate ---

[Harriett Baldwin (West Worcestershire) (Con)]

I thank the right hon. Gentleman for giving way on this extremely important issue. Is his solution the same as that of the groups he mentioned earlier—to put more money into child care?

[Stephen Timms]

No: our solution is the one in new clause 2, which we are debating. The priority should be to maintain the support currently being received by people working more than 16 hours a week. I understand why the Government say that they cannot simply find more money for supporting child care, but what will be disastrous is what appears to be the Government’s intention to give a lot more people support from the same cash-limited sum of money. If that proceeds, a very large number of people for whom work pays at the moment will find that work no longer pays.

[Harriett Baldwin]

Does the right hon. Gentleman welcome the proposals that would allow people to move into work of up to 16 hours—the mini jobs?

--- Later in debate ---

[Stephen Timms]

If that would mean that people who are currently able to work for more than 16 hours had to give up their jobs altogether, I would not welcome it. That would be a seriously retrograde step. I accept that there is a case for supporting the cost of child care for people in mini jobs as well, but if the additional resources are not available to fund that, it would be a terrible mistake to press ahead and claw that money from people who depend on it to make work pay at the moment.

The Secretary of State set out at the seminar, at which I think the hon. Member for West Worcestershire (Harriett Baldwin) was present, some of the possible options. The Children’s Society has analysed some of the options and concluded that under one of them a family could pay out £1.56p for every additional pound earned. Ministers told us that that problem would be eliminated by universal credit, but it now appears that, if they proceed on the basis of that option, the new system will be a great deal worse than the current one, and will introduce a draconian new penalty for working parents. As I said to her, there is a good case for supporting child care for people in mini jobs, but it must not come at the expense of parents being helped at the moment.

The recent report from the Resolution Foundation and Gingerbread also underlined the point that spreading the same budget among a lot more people will mean families losing money for every additional hour they work. The Government are right to express the aspiration that it should always pay to be in work, but in this case, if they pursue the option set out in the seminar, something will be lost in translation, because families will have to pay out in order to work. The current system does a far better job; the new system that is envisaged will be a severely retrograde step, if it has the effect of taking more than £1.50 off people for each extra pound they earn. The Government appear poised, once they have finally worked out what their policy is in this area, to make work far less attractive than at the moment.

The Government have failed to come up with a policy, so our new clause 2 proposes one: it would retain the percentage of child care costs covered and the cash limits in the current system; it would ensure that work continues to pay for those for whom it pays at the moment; and it would allow the retention of the existing 16 hours’ threshold. The Government say that they cannot afford any extra spending on child care at the moment. My case to the House is that support for child care for those in mini jobs would need to wait until there is funding for it in order to ensure that jobs of 16 hours per week actually pay, as they do at the moment.

[Kate Green]

Does my right hon. Friend agree that it is disingenuous of the Government to make proposals to fund child care for mini jobs, given that the child care market is simply not designed in that way? Finding short episodes of child care for just a few hours a week is extremely difficult for parents, and could make child care provision even more financially unviable and drive providers out of the market?

[Stephen Timms]

My hon. Friend makes an important point and is absolutely right. People are worried about what the Government’s proposed changes will do to the child care market as a whole. It could make some providers uneconomical. If a large number of people currently using child care for more than 16 hours a week are forced, as a result of these changes, to give up their jobs and to withdraw from their child care places, it would put a huge dampener on, and cloud over, the whole child care market in the way she is right to fear. We feel strongly about this matter—the Government simply have not come up with a policy—so I will seek, if I can, to divide the House on new clause 2.

The Government’s failure to produce a policy on child care before the Bill leaves the House is a particularly abject failure. Ministers have not been able to turn their claims into policies. However, although child care might be the most spectacular and significant hole in the Government’s policy, it certainly is not the only one. In this group of amendments, therefore, we have tabled two further new clauses to fill the policy holes on passported benefits, such as free school meals and free prescriptions.

At the moment, people on out-of-work benefits are passported to those additional benefits, but the out-of-work benefits will be abolished, so who will be entitled to free school meals in future? Again, that is not an obscure, but a basic question and the Government have again failed to give us an answer.

[Chris Leslie (Nottingham East) (Lab/Co-op)]

My right hon. Friend is right to point out the importance of free school meals for many of our constituents whose children are sometimes in desperate need of the basic nutrition that they receive in schools. For the Government to have got to this stage in the Bill’s passage with no clarity about what triggers free school meals entitlement is confusing. Will they introduce a new means test? I am very glad that he has raised the matter.

[Stephen Timms]

I am grateful to my hon. Friend, who is absolutely right about the centrality of free school meals entitlement in the system. The Government have simply failed to work out who, under their proposals, will be entitled to free school meals. It is not that I am disagreeing with the Government’s policy: the problem is that they have no policy. We have no idea whom they believe should be entitled to free school meals. As far as we can tell, they have not got a clue, either.

As my hon. Friend points out, free school meals are an important part of the system. They can be worth more than £350 a year to a family with one child in a primary school and easily more than £1,000 a year to a family with three or more children at school. Clearly, that makes an enormous difference.

Families currently receive free school meals until they work for more than 16 hours, at which point they receive working tax credit so that they are not worse off as they move into additional hours of work. The universal credit White Paper suggested that the Government intend to remove entitlement to free school meals at a fixed income threshold. That may partially answer my hon. Friend’s question. However, if they do that, it creates precisely the sort of cliff edge that we were told the Bill would eradicate. I presume that that difficulty has prevented the Government from setting out their policy and is the reason for the Bill’s silence on the matter and the absence of notes on the regulations to explain the Government’s policy.

If a lone parent with three children lost entitlement to free school meals at some level of earnings—say, £150 a week or more—their net household income would fall unless they earned more than £4,000 extra a year. If the new system works like that, it will be a disaster. It is exactly the sort of disincentive that we have been told all along that universal credit is supposed to remove. If the Government introduced such a policy, universal credit would make the problem of work disincentives far worse than it is in the current system.

Our proposal in new clause 3 is that the value of free school meals should be paid through universal credit and then tapered away gradually as household income rises. I recognise that there is concern among many who follow these matters closely that that could mean that the cash is not used for school meals but other expenses. Given the pressure on household budgets, one can well understand how that might happen. I therefore suggest that the solution is for the cash to be paid on to an electronic card, which could be used only to purchase school meals. An arbitrary cut-off in income, whereby all support for free school meals was withdrawn, would be damaging.

[Chris Grayling]

Does the right hon. Gentleman accept that his proposal flies in face of the admirable position at the moment whereby, in the lunchtime school queue, there is no obvious and visible difference between those who receive free school meals and those who do not? A provision that would effectively give some, but not others, a particular card with money on it would surely stigmatise those kids who get free school meals.

[Stephen Timms]

No, the Minister is mistaken. All pupils in the school would pay for their meals with the card. The difference would be how the money got on to the card. Some would pay cash as currently happens and others would have the money placed on the card through universal credit. The Minister is right to raise the matter, which is important, but my solution would solve the problem.

[Chris Grayling]

rose—

[Stephen Timms]

I gladly give way to the Minister again. Perhaps he will tell us how the Government propose that entitlement to free school meals will be determined.

[Chris Grayling]

If the right hon. Gentleman will forgive me, I will try to catch Mr Speaker’s eye in a moment to answer questions, but for now, perhaps the right hon. Gentleman can answer one for me. As different schools today use different systems—some use fingerprinting, some use an electronic card system and some still use cash—does he envisage his proposal requiring schools up and down the country to scrap their current systems and have a new, harmonised system? If so, has he calculated what the cost of that system would be and how long it would take to introduce?

[Stephen Timms]

I very much hope that the Government are working out the answers to those questions. I would certainly aim to use existing systems, with the addition of payment via universal credit to simplify the transition.

[Harriett Baldwin]

On the important subject of free school meals, is the right hon. Gentleman suggesting that the taper would begin immediately someone went into work, or would it come into play once the earnings disregard had moved out of the way, and if so, what would be the cost of his proposals?

[Stephen Timms]

The point is that it is a zero-cost proposal; I am simply suggesting that the funding would be provided through the mechanism that I have described. It would be tapered away, along with the rest of universal credit, and would sit naturally on top of existing payments, so that there would be just an additional payment in respect of school meals, where appropriate, which would then be tapered away once the disregard had been exhausted. The budgetary cost would be exactly the same.

We have exactly the same issue with free prescriptions. The current system provides them to people on benefits and to some people with low incomes through the HC2 form, but once again, we have heard nothing from the Government about what will happen under universal credit. Our new clause 4 addresses that.

By the way, it is perhaps worth making the point in passing that the number of pupils receiving free school meals is an important indicator for education policy as well. The pupil premium depends on the number of people receiving free school meals. The fact that we have no idea at all who will be entitled to free school meals under the Government’s proposals will create serious problems with that, too.

[Jenny Willott (Cardiff Central) (LD)]

Returning to the right hon. Gentleman’s proposals on prescription charges, is he not concerned about the evidence that we received at the beginning of the Public Bill Committee from a number of witnesses who said that there was a significant difference between school meals and prescription charges? School meals are an ongoing cost every day, whereas prescription charges tend to come in a batch. By tapering the amount of money that somebody received, they still would not be able to afford significant costs—potentially the cost of a number of prescriptions at the same time—because the amount of money concerned would be an ongoing amount, unlike under a system more similar to the current one, where all the prescriptions are paid for when they are needed.

[Stephen Timms]

I agree with the hon. Lady’s point, and to that extent the current system has a lot of attractions. The problem is that we will lose that system with universal credits. The question is: who will be entitled to free prescriptions? I do not imagine that she is arguing—as perhaps the Government will; I do not know—that there should be a cut-off point in income beyond which people suddenly lose all help for prescriptions. If that happens, we will create a serious and damaging cliff edge in the system, which everyone agrees is an undesirable feature. Our new clause 4 therefore proposes to address that problem, although there may be other problems as well. What I would dearly love to extract is a proposal from the Government, so that we can find out exactly what they intend to do, because so far they have been silent on that subject, as on all the others.

We have been told throughout these debates that the main point of the Bill is to ensure that people are always better off in work. Our task in Parliament is to scrutinise whether the Bill lives up to that laudable aim, but without knowing what the Government will do to provide help with child care, school meals or prescription costs, we simply cannot tell.

Frankly, it is an abuse of the parliamentary process not to tell this House what the Government’s policy is before the Bill leaves us. I do not accuse Ministers of withholding information from Parliament; the problem is that they have no more clue about their policy than we do. It is an astonishing and abject failure on their part. They made all these boasts at the beginning—their bragging ran away with them—but now they cannot deliver policies to substantiate those boasts.

[Oliver Heald (North East Hertfordshire) (Con)]

Is it not a bit rich to put the case in that way when under the right hon. Gentleman’s Government, who were in power for many years, these aspects were not covered by a benefit? There was no child care benefit or a school meal benefit as such. They were dealt with outside the benefit system, no doubt in a way that he approves of, as I probably do as well, but why suddenly bring these elements into the benefit system?

[Stephen Timms]

The hon. Gentleman has a good deal more experience in these matters, if I may say so, than some of his Front-Bench colleagues who are dealing with them at the moment. Good provision, particularly for child care support, was of course made through the tax credit system. That strong support for the costs of child care is why there was such a dramatic rise in lone parent employment under the previous Government. I supported that and I suspect from what the hon. Gentleman just hinted at that he supported it and continues to support it today. The problem is that once tax credits are abolished and universal credit takes their place, we have no idea how child care is going to be supported in the future. That is why I am—rather modestly, I think—appealing for the Government to tell us.

[Kate Green]

Does my right hon. Friend also agree that one of the real concerns we face as a result of universal credit forcing us to look at lumping all the different strands of financial support for families into a single payment is that all the eggs are in one basket, so if one thing goes wrong, the whole benefit—the whole structure of financial support for that family—could collapse?

[Stephen Timms]

My hon. Friend is absolutely right. For that very reason, the risks are great indeed. When I come on to speak to amendment 24 in a few moments, I will point out that if people go beyond a prescribed level of savings, they will lose all that help under all those headings.

[Chris Grayling]

Will the right hon. Gentleman clear up one point of confusion for me and, I suspect, for my hon. Friends? Over the past two or three months, he has said that he supports the universal credit in principle. However, his remarks and those of his hon. Friend the Member for Stretford and Urmston (Kate Green) imply some distancing from the proposal. Does he intend to support the Bill on Third Reading or not?

[Stephen Timms]

The right hon. Gentleman will find out the answer to that question in due course. We have been consistent in supporting the principle of universal credit. We think that bringing in-work and out-of-work benefits together is a good idea that has a number of attractions. The problem is that the detailed work to make that policy fly has simply not been done by the Minister and his hon. Friends. There are desperate, gaping gaps in the policy and fundamental questions that he is unable to answer or explain about how the arrangements will work. As a result, the Bill, on departing this House, will leave many households, and many working families in particular, in a very precarious position.

Having talked about a lot of things that we do not know about, let me now deal with some things that we do know about. Clause 5, which I touched on a moment ago, will badly undermine the aspirations of people who are in work on modest incomes. Under the current rules—they have been a long-standing feature of the system—people who are out of work but who have above a prescribed capital sum are expected to use it to support themselves before claiming income-related, out-of-work benefits. If somebody has more than £6,000 in savings, the Government assume an income from them, which is then subtracted from the benefit entitlements; someone with more than £16,000 in savings will not receive means-tested, out-of-work benefits at all. Those two figures were increased from £3,000 and £8,000 by the last Government to help people retain some of their savings when they lost work. For people in work, the story has been very different. There is no savings cap at all on tax credits. Clause 5 will change that fundamentally by extending the rules on savings for those who are out of work to people who are in work.

The Conservative party used to tell us that it wanted to encourage people to save. Clause 5 will not just discourage people from saving; it will make it impossible for them to save. Anyone on a modest income who decides to save for a deposit to buy a house in the future, or for the cost of university education, will suffer an extraordinary punishment under the clause. It is impossible to buy a house today, or to obtain a mortgage for shared ownership, with a deposit of less than £16,000. However, if people have savings of £16,000 towards, say, the deposit for a mortgage—if, as Ministers seem to believe, they start to get ideas above their station—they will lose all their universal credit. Typically, that might be £5,000 a year. In addition, they will lose any support that they receive for the costs of child care, and on top of that they will lose any help that they are given with housing costs.

Those measures will add up to an extraordinary punishment for saving. They will make saving literally impossible, because as soon as people have managed to save £16,000 from their earnings, the Government will drain their savings away. The problem will start as soon as they have saved £6,000. The hon. Member for Redcar (Ian Swales)—who, I am pleased to see, is present—said in Committee that the problem would not last very long because people’s savings would soon be gone, and he was absolutely right. These proposals mean that if anyone attempts to start building up a saving that would be enough for, say, a deposit on a house or a contribution towards higher education costs, the Government will take it away by withdrawing their universal credit. The message being sent to people on low incomes who are doing the right thing and working to support themselves could not be clearer: “This Government will not support you.”

Amendments 23 and 24 would change that. They would allow people to save money in an individual savings account—up to £50,000 if they are in work. Ministers have told us that it would cost just £70 million a year to exclude all working households from the savings cap, and this measure is obviously more modest than that.

Surely we should be encouraging people to save, not punishing them for saving. People work to improve their lives and the lives of their families. They are aiming not for a bit more spending money each month, but for the means to buy a house, to help their children through university, to start a business or to pay for a child’s wedding. If they are to achieve such aspirations, people need to be able to save from their earnings, but clause 5 denies them the chance to do that.

[Paul Uppal (Wolverhampton South West) (Con)]

The right hon. Gentleman has stressed the importance of aspiration. New clause 3, which concerns free school meals, is also relevant to that. Does he not find it interesting that, according to an examination of educational attainment among different ethnic groups, the most successful sub-group are Chinese students, and the second most successful are Chinese students receiving free school meals? The issue is not just money, but how Government can encourage aspiration and ambition, which is the ethos of the Bill.

[Stephen Timms]

Certainly the Bill should encourage aspiration, but if it prevents people from saving in the way that I have described, as clause 5 will, it will undermine aspiration. That is the point: we want to change the Bill so that it will allow people, even those on universal credit, to save. We believe that everyone should be encouraged to save, rather than being punished for having saved.

The Secretary of State used to agree with us. In 2008, he said that

“poverty is not just about how little you earn; it’s also about how little you own.”

If we want people to work their way out of poverty in the way in which the hon. Gentleman suggests—and I agree with him about that—we need to offer them the chance to save. I am afraid that if the Government press ahead with making saving on a low income impossible, the phrase “compassionate conservatism” will be revealed as a sham.

For similar reasons, I hope that Government Members will share my concern about the Bill’s discouragement to self-employment. Schedule 1 provides for a minimum income floor when calculating universal credit for self-employed people. Under that provision, Ministers are making the assumption that self-employed people will be earning at least the minimum wage for every hour they work, but anyone with even a passing knowledge of what is involved in starting up in self-employment will know that that is absurd. While establishing their business, many self-employed people work extraordinarily long hours and earn hardly anything at all, and their income fluctuates hugely month by month. It is absurd to assume that they will earn the minimum wage for every hour they work, and that they should therefore have their universal credit reduced accordingly. That is why the Chartered Institute of Taxation has warned that this new system will be much less supportive of self-employment than the current one.

--- Later in debate ---

[Guto Bebb (Aberconwy) (Con)]

The question of the income levels of the self-employed is not as simple as the right hon. Gentleman makes out. Under the current capital allowance system, a self-employed individual can invest £25,000 in a piece of machinery and immediately wipe off their profits, and it causes deep resentment when they are then able to claim family tax credit. The Government are trying to create a system that supports the self-employed but is fair to other taxpayers.

[Stephen Timms]

The problem is that the proposed system does not support the self-employed in the way that the tax credit system supports them, because it treats the self-employed as if they are earning at least the minimum wage for every hour they put into their business. I know that the hon. Gentleman is genuinely interested in the position of the self-employed and I think he is supportive of self-employment, but he will know that it is absurd to suggest that a person who starts up in self-employment will be earning at least the minimum wage from day one. That will not be the case, of course; there may be weeks, or perhaps months, in which they earn nothing at all. The current tax rate system reflects that, but the new system will not.

[Guto Bebb]

Obviously I support the self-employed and want the universal credit system to support them, but we need to recognise that there are situations such as the following: somebody sets up in business to breed angora rabbits for their wool and manages to make £80 in sales in the year. I have not made that up, and it is absurd that that type of business should be supported by the taxpayer.

[Stephen Timms]

I am sorry to hear the hon. Gentleman belittling self-employment. For many people, including people who have lost their jobs, a move into self-employment can be absolutely the right thing to do, and, over time, they might find that they are able to develop a serious business—not breed rabbits—and earn a living from it. We should be valuing, not ridiculing, such contributions to the economy. I am afraid that there are many problems with the Bill, and one of them is that it so badly weakens and undermines the support that is currently available for self-employment.

[Kate Green]

Does my right hon. Friend agree that one of the attractions of supporting self-employment is that it often particularly helps those who find it difficult to access the traditional labour market, such as women, because they need to combine work with caring responsibilities and therefore need more flexible hours, and disabled people, who may not be able to access full-time work in a structured workplace but can do some work on their own at home? We also certainly know that there is a long-standing tradition of some of our ethnic minority communities finding that self-employment is the best way for them to sustain economic independence.

[Stephen Timms]

My hon. Friend is absolutely right to say that self-employment is a crucial element of our economy for many people, including those with caring responsibilities; others who, for other reasons, are not necessarily able to commit to a full-time job; and, indeed, those who simply want the opportunity to build up a business for themselves—it is crucial that the system supports them. Tax credits have done so, but I am afraid that universal credit will not. That is a real worry and the approach being taken flies in the face of Government statements of support for self-employment.

[Guto Bebb]

rose—

[Stephen Timms]

I will gladly give way, and I hope that the hon. Gentleman will support self-employment this time.

[Guto Bebb]

I am surprised to hear those comments. I understand that the right hon. Gentleman is talking about supporting businesses and self-employed people perhaps working a day a week or two days a week. How does that fit in with his proposals on supporting child care in respect of micro-jobs and part-time jobs?

[Stephen Timms]

I have made it clear that the priority should be to maintain child care support for those who are currently receiving it. There is a case, with which perhaps the hon. Gentleman agrees, for extending that support to others. If that is to be done—and I can well see the case for it—the funding needs to be provided for it. What we cannot do is take support away from one group, making work impossible for them, in order to support another group. If we only knew the Government’s policy on child care support, we could have a proper debate about it, but that appears to be where they are heading. They simply have not had the ability to put a policy together and tell us what it is. The hon. Gentleman has suggested that perhaps too many self-employed people are either earning a negligible amount or are under-declaring their profits.

[Guto Bebb]

It is important to correct the record. I did not state that self-employed people were under-declaring their profits; I simply stated that the capital allowance system allows the self-employed, completely legally, to reduce their profits to nothing by purchasing an asset. That was the simple point that I was making.

[Stephen Timms]

That is a long-standing feature of the tax system for businesses generally, and we should be encouraging investment. I see it as a strength of the current system that such necessary investment is supported. The hon. Gentleman is right in the sense that universal credit will remove all that completely. I am afraid that, as the Chartered Institute of Taxation has pointed out, it will be a far less supportive system for self-employment than the current one.

[Guto Bebb]

Again, I need to clarify the record. It is important to understand that the capital allowance system has been changed fundamentally in the past two years as a response to the economic crisis that we are facing. Someone could not previously claim 100% allowances, but they can at this point in time. A 100% allowance on the purchase of an asset worth £25,000 results in the net profits of a small business reducing to nothing and therefore they are supported by the tax credits system. It is important that this Government support the self-employed, but not in a way that encourages them to make investment decisions for the purpose of universal credit rather than for the purpose and benefit of their own business.

[Stephen Timms]

I am not clear whether the hon. Gentleman supports the fact that we have had 100% capital allowances recently, although I hope he does. When the downturn hit, they were introduced for a very good reason, which was to encourage enterprise and investment, particularly on the part of small businesses.

One of the problems with the Bill is that in many cases self-employed people will be strongly pressured to lie about the hours they have worked. They are not going to admit to having worked 18 hours a day, as some are doing, because they will then lose pound for pound from their universal credit, as it will be assumed that for every one of those 18 hours they have earned at least the minimum wage. This is a bad policy and it needs to be changed.

Amendment 33 may cause some puzzlement. Many people will not know that the Government intend to remove pension credit from people over pensionable age who have a spouse under pensionable age. That has not been announced anywhere and the Pensions Minister has not stood up to tell us about it. We find it buried in, of all places, the middle of schedule 2, on page 114 of this Bill. If the older person were living alone, they would receive pension credit. Those people will in future be penalised because they have a younger spouse. This is a new couples penalty, but we have been assured that the Conservative party wanted to stamp out such penalties. Indeed, the Secretary of State said, once again, in DWP questions earlier that he wanted to remove couples penalties from the system—but here he is inventing a new one. That will change the pension entitlements for some couples with very little notice and, in some cases, by a substantial sum. If Ministers want to change the arrangements for pension credit, they should set that out openly, the provisions should be made in the Pensions Bill and there should be full discussion of the change. They should certainly not try to sneak it past us in the second schedule to this Bill.

We have now established that of the 610,000 recipients of pension credit with a partner, almost 100,000 have a partner aged under 60. The difference between the couple rate for jobseeker’s allowance and the pension credit rate is more than £100 a week, so for each year that a couple is in receipt of JSA rather than pension credit, those couples stand to lose more than £5,000.

[Chris Grayling]

The right hon. Gentleman will remember that we debated this matter extensively in Committee, so it is not quite the bolt from the blue that he suggests. Is it his party’s policy that people under retirement age who happen to have a partner who is over retirement age should, through that partner, be able to access means-tested support from the state without any obligation to look for work themselves?

[Stephen Timms]

In government, we set out the arrangements for pension credit as they stand. In our view, those arrangements made sense. If the Government want to make a case for changing those arrangements, I simply suggest that they need to announce that change and to stand up openly and say that they have decided that in future people cannot have pension credit if their spouse is under pensionable age. We could then have a debate. I would have thought that such a measure ought to be in the Pensions Bill. The Minister is right that we were able to spot the change in Committee and to discuss it then, but this is certainly not an example of the Government’s being open—far from it. They seem to have hoped that they could slip this measure through and nobody would notice.

For those couples for whom there is a substantial age gap—in 40% of those cases, the partner will be younger than 55, so the gap will be more than five years—this measure could represent an enormous cumulative loss of £5,000 a year for five years or more.

[Chris Grayling]

May I take the right hon. Gentleman back to the key question? We are talking about people of working age whose households would be in receipt of means-tested benefits from the state without being obliged to look for work. Is it his policy that those people should not have an obligation to look for work and that their households should be able to continue to receive means-tested benefits from the state?

[Stephen Timms]

As far as I can see, the arrangements for pension credit have worked perfectly well up to now, presumably with the feature that the Minister is now deprecating. My case is that if the Government want to change the rules for pension credit to discriminate against people who have a spouse under pensionable age, they should do so openly. They should announce the change: it should have been in the Budget, the welfare reform announcement or the Pensions Bill. We have a Pensions Bill going through Parliament at the moment—why was it not included there? Instead, the change was slipped into a schedule to this Bill and no Minister, until asked, said anything about it.

[Charlie Elphicke (Dover) (Con)]

I am a little unclear about whether the right hon. Gentleman’s position is that this measure is wrong in principle and he disagrees with it, or he agrees with it but thinks it should have been announced with a fanfare. Will he explain which it is?

[Stephen Timms]

I certainly think that the arrangement should have been announced, and our amendment proposes that it be removed. I shall be interested to hear the Government’s response.

[Charlie Elphicke]

Let me understand fully what the right hon. Gentleman is saying. If a retired man, say, of 66 is married to a spouse who is 45, she should be able not to have to work and they should be able to double-claim pension credit—is that correct?

--- Later in debate ---

[Stephen Timms]

No, it is not. Any income to the household from a working spouse will be counted in the household income for pension credit purposes. My argument is that if there is a case to be made for a change to pension credit, it should be made openly, and it should have been in the Pensions Bill, which Parliament is currently considering.

[Chris Grayling]

Forgive me for probing. The right hon. Gentleman has rightly set out his case as an amendment, but I wish to press him on the following point. If a household is receiving elements of pension credit that gives them the wherewithal to survive, is he saying that a 45-year-old should have no obligation to work while the household receives means-tested benefits from the state? It would be helpful to understand that. If that is his party’s policy, will he say so clearly and unequivocally?

[Stephen Timms]

I do not recognise the policy that the Minister describes. We have had a long-standing arrangement for pension credit which appears to work perfectly well. If he has found abuses of pension credit, I shall be eager to hear those examples from him when he responds to the debate. I notice that when asked recently about this by my hon. Friend the Member for Leeds West (Rachel Reeves), the Pensions Minister stated:

“We recognise that it is important not to undermine the stability and outcomes for existing pension credit customers, so there will be no change for couples already in receipt of pension credit at the point of change.—[Official Report, 9 June 2011; Vol. 529, c. 422W.]

That is welcome and helpful. I do not know whether the Minister of State, the right hon. Member for Epsom and Ewell (Chris Grayling) has satisfied himself that the abuse that he has just described is not a problem at present. But even that reassurance from the Pensions Minister is not on the face of the Bill. For many couples who have planned around receiving pension credit and been reasonably able to do so, and who are now approaching retirement, the change will come as a severe shock.

We will support the principle of universal credit, despite the holes in the policy about how it will work and despite the perverse incentives that the Government have added for savers and the self-employed, but this is not, as Ministers have frequently claimed, a panacea for all the problems in the system. It is therefore vital that sufficient welfare advice is available at the point of transition. People will find any transition difficult, even one which, unlike this, is to a simple system. Yet at precisely the moment when the Government are embarking on this massive upheaval to the system, funding for welfare advice is being cut.

A large part of the funding—for example, to Citizens Advice—comes at present through legal aid, and the Government have announced that there will be no legal aid funding for welfare advice at all in future. About a quarter of the current funding for Citizens Advice comes from that source and it is being taken away. Most of the rest of the funding comes from local authorities, and that is also being cut. Demand for welfare advice will rocket and funding will plummet. This is a perfect storm for advice services. Our amendment 26, therefore, requires the Secretary of State to report, before universal credit is introduced, on the availability of welfare advice, and to satisfy himself that it is adequate to support people through the transition that the Government envisage.

New clause 5 aims for clarity about how claimants will be informed about their universal credit. It stipulates that every claimant should be provided with a record of the amount of their award, including details of the separate elements that make it up. I understand that the Government intend to provide each claimant with the equivalent of a payslip. I hope the Minister will be able to confirm that when responding to the debate. Will that payslip be provided on payment, as with payslips for those in work? Will it be provided directly by the Department or through the employer, and will it set out the various elements of the award—child care, housing support, support in respect of children and so on? A full statement would ensure transparency between the Government and claimants and would be a welcome feature.

Amendment 30 addresses support for families with disabled children under universal credit. It amends clause 10 to ensure that the amount that those families receive is not less than under the current tax credit and benefits system. My hon. Friend the Member for Glasgow East (Margaret Curran) raised this important point in Work and Pensions questions earlier this afternoon. Under universal credit, a family receiving the higher rate care element of DLA for a disabled child will receive £74.50 through the severe disability addition. At first glance, that seems broadly in line with the current position, but there are worries, because we are told that the higher level of the disability addition will be uprated in future only as resources allow, so it is very likely that families with severely disabled children will lose out over time.

For families with disabled children not receiving the higher rate care element of DLA the situation looks a great deal worse. The amount available under the universal credit disability addition will be £26.75 a week, compared with the £53.62 available under child tax credit, so support will be halved. The Minister has justified that in terms of aligning the support given to children and adults and easing the transition, but we know that children helped under the disability addition will not automatically be helped under adult universal credit.

Amendment 61 proposes that the elements of universal credit paid in respect of children must be paid to the designated carer of the children, except in prescribed circumstances. That is crucial for safeguarding the interests of children. Let me simply quote from the briefing that Oxfam has sent every Member: “We know from our work on the ground that money in households is often unevenly distributed and that women in poor households can have little or no access to money. As mothers usually take the main responsibility for feeding and clothing children, this affects both women and their children. This sometimes means that women themselves go without eating in order to pay the bills or put a meal on the table for their children. This lack of access to income in their own right leaves women open to the risk of financial abuse and can also reduce their chances of escaping domestic violence. As a crucial first step, the Bill must be amended to allow payments intended for children to be labelled as such and paid to the main carer, who is usually female. This change will make it more likely that this money is spent on children.” That would be the effect of the amendment.

Amendment 68 would provide for a minimum amount to be paid to any claimant who has caring responsibilities. It is vital that people who give up their time and energy to look after the most vulnerable in society, saving the taxpayer considerable sums in the process, are properly supported when they move on to universal credit, in line with the help currently available through carers allowance. I hope that the Minister will make it clear how he will ensure that that happens.

In rehearsing these concerns, I remind the House that the whole project of universal credit will depend on an enormous new IT system, which the Government claim will be ready in an implausibly short period of time. In truth, it will not be ready by October 2013, as claimed, which will give rise to serious problems as that deadline approaches.

[Charlie Elphicke]

I put it to the right hon. Gentleman, as I did in Committee when he made that point, that this Government’s approach to IT is far more thought through and better planned than the approach taken by the previous Government, who spent vast amounts of money without any consideration for the end, route or purpose of the policy. This Government are being far more direct and should get the IT ready on time and on budget.

[Stephen Timms]

I look forward to reminding the hon. Gentleman of that comment in September 2013.

The intention of universal credit is that work should always pay. Without decisions and policies on child care or passported benefits, we cannot know whether work will always pay, and all the indications are that the Government will in due course, when they finally put a policy together, introduce one that will mean that for many work will no longer pay.

On savings, I am afraid that the Government are heading to crush the hopes of many people in work. On the self-employed, the Government will crush the hopes of many who want to set up their own businesses. As Policy Exchange recently argued in its report, universal credit has been oversold by Ministers. I very much hope that the House will support our amendments so that universal credit can support the aspirations of families across the country.

[Chris Grayling]

I should like to start by making the same point that I made in Committee. I have listened to the right hon. Member for East Ham (Stephen Timms) setting out a vast range of measures and details that he wants us to write into the Bill. He is conveniently forgetting the first fundamental element of a Bill, and the lesson that he taught me 10 years ago, when I was first elected to the House, about the nature of primary legislation. I remember, as a new Member of Parliament, debating an education Bill in Committee and asking why there was not more detail in the Bill. I proposed amendments to provide certain details. I remember the right hon. Gentleman, as a Minister, arguing why that should not happen. He explained that it was a piece of enabling legislation to create a framework for the changes that his Government were seeking to put in place, and that my amendments were all unnecessary. Today the roles are reversed, and the right hon. Gentleman has conveniently forgotten everything that he, as a Minister, taught me all those years ago. Instead, he is telling me that I should put all kinds of new details into the Bill that I have introduced. I am sure that hon. Members will therefore forgive me if I take some of his proposals with a pinch of salt.

[Stephen Timms]

Is the Minister seriously saying that how the cost of child care will be supported is a detail?

[Chris Grayling]

I am saying to him precisely what he said to me all those years ago—that many of the details will be dealt with in secondary legislation. The Bill contains a framework that will include, among other things, provision for a child care element in universal credit. That is fundamental, and we all agree that there should be such an element, just as there should be elements relating to disability and to other aspects of the current benefits system that need to be replicated in universal credit.

--- Later in debate ---

[Chris Grayling]

I cannot remember the previous Government doing more than we have to engage people in Westminster, people around Parliament, third sector groups and members of the public. We are making a genuine attempt in a number of complex areas to get things right and to involve everyone in the decision-making process, and that will continue. Notwithstanding this afternoon’s amendments, we will continue to be delighted to seek and involve the input of Opposition parties, including the Labour party and the nationalist parties. As the hon. Member for Banff and Buchan (Dr Whiteford) said, it is right and proper that we have full dialogue with the Administrations in Cardiff, Belfast and Edinburgh, and with the Members of Parliament who represent Wales, Northern Ireland and Scotland.

[Stephen Timms]

It is certainly the case that the previous Government never got to this stage in a Bill’s passage with such an enormous hole in the policy as there is in this Bill.

[Chris Grayling]

The technical response to that is, “You wish!” I remember many occasions on which we came to a debate and asked what the Labour Government were planning to do. Did we ever get an answer? Not at all. The right hon. Gentleman and I have different memories of the way things were.

It is important to remember that this Bill creates a structure for universal credit, and that the details will be set out in regulations. The Opposition amendments relate mainly to issues that will be dealt with in regulations, and which do not affect the structure of universal credit as set out in the Bill.

I have accepted certain recommendations from the Opposition. The Bill as introduced provided that the regulations will be subject to the negative procedure. In Committee it was suggested that that would not provide the right level of parliamentary scrutiny and control. The right hon. Member for East Ham identified a number of provisions that he thought should be subject to the affirmative procedure, and I gave a commitment in Committee on 28 April to consider those provisions carefully.

There are two provisions, in clauses 22 and 25, relating to conditionality, for which we do not think the affirmative procedure is appropriate, because they do not introduce new principles. Although we intend that regulations will be much less prescriptive than the current jobseeker’s allowance regulations, the powers in the Bill will be used to create a regime for jobseekers that is broadly similar to the current one. We have therefore formed the view that there is no necessity to subject those two to the affirmative resolution procedure. Of course, it always remains within the gift of Opposition Members to pray against regulations if they want a matter to be debated. They could, of course, do so anyway, but we are making their life a bit easier by providing for the affirmative procedure.

I have thought long and hard, and apart from those two specific provisions I agree with the right hon. Gentleman’s suggestion that regulations should be made under the affirmative procedure in the first instance. I say “in the first instance” because it does not seem sensible to repeat the process year in, year out when the regulations are regularly renewed.

As set out in amendment 14, that principle covers all the key regulation-making powers relating to the universal credit, including the rules on capital, the calculation of income, the treatment of self-employed people’s cases, and the amounts of the elements within an award, including those for disabled children, housing and child care. Opposition Members might say that that is not enough to allay the concerns that they have raised on specific issues, and I shall deal with some of those specific concerns in a moment. However, I made it clear in Committee that we recognised the importance of getting the details of universal credit right. We are working hard to do so in consultation with key stakeholders, and we are listening to their concerns.

The Opposition amendments would pre-empt our considerations and tie the hands of this and any future Government with regard to areas of policy in which it is important to retain flexibility. I believe that it is perfectly reasonable to say that as we reach a final conclusion on what is right, involving Members of all parties, the Work and Pensions Committee, organisations such as the Social Security Advisory Committee, and third-party groups, we will bring regulations to the House by the affirmative procedure. There can then be a full and proper debate in Committee and a vote on Floor of the House.

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[Chris Grayling]

My hon. Friend makes his point in his usual forceful and inimitable way. He highlighted how Labour Members struggle to move on from traditional ways of things. Listening to the right hon. Member for East Ham, I am still not sure on which side of the argument he falls. Does he think that we are doing the right thing, but want to fine-tune it a bit, or is he trying to distance himself from the Bill, so that on Wednesday the Opposition can vote against it and so say to the pressure and lobby groups, “We are on your side”? I am genuinely not sure which is the case, although if they do vote against it, I will love it. I will look forward to arguing up and down the land that this Government have got it right on welfare reform, and that the Opposition have not. I wait with interest and enthusiasm to discover how they vote.

New clauses 3 and 4 provide an amount for school meals and health costs in universal credit. It is absolutely our objective to ensure that people on universal credit will continue to receive appropriate support for school meals and health costs, and that this support is withdrawn gradually to avoid damaging the incentives to work. However, entitlements to passported benefits are the responsibility of other Departments and devolved Administrations. We have been working closely with those responsible to consider the options, and we have commissioned the Social Security Advisory Committee to review passported benefits and how they interact with universal credit. The review was announced in a written statement on 23 May, and a copy of its terms of reference has been placed in the Library. To answer a question put to me earlier, I should say that the Committee will produce its interim report in September and a final report by January. The Committee provides a good way of considering this challenging and important cross-governmental issue. We are certainly well aware of the potential for a large cliff-edge reduction in a person’s income, if support for school meals is withdrawn completely when they reach a certain level of earnings, and we are working closely with other Departments on the matter, as well as on the review.

On health, we aim to ensure that passported benefits are awarded to broadly the same number of people as now. However, passporting is not the only source of help with health costs. Income-related help is also available through the NHS low-income scheme, which can be claimed by anyone on a low income who has capital of less than £16,000. For people on medication, pre-payment options can also significantly reduce the cost of recurring prescription charges. With a 12-month pre-payment certificate, the maximum cost of a prescription is £2 a week, although of course that is an issue only for England; for those with constituencies in Scotland, there are no prescription charges.

[Stephen Timms]

The Minister made an important point a moment ago. He said that he agreed that support for free school meals and prescriptions should be tapered away. That is different from the proposal in the White Paper to have an income threshold and no support. Is that a change in Government thinking?

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[Chris Grayling]

My hon. Friend makes a good point, underlining the complexity of these issues and why I believe it inappropriate to set hard-and-fast rules in primary legislation. If we find that we have not got it right the first time around, or if things need to be done to remove anomalies, which they might well be, it makes no sense to have written the fine print into the detail of primary legislation, therefore making it more difficult to adjust accordingly. This is one reason why it is important to maintain as much flexibility as possible.

[Stephen Timms]

The hon. Member for Christchurch (Mr Chope) referred to rumour, but the White Paper said that self-employed people would be deemed to have earned at least the minimum wage for each hour of employment. Can we take it from what the Minister is saying that the Government are reconsidering that White Paper decision?

[Chris Grayling]

As I said to the right hon. Gentleman in Committee, we are looking at the best way of doing this. We cannot have a situation in which people who are receiving an entitlement to the universal credit while generating no income at all over long periods of time still say that they are self-employed. We must ensure that that does not happen, and we are looking for the best way of doing it. If we wrote the rules into primary legislation, we would not be able to take decisions and fine-tune on the basis of experience, as we would have to come back to primary legislation every time. That is why I think it inappropriate to accept the right hon. Gentleman’s amendments.

Let me make some further progress. Amendment 33 seeks to remove the restriction on eligibility for pension credit for couples where one member is below and the other is above the pension credit qualifying age. Suffice it to say that although someone over the retirement age should be able to receive benefits for the household under the pension credit system, someone under the retirement age being able to receive the benefits of a means-tested system without having to go out and look for a job is just plain wrong. I am afraid we disagree on that, and I am comfortable with the changes. They are set out in legislation, which is where one would expect them to be set out. I am disappointed at the right hon. Gentleman’s disappointment that we have not issued a press release on the subject, but I do not think that this is the kind of change that would command the front pages of any newspaper. It seems perfectly reasonable to set out proposed changes in legislation, given that it is legislation that is laid before the House with accompanying explanatory notes that Members can read and discuss and into which they have an input.

Amendment 68 would add additional provisions for carers to paragraph 4(4) of schedule 1. It is not necessary to set a minimum level of payments to carers. The risk is that the incentives for carers to get into work are blurred by the automatic payment of an amount that does not relate to their personal circumstances. We all agree that work, not benefits, is the best route out of poverty, and we must ensure that payment levels are not set so high as to undermine that.

Amendment 61 takes us back to an issue that was extensively debated in Committee in respect of the payment of universal credit. Opposition Members suggest that that default position should be that payments made in respect of children are routinely directed to the carer. The amendment would provide powers to specify other circumstances for paying a portion of the universal credit award to a particular individual.

We have published a policy briefing note setting out our intentions for payments. We have already said that couples will be able to choose which of them receives the award and they could direct it to a joint account for both to access. It is a core principle of our approach that individuals are best placed to make choices about what is best for their own circumstances. There will, of course, be some exceptional circumstances and there are powers within the Bill to amend the Social Security Administration Act 1992 to allow the Secretary of State to pay all or part of an award to another individual. We do not need this amendment to ensure that. However, the default position should be that we make payment to the person chosen by the couple, not by anyone else.

Many of the concerns raised in this debate are, of course, about the possibility that universal credit might be less generous to some people than the current system of benefits and tax credits. We propose a radical reform and a simplification of the welfare system. In that situation, it is not possible to replicate exactly every aspect of the current system. That is why we will introduce a system of transitional protection to ensure that there are no cash losers as a result of the move to universal credit.

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I suspect strongly that encouraging the 5 million people who could work but do not, and making work pay for them, will solve the problem of people being sucked into the UK from overseas. The problem might well solve itself, however, through a demand for employment from our countrymen. When that day comes, and if universal credit achieves it, it will be a great day for this country. It is fundamentally wrong that we should sell the pass on the hopes and aspirations of millions of people in this country who could be working, achieving and fulfilling their potential, but who for too many years have been thrown on the slagheap of hopelessness, dependency and failure. I am a Tory because I like people to succeed; I like people to do well; I want people to make money; I want them to be rich; I want them to be captains of industry; and I want the economy to grow even quicker, and I think that universal credit is the way to help more people to achieve and succeed in their hopes and aspirations, to get into work and to do really well.

[Stephen Timms]

We have had an interesting debate, and I welcome the Minister’s concession on the affirmative procedure for the initial version of some of the key regulations that will be introduced under the Bill. I would have liked him to go further, but I welcome the extent to which he has changed the Government’s position and welcome the amendments he has tabled to effect that change.

Unfortunately, the Minister gave us nothing else that I can welcome. It is an extraordinary failure on the part of Ministers that we do not yet have Government proposals on child care, free school meals or concessions on prescriptions. The Minister said that it did not matter, because there were still two and a half years to go before universal credit was introduced, but actually it is only two and a quarter years now—it was two and a half years three months ago, but they failed to come up with their policy proposals and three months have passed. It is not simply an academic issue, because even if all the policies had been clear two and a half years in advance, it would have been a stretch to get the IT in place by October 2013. As it is, the Government have not decided on those key parts of the policy, and I suggest that there is now no chance that it will be ready. However, that is a discussion for another day.

The hon. Member for Dover (Charlie Elphicke) accused the children’s charities of throwing rocks at the Government. It is out of order to make that criticism of Barnardo’s, Citizens Advice and the Children’s Society. Let me quote their letter:

“We welcome the removal of the hours rule”—

they welcome the provision that the hon. Gentleman supports—

“but the evidence shows it is not possible to do this. . . within the current budget without a significant negative impact on work incentives for those working longer hours.”

That is not throwing rocks but simply setting out obvious home truths, of which the Government need to take account.

[Charlie Elphicke]

Will the right hon. Gentleman give way?

[Stephen Timms]

No, I will not. Our position is that the Government need to listen to what people are saying to them and that new clause 2 provides protection. We do not want the work incentives worsened in the way in which charities point out.

It sounds as though the Government have abandoned the idea of a payslip for every universal credit instalment. I am disappointed—that was a good idea. Sadly, the Minister reaffirmed the Bill’s extraordinary penalties on saving. He gave no firm assurances on self-employment income, even though the hon. Member for Aberconwy (Guto Bebb) recognised the importance of that. The Minister appeared to acknowledge that there was a problem, which, I suppose is progress from his previous position.

The Minister gave us no assurances on adequate welfare advice. My hon. Friend the Member for Makerfield (Yvonne Fovargue) made a telling case about that. Many will be dismayed by his dismissal of the case for retaining support for disabled children. There is genuine worry about the impact of his refusal to ensure that benefit for children is paid to their main carer.

I wish to divide the House on new clause 2 on child care, on amendment 23 on the saving cap and amendment 27 on support for self-employed people in universal credit.

Question put, That the clause be read a Second time.

Welfare Reform Bill (Programme) (No. 2)

Stephen Timms Excerpts

Monday 13th June 2011 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

I take issue somewhat with the Minister. I do not agree that there has been adequate time in Committee to consider the Bill, not least because on more than one occasion Ministers left early, before we had completed our first afternoon discussion. Consequently, a number of key issues, particularly new clauses, were left undebated when the Committee ended, and as a result, some of those are on the Order Paper today.

With that backlog, as well as other key points in the Bill, I am very concerned that the two days now available are likely to be insufficient for the debate that is needed. Given that inadequate time, however, the knife proposed in the Government’s programme motion is in a perfectly sensible place. Because we need to get on with the debate I shall not seek to divide the House on the motion, but I am concerned that, as will become clear during the debate, the House will not have had sufficient time to consider properly the full consequences of the Bill.

Question put and agreed to.

[Mr Speaker]

The Orders of the Day will now be read by the Clerk, Dr Sir Malcolm Jack.

Oral Answers to Questions

Stephen Timms Excerpts

Monday 13th June 2011 Commons Chamber

[Mr Duncan Smith]

We estimate that universal credit as a static system, not even taking into account any dynamic effect, will lift 900,000 people out of poverty, about 350,000 of whom will be children. It is worth remembering that under the present child care systems that people have spoken about, at least 100,000 people do not get the child care for which they are eligible. Under universal credit, the take-up will be higher, so it will have a better effect.

[Stephen Timms (East Ham) (Lab)]

The Secretary of State is right to recognise that support for child care is key to whether parents are better off in work or out of work. However, he promised the Welfare Reform Public Bill Committee that the Government’s proposals on child care support would be available before the Bill left Committee. That promise has been broken; he has simply been able to provide only a discussion of the options. When will he get a grip and come up with a policy?

[Mr Duncan Smith]

I will get a grip the moment the right hon. Gentleman’s team decide whether they are in favour of the Bill or against it. I gather that the Leader of the Opposition has today moved like a wriggly worm and decided that he is both for and against it, which is really not surprising. The point of bringing forward our proposals is that the right hon. Gentleman and everybody else will have a chance to look at them and decide whether they agree with them. After the consultation, we will make it clear what our final proposals are. I think that that is fair. Last time, he complained that we did not consult him—he ought to make his mind up.

Oral Answers to Questions

Stephen Timms Excerpts

Monday 28th March 2011 Commons Chamber

[Mr Duncan Smith]

Yes. The majority of existing and potential second earners will not, on the basis of the figures I have looked at, be affected by the reforms, because the household already has earnings that take them beyond the reach of the benefit system. Approximately—I stress this is an approximate figure—300,000 second earners may see a deterioration in the incentive to increase their hours, and it is possible that some second earners will choose—or may choose as a result of their home commitments—to reduce or rebalance their working hours or leave. However, universal credit will provide much better incentives for the first earner, giving a greater choice to the household about how it wishes to spread its income.

[Stephen Timms (East Ham) (Lab)]

The Secretary of State told us on Thursday that the Government have not yet decided how to support child care costs in universal credit. Is he yet in a position to assure women with children that in the new system they will be better off in work—after child care costs have been taken into account?

Welfare Reform Bill

Stephen Timms Excerpts

Wednesday 9th March 2011 Commons Chamber

[Stephen Timms (East Ham) (Lab)]

That feature of the proposals will mean that, as a fine simply for having £16,000 in the bank, people will lose all their tax credits, which could amount to £5,000 a year. Surely that is not right.

[Harriett Baldwin]

The right hon. Gentleman probably also supports the proposition that I should continue to receive child benefit. We need to make these decisions, and they need to focus on certain levels of savings.

Passported benefits, on the other hand, are something that we will need to discuss in great detail. I hope that the Committee will do that, because things such as free school meals, which at the moment are passported in with other benefits, are also a trigger for early years payments for schools and the pupil premium. It will therefore be particularly important to have clarity about how free school meals are going to work in the future. Personally, I would favour putting that in with the universal credit, where it would be affected by the same withdrawal rates.

Another good point that has been raised in the debate was about entrepreneurs. We must ensure that people do not hear from the benefits system a message against entrepreneurial behaviour. The Committee needs to look closely at how the imputed income of new business start-ups will be treated for benefit purposes.

We have heard allegations that the Bill has been rushed. I disagree. We are talking today about changes that will not even come into effect until 2013. However, I agree with my hon. Friend the Member for Wolverhampton South West (Paul Uppal) that they cannot come soon enough, although I know that a major computer system needs to be changed. I welcome the measures in the Bill and I look forward to supporting its Second Reading.

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[Stephen Timms (East Ham) (Lab)]

We have had a good debate. The Bill contains one good idea and presents us with two serious problems. The good idea is the merger of out-of-work benefits with in-work benefits, such as the tax credits that we introduced, which make it much more worthwhile to be in a job. The creation of the universal credit has been widely welcomed across the Chamber in this debate, by my right hon. Friend the Member for Birmingham, Hodge Hill (Mr Byrne), as well as by the Chair of the Select Committee on Work and Pensions, and by the hon. Member for Cardiff Central (Jenny Willott), my hon. Friends the Members for Sunderland Central (Julie Elliott) and for Stalybridge and Hyde (Jonathan Reynolds) and my right hon. Friend the Member for Stirling (Mrs McGuire), among others. It is a welcome change, and it is right that we should congratulate the Secretary of State, who has focused intently on this matter since the Conservative party sacked him as its leader. He went off and set up the Centre for Social Justice, which did the spadework, and he now brings the reform to the House.

That was the good idea, but unfortunately the bouquets end there, because the Bill is a mess. It was rumoured on good authority a few weeks ago that it would be delayed another month so that key decisions could be made—and now that we have the Bill, we can see why: fundamental points are missing. How will child care be supported? That is key to the Bill’s purpose of ensuring that people are better off in work. If the Government get this decision wrong, the Bill will fail. The Secretary of State told us that he would take further advice from relevant groups. However, the relevant groups have given him plenty of advice already; the trouble is that he has not taken it. The previous Government’s success on child care meant that the proportion of lone parents in work increased from 45% to 57%.

The decision on support for child care is crucial. The Secretary of State has told us that he wants to spread the same amount of money across many more people. People will therefore have to find not 3% of the cost of child care out of their own pocket—which is common at the moment—but perhaps 30%. That is a tenfold rise. It is therefore not surprising that lone parent organisations are reporting calls from their members saying that they will not be able to afford to carry on working.

At a time when benefits are being merged into a universal credit, the Government have, bizarrely, decided to do the opposite with council tax benefit and devolve it entirely to local councils. That appears to be the messy outcome of a dispute between the Secretary of State for Work and Pensions and the Secretary of State for Communities and Local Government, which unfortunately this Secretary of State has lost. Local authorities will apparently be free to design council tax benefit as they wish, except that it will have to cost 10% less than before. Again, that could completely scupper the advantages that the universal credit is supposed to deliver. Will the Department for Work and Pensions be able to step in if that happens? We simply do not know.

The Secretary of State was not able to tell us earlier who will receive free school meals in future. That is a crucial piece of information. How can we debate the new system without knowing that?

My hon. Friend the Member for Swansea West (Geraint Davies) made some telling points about the position of self-employed people. We have no idea how the self-employed will be handled under the new system. Employers will notify the DWP of the salary of people in pay-as-you-earn every month so that their universal credit can be calculated—that is, if the Government can get the IT to work. The Secretary of State knows that I am sceptical about his timetable for that. Self-employed people are not in PAYE, so how will their universal credit be worked out? We have no idea, and the Bill does not tell us.

Who will be entitled to free prescriptions? Who will be entitled to mortgage interest support? Which working families will be exempt from the benefit cap? How will unearned income such as child maintenance and widow’s benefit be treated? Will disability living allowance continue to be available indefinitely to children? My hon. Friend the Member for Alyn and Deeside (Mark Tami) made a powerful speech about that.

Those are enormous gaps in the Bill on crucial details, not minor matters. The whole purpose of reform, and the point that has been repeated over and over again in the debate, is that everybody wants a system that ensures that people are better off in work. Achieving that goal stands or falls by whether those questions are given the right answers, and at the moment we simply do not know.

The lack of answers is a serious problem with this unfinished Bill, but unfortunately it is not the worst problem. The things that we do not know are only the half of it: the things that we do know turn out to be even worse. Why on earth are Ministers launching an attack on saving? People who receive £80 or £100 a week in tax credits to supplement their earnings will in future receive absolutely nothing at all if they have £16,000 in the bank. They could lose perhaps £5,000 a year as a punishment for having £16,000 in savings. If they get rid of their savings, they will get their credits back. What is that about?

The Secretary of State told us earlier that child care support would be included in the universal credit. That would mean that those people, for the crime of having £16,000 in the bank, would lose all their child care support as well. Why are people on modest earnings to be punished for saving for a deposit to buy a home, or for the massively increased charges for higher education? The Secretary of State told us that 100,000 families would lose everything as a result. He said that he saw no problem with that, but he should go and talk to his colleagues in the Centre for Social Justice, who have made the point that the savings limit for out-of-work benefits is

“an unfair penalty to those who have saved”.

Instead of easing that limit, as the CSJ proposed, the Bill extends it to people in work.

The Secretary of State is wrong to say that the welfare system is only for the most vulnerable. My hon. Friend the Member for Erith and Thamesmead (Teresa Pearce) made a telling point about that. It is there for everybody when they need it; that is why we have national insurance. My right hon. Friend the Member for Croydon North (Malcolm Wicks) was right to emphasise that responsibility should be expected from the rich as well as the poor.

Contributory employment and support allowance is to be time-limited to a year. My hon. Friend the Member for Aberdeen South (Dame Anne Begg) made a telling intervention about that, and my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) also spoke about it. The data suggest that probably less than 20% of those in the work-related activity group returned to work within a year. There is no way that someone on oral chemotherapy or with a serious mental health problem can be expected to return to work in a year, so that is clearly wrong.

[Robert Flello (Stoke-on-Trent South) (Lab)]

Does my right hon. Friend accept that there is already a problem with contribution-based ESA, because people are not passported through to other benefits as somebody on income-related ESA might be? There are already difficulties for people in the circumstances that he describes.

[Stephen Timms]

There certainly are problems. The Government have made much of marginal deduction rates and the impact on work incentives, but it turns out from the small print of the Bill that the changes will increase the marginal deduction rates of many more people than will have them decreased. Again, the Secretary of State’s own think-tank has pointed out the problem with the high taper rate that the Government have chosen.

My hon. Friends the Members for Makerfield (Yvonne Fovargue) and for Stretford and Urmston (Kate Green) pointed out that in the tax credits system, benefit in respect of children can be paid to their mother. Sometimes, if all the money went to the father, the children would never see it. The Bill completely ignores that issue.

A lot has been said about disability living allowance, and my right hon. Friend the Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) spelled out powerfully the dangers of what is being done. It is being scrapped and replaced with the personal independence payment—whatever that might eventually turn out to be. A lot of disabled people are frightened, and the Bill to abolish DLA was published before the consultation even finished. We should reform DLA not abolish it, and it is wrong for the Bill to proceed in that way.

As I said earlier, the Bill presents us with one good idea—the universal credit—and two very big problems. The first is all the things that the Bill does not tell us—the large gaps of great significance that have been left in it—and the second is all the things that it does tell us. It needs radical improvement before it reaches the statute book, so I commend the amendment to the House.

Social Security

Stephen Timms Excerpts

Thursday 17th February 2011 Commons Chamber

[Steve Webb]

The hon. Lady asks an important question. I will deal specifically with the budget deficit. However, when we looked at this issue as a new Government, we were prompted particularly by the context of a year in which the RPI had been negative. We arrived in May 2010. In April 2010, uprating had been nil for the state earnings-related pension scheme, public sector pensions and all the connected pensions. That is not because inflation for pensioners had been nil—I have never met a pensioner who thought they had negative inflation in the year to September 2009—but because that is what the RPI said. The RPI was clearly not doing its job then, and that focused our mind on whether it was the right thing. It is true that, on average, the CPI tends to be lower—not always, but generally. I have looked at the past 20 years, and in five of those the RPI has been lower than the CPI. That improves the situation in a difficult financial position; I would not pretend that it does not. However, our job is to have an appropriate, stable measure of inflation, and that is what the CPI achieves. [Interruption.] Indeed, it is much less volatile.

I sometimes think—perhaps this makes me sound a bit sad—that if the CPI were a person, it would be taking people to court for slander and libel for some of the things that have been said about it over the past few weeks and months. It is almost as if it is a stray number that we found on the back of a fag packet and decided to use to up-rate benefits. In fact, it is a careful calculation by the Office for National Statistics, with excruciating amounts of thorough methodological detail about the general increase in consumer prices. It is not the only measure, but it is an entirely decent and proper one.

I want to respond to some of the myths that have grown up about CPI, and to stress that this is not a choice between a good index and a bad index, but about trying to find the most appropriate measure for the purpose. The first argument that is made is that CPI is always lower. As I have pointed out, that is not true, although it is lower on average over the long term. People criticise the methodology that is used. I will explain what the difference is and why we think it is appropriate. Somewhat more than half the difference between RPI and CPI is to do with the way in which CPI assumes that people change their behaviour when prices change. CPI uses a substitution method, which assumes that people substitute for cheaper goods. Interestingly, the Institute for Fiscal Studies, which has looked at this issue, has said that that difference is a

“sound rationale for the switch”

that we are making today. RPI does not do that. Even the Royal Statistical Society, which has been critical of aspects of our proposals, states that RPI arguably overstates inflation as a result. I stress that we are trying to find not a high number or a low number, but an appropriate number with an appropriate method. Particularly for those on benefits, the substitution approach is important.

It is worth adding in parenthesis that people who say that RPI is the only possible way in which we can uprate pensions, because it is appropriate for pensioners, seem to be oblivious to the fact that RPI excludes the poorest fifth of pensioners from its consumption patterns. Their spending patterns are deliberately excluded in the construction of RPI. It seems odd that people are so wedded to RPI on purity grounds when it excludes the most vulnerable pensioners, about whom we should be most concerned.

The second myth is that the UK Statistics Authority does not think that CPI is a proper measure of inflation. [Interruption.] The hon. Member for Leeds West (Rachel Reeves) says that she has not said that, but I assure her that I have seen it in plenty of letters. The UK Statistics Authority oversees the Office for National Statistics, so it would be very odd if it thought that the ONS was producing dodgy figures. CPI is the headline measure and it is the target for the Bank of England, so it is hard to see how it is not a proper measure of inflation.

Thirdly, some say that the Royal Statistical Society does not like CPI. It has certainly criticised some aspects of the change, but it takes a more balanced view and sees limitations in CPI and RPI. As I have said, no single measure is perfect. The Royal Statistical Society has highlighted the issue of housing costs, and I will come on to that because it is clearly important.

The fourth thing that people say is that this is a real cut to the value of benefits. [Interruption.] The hon. Member for Glasgow East (Margaret Curran) says that it is, but it is not. What we are doing is measuring inflation in an entirely proper manner and increasing benefits—revaluing and reflating them—every year in line with inflation, measured in an appropriate way. That is what indexation is meant to do. There is no argument for saying that it is a cut when we are increasing benefits and pensions by inflation. Only a couple of nights ago, the lead story on the BBC news was “Inflation hits 4%”. Indeed, CPI inflation had hit 4%. That was the headline, that is inflation, and that is what we are uprating benefits by.

[Stephen Timms (East Ham) (Lab)]

I think that I know the answer to my question on the basis of what the Minister is saying, but I want him to confirm it. Is it the Government’s intention that the change from RPI to CPI will not be temporary, but permanent?

[Steve Webb]

Yes. For all the reasons I have been giving, we regard CPI as a more stable and appropriate measure for uprating pensions and benefits. We see no reason to change it in the future. The arguments that I am advancing, it seems to me, will stand the test of time.

There is an issue with the treatment of housing costs. One of the reasons why CPI is more appropriate than RPI for pensioners is that only 7% of pensioners have a mortgage. Mortgage interest fluctuations dominate the changes in RPI, sometimes swooping it up and sometimes swooping it down. The year in which RPI went negative, it happened because mortgage rates slumped. Not only was that of no benefit to the vast majority of pensioners; it was a penalty to the vast majority of pensioners because their savings rate fell. Just at the point when pensioners were suffering through low interest rates, RPI came along—to humanise it once again—and kicked them in the teeth and said, “Oh, inflation is falling so you don’t need a benefit rise.” I do not see how that can be right.

--- Later in debate ---

[Steve Webb]

Just to be clear, my right hon. Friend the Chancellor was talking about the CPI indexation of all social security benefits, not just pensions. Clearly, compared with previous plans, benefits for people of working age will generally increase by less over the Parliament, which will lead to significant savings. I should mention therefore in passing that any political party that went into the election promising to reverse that would also have to indicate where many billions of pounds would come from over the course of a Parliament. However, specifically for pensioners, the earnings link in the long-term is much more generous than the reduction from the CPI change.

[Stephen Timms]

The Minister says that the order enshrines the earnings link. Is there a reference in the text to earnings uprating? I could not find it, but if there is one, where is it?

[Steve Webb]

No. This is the first set of upratings to which we have applied the triple lock. Indeed, we have gone further, and said that because RPI was built into the spending plans, we did not want to go lower than that, so there is an RPI increase of 4.6% this April. When we reintroduced the earnings link last summer, we did not know what the earnings figures would be, but had earnings been higher than any of those figures, we would have used it.

I ought to move on, because many hon. Members want to contribute to the debate. To conclude on occupational pensions, we have not overridden scheme rules. As the Chair of the Work and Pensions Committee pointed out, many people will still get RPI, if that is what the scheme rules say, but those that are free to link to CPI may do so. We will report shortly on our research on the balance between different schemes.

The approach adopted in the uprating order seeks to strike a fair balance between the interests of benefit recipients and pensioners, and the burden placed on the taxpayers of the UK, who often end up footing the bill. Despite the fact that the nation’s finances remain under severe pressure, this Government will spend an extra £4.3 billion in 2011-12 to ensure that people are protected against cost-of-living increases.

We have restored the link between earnings and the basic pension and confirmed that most people on pension credit will benefit from the cash increase enjoyed by those on the state pension. The move to CPI for the uprating of the majority of other pensions and benefits will result in an uplift of 3.1% from April, and sets the future of uprating on a more appropriate, consistent and stable basis that is fair to individuals and fair to the taxpayer. Through this package of uprating, I have outlined our firm commitment to ensure that no one is left behind, and I commend the order to the House.

[Stephen Timms (East Ham) (Lab)]

It is a happy coincidence that we are debating the order on the same day as the publication of the Welfare Reform Bill, and I am pleased to see the Secretary of State in the Chamber. I welcome the opportunity to make some observations on the Bill—of course, only in so far as they impinge on matters in the order.

However, I want first to respond to some of the Minister’s remarks. The truth is that the two orders signal the start of an ideological move from the use of RPI to CPI as the measure of inflation for uprating benefits, including pensions. The Minister told us that this is the first outing for the much-vaunted triple lock, but actually, in their first effort, the Government have had to override the triple lock. Had they not done so, they would have been rightly criticised for a very low increase to the basic state pension.

The Minister set out in some detail and at some length why it is right to use CPI rather than RPI, but the order uses RPI and not CPI. If he is so persuaded by his arguments on why CPI is the right measure to use, why has he used RPI in the order? The argument that he has put to the House is holed below the water line by the fact that he clearly does not believe it, because on this occasion, he has used RPI.

My hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee, rightly asked whether the measure is to do with reducing the deficit. Of course, both the Government and the Opposition agree that we need to cut the budget deficit, even if we take very different views on the speed at which that ought to be done, but we should be clear from the outset that the orders, despite what the Government will tell us fundamentally about deficit reduction, are part of a wider quest. Changing permanently from RPI to CPI, other than in this year, and keeping things that way even after the deficit is long gone, is plainly not a deficit reduction measure—it is ideologically driven, and the Opposition do not support it.

As my hon. Friend the Member for Aberdeen South hinted in her intervention, there would be a case for a time-limited change ensuring that benefits do not fall behind earnings in the next few years. That might well be a fairer alternative to deep cuts in departmental expenditure. Were that on the table, it would be an argument that we would be willing to discuss, and we would work with the Government to consider it. However, that is not the proposal. As the Minister rightly made clear, the Government want a permanent change, with entitlement and pensions continuing to be reduced every year relative to RPI, saving money for the Government even long after the deficit has been eliminated. We will be making our position on that very clear as we go through these debates, and as we seek to amend the Pensions Bill, when the same matter is raised.

[Mike Freer (Finchley and Golders Green) (Con)]

If the right hon. Gentleman looks at the local authority pension schemes here in London, he will see that there is only 75% or 80% viability on future liabilities. A lot of the contribution rates and the inflation from RPI to CPI are about balancing the books for future pensioners, not deficit reduction.

[Stephen Timms]

I was familiar with the call often made when I was in the Minister’s office to release occupational funds from the constraints under which they had long operated, and RPI uprating was one of them. However, the question that has to be asked is whether it is right to change the rules at this stage, effectively to undermine the accrued rights that people have always believed they would benefit from in retirement, and to shift the goalposts. I will come to that very point in a moment. However, I suggest to the hon. Gentleman that this change raises a very serious question about fairness.

Of course, we need to get the economy back on track, but that will take some time. The coalition is doing it too fast. Why do they want pensioners, the armed forces and those on the lowest incomes and least able to bear the burden to continue to lose out even long after the deficit has gone? On average, RPI is between 0.5% and 0.75% higher than CPI, as the Minister pointed out, so in any given year, benefits linked to CPI will give people a lower income by that amount. The CPI for the year to September 2010 is 3.1%, and the RPI figure is 4.6%. At 1.5%, that is a very big percentage point difference. The Minister has decided, perhaps because of the scale of that difference, to use RPI and overrule his triple lock in its first year. However, if the Government intend, as they clearly do, to make CPI indexation permanent and apply that across the pension system, experts estimate that it could cost pensioners 15% of the income that they expect in retirement.

[Jane Ellison (Battersea) (Con)]

We are weeks away from the point when the Opposition, had they won the election, would have commenced their own deficit reduction plan. Given the enormous sum that the welfare bill represents within the public finances, it is inconceivable that the right hon. Gentleman could intend to go through this debate without addressing some serious long-term issues regarding his own policy on deficit reduction.

[Stephen Timms]

I am grateful to the hon. Lady, because that is exactly the point that I have been making. If this was about deficit reduction, there would be a worthwhile point to debate. However, the Government are saying that they want this change to be permanent and lower uprating to be a feature of the pensions and benefit system not just while we are reducing the deficit—I agree with her that there would be an argument for doing it during that period—but long after and into the indefinite future.

[Jane Ellison]

In part, Government Members are talking about addressing the much longer term problems that this country faces, of structural deficits building up and having to be addressed. The right hon. Gentleman has only to look around the world, at the problems in California and all sorts of places where enormous long-term structural problems have built up, particularly in relation to pensions. It is inconceivable that he cannot take a long-term view on this issue.

[Stephen Timms]

The hon. Lady makes an interesting argument. I have to say, however, that before the election I did not hear from her and her hon. Friends the argument that the structural deficit required a reduction in the incomes of the least well-off people in the land. That is the implication of what she is putting to the House. The real key to reducing the deficit is to secure new growth, new investment and new jobs in the economy. As we saw yesterday in the new unemployment figures, however, that is what the Government’s policies are signally failing to produce.

[Mike Freer]

The problem is that for public sector pensions, the fund can meet only 75% or 80% of future liabilities. If we do not reduce the indexation to reduce that drain on future liabilities, we will have to increase contribution rates. Which would the right hon. Gentleman do?

[Stephen Timms]

My point is that people who have been contributing to those schemes throughout their working lives have done so on the basis of a promise, but the Government are now saying that that promise should be torn up, perhaps just a few months before somebody retires. Is that fair? As I am sure that we will hear in this debate, a lot of people feel that it is deeply unfair—and we can all understand why they take that view.

Lord Hutton’s report on public sector occupational pensions pointed out:

“This change in the indexation measure”—

from RPI to CPI—

“may have reduced the value of benefits to scheme members by around 15 per cent on average. When this change is combined with other reforms to date across the major schemes the value to current members of reformed schemes with CPI indexation is, on average, around 25 per cent less than the pre-reform schemes with RPI indexation.”

Even the Minister’s own Department, in numbers slipped out at the end of last week, estimated a fall of £83 billion in the value of occupational pensions over the next 15 years as a result. For the 2 million members of defined benefit schemes, that is broadly the same as a pay cut, on average, of between £2,250 and £2,500 a year.

The figure of £83 billion has gone up by more than 8% since the Department last calculated it in December. We ought to know why the Department got their figures so wrong last time round. My worry is that the Department does not really know what the impact of this ill-thought-through measure will be in reality. I ask the Minister, therefore, whether he can assure us that this—in itself alarming—estimate of the scale of the loss to defined benefit pension scheme members will not be revised any further.

[Rehman Chishti]

Am I right in thinking that the shadow Minister was a Treasury Minister in the previous Government? If so, will he clarify the fact that when the coalition Government came into office last May, we inherited the worst financial deficit of the G20 and the worst structural deficit of the G7 countries, and that that is why we have to make some tough decisions?

[Stephen Timms]

I was indeed a Treasury Minister—on four separate occasions. We managed the global economic crisis with great skill, to the extent that the increase in unemployment, which was widely anticipated before the crisis hit, did not happen. Under the previous Government there was about half the unemployment and half the home repossessions that we experienced in the recession of the early 1990s. I was indeed a Minister at the Treasury when those successes were being achieved.

[Rehman Chishti]

The shadow Minister talks about unemployment and the previous Government’s actions. Is that why my constituency of Gillingham had 30% unemployment for 18 to 24-year-olds in 2006? The figure for youth unemployment remained at 30% in 2007 and 2009, and was the same in 2010 before we came into government. Will the right hon. Gentleman apologise to my constituents for that record?

[Stephen Timms]

I agree with the hon. Gentleman about the damaging impact of youth unemployment, and I hope that he shares my deep regret that it has increased again. It is now the highest that it has been since comparable figures began to be compiled nearly 20 years ago. The highest figure ever recorded was published in the statistics yesterday. I certainly take the view that the Government need to do more to reduce that figure.

The estimate of a hit of £83 billion on defined pension schemes makes it clear that long after the deficit is gone, the Government will be keeping pensioners out of pocket. I fear that the order is the start of a move that will mean that millions of pensioners and other benefit claimants experience a fall in the value of their benefits every year, relative to RPI. If the Government had simply applied the much-vaunted triple lock this year, the basic state pension would be uprated next year far below the RPI level that the previous system would have delivered. That is the problem with the Government’s proposition.

That is not the only Government measure to hit pensioners. The Minister proudly and fairly read out a list of excellent things that the previous Government did for pensioners, which the present Government will not abolish. I am glad that they will not. However, they have increased VAT, which means that pensioner couples will be £275 a year worse off, and single pensioners £125 a year worse off.

The Pensions Bill means that some women approaching retirement will have their state pension delayed by up to two years, with very little time to prepare. That will mean a loss of up to £10,000 in basic state pension, and up to £15,000 for those who would have qualified for pension credit.

My hon. Friend the Member for Leeds West (Rachel Reeves) asked the Minister previously about an individual’s accrued rights, and I referred to that in response to an earlier intervention. Let me press the Minister again on the same subject. Why has he made such an abrupt U-turn? Before the election, he said:

“We are very clear that all accrued rights should be honoured: a pension promise made should be a pension promise kept. Therefore we would not make any changes to pension rights that have already been built up. I have confirmed that I regard accrued index-linked rights as protected.”

I am sure that the Minister would agree that all those who contracted out—all those in the local government scheme that was mentioned a few minutes ago—did so on the basis that RPI would be used for uprating. On the basis of what the Minister said before the election, those rights should also be protected. They are not; they are being explicitly downgraded in the Government’s proposals.

[Mr Robert Syms (Poole) (Con)]

I am listening carefully to the right hon. Gentleman. Can we be clear about the Labour party’s position? Do you oppose the CPI? Do you oppose it just for this year—or are you in favour this year and next year, but want to go back to the RPI in a future year?

[Stephen Timms]

There is a persuasive case for making a change to CPI uprating for a period of time while we are tackling the deficit. However, I do not agree that that should be a permanent change. That aspect of the Government’s proposal is very damaging.

[Jane Ellison]

Does that mean that in the Labour manifesto for the next general election, the Labour party will commit itself to reverting to RPI?

[Stephen Timms]

The whole country eagerly awaits the next Labour party manifesto, but I must urge the hon. Lady to be patient on that front.

We welcome the 4.6% increase in the basic state pension this year, for which the order provides, in line with RPI for next year, not the triple lock or the lower CPI. But this is something of a smokescreen to cover up the true nature of the Government’s intentions, which we have been able to smoke out a little in this debate.

Why does the Minister think that CPI would be a better measure of inflation for pensioners than RPI? I am yet to be convinced of that. For pensioners and low-income families, a strong argument can be made that average inflation is more than either RPI or CPI, because of fuel and food. That point was certainly made in the representations that many of us will have received in recent weeks. In opening the debate, the Minister mentioned the views of the Royal Statistical Society. In its letter to my hon. Friend the Member for Leeds West, it said:

“while the consumer price index (CPI) is acceptable for macroeconomic purposes and for international comparisons within the EU we do not believe its coverage is generally appropriate for inflation compensation purposes”.

That looks like a strong criticism by the society.

[Guy Opperman (Hexham) (Con)]

When answering the question asked by my hon. Friend the Member for Poole (Mr Syms), you said you would—

[Guy Opperman]

The right hon. Gentleman mentioned “a period of time”. How long would that be?

[Stephen Timms]

If that were the proposition, we would be happy to debate it and consider it, and perhaps work with the Government on it. Sadly, that proposition has not been made. The proposition before the House is that the change should be made for ever, and that is what I object to. It is not just me: the Civil Service Pensioners Alliance—

[The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)]

I had not planned to intervene, but I wanted to tease out the right hon. Gentleman’s meaning. He is being a little disingenuous, so I invite him to be a little clearer. He knows that commitments are made for a Parliament, at most, and that if there were to be a change of power, the next Government could do whatever they want. He talks about “for ever”, but decisions can be made at the next election. Can we tempt him to say on behalf of his party that during the lifetime of this Parliament—or perhaps for one year or two years—it supports the change to CPI? Or is he saying that his party utterly detests the change and will not support it?

[Stephen Timms]

The Secretary of State is putting a different gloss on this from the one that the Pensions Minister put on it. I asked the Minister directly whether this change was intended to be permanent, and he confirmed that. The Secretary of State suggests that it would be only for this Parliament—[Interruption.] Well, I am anxious to establish the Government’s position. We have had two contradictory positions set out now—

[Mr Duncan Smith]

The right hon. Gentleman may have failed to understand my point. The Opposition are not in government, by definition, and they have to decide what they will do in this Parliament. What is his position in this Parliament? We have said that the change is permanent. Do they support that for this Parliament or not? Do they support it for a year, two years, three years or four years? What is their position on CPI? All we need to know is whether they support it for this Parliament.

[Stephen Timms]

Well, the Secretary of State has shifted back a little way towards the Minister by suggesting that the Government view the change as permanent. As for the view of my party, I simply refer the Secretary of State to what the leader of my party has said, which is that the suggestion that the change should be made for a period—perhaps up to three years—would be something that we could consider. If that proposition were on the table, we would be happy to consider it. But sadly it is not. As we have heard from the Minister—and as I think the Secretary of State has now reluctantly confirmed—the Government’s intention is that this arrangement should be permanent. That is what I strongly object to.

I was just about to refer to what the Civil Service Pensioners Alliance said. It

“firmly”

rejects

“the assertion that the CPI is a ‘better’ measure of inflation for pensioners.”

It urges the Government

“to take account of the advice of their own statisticians before embarking upon a change which will adversely affect the incomes of pensioners for the rest of their lives and not just for the term of the current financial crisis.”

Age UK has made a similar point.

All the main public service schemes are contracted out of the additional state pension. Of course, in the current climate we need restraint over public sector pay and pensions, but one group that the proposed permanent change will hit particularly hard is those who serve in the armed forces and their dependants, who rely on their pensions at an earlier age than almost anyone else. A permanent switch would, as I understand it, mean that somebody who had perhaps lost both legs in a bomb blast in Afghanistan could miss out on half a million pounds in benefit and benefit-related payments over the rest of their life. War widows, too, will lose out severely. For instance, if this change were made permanent, the 34-year-old wife of a staff sergeant killed in Afghanistan would be almost three quarters of a million pounds worse off over her lifetime.

If Ministers are going to pursue this policy, they need to explain why those serving in Afghanistan—already in some cases, as we have heard in the last few days, facing redundancy of which they were informed by e-mail—should see their pensions reduced for the rest of their lives compared with the expectations that they have had until now, and why—

[Steve Webb]

The right hon. Gentleman has raised a serious point. I think both sides of the House would be united in our respect and admiration for our forces and our forces veterans, but surely the issue is that we pay decent forces pensions, not that we choose to measure inflation in a particular way. Those are two quite separate issues. There is the adequacy of forces pensions and there is the proper measurement of inflation, but to conflate the two seems confusing.

[Stephen Timms]

In opening the debate the Minister accepted that in 15 years out of 20, CPI uprating is less than RPI uprating. My point is that those serving in Afghanistan have been contributing to their pensions on the understanding that their pensions, when in payment, would be uprated in line with RPI. Now the Government are saying, “No, they won’t; they’ll be uprated by a smaller amount,” and that is a very worrying development. In view of the sympathy that the Minister has expressed for people in that position, the Government must give further thought to this matter—why war widows, who have had the person most special to them taken away, deserve to have the support that they would otherwise have been able to depend on cut as well.

[John McDonnell (Hayes and Harlington) (Lab)]

May I, through my right hon. Friend, give the Minister an opportunity to respond to a question? Is it not clear that as we identify anomalies like this—and they are bound to arise—it is important for the Government to introduce corrective measures fairly quickly?

[Stephen Timms]

Yes, there are some serious problems here, and I hope we will hear responses to them. I pay tribute to my hon. Friend for the work that he has done on this subject, and I hope that the Government will think again.

The Welfare Reform Bill, which was published this morning, touches on a number of the points that the Social Security Benefits Up-rating Order also touches on. One of the Government’s original proposals, which Opposition Members strongly opposed, was to cut housing benefit by 10% for people in receipt of jobseeker’s allowance for one year. We were all absolutely delighted this morning to hear the Secretary of State say that the Government have reconsidered their position and will not implement that draconian cut. We understand from newspaper reports that the change was brought about as a result of pressure from the leader of the Pensions Minister’s party. The Minister himself may well have had a hand in bringing about that change. If so, I—and many of us—would want to join in congratulating him on his success against the views of the members of the other coalition party, particularly, perhaps, the views of those serving in the Treasury.

As the Minister is on a bit of roll, may I suggest that he go further in changing the Government’s proposals? Under the existing system, most out-of-work benefits are subject to savings limits—currently £16,000, but the Government intend to extend that threshold to in-work benefits as part of the universal credit, and I notice that that threshold is not uprated in the order before us. Under the proposed limit, in future anyone in work who would be entitled to tax credits but has savings of more than £6,000 will have their payment reduced. Those who have savings of more than £16,000 will lose their entitlement to tax credits altogether.

According to calculations by the Social Market Foundation, 400,000 families with children, who are now in receipt of tax credits, would be punished for having £16,000 in the bank by losing all their tax credits. For example, anyone saving up for a deposit to buy a home would suddenly find that they had lost all their tax credits as a punishment for having £16,000 in the bank. Such families would have been doing the right thing, working and saving their money, perhaps to put down a deposit on a house. For many such families, putting down a deposit will be made not only difficult but impossible. The Opposition cannot possibly support the proposed change, and I cannot imagine that many Government Members would want to see such an extraordinary assault on family savings either. I hope that we shall see another initiative by Liberal Democrat Ministers—we saw the benefits of such an initiative this morning—to persuade the Government to abandon that policy as well.

I hope the Government will also scrap the proposal to remove eligibility for the mobility component of disability living allowance for those in residential care. The order does uprate disability living allowance, and my hon. Friend the Member for Glasgow East (Margaret Curran), who is on the Front Bench today, has been making powerful arguments to the Government about the iniquity of removing that benefit from people simply because they are in residential care. I hope the Government will think again about that, and I am delighted that the Under-Secretary of State for Work and Pensions, the hon. Member for Basingstoke (Maria Miller), who is responsible for that part of the policy, is on the Government Front Bench today.

The Government are signalling today that they intend a permanent shift from RPI to CPI as the inflation measure for uprating benefits and pensions. The Opposition do not support that. It is not right to continue to reduce the incomes of pensioners, widows and those on low incomes long after the deficit has gone. [Interruption.] From a sedentary position, the Minister says that we will not vote against the order, but that is because it uprates the basic state pension next year by RPI. Therefore, it does not do what the Government have told us they want to do in perpetuity. The order overrides the policy that he set out today, and no Labour Member would object to uprating the basic state pension by RPI, as that was always the practice under the previous Government—and quite right, too. As the Minister rightly pointed out, pension credit, which has done an enormous amount to reduce pensioner poverty in the UK since its introduction, will also be uprated accordingly, and we support that as well.

[Jane Ellison]

As the right hon. Gentleman has opened up the debate about other welfare payments, I shall have one more go at my question before he concludes his remarks. Given the scale of the welfare bill and the fact that we are weeks away from when the Opposition’s deficit reduction plan would have commenced, will he please comment on how he would reduce that bill if he were running affairs?

[Stephen Timms]

On a number of occasions during the debate I have made the point that there is a case for temporary lower uprating to contribute to reducing the deficit. My objection is to the permanent character of what is being proposed, and I hope the House will not support it.

The order does not uprate the basic state pension by CPI or by the triple lock; it overrides that, and increases the payment by RPI. I do not expect Labour Members to object to that, but the move to commit to CPI uprating and to make the change permanent, not just while the deficit is being reduced but in perpetuity, is what we object to, and we will be working hard in the months ahead to try to persuade the Government that their policy on that is wrong.

--- Later in debate ---

[The Minister of State, Department for Work and Pensions (Steve Webb)]

We have had a worthwhile debate, with some thoughtful and well-informed contributions. I compliment all Members who have taken part, as the issue is important to our constituents. All Members will have received representations on the matter, and Members who are here on the final Thursday afternoon before a recess show their sense of priorities.

I enjoyed the accusation from the right hon. Member for East Ham (Stephen Timms), whom I think of as my right hon. Friend, that the policy is ideologically driven. I have never heard the use of the geometric mean described as ideologically driven. Intriguingly, his position seemed to be that it would be bad to make such a proposal on a point of principle, but that he could support it if it was a temporary expedient because of a financial mess. That is not the position of the Government, whose judgment is that CPI is a better measure of inflation, not a temporary fix. I am grateful that he appeared to be saying that he would support us for three years on grounds of expediency.

[Stephen Timms]

If CPI uprating is right in principle, why are the Government not doing it this year?

[Steve Webb]

We are doing it this year for pretty much every benefit in the entire uprating order, which runs to many pages. The ones we are not doing it for are the basic pension and the pension credit. We are not doing it for the basic pension because the budget we inherited provided for a larger increase and we did not want to pay a smaller increase than was planned. If the right hon. Gentleman thinks we should have done so, I will take that advice, but he probably welcomes the fact that we did not follow it.

The Chair of the Select Committee, the hon. Member for Aberdeen South (Dame Anne Begg), indicated that unfortunately she could not be in the Chamber for the wind-ups. She asked why we had chosen a different figure for the pension credit. As I think I explained in my opening remarks, as we were putting the basic state pension up by about £4.50 a week, we did not want the increase in pension credit to be less than that, because the poorest pensioners would not have the full benefit of the pension rise. That was the basis for the increase in pension credit.

The right hon. Member for East Ham asked about the impact assessment on occupational pensions, and I am happy to say a few words about that. In December, we published an impact assessment suggesting a £76 billion impact from the reduction in revaluation and indexation. To respond to a point made by my hon. Friend the Member for Finchley and Golders Green (Mike Freer), one way of looking at that is to see £76 billion less in pensions, but another way is to see a £76 billion boost for British business. We are trying to reduce the regulatory burden on British business, so an advantage of the change—albeit not the purpose—is that major British firms will make a saving, and they and their pension funds will be in a stronger position as a result. Many pension schemes and companies have welcomed the change for that reason.

We discovered an error. We made a mistake, for which I apologise. As soon as we found it, we decided to give the House a revised estimate. In addition, we were asked by the Regulatory Policy Committee to revise the way we calculate net present values; I know that the right hon. Gentleman takes a close interest in such matters, and if he is not careful I shall tell him what it was. To draw the threads together, we reissued the figures last week, ahead of this debate, with an £83 billion estimate. That is a further interim estimate. We then undertook field research, as I mentioned, to ask companies how they will respond to CPI/RPI. We have early results; it would be premature to say what the impact will be, but early indications are that fewer pension funds will take advantage of CPI than we had thought. Such things are complex and there could be factors that move them in the other direction, but my sense is that the final version of the figures is more likely to be lower than the one we have already published, but we thought we should give the latest estimate as soon as we had it.

The right hon. Gentleman raised the important issue of accrued rights. It is a fundamental point and it relates to my pre-election remarks about a pension promise made being a pension promise kept. What is the accrued right of someone in a public sector pension scheme, or any pension scheme? The first point is that everything accrued to date—all the revaluations to date, based on RPI—stand; we are not going back and saying that all the revaluations to date have to be reworked according to CPI. The provision is prospective, not retrospective.

The question then is what future expectation people legitimately have. If they are in a company scheme that has RPI in the rules, we actively chose not to override that. If that was their expectation, because it was in the rules, that is what they will get. However, people in the public sector are members of a scheme whose rules are tied by statute to what we do to SERPS. That is the accrued right they have always had, and we are not changing it. We shall go on indexing their pensions in line with what we do to SERPS each year. That was the pension promise they were made; that is the pension promise we are keeping. We are indexing SERPS by CPI. I accept that, and I also accept that on average that will be lower than RPI, typically by about 0.8% a year. I do not dispute that. The accrued right is the one we are honouring.

The right hon. Gentleman said in parenthesis that pensioner inflation is typically higher than general inflation. I do not know whether he actually believes that; it was never something his Government took into account when setting pensions. They never uprated pensions differently because of pensioner inflation. There are certainly periods when pensioner inflation is higher when, as the right hon. Gentleman said, the costs of fuel and food are rising faster than the norm, but there are other periods when it is lower. I have asked officials to look at the matter and there is no evidence over a 20-year run that pensioners buy goods that have that inflation time bomb ticking away inside them. There are times when inflation is higher, which may include recently, and times when it is lower, but over the long run there is no evidence for that proposition.

My hon. Friend the Member for Cardiff Central (Jenny Willott) welcomed the restoration of the earnings link, and the triple lock. I am grateful for her support. She quite properly put me on the spot about the future of the pension system. I accept her analysis; we need a pension system fit for the future. If we are to auto-enrol 10 million of our fellow citizens, we need to be confident that it pays to save, and that they will be better off. I assure her that that is absolutely central to our thinking about long-term pension reform. We are making good progress on that project.

The Chair of the Select Committee asked a number of questions. I will respond to one or two on the record, although she has explained why she is not here to hear the response. She kept making the point that the basic state pension is not the only part of a pensioner’s income. Of course it is not.

I thought that the hon. Member for North Ayrshire and Arran (Katy Clark) made some sincere comments. She raised the issue of people with relatively modest occupational pensions who will get less under CPI. The state pension is bigger than all of those figures. Every one of the figures she quoted is less than the basic state pension. The package of Government policy on pension indexation is for an earnings link on the basic and a CPI link on the additional. The basic pension of every person she is concerned about is bigger than their additional pension, the earnings link in the long run is worth 2% more than prices and CPI is 0.8% less than RPI. The people she is most concerned about will overwhelmingly benefit from our package of policies. Therefore, I can assure her on that point. Taking the package as a whole, they will be better off, not worse off.

My hon. Friend the Member for Gillingham and Rainham (Rehman Chishti) made an important contribution and pointed out that Age UK, which is very much an independent organisation, was delighted by the triple lock, because it is a historic move to give pensioners the best of earnings, prices, plus 2.5%. I wish only that we were able to do this in a normal year—in 16 of the past 20 years, earnings were greater than prices. People would then start to see the benefit of the earnings link and the triple lock, and in time they will.

The hon. Member for Arfon (Hywel Williams) quoted some civil service pension figures. I make the same point to him. All the figures he quoted, based on average civil service pensions, prove my point. If we take them in isolation, CPI is lower than RPI, but people do not just get their civil service pension—they also get their state pension. We are putting more in through the state pension than we are taking away typically through the additional pension because of the relative sizes and the difference between the various indices. Our constituents write to us and raise the bit they see, but overall the state pension will more than make up for that for the vast majority of people, although not for people with very large pensions.

On the ratchet, I simply accept the hon. Gentleman’s rebuke for fiscal irresponsibility. I will take it on the chin and pass it on to the Chancellor for him.

I enjoyed the contribution of my hon. Friend the Member for Sittingbourne and Sheppey (Gordon Henderson) and his account of his conversation with Jack Jones. I am delighted to say that both coalition partners supported that. We needed the Chancellor on board for that one. I regard it as being to the credit of both coalition partners that we have been able finally to restore the earnings link. I am grateful to my hon. Friend for raising the case of his constituent. As he was describing it, I was thinking that I was sure I signed a letter on that the other day, and I gather he has now received it. I apologise to his constituent for the mistake that was made and I hope that that has now been resolved.

The hon. Member for Hayes and Harlington (John McDonnell) perfectly properly says that he will not support the order and that he is against mass means-testing and so am I. A pension system that allows too many people to retire poor and means that they have to be swept up by a leaky safety net is not a good, sustainable long-term pension system. I have set it as my goal to do something about that. We may not agree about these orders but we have common cause on that principle.