Welfare Benefits Up-rating Bill

Alan Reid Excerpts

Monday 21st January 2013 Commons Chamber

[Andrew George]

The hon. Gentleman is right that it is for two years—it is from 2014 to 2016, which is beyond the next general election.

[Mr Alan Reid (Argyll and Bute) (LD)]

The Bill covers only two years, but the Government have already announced in the autumn statement their intention to introduce a statutory instrument so that the 1% also applies next year, so it will cover three years in total.

[Andrew George]

The combined effect of both the statutory instrument and the Bill will, indeed, be for three years. I have no clairvoyant skills whatsoever and would never follow my forecasts on the future of the economy or prices, but the Bill is asking us to forecast what is likely to happen, particularly in relation to prices. In the context of food price volatility, which we know takes place, and of tremendous uncertainty in the energy market and, indeed, other markets, we are being asked to predict what the circumstances are likely to be in 2016, beyond the next general election.

In his opening remarks, the hon. Member for Gateshead (Ian Mearns) said that large swathes of people are out of work in some parts of the country and in work in other parts. There are also many places, including my own in west Cornwall and the Isles of Scilly, where a lot of people spend their lives going in and out of work because of the seasonality of the area’s economy. Not only are such people moving in and out of work—not of their own choice, but because of their circumstances—but there is also a plethora of zero-hours contracts and of people who exist on the basis of putting together part-time work.

I congratulate the Government on their achievement in rolling out apprenticeships, but the fact is that those apprentices are being paid £2.65 an hour for their apprenticeship and have to do bar work, waitressing and other work at the weekend in order to get themselves up to a living wage. An apprenticeship offers a good opportunity, but we have to acknowledge that, among working people and those who are moving in and out of wages, there is a class or group who are, in effect, on the very margins of survival. They will be significantly affected by the proposal to peg benefits at 1%. Some argue that the Bill is about ensuring that we make work pay and that clause 1 is entirely about out-of-work benefits, but the fact is that a significant number of people—many thousands—who are in work or, indeed, in and out of work will be affected by it. That is the most difficult position.

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[Helen Goodman]

Yes, but the hon. Gentleman knows that his own impact assessment demonstrates that the Government’s claim that they would protect all people with disabilities is not accurate. I am disappointed that he did not answer my question about child poverty. I do not know whether that is because he does not know the answer or because he is ashamed of it. Perhaps he can explain when he winds up the debate.

[Mr Reid]

I want to speak in support of amendment 10, to which I am a signatory. It is important to set the debate in context. In 2010, the Government inherited an economic mess from the previous Government, including a huge budget deficit, which is why difficult decisions have to be taken. It is important to remind the Committee that just before the previous Government left office, for every £3 they raised, they were spending £4, so borrowing was going up and up. It was interesting to listen to the opening remarks of the right hon. Member for East Ham (Stephen Timms). There was a lot of sound and fury, but little actual policy. In fact, Labour’s amendment would replace the 1% in the Bill with a blank space. Labour does not seem to have any policy at all. His remarks seemed to indicate that the policy, whatever it is, would cost a lot. I think that Labour’s policy of borrow and spend is still in place.

[Sheila Gilmore (Edinburgh East) (Lab)]

Will the hon. Gentleman give way?

[Mr Reid]

I am happy to give way to any Labour Member who can tell me what their policy actually is.

[Sheila Gilmore]

I ask the hon. Gentleman to consider, in terms of what is or is not happening, that this measure is not part of what the Government came into office to do. This measure has been made necessary because they have not managed to reach the position they had anticipated they would reach, and that is because their policies have failed. Had they reached the position they had anticipated reaching, these further reductions in benefits would not be necessary.

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[Mr Reid]

Well, we did not hear any policy from the hon. Lady. I can only assume that she still follows the previous Government’s borrow-and-spend policies.

I support amendment 10, rather than the Labour party’s “empty space” policy. Amendment 10 would have benefits increase in line with the increase in average earnings.

The tax increases under this Government have quite rightly fallen most heavily on those with high incomes, who are paying a far higher proportion of their income in tax than under the previous Government—let us take, for example, the increase in capital gains tax. If there were a Liberal Democrat Government and not a coalition Government, the well-off would be paying far more tax—a mansion tax, for example. The Government have also helped people in low-paid jobs by increasing the personal allowance, which I hope will be raised to £10,000 before the end of this Parliament. The work done by the Minister of State, my hon. Friend the Member for Thornbury and Yate (Steve Webb) on universal credit will also help people on low incomes. Pensioners have also been protected from the cuts, because of the triple-lock guarantee, and my hon. Friend is introducing the new single-tier pension—another major achievement.

The group of people we are discussing this evening, whose incomes would be cut by clause 1, are those in receipt of working-age benefits, but not disability benefits. Coalition is all about negotiations and reaching compromises. It is important to note what would be happening to welfare benefits if we had a Conservative Government and not a coalition. We know from statements in the public domain that a Conservative Government would propose a benefits freeze, not a 1% increase, and that the cuts would apply to all benefits, not just those listed this evening. Such a freeze would last for several years—not just three years, as under the coalition Government’s policy—and child benefit would be awarded only for the first two children in the household. These are all policies that a Conservative Government would introduce, but which the coalition is not. We also know, as was made evident earlier—certainly from the cheers on the Conservative Benches behind me—that a Conservative Government would reduce the top rate of tax to 40%, not leave it at 45%. Liberal Democrats in government have achieved a great deal in lessening the impact on welfare benefits uprating, compared with a purely Conservative Government.

However, my main concern about the measures in the Bill—this echoes concerns raised by the right hon. Member for Wokingham (Mr Redwood) and others who have spoken—is that committing the country to a 1% increase for three years now, before we know what inflation will be when the increase comes into effect, could end up being harmful to people on low incomes, because we have absolutely no idea how much world fuel and food prices will rise in those three years. I recognise the strength of the argument that benefits for people out of work should not rise at a higher rate than the earnings of those in work, which is why amendment 10 proposes to increase such benefits by the same percentage as the rise in average earnings over the previous year. Amendment 10 would be a fair compromise between the need to cut the deficit and the need to provide a safety net for those dependent on welfare benefits.

There has been a lot of talk about scroungers and curtains being drawn. I entirely reject such rhetoric. It is important to note that strong sanctions are available for those receiving jobseeker’s allowance. For example, people can lose their jobseeker’s allowance for up to three years if they do not apply for a job that their adviser tells them about, do not accept a suitable job offer, leave a job voluntarily, lose their job because of misconduct or do not take part in a compulsory Work programme. Therefore, sanctions are indeed available.

I represent a very rural constituency. It is important to point out that prices on islands or remote parts of the mainland are higher than in most of the rest of the country, and that people on jobseeker’s allowance in remote areas who are finding it difficult to get a job in the area in which they live are on very low incomes. We should not commit ourselves to only a 1% increase for the next three years, because we do not know what will happen to prices during that time.

[Mr Marcus Jones]

Would my hon. Friend acknowledge that if we had applied the logic that he is now advocating over the last five or six years and pegged benefits to wage rate inflation, the people he is talking about—the people he is trying to help—would be far worse off?

[Mr Reid]

A lot depends on where we start. If we are talking about rises matching prices or wages, it all depends on the starting point—if we pick a different starting point, we get a different result.

I was talking about the next three years. We know what the rise in average earnings was last year, so obviously we know what the rise in benefits would be in 2013-14. We do not know what it would be in 2014-15 or 2015-16, but setting the increase to the rise in average earnings, rather than a fixed rate of 1%, would mean that as the economy gradually grew, the level of growth in the economy would be paid to those on benefits, as well as those in work. That is a better approach than having a fixed rate of 1% for three years.

No Government have control over world food and energy prices. At Prime Minister’s questions last week I raised this potential problem when I asked the Prime Minister what contingency plans the Government had for benefit increases, should food and energy prices rise by more than expected. He answered by pointing to the good work being done by my right hon. Friend the Secretary of State for Energy and Climate Change to ensure that energy companies put people on the lowest available tariffs. That will indeed be a big help to people on low incomes, but if energy prices rise by more than expected, the lowest tariff will rise by more than expected too. After I heard the Prime Minister’s answer, I am afraid that I was left to form the conclusion that the Government have no contingency plans for a scenario in which prices rise by more than expected. I hope that when my hon. Friend the Minister replies to this debate, he will be able to reassure me on that point. I hope there is a plan B, in case world prices go up by more than expected.

Setting future increases to the increase in average earnings would address the legitimate argument that out-of-work benefits should not rise faster than earnings and would help to cut the deficit. For example, if the CPI figure were used for 2013-14, benefits would increase by 2.2%. If average earnings were used, they would increase by 1.6%, saving half the amount that a 1% increase would save. It is also important to point out that cutting public spending on its own will not eliminate the deficit. We need to grow the economy as well. All the economic research indicates that money put into the pockets of people on low incomes is far more likely to be spent straight away than it would be by those on higher incomes. Not increasing welfare benefits by the rate of inflation will have an impact on shops and other businesses, as well as the recipients themselves.

To sum up, linking benefit increases to average earnings is much fairer all round and avoids committing ourselves to a fixed figure unnecessarily far in advance. I hope that the Committee will support amendment 10, and I hope that you will allow it to be put to a vote, Mr Amess.

[Mr William Bain]

This evening’s debate on clause 1 and amendment 12, moved by my right hon. Friend the Member for East Ham (Stephen Timms), is important because it speaks to more than the £13 billion increase in the welfare budget caused by this Government’s failure on growth since 2010 or even the chronic lack of jobs, in a still depressed economy, faced by so many hundreds of thousands of people in our country. This debate speaks to the very values of our society.

Are we a country that is content to divide socially instead of coming together—jobless and workers, low-paid and middle earners—to defeat again the social evils of worklessness, low pay, slumping living standards and poverty? Are we a country that is content to see the doubling of food banks under this Government since May 2010, as 1.4 million people in work find themselves needing to resort to credit to help to pay the rent or the mortgage each month? Are we a country that will fall for the cynical “divide and rule” tactics of the Chancellor, which treat people as pawns in a squalid political game, amid a campaign of demonising the poor and turning neighbour against neighbour, when a responsible Government would seek to unite people rather than divide the country? This clause is rotten economics, ruinous for weak economic demand up and down the country and rank politics, from a Government who can relaunch as many times as they like, but who will never rediscover any sense of moral purpose while they engage in this basest of agendas of social division.