Welfare Reform Bill
Baroness Drake Excerpts(13 years ago)
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Baroness Drake
“( ) Regulations may specify that the pension contributions of single, or either of joint claimants, are to be disregarded when calculating either earned or unearned income.”
Baroness Drake
My Lords, I shall speak to Amendment 11 as well. Amendment 7 would allow pension contributions made by claimants to be disregarded in full when assessing their income for calculating entitlement to universal credit. Some 100 per cent of the value of pension contributions is deducted from income that is brought into account for calculating entitlement to tax credit. This amendment would allow that arrangement to continue under universal credit. Sadly, the Government have stated that in future only 50 per cent of pension contributions will be deducted from income when calculating entitlement. That is a mean measure. The Government state that they will save £200 million a year but this should be set against the near £30 billion saving from accelerating the increase in the state pension age to 66 and, to use the Chancellor’s words, the saving of a staggering £59 billion from accelerating the increase in the state pension age from 66 to 67. Those are very big numbers in comparison.
Pension reform was intended to strike a new deal between the state and the citizen, whereby: people work longer and the state pension rises; the state pension would be a flat rate to provide a firm foundation for pension saving; and private pension savings would increase through automatic enrolment into a workplace pension with an employer contribution. Those three elements are inseparable or the settlement becomes unfair to ordinary, hard-working people. The Government are accelerating the increase in the state pension age to reflect increasing longevity and to secure public expenditure savings of many billions, but they are backtracking—I stress, backtracking—on the pension saving and the incentive to save for ordinary, hard-working people. That is not fair. It is not a fair deal for the citizen and it breaks the consensus of the way forward.
The Government have suspended the introduction of auto-enrolment for workers in firms with fewer than 50 employees. They have delayed by at least a year—to 2017—the date by which workers will have access to the full 3 per cent employer contribution and tax relief. They have this mean measure of reducing to 50 per cent from 100 per cent the amount of any pension contributions disregarded from the assessment of income for universal credit. This will all hit responsible, hard-working people on modest incomes in receipt of universal credit who try to save for a pension.
It was very clear from official analyses that the way in which pension contributions were treated under the tax credit system was part of the incentive to save and the payback on every pound saved by low-to-moderate income earners. It provides an increase on their savings of up to a third because of the incentive-to-save effect. The Minister argued in Committee that it is necessary to take a balanced approach to the disregard of pension contributions as not all taxpayers who do not claim benefits have the advantage of a private or occupational pension scheme. However, with the introduction of auto-enrolment, it is the Government’s intention that they will all have access to a workplace pension; so that argument will not hold.
The Minister argues that the disregard for pension contributions is an area in which tax credits have been excessively generous. That is not a great message to send out to decent, hard-working people who play by the rules and are trying to save for a pension, and not one borne out by the facts. It also ignores the billions given in higher-rate tax relief—around £10 billion—to pension savings by higher-income earners. Universal credit is intended to encourage responsible behaviour. Policies to deliver an efficient benefits system and policies to enable pension saving by responsible people are not alternatives. This is a short-sighted measure, which withdraws valuable support to the incentive to save for a pension from responsible, hard-working people on lower incomes. This mean little measure should be set against the billions of savings from accelerating the state pension age. I really hope that I can persuade the Minister to reflect and reconsider this change in the treatment of pension contributions, and perhaps even to deploy his black arts again.
The purpose of Amendment 11 is to provide for regulation to allow for an additional amount in universal credit where a claimant is over the state pension age. Pension credit is targeted at low-income pensioners, to help them live above the poverty line. Currently couples can claim pension credit as long as one partner has reached the qualifying age. The effect of this Bill is to prevent pension credit claims in the future from couples where one partner is under that qualifying age. The couple will have to claim universal credit and be subject to conditionality. The impact of this change will be significant for many lower-income, older couples going forward. First, it may impact their income. I recognise that mixed-age couples, where one or both have earnings from work, can benefit from the system of universal credit due to the more generous income disregards and tapers, but there will be a range of possible outcomes depending on a couple’s circumstances, which will mean many being worse off.
Mixed-age couples claiming universal credit in the future could receive incomes that are £100 or more lower than under the current system. They may lose other sources of support—cold weather payments, help with health costs, warm home discount, and more. Standard payments under universal credit are just £105.95 for a couple. In contrast, the pension credit guarantee rate for a couple is £209.70 a week, and £137.35 for a single person. Without provision through regulation for additional support within universal credit where one partner is older, a pensioner could have a higher income living alone and claiming pension credit than receiving universal credit as a couple.
Secondly, it will impact their savings. The way the capital rules work under universal credit means that a pensioner with a low income and modest savings who has a younger partner could be excluded from pension credit and forced out of universal credit, or face a steep withdrawal of benefit. That is hardly the action to be taken for some who is about to commence living through their old age. Furthermore, it can impact their housing benefit. There are to be no exemptions to the size criteria for the receipt of housing benefit from April 2013, other than when the claimant or partner is over state pension credit age. However, the Government now want to reflect their decision, where one member of a couple is a pensioner and the other is of working age, on the housing benefit rules. That means that, unless mixed-age couples are protected from the restrictions, a pensioner with a younger partner could find their benefit cut if they have one or more spare rooms; if they live alone, the restrictions will not apply. It is a really peculiar form of couple’s penalty, which disproportionately hits older and poorer couples and their relationships. Should couples stay together or separate in future? That will be a real debate under the application of universal credit.
Pensioners in poorer households will have significantly different experiences because of differences in the age of their partners. It may not be unreasonable to expect some young partners who are able to work to be subject to work-related conditions and sanctions when they do not fulfil requirements, but why is it necessary to provide further incentives by restricting benefit to the pensioner partner in that couple? As to the thousands of grandparents who may not be receiving a carer’s allowance but who are looking after their grandchildren, do they lack incentive or responsibility? Should they be the ones who have their allowances cut significantly below that which they would receive under pension credit? Again, the Government show no affection for our grandmothers. So where neither partner is able to work or is unsuccessful in finding work, their basic level of benefit under universal credit should reflect the fact that one of them is a pensioner. As to the treatment of carers and disabled persons in mixed-age couples, it is not clear how the system will work in all circumstances and many will be worse off under state pension credit.
Pension credit is a very effective policy—it is probably the only effective policy—for targeting pensioner poverty. The effect of the change will impact a group of low-income older people, which is why, as proposed in this amendment, the regulations should allow for an additional payment under universal credit where a claimant is above state pension age. I beg to move.
Baroness Drake
My Lords, I thank the Minister for that reply. I do not think that I am supposed to say that any more—I think the new rules say that I can dispense with that—but I will remain courteous and thank the Minister. Or is that only in Questions? I am trying to keep up.
I will deal with each of his points. First, I did not know that there was a middle path. That is a whole new concept to me. I thought the issue was that in-work benefits would support the incentive to pay for, say, low-to-moderate-income people by disregarding pension contributions. As to the concept of a middle path, I do not know what the merit of that middle path is other than the opportunity to save some public expenditure. I have never seen it publicly debated that it makes a big or meaningful contribution to the pension settlement.
I accept that we may not strictly be comparing like with like, because I am trying to lift from a set of rules under one benefits system to the one that will apply under universal credit, but I do not think that I heard the Minister say that the £200 million saving from this change had varied. As I understand it, the Government are still expecting to save £200 million. However the cloth is cut. That means that, for a particular group of low-to-moderate-income people, £200 million will be taken out of their incentive to save. At the same time, there will be a staggering increase in public expenditure reduction of £59 billion from accelerating the state pension age. I do not want to debate the acceleration of the state pension age—I am sure that there will be opportunities to do that.
Lord Freud
If I could just clarify this for the noble Baroness, £200 million is the extra cost of doing this, not the money taken out.
Baroness Drake
I am sorry. I thought that the Minister said that they would save £200 million from this change.
Lord Freud
No, no, my Lords, I said that the cost of this amendment would be an extra £200 million.
Baroness Drake
I will have to go back and check on the figures. None the less, there will be a saving from this which has the effect of reducing the incentive to save for this group of people. As they will not be able to access the benefit of auto-enrolment until later, the contribution from their employer will come online more slowly, and therefore their ability and incentive to save will be reduced.
The Minister said that he sent a series of worked examples to my noble friend Lady Hollis that produced a range of outcomes. That is my whole point—some people can lose quite significantly under these new rules. It is not clear as to what the rules would be in all circumstances. Although there are transitional protections, that simply means that there will be a cliff-edge impact on another group of older couples when these rules come in. This will continue to add to the couple penalty and to the differing treatment of older couples depending on when precisely their qualifying age falls or on the age of their partner. That is why the amendment sought to give the Government flexibility as to how to address the problem of people suffering a significant drop in income. It did not of itself say that in all circumstances a partner should not be subject to work conditionality. However, I beg leave to withdraw my amendment.
Welfare Reform Bill
Baroness Drake Excerpts(13 years ago)
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Baroness Drake
Baroness Drake
My Lords, I shall also speak to Amendment 104AA. In Clause 113, we see the Government’s intention to introduce a civil penalty for negligence in providing incorrect statements for all categories of universal credit claimants. The penalty will also apply to the failure to disclose information. This is a probing amendment to understand why and how these penalty powers will be applied.
The civil penalty will be awarded where an error is not being dealt with through fraud action. The power to award will not be restricted to the Secretary of State but given to any authority that administers housing or council tax benefits, so it is quite a significant power.
Although there is an existing tax credit civil penalty regime, such a principle will now be extended to all universal credit claimant communities, many of whom are very vulnerable, such as those with disabilities or illness. What exactly is the offence and how will it impact on the population of claimants?
In response to a question from my noble friend Lady Hollis and me, the department has kindly advised that “negligence” should be construed in accordance with the everyday meaning of the word: that is, not exercising the care that the circumstances demand—in this context, being careless about, or paying insufficient attention to, the accuracy of any statement or information given in a benefit claim. Not exercising care and not paying sufficient attention are not actions that can be assessed for negligence without having regard to the capacity and the capability of the individual when providing that information.
More than 4.2 million adults lack the basic, day-to-day competences of functional literacy, 6.8 million adults lack functional numeracy, and I understand that it is estimated that two-thirds of claimants on income-related JSA have the functional literacy of an 11 year-old. There will therefore clearly be a higher concentration of adults with limited numeracy and literacy skills in the claimant population. As I have said, many claimants will also be vulnerable for other reasons—disability, illness or whatever. All these characteristics add up to a greater propensity for errors to occur and mean that the most vulnerable will be disproportionately hit by the civil penalty.
However, my arguments do not stop there. The Government are assuming that 80 per cent of claimants for universal credit will fill in their application forms online, but evidence from charities suggests that a much lower number will be able to do so without error; a more realistic figure may well be 40 per cent. What plans will the department put in place in the event that it becomes clear that the percentage of applicants who can fill in their forms online is significantly below that forecast?
Universal credit will also bring a new set of rules and people will not always understand what is expected of them. People have complicated lives, and even if someone is sitting next to them they may still get it wrong. Even when individuals want to get it right but are not competent, cuts to the funding for legal advice and the winding down of the local authority-based benefit services will mean that those who would otherwise have helped the claimant to fill in the form will not be there. Claimants may want help from face-to-face contact at Jobcentre Plus, but many centres are being closed and they are likely to be in urban areas and so they are remote from rural claimants. Yes, call centre staff will be available, but they may not be sufficiently experienced in the new rules, certainly in the early years of universal credit, and their guidance may lead to errors in the filling in of the form.
We have layer upon layer of capacity, capability and complexity considerations that, once added together, reveal why non-fraudulent errors will occur in statements and information provided by vulnerable claimants. This indicates a systemic series of reasons for errors that will not be addressed by exhorting the most vulnerable to be more personally responsible and hitting them with civil penalties. The most vulnerable claimants are often scared of filling in their forms, but now we have the potential to make them petrified. One can imagine their anxiety at receiving some heavy-handed departmental letter telling them that they are about to be fined. Their ability to know that it is a civil penalty rather than a criminal one may be a subtlety that misses them when they receive such a letter.
Let me ask the Minister three questions. First, can he give an assurance that civil penalties will not be introduced before transparent criteria are set out to ensure that claimants are not penalised for making innocent errors and failing to understand the need to report changes within a required timetable, and that definitions of “reasonable excuse” will take account of a claimant’s individual circumstances? Secondly, how will decisions about when to issue a civil penalty be made, and how and when will good cause be considered? Thirdly, how does the Minister expect to ensure that the most vulnerable and the most prone to make errors will not be unfairly penalised by the civil penalty—not the exhortation that the most vulnerable will not be hit but how he expects to ensure that that exhortation is met?
The reason given for the extension of the civil penalty power is to reduce claimant error and increase personal responsibility. The savings from introducing the civil penalty power will be £19 million over the three years to 2014-15, but the application of that power could have a considerable impact on some very vulnerable people. I understand that the Government’s estimate of the volume of civil penalties is just under 600,000 a year, which seems very high given that, first, universal credit is intended to be a simpler, more transparent system; secondly, that the number of penalties for tax credit claimants last year was, I understand, 1,221; and, thirdly, that there were 7,249 administrative penalties for the benefits service.
That leaves me concerned as to how these civil penalty powers will be used in practice, because in the impact assessment, fraudulent and criminal activity is lumped together with non-fraudulent and non-culpable—or potentially non-culpable—error. However, they are clearly not the same thing. The same community of people is not being addressed, but they are being considered in an almost holistic way in the impact assessment.
It worries me that the department appears to be applying a common mindset to both, which in part is my reason for tabling Amendment 104AA, which seeks to prevent the Secretary of State allowing any targets to be set that would prove an incentive to increase both the number and the value of civil penalties issued. The stated purpose of these civil penalties is to improve claimant personal responsibility. However, we know over time from our own common sense and experience that organisational cultures can result in such penalty powers being abused for reasons other than their original purpose. The punitive intention increases, or they become an opportunity to raise money.
In a world where there is increasing competition for access to tax revenues, civil penalty powers will be vulnerable to abuse. They could end up being deployed more aggressively to improve revenues or to be punitive. One can think of examples of where ordinary people think that this may have happened. For example, are the approaches to catching people speeding and the margin of tolerance over the speed limit determined by a desire to incentivise good behaviour and avoid bad, or has it become a means of raising revenue? Did some local authorities deploy surveillance techniques against ordinary citizens for reasons never intended by legislation? Whatever the validity of people’s thoughts on these matters, they are an indication of concerns as to how civil penalty powers can be deployed in a way that was never intended.
I would prefer the civil penalty not to be there, but certainly I want to ensure that the powers to impose civil penalties set out in Clause 113 of the Bill are never abused. The recipients of that abuse are most likely to be vulnerable people who easily make mistakes, and who could come to fear the department’s staff as a sort of form of police force that is free to hand out fixed civil penalties at will. Any targets set would almost certainly be set by reference to national standards, and this amendment seeks to prevent the Secretary of State from ever allowing such standards to be set. The population does not conform to national standards. There are differences in localities, in regions, in demographics, in educational attainment, language skills, level of employment, labour market characteristics, which all have an impact on the volume of forms likely to be completed incorrectly. There will be a concentration of impact from these civil penalties if targets are applied.
In summary, I am a strong believer in public service and support, but I have a great antipathy to the deployment of bureaucratic power that frightens or abuses people. I have real concerns about the deployment of this civil penalty and I look forward to the Minister’s response to my questions.
Lord Freud
Clearly, there are always difficult and special cases. I suspect that an old lady would not be eliminated entirely. The answer is that there is support for people with particularly tricky circumstances. We will work with local authorities that will be collocated in many cases, especially with the single fraud operation being set up. The shades of grey, which will start to rule out negligence, will be very evident in most of those cases.
In justification of the £50, that sum was chosen because we believe that this is a sufficient amount that will act as a punishment and make claimants more personally responsible for the overpayments they incur and encourage a positive change in their future behaviour. We have also set a significantly lower amount than the harsher punishments available for fraud offences, which reflects the fact that it is directed at the failure to take proper care of a benefit award and is not about fraudulent behaviour. Under the appeal process, the claimant will be able to appeal against the overpayments decisions, the civil penalty or both.
For those reasons, I urge noble Lords to reject Amendments 104AA and 104ZA.
Baroness Drake
I thank the Minister. Perhaps I may address some of the points that he raised because I still feel deeply concerned. I probably have slightly more concerns now than I did previously. I do not say that provocatively and I will try to say why. First, it should be made clear that this is a civil penalty that does not deal with fraud issues. There are separate clauses for that. The stated purpose of this civil penalty is to improve people’s behaviour in the accuracy of their form-filling. The concept of introducing the civil penalty worries me, particularly for a community of people with a greater concentration of the vulnerable and lower levels of numeracy and literacy, and when we are taking this means of a civil penalty to address behaviours, some of which are systemic and cannot be dealt with simply by handing out civil penalties here, there and everywhere—notwithstanding that the Minister said that that is not the intention.
The Minister said that Clause 113 goes on to say that there will be no penalty if you take reasonable steps to correct the error, but the point is that someone cannot take reasonable steps to correct an error if he does not know that he has made it. That is the problem. Someone could face the civil penalty before having the chance to put it right because he does not know that he has done something wrong. A concentration of people will be increasingly in the category of not knowing that they have made the error when filling out the form.
The Minister also said that I should not be worried about how the powers will be deployed, but he gave me one of the reasons why I am concerned. Quite rightly, and I do not disagree with him, he said that a civil penalty always comes at the same time as recovering an overpayment. If you issue a civil penalty, you have confirmed that there is an error, so it must follow that there is the recovery of an overpayment. If ever an incentive were articulated, that is it. You do not have to exercise discretion on overpayments; the awarding of a simple penalty puts you straight into going for that overpayment. No other considerations come into play. You make the easier decision to award a civil penalty because you do not then have to make the more complex decision about how to apply a discretion to an overpayment.
Lord Freud
My Lords, let me make this absolutely clear. It is the other way round. You can charge a civil penalty only when there has been an overpayment and you would not necessarily charge a civil penalty when there was an overpayment unless you associated that overpayment with negligence.
Baroness Drake
That is my point. If civil penalties and overpayments are inextricably linked, you would not award a civil penalty unless there had been an overpayment. You can almost produce an incentive to put something into the category of an error attracting a civil penalty because it makes it easier to justify chasing the overpayment.
Lord Freud
My Lords, I must make this absolutely clear—it is my third go at this. An overpayment happens when someone is paid something they should not have been paid. A civil penalty will be charged only when there is both negligence and an overpayment. I forget the logical post hoc, or whatever. We need to get it round the right way.
Baroness Drake
I am still not persuaded. I will stay with my point; I still remain concerned about targets. The Minister says that he has turned his back on targets. I accept that, but his assurance does not bind future Secretaries of State, who may not turn their backs on targets. Once this provision is in the legislation it is there for future Ministers and Secretaries of State to use.
I come back to the point that one cannot take reasonable steps to deal with an error unless one knows that one has made an error. This is the weakness with the example of the dentist appointment. With that example, you know that you have an appointment and therefore are in trouble for failing to meet that appointment. You do not necessarily understand, comprehend or know that you have made an error, or you may not necessarily have intended to make an error, in the form that you have filled in.
The Minister says that the Government have amended their figures by raising from £15 to £65 the level at which overpayment action would be triggered and that the number of penalties has been moved down to 400,000. I still think that that is a very large number. The Minister expects that penalties will apply to only half that number—to 200,000. I still think that that is quite a large number. That is his expectation, but once that power is awarded who knows what the figures will become, how the guidance in the department will be enacted and what the resultant figures may be? I do not think that noble Lords can be asked to express their approval or otherwise of a clause in a piece of legislation simply on the expectation of how a Minister would choose to deploy that power. One has to stand back and ask what the power is that the Government are taking to themselves. I am still left with concerns.
The Minister said that the Bill provides the powers but that you do not have to use them. That is not a compelling argument for not worrying about this clause. I am no lawyer, but I thought that one of the points of having rational legislation is that it protects the citizen against irrational political behaviour. An argument based on a disposition to use or not use a power at any particular time by a given set of Ministers does not really address the merits of whether there should be such a clause in the Bill.
The other issue is the £50 itself. The impact assessment says that,
“a £50 flat rate was determined as an appropriate starting point for benefit claimants to encourage better care of their claim”.
As that says, it is a starting point. Who knows how, over time, that level of penalty will evolve?
The Minister made the point that there will not be a scattergun approach to the civil penalty but that there will be clusters of mistakes on which the focus will be. That is good. If there are clusters of mistakes, it sounds dreadfully efficient to concentrate on them, but that is no reason for introducing a civil penalty; it is a reason for looking at managerial action or process or procedure, or focusing resources to address those clusters. Simply saying that every benefit claimant who does not fill out their form properly will now be subjected to the potential powers of a civil penalty seems a slightly over-the-top response to dealing with clusters of mistakes.
With all due respect, we have clusters of errors by the department and by local authorities. There are significant errors. I cannot believe that there would in the same way be penalties on staff who make those errors, and I would be completely opposed to that too. Errors often occur in the system for systemic reasons. That is different from fraud or from somebody knowingly tweaking their form or deliberately filling it in incorrectly in order to tip the benefit advantage in their favour.
Lord Touhig
Could my noble friend say—perhaps in response to the Minister’s answer to the noble Countess, Lady Mar, when he said that it would depend upon the circumstances, and following on the point just made by my noble friend—whether she thinks it would be helpful if the Minister, before Report, could provide us with the number of cases in which the department has accepted that an overpayment has been its fault and has not pursued it, and the number of occasions on which it has found that it has been the client’s fault and pursued that?
Baroness Drake
On the clusters point, clusters will presumably arise by type of error or a particular demographic of those filling in the form erroneously. I come back to my point that that issue should be dealt with not by civil penalties but by taking a more focused look at how one deals with those types of problem. I welcome the Minister saying that he is absolutely for the forbidding of targets. As to whether a future Government would be so constrained, no doubt noble Lords can argue with a future Government if they want them to be so constrained. We are trying to constrain this Government, so I certainly welcome any offers to constrain the way in which this civil penalty is used, although my preference is for it not to be there. I worry about the concept of a civil penalty and its deployment in the community of people whom we are discussing.
Finally, the Minister said that information is readily available, but you need to be able to understand it. No doubt he would say that if you do not understand it you should seek further advice from the department. However, I come back to the issues around the numeracy and literacy skills of this community of claimants. My point is that a new system of civil penalties is coming in. This partly goes to the point that my noble friend Lady Hollis made about trying to run a system of civil penalties when a new system is coming in. There will be less opportunity to find the people who this community of people normally approaches for support and help in filling out their forms because legal aid support through the advice system will not be there. We know that the local authority service will be run down, given the way in which benefits will be dealt with. We know that Jobcentre Plus venues are closing, and the jury is out as to how efficient a call centre system can be—certainly in the first few years—in supporting some of the vulnerable claimants who could be caught by erroneously filling out their forms. I beg leave to withdraw my amendment.
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 1 month ago)
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Lord Freud
No; we have made it clear that it would apply to housing benefit and not to other benefits. The cap will not have full coverage until universal credit comes in.
Baroness Drake
I did not get the chance to mention this when other issues were being discussed. The Minister gave a blunt message on what had caused benefit dependency. But the Bill is also setting the welfare system for people who have no record of benefit dependency. They are hard-working people who from time to time experience difficulty. We know that the Government are considering greater flexibility in the labour market. The newspapers have rumours about making group redundancies easier. Large-scale redundancies are much easier because it cuts the amount of consultation and makes it easier to dismiss people. I should like to push the Minister on the point that, notwithstanding the Government’s position on a cap, the transition to that cap needs to be considered so that the principle of the cap is not broken when hard-working people who do not have a record of benefit dependency are trying to engage in the labour market.
Lord Freud
I fully accept that point, as I have already indicated. I shall bear that point very much in mind as we go through the next stages.
Lord De Mauley
I understand what the noble Baroness wants and I am grateful to her for allowing me to write.
Baroness Drake
If there is an intention to put much more emphasis into making the reconsideration stage effective and efficient, is the department intending to commission an independent audit of that and to publish the findings so that people can have confidence in the effectiveness of the changes at the reconsideration stage?
Lord De Mauley
It will not be an independent process but it will be monitored closely in the department.
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 1 month ago)
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Baroness Drake
My Lords, I shall speak to Amendment 99AAA, to which I have put my name, and to Amendment 99C, particularly proposed new paragraphs (c) and (g). The cap as constructed fails to recognise the value of the non-waged work undertaken by family and friend carers when they embrace the responsibility for a vulnerable child or children who would otherwise go into care. Not only is that good for the child but it avoids a responsibility that would otherwise fall to the state and the taxpayer at a cost of £40,000 per year.
We know that a significant number of family and friend carers are older family members. Evidence from Grandparents Plus revealed that six out of 10 are over 55. I should like to quote highlights from a powerful speech that I read this weekend. It says that,
“we all gain hugely from the time and commitment that many older people give. We ignore this at our peril … we should not forget that many of the jobs they undertake would otherwise fall on the state. This is family doing what family does best—quietly, with great commitment, carrying out its duties … I’ve long believed that the state has become ambivalent about the importance of family structure, not just decent parenting but also the role of the extended family. In an increasingly atomised society, and in a context of growing family breakdown, it is all the more important that we continue to support, celebrate and hold together these wider relationships. Without them society would simply collapse”.
There we have it. I am sure that the Minister will recognise those as the words of Secretary of State Iain Duncan Smith in his speech on 31 October this year at the event organised by the Young Foundation and Grandparents Plus to celebrate the life of Lord Michael Young. There was no need for me to write my own words because the Secretary of State so powerfully makes the point that I want to make that it is better to use his. He makes a powerful case for recognising the contribution of these family and friend carers.
So we can see that there is no policy difference between us. The only issue, given that speech, is how we deliver that common policy. That is why the noble Baroness, Lady Tyler of Enfield, and I are expressing these concerns. However, the Secretary of State’s actual response to family and friend carers as currently provided for in the Bill is to cap their benefits, inclusive of child payments. In effect, the Bill has increased the barriers that these carers face. The state has moved from being ambivalent to actually being negative.
The Secretary of State concluded his speech by saying,
“We need to think hard”—
by “we”, I presume that he meant the coalition Government—
“about the way we recognise and reward caring, so that we don’t lose the invaluable support from friends and family that currently exists”.
I invite the Minister to do exactly that—to think hard about the cap on this community of carers, particularly as the Secretary of State has said publicly:
“I’ve specifically asked my colleague Lord Freud to look at the kinship carer issue”.
May I push the Minister to advise the Secretary of State to remove the cap for family and friend carers as set out in this amendment? When I read that statement, I had increased confidence that that would now happen.
I turn to Amendment 99C. There are three strands to the Government’s architecture for the welfare system: increasing efficiency, controlling affordability and reinforcing work incentives and positive behaviours. On that last strand, integrating in-work and out-of-work benefits into a single universal credit system has to be applied to two different constituencies: those who are out of work for long or sustained periods and those who are regularly in work. The Government have to build a single system for customers with different attitudes and experience of work, and a customer journey fit for both.
This is both a significant policy change and a behavioural challenge. If the Government want to avoid the universal credit resulting in disincentives and negative experiences for those who are fully engaged in work and have a clear work ethic, this challenge has to be met successfully. Otherwise, the Government may improve their process efficiency and affordability but they will fail to support the positive behaviour of millions of hard-working responsible people.
That is why I want to address the position of those hard-working people who suddenly lose their job involuntarily and the question of why there should be a period of 12 months before the cap is applied. The Government say that a benefit cap to limit benefit payments to those out of work is a fair and necessary measure—a driving principle, to use the Minister’s own words. However, to address the question from the noble Lord, Lord German, in a previous debate, a cap that is of itself a measure of fairness between those in and out of work must in my view be fair in its construct and proportionate in its impact. The benefit cap as proposed has significant shortcomings on both those criteria.
Clause 93 as drafted, as was powerfully said by the noble Lord, Lord Kirkwood of Kirkhope, means that Parliament is forgoing influencing “fair and proportionate” in the issue of the measure of fairness, unless it changes that clause or starts to lay out specific exemptions. Comparing average earnings net of national insurance and tax with benefits is not comparing like with like, and other noble Lords have already articulated the problems with that approach.
Equally, most benefit payments will be included in the cap, including child payments. To me, the concept of fairness in constructing the cap cannot be blind to the existence of children, otherwise there is an implicit punishment on them for their parents being out of work, and that is not acceptable in the design of a benefit system. That point was powerfully put by the right reverend Prelate in speaking to the amendment. The cap will also have a negative and disproportionate effect on hard-working families and their children when the wage earner loses a job or work involuntarily—even more so where the loss of work happens quickly and when any redundancy payment is low or non-existent.
Unfortunately, over my working life I have been involved in one way or another with thousands of redundancies and it is never a pleasant experience. I remember a FTSE institution deciding to close one of its regional offices. Originally, it intended both to tell all the employees and remove them from the premises on the same day. I managed to persuade the CEO that the workforce were a hard-working, decent group of people who would not wreck the systems and that he could delay the closure for three months to give people a fighting chance to find alternative work.
I kept remembering a female employee’s buoyant comment to me some nine months previously, because this was a group of people with a clear work ethic who worked at that regional office. She said: “They will never close this regional office: we have the highest productivity and we win all the company awards”. The CEO did agree to delay on the condition that I stood next to him when he told the staff, who had no idea of what was coming. It was one of the most salutary experiences of my life. The tears from both men and women, the panic, the anxiety: how were they going to pay their mortgage or rent; how were they going to tell their kids? I remember that plaintive question so clearly, because it was repeated so many times.
When faced with job loss or redundancy, hard-working people do not clap their hands and say, “Oh goody—I’m off to a life of unemployment on benefits”. They are more likely to be stressed and anxious while rushing around trying to find another job, probably fighting feelings of depression. To hit them with a benefit cap straight away just adds further hardship to already difficult—maybe even traumatic—circumstances. Anybody who has been involved in the private sector and large-scale redundancies knows that some people even have to be put on suicide watch. That is the reality of dealing with redundancy situations, even when there is a compelling economic reason for doing so. That immediate impact of a benefit cap would make it even more difficult to deal with the essential bills; their efforts may be redirected into relocating into cheaper accommodation and relocating their children to different schools at the very time they should be putting all their efforts into finding a job. It could force a breakdown in childcare arrangements for lone parents when they so desperately need to leave them in place, because they need them so they can search for jobs and make the early transition to another job.
In couples and families, to defend the cap and the couple penalty by shifting tougher work conditionality requirements to the other parent, who is the primary carer, is not necessarily going to provide a sustainable solution for that family. The inclusion of child payments in their benefit cap will hit their children hard. In a difficult economic climate, such hard-working people and their children will need time on benefits before a cap takes effect, while they try to find work. They should be given 12 months. A modern welfare system has not only to incentivise people to work and address benefit dependency, but also to support hard-working families with a clear work ethic in managing a flexible labour market. The single universal credit has to address both communities.
The Government want to see an increase in the private sector relative to the public sector. They want to see an increase in the flexibility of the labour market. This has to be achieved in part by a reduction in employment rights. However, they appear not to want to design a welfare system that supports hard-working people to manage the realities of today’s labour market and other economic realities—realities which will become harsher as global competition intensifies. Such support is fundamental to fairness; taxation and national insurance should enable society to make efficient and fair collective provision to meet the citizens’ needs—often at the point of need—whether it be, for example, health, defence or welfare. The Government, in building a universal credit system for customers with different attitudes and experience of work, must not fail to support hard-working people managing today’s economic realities. There is a danger that that dimension is lost in the current debate in this Bill.
The universal credit system is supporting both those who are persistently out of work, or who cannot for valid reasons be in work, and those millions of people who have a very clear work ethic but from time to time need a national insurance-based welfare system that is intended to assist them through—with their clear work ethic—the challenges with which they are faced.
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 1 month ago)
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Baroness Drake
“( ) Regulations may specify that the pension contributions of single or either of joint claimants are to be disregarded in calculating their income.”
Baroness Drake
My Lords, the purpose of this amendment is to allow regulations to specify that pension contributions made by single or either of joint claimants are disregarded in full in calculating their income for the purposes of calculating entitlement to universal credit: in effect, that 100 per cent of contributions made to an Inland Revenue approved pension are deducted from earnings that are brought to account in the calculation. The current tax credit rules disregard the whole of any pension contribution, and housing benefit takes half of that contribution into account.
Briefing note 3, which I read again this morning, states that only 50 per cent of pension contributions will be deducted from income under universal credit. I find this decision to allow only 50 per cent of pension contribution to be deducted—as against the current 100 per cent—quite disturbing when we are on the eve of beginning to auto-enrol millions of people into a workplace pension, many of whom will be modest-income earners and many of whom will be in receipt of universal credit. I find it disturbing for three reasons. First, it will undermine the incentive to save—I will come back to this. Secondly, it will impact those on lower incomes. Thirdly—and this is an argument to which I will return on another occasion—it is another example of a government policy measure, of which there have been several over a short period, which results in little or no asset accumulation strategy for low to moderate income earners.
The arguments for auto-enrolment and the 8 per cent base load of contribution included an analysis of financial incentives to save. It included the fact that this 100 per cent of contributions was allowed in the deduction under working tax credit. That analysis was carried out in three instances: once by the Pensions Commission—we were aware of it and it influenced our thinking—and twice by the DWP in its research report 403 Financial Incentives to Save for Retirement, and its report on the savings incentive work programme. The latter report was a very high-profile event; it was carried out in a rather heated environment around incentives to save and means-tested traps. The DWP was full and transparent in its engagement with all relevant stakeholders, sharing data and analysis. The report was widely accepted at the time. In all of these reports it was clear that the way in which pension contributions were treated under the tax credit system was part of the incentive to save and the payback analysis on every pound saved for low to moderate-income earners.
I cannot do justice to the reports in moving an amendment, but I refer to one or two selected examples. Looking at £1 of saving by a low earner under current benefit and tax credit rules, paragraph 4.5 of the DWP Research Report 403 advises;
“the expected payback for a low earner per £1 contribution net of any offsetting benefit effect is £2.81, compared to £2.52 with no such offset”.
The same paragraph, in brief, goes on to illustrate, admittedly for a very stylised individual, how receipt of working tax credit throughout working life by someone on a lower level of income can increase the return on their savings to 4.1 per cent from 3.2 per cent after all the effects of these offsets. Even if tax credits are received only at certain points and not throughout the whole working life, they still boost the net return on savings. If one were to take the difference between 3.2 per cent and 4.1 per cent and express it in terms of a percentage difference in a rate of return over 30 to 40 years, what would that mean? It would mean a pension pot of the order of 20 per cent or perhaps 25 per cent less than it would otherwise be.
Then we come to those on the lowest incomes who are hit hardest. I come back to a point that I made in a previous amendment about the purpose of the tax credit, which was to make work pay. It made it easier for people to get a real return from being in work and accept responsibility. This is very important to those on lower incomes. Clearly, a very strong incentive to save will be lost by changing the rules on pension credit and, inevitably, it is going to trail through to a gender dimension. I always get very stressed when I look at these things in terms of the gender impact.
Referring back to Appendix D of the DWP report on the savings incentive work programme, again this shows that those on modest incomes in receipt of tax credits and housing benefit effectively pay 52p for an individual contribution of £1, which, with the employer match, means that £2 is contributed to their pension. That clearly enhances the payback from saving for these individuals. I know that there will be instances where some people whose incomes are below the earnings limit at which withdrawal begins will not get that benefit. None the less, for significant numbers of people— and that number will increase in an auto-enrolled world—under the current arrangements the payback would be much higher by allowing the 100 per cent.
I come on to the broader point. It is very easy to look at a piece of policy incrementally and say, “We have to make difficult choices. We can do this and save that”, but I am always really concerned when I see a series of incremental policy decisions. When you look at their cumulative effect, they are quite exponential in their impact and much greater than the people who made the individual incremental decisions thought they would be. This is almost disassembling asset accumulation strategy. Policies focused on improving the benefits system and policies directed at asset-building by lower income groups are not alternatives. I get a feeling that there is a debate that says that they are. Certainly when I participated in the debate that led to the scrapping of the savings gateway, that was the debate that was running at that time.
It is not a matter of either/or; you address the low income policy and income redistribution or you address the asset accumulation strategy, but recognising that addressing inequality and enabling people to take responsibility, stay in control and be empowered, and everything that we aspire to for people to achieve, have and be, requires both sets of policies. Yet we see in this Bill and elsewhere other measures by the Government that have the effect of disassembling asset accumulation strategies. We have the one that I am talking about, where the amount of pension contribution deductions that can be made is now to be halved. We saw the removal of the savings gateway. We are seeing the application of quite aggressive capital rules to the savings of those in work under universal credit. We are seeing the application of aggressive capital rules where one partner has reached pension credit age and the other has not. We have seen the aggressive taking into account of ISAs and assumptions about income flow from ISAs, which were a product that was supposed to be targeted at lower to moderate-income earners. It was a high-advantage, simple, cash savings product.
Therefore, when one stands back, I have a general concern about the impact of a series of measures on the asset accumulation strategy for people on low-to-moderate incomes. I honestly do not know how one expects people to embrace responsibility and long-term saving, and think about preparing for retirement, when one of the significant things that contributed to the payback on your savings, apart from the employer contribution, was the way in which your pension contribution interfaced with the benefits system. It is unfair and it is certainly inefficient as a piece of policy, either as pension policy or in helping people to exercise more control and responsibility.
May I also ask about some operational issues that flow from this? It is not clear how personal pensions that are not paid through the employer will be handled when someone says, “I am not engaged in the auto-enrolment arrangements with the employer but I am paying into a personal pension, so how do I get account taken of that?”. Secondly, it strikes me that this will be quite a complicated procedure. If someone is on universal credit and paying a contribution, only 50 per cent of which is taken into account, you cannot take the gross earnings figure and you cannot take the net earnings figure because the Inland Revenue would have given a more generous allowance for that pension contribution. Therefore, you have to create another figure for the 50 per cent allowance that you are going to give on pension contributions. It just struck me as a rather complicated calculation or procedure, so I should like to understand how that will be done. I also dislike and disagree with the intention to reduce it from 100 per cent to 50 per cent. I beg to move.
Lord McKenzie of Luton
My Lords, I do not want to add anything to the very full argument around the policy that my noble friend has laid out. I just re-emphasise the issues about the practicalities and how they will work. I understand that employer contributions will not be treated as income for universal credit purposes but only 50 per cent of the employee contribution will be deductible. As my noble friend says, the data that come from the system would be net of tax, net of national insurance and net of occupational pension contributions, not the full contribution. Therefore, some adjustment would have to be made to that. How does that sit with the collection through real-time income and the related point that my noble friend made about when those contributions are made directly to personal pensions? Presumably there will need to be some additional reporting requirement. I guess this just emphasises that, in the world of universal credit, all is not as simple as we would wish and sometimes portray.
Baroness Drake
I appreciate that the Minister has to give the Government’s reasoning behind this decision, but I am absolutely aghast at the argument that it will cost £200 million to restore 50 to 100 per cent of the pension contributions being deducted. There was a pension settlement, which said that the state pension age had to go up but the earnings-related element would be removed from the state system and go flat rate, and that individuals, supported by their employer, would have to take on greater responsibility for personal saving. They would be auto-enrolled, and that was part of them taking responsibility for a sustainable pension system over the long term. As part of that, the incentive to save had to be right; that was a huge debate. In the third leg, between the state pension age going up, flat-rating the state system and moving private savings up and earnings-related out of the state system, the incentive to save had to be right.
At the time, there was a huge debate and a huge argument that it would not work unless you got the incentives to save right. At the lower end, how the benefit system interfaced with the pensions savings system was a very important part of the payback. It was also a very important part of the explanation to people—including shadow Conservative Ministers at the time, who were very vocal on this issue—that this was what the payback would look like, with incentivisations to saving that came through the tax credit system. This is what I mean about incremental decisions. Now somebody says, “Well, we can just remove a chunk of the payback for a particular group of people and save £200 million by reducing the figure from 100 to 50 per cent”. I really struggle with that because it is saying, “Never mind what the strategic analysis was or where we are trying to go; this convenient incremental policy will save us £200 million”—and somehow it is a fairer deal for the taxpayer. Maybe in 30 years’ time it will not be a fairer deal for the taxpayer if more people present themselves for benefits. I struggle with that line of reasoning for doing this for that group of people. Okay, it is £200 million. I am not avoiding the need to make tough decisions, but again one stands back and looks at the contribution that the taxpayer makes to the incentive to save across the piece.
My noble friend Lady Hollis is right. You can get £50,000 per annum incentivised right up to 50 per cent tax relief. I know that the noble Lord is going to shout at me that this will allow more people to keep their income and that it is a different analysis, but I do not accept that, particularly in the context of a sustainable pension strategy. We have all sorts of tax advantage savings arrangements that the well-off can take advantage of. You can fund a tax advantage stakeholder account for your child. You can fund a tax advantage ISA for your child or your non-waged spouse. I have taken advantage of some of these for my children. However, I struggle against the decisions on the incentive to save for low-to-moderate-income groups, which was inextricably linked to the in-work benefit system, when somebody says, “It saves £200 million. Just undermine the incentive to save and the payback for this arrangement”. It just does not stack up intellectually. It does not stack up when there is a consensus which says that everyone should buy into a pension solution that holds over the very long term. We have just taken £10 billion from a group of women who should not be bearing that level of savings, and we are now going to take £200 million out of low-to-moderate-income earners. My argument is losing subtlety because the quality of what I am pushing back on is unsustainable. It is £200 million for an irrational reason. Extremely reluctantly, I beg leave to withdraw the amendment, although I am sure I shall be coming back to this.
Pensions Bill
Baroness Drake Excerpts(13 years, 1 month ago)
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Baroness Howe of Idlicote
My Lords, I, too, thank the Minister for the efforts that he has clearly been making and I am grateful for the changes that have been brought forward in the other place. As the right reverend Prelate said, the Prime Minister was made somewhat uncomfortable by all these protests and has perhaps looked rather deeper into the effects on the generation with which we are concerned.
I, too, am still very concerned about the age group which is most severely affected. The people in that group entered employment as far as they were able with their caring responsibilities. We should not forget the cost to the public purse of bringing up children—in an orphanage, say—if their parents do not look after them. We all know that it is mainly mothers who carry that responsibility, and that has definitely had an effect on the amount of time that they have been able to devote to whatever employment has been within their reach. Therefore, we still have a duty towards this group of women.
I accept that £11 billion is a lot of money, but there have been complications over equality and I would still like to see more done for this group. I would regard it as fair, just and proportionate if this group were given a full year. Although I should have liked to go along wholeheartedly with what the Government have achieved, I am sad to say that, with my background knowledge from many years of fighting for equality of opportunity and much greater equal treatment for women, I do not think that what the Government are proposing has gone far enough.
Baroness Drake
My Lords, I recognise that amendments have been made by the Government but I support the amendment tabled by my noble friend Lord McKenzie. This is not an argument against raising the state pension age. It is not even an argument against accelerating the increase in the state pension age in the face of rising life expectancy to achieve the long-term sustainability that was articulated by the noble Lord, Lord Boswell. I frequently heard the quote from the noble Lord, Lord Turner, but if one gives it in its totality, he went on to say that he would also have been more radical on state pension.
As for my own situation, in 2004 I travelled the country attending public events and platforms telling people at a time when it was most unpopular to do so that the state pension age would have to rise not once but consistently. I have no difficulty in articulating the case for the need to respond to rising longevity. However, this is an argument about the manner and timing of this particular increase, which fails to take account of the need to give people sufficient time to adjust their lives and their planning for the increase. It means that a particular group of older women will disproportionately bear the burden of achieving these savings. That will happen for five simple reasons.
First, they will have lower state pensions for legacy reasons on the treatment of carers. Secondly, they will have lower private pension savings because of their economic and social position and the past incidence of gender discrimination. Thirdly, they are more likely to be undertaking caring responsibilities and less likely to be in the workforce. Fourthly, they will have lower incomes. Fifthly, they are less able to mitigate the loss of the income in the limited time available. The debate is about this particular increase, its manner and its disproportionate impact. It is not a challenge to the intellectual analysis of what you need to do to respond to rising longevity over the long term.
Those five reasons provide the essence of why the policy on this increase upsets people. It is seen as unfair. Consistently surveys show that women believe that coalition policies are seen as particularly harmful or harsh to women. We hear organisations such as the Women’s Institute articulating these concerns. At the weekend the Daily Mail highlighted the results of a Harris Poll survey showing that government support among women is slipping away. These proposals are an example of why that is so. They are very real in their impact on ordinary women. There are others, such as the change to the tax credit system, child benefit and childcare to name but a few. Yes, tough decisions have to be made. I do not disagree with that at all. But that mantra cannot be used to justify policies that consistently and disproportionately impact on women, particularly those who are carers and on low or moderate incomes. Until that is recognised there will be many more surveys revealing views of women similar to those reported by the Daily Mail at the weekend.
To get back to the point that I made in opening, the amendment of my noble friend Lord McKenzie—I know him well and we discuss these things frequently—is not a challenge to the need to respond to increasing longevity or the fact that accelerating the increase in the state pension age is part of that. In fact, the amendment does accelerate the increase in the state pension age compared with the existing proposals, and no doubt we will come on to look at ages 67 and 68. The amendment concerns the unfairness of the manner of this increase on a particular group of women for the reasons that I have laid out.
Lord Freud
That the House do agree with the Commons in their Amendments 3 to 17.
Lord Freud: My Lords, with Amendment 3 it will be convenient to consider Amendments 4 to 17.
Today we enter the final stages of an ambitious programme of legislation to transform the saving habits of working people in this country. Before we begin the debate, I pay tribute to the noble Lord, Lord McKenzie, and the noble Baronesses, Lady Drake and Lady Hollis, who throughout this detailed process have brought such value, wisdom and breadth of experience of proceedings to get us this far. Governments have benefited from a significant degree of consensus during the passage of this legislation. Our consensus has sometimes been stretched, but I hope that during this debate we will retain that consensual approach and a common goal to reshape retirement provisions fit for the next decades.
Many of my contributions to our pension debates have started with the words “Automatic enrolment”, and today is no exception. However, I stress one core feature. Automatic enrolment into a workplace pension scheme is an enduring duty: employers must put workers who satisfy age and earnings tests into a pension savings scheme and keep them in a scheme unless the individual chooses to leave. Employers may, of course, choose to close or change a scheme but, if they do, or the scheme ceases to qualify, there is a clear duty in the Bill to maintain scheme membership for all the jobholders affected by providing a replacement qualifying scheme if necessary. Employers may not induce someone to leave a scheme so that it can be closed unless they put them into another one. This is the core enduring duty.
Amendments 3 to 8 and Amendment 10 are technical amendments to make those continuity of membership provisions work as intended and make some minor technical corrections. They ensure that the automatic re-enrolment duty applies straightaway in situations where an employer, or any other third party, causes an individual to lose their membership. It also aligns this obligation to all active members irrespective of age. As a consequence we need to realign the key compliance provision in the Act that prescribes inducement with the automatic re-enrolment duty.
We also take the opportunity, with Amendments 5 and 6, to remove a redundant reference to the old style postponement provisions in the Pensions Act 2008 and amend a cross-reference in the uprating clauses which had inadvertently linked uprating to the jobholder age test rather than the automatic re-enrolment trigger. I remain grateful to the noble Baroness, Lady Drake, ably assisted by the noble Lord, Lord McKenzie, whose eagle eyes identified this mistake in Committee.
Noble Lords will recall that self-certification for defined contribution schemes was subjected to detailed consideration in this House. I am pleased that we were eventually able to reach agreement. Amendment 14 extends self-certification to employers using defined contribution schemes that have their main administration in another European Economic Area member state. EEA schemes are subject to the same European directives as UK schemes so members’ benefits should be similarly protected. We believe that putting EEA schemes on a comparable footing with UK schemes complies with our European Union treaty obligations.
Amendment 13 is minor, purely technical and consequential. It amends the title of Section 28 of the Pensions Act 2008 to reflect changes to the certification requirements introduced by Amendment 14, which extends the facility to EEA schemes.
Amendment 12 is a technical amendment which provides for a new test scheme standard for defined benefit schemes. This has been wrongly categorised as hybrid in the original clause. The new test standard does not alter the quality requirements for schemes but provides for them through the legislation relating to defined benefit schemes.
Amendments 15 and 16 are technical amendments to clarify the duty for employers with an existing defined benefit scheme to protect individuals. They align the rules on back payment of contributions when an employer moves a jobholder from a defined benefit scheme to a money purchase or personal pension scheme. Employers who have an open defined benefit or hybrid scheme may defer the automatic enrolment date for up to four years provided that the scheme remains open and the jobholder is still entitled to join it. Where this changes, the employer must enrol the jobholder into an alternative scheme and pay up to four years of back contributions. As drafted, the Act does not allow the employer to use a workplace personal pension as an alternative. These amendments fix that omission and ensure that the jobholder is not charged for the back payments.
Amendment 11 extends the reserve power in the Pensions Act 2008 to regulate to cap charges for deferred members in qualifying schemes. The current power to cap charges, should the need arise, applies only to active members who are paying contributions into the scheme; it does not apply to deferred members who have a dormant pension pot administered by the pension provider. It would not be fair to deferred members to be charged inappropriately high charges simply because they have moved jobs. Evidence suggests that the vast majority of schemes currently have low fund charges. However, savers may not understand the full impact that charges can have on their retirement pot. The risk that high charges could erode pension savings and bring pension saving itself into disrepute could increase as we make saving the default decision. The amendment provides a safety net for both active and deferred members in qualifying pension schemes. If we see charges creeping up after automatic enrolment, we will be able to intervene to set a cap to ensure that people’s savings are not eaten up by unreasonable charges. If such an intervention becomes necessary we will of course look at the impact across the pensions industry.
It is critical to the success of the workplace pension reforms that possible barriers to employer compliance are addressed before automatic enrolment starts. There is a potential overlap between the cross-border regulations, which deal with the provision of services by a pension scheme based in the UK with respect to an employee who is subject to the social and labour laws of another EEA state, and the automatic enrolment duty. This overlap could compromise the employer’s ability to comply with the duty. It can be complex and costly for schemes to accommodate pension rights acquired by individuals working in another EEA state and there is no obligation for schemes to do so. Amendment 17 provides for regulations that would exclude individuals who fall under the cross-border regulations from automatic enrolment. Without such a power we may find, when it is too late to address, that some employers will be unable to comply with the employer duties. Draft regulations would of course be subject to formal consultation and we would provide detail on the application of the exemption.
Additionally, the Pensions Regulator already provides guidance for employers and schemes covering the circumstances in which employees may be subject to the social and labour laws of other EEA member states and how this may make the employer a “European employer”. Should the Government make regulations, in practice the employer would need to take a view as to whether or not he is a “European employer” in relation to the employment of an individual and accordingly as to whether he should enrol that individual. I beg to move.
Baroness Drake
My Lords, in the consensual approach that we are invited to take by the Minister, I rise to support government Amendment 11. I am absolutely delighted and welcome the opportunity to return the compliment to the Minister in acknowledging that the Government are extending the powers in Section 16 of the Pensions Act 2008 to allow the Secretary of State to set a cap on charges to deferred members. That is significant progress, to my mind. I see that the Minister, Steve Webb, is here today, and I take the opportunity to say, “Well done”. I am taking this opportunity, too, to press him further.
As we know, with the advent of the new employer duty in October 2012, we will see millions of new savers being auto-enrolled into pension schemes. These workers will change their jobs on average 11 times over their lifetime and, in some occupations, that will be even higher. This means that, when workers leaves their job and their employer’s pension scheme, they are likely to leave a pot of pension saving that is still being administered by the pension provider but is not under the employer’s scheme. The pension pots of these deferred members, which are often modest in size, can be complex, costly and difficult to transfer and will be vulnerable to higher charges and poor governance over investment decisions.
I urge the Government, when they take the power to cap charges to deferred members, which Amendment 11 will allow them to do, not to wait to see what happens, because this is already an area that needs to be addressed. The capping or controlling of charges on deferred members by the Secretary of State should be undertaken through the microscope of the saver. If a provider cannot look after a deferred member’s pot of savings at low charges, it is for the Government to impose protection and, ideally, to facilitate the transfer of modest pension pots to NEST, where they will be looked after at a 0.3 per cent annual management charge, with very high standards of governance. Using the stakeholder cap on charges—the 1.5 to 1 per cent formula—is far too high a charge level for moderate to low income earners and should not be seen as an acceptable level for deferred members. That level of charges eats up far too much of the pension savings of low to moderate income earners. When millions of workers are automatically enrolled, the majority are unlikely actively to engage with their pension arrangements. Therefore, it is important that the Government have a very clear view of what a good pension scheme should look like and important that the Secretary of State uses the powers given under the Pensions Act 2008 to ensure that quality standards are set and met.
As to charges on pension savings, there are few barriers to entry to the market of private pension provision, and the Government need to make clear their expectations to monitor the situation to see whether those expectations are met and be prepared to respond quickly to address adverse developments. When a worker leaving a job leaves a pot of pension saving to be administered by the contract provider and is no longer in that employer’s scheme, who will exercise a duty of care in managing the worker’s investment? Who has the duty of care to ensure that the worker is not subject to high or excessive charges? This is territory within the framework of pensions reform that is much in need of further attention.
Another important area is the ability of workers who are deferred members to aggregate their different pension pots through a simple transfer process and that any charges for doing so are low or negligible. The administrative process of transfer must be made as simple as possible without significant charges being levied, and the ban on transfers to the National Employment Savings Trust should be lifted. I cannot see any gain for workers with moderate pots from that ban on transfers; I struggle to find any suggestion that it does—it can support only the industry, not the employee. I am not contradicted in that view by Paul Johnson, who was appointed by the Government to undertake the review of auto-enrolment policy. As for employers dealing with the issue of charges, transfers and the restrictions on NEST, it is not putting a burden on them. On the contrary, it will reduce the complexity they face when they are trying to do the best by their workers.
Lord Freud
My Lords, in discussing Amendment 18, it is convenient also to discuss Amendments 19 to 28. These amendments are about the revaluation and indexation of pensions—that is, revaluing deferred pensions at the point at which they are put into payment and indexing pensions once they are in payment. The first five amendments relate to the change to using the consumer prices index as a measure of inflation and the others are about the indexation of cash balance schemes. The changes to Clause 15 are a positive response to the consultation on the change to using the CPI as the measure of inflation. The consultation ended in March and we published the Government’s response on 16 June. There were more than 150 responses, many of which were technical and detailed.
The areas that attracted the most comments were the CPI underpin and revaluation. There were also concerns about the CPI underpin provision already there for indexation. Respondents suggested that this was too restrictive and unhelpful for corporate restructuring. Removing the CPI underpin for the revaluation of deferred pensions was not originally covered because the different ways indexation and revaluation work means that the likelihood of the CPI acting as underpin for revaluation is small. However, we have listened to the consultation responses, which indicated that even a small risk has consequences for administration and investment costs. The amendment adds a new method of calculating a revaluating addition to Schedule 3 to the Pension Schemes Act 1993. Some schemes will be able to continue calculating revaluation additions using the retail prices index. They will not be obliged to undertake additional calculations using the CPI as well.
We also made easier the application of the CPI underpin exception for pensions in payment. The test now targets whether RPI-based increases have actually been paid rather than whether the rules require RPI-based increases. The amendments also make sure that the application of the CPI underpin exception survives transfers. We do not want the possibility of a CPI underpin to become a barrier to scheme restructuring. The amendment ensures that the provision to address the underpin problem survives a transfer if the result is that the member has received RPI-based increases since the start of 2011 and will continue to do so.
I turn to Amendments 24 to 28 to Clause 17, which removes the requirements for cash balance scheme annuities to have a limited price index. Amendment 24 does not represent any change in policy; it simply makes a technical change to clarify that schemes that are or were contracted out on a defined benefit basis are still subject to indexation requirements. Amendments 25 to 28 remove the potential for confusion. They ensure that schemes that pay a pension commencement lump sum, or allow a survivor’s benefit of a set percentage of the member’s benefit, can be included in the definition of cash balance schemes and can benefit from this easement. They also ensure that the existing indexation requirements continue to apply to career average schemes or schemes that guarantee a member a pension calculated as a percentage of the lump sum. It was never the intention to exclude these types of scheme from the indexation requirement. I beg to move.
Baroness Drake
My Lords, I can see the purpose of Amendments 18 to 23, particularly the need to address the consequences of the Government’s decision to use the CPI for the statutory revaluation of pension benefits, yet not proceeding to introduce a statutory override to pension schemes whose rules explicitly provide for the revaluation additions to be calculated by reference to the RPI. I recognise that where the statutory method uses the CPI, there is an inconsistency for schemes that apply the RPI in the very infrequent event that the CPI exceeds the RPI in a particular year. In such a situation, schemes paying the RPI would, without these amendments, be faced with a statutory underpin of CPI. In effect, the rules of schemes that apply RPI would be interpreted to mean that revaluation is calculated by reference to the CPI or the RPI, whichever is the greater.
This amendment would remove that underpin requirement and allow schemes to continue to revalue by reference to the RPI, which would seem sensible and reasonable. While the Government are to be congratulated on not imposing a statutory override on pension scheme rules to apply the CPI rather than the RPI, where the rules so explicitly provide, the need for these amendments occur in part because of the open-ended decision by the Government to substitute the CPI for the RPI in the uprating of most benefits. It is with some regret that the Government did not put a time limit on that switch from RPI to CPI. There is scope for a review because I am sure that over the long term, when the economy returns to strong growth and earnings outstrip prices, and the price of key items is excluded from the indexation, the Government will need to revisit this matter.
That is particularly so for pensions, although I doubt that the Government will revisit this now. The change to the CPI from the RPI for evaluation effects a switch of assets and benefits from scheme members to scheme sponsors and does not directly impact the public deficit. None the less, it is clear that these amendments are a necessary flow-through from the Government’s decision, and I can see no reason to oppose them.
Amendments 24 to 28 are technical in nature and address matters relating to the indexing of the guaranteed minimum pension. Again, I see no reason to disagree with them.
Baroness Turner of Camden
My Lords, during our discussions on the Bill, one of the issues that raised a lot of controversy was the report that the Government intended to tell occupational pension schemes that in future they must apply the CPI rather than the retail prices index. That certainly led to a lot of opposition from people in occupational schemes. It also led to a lot of opposition from people in public sector schemes, because I gather that the Government are applying the CPI to public sector schemes instead of the retail prices index, which of course produces—currently, anyway—much larger increases than the CPI. I should therefore be grateful for confirmation from the Government that if an occupational scheme desires to continue with the RPI it will not be forced to apply the CPI, and that if it wishes to apply the retail prices index it will be able to do so, even though that is likely to produce—and will continue to be likely to produce—larger increases than the CPI.
Baroness Drake
My Lords, I shall speak also to Amendment 32. The purpose of Amendment 29A is to give absolute clarity to the legal meaning of a money purchase benefit in so far as it relates to pensions in payment. As the Minister said, the Government’s Amendment 29 is addressing the consequences of the Supreme Court’s decision in Bridge and restoring the legal meaning of money purchase benefits to that narrower meaning it was understood by most observers to have before the litigation. In doing this, it is restoring what was understood to be the extent of protection to scheme members and beneficiaries when their pension benefits could face funding deficits and preserving their potential access to the Pension Protection Fund. It is the Government’s intention that a pension in payment is a money purchase benefit if its provision is secured by an annuity contract or insurance policy. I do not disagree with that intention.
My concern is that the legislation should make it absolutely clear that any annuity purchase for a pension in payment must explicitly be in the name of that member and ring-fenced for them. I am not confident that the wording of subsection 3(a) of the new Section 181B inserted by the Government’s Amendment 29, which is before us, does that. My amendment simply adds the words,
“in the name of the member”,
to make crystal clear that the annuity must be ring-fenced for that member. The Government’s view, with which I have no disagreement, is that normally pensions in payment within a scheme are not money purchase benefits as the amount of the liability of that pension is unlikely to be matched exactly by assets held by the scheme. That being the case, there will always be scope for a deficit or a surplus in the funding of those pensions in payment. The exception, which the Government’s amendment allows for and which they propose to include within the definition of money purchase benefit is pensions in payment secured by annuity. Again, I have no disagreement with that proposal.
I repeat that my concern is that, in purchasing those annuities and insurance policies, schemes might not necessarily have ring-fenced such policies for the members concerned. They may have been secured as assets of the scheme as a whole and not for the named pensioner in receipt of a pension, which would not be unusual. Should that be the case, it would mean that those with a pension in payment would not have an automatic right to those assets in the event that there was an employer default on an underfunded scheme. Members could lose out if the scheme was wound up or underfunded.
I know that the Government’s intention is that the definition of money purchase is such that members should have the benefits of these annuities ring-fenced to them, but I am concerned that the Government’s amendment still leaves room for ambiguity because it does not, to use layman’s words, nail the point that the annuity must be held in the name of the member. My amendment simply seeks to provide that nail and so adds the phrase,
“in the name of the member”.
Current legislation has allowed the Supreme Court decision to arise notwithstanding the intention of policymakers, so if we are to avoid Lady Bracknell’s descriptive distinction between two comparable events, I believe it is appropriate to tighten the wording of the definition of money purchase benefits to reduce the likelihood of a similar problem in the future.
My amendment does not question the intention of the Government’s Amendment 29. I agree with them. All I am trying to do by the deployment of a few words is to make absolutely clear that a pension in payment is a money purchase benefit only if it is secured by an annuity or insurance policy in the name of that member.
Amendment 32 confers upon the Government the power to change the definition of money purchase benefit in the future, and one can see the common sense reason for this. Having been faced with a Supreme Court decision which ran contrary to what most observers thought was the definition, it is better to reserve powers to address a simple or comparable problem should it arise in the future—and other complexities may arise. The definition of a money purchase benefit is important because money purchase benefits are not subject to the regulation designed to mitigate deficits in a pension fund and to extend particular protections to pension scheme members.
What I am concerned about is the breadth of the power conferred on the Government or the Secretary of State by Amendment 32. I am particularly concerned that it could be used retrospectively to remove access to Pension Protection Fund protection from scheme members and beneficiaries by broadening the definition of money purchase benefit. I have similar concerns in respect of people having access to the financial assistance scheme.
The Pension Protection Fund exists to offer a level of protection to members of occupational pension schemes, unless they are excluded for certain reasons, the main ones being the existence of a crown guarantee; the trustees having compromised a fund debt; and that it is a money purchase scheme.
I am sure that the Government have no intention to use the power conferred by their Amendment 32 to remove Pension Protection Fund protection from schemes or members as currently defined. None the less, it would appear that the powers extended to the Government in Amendment 32 would allow such a possibility in the future. It is not clear to me what other existing statutory provisions, if any, would overlay the Government’s ability to use these powers. Put simply: what would limit a Government’s freedom to use the power conferred by Amendment 32 in a way that meant pension scheme members and beneficiaries would lose out?
I ask the Minister, if this amendment is made to the Bill, what, if any, limits would there be on the Government’s power retrospectively to remove protections from members and beneficiaries of funded pension schemes facing deficit and/or default. In respect of the other amendments in this group, they are largely technical in nature and I see no reason to disagree or query them. I beg to move.
Lord Freud
My Lords, I pay tribute to the noble Baroness, Lady Drake, for her precision analysis in this area, which—I say this as a compliment—has had the team seriously thinking about the issues involved. I also pay tribute to the noble Baroness, Lady Thomas, and the Delegated Powers and Regulatory Reform Committee, for applying such scrutiny to the powers contained within the Bill. I trust that noble Lords are as content with the Government’s amendments, even though they have some broad powers within them, as the committee was after its consideration.
Let me turn now to Amendment 29A. The noble Baroness, Lady Drake, highlights a key question. How do we ensure that those people whose benefits are classified as money purchase benefits in payment, because their scheme has bought an annuity to match the liability, actually benefit from that annuity? The Government share the noble Baroness’s aim in laying this amendment, but the issue is how one ensures the right outcome. I have concerns that the way this amendment is designed could have desirable consequences and place an unnecessary regulatory burden on schemes.
Baroness Drake
I thank the noble Lord for his detailed reply. I appreciate that trustees may not purchase individual annuities for individual members and can take out insurance policies for a number of members, but it is important to catch that issue of the policy or the annuity identifying the members covered so that it is clearly ring-fenced. One cannot leave an ambiguity at the purchase of the policy or annuity stage and then hope that somehow there will be clarity around ring-fencing if and when a legal challenge comes. I am very concerned that there are no ambiguities left, because either we will see another Bridge case or we will leave unprotected a group of members that the Government intend to protect. I note the Minister’s reference to making regulation and urge him to ensure that those regulations, when applied to this amendment in this clause, extend the protection with as much clarity as is possible to do under regulation.
With regard to the new powers, I appreciate that evolution can occur in the area of money purchase benefits. It is important to have on the record the Government’s recognition that the insolvency directive will limit the way in which the Government can exercise those powers in Amendment 32 and that the protection of people in funded occupational schemes is not diminished by this amendment. On that basis, I beg leave to withdraw Amendment 29A.
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 2 months ago)
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Lord Wigley
My Lords, I think that I have attended every sitting of this Committee. I find it immensely frustrating that, when one sitting ends, one finds that by the beginning of the next a wodge of new amendments has come on board. It does not mean that the points raised are not important or that there has been time-wasting. However, it is immensely difficult for people, particularly those with responsibilities to organisations outside the Chamber, to organise themselves to put the points that they need to put in debates. It is not just for this Committee but for the House to consider how to get a more orderly way of doing business.
Baroness Drake
My Lords, I support the amendment and come back to its detail; my noble friend indicated that it was a probing amendment. This is an opportunity to raise significant issues about in-work conditionality. Where a welfare system has to balance rights and responsibilities, under universal credit those in work will be embraced by an in-work conditionality of some complexity which neither they nor their employers will previously have experienced. From the emerging details of in-work conditionality it is clear that it will give the Government significant discretion over a sizeable section of the workforce, and powers to follow through with sanctions that will affect people's lives very significantly.
This is a novel discretion for three reasons. It will impact on a much greater volume of people; it will impact on existing in-work relationships; and it will require Jobcentre Plus people or any outside providers to engage with large numbers of companies with which they have previously had no engagement.
Setting and enforcing what is a reasonable condition, particularly in terms of increasing hours or requiring people to seek and change their jobs, must be sensitive to a range of factors: for example, local and regional labour markets, and different sectors and their employment practices. If an employer puts their employees on short-term working rather than making them redundant, is that a good thing or will it attract conditionality requirements? How will it be handled? What will happen when people have atypical or variable hours work contracts? Over what period and in what manner will earnings be averaged to assess compliance with income thresholds on conditionality?
In requiring people to work more hours or seek a higher-paid job, it is important to ensure that childcare and conditionality interact fairly. Parental need for confidence in the care of their children needs to be respected. My noble friend Lady Hollis moved in on some detailed concerns in this area. Any casual observation of female labour market statistics will show two peaks of part-time working by women. They coincide with key caring periods. Part-time working in the UK is part of the systemic solution to childcare, particularly for single parents. One cannot look at conditionality on the one hand without looking at the nature and characteristics of childcare in the nation as a whole. How will the sanctions regime be applied? How will it impact on the children of those who are subject to sanctions? How long will people and families be given to adjust to any new requirements and conditions, particularly if they come on top of a period of compulsory redundancy?
What we see from the details coming forward is the micromanagement of the work patterns of potentially millions of people, and the application of wide discretion that will need a considerable set of guidance notes and competences to apply the conditionality. The staff making these in-work conditionality assessments will have no previous experience of doing this. It is a novel area in its scale and complexity. No doubt in answer to my questions the Minister will say what is intended or that the matter is work in progress. It is pretty clear that an awful lot of work is still in progress. I say that not to appear negative but to say that the Bill has the effect of giving the Government considerable discretionary power over people in work.
Parliament needs to be satisfied on three issues: that the capacity and capability to implement the proposed in-work conditionality is there; that there is confidence that the discretion will be applied consistently, fairly and proportionately; and that there is a high level of confidence that there will be no inequalities of treatment or impact in the outcomes of applying that discretion. Because conditionality is now going to be applied to people who believe that they are already making a contribution, they will have to experience a different perception of the contribution they should make in terms of being in work.
I want to pose two questions for the Minister. First, do the Government intend to pilot in-work conditionality before they introduce it nationally? Secondly, would any introduction consequent on those pilots be both gradual and incremental so that experience, knowledge and skill can be built up by those assessing claimants? Thirdly, what will be the reporting to Parliament about the level of confidence that this complex system of in-work conditionality can be applied fairly and proportionately?
Baroness Lister of Burtersett
My Lords, I would like briefly to follow up on that because this takes us into largely uncharted waters, so we have to be sure of what it is that we are doing. I was struck by the research report, Perceptions of Welfare Reform and Universal Credit, which states that:
“Many part-time workers were surprised that the Universal Credit proposition addresses them as they tended to perceive that they were already doing their bit and felt a strong sense of entitlement to tax credits”.
I think that they found the idea that conditionality was going to apply to them quite disturbing. There is a real danger here. The Government talk a lot about not wanting an overly oppressive state, but I fear that many workers will experience this as just that.
I have two questions for the Minister. First, my noble friend Lord McKenzie mentioned the equality impact assessment. I understand why the Government are using earnings rather than hours as the threshold—because they want to get away from the in-work/out-of-work distinction—but in doing that, as my noble friend said, someone who can earn more will find it much easier to meet the threshold. We know from all the evidence that men are more likely to be able to do this than women, non-disabled people are more likely to do it than disabled people, and white people are more likely to do it than minority-ethnic people.
Baroness Grey-Thompson
My Lords, I would like to speak up for working parents because I am a working mother, and as noble Lords may have noticed I have brought my daughter to work with me. The amendment goes some way towards addressing some of the challenges that working parents face. It is absolutely my choice that I work 300 miles away from where I live, and it is the choice that my family and I have made. But trying to find flexible, affordable and appropriate childcare is really difficult. I am not sure whether that makes me a good or a bad mother, but I think that bringing my daughter along to a Lords Grand Committee is better than leaving her in childcare for a week. However, for people in more challenging financial positions, it is a real challenge.
I agree that it is better if parents are working, and I think that I am a better mother because I work. I think also that my daughter would probably say that it is not acceptable to be dragged along to a sitting of this Grand Committee and that she might prefer to be somewhere else. The wording of the amendment might not be quite correct, but it is important that we get these exceptions right. It is bad enough that as a mother you feel guilty for everything that you do anyway. You are accused of abandoning your child, not being a good mother and all those other things, when you are trying to do a good job. So it is important to get this right so that children can benefit from it—then parents and the family will benefit from it as well.
Baroness Drake
I was not going to come in on this amendment, but I feel moved to do so—
Baroness Drake
Absolutely, I can use the word “provoked” freely because that is what has led me to rise to speak.
There is a danger that this will become an emotional debate because people feel passionately about their children. I had three children aged seven and under and I know exactly the tensions that have been described. But this comes out of the construct of the application of in-work conditionality. The universal credit system imports a novel and extensive level of government discretion. What people are struggling with, because the Government cannot answer it, is how that discretion will be applied in real-life circumstances that they can empathise with. This instance arises against the background that most people who work part time are women, so they will be most subjected to the in-work conditionality on extending their hours. However, the childcare system in this country is inefficient, so there are those two background factors. Taken together with the discretionary system, which on the Minister’s own admission has a long way to go before it is fully defined and fit for purpose, three fundamental issues arise that people are struggling to get answers on. They do not think the answers lie in guidance, they want some security on the face of the Bill that constrains the exercise of the Government’s discretion.
Those three issues are: trust, care of the child and the compatibility of conditionality with the reality of the childcare system. I think back to when my children were younger. Anyone who has been a parent will agree that the thought that any bureaucrat in a complex system could have imposed a sanction on me unless I agreed to put my children into a care arrangement in which I did not have confidence is inconceivable. I could deal with that, because I had a job that gave me enough income. I had enough self-confidence; I had articulacy; I had education; I could cope with that challenge. What if I had been a low paid mum, with more limited educational skills? Could I have articulated or defended my fears about being asked to put my child into a provision that I did not trust? That is fundamental. As has rightly been said, that involves the care of the child. One cannot just say, “We think that parents are better and that attitudes to benefit or bearing responsibility are better if people work”. That has to be set against what is a fair system for the care of the child. We do not want lots of examples of people conceding under the pressure of conditionality to unsuitable care arrangements and horror stories resulting.
Baroness Drake
“(e) the claimant is a family and friends carer who takes on the care of a child—(i) where the child comes to live with the carer as a result of—(a) plans made under a child protection inquiry in accordance with section 47 of the Children Act 1989;(b) inquiries in accordance with section 53 of the Children (Scotland) Act 1995; or(c) an investigation in accordance with section 37 of the Children Act 1989;and the local authority states that the child cannot remain with the parents in the current circumstances;(ii) where the carer has secured a residence order, including a residence order under section 11 of the Children (Scotland) Act 1995, or special guardianship order—(a) to avoid a child being looked after where there is professional evidence of the impairment of the parents’ ability to care for the child;(b) arising out of care proceedings;(c) following the accommodation of a child; or(d) following the death or serious illness of a parent;(iii) where the carer is an approved kinship carer in accordance with Part V of the Looked After Children (Scotland) Regulations 2009; or(iv) where the child would suffer undue hardship if the exemption did not apply.(2A) Subsection (2)(e) applies for the first year of the claimant being the child’s carer.”
Baroness Drake
My Lords, the purpose of this amendment is to exempt family-and-friend carers, who are raising a child or children, from the conditionality requirement to seek work under universal credit for a period of one year.
I know that many noble Lords have expressed sympathy with the problems faced by family-and-friend carers, but were concerned to define the population that would be embraced by any amendment. The amendment does that. These are children who cannot live with their parents and would otherwise be likely to be in the care system, at significant cost to the state, and against their better, or best, interest.
These children include those who, for example, have to live with a carer as a result of a plan following a Children Act 1989 child protection inquiry, or because the carer has a residence order or a special guardianship order arising out of care proceedings, or following the death or serious illness of a parent. The list of legal circumstances is clearly set out in the amendment, and covers the relevant legal references for Scotland as well.
The amendment specifically lists situations so that it is clear which family-and-friend carers would be exempt from having to look for work for twelve months from the receipt of the child for whom they are assuming care. The amendment is designed to recognise that the circumstances of family-and-friend carers vary enormously. It seeks to offer protection from conditionality for one year to those in the most challenging circumstances. Carers are not covered by this amendment if they do not have a legal order.
There are compelling economic and social reasons for this amendment. First, there are an estimated 200,000 children in the UK who are being raised by grandparents, elder siblings, or other family members and friends. To refer to a previous comment from the Minister, this does not fall into a “little change” area; this is a matter of some scale. If just 5 per cent of children in such care were to enter the care system, it would cost the taxpayer £500 million each year. It costs £40,000 a year for a child to be placed in independent foster care.
In the second instance, undermining such carers will impact the child. The children in such care may have suffered abuse and neglect. They are often exceptionally vulnerable. In about half of all cases their parents are misusing drugs or alcohol. Kinship carers often need to devote a lot of attention to such children, especially when they first move in. The carers themselves often feel stressed and isolated. Forty-six per cent of family-and-friend carers are raising at least one child with a disability or special needs.
Research from Grandparents Plus highlights the fact that three in 10 kinship carers give up work, sometimes at the direction of social services, and often because it is the only way to meet the child's challenging needs. A further three in 10 reduce their working hours, and their role is akin to that of a foster carer. Many children they look after would otherwise be in local authority care. The children may move into a family or friend’s care at any age, not just when they are under five or seven but often when they are young teenagers with difficult problems. For some carers, a year's exemption from being available for work or additional work would give them enough time to manage the upheaval in their lives and support the child before having to juggle work and care under any conditionality requirements.
Reinforcing the similar findings of a survey carried out by the Family Rights Group, a survey of grandparents and other family-and-friend carers conducted by Grandparents Plus found that 28 per cent of carers gave up work when they took on the care of the child and a further 29 per cent reduced their hours. The same survey found that eight out of 10 were under 65 and four out of 10 were under 55. Clearly, they will fall in significant numbers within the conditionality framework. Family-and-friend carers often report that social workers insist that they give up work in order to prevent the child being taken into care. However, only a minority—around one-third—receive an allowance from the local authority.
One consequence of the Bill and of other policy changes being introduced is that in future many more family-and-friend carers will be affected by conditionality requirements. At the moment, single family-and-friend carers, such as single parents, do not have to be available for work until the youngest child is seven. However, Clause 57 reduces this age to five. Furthermore—this comes back to our debate on the last but one amendment—the increase in the state retirement age will mean that increasing numbers of older grandparent carers will be affected by conditionality. As that age goes up, by definition more of them will come into the conditionality framework. Therefore, an unintended consequence of the changes may be that fewer family-and-friend carers will step into difficult family circumstances. The result will be an increase in the number of children in care. Clearly this would not be in the child's best interests, and would certainly translate into an increased cost to the state.
A lot of case studies have been sent to me by organisations that care about this community. I have tried to condense one powerful case study. It is a good one because it challenges the stereotype of young people. Paul is a 24 year-old man. He is the sibling carer of his six younger brothers and sisters. They were taken into care when his mother disappeared. Paul successfully secured a special guardianship order for all six children to live with him. Social workers have stated that he cannot go back to work until the youngest, now seven, is at secondary school because of what the children had been through.
Baroness Hayter of Kentish Town
You are not allowed to demonstrate things in the House, but I now have to tear up my speech. I have never been so pleased to do so, I have to say. We should thank the Minister both for what he said and for coming in so early to make those comments. I really am going to tear it up and only add two things. One is to reconfirm what has been said. What he is looking at is undoubtedly in the best interests of the children and of the state, because it is a good investment for the future. As the Minister recognised, we are often talking about older children—I think that children over 12 make up a higher proportion of those in kinship care than those in the wider population, so perhaps we are talking about a different group here.
The only other thing I will add is that he talked about discussing this with others. My noble friend Lady Drake spoke about talking to BIS—an elegant name—about the rights-at-work issue. However, the DWP policy on kinship care is a bit out of kilter with that of the Department for Education, with the latter promoting family-and-friends care as a first option for children needing alternative care. It would therefore be useful—I am sure that the Minister has it already in mind—to talk to the DfE about these proposals. Given the involvement of local authority social work staff, who are often the brokers in setting up an arrangement that can lead to a child being taken into care, tying them in as well would be useful. Therefore, it means including the DCLG as well as the other departments to get a joined-up approach to this.
I think that the Minister used the word “clarity”. Whether kinship carers know the situation before they take the momentous decision to take in a child will be key. That probably means statutory provision rather than just guidance, to give that security to someone taking on what is often a lifetime commitment. As all noble Lords who are parents know, children do not even grow up at 18. Even 30 year-olds have not grown up. It is a lifetime commitment. We very much welcome the comments that have been made.
Baroness Drake
First, I will respond to the comments made by the Minister. I fully recognise that he has shown a real interest in this community of family-and-friend carers; and that his interest was shown before any prompting by this amendment. It seeks to ensure that his resolve stays firm and to push him firmly into including something in the Bill to address this community. I welcome his positive response this evening.
Guidance does not do it; it will not be acceptable. It may be imposed, but that is not where I, or those who are interested in this issue, want to be. Nor do we want case-by-case consideration. It does not give the clarity of treatment, the confidence, or the protection that this community should have when they take on children. I agree with my noble friend Lady Lister that if something firm could come from the Government on this before the Bill leaves the House, it would be warmly welcomed. I wish to push the Minister, between now and the appropriate stage of the Bill, to reflect on something firm that could be placed on the record.
In response to my noble friend Lady Sherlock’s point, I must be honest and say that in drafting the amendment I was conscious of balancing the needs of a community with people’s concerns about more informal arrangements for the care of the child. This amendment specifically addresses a community of carers where there is a legal order.
My noble friend is right that, particularly if parents are, for instance, taken to prison, there could be an immediate effect of children needing to be looked after, even if subsequently there is a legal process to follow. Perhaps the Minister could reflect on the weakness of my amendment, which I will address at a later stage.
Lord Freud
If I can wrap up, in anticipation of the noble Baroness, Lady Drake, wrapping up: I take on board the points. In fact I make a point which should cheer up noble Lords, in that the DWP process is more flexible than these legal orders. We can do things to support kinship carers without this huge paraphernalia, and that is one of the areas I am looking at. We can do it just by understanding that that is where the child is, and we do not need all these processes.
In that way, we are doing something way ahead of the concerns of this particular amendment. I know I am being pushed; I am not sure about timing, because of negotiations, but I can do something narrow. To the extent that we want to go broader for this community, these things take time but I am on the case. That is all I can say.
Baroness Drake
At the request of the Minister that I wrap up, I duly wrap up, and agree to withdraw my amendment.
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 2 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Greengross
My Lords, unsurprisingly, this is primarily about people who have reached, or have nearly reached, retirement age. We know that for a long time the means-tested benefit system has supported, and given greater support, to people who have reached retirement age. However, under this Bill, unless couples where one person has reached retirement age receive some additional support, the older person who might be, say, 80, who happens to have a partner of 59, could be worse off financially than someone with a partner of the same age. My amendment seeks to remedy that anomaly.
Not allowing couples, when one has reached state pension credit age, to get working age benefits is an important change from the current rules because the way in which couples have been treated in the past for benefit entitlement has been based on the age of the youngest partner. In the Bill as it stands, one of the basic conditions for entitlement to universal credit set out in Clause 4 is that someone is under the qualifying age for state pension credit, which, by the way, is gradually increasing in line with rises in women's state pension age. However, Clause 12(2) allows for exceptions to that. The Government have said that the age limit will not apply where one of a couple is above the qualifying age for state pension credit and the other is younger. That is necessary because Schedule 2 to the Bill will prevent pension credit claims in the future from couples where one is under the qualifying age.
In some situations, couples where one is above and one is below pension credit age may be better off financially receiving universal credit and I am really pleased about that. That could apply, for example, where one is working, as an important aim of universal credit is to make work pay, and benefits will gradually be withdrawn. However, by contrast, a couple receiving the pension credit guarantee have only a £10 disregard from earnings. After that, any earnings are counted in full as additional income, which will reduce benefit entitlement. If neither partner is working, a couple relying on universal credit will receive a lower level of payment than a couple receiving the pension credit guarantee.
I fully accept and agree with the fact that the Government want younger partners who are claiming benefits to be seeking work, but I believe that when neither partner is able to work or, if able, is unsuccessful in finding work—we know it is rather difficult for people who are near retirement age—the basic level of benefit should reflect the fact that one of the partners is older. The addition of this minor age exception to the list in Clause 12(2) would achieve that aim. I trust that this amendment will be acceptable to the Minister. I beg to move.
Baroness Drake
I support Amendment 50A. I am very concerned about the implications of the change of the rules on pension credit because the effect of the proposed change is a severe restriction on the availability of pension credit. The most recent impact assessment which updates that provided in February to take account of a more recently announced policy confirms that the number of households with lower entitlements under universal credit has increased relative to the previous version of the impact assessment. That is primarily due to the announced policy changes to disability payments and the treatment of couples with one partner under and one over the qualifying age for pension credit under universal credit.
I find this change in policy a peculiar form of couples penalty, when the Government are on record, I understand, as being against such a penalty. It is a couples penalty that disproportionately impacts on the poorest of couples because the recent impact assessment reveals that the number of households with lower entitlements under universal credit will increase as a result of this particular treatment of couples with one partner under and one over the qualifying age for pension credit. As a consequence of these changes, although not wholly attributable to this one, 70 per cent of the lower entitlement is concentrated in the bottom and lower quintile.
Although the figures in the impact assessment do not separately show the impact of the pension credit changes, the impact assessment states quite clearly that:
“Some of the heaviest notional losses … are in cases where one member is of working-age and one is currently eligible for Pension Credit”.
I see in response to a question from Stephen Timms in the other place, Steve Webb answered that as of February 2011, 93,200 pension credit recipients had a partner aged below 60. A not insignificant group of people, no doubt in low-income groups, will be impacted by this change.
When one looks at previous impact assessments that the department has released, in many of these couples when one is a pensioner and one is not, the partner below state pension age may well be caring for children or somebody with a disability or who is ill. Now those households would be subject to the new in-work conditionality requirements. We know that older women are less likely to be employed outside the home, so this is another example of a policy that will impact on women—exactly the kind of policy upsetting the Women's Institute according to this weekend's papers. I am sure that it will be onto the case with this one as well
I notice that the Minister, Mr Grayling, commented in Committee in the other place that it should be acceptable to say to someone:
“‘Your household is on a low income, you need more money, get a job’”,—[Official Report, Commons, Welfare Reform Bill Committee, 28/4/11; col. 553.]
as a defence of this change to the pension credit rules. Perhaps he should have reflected on the characteristics of the community affected by this change, such as the number of older women in such households who are undertaking valuable non-wage caring work or the fact that disabled people are more likely to be reliant on pension credit at minimum qualifying age. Those facts and figures are freely available in impact assessments from the department.
We now have a policy that is discriminating between pensioners on the basis of their spouse’s age and producing some quite arbitrary outcomes with poorer households having significantly different experiences because of what could be quite moderate differences in the age of their partners. Let us be clear: the effect of this policy is to disentitle someone under the current rules who would otherwise receive pension credit and place them, because of the age of their partner, into universal credit.
This policy will impact on a lot of low-income households. The noble Baroness, Lady Greengross, detailed that when she moved the amendment. I know that Age UK is particularly concerned. If, for example, a couple received an amount of universal credit equivalent to the basic level of income-related jobseeker’s allowance that would be just £105.95 compared with pension credit for a single person of over £137 and £209-plus for a couple.
The other point that causes me concern is that pension credit provides an automatic passport to benefits such as health benefits, Christmas bonus, home improvement grants and free school lunches—I was looking the list up—and any cared-for children’s access to school lunches. Will all these fall away now for these couples, even though one of them reaches the qualifying age?
The other impact is that this change in policy will also mean that these older couples, with one at the PC qualifying age, will find that any savings that they have are now subject to the more aggressive capital rules, rather than the gentler rules under pension credit. That strikes me as particularly harsh as a consequence of this change. I feel that this Bill is being used to change the rules on pensions, yet it is not a pension Bill, because the population most impacted on by the change in this policy will be subject to a series of government policy changes, the accumulative effect of which would be quite significant. They face an accelerated increase in the pension credit qualifying age, consequent on the state pension age changes, and the impact of that has been clearly detailed. The savings credit element of pension credit has been frozen until 2015, and now a new policy of disentitlement has been introduced, whereby a qualifying age of entitlement to pension credit will be dependent on the age of the partner. When one stands back and looks at the cumulative impact of this on these individuals, the impact of the rules on their savings and the characteristics of this demographic, one can see that this is a very harsh change of rules. Yet the Government’s own impact assessment for the Pensions Bill shows that women under 55 on low incomes, who are most likely to be the people under the qualifying age, whereas their male partners may be at it, are the hardest hit by any changes in pension credit policy because of caring responsibilities, ill health or availability of work. They are now going to be caught up in the conditionality requirements under universal credit.
Pension credit is a very effective policy for targeting pensioner poverty, which was confirmed by the recent PPI research commissioned by Age UK and launched at an event supported by the Minister, Steve Webb, who came to speak. Here we are, tampering with the rules of pension credit when it is probably the most effective mechanism that we have for immediately addressing pensioner poverty. The effect that it will have is simply to disentitle people who have previously been entitled to pension credit and put them through a discretionary work conditionality process when we know that the characteristic of this particular group should not be subjected to those kinds of policies. The amendment tabled by the noble Baroness, Lady Greengross, will allow the Government to address my concerns on this issue.
Baroness Hollis of Heigham
My Lords, may I just ask a question of the Minister in support of the amendment? As I understand it, if someone is on pension credit above the age, they pull a younger person up to their age. In future, if someone is of a younger age, they will pull someone over pension credit age back down again. How will that interact with the proposed new state single pension, which will of course embed pension credit into the pension, so that somebody over the age of 65 or 66 will get the whole lot? Could he confirm that the timing of this, which I thought was 2014-15, will be precisely when some of this is due to be implemented? Would it not therefore be wise to rethink that, in terms of those proposed changes?
Welfare Reform Bill
Baroness Drake Excerpts(13 years, 2 months ago)
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Baroness Drake
Baroness Drake
My Lords, in moving Amendment 22A I will also speak to Amendments 22E and 52A. Amendment 52A is a probing amendment to establish clarity on the treatment of capital—that is, the types of capital disregarded and for how long for the purposes of entitlement to universal credit. In Schedule 1 to the Bill, line 9 on page 107 refers to universal credit supplementary regulations, which may,
“specify circumstances in which a person is to be treated as having or not having capital or earned or unearned income”.
However, the schedule does not refer to such regards for limited time periods. We have received an initial illustrative set of regulations on the treatment of capital and it is clearly not a final version. I obviously recognise that this is work in progress. None the less, the Bill is before us and it is important to understand the Government’s intention.
Currently, there is a long list of items of capital that are exempted from the calculation of entitlement to means-tested benefits. In many instances, the exemptions are time limited. These range from the value of one’s home and personal possessions to tax rebates and training programme payments. It is not clear whether all these exemptions will continue under universal credit, a point that I noticed at the weekend was registered by the Institute for Fiscal Studies, although I recognise that the draft regulations have started to set these out. It is clear from the briefings we have received from the DWP team that there are gaps and further work to be done. For example, there is an acknowledgement that the treatment of capital where it is jointly held with another person who is not included in the claim still has to be addressed by the Government and a view taken.
This is a particularly important issue, because as a result of the proposed treatment of capital, some of those in work might consequently experience a reduction in their income. This is going to be of some significance for those in work because tax credits do not set a capital cut-off, although there is provision for income that is derived from that capital to be taken into account. Capital above £6,000 will be taken into account in universal credit. Furthermore, with the integration of the in-work and out-of-work benefit, the Government will be applying a tariff approach whereby capital is deemed to produce an income by applying certain rates.
On that basis, will the Minister say whether the current circumstances in which a person is treated as not having capital, including time-limited circumstances, will all continue under universal credit? I have a long list before me, having tried to do my homework, and I can see that there are several not covered in the illustrative list, including: certain payments made to disabled people; the refund of council tax liability; payment by social services; employment and training programme payments; and tax rebates, for future interest in most kinds of property. There are clearly some gaps, which I have already identified. Will the Minister also say when it is anticipated that the definitive regulations on the treatment of capital in universal credit will be available?
Amendments 22A and 22E address the desire to exclude amounts arising from the sale of primary residence from the claimant’s capital for the purposes of entitlement to universal credit for a period of 12 months. Under current rules, money received from selling a primary residence or from surrendering tenancy rights to a landlord is ignored as capital for a period of up to 22 weeks from the date of the sale. I recognise that the briefings we have received have advised us of the Government’s intention to continue this practice, but, in the absence of absolute clarity on the definitive set of rules, it is necessary to table amendments. Equally, however, I seek to extend those rules to allow the capital to be ignored for 12 months.
Under the current rules, capital held on the sale of a primary residence is disregarded for a period of 26 weeks. Clearly, however, already under the existing rules there is discretion to extend that. I am saying that rather than have discretion between 26 weeks and 12 months, a disregard for a period of 12 months should be allowed because selling a house is not easy, particularly in current circumstances. A geographic relocation may be involved, vendor behaviour may be difficult and surveyor problems may occur, and 26 weeks strikes me as a very small period for someone to manage the difficulties of selling and purchasing a new house. Hence, this clause seeks to extend the ability to disregard the capital from the sale of primary residence to a period of 12 months.
Lord McKenzie of Luton
My Lords, I speak in support of my noble friend’s amendment and to catch up on one or two points. We understand the need to merge two different systems of dealing with capital: the tax credit rules and the tariff rules in the benefit system at the moment. One question to the Minister is: why did the Government opt to do it that way round rather than the reverse way round? It could lead to complexities. Someone whose income swings around that £16,000 cut-off point could be in benefit or in the universal credit one day and out the next.
My second question is: can the Minister say something about the practicalities of how this is going to work? What is going to be the process for reporting capital, and how often will that have to be updated? Will it be on a six-monthly basis? Will there be a look back if the capital has changed during an assessment period, giving rise to adjustments to universal credits? I am picking away at some of the complexities around this, because we often promulgate universal credit on the basis that it is a simplified system, and we accept that in some respects it is. However, it still has attached to it these sorts of complexities from the changes in people’s lives. It would be good to know which of the existing exemptions will be carried forward into the new system.
The £16,000 cut-off point will penalise savers, making it harder for low-income working families to save. It will particularly penalise families with high tax credit awards such as high childcare costs or indeed disabled children. Therefore, we see this as a disincentive to save. I was going to ask whether this is wise when there are rumours about auto-enrolment being deferred, but I am advised that that is not now in the Government’s mind.
I was a little surprised in the briefings that we had from the department by comments about it being right that people should, over a period in some circumstances, disinvest their assets before wholly relying upon state support. However, the briefing note quotes in aid,
“earlier means-tested benefits including National Assistance required applicants to exhaust all or most of their savings (and to sell personal possessions regarded as unnecessary)”.
That has a resonance for many people, particularly on the left, and it is why, for a period, reference to means-tested benefits was a derogatory and hated term because it took you back to circumstances in which people knocked on the door, entered the front room and told you to sell every stick of furniture you had before you could rely on benefits. Reverting to references to national assistance and those practices is probably not going to be the most helpful way for the Government to sell this policy.
I support my noble friend on the one-year rule in relation to disposals of properties because the current market is extremely difficult, and even if individuals have the cash to make the purchase, people get caught up in chains and it is difficult for them to complete and sell on so that a satisfactory result can ensue. It is therefore very reasonable to request simply extending that period and that disposals from the sale of property are excluded from the calculation.
Lord Freud
My Lords, I will have to write to the noble Earl, Lord Listowel, with precise information on that.
Baroness Drake
My Lords, on the point about people who sell their houses and have capital from that, current rules allow the discretion to extend to 12 months. The provision is already there, so I do not see why one could not have efficiencies in the system since the cost of applying discretion is reduced to the difference between six and 12 months and people are given greater clarity in what is a complicated market for buying and selling houses. Also, the rules are being applied to a population that would not previously have been subjected to them. Millions of people will be impacted over time, and this is not a difficult alteration to make in the rules.
On the definitive set of rules setting out what capital or earned and unearned income is or is not going to be taken into account, the exchange with my noble friends has indicated why people are concerned to see and understand the list as soon as possible—again, particularly the application of those rules to the in-work population. For the moment, however, I beg leave to withdraw the amendment.
Baroness Drake
Baroness Drake
My Lords, in moving Amendment 22B, I shall also speak to Amendment 22F, which seeks to exclude amounts in individual savings accounts or other prescribed savings accounts as identified by the Secretary of State up to a value of £50,000 from the capital of claimants for the purposes of entitlement to universal credit for those in work or those who have been in work within the past 12 months. The issue of the application of the capital rules to those either in work or trying to get back into work causes me great concern. A Government in today’s world have to have a set of compatible policies that seek simultaneously to achieve a series of outcomes: a welfare system that is fair and incentivises work, a desirable level and distribution of savings that sustains personal responsibility, and effective support for ordinary hard-working people in order to manage their experience of today’s flexible labour market. I fear that the manner in which the tax credit system is to be integrated into universal credit will create inconsistencies in the delivery of those desirable outcomes. The application of the tariffed income and capital limit rules under universal credit that do not currently apply under tax credit to those in work is an important instance that will give rise to inconsistencies.
Universal credit is changing the capital rules for those in work. There are no capital cut-offs in tax credit, although taxable income from savings and other assets is taken into account, subject to a disregard of £300 a year. Under universal credit, as the Minister has said, there will be a £16,000 capital cut-off with a harsher regime of an assumed tariffed income on savings above £6,000. I acknowledge that under the current rules, capital limits of £6,000 to £16,000 apply to jobseeker’s allowance, and a tariffed income is assumed for capital within those limits, but the Government have chosen to opt for a harsher anti-savings regime and to apply it to everyone, including those in work. It really is quite a harsh anti-savings regime. The simple mantra of, “If you are in work and you have savings, you should not look to the taxpayer for support”, which is the explanation given in the departmental briefing notes, ignores the complexities of what is being managed here.
It is important to have a benefits system that works for the poor, but the tax credit system was also set up to enable people in work to better themselves and to improve their position. If work, responsibility, control and aspiration are to be encouraged, those in work should find it possible to save and to build up a reasonable level of financial assets. They should not be in the position where, if they have been responsible, that support is suddenly taken away from them. This penalises those who save and undermines responsible behaviour. Families on modest incomes with modest savings will be hit by the proposed new rules, but not only families with higher levels of savings will be hit; those with savings above £6,000 will be impacted by tariff rules that assume 21 per cent rates of return— 21 per cent times the typical rate of return in an ordinary savings account.
Baroness Hollis of Heigham
My Lords, the noble Lord started off with a question that I suspect was meant to be rhetorical, but I think he is entitled to an answer. Is it right for the taxpayer to support someone who has £50,000 in savings? That was the noble Lord’s opening sentence. I agree with him that that is the key question. However, given the responses that he has heard today, the answer should be, “Yes, in certain circumstances”. The key question is, “What are the circumstances?”. There is no absolute yes or no answer.
The circumstances mentioned so far include whether this will help sustain savings and the savings habit. The answer is yes. Would it help people get back to work earlier than they otherwise would, and therefore depend less on benefits? Possibly, yes. Would it help families avoid falling into debt and thus lose even the tariff income that they would otherwise expect to enjoy between £6,000 and £16,000? Possibly. Should it be for a limited time so that it is not an unending commitment? Certainly. That is surely the way in which we should approach the question. It should not be, “£50K or not?”, but, “What are the circumstances in which it is reasonable to support people?”. Otherwise, we will make short-term savings at the expense of longer-term losses, which will come from keeping people on benefits longer than they need to be because they have gone into debt by having run down their savings. Surely that is the right question to ask rather than the bald one that does not take into account the very different situation of people who are marginal, who are in and out of the labour market but who hope to stay there with the help of savings to smooth out these movements.
Baroness Drake
The Minister opened by asking whether the taxpayer should support someone with £50,000 in savings. My initial reaction to that is that the taxpayer supports people on £500,000 because there is 40 per cent to 50 per cent tax relief up to the value of £1.8 million and £50,000 per annum for pension savings. Actually, the taxpayer supports people on much higher levels of income, and we can think of lots of other incentivised examples. There is no limit on the ability to use the advantageous tax opportunities of ISAs year on year depending on what capital is held in other places. I am not sure that that would withstand the test of rigorous intellectual analysis.
Lord Freud
I am sorry, but I cannot not respond to that because there is a difference. I think everyone in the Room will appreciate the difference between not taking someone’s own money away from them and giving them money from the taxpayer, which is the comparison that the noble Baroness has just made.
Baroness Drake
I do not accept that defence because tax relief on pension savings is not taking money away from people; it is giving them their tax back.
The other point is that even on ISAs, those who are well off can take every member of their family, their spouse and children, and give them ISAs, thus taking taxpayers’ money for the incentivised advantage that that brings. So the taxpayer supports all sorts of people, some of whom are more worthy than others. On that basis, if the exam question is whether the taxpayer should support someone who has £50,000, I should like to get the whole list of incentivised savings and do some comparative analysis.
The effect of this policy is that people in hard-working families will be disincentivised to save and will face greater risk in managing a labour market that the Government themselves want to deregulate further but do not want to support people in managing that deregulated labour market. As my noble friend Lady Sherlock has said, there is not just the issue of the £16,000. For all those low and moderate-income people who have more than £6,000—
The Deputy Chairman of Committees
I am sorry to interrupt the noble Baroness again, but a Division has been called in the Chamber. The Committee will now adjourn, and resume in 10 minutes.
Baroness Drake
I will just complete what I was saying. I think I made the point about those who are better off and are saving, and the impact on hard-working families who are now disincentivised to save and who will be more exposed to risk in managing difficult circumstances because they will have had to have drawn down on their savings, so will be less well positioned if they face difficulty.
The tariff rules are going to hit, very aggressively, those who have savings of between £6,000 and £16,000. A 21 per cent assumed rate of return is just extraordinary for people who are trying to save at the most modest level in that situation. Thanks to the forensic help of my noble friends Lady Hollis and Lady Sherlock, under the current rules interest from any individual savings account is currently disregarded. Under the new rules, people on in-work benefits will find that to no longer be the case. We had a lot of discussion in the debate about the impact on risk, responsibility and dependency from such a disincentive to save.
I appreciate that the Minister is arguing the Government’s position, but there was no great defence of the principle that people on benefits should not be able to save without it being drawn back under the capital rules; it was much more an argument about the level of savings that would be made by this change to ISA savings. If I may say so without introducing new business, a similar argument was used by Mr Grayling in Committee in the other place. Therefore, if the primary driver is one of reducing expenditure rather than the defence of the principle, because I do not think the principle stands up—that people on benefits should not be able to save above a certain level—I argue that the taxpayer should look to other richer incentivised savers to find their £70 million or £90 million. I beg leave to withdraw the amendment.
Baroness Drake
Baroness Drake
My Lords, in moving Amendment 22C, I also wish to speak to Amendment 22D, which seeks to exclude amounts saved for a deposit on the purchase of accommodation from a single claimant’s or joint claimants’ entitlement to universal credit.
These amendments are tabled as a consequence of aggressive capital rules being applied to in-work benefit, which is now the characteristic of universal credit. I have rehearsed in previous amendments the impact of integrating tax credits into universal credit and applying the proposed capital rules. We now have a situation in which an individual or a couple who are acting responsibly and trying to accumulate money for a deposit with which to purchase accommodation will find that that act of saving will be taken into account when calculating their entitlement to universal credit, so being responsible and prudent and saving for a deposit could now lead to a loss of income for some, which strikes me again as somewhat perverse. These ordinary hard-working people will face a combination of forces coming into play. Deposits for the purchase of accommodation will now need to be much higher to qualify for a mortgage. They will have to save in an environment in which private rents are rising due to increased demand and limited housing stock, and if they do try to save for a deposit this could result in a reduction in their income from universal credit. If ever I had an intergenerational empathy compared with my generation’s experience, it is in this area.
We are putting barriers in front of hard-working lower and moderate-income families because of the approach to their accumulation of savings that the well-off simply will not face. If I may anticipate the noble Lord’s remarks, I have no doubt that he will respond that there are no ring-fenced deposit savings accounts for house purchase and there is no way of confirming the future intentions of claimants, to which I would respond that I do not believe it is beyond the imagination of government to facilitate such products or to create a process to identify such savings. Controls could be applied to ensure that any withdrawals from those deposit savings other than for accommodation purchase could trigger their treatment as capital that is not disregarded. I am sure the noble Lord will argue that the income of those in receipt of universal credit is unlikely to support a mortgage application in today’s world, but that rather dismisses the motivation of some hard-working people to save and own their own place. It sets a low aspiration for all those in receipt of universal credit, which is not justified. It ignores the possibility of change in peaceful circumstances. They may go on to lower earnings for a period in response to the labour market, but their earnings may improve over time. Nevertheless, they will have had to draw down on their deposit savings because of the capital rules. The purpose of the amendment is to say that a way should be found such that savings ring-fenced for the purchase of accommodation should not count as capital under the rules of entitlement to universal credit.
Lord Freud
I was going to say today. In fact, I can say more. I have copies in the Room. I can do better; I can ceremoniously deliver the impact assessment to the noble Lord with that figure explained.
Baroness Drake
In response to the Minister, I am able to pre-empt his arguments because the quality of the DWP briefings is so good that I can see where he is likely to be coming from. The fact that I can anticipate is an indirect compliment. On the substance of his comments, he argues that it is important to get the architecture in. The problem is that the architecture has opted for a very harsh and anti-savings regime, and for applying it to those in work. I am not sure that I would want that element of the architecture to be in, but at least some of my amendments seek to say not, “Oh, let’s find bits of money”, but that if one chooses to take that harsh anti-savings regime—quite clearly, as I have quoted, I am supported in that view by the CSJ—some of the consequences are so perverse that you have to address them not as bits of money but as perverse outcomes of that choice of architecture.
We have dealt with one of the outcomes, but another is that when this comes in a population of people who are currently in work, who may be in work in the future, and who have got savings, are going to find that those hard-earned savings for a deposit on a house are now going to result in an adjustment of their benefit entitlement. That strikes me as unfair and perverse. If one is looking for fairness, one needs to have intergenerational sympathy for the combination of factors that young people face in the current market, which I have tried to spell out one by one. This, to me, becomes an even more compelling argument for saying, “Are you going to put this on their shoulders as well?”.
I accept that there may be process or product design challenges around this, but I have every faith in the creative ability of the Minister and the DWP team to find a process route through this and still urge them to allow all these people who are saving for their houses not to suddenly find that they have to draw down on their savings or lose benefit. I withdraw my amendment.
Retirement Age
Baroness Drake Excerpts(13 years, 3 months ago)
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Lord Freud
Yes, my Lords, it will be extremely expensive if we do nothing. In the past five years we have already seen real expenditure on pensions go up by £20 billion to £81 billion a year. If we do nothing, the projections are that age-related spending will go up to more than 5.5 per cent by the middle of the century. We must do something about it. That is why we have this consultation to look at the best way of moving the pension age upwards to reflect the changes in ageing.
Baroness Drake
My Lords, the level, manner and timing of any increase in the state pension age will be controversial, as instanced by the recent debate on women’s state pension age. I hope the Minister will agree that it is important to build a consensus on how to respond to increasing life expectancy, both between political parties and between government and the people. In particular, we must avoid undermining confidence in pension saving, particularly in younger generations, where the problem is so deep. Are the Government considering setting up an independent body to monitor and analyse matters related to increasing life expectancy, including socioeconomic differences in morbidity and mortality? Its published findings could inform government and parliamentary decision-making. Anecdotal, sentimental and emotional debate is not the way to resolve this issue.
Lord Freud
My Lords, this is a long-term issue and one needs to address it on a long-term basis. When the Chancellor introduced this topic, he said that he would like to see it addressed on a cross-party basis. That remains the position.