Welfare Reform Bill

Baroness Hayter of Kentish Town Excerpts

Tuesday 1st November 2011 Grand Committee

[Baroness Hollis of Heigham]

Like other noble Lords, I very much welcome this. The problem in the past has always been the length of time to get a learning loop into systems. By the time there has been a pilot and the evidence has been assessed and reported back, three years have passed—by which time, alas, usually incumbents have moved on and questions have changed. I am delighted that we will get pilots. Will the Minister give an undertaking that the results of the pilots will be published and made available to Members of both Houses as soon as is practicable? Sometimes they will not be supportive of positions that the Government wish to develop. However, at the core of research must be the integrity of publication.

[Baroness Hayter of Kentish Town]

My Lords, the Committee will know that my noble friend Lord McKenzie and I have added our names to this amendment, but we are delighted that it has been overtaken by the Minister’s own amendments. I am getting a bit of a record for doing this. Last night I commended the Government on their move on the Housing Ombudsman, and I am doing the same today. However, I have a couple of questions. Whether this is to be piloting or testing throws up exactly what I wanted to ask: what is the purpose of each of these pilots? Are they to test whether the principle of a particular part of the Bill is right—in other words, that the aim of each part of the Bill is being met—or are they simply to determine how best to implement each proposal?

We always welcome piloting and testing of whatever it may be, but the exact purpose of a pilot needs to be absolutely clear at the start, particularly for those who have to design and implement it, as well as for all the participants and evaluators. What is the pilot meant to achieve, and therefore how should it be monitored and evaluated? That is because whether it is simply to find the best way of making something happen or to see if the idea behind it is right is quite an important distinction.

We hope that the Government will be confident enough not to assume automatically that what they think will work, will work—whether to incentivise people or to simplify systems—and that they will use these pilots in order to test the assumptions underpinning particular proposals in the Bill. That means being confident enough to design the pilots accordingly to see whether the particular objectives behind the proposals in what will by then be the Act are being met. That is asking quite a lot of a Government. We are saying, “Are you confident enough and in a sense big enough to be able to call it a day if the end results of any particular pilot call for a big re-engineering?”. I believe that pilots of this sort will be worth their weight in gold to the Government in financial and administrative terms and to claimants, landlords, employers, carers and providers, all of whom are going to be affected by different parts of the legislation. The pilots can play a role in creating the sort of welfare system that is able to meet the demands made of it. We would ask the Government to be as adventurous as they can with these pilots by putting the difficult questions. Also, following up on what my noble friend Lady Hollis said, the results should be transparent.

Who is going to oversee the design and delivery of the pilots? Who will decide, under subsection (5)(b) of the proposed new clause, that pilots may be replaced or extended, and on what grounds? To whom will the evaluators report? That is more or less the same question as that posed by my noble friend Lady Hollis. How will Parliament be able to ensure that the lessons from such pilots are learnt?

[Lord Freud]

I thank noble Lords for their support. At this stage we are taking legislative powers in order to be able to do this. How it is done is something that we will actively develop. I will tell noble Lords what I think we should be doing without necessarily locking down that that is to be the process, because we have not developed it.

Universal credit is the most amazing social science laboratory that I suspect we have ever seen, and I wonder how many other people will see it. Under universal credit you can change different aspects of people’s support.

As such, it needs a unit built in which is constantly looking at how to improve it and optimise it or to adapt it to different circumstances. I anticipate, in answer to the question from the noble Baroness, Lady Hayter, that we would have a series of real questions. Many of the questions raised by noble Lords in the Committee—should we have a second earner disregard; should we have a lower taper; what happens when you move disregards up or down?—are real, basic questions. They are all being put in the form of amendments, but here, we can have a series of tests of different aspects, or tests in combination, to find out what really optimises the system. Clearly, it is impossible to get it absolutely right first time. No one would claim to do that, but this is an architecture which would allow us to optimise it.

--- Later in debate ---

[Baroness Meacher]

My Lords, I support some of the concerns that have already been raised by other noble Lords. I am not clear about the logic of ending the provision for adding disregards if a claimant falls within two categories, both of which qualify for a disregard. As I have always understood disregards, the idea is that they compensate for the costs that a claimant faces, whether those costs arise from being a lone parent, being disabled or whatever. I am sure that the Minister has a rationale for the measure but it is difficult to think what it could be. Is he going to provide a disregard for the disability side, the lone parent side or some other side? Why provide it for this bit rather than that bit? Why not provide the disregard for both sets of additional costs? It would be interesting to hear his rationale for this measure.

Given that the Government want to make swingeing cuts to the welfare bill, I completely understand that two-earner households are not a priority from that perspective. However, going back to the Government’s commitment to having incentives to work, this is another example of a part of this legislation running completely counter to that aim. I know that the Minister will correct me if I am wrong, but as I understand it the second earner will have almost no incentive to work, particularly if they have children, as they will not have the earnings disregard but they will have to pay the 30 per cent or so costs of childcare. This will almost certainly be the case if they have children. Therefore, it would be helpful if the Minister agreed with me that this is a bit of a problem in terms of incentives to work or explained the rationale behind the measure.

Regarding people with mental health problems, I envisage—I think that the Minister agrees with this—that this group will lose overwhelmingly from the shift to the new system and the reassessments for ESA. Rafts of these people will come off ESA and on to JSA with the result that, even with a disability, they will not receive any disability support because they will be on JSA. Yet people with mental health problems can have additional costs in order to go to work that others might not have. For example, somebody with severe anxiety might have to have someone accompany them on their journey to and from work, although they may be able to sit there and do the job when they get there. However, if they get no financial support at all for their disability—I understand that that is what the system sets out—how will these people have an incentive to work? They will have to pay for this support out of their tiny pockets.

The other point about people with mental health problems is that many of them can manage only a limited number of hours of work and need to build up their hours slowly. I do not know how this will work. The structure of the universal benefit is very good in this regard and should make life easier for people—at least in theory, if the two computer systems of the DWP and HMRC manage to bond together as they are supposed to do. However, the loss of disability support will cause problems in terms of incentives to work.

Sue Royston of Citizens Advice also provided me with the facts that were read out by the noble Baroness, Lady Lister. I will certainly not repeat them but I would find it helpful if the Minister could confirm for me how the two tapers of the universal credit on the one hand and the council tax benefit on the other will work together. Perhaps he has already done that when I was not here, as I have not always been here due to other commitments. I still hope that he will ultimately find a way to bring council tax benefit within universal credit, as it is such an important issue.

I am sorry to be a bore and raise this again, but it would make such a difference for so many people. If not, it seems to me that claimants working a few hours and building their employment up slowly will be dogged by a terrible complexity and lack of clarity not that dissimilar to what they have suffered in the past. That would be a great pity.

[Baroness Hayter of Kentish Town]

My Lords, the explanation that I am most looking forward to from the Minister, having taught us the difference between soon and very soon and that spring comes between winter and summer, is where on earth is the end of October if not yesterday, on Halloween night. We await that answer.

Under universal credit, the support currently obtained by a tax credit will be obtained via disregards, hence their importance. The disregards will allow some groups to earn higher amounts before benefit starts to be withdrawn, thus household income will be held to similar levels as now via tax credits. However, as has been mentioned, at present there seems to be no mention of disability in such disregards. Amendment 52B would provide an additional disregard for one aspect—carers who are currently not set to receive any disregard. We support that amendment and I shall speak to Amendment 52DB, which stands in my name and that of my noble friend Lord McKenzie. It would include a disregard for a second earner, but we will cover that issue in Amendment 52C. It is also intended to ensure that there are earnings disregards for claimants who are disabled, lone parents or the second earner—often a woman. Further to the comments just made, as each disregard recognises the impact of the particular circumstance on the earning potential of the individual, and as such impacts are cumulative, it is proposed in the amendment that the disregards should also be cumulative, as each circumstance—whether being disabled or being a lone parent—makes earning that much harder to achieve and, perhaps, more costly, with extra travel times or other expenses.

At least initially, it is foreseen that under universal credit we will have a 65 per cent taper for earned income, so a disregard improves the incentives to move into work by not applying the taper for the amount earned for the first disregard. That means that the value of the disregard for the claimant is 65 per cent of the actual amount written on paper, if you like. Someone with a £40 disregard who earns £40 can keep all their universal credit and will thus be better off by £40. Without the disregard, they would keep only 35 per cent of the £40 and so be only £14 better off. The figure of £40 that we use as the disregard is actually worth £26 in hard cash, which is the only way that I can think about these things.

There is a little complication, of course. There will be a maximum disregard for each group. Those not receiving support for housing costs will receive the maximum disregard and those getting support for their housing costs will see the maximum level of their disregard reduced by one and a half times the amount of their housing support. I trust that noble Lords are all with me. Good. Most claimants in rented accommodation will receive the minimum disregard. We know that universal credit aims to,

“allow people in work to see clearly how much support they can get”.

I just hope that they are better at doing that than I am.

The 14 October briefing note referred to by my noble friend Lady Lister on disregards set out the new higher disregard levels to try to deal with the localisation of council tax benefit. It aims to ensure that income support for council tax is effectively disregarded. Whereas single people previously would not receive any disregard, they will now get the amount mentioned, £13.50, as a disregard. Similarly, the disregards for lone parents and couples have been increased. However, as has been mentioned, Citizens Advice points out two problems. The first, elaborated by my noble friend Baroness Lister, is that those earning more than the amount will still be subject to two earnings tapers until no longer eligible for help with council tax. What plans does the Minister have to deal with this two-taper issue caused by the localisation of council tax benefit? Secondly, although the level of disregard has been increased to reflect council tax changes for single parents and couples, no such addition has been given to disabled people. Perhaps the Minister could also explain in his answer why they have been overlooked.

--- Later in debate ---

[Lord Freud]

Absolutely. We are discussing a framework piece of legislation that will allow us to bring in the regulations. I am sure that next year many of us will discuss the detail of this for many months. It is an introductory, not a locked-in proposition. I have tried to explain, and hope that I have explained, that this system is an architecture and it can roll and improve. We may find in many areas that a change will pay for itself in its own terms, both in what the benefit system costs and the benefit to the economy. We will be able to test those propositions. A lot of what I talk about when we lay out the structures is simply what is affordable within a very difficult financial environment where we have had to put a proposition that we can float and that works. I have made the point before that that is within a context where we are injecting £4 billion into the pockets of the poorest people. Every time someone says, “Do that” or “Do the next thing”, they are adding to that figure. We can either take something else away or provide that. That is where we have come out. Later on, when the financial situation is more suitable or we establish that changing something pays for itself in its own terms, we can make changes and improvements. I labour the point only because we can spend a lot of time arguing whether this is better than a disregard or addition. The answer is that none of us knows but I hope that in the medium term we will.

In the example, we estimate that if couples who are both in work were entitled to an additional disregard of £700 a year, the cost would be £240 million. If the disregard was £1,000 a year, the cost would be £350 million. This is real money. We took the decision that it would be better spent, for instance, on childcare, where we had to find an extra £300 million. In current out-of-work benefits, there are no additional disregards for second earners. Similarly, working tax credit makes no additional provision for second earners. It is true that members of a couple may qualify for the disability elements of working tax credit if both are working and disabled. Equally, when a disabled person is not in work, no disability element can be paid. Indeed, working tax credit may not be payable at all.

I turn to the proposal that lone parents, disabled people and second earners should receive the sum of two earnings disregards if their circumstances entitle them to each, rather than the higher of the two as we propose. Many people on low incomes will have substantially more support under universal credit because of the earnings disregards that we propose. The standard weekly disregard in current out-of-work benefits for these groups is only £20, after which benefit is withdrawn pound for pound. Some people on employment and support allowance may benefit from the permitted work rule with a disregard of up to £95 per week. However, this provision is available only for one year, after which the disregard returns to £20 for most claimants. Crucially, earnings disregards are not added together in current out-of-work benefits.

In working tax credits, various elements can be added together. However, that does not differ from the way elements in universal credit build up to a total award. The earnings disregards in universal credit are more generous than those in the current system for lone parents and disabled people, helping in particular those working a small number of hours. For instance, a disabled person working 12 hours a week at the national minimum wage will be more than £50 a week better off, and a lone parent will be more than £60 a week better off in work because of the disregards in universal credit. This will provide a stronger incentive to work than exists in the current system.

For most people claiming universal credit, the main financial incentive to work will be provided by the taper. Our proposals for a structure of disregards are intended to provide an additional incentive for those who need it most. If additional funding were available, we would need to consider the taper as well as the disregards. Adding together two or more disregards simply because the claimant falls into a number of categories would be inconsistent with the approach that we have adopted. If the earnings disregards worked in this way, we would not have the funding to set each at the level that we have. Universal credit must be delivered within the financial envelope we have available. I hope that this explanation will persuade the noble Baroness to withdraw her amendment.

[Baroness Hayter of Kentish Town]

My Lords, I will raise a couple of points—and not simply to defend my aunt. I said that she worked at the Conservative club. She was the barmaid and cleaner. The noble Lord is very lucky that she is no longer with us.

[Lord Wigley]

I have been mulling over this point. Is the noble Baroness sure that she is not inadvertently misleading the Committee? Surely there is no such thing as a Conservative club in Ystradgynlais.

[Baroness Hayter of Kentish Town]

Perhaps I may ask a couple more questions. I think that the Minister said that the figure I used of 50,000 was wrong because the only people who would lose out are those working between two and five hours at the national minimum wage. However, it is exactly those sorts of people who are carers and who will be doing quite small numbers of hours: the six-to-eight shift, if you like. Even though it is a small number of people, it would be interesting to know whether there was an impact assessment of the effect on carers and whether it showed how they would be affected.

I have two other points. One is about the figure of £4 billion, which gets used a lot. The disregards will not necessarily cost the Government money; if they are encouraging people into work, those people will quite quickly start paying tax and NI—not immediately but fairly quickly—and they will quickly pay for themselves. I realise that that will not happen at the moment as there is rather a lot of unemployment because of the Government’s policies, but we will not go there. Normally, though, the incentive is to get people into work, so that will soon begin to pay itself off.

[Baroness Thomas of Winchester]

May I interrupt the noble Baroness at this point? I would like to ask my noble friend about the new test that is going to be devised for those disabled people in work. I do not think that he answered that. I apologise for interrupting the noble Baroness, but before she withdraws the amendment I would like to know whether he has any news or wants to write to me afterwards.

[Baroness Hayter of Kentish Town]

My second point is that the question that was not asked is why there is no additional amount of disregard for disabled people to take account of the council tax issues. I presume that the noble Baroness, Lady Howe, will speak, but if those extra points could be referred to it would be helpful.

[Baroness Howe of Idlicote]

My Lords, this has been an interesting and extremely wide-ranging—