Welfare Benefits Up-rating Bill

Baroness Hollis of Heigham Excerpts

Monday 11th February 2013 Lords Chamber

[Lord Sheikh]

My Lords, I welcome the Bill as it will restore fairness and simplicity to the process of social security payments. It will also deal with the question of affordability. It is important for a Government of any persuasion to show that they empathise with taxpayers who are essentially paying for welfare handouts. The concept of fairness is one of the reasons for proposing this Bill. It is worth remembering that the coalition Government inherited the biggest budget deficit of any country in the developed world. It is estimated that capping social security benefits in this manner will save the Treasury £3.7 billion in 2015-16 and that, thereafter, there will be permanent savings each and every year in our welfare spending.

Welfare spending increased by 60% under the previous Government but this did not produce the intended result of helping individuals to return to work. If we can get more people in work, some of them will receive salary progressions and improve their standards of living. In the years 1997 to 2010, when average earnings increased by 30%, tax credit spending increased by 340%. One of the aims of this Bill is to tackle the lack of aspiration and ambition among a number of those who have been trapped in poverty. I believe that the 1% uprating stipulated in Clauses 1 and 2 will improve incentives to work.

It is true that the welfare debate has been described in overly simplistic terms in certain quarters. However, it is a fact that a culture of dependency exists in some areas. Previous Governments have tried to tackle this issue with the best of intentions but the complexity and scope of the problem has often meant that past strategies have not been successful in addressing the matter. Children and young people who live in households where adults do not engage in any form of employment are not only the most deprived in our society but are most likely to follow this path once they leave full-time compulsory education. This generational cycle of worklessness is a key factor in the rising levels of welfare dependency and poverty in our communities.

I am sure that all noble Lords will agree that work gives people pride and confidence. Unemployment sometimes creates depression and has an adverse affect on people. Work is good for people’s mental health, their physical health and their general well-being. These benefits have been demonstrated repeatedly. Dependency is not liberating; it constrains people and prevents them achieving their ambitions.

[Baroness Hollis of Heigham]

I am grateful to the noble Lord for giving way for a moment. Would he not agree that, on the contrary, what welfare benefits such as tax credits have done, and what universal credit proposes to do, is to make work pay and thus get people back into the labour market, exactly as he wishes?

[Lord Sheikh]

I still feel there is a culture of dependency. Obviously, we would like to get more people into work and incentives must be given to people to go to work. People have become trapped in our welfare system and they need to be freed. This Bill will make a great contribution to their liberation.

The Government deserve recognition for trying to ensure that we have a fair welfare system to support those in genuine need. Social security should be for people who find themselves out of work and are trying to get back into employment. This House recently debated the success of the Asian community who were expelled from Uganda and came to settle in this country in 1972. My family was among those people who were expelled by General Amin and who came here. A number of these Asians came here penniless and were initially housed in Army camps. At the outset they received state benefits but they came off those benefits, and started to work and established small businesses. They have been successful and now offer employment to others, pay taxes and create wealth for the country. It is unfortunate that some people have chosen not to make a contribution to society and have opted to receive benefits as a way of life. The welfare system was created to ensure that people were not left destitute if they lost their jobs. It was viewed as a matter of support for those who were down on their luck. It is unfortunate that the original purpose of this safety net has been distorted.

I wholeheartedly support the Government’s decision to retain the uprating of long-term disability benefits at the rate of inflation. I also support the triple-lock guarantee for basic state pensions, which means that pensioners will receive an increase of at least 2.5%. A compassionate society is one that shows respect and understanding to the most vulnerable. I am proud that the Government have taken these steps as they are both a moral and civil duty. Further to erroneous reports about these measures, I would be grateful if the Minister could inform your Lordships’ House of the steps Her Majesty’s Government are taking to ensure that people are well informed and reassured about policy regarding disability and pension provision.

It is neither prudent nor fair to distribute welfare payments or benefits without question or regard for our economic situation. The uprating measures in this Bill will show considerable savings by 2015-16 and for years after that. This is essentially about taxpayers’ money. We have a financial deficit that we need to rectify and we need to put the country on a sound financial footing. We can achieve this by reducing our spending, applying appropriate taxes and undertaking more business at home and overseas. I have spoken on the latter point in your Lordships’ House previously. We cannot afford to continue paying welfare benefits as in the past.

The Government have reduced the deficit by a quarter since they came to power in 2010. Obviously, this is to be commended. More than 1 million jobs were created in the private sector in the same period. The FTSE 100 index has risen above 6,300 points for the first time since May 2008. If we can achieve more growth we will create more jobs, and if we can encourage people to work rather than be dependent on the state, more people will be gainfully employed. I support the Government on getting the economy right and we must be firm and keep on the right track. It will indeed cause pain to some people but, of course, if a person is ill it is necessary to take strong medicine. We should not borrow our way out of the current financial crisis. Borrowing is the easy way but it is the wrong way.

There are wider social implications at the heart of this debate. We cannot ignore the resentment and anger felt by hard-working families who see others making a conscious effort not to work being rewarded handsomely by the state. Failure to address this issue may cause tensions within communities. I am sure that some of us have heard the expression, “I cannot afford to go to work”. This is an absurd situation and we are perhaps the only country where people are better off not working.

The measures in the Bill are necessary to remedy the culture of dependency that is blighting some members of our population. The Bill is a sign of the Government’s commitment to ensuring that we live in a fair society. The fact remains that since the economic downturn salaries have risen on average by 10%, whereas payments for some individuals in receipt of benefits have risen by 20%. We need to look at all areas of expenditure for our well-being, which will of course include the welfare benefits. The present state of affairs is simply not sustainable. I am supporting this Bill as it is a step forward in dealing with issues relating to affordability and fairness.

--- Later in debate ---

[Lord Newby]

My Lords, I thank all noble Lords who have taken part in today’s debate. It is an issue about which all participants feel passionately and I can well understand why. I will try to respond to as many questions as possible, but let me begin by reminding the House of the purpose of the Bill. As my noble friend Lady Stowell pointed out in her opening speech, this Government inherited an exceptional fiscal challenge. The financial crisis of 2008-09 resulted in the largest deficit since the Second World War and the UK experienced one of the deepest recessions of any major economy. Even before the recession began, the UK had the highest structural deficit of any country in the G7. This level of public spending was simply not sustainable. There are still tough choices to make. The savings from this Bill provide a significant contribution towards delivering the savings needed to ensure that spending is on a sustainable path. It is, of course, never an easy decision to take action on welfare spending and I understand only too well that the welfare system provides vital support to millions of people. I also understand that while benefit rates will rise in cash terms, they will be fall in real terms.

In these tough economic times, people have seen significant restraints in their pay across the public and private sectors. With welfare expenditure accounting for £1 in every £4 spent, it is simply unrealistic to think we can achieve the savings we need without taking further action on welfare. We have already had to take tough decisions on welfare spending in this Parliament, yet despite these, more than £200 billion was spent on welfare last year. Under the previous Government, spending for working-age people and children increased by around 60%—equivalent to an extra £1,400 cost per household in Great Britain. This is the context against which this Bill must be judged.

However, in making what we believe are necessary limits in welfare spending, I cannot stress enough that our motivation is not, to quote various noble Lords today, to “demonise”, to “stigmatise”, to brand the poor as undeserving, to impose a harsh ideology on them or to divide and rule. It is simply to help—albeit painfully—provide a sustainable platform for the public finances and the economy going forward. This is something that every citizen of the UK will benefit from in the longer term.

The right reverend Prelate, the Bishop of Ripon and Leeds, asked me for an assurance or statement that the vast majority of benefits claimants were not skivers. I am extremely happy to give such an assurance. Nobody in your Lordships’ House believes that to be the case; all of us know only too many people who are working extremely hard to make ends meet. I particularly acknowledge the point made by the noble Baroness, Lady Donaghy, about people on low incomes often having several jobs and still struggling to make ends meet. I acknowledge that that is the reality for many people in Britain today.

We have to return to the main point. If the savings from this Bill were not delivered here, they would have to be found somewhere else. That would mean additional pressure on other public services. To put this figure into context: £1.9 billion is equivalent to the salaries of about 45,000 nurses or around 40,000 teachers. To put it another way: it is equivalent to 500,000 primary school places. Anybody opposing the Bill needs to explain where the money is coming from.

[Baroness Hollis of Heigham]

My Lords, did the Minister and his colleagues make the same consideration when they decided to take £3 billion in tax relief and give it back to millionaires? Will that money not also have to be found for the 40,000 nurses and so on? Is he about to tell us?

[Lord Newby]

Do not worry, my Lords, I am coming to that. The implications of some of the speeches we have heard today are that we should not be making cuts at all, that no civilised society would, even in today’s circumstances, reduce public expenditure. For those who take that view, all I can say is that we simply cannot possibly agree. For those who accept that we should be reducing the deficit but disagree with these changes, my challenge is and remains this: what would they cut instead? The noble Baroness, Lady Hollis, was clear that she would reduce payments to pensioners—

[Baroness Hollis of Heigham]

My Lords, what I said was that I would scrutinise the tax relief available for the building up of pensions which costs £32 billion, of which at least £8 billion comes from the fact that people on higher rate incomes get higher rate tax relief. That is what I said I would scrutinise: not money from pensioners, but from the way that pension savings are artificially supported by tax relief, two-thirds of which goes to the better off.

[Lord Newby]

My Lords, I am extremely grateful to the noble Baroness for correcting me. In that case, and in view of her earlier intervention, I think that what she and the noble Baroness, Lady Sherlock, are saying is that the money will be raised from the millionaires who, in their view, are getting a windfall benefit of £3 billion. I believe that that is what both noble Baronesses have said. But it is clear that either they have not read or they do not believe the report from the Office for Budget Responsibility which suggests that the impact of reducing the higher rate of tax from 50% to 40% is probably £100 million and may be negative. The Government therefore simply do not accept the figures which have been quoted against us. The figure of £1 billion a year to which I think the noble Baronesses have referred was based on an HMRC static comparison. What we know only too well is that given the chance of paying 40% or 50%, the rich—surprise, surprise—change the way in which they order their affairs. There is no pot of gold through a 50% tax rate. My view is that, frankly, the Opposition are all confusion about this.

In the Second Reading debate on the Bill in another place, the right honourable David Miliband was widely praised for saying:

“The Government have projected the cost of all benefits, all tax credits and all tax relief for the next few years, and I am happy to debate priorities within that envelope. I will take the envelope that they have set, but let us have a proper debate about choices, not the total sum—a priorities debate, not an affordability debate”.—[Official Report, Commons, 8/1/13; col. 217.]

The Government have set out their priorities, but frankly, Labour has not begun to set its out. I do not know whether the Opposition agree with David Miliband. I certainly do not know, within the context of overall expenditure cuts, what their priorities will be. We have decided to protect pensioners as a top priority; does Labour agree? We have decided to take millions of people out of income tax as an incentive to work; does Labour agree? We have decided that people on high earnings should no longer get child benefit; does Labour agree? If it does not—and on some of those points, I simply do not know whether it does or not—what other cuts is it proposing in order to keep within the Government’s spending envelope, or within the terms of its own Fiscal Responsibility Act 2010 which committed the Government to halving government borrowing by the 2013-14 financial year. We look forward to hearing the answers, but it is clear that we are not going to hear them today.