Welfare Reform and Work Bill

Baroness Hollis of Heigham Excerpts

Monday 25th January 2016 Lords Chamber

[The Earl of Listowel]

My Lords, I wonder whether my noble friend is aware that of the children in poverty who we are discussing at the moment, two-thirds have parents who are in work. The majority of the children we are discussing have parents who are in work.

[Baroness Hollis of Heigham (Lab)]

My Lords, very briefly, I support the amendment in the name of the right reverend Prelate the Bishop of Durham.

I am puzzled. When we considered the 2012 Welfare Reform Act, the Minister rightly commanded the respect of the entire Committee and allowed the proceedings to be lengthened from the original 10 or 11 days to 17 days, in the process of which he negotiated, discussed and shared information because he was determined that the introduction of universal credit would be, as far as was possible, evidence-based. That was something that we all responded to: we were not being motivated by the latest piece of journalism or an ideological twist; it was evidence-based.

What puzzles me about the Government’s position is not that they are seeking to get analysis of the impacts of poverty in terms of well-being measures, adult worklessness, child educational attainment at 16, and so on—it is perfectly sensible to have information about that. But this is not an either/or situation. We all know that we need to know about the income going into a family as well as about the impact of that lowered income on the outcomes that affect the family and the children, as the noble Lord, Lord Northbourne, said. This is not an either/or situation. We need both because, above all, government need to know where they can most effectively intervene to ensure that, as far as possible, children and their families have good, strong, decent and well-funded lives. We cannot know that unless we collect the information on both income and on what the Government believe to be the impact. It is not a question of which comes first, which drives one or the other, or which is the gateway. That does not matter—we need both. On the basis of that evidence, we, as a House and as Parliament, can come in behind government to see what levers are most effective in addressing the issues that that evidence has identified.

The Minister is an evidence-based Minister, which is why he has our respect. Therefore, in the light of that and all the work that he did on the 2012 Bill, I urge him not to sabotage it by ignoring crucial evidence of how best the Government should use the resources at their disposal. I hope that he will accept the right reverend Prelate’s amendment.

[Baroness Sherlock (Lab)]

My Lords, we on these Benches are fully supportive of Amendment 2, to which I have appended my name. The right reverend Prelate the Bishop of Durham has made a strong case for his amendment, backed up ably by my noble friends Lady Lister and Lady Hollis, and I will not add a great deal to the fundamental case that they have made. However, I do wish to say a brief word.

The Bill has a lot in it which will have a serious impact on the incomes of millions of families in Britain, particularly families with children and households with disabled people in them. I would love to send the whole Bill packing, as I would love to dispatch various statutory instruments recently passed through both Houses, but that is not what we are going to do; it is not our job. Our job over this week is to send back to the Commons for further consideration parts of the Bill where they have simply not begun to understand the consequences of some of what they have done; where the costs can be significant but often have just been shunted rather than taken away.

The great advantage of this amendment is that it does not cost any money and yet it would be incredibly powerful in holding the Executive to account, something which this House always takes seriously.

I have been struck, not only in listening today but in re-reading the excellent debate on this subject in Committee, that the Minister was signally unable to persuade Peers from around the House of the case that he made. Let me summarise the Government’s case. The report to Parliament by the Secretary of State for Work and Pensions on the drivers of child poverty said this:

“From the range of academic and institutional evidence reviewed we can confidently conclude that”—

brief pause—

“The key factor for child poverty now is parental worklessness and low earnings … The other main factors include low parental qualifications, parental ill health, family instability and family size”.

It also highlighted child education attainment as a key factor in increasing the risk of a poor child growing up to be a poor adult.

So what have the Government done in response to that evidence? This Bill guts the Child Poverty Act 2010, removes the requirement to report on income poverty at all and requires Ministers in future to report on only two factors—worklessness and educational attainment. That leaves a couple of key questions.

First, Ministers are not saying that these factors equal poverty but that they drive it. So presumably the Government will seek to address those factors and, if they are successful in addressing them, child poverty will fall—but how will we know? If we do not expect the Government to report on the effect on child poverty of the work they are doing, then how do we know whether their strategies are succeeding or failing? The Minister may point to the fact that data on households below average income are currently published, but, as the right reverend Prelate pointed out, there is no guarantee that that will carry on indefinitely without a statutory routing. If the Government are so confident, why will they not report on the impact of their policies on child poverty and be accountable for it?

Secondly, Ministers have cherry picked some of the factors on their own list and ignored others. In particular, as has been mentioned, why have the Government ignored the key factor of low earnings, which is the first in their line of analysis of drivers for staying in poverty. Is it because, by definition, it must be an income measure, to which there was therefore a political objection? Or is it because, as the noble Earl, Lord Listowel, pointed out, they know full well that two-thirds of poor children are living in households where a parent is in work. I will return to this issue in a later group but I remind the House that if the Government continue to damage work incentives by attacking universal credit and cutting the value of in-work benefits they can hardly be surprised to find that work is no longer a route out of poverty.

No one is arguing that money is all that matters—the right reverend Prelate the Bishop of Durham expressed that very well. I fully recognise his comment that the idea that money does not matter is often most closely held by those who have plenty of it. I make an exception in the case of the noble Earl, Lord Listowel, who despite, as he said himself, having always been comfortable has shown an impressive concern for those who have not had the benefits to which he found himself entitled. I commend him for that. Nobody is arguing that, but when 202 out of 203 responses tell you that you have got it wrong, it really is time to think again. The odds on that only one being the one that is right have to be pretty small.

--- Later in debate ---

[Lord Freud]

My Lords, Amendment 2 seeks to insert a new clause that would expand the annual report to include data on children living in households with low relative income, combined low income and material deprivation, absolute low income, and persistent poverty. It would effectively reintroduce the same income-based poverty measures as set out in Sections 3 to 6 of the Child Poverty Act 2010—measures that fail to tackle the root causes of child poverty. I know that the amendment is well intentioned, but as it is drafted, it is technically faulty and cannot achieve what the right reverend Prelate, the noble Baroness and the noble Earl want it to achieve. For example, the amendment refers to how equivalised net household income is to be adjusted by regulations, but there is no regulation-making power in relation to the life-chances clauses in the Bill.

However, this is not the foundation of my disagreement with the amendment. I firmly believe that the existing statutory framework, set around the four income-related targets, simply does not drive the right actions to transform children’s lives. That is what we are all aiming for, so I think it is important for me to spend some time explaining why income measures are not the way to achieve what we all want to see. There will always be natural variations in income levels in society. However, having less money than someone else does not necessarily mean that an individual is in poverty. Income measures do not take this into account effectively.

Income measures focus on the economics of poverty and ignore the human dimensions: the social causes and the reasons people can get stuck in poverty. But even as economic indicators they are flawed. They are an indirect and imperfect indicator of poverty. They do not account for the full needs of the family or other financial deductions that reflect a family’s true financial situation, such as the amount of debt a family has, or even their non-income based resources, such as the benefits from education, such as the pupil premium. Households that have large savings or capital can still count as being in income poverty. This means that income measures can provide only a partial reflection of a family’s economic well-being.

There are other weaknesses, too. For example, the measures are based on current parental income and do not incentivise action to prevent poor children becoming poor adults. They do not reflect government action on raising attainment and improving life chances for disadvantaged children. These are some of the general weaknesses of income measures. I would now like to speak briefly in turn about why specific measures of relative low income—including persistent poverty, absolute low income and material deprivation—are unhelpful in tackling poverty.

If we first consider measures of relative poverty, the problem is that a household can be moved into or out of relative low income without any change in its circumstances. For example, in a recession, as median income falls, so does the relative poverty line. This means that many households that were previously in poverty will now be above the new, lower poverty line, even though their income and life chances have not changed. This incentive of “poverty plus a pound” does not drive transformative change in the lives of family members who still face multiple barriers to lift themselves out of disadvantage.

Conversely, policies such as raising the personal tax allowance and introducing the higher national living wage that give poor families a higher income could lead to increased average household incomes. This in turn raises the poverty line and brings more children into low income, punishing Governments for doing the right thing. As an example, while the economy grew from 2003 to 2009, income measures incentivised the previous Government to tackle the symptoms of poverty through expensive income transfers, such as spending £300 billion on working-age welfare and tax credits. This strategy did not tackle the root causes of child poverty or make a long-term difference to children’s prospects as the number of children in relative poverty remained broadly unchanged. Given that the proposed persistent poverty measure is based on families being stuck below the relative low-income line, it, too, will suffer from these same weaknesses.

I turn now to the disadvantages of absolute low-income measures. By definition, absolute poverty measures the proportion of children below a fixed income line, which is only adjusted each year to account for changes in prices. The current measure of absolute poverty uses the relative poverty line for 2010-11. However, the decision to use this as the absolute low-income line is essentially arbitrary, in the sense that there is no logic to why this is better than any other reference threshold that could be chosen as the absolute standard of what households should be able to count on in order to meet their needs.

Notwithstanding the clear criticism that this measure is subject to some of the same flaws as the relative poverty measure, it also leads to illogical changes in the level of children in absolute poverty. When the absolute poverty line was rebased to the 2010-11 relative poverty line, the number of children in absolute poverty under this measure went from 1.4 million children under the old baseline to 2.3 million children under the new one. These children saw no material difference in their lives or changes in their circumstances, yet just because the line was being drawn somewhere else they were all brought into poverty.

Finally, measures of material deprivation simply do not capture real material living standards robustly. The material deprivation measure asks subjective questions around whether families think that they can afford a certain set of items. We have looked into the accuracy of what it is trying to measure. Analysis from the IFS shows that almost 50% of children who live in a household that is deemed to be materially deprived have incomes well above the most commonly used relative low-income line. This brings up questions around whether material deprivation measures accurately reflect the true living standards of families. I hope that I have been able to show why the existing income measures are a poor test of whether children’s lives are really improving and a distraction from the aim of tackling the key drivers of child poverty.

[Baroness Hollis of Heigham]

Before the Minister goes on to his next point, I am puzzled. He is going through the individual indicators as though those are the exclusive and sole measurement of child poverty. That is precisely why the previous Government introduced a suite of measures. Each one captured some aspect and together they captured the broad range of issues that determine how we assess child poverty. So deconstructing and challenging each individual measure is not the point: it is the suite of measures that is being dumped, and it is that suite which caught what it means to be in poverty.