Welfare Reform Bill

Baroness Lister of Burtersett Excerpts

Thursday 3rd November 2011 Grand Committee

Moved by

[Baroness Lister of Burtersett]

52C: Schedule 1, page 107, line 26, at end insert—
“( ) In the case of joint claimants, regulations under this paragraph must specify that a particular amount of the earned income of a second earner should be disregarded.”

[Baroness Lister of Burtersett]

My Lords, the purpose of the amendment is write into the Bill a requirement to provide an earnings disregard for second earners, the majority of whom are women. The Minister will no doubt say that this is not necessary because, as the Minister of State confirmed in the other place and the Minister here confirmed at our previous sitting, the Bill’s regulation-making powers enable this or a future Government to introduce a disregard for second earners at a future date, if they so wish. I welcome that flexibility.

Nevertheless, there are important issues of principle here that need to be debated—not all of which were covered in our initial skirmish in the previous sitting. I once again apologise for the length of my remarks but there are important points to be made. However, the Minister can relax because I will not this time quote any e-mails from Conservative supporters.

The treatment of second earners is an important question that has caused concern among anti-poverty organisations such as Save the Children and women’s organisations such as the Women’s Budget Group that thinks that this is one of the most important issues in the Bill that affect women. I am grateful to members of the group, of which I am a member, for helping me to think through some of these issues. The treatment of second earners also threatens to undermine the Government’s claims to be substantially improving work incentives. The Government have sent out rather mixed messages on incentives for second earners and we would welcome a clear statement of the position. I hope that having listened to the arguments the Minister might go a little further than what he said in our previous sitting.

It is true that second earners are now the only group whose earnings will be subject to the taper from the first pound when the disregard for the couple has been exhausted by the first earner. In a means-tested system based on the joint resources of a couple, some disincentive for second earners is inevitable, and I accept that this is a long-standing problem and is one reason why some of us would like there to be less reliance on means-testing. However, the problem is being made worse under universal credit, and the judicious use of disregards could mitigate it.

A second earner’s disregard would enhance the architecture of universal credit by addressing the increased disincentive that most—not all, I acknowledge—second earners within the universal credit system will face. This is primarily because of the higher taper rate for those whose household income disqualifies them from housing benefit and council tax benefit under the present system. On top of that, those with childcare costs who are working more than 16 hours a week or more will, as a result of the reduction in the limit from 80 per cent to 70 per cent, have to pay more towards their childcare costs than previously. The reduction is already in force, although I welcome the fact that those working fewer than 16 hours a week will benefit from the extension of help with childcare costs. Because even small changes can tilt the balance of advantage of working for second earners, the introduction of a separate disregard for them could prove to be a cost-effective innovation.

Policy briefing note 5 analyses participation tax rates—or PTRs, which measure the incentive to enter paid work—and marginal deduction rates, or MDRs, which calculate how much of a small increase in earnings is lost through a combination of benefit withdrawal and taxation, and therefore measure the incentive to increase earnings once in paid work. In both cases, the lower the rate the higher the incentive. The briefing note shows that around 900,000 or three-quarters of potential second earners whose householders qualify for means-tested support under universal credit will face a lower incentive to take employment than under the current system, with an increase in their average PTR from 35 per cent to 65 per cent.

It appears that all the nearly 1.5 million existing second earners will see an increase in their PTR from 30 per cent to 45 per cent on average. The note concedes that this may reduce some existing second earners’ incentive to work. Where this leads to a withdrawal from the labour market will presumably increase the amount paid out under universal credit. With regard to incentives to earn more when in work, approximately 300,000, or three-quarters, will face an increase in their MDR and, therefore, reduced incentives. According to a Written Answer in the other place, five out of six of these have children.

These calculations, and the worked example we have been given, take no account of childcare costs, although we are promised that these will be factored in at some future point—I trust before Report. Will the new calculations take account of the reduction from 80 per cent to 70 per cent on the debit side, as well as the extension to parents doing mini-jobs on the credit side? I suspect not, because this is one of the cuts already implemented, which can conveniently be ignored in impact statements.

Fortunately my colleague Donald Hirsch, of the Centre for Research in Social Policy, has done some calculations for the Resolution Foundation and Gingerbread which take account of the cut already made in support for childcare, as well as the policy announced recently. He has kindly allowed me to use them, even though I do not believe that they are yet in the public domain. One example illustrates well the nature of the disincentives faced by some second earners. He calls it the “hours trap”. He gives the example of a parent with a low-paid partner. She takes a job at the minimum wage of £6.08 an hour for 16 hours a week to supplement the family income. In 2010, of the £97.28 she earned, she retained £46.19 after taking account of deductions and net childcare costs of £11.20. This represented a withdrawal rate of 53 per cent. Under universal credit, the much faster withdrawal of support for second earners, together with the recent cut in childcare support, means that much more of the extra income will be lost—she will retain only £17.25 of the £97.28, i.e. an 82 per cent withdrawal rate.

Admittedly, for those working fewer than 16 hours a week, an 82 per cent withdrawal rate is an improvement on the current situation, because of the extension of help with childcare—but, as Donald Hirsch observes, it is not an improvement that is likely to get many second earners out to work.

There are three main reasons why I believe we should do what we can to maximise work incentives for second earners. The first concerns the Government’s own anti-child-poverty strategy. It is clear from the statistics that two-earner families with children are much less likely to be in poverty than single-earner families. Without a separate disregard, it will be very difficult for second earnings to fulfil their potential as a route out of poverty. The latest analysis of the official statistics by the Institute for Fiscal Studies shows that the child poverty rate after housing costs drops from 18.9 per cent in couples with one full-time worker to only 5.1 per cent in couples where there is also a part-time earner, and 2.1 per cent where there is a second full-time earner. Moreover, if we take a dynamic perspective, as Ministers encourage us to do, it underlines the potentially protective function that second earners can play in two main ways. If the first earner—usually, still, a man—loses his job, a partner’s earnings can help the household cope while he looks for another job. When the mother is in paid work when living with a partner, she is better equipped to remain in the labour market should that relationship break down and should she then form a lone-parent family household—that family is then less likely to be in poverty. She is also better equipped to respond positively to the extension of conditionality to lone parents with young children. A second earner disregard could thus help achieve the Government’s aim of reducing so-called welfare dependency among both two-parent and lone-parent families, because ultimately it offers a potential route out of universal credit as well as out of poverty.

Secondly, there is the question of implications for shared parenting, a Government goal articulated in their consultation on modern workplaces, which I very much welcome, even if its recommendations on parental leave look to be under threat according to recent newspaper reports. The equality impact assessment acknowledges that,

“it is possible that in some families, second earners may choose to reduce or rebalance their hours or leave work”.

However, it reassures us:

“In these cases, the improved ability of the main earner to support his or her family will increase the options available for families to strike their preferred work/life balance”.

This, it suggests, could be a “dynamic result” that improves family life.

It appears that what exponents of nudge like to call the architecture of choice is being tilted towards a more traditional male-breadwinner model, which may not necessarily reflect the preferred work-life balance of both members of a couple and could weaken women’s labour market positions. According to the equality impact assessment, this traditional male-breadwinner model apparently improves family life. Indeed, at a Social Security Advisory Committee stakeholder event, held at around this time last year, I questioned the Secretary of State about this. He answered in terms that suggested he regarded a return to such a model as a good thing, although I accept that this may not be the Minister’s view.

Moreover, I question the impact assessment’s assertion, made in this context, that universal credit policy is gender-neutral. It states:

“Where men and women are in the same circumstances they are treated equally under Universal Credit”.

We should hope so but in a gender-unequal world men and women are often not in the same circumstances in either the family or the labour market, so the effects of denying second earners a disregard are not gender-neutral. Therefore, I am not convinced that the Government are fulfilling their legal duty to promote gender equality here. Perhaps the Minister will tell us what advice the department has taken on this.

Thirdly, the Government nevertheless seem quite sanguine about the position of second earners as they consider any such risk of decreased work incentives to be justified. The Government are concerned only with incentives at the level of the household, rather than the individual. Indeed, they tend to conflate the two. In an Oral Answer in the other place, the Secretary of State stated that,

“universal credit will provide much better incentives for the first earner, giving a greater choice to the household about how it wishes to spread its income”.—[Official Report, Commons, 28/3/11; col. 2.]

This, together with the quotation that I read from the equality impact assessment is an example of what some economists called a unitary household perspective. It ignores the fact that couples are made up of two people and that the autonomy of each is important. Improving incentives for a first earner, even if on behalf of the couple, does not compensate for worsening them for a second. The choice of one partner is being enhanced at the expense of the other. In an earlier sitting, the Minister observed astutely:

“Effective choice exists only when the balance of power is equal between tenants and landlords”.—[Official Report, 20/10/11; col. GC 169.]

The same is true within those households where an imbalance of power exists, often reflecting the economic power of each partner.

A study of BME maternal poverty conducted for Oxfam found that the women interviewed were keen to take paid work as it is the best way to improve their household finances. However, in addition to the usual barriers, such as childcare, some of them faced their husbands’ attitudes. For the women who were in work, their jobs were an important source of self-esteem and independence, and they often had greater access to household resources than those without paid work. Although more traditional attitudes to gender roles might be more common in some BME households, they are not confined to them.

Consider the situation of a couple where the man is in low-paid work and receiving universal credit. He prefers his partner to be at home, looking after the house, the children and him. She would like a part-time job, perhaps to achieve a modicum of financial autonomy, to enjoy the sociality of paid work or to improve the household finances. Her bargaining position is not strong if taking paid work will reduce his universal credit and he can point out that her earnings will not bring much extra money into the household. If she could say that she and the household can keep a chunk of her earnings before they are affected by the taper, it would increase her bargaining power and make her choice to take paid work more effective, following the logic of the Minister’s own argument about choice and power imbalances.

Finally, there appears to be something of a tension between the Government’s apparent lack of concern about the reduced incentives faced by second earners and the treatment of this group in the new conditionality rules, which we have discussed. In particular, the in-work conditionality rules will require a couple to earn twice as much between them as a single person in order to escape sanctions. Yet if the first earner is unable to earn enough to do so alone, a second earner’s wages could be the most viable means of complying.

In short, whether looking at it from the point of view of the universal credit architecture, the Government’s child poverty strategy and its ambitions for shared parenting, or of financial autonomy for women and effective exercise of choice for them with regard to paid work, a second earner disregard represents a cost-effective enhancement to universal credit which, arguably, could eventually pay for itself. In a previous sitting, the Minister gave some costings for a second earner disregard. Are these gross or net costings? In other words, do they take account of the increased tax and national insurance and reduced universal credit payments that could flow from more second earners moving into paid work?

The Minister also said that this is a matter not of principle, but affordability. I hope that I have convinced him and the Committee that there are important principles at stake and that he will therefore go further than before in accepting the case that has been made in principle and assure the Committee that he would look favourably on such a disregard as and when the resources are available, taking into account the point about net and gross costs. I beg to move.

--- Later in debate ---

[Lord Freud]

We are going round in circles. We all know the point that is being made. We all know the reality of the iron triangle. We are wrestling with it. This is what we can afford to do right now. Some people may be caught in such a position and we make the point that some people will have higher MDRs—a lot will not. As we improve the position when we have funding, and have proof of the dynamic benefits that may free up main funding, we will be able to apply them. However, this is the best we can do right now. I would love to do more, but I cannot find any more money.

[Baroness Lister of Burtersett]

My Lords, I thank noble Lords who have supported the amendment with some helpful additions to the argument. I do not know whether any other noble Lords spotted it, but the Minister asked the “noble Lord” to withdraw the amendment. I do not know if he was making a Freudian slip and trying to reduce the bevy of Baronesses opposite him.

I should like to make a couple of more critical points before I come to a more positive one. I can understand the Minister’s frustrations that there are other parts of government that will not allow the department to do its calculations on a dynamic basis, but I was a bit disappointed that the department’s thinking was not dynamic in relation to this matter and it was not prepared to acknowledge that there could actually be positive dynamic effects through a second-earner disregard—whether they be anti-poverty or paid work effects, and all the things that the department is in favour of. I do not know whether these are just the noble Lord’s own arguments or those that are simply in the brief that comes from the various documents we have been given, but it seemed to me that there was still the unitary-household approach and an inability to understand that while couples are couples, they are also individuals within couples. I ask the noble Lord to go away and think about that a bit more and about the importance of individual autonomy within the context of coupledom. I would have been even happier if he had been able to go one step further and commit himself on the second-earner disregard in the longer term.

We have, however, made progress today. What the Minister has said takes us beyond some of the other things which have been said. I now take it as the official departmental view that it will, in the fullness of time, consider improving incentives for second earners, either through a second disregard or through the taper, as and when resources permit. I therefore beg leave to withdraw the amendment.

Amendment 52C withdrawn.

--- Later in debate ---

[Lord Freud]

My Lords, the intention is that the housing credit will broadly follow the current rules that apply in housing benefit. For someone to be entitled to the housing credit element of pension credit they will need to live in Great Britain, have reached the pension credit qualifying age and be liable for housing costs that relate to the accommodation they live in. The extent to which a person is liable for the housing costs, what constitutes the accommodation, how we treat temporary absences from home and how we calculate the amount of the housing credit will also be included in regulations.

A person may be entitled to the housing credit whether or not they receive the guarantee credit or saving credit element of pension credit. This schedule also enables us to specify that rates of support may differ by area. So, for example, different housing allowance rates can apply in different parts of the country.

In introducing the new housing credit we will, however, look for opportunities to streamline the benefit and align rules wherever possible. This includes extending pension credit provisions to the housing credit wherever possible. One such area includes assessed income periods. These are specified periods during which a customer is not required to report any changes in their requirement provision—namely, their occupational pensions and capital.

The schedule provides us with the flexibility to determine in what circumstances retirement provision will not be fixed in relation to the housing credit regulations, which will be subject to the appropriate level of scrutiny. The schedule also contains the consequential amendments to other legislation needed as a result of the abolition of housing benefit and the introduction of the housing credit.

This probing amendment would remove flexibility and would work to the detriment of those who, through no fault of their own, require assistance with their housing costs while at the same time making the system vulnerable to manipulation.

The noble Lord asked a large number of detailed questions on this matter. I can deal with some of them but I will answer most by way of a letter. On direct payments to landlords, it is not our intention that pensioners would be part of that regime, which is for working-age people. We are not planning to change the SMI arrangements for pensioners. Uprating will be done by CPI, as it will be with working age. We need capital limits in the system overall, clearly, and we need to determine what the right rates should be. They should be at a level where we do not see a substantial change in practice. As the noble Lord pointed out, this is now done by a tariff income process and, as we move towards an overall position in the housing credit, we need to get the equivalence.

I think that deals with the bulk of the questions. There are one or two more, which I will answer by letter, but, given the assurances about how we intend to use these powers, I urge the noble Lord to withdraw the amendment.

[Baroness Lister of Burtersett]

My Lords, will the Minister make sure that that letter includes the answer to a question which was asked a few sessions ago but to which the Committee never received an answer? It was not specifically about pensioners but was a more general question about whether mortgage interest will be paid as part of the universal credit or to the lender.

[Lord Freud]

We are looking very closely at the support for mortgage interest. I can let the Committee know that we are planning to consult on how we do that. Rather than include that point in the letter, I will make sure that noble Lords are informed when that consultation paper comes out.

--- Later in debate ---

We could do more to obtain a balance, particularly in relation to CPI versus RPI, over the long term. Someone will need to hold the ring and look at the long-term changes that will come into being as a result of these matters. If we cannot have an office for social protection then perhaps a body under the Social Mobility and Child Poverty Commission could be spun into the remit in a way that would give me the assurance I am trying to find without the bureaucracy of setting up an extra quango. I beg to move.

[Baroness Lister of Burtersett]

My Lords, I shall speak briefly in support of Amendment 113. I do not know whether this was another amendment cooked up in the noble Lord’s bath—I forgive him for “going forward”—but I like the idea of an office for social protection. The notion of social protection is one that we do not use enough in this country; it is very much a continental, European concept, and a very important one. I am not arguing for a new quango either but the spirit of noble Lord’s amendment is very important. I have lived through more fundamental reforms of social security than I care to remember, and not one of them has addressed the points made in this amendment about the adequacy and the sustainability of the different parts of the system. If nothing else, there should be a requirement on the Government that when they bring forward reforms of social security they should consider these fundamental questions.

We have touched on these points in Committee already. One noble Lord asked questions about the principles underlying social security. I intend to come back to them under an amendment to Clause 51, when I will to talk about a contributory principle. I am slightly reluctant to think about this as being part of the responsibility of the Social Mobility and Child Poverty Commission because social security is not just about poverty. The whole point about social protection is that it broadens it out beyond poverty—a group “over there”. One possibility to think about is whether to broaden the remit of the Social Security Advisory Committee so that periodically it reports on the adequacy and sustainability of the different parts of the system.

[Baroness Hayter of Kentish Town]

My Lords, I declare an interest in regulatory and professional services, having chaired the Legal Services Consumer Panel, sat on the Board for Actuarial Standards, overseen insolvency practices and sat on the Bar Standards Board, the Pension Regulator and the Property Standards Board. So I have a long involvement with non-economic regulators who oversee the professional delivery of services. These kinds of regulators have a large role to play as they are very much about what we called raising standards—although the words used by the noble Lord, Lord Kirkwood, when he talked about “driving up” standards may be even better. This goes beyond public services. That may be what is in front of us now but consumers are demanding this from a whole range of service providers. It has shaken some of the barristers who do not really like the fact that they have to conform to new consumer-set standards. But that is what the users of all services now want and that is what this kind of regulator provides.

I am less afraid of the idea of quangos—although I am sure that that is not a general view—but what these kinds of regulators do is to adopt codes of conduct; set good practice guidelines and minimum service standards; and then ensure that quality assurance by way of setting minimum training or entry qualifications, CPD requirements and the monitoring of services. That monitoring is not just about compliance, important though that is, but also provides a feedback loop so that lessons are learned, either for standards and the way they are defined and set, or for the way staff are trained, or, as was discussed this morning, to allow systems to continue to be developed in the light of the way the service is delivered.

This kind of standard-setting is particularly important in view of the ending of legal aid to assist complainants and users because the only other monitoring will be via this kind of organisation. This kind of regulator—for want of a better word—can identify whether particular groups are underrepresented in any category and whether all groups are being properly serviced and properly served. As the Minister has stated on a number of occasions, some decisions must be taken on a case-by-case basis—in-work conditionality is a particular example. This will involve tremendous discretion in the hands of thousands of decision-makers across the country, so clear guidance, good and consistent training and ongoing monitoring of decisions by some kind of regulator with authority will be crucial to ensure that the service is fit for purpose.

Unfortunately, the Government refused to accept our earlier amendment that the Jobcentre Plus side of the claimant commitment should be laid down. It is therefore even more important that this standard-setting will be open, transparent, raise standards and, most importantly, create confidence in the new system. This proposal has some merit. I am not sure whether or not the formula will achieve it, but we look forward to hearing the Minister’s response.

--- Later in debate ---

[Lord Freud]

My Lords, I share the noble Lord’s concern that the benefits system must be fair, efficient and affordable, which is indeed why this Bill is before the Committee today—to ensure that benefits are well targeted and fair and the system is simple to understand and simple to administer.

The first of these amendments would introduce a claimant regulatory body for universal credit. We are committed to involving claimants throughout the development of universal credit. This involvement will ensure that issues are known, understood and mitigated as universal credit is being built. As part of this, we are already conducting a programme of research among a broad range of future claimants and are testing the design of the claimant commitment with claimants, front-line staff and stakeholders. This process will continue over the coming months to ensure that claimants have real and sustained input into the creation of the new benefit.

The other amendment in this group would create a wider office for social protection, looking at the benefits system as a whole. There are already a number of other bodies with oversight of the benefits system and any changes made, not least the Social Security Advisory Committee. As well as scrutinising regulations, the committee comments on a range of operational matters, especially in relation to claimants’ interests. While I am grateful for the contributions of the noble Baroness, Lady Lister, and my noble friend Lord Kirkwood, I am not convinced that another body is needed. The coalition Government are committed to reducing the number and cost of quangos, and increasing accountability by transferring the responsibility for key decisions on public policy back to Ministers. Ministers are held to account in Parliament, including by powerful committees such as the Public Accounts Committee and the Work and Pensions Select Committee, not to say the Chamber of the House itself.

I do not intend to reverse this direction of travel, and I would urge the noble Lord to withdraw his amendments.

[Baroness Lister of Burtersett]

My Lords, before the Minister sits down I would like to make clear that I was not arguing for a separate body. I was arguing that Social Security Advisory Committee could perhaps be asked specifically to consider, on a regular basis, the issues contained in the noble Lord’s amendment—possibly in its annual report—namely the adequacy of the different elements of the system, the sustainability and the way the different elements of the system fit together. It would be very helpful to have that kind of annual overview. Perhaps the Minister can take that away and consider it.

[Lord Freud]

My Lords, I know it is not our House, but I point out that the Work and Pensions Select Committee has that remit—a very direct remit to look at the system overall. If you are looking at how individual claimants are treated, we have a process of tribunal and independent review. There are a whole number of different processes.