Welfare Benefits Up-rating Bill

Baroness Lister of Burtersett Excerpts

Monday 11th February 2013 Lords Chamber

[Baroness Lister of Burtersett]

My Lords, this Bill should really be titled the “Welfare Benefits Downrating Bill” because it will downrate the real value of the benefits and tax credits upon which the poorest members of our society rely. The Bill’s length, together with its effects and some of the divisive arguments that have been used to justify it elsewhere, make it—unfortunately my noble friend Lady Hollis got in first with my best line—nasty, brutish and short.

Among those who face greater hardship as a consequence are the 200,000 children who will fall into poverty as families with children and poor mothers are particularly hard hit. In the words of the Children’s Commissioner for England, it is unacceptable that children should have to pay the price for the economic malaise of our country. Could the Minister please explain how this projected increase in child poverty is compatible with the Government’s obligations under the Child Poverty Act 2010? Moreover, as a number of noble Lords have said, about one-third of households containing a disabled person stand to be affected, despite the claims to be protecting disabled people.

I wish to examine the two main arguments used by the Government to justify this nasty Bill. The Secretary of State told the other place that the arguments are,

“first and foremost about affordability”,—[Official Report, 21/1/13; col. 128.]

and that deficit reduction is at the heart of the measure. Oddly, he countered the charge that social security spending had risen faster than anticipated under his watch by rightly pointing out that,

“a huge part of that is spending on pensions”.—[Official Report, 8/1/13; col. 188.]

Yet pensions are not included in his Bill, which is supposedly “all about affordability”, as my noble friend Lady Hollis has underlined.

Ministers enjoy using the affordability argument to ask the Opposition what they would cut instead, as have the noble Lords, Lord German and Lord Bates today. I cannot talk for the Front Bench but similar sums could have been saved in a much less regressive way by forgoing tax cuts that benefit the better off the most. I am talking about not just the regressive cut in the additional rate of tax but also the increase in personal tax allowances, which are of no help to the one-fifth of workers too poor to pay tax, two-thirds of whom are women; of only limited help to those in receipt of certain means-tested support, which tapers away with higher post-tax income, and this will be even more the case under the universal credit; and of most advantage to higher-rate taxpayers. As a Gingerbread report put it:

“It would be hard to design a policy that was less well targeted on low income families”,

than raising personal tax allowances—the more so, given that the better-targeted child benefit has been frozen, as the right reverend Prelate the Bishop of Ripon and Leeds has pointed out.

In any case, if the policy is really about deficit reduction, cutting incomes at the bottom is counterproductive because, as the IMF has pointed out, this reduces demand. People on low incomes are more likely to spend their money, and in the local economy. According to the Office for Budget Responsibility, the multiplier effect of changing benefit levels, for good or ill, is twice that of personal tax allowances. So what is the sense of taking money out of poor people’s pockets in order to put some back into better-off people’s pockets in a way that is less likely to keep the economic wheels turning? Again, a number of noble Lords have made that point.

The second argument concerns fairness. There are two aspects to this. The first is that over the past five years out-of-work benefits have gone up by about double average earnings. In the debate in the other place, a Conservative Back-Bencher said that it,

“cannot be right ... for benefits to rise, year after year, faster than the wages of the low-paid”,—[Official Report, Commons, 21/1/13; col. 101.]

but the past five years have been an aberration. With the exception of a much needed boost to the real value of support for children achieved under the previous Government, benefits have year after year gone up by less than wages because they have been linked only to prices. The consequence is that, according to Professor Jonathan Bradshaw, the value of the basic safety net benefit received by a single person is now only 11% of average earnings compared with 18% in 1948 and 20% in the late 1960s. Moreover, the replacement rate of unemployment benefits is low comparatively, meeting only 53% of former net earnings for a couple with two children on average earnings compared with an OECD average of 76%.

A Joseph Rowntree Foundation study of existing uprating policies concluded that they,

“imply substantial long-term reductions in personal disposable income relative to earnings”.

Indeed, the Minister, Steve Webb, told the other place that,

“we think that average earnings in a couple of years’ time will be more than CPI, as is the case in many normal years”.—[Official Report, Commons, 21/1/13; col. 114.]

So even the Government do not believe that benefits were going to run away ahead of earnings, if they continued to be uprated in line with the CPI.

As has already been pointed out, the differential impact of inflation on different income groups due to big increases in food and utility prices means that people on benefits typically will have been hit harder by rising prices than the people on average earnings with whom Ministers like to compare them. They are also being hurt by cuts in housing benefit and are about to face cutbacks in council tax support. We can already see the consequences in the growing hardship documented by charities and the inexorable rise of the new alternative safety net of food banks.

I wish to refer briefly here to the findings of the independent parliamentary inquiry mentioned by the right reverend Prelate the Bishop of Ripon and Leeds. The inquiry,

“was shocked to hear of instances where children were left destitute and homeless, entirely without institutional support and forced to rely on food parcels or charitable donations”.

The asylum support system, which has failed these children, has not been increased at all this year, not even by the miserable 1% in this Bill.

Percentage increases, or what the noble Lord, Lord German, called a small amount, have to be understood in the context of the value of the benefits themselves. Analysis by my colleague Donald Hirsch at Loughborough University shows how working-age benefit levels are well below the minimum income standards that members of the public believe are necessary to live a decent life. It is sobering to reflect that if I were a single, unemployed person the £71 I would get a week in jobseeker’s allowance is less than a quarter of the allowance I can claim a day for attending your Lordships’ House.

The other fairness argument that has been put was articulated by the Chancellor in his Autumn Statement when he maintained that,

“fairness is also about being fair to the person who leaves home every morning to go out to work and sees that their neighbour is still asleep, living a life on benefits”.—[Official Report, Commons, 5/12/12; col. 669.]

As has already been said, this has encouraged the framing of the debate in the loathsome terms of strivers versus skivers in which striving is misleadingly treated as synonymous with paid work and skiving with out-of-work benefit receipt. With reference to this the Joint Committee on Human Rights, of which I am a member, has reminded the Secretary of State,

“of the importance of fostering respect for the dignity of the vulnerable, including benefits claimants”.

I am very glad that so many noble Lords have made the point about the importance of the language that we use.

I hope in this context that noble Lords will also have regard to a new Joseph Rowntree Foundation study, which debunked the conventional wisdom of an intergenerational culture of worklessness despite a search in the kind of areas most likely to produce it. The researchers found that typically young people,

“aspired to a life that included work”,

The study said:

“Without exception, parents also hoped for better for their children and, where possible, made practical efforts to help them towards employment”.

The noble Lord, Lord Bates and Lord Sheikh, are not in their places, but they might like to read that study because they seem to believe that a dependency culture exists widely in this country. Study after study demonstrates the work commitment of people in receipt of benefits, and I am sure noble Lords would not want to follow the example of the Conservative Back-Bencher in the other place who insisted during the Second Reading debate that,

“there is evidence of a culture of worklessness, whatever the Joseph Rowntree Foundation says”.—[Official Report, Commons, 8/1/13; col. 238.]

And what was the evidence? It was a caller to LBC radio.

A number of pieces of JRF research have also illuminated how the demonising division of the world into strivers and skivers belies the constant movement in and out of work at the bottom of today’s insecure labour market. The assumption that people out of work are skivers ignores the ways in which they strive to get on and to help their children to get on, strive to care for their families and often to improve their local communities, too. I suggest that it is an unfair slight on the good name of many of our fellow citizens to write them off as “shirkers”, “welfare dependents” and undeserving of decent benefits.

It is also unfair to suggest, as did the Secretary of State recently, that many of those in receipt of tax credits are somehow getting what they are not entitled to. This smacked of an attempt to deflect the evidence that around half of those affected by the Bill are in working households. This discrediting of tax credits ignores the ways in which, as has already been noted, they have supported low-income working families whose earnings have been squeezed during the recession, and have probably contributed to the lower than expected level of unemployment. To then compare the increase in benefit levels with these same squeezed wages as justification for this Bill, which also cuts tax credits, is to add insult to injury.

I suggest that the Government’s arguments do not withstand scrutiny. Instead, this is an unnecessary, political bill designed to divide one group of low-income people from another and to court public opinion. The one silver lining is that opinion polls suggest that the public are less enthusiastic than the Chancellor of the Exchequer had perhaps anticipated. By fixing benefit upratings at an arbitrary 1%, regardless of what happens to inflation over the next three years, rather than assessing the situation in the normal way, year by year, the Government are, in the words of the Institute for Fiscal Studies, exposing,

“the poorest in society to inflation risk”,

a point made powerfully by the noble Lord, Lord Kirkwood.

As even the right honourable John Redwood warned in the other place:

“If inflation suddenly took off”—

I am not sure about “suddenly”, because I have been reading reports about the new Governor of the Bank of England talking about economic policy which may well increase inflation—

“this would become a much tougher and crueller policy”.—[Official Report, Commons, 21/1/13; col. 66.]

It is already a tough and cruel policy. It does not deserve your Lordships’ support.

--- Later in debate ---

[Baroness Lister of Burtersett]

My Lords, the noble Lord made the point about raising people out of tax, but in my speech I said that that is the least good way of targeting help on low-income families. It is a much worse way than, say, improving child benefit. Can he explain why the Government think that it is better to put money into personal tax allowances rather than protecting the incomes of people who are too poor to pay tax?