Welfare Reform Bill

Baroness Meacher Excerpts

Tuesday 4th October 2011 Grand Committee

[Baroness O'Loan]

I have a brief point in support of the noble Baroness, Lady Campbell. As we later consider the disability living allowance and the PIP which will replace it, we need to bear in mind that our understanding of the consequences of living with disability is limited. We demonstrate that by the way in which we conduct our business. People will judge the extent of our understanding in the discussion we have about social security arrangements for them. It is a hugely important issue.

[Baroness Meacher]

I support that strongly. If one of our Members is actually at risk, maybe the usual channels need to reconsider whether this Committee can be held in this Room. I do not believe that any work can be done by this House if a Member is at risk and feels that they may not be able to breathe. I urge the usual channels to revisit that issue.

Could I ask the Minister three quick questions. One is strongly in support of the point made by the noble Baroness, Lady Hollis, that risk is more important than the idea of getting an additional 24p in the pound—or whatever it is—for every pound one might earn in employment. I know the Minister is as conscious as I am about the special needs of people with mental health problems in relation to risk.

This is a group who may desperately want to work, but who are locked out of employment because of the understandable concerns of employers about taking them on. I know this is much in the Minister’s mind. Has a real assessment been made about the impact of this Bill, geared to economic incentives, on that large group of claimants, particularly on ESA, in terms of the risk that they face? I have been talking about this Bill to a lot of service users, patients, in east London and they all refer to being terrified. Understandably, this might not have been fully taken on board by the drafters of the Bill, the Bill team and all the other people involved. Is the Minister satisfied that the depth of that issue and its importance to a very large group, something like a third or more of claimants in the employment service, on ESA, has been taken on board? That is the first question.

The second one concerns the point raised by the noble Lord behind me about the IT system. We all know about the NHS IT system: it was all going to be wonderful and we were looking forward to it. It was about integrating databases, computers and suchlike. It failed and failed and failed and cost billions. Does the Minister have an estimate of the timeframe for the integration of the Inland Revenue and DWP computer systems? I think that that is the project: obviously he will correct me if I am wrong. Also, what confidence does he have in that estimated timeframe and what is the evidence for his confidence if he has it?

My third point concerns DWP staff training. Can the Minister, again at this early stage of the Bill, give some assurance to the Committee about the level of funding going into the training of DWP and other relevant staff to ensure that they can understand the complex issues around capacity to get into employment? I have mentioned this story before. In conversation with a Jobcentre Plus manager, I asked how they dealt with people with mental health problems. The answer was: “We don’t”. I asked what happened and the answer was: “They become homeless and go back into hospital”. As somebody responsible for a mental health trust, I would be interested to know whether the Minister is satisfied that in future DWP staff and others will be adequately trained. Our trust and others will not be able to finance large numbers of people coming into hospital who at the moment do not do so.

--- Later in debate ---

[Lord Freud]

We will get a code. But even the current impact assessment shows the transformative effect of universal credit when it is fully implemented. The combined impact of take-up and entitlements may lift hundreds of thousands of individuals out of poverty, including as many as 350,000 children. The vast majority of gains from universal credit will go straight to the poorest households.

I shall pick up the point made by the noble Lord, Lord Wigley, and the noble Baroness, Lady Meacher, on risk. By combining, effectively, out-of-work benefits and in-work tax credits, we effectively de-risk moving from one category to the other and that is a very powerful incentive for the poorest people to take a risk. One other aspect of it which I have been very conscious of as we develop the whole approach is that it is the best way of dealing with fluctuating conditions. You can move, take a risk and work for some months without being terrified that, if it does not work out, you have lost your benefit support structure, because you are just moving up and down the taper. So, from the aspect of risk, universal credit has huge advantages and it is one of the main drivers of our expectation to see many fewer workless households.

[Baroness Meacher]

I agree with the Minister that that is one of the great things about the universal credit—on the assumption, and this is the second point that I made, that the systems are properly integrated. As I understand it, this wonderful moving in and out of work, with your benefit going up and down as your earnings do the opposite, depends on the integration of those computer systems. My concern is that if the Bill goes through and the universal credit comes in but the IT systems are not ready, then I would have thought that the whole thing would be undermined. I would be interested to know the Minister’s response.

[Lord Freud]

I thank the noble Baroness. I will leave that till a little later; a number of noble Lords have raised concerns about the IT infrastructure.

To return to the structure of the universal credit itself, the single taper on earnings means that claimants will clearly see how the universal credit award decreases as income from earnings rises, making work financially rewarding for everyone. Alongside the work programme, universal credit will ensure that claimants have a route out of poverty through work rather than a lifetime on benefits—or on social security, depending on language; I will touch on language in a minute as well. I hope, and I hear from noble Lords in terms of principle, that there is general support for this approach.

The participation tax rate assesses the proportion of earnings that are effectively lost through tax and benefits on starting work. The dynamic effect of universal credit means that over 1 million fewer households will face participation tax rates over 70 per cent.

We will also tackle the issue of high marginal deduction rates, which undermine the incentive to increase earnings or hours once someone is working. Under the current welfare system, people in work can gain as little as a 4p increase in their take-home pay for every £1 increase in earnings, and people on out-of-work benefits could see a pound-for-pound reduction on their benefit.

On the questions raised in this area by the noble Lord, Lord McKenzie, regarding the numbers of people who face higher and lower marginal deduction rates, the impact assessment confirmed that 2.1 million individuals will have higher rates under universal credit but that the median increase will be comparatively small, at about 4 percentage points, and many of those will be households with above-average income for universal credit claimants, moving from a marginal deduction rate of 73 per cent to 76.2 per cent. Some 330,000 second earners will face higher rates, compared with 140,000 with reduced rates. The median increase is higher for this group, reflecting the fact that second earners already tend to have lower marginal deduction rates. As the Committee will know, the impact assessment also addressed the issue that some second earners might move out of work, but we are still expecting the net effect to be a large reduction in those who are workless.

On my noble friend Lord Newton’s concern about child benefit and the debate around that, the best that I can do today is to commit to taking that up with Treasury colleagues and find out what the process is. Again, I will revert.

I return to the universal credit. The way that it will tackle the problem of very high marginal deduction and participation rates is to have a consistent taper of 65 per cent. Overall, this produces substantial improvement in those marginal deduction rates. About 700,000 people who currently have rates above 80 per cent will benefit from it. I turn to IT.

--- Later in debate ---

[Lord Freud]

We will have a debate on this matter rather soon, but maybe not today. The only way I can respond is to point out that, depending on how we adjust the system to have what is effectively a tax rebate system outside the universal credit, we could see different effects. Rather than prejudging this, I will reserve that information for another day. We will have plenty of time to deal with it.

I have been asked about IT by a number of noble Lords, including my noble friend Lord Newton, the noble Lord, Lord McKenzie, and the noble Baroness, Lady Meacher, among a few others who have some concerns. We have gone through a huge process of external assessment by the Major Projects Authority, which is a continuous process in stages. The most recent independent review stated a high level of confidence that the expert teams that we have assembled will see us deliver the programme. The review team said that we had made an impressively strong start.

The programme is on time and on budget. It is being developed in a radically new way to government programmes. The difference is that in a traditional government programme the whole system is built, trialled for a few months and then introduced. This system is being built in layers so that we can trial each layer as it develops and test it with customer insight. That process is happening. One of the things that we can do today is take some particular claimant types through the system. I am planning a demonstration for noble Lords later this month to take them through this process, because when they start to see the different elements coming together there will be a much better basis for understanding.

In my confidence, I can quote only these external sources; my own views are perhaps less relevant. The external sources are holding the programme up as an exemplar of how the Government should develop IT. We will be getting these external reviews regularly at each of the difference gateways, so it will be monitored externally very carefully. I have no knowledge of where this is on anyone’s risk register, so I cannot answer that particular question put by the noble Lord, Lord McKenzie. Obviously, though, any big programme is going to be looked at to ensure that it is being done to time and to budget. That is just governance.

I think there is a lot of confusion in the external world between what is an appropriate level of governance and external monitoring of an important, big programme, and the fact that there are always risks involved in developing it. I responded to the article in the Telegraph, saying that this was a programme on time and on budget. Basically, the article was misleading and I stand by that letter.

[Baroness Meacher]

I wanted to turn the question around another way. The Minister rightly says that there are always risks in these things. If, in fact, the IT system is not ready when the plan is for this Bill to be implemented, will the Minister give an assurance that there will then be a delay in the implementation of the Bill until the IT system is ready? If not, I go back to my other point about the risks, fears and so on. If there is a lot of change and reassessment, which we know are going on anyway, it would be helpful to have an assurance that, as he says, they would then have a system that would deal with a lot of the problems of the current system. It would be extremely helpful if the Minister could give us that assurance.

[Lord Freud]

I thank the noble Baroness, Lady Meacher, for that. I am at a slight loss at how to respond, in case it is an “Am I beating my wife?” question. I am getting some help from the Box. The universal credit will be built on a computer system, or rather a pair of medium-sized computer systems. We have a careful introduction process. One of the options we had, if I can explain it in layman’s terms, was that we could have picked everyone up electronically out of current systems, moved them over and dropped them into the universal credit, with effectively a Big Bang approach—go for it.

That would have been the conceptual framework in which the noble Baroness asked her question. We are not doing that. We are moving people into the system over an extended period. We will start with the flow in October 2013, and then as we get the system working we will have some managed migrations over a four-year period. It is not the Big Bang approach—where you wait for the thing to go, and then you throw everyone in—that one might envisage. It is a much more considered, steady, incremental approach. Indeed, we are developing the actual IT by using elements and units of what we have much more incrementally than it might seem from outside. That is one of the things that I will try to show noble Lords when we have the presentation; indeed, it will be a wider presentation for all parliamentarians. I see that a few in the Room may be very interested.