Welfare Reform and Work Bill

Baroness Sherlock Excerpts

Monday 21st December 2015 Lords Chamber

[Baroness Lister of Burtersett (Lab)]

My Lords, I rise to speak to Amendments 98 and 99, in my name and that of my noble friend Lord Kirkwood of Kirkhope, to whom I am once again grateful for his support.

Amendment 98 would delete child benefit from the list of benefits covered by the four-year freeze. Amendment 99 applies to child benefit the triple lock that currently governs the uprating of retirement pensions, a policy promoted by CPAG—again, I declare my interest as honorary president—and End Child Poverty.

Far from a triple lock, child benefit has been the victim of a triple whammy since 2010. It was first frozen for three years and then uprated by only 1%, and now it is to be subject to a four-year freeze. The upshot is that, according to CPAG’s calculations, it will have lost 28% of its value between 2010 and 2020. In other words, it will be worth less than between a quarter and a third of what it was when Labour left office. A graph prepared for me by Professor Jonathan Bradshaw shows how the gain in value under the previous Labour Government has already been nearly wiped out. It also shows how child benefit represented a much higher percentage of average earnings in the early 1980s under another Conservative Government. However, it was then subject to similar treatment to now, until it was rescued by Sir John Major, who understood why child benefit is important and why its value should be protected. Sadly, his successors do not appear to share his understanding.

I tabled these amendments to encourage a debate about the role of child benefit. I quite accept that it is rather ambitious to argue for the extension of the triple lock to child benefit in the current context, but there is a parallel with pensions. One of the justifications for its application to pensions, and for excluding pensions from the freeze, is that pensioners are among those least able to increase their incomes through work. Leaving aside how true this still is of younger pensioners such as myself, it is in some ways even truer of children. I know the response will be that their parents can increase their income through paid work, but as the judges in the benefit cap case made clear, children’s rights cannot be sacrificed for any failing on the part of their parents.

Moreover, one of the reasons why the family allowance—the mother of child benefit—was introduced in the first place was that wages cannot and should not take account of the number of mouths a wage earner has to feed. In the jargon, child benefit enables horizontal redistribution from those without children, such as myself, to those with, and recognition that we all benefit from children being brought up as healthy, thriving citizens. It may be a bit of a cliché but children do represent our future. Of course, as most people do have children, for the majority it in any case represents redistribution over their own life course.

Child benefit thus has an important function in supplementing wages without the drawbacks associated with means testing. In particular, it cannot be accused of subsidising low-paying employers and it does not create poverty traps. CPAG’s annual research into the cost of a child carried out by my colleague at Loughborough University, Professor Donald Hirsch, shows how the benefit represents core income, not an extra for families, so perhaps it is not surprising that, despite what the noble Lord, Lord Lawson, said in our first sitting about its unpopularity, a recent poll of 1,000 parents for End Child Poverty found that only one in 10 parents thinks that child benefit and child tax credit should not keep up with inflation. As many as two-thirds thought they should be increased in line with the cost of living or more, with virtually no difference between income groups. As I said, most people are parents at some point in their lives, and many grandparents will share these concerns about decent benefits for their grandchildren.

Moreover, because it is paid to the so-called “hard-working families” beloved of politicians, child benefit can act as a work incentive. It therefore makes no sense to freeze it when one of the primary objectives of the freeze, according to the impact assessment, is to increase work incentives, and it makes every sense to uprate it in line with average earnings. There is also a strong case for uprating it in line with personal tax allowances.

Those of us who have been in the game for a long time, such as my noble friend Lord Kirkwood, will remember that child benefit replaced child tax allowances as well as family allowances. At the time, there was a cross-party consensus that they should therefore be treated as akin to personal tax allowances when it comes to uprating policy. Unfortunately, that consensus soon broke down, but it does not invalidate the argument. For a Government who purport to care about child poverty and making work pay, it makes no sense to sink huge amounts of public money into raising tax allowances while freezing child benefit. Apart from anything else, the latter reaches parents in work earning below the tax threshold who gain nothing from further increases in personal tax allowances. Also, low-income parents earning above the tax threshold lose most of any gains from an increase in the personal tax allowances through cuts in means-tested benefits—a drawback that will increase under universal credit.

A constant thread running through our deliberations these last few days and weeks—however long it has been—has been how, despite government protestations, the best interests of the child have not been a primary consideration, as required by the UN Convention on the Rights of the Child. I fear that this Bill will be used as evidence against the UK when its record is interrogated by the UN committee next year. If at the very least the Government were prepared to remove child benefit from the four-year freeze, it would represent a degree of mitigation.

[Baroness Sherlock (Lab)]

My Lords, I will not detain the Committee long as I made clear the Opposition’s approach to the uprating of benefits on the last group of amendments.

Amendment 97 would allow benefits claimed by carers to be increased in line with inflation. My noble friend Lady Pitkeathley once again outlined very powerfully the problems faced by carers. I commend her brilliant, long and persistent attempts to put these things before the public and Ministers.

As the Committee heard in previous debates, there must be a real danger that the state will start to penny-pinch its way into driving carers out of caring, leaving those for whom they care to be the responsibility of the state. Throughout this Bill there seems to be little attempt to try to assess the costs to the public purse that might accrue to other parts of government, national or local, as a result of savings in the social security budget. My noble friend Lady Lister, in moving her amendment, advocated a triple lock for child benefit. I very much appreciated the history lesson for those of us who remember going back to where that is. The CPAG warned us that during the last Parliament child benefit lost 13% of its value against CPI, and 16% against RPI. Of course, that is far from the only cut affecting children. The levels of benefits and tax credits for children have faced repeated real-terms cuts.

I am using this amendment to ask the Government to do something very specific that they keep refusing to do—namely, to provide a cumulative impact assessment of the effect on particular categories of people of the changes that they are making. Whenever we ask them to do this, they put up two defences. The first is that it is all a bit complicated because everybody’s circumstances are different, so they cannot be expected to produce a single cumulative assessment. Well, somehow the Treasury and the IFS have managed for years to assess the impacts of measures on categories of people, if necessary by modelling them in relation to different household sizes and compositions. We would be happy to get that.

The Government’s second argument is that you cannot just consider benefits, you have to consider all the other wonderful things the Government are doing, such as the national minimum wage and tax allowances. That is fine. Include those in the models as well and we can all see who will be better off and who will not as a result of the combination of all these effects. A variation on that defence is that it is too hard because of the dynamic effects of the Government’s wonderful welfare reforms. Translated, that means either the Government reckon that universal credit will make people better off or that they are going to make them so desperate that they will have to work because they will have no other choices. In neither case have the Government produced enough evidence, let alone hard evidence, that can be included in modelling and put in the impact assessment, because the evidence is not there—so they just say that it is all a bit hard.

I have tried repeatedly to get the Government to do this, as have other noble Lords, and we are getting nowhere at all. But there comes a stage where if the Government keep bringing forward legislation which repeatedly attacks the same people, and do not do this, there is a significant democratic deficit. It is hard to know how this House can begin to understand the implications of what is being done when the Government simply refuse to give us the evidence to do it. So I urge the Government to take advantage of this debate to agree at last to address the gaping hole in the evidence and commission some cumulative impact assessments.

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Moved by

[Baroness Sherlock]

103A: Clause 16, page 15, line 7, at end insert “including outlining the number of weeks a person must wait after the need arises in order to apply for a loan under subsection (1), which must be no longer than 13 weeks”

[Baroness Sherlock]

My Lords, I rise to move Amendment 103A and to speak to Amendment 104AZA, which are in my name and that of my noble friend Lord McKenzie of Luton. In doing so, I remind the Committee of my declared interest as a senior independent director of the Financial Ombudsman Service, in case it proves relevant to the later debate. I will speak at slightly greater length than I have recently because there are some quite complex issues involved and I need answers to questions. I hope the Committee will bear with me.

At present, owner-occupiers receiving income-related benefits may claim additional help towards their mortgage interest payments in the form of support for mortgage interest, or SMI. The payments are normally made direct to the lender and are intended to ensure that someone who is struggling to pay their mortgage does not end up having their home repossessed, causing misery to them and leading, most likely, to their claiming larger amounts in housing benefits to rent an alternative home. This Bill will end the SMI scheme and empower the Government to create a loan scheme as an alternative, with the loan secured by a charge against the property. I understand that the intention is to have the scheme administered by the DWP, with the recovery run by a third-party organisation which will be able to charge fees to claimants to cover the cost of administering the loan scheme.

In the impact assessment, the Government argue:

“Without the policy change there is an incentive for households to allow the taxpayer to take the burden of their mortgage without taking steps to repay it themselves”.

The only way to get this benefit is for your income and savings to be so low that you qualify for a means-tested benefit such as income support, jobseeker’s allowance, ESA or pension credit. The idea that people poor enough to qualify for those benefits could pay off their mortgage but are choosing to allow the taxpayer to do it instead seems unlikely. At present, claimants have to wait 13 weeks from first claiming a qualifying benefit before they can apply for SMI. That waiting period is to be extended to 39 weeks, and Amendment 103A seeks to restore the 13-week waiting period. The Minister will doubtless say that it had previously been 39 weeks, under the last Labour Government, but in 2009 the then Government brought it down to 13 weeks as a result of the economic situation.

Peers may have seen the helpful briefing from the Money Advice Trust, StepChange, the Building Societies Association and the Council of Mortgage Lenders, all of which strongly support this amendment to retain the 13-week period. As they put it:

“Lenders and advice agencies alike know from experience that early intervention is the key to resolving financial difficulty”.

They say that the Bill’s extension of the waiting period to 39 weeks risks making it “significantly more difficult” to resolve mortgage problems. The change would mean that claimants would be well over six months in arrears with their mortgage by the time SMI kicks in. As those organisations point out, two separate pieces of research, commissioned for DWP and DCLG, show the 13-week period has been effective in holding down arrears and repossessions—which, after all, is of course the point of the scheme.

In its evidence on the Bill in another place, the Council of Mortgage Lenders said:

“If the waiting time is extended, as planned, we believe that it will result in more cases of repossession … Extending the waiting time will only cause additional consumer detriment”.

It points out that interest rates have been so low for so long that probably 2 million borrowers have never experienced a rate rise. It is our view that the market is far from stable and that this is a very bad time to increase the waiting period, especially at the same time as abolishing the grant scheme and moving to a loan option.

Amendment 104AZA seeks to retain the SMI grant scheme for claimants who are in receipt of pension credit—in other words, our poorest pensioners. This is what I like to call the reverse Salisbury/Addison amendment: we are helping the governing party to fulfil a manifesto commitment which seems temporarily to have slipped its mind. The Conservative manifesto explicitly said that a Tory Government would protect pensioner benefits. Yet almost half of those getting SMI are of pension age and a disproportionately high number of claimants are pensioners. In fact, the impact assessment says that,

“SMI claimants are considerably more likely to be over pension age than mortgage payers in general”.

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[Baroness Sherlock]

Before the Minister replies, I have a few other questions; perhaps he can answer them together. I thank the right reverend Prelate for clarifying that. Indeed, I wanted to be sure that the advice was independent of the debt recovery under the provisions. I apologise if I missed any of the Minister’s answers—I tried to tick them off as I went along, and he did pretty well, so I thank him for that.

First, can the Minister clarify that anyone in receipt of a qualifying benefit will be entitled to a loan whether they have or could be expected in the future to have any equity, or certainly enough equity to cover the loan? Secondly, if somebody loses SMI and as a result loses pension credit, will they lose access to passported benefits as well?

On the question of advice, the Minister described what subjects the advice would cover but I was not quite sure of the level of personalisation. I would put money on the fact that the pensioner will say, “These are my circumstances—should I apply for this?”. Will the adviser be able to say, “I advise you to do it—yes, you should”, or “I advise that you shouldn’t”, or will the advice be much more general, like the kind of money advice we are talking about in pension schemes? Did the Minister say that it was free to the claimant? I am sorry, I may have missed that. Finally, there was the question on redress for customers in the case of bad advice.

While the Minister is reflecting on those, I will respond to a couple of points made in the debate. I thank all noble Lords who contributed. I welcome the noble Lord, Lord Young, to the debate, and thank him for what I choose to regard as the implied compliment that I had some good arguments earlier in the evening, even if I did not do so well just now. In response to the points he made, I find persuasive the research done for two different government departments that the move to 13 weeks had been effective in holding down arrears and repossessions. That was government-commissioned research. I may be wrong about that but it seemed to be one of the most compelling arguments for not going back to 39 weeks. But presumably the Minister will say that they will monitor and evaluate it, and I will be interested to hear what they say.

Both the noble Lord, Lord Young, and the Minister said that in the case of pensioners the beneficiaries are essentially not the claimants themselves but those who will benefit from their estate, but of course it is often the case that that is not strictly true. I live in Durham, and in County Durham plenty of people have houses which are, frankly, worth not very much at all by London standards, so they have very little equity in them. If this kind of debt prevents them accessing all that equity, it may mean that they will not have equity available to them which they might need to get at for care costs or other non-NHS covered support costs of different kinds. So it does potentially have an impact on the pension in their lifetime, not just on those to whom they bequeath the house.

Finally, I should have reiterated something right at the start. The Minister was kind enough to give his officials the freedom to brief us on the session, and I had a particularly helpful conversation on this area. I know it might not seem like it, since I have rewarded them by coming back with lots of questions, but in fact it has been very helpful and has meant that in this debate I have tried to focus more on how this will work than adopting a more combative style. So I appreciate that and I look forward to the answer to those questions.

[Lord Freud]

I do my best. On the independence of people providing the advice, it will be independent of those providing the loan.

[Baroness Sherlock]

And the recovery?

[Lord Freud]

Yes, I think that it is likely to be independent of the recovery. Yes—it is now. On the point about passported benefits, we are working to ensure that individuals who are no longer entitled to an income-related benefit as a result of the introduction of the SMI loans will have access to passported benefits. We are scoping out what the advice will look like and what we expect it to cost. Until we start the contracting process, I cannot prejudge whether SMI advice will be free. So that is outstanding.

I think that I have answered most of the points. If not, I will hit the typewriter—the Kremlin uses only typewriters because computers can be hacked. On the point about the number of weeks, I think that the noble Baroness will find that the level of forbearance with 39 weeks was very high and that very limited numbers of houses were repossessed by the mortgage providers, so I think that that will provide her with some reassurance.

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[Baroness Sherlock]

My Lords, I thank the Minister for those answers and for the little glimpse that he has given us into the security that goes on within the DWP. I shall certainly take that home with me.

I should probably say for the record that if indeed one of our amendments would have had the effect of making pensioners wait to access help with mortgage interest payments, that certainly was not our intention. I feel that I should clarify that. However, in the light of the answers that the noble Lord has given, I beg leave to withdraw the amendment.

Amendment 103A withdrawn.

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[The Earl of Listowel (CB)]

My Lords, I will speak briefly to my Amendment 104BB. I am grateful to the noble Earl and my noble friend Lady Meacher for adding their names to it, reflecting our earlier debates about the great concerns around increasing homelessness. Clearly these amendments are important because we wish to encourage landlords to take low-income tenants to address that homelessness. I declare my interests as noted in the register as a landlord.

I will not go into the details of this amendment because the noble Earl did that already. My concern is that paying HB directly to claimants may compound the homelessness issue we discussed earlier and contribute to a reduction in social housebuilding. Many of those receiving housing benefits may already be in debt, feel tempted to use their rent to pay off such debts and consequently become homeless. It may be that the eight-week limit that has been discussed will protect them from that. Social landlords are concerned that direct payment to tenants of HB may lead to tenants accruing arrears. Pursuing arrears is a costly business. Social landlords already face reduced incomes thanks to the reduced rents that this Bill introduces. Consequently, they may have less money to build more homes and we may see an impact on the building of social housing. I have two questions for the Minister on the effect of the move to direct payments of HB to claimants. What level of cost to social landlords does the Minister anticipate arising from that move to direct payments? What impact on homelessness, if any, does the Minister anticipate?

[Baroness Sherlock]

My Lords, Amendments 104BB in the names of the two noble Earls, Lord Listowel and Lord Cathcart, and the noble Baroness, Lady Meacher, would address the question of direct payment. Direct payment was the subject of considerable discussion during the passage of what became the Welfare Reform Act 2012, together with deliberations on the frequency of payments and split payments, not to mention jam-jar accounts.

My noble friend Lady Hollis asked about the research mentioned by the noble Earl, Lord Cathcart, from the National Federation of ALMOs and ARCH. It did indeed show that 89% of universal credit claimants were in arrears and that 34% of them were eight weeks in arrears, so they were in receipt of an APA. That is a significant proportion, so there clearly is an issue that they have picked up on about the extent of arrears—hence the question of direct payments.

We know that the Government’s starting point is that in the overwhelming majority of cases they want and expect universal credit to be paid as a single monthly payment in arrears to the claimant. But they have set down criteria for considering alternative payment arrangements in limited circumstances for the payment of the housing element of universal credit, invariably the first in order of priority. The guidance states that when arrears reach one month’s rent the DWP will review the situation, following notification by the claimant or the landlord, and when they hit two months or eight weeks, either the landlord or the claimant can request an APA. There is no automatic right to one because the Government are still clinging to the concept that managing benefits should mirror the choices in managing money that they say those in work have to make.

However, if an APA is in prospect, this would normally start with personal budget support followed by a managed payment to the landlord. The guidance sets out the tier 1 and tier 2 factors which will be considered for an APA. But having theoretical opportunities to have direct payments is one thing; what matters is how the rules are being applied in practice, so perhaps the Minister can help us here. We know that through to 3 December 2015, there have been 287,310 universal credit awards. Will the Minister tell us how many of them had a housing element included and how many have had an alternative payment arrangement? How many requests for direct payment to a landlord have been made by either landlord or claimant and, of those, how many were approved and how many rejected? I accept that the Minister may need to write to me on these points, but it would help us understand the scale of the problem and whether the research that has been identified is in fact representative of the situation for universal credit claimants more broadly.

Amendment 104BA in the name of the noble Earl, Lord Cathcart, seeks arrangements whereby payment of arrears in respect of a former property can be made by direct payment of a current universal credit claim. This has obvious difficulties because maintaining the current home should be the priority. There must be a risk that adopting that suggestion could lead to a round of evictions for rent arrears as arrears build up in a current tenancy in order to satisfy the arrears on a previous tenancy. There could be further complications because a universal credit award may not cover identical households for the current tenancy and the previous tenancy, so it is not clear how it might be apportioned.

Amendment 104B in the name of the noble Earl, Lord Cathcart, and the noble Lord, Lord Best, seeks a power for the Secretary of State or somebody else to supply information relating to any relevant social security benefit to a landlord, depending on the written authority of the tenant. Noble Lords will be aware of regulations enabling the limited supply of social security information to social landlords, which is governed by the Data Protection Act. I understand the potential benefit to landlords of this, but it raises issues of a different magnitude given the sheer number of private landlords, let alone the capacity issue, so I will be interested to know how the Minister thinks that that might be approached.

There may be an issue here with regard to arrears and universal credit, and if the Minister is not minded to accept this amendment, he needs to come back to the House to suggest how the Government are going to go about dealing with this. I look forward to hearing his reply.

[Lord Freud]

These amendments relate to a number of housing issues, and I will deal with them in the order in which they are listed.

Amendment 104B would enable the Secretary of State to pass information relating to a claimant’s social security benefits to their landlord as long as the claimant had given written consent. As the noble Earl and the noble Lord have stated, knowing that a tenant has claimed a social security benefit will allow a landlord to take early action to ensure that the tenant does not get into rent arrears and jeopardise their tenancy.

As the noble Baroness, Lady Sherlock, said, the Secretary of State already has power to supply some limited information to a social-sector landlord when one of its tenants claims universal credit. This information is shared for the specific purpose of enabling the landlord to determine whether that tenant needs advice, assistance or support in relation to their financial affairs.

The Government recognise that the need for this support might arise because, under universal credit, claimants are now responsible, in many cases for the first time, for handling a monthly budget. Claimants must also use their benefit to pay rent directly to their landlords, something that social tenants were not typically required to do under the housing benefit regime.

However, we do not recognise the need for the same level of support in relation to claimants living in the private rented sector. This is because such claimants will typically already have been responsible for paying their own rent under the housing benefit regime, so will struggle less with the changes introduced by universal credit. In any case, if these claimants require support in relation to managing their finances, it is unlikely to come from their private landlords. We therefore see no need to put additional information-sharing provisions in place.