Work and Pensions (CSR)

Debate between Damian Hinds and Oliver Heald

Thursday 4th November 2010 Westminster Hall

[Damian Hinds]

I am grateful to the hon. Lady for that intervention and for the opportunity to comment on it. I did not talk about evidence from various bodies or organisations. I said that “all the economic logic” suggests that with a change this extensive, there will be downward pressure on rents—it does suggest that.

[Mr Heald]

According to evidence to the Work and Pensions Committee from the landlords’ bodies about 30% of landlords would reduce their rents; London Councils said that about 40% of landlords would reduce rents, and, in discussions in the Select Committee, members of the Committee were doing their arithmetic on the basis that 50% of landlords would reduce rents. So there is a body of evidence that a very significant number of landlords will negotiate lower rents.

[Damian Hinds]

I am grateful to my hon. Friend for clarifying that matter for us.

I want to turn to the coalition’s reforms of incapacity benefit. Of course, the genesis of those reforms also began in the last Government’s time in office, when Tony Blair managed to tempt Sir David Freud out of retirement and Sir David found a kindred spirit in James Purnell. In May 2009, Mr Purnell said:

“It is very important tor us to provide people with help to get back into work, and to improve the incentives for getting back into work. That is why we are re-testing everybody on incapacity benefit to make sure that they are on the right benefit. That is why we have tightened the gateway, to make sure that only the right people get on to the benefit, and that is why we will require everybody for whom it is appropriate to have back-to-work support.”—[Official Report, 11 May 2009; Vol. 492, c. 531.]

Again, I am not sure that that description of what needs to be done can be bettered and so, once again, I will not try to do so.

It is right that no targets have been set for the numbers of people who will go into the three different groups, because the programme has to be about identifying what is right for each individual, whether that is helping them directly into work, helping them to prepare for the world of work or offering them long-term and unconditional financial support at a rate that will be, of course, higher than the one that pertains today.

Clearly, there are some issues related to the early workings of the work capability assessment, as has been outlined by my hon. Friend the Member for North East Hertfordshire (Mr. Heald) and others, including issues about intermittent conditions and certain mental health conditions. Of course, it is good that there was a pilot phase, so that these issues can be studied and tackled. I know that Ministers are conscious of the need to tackle them and I welcome the Harrington review, which was referred to by my hon. Friend the Member for Stroud (Neil Carmichael), and the consultation with mental health charities.

The biggest issue of all is ensuring that work pays for everybody. It is not a new issue; it has been around for an awful long time. There is a difficult trade-off between, on the one hand, having a decent living standard for those who cannot find work and, on the other, incentives for those who can find work, and if there were a “third hand” it would be about avoiding the sort of sky-high marginal withdrawal rates, which are effectively tax rates, that create cliff-edges in terms of certain numbers of hours of work in a week or that completely discourage people from taking on some form of work. Of course, we must also try to keep the whole system simple and low-cost to administer. So it is an enormous challenge.

Twenty years ago, when I was an undergraduate and we were talking about these issues, people used to talk about the 97% effective marginal tax rates at their peak and sometimes, in extreme cases, rates that were effectively more than 100%, once the additional costs of going to work and so on had been factored in. Of course, that situation existed under a Conservative Government, so I am not making a party political point. However, not enough has changed since then.

The problem is that if we want to change that state of affairs, mathematically we either have to reduce benefits to levels that just would not be acceptable or withdraw benefits more slowly as people’s incomes rise. That second route is, of course, much more attractive but it is also extremely expensive, at least in the short term. So I am delighted that the Government, despite what has been a very difficult trade-off for them over the summer, have managed to find the £2 billion that is necessary to fund the universal credit. As hon. Members know, that new integrated benefit seeks to simplify the system, improve incentives, smooth transitions into work, reduce in-work poverty and cut back on fraud and error. I believe that that £2 billion is money very well spent.

Taken together, the reforms to incapacity arrangements and the plans to make work pay are, of course, complemented by the Work programme, which was also referred to by my hon. Friend the Member for North East Hertfordshire. That programme will treat everyone as an individual in a very practical way, while continuing the “Purnellian” principle of using non-state institutions to help people into the world of work and indeed into lasting jobs.

Collectively these measures, enabled by the comprehensive spending review and some of the difficult trade-offs that have to be made, can have an enormous impact on the DWP. That is because, as we have said already, the single biggest variable factor is the number of people who are in work compared with the number of people who are not in work. With these measures, we can encourage and help many more of our fellow citizens into work and in so doing we can create a more fulfilling future for them, a more cohesive future for our society and a much more sustainable future for our economy.