Welfare Reform

Douglas Alexander Excerpts

Monday 11th October 2010 Commons Chamber

[The Secretary of State for Work and Pensions (Mr Iain Duncan Smith)]

With permission, Mr Speaker, I should like to make a statement on welfare reform.

Let me start by welcoming the right hon. Member for Paisley and Renfrewshire South (Mr Alexander) to his new post as shadow Secretary of State for Work and Pensions. We have already had a conversation in the last week. I extend that welcome to all members of his new shadow Front-Bench team.

The statement today is in three parts. First and foremost, today—as everyone in the House may well now know—we launched an approach to those on incapacity benefit under the work capability assessment, and it is necessary for the House to hear this directly from us so that Members can question me. Secondly, I want to use this opportunity to set out more detail on the new Work programme, which is very much related to the work capability assessment. Thirdly, the House has a right to know more about our plans for wider benefit reform as we look ahead to a White Paper and welfare reform Bill, although I would add the caveat that greater detail will be contained in that statement.

The economic backdrop is severe. We have the largest deficit in the G20 at £155 billion—the largest in peacetime history—with debt interest of £120 million a day, or £43 billion in 2010-11. Under the previous Government’s deficit reduction plan, which the Opposition now seem not to favour—although I might be wrong on that point—annual debt interest spending would have risen in only five years to almost £70 billion. Let me put that in context: that would have meant spending more on interest than we spent on policing, defence and transport combined. So, there is an urgent requirement to make these changes and reforms.

[Official Report, 11 November 2010, Vol. 518, c. 1-2MC.]We are at a critical point, with 5 million people on out-of-work benefits, 2 million working-age people claiming incapacity benefit, of whom 900,000—just under 1 million —have been claiming for an entire decade, and a system that has left Britain with the highest rate of jobless households in Europe. Those statistics reveal the human cost of leaving our welfare system unreformed, and with that comes an ever-increasing financial cost. The working age welfare budget rose by 40% in real terms from £63 billion in 1996-97 to £87 billion in 2009-10. A staggering £133 billion was spent on incapacity benefits in the past 10 years, and benefit spending is forecast to be more than £152 billion in 2010-11, which is about 10% of gross domestic product.

Today we spend £1 in every £3 on welfare in this country, yet youth unemployment is higher and inequality greater, and there are 800,000 more working age adults in poverty than there were in 1998-99. In that context, we also announced the reform of child benefit last week. I personally do not think that it is right, if we have to make changes and reductions, to tax the poorest to fund the receipt of child benefits by those with the highest levels of income. If we do this correctly, we can save about £1 billion, protect some 85% of families and secure fairness as we support people. I know that that is tough—we are in tough times—but I believe that it is fair, and that is the key. The important thing as we come through these spending reviews is that we should have a progressive change, not a regressive change.

At the same time, we announced procedures to set a cap on benefits for workless households to average earnings, which are about £26,000. However, we ought to set that in context. The cap will be net of income tax and national insurance, so if someone was working to receive that amount of money it would equate to gross earnings of some £35,000 a year—not a very narrow cap. Equally, we will exempt the disabled and those on working tax credit so that we encourage work incentives and do not penalise those who find it difficult to be in work. That is fair, and we will announce more details in the spending review, which means that I shall do my level best to answer some of the questions that I expect Members want to ask.

In the last week we have also announced a new enterprise allowance, which is there to help unemployed people who would like to try to set up their own business. We will be able to give them up to £2,000 in various forms, as well as the advice and mentoring of those who have started their own businesses. Today, the most important step is that we are launching two trials for those on the old-style incapacity benefit under the work capability assessment. The Minister of State, my right hon. Friend the Member for Epsom and Ewell (Chris Grayling), is travelling to Aberdeen and Burnley today to see both those trials get under way. They are about giving many thousands of people the opportunity to move from the margins of society into mainstream employment. I remind the House that we inherited the programme, and that I supported it while we were in opposition. We have had to make a few changes, and we will make more as necessary.

Under the new system we will assess people on the basis of what they can do, not what they cannot, and thereby support people to meet their aspirations for work. We are determined to get it right, which is why we will learn from the trials and why we have set up an independent experts group to scrutinise the assessment. That group includes, for example, the chief executive of Mind, so as the programme is trialled we will listen to and deal with concerns about those who are mentally ill, such as those expressed on the radio today. Through those measures and through the Work programme, we are committed to supporting everyone who goes through the assessment.

We will ensure that those deemed unable to work continue to receive the support that they need, and that those deemed able to work are fully supported to do so. People who are found fit for work will move directly on to our new Work programme rather than have their jobseeker’s allowance stopped in the normal way. They will receive an integrated package of support, and in due course so will those who have been out of work for a longer period. It will provide personalised help based on individual needs, not on the benefit that somebody receives. Using the best of the private and voluntary sectors, that will help get people into work as quickly as possible.

The systems that I have described are what we call black-box systems, and I shall explain what that really means. Put simply, we will not lay down prescriptive criteria about how they should be run. We want those running them to do whatever is necessary to help people into work—that is the key. They will be operated on a payment-by-results system that ensures that providers do not simply go through the motions. They will receive their real money only for getting someone into work and ultimately keeping them there, and they will find rewards further up the chain as they do so. We have received more than 790 expressions of interest in joining the programme from providers, and in December we will invite bids for contracts, ready for national roll-out next year.

Finally, the work capability assessment and the Work programme are of course critical to getting more of the 5 million or 5.5 million people who are currently on benefits back into work, but they will not be enough. Underpinning that support must be a benefits system that incentivises work, and we have to ensure that work always pays. That is why the coalition Government aim to bring forward a White Paper soon and a welfare reform Bill in the new year.

The introduction of what I call the universal credit will restore fairness and simplicity to an overly complex, outdated and now wildly expensive benefits system that simply prevents people from getting back to work. As we get the benefits system working, we can get Britain working. The best way to get the deficit down, drive the recovery and get the economy moving is to ensure that more and more of the British people who can work do so. Welfare reform is critical, and I give a guarantee that people moving on to the universal credit will not be any worse off at any stage. In fact, they will be better off as they find work.

Everyone in the House should unite around, and try to achieve, the cause of moving people into work and creating a pathway out of poverty for the 5 million people on out-of-work benefits. I understand that the new leader of the Labour party has said that he will not be in opposition for opposition’s sake, so I hope that he and his shadow Cabinet colleagues will do the right thing and support us in delivering a welfare system that is fit for the 21st century. I commend these reforms to the House.

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

I thank the Secretary of State for his statement and for advance sight of it. I thank him also for his gracious welcome to myself and my team. Members of all parties will acknowledge and recognise the work that he has done both inside and outside Parliament over recent years on the crucial issues for which he now bears a heavy responsibility.

As befits a responsible Opposition, my team and I will work constructively with the Government when there is common ground between us, on issues such as increasing opportunities and support for people to get into work. However, I must also be clear that when the Government propose measures that we judge arbitrary and unfair, we will oppose them robustly.

The Secretary of State began his statement with a rehearsal of the case for reform. While, of course, I disagree with the rather partial and partisan account of the economic situation that he inherited, let me be clear about the fact that I recognise the need to continue the reform of the welfare system. I believe in a welfare state that ensures that there are more people in work and fewer in poverty. That empowers people and contributes to a fairer and more equal society.

Let me also acknowledge, on this first outing at the Dispatch Box, that conditionality does have a role to play, as we recognised in government, first, because we know that it works in helping people to turn around their lives and, secondly, because it is the foundation for ensuring the public support on which the welfare state is based. Accordingly, I will carefully scrutinise each of the Government’s specific proposals on the welfare system.

The Secretary of State spoke about his plan to remove child benefit from higher rate taxpayers and, from the Dispatch Box, described that change as “fair”. How does that change meet the fairness test when it will result in one family, with a collective household income of £80,000, getting child benefit and the family next door, with an income of £44,000, getting none? There have been a variety of claims as to what the threshold in fact is. Can he confirm at this time that the change will affect only parents earning more than £44,000?

Since the shambles of the announcement last week, the Prime Minister and others have suggested that marriage tax breaks might be introduced in the near future to compensate for the removal of child benefit. Does the Secretary of State accept that there is no coalition agreement to implement the Conservatives’ marriage tax allowance proposals, that to date such proposals have applied only to basic rate taxpayers, and that even if his coalition partners were to accept those proposals, they would cost more than the savings made from the child benefit reform he proposes?

On incapacity benefit reassessment, which the Secretary of State touched on, despite its omission from the briefing in this morning’s newspapers, I welcome his acknowledgement that he is continuing the previous Government’s proposals on the trialling and roll-out of the work capability assessment. I note that those proposals this morning appeared to be attached to a specific target of removing 500,000 people from benefits. If a system of assessment is to be truly fair and objective, will he clarify whether that figure is a hard target, merely an assumption or a headline-grabbing claim?

I was also concerned to see reports in The Times today that those judged too sick or disabled to work could nevertheless have their benefits time limited to six months or a year. Will the Secretary of State confirm whether that is the case? If it is not, will he clarify what actual plans he has for reassessing those who are initially found to be unable to work?

The Secretary of State has also told us today that people found fit for work will move directly to the Work programme. His colleague the Employment Minister—the Minister of State, Department for Work and Pensions, the right hon. Member for Epsom and Ewell (Chris Grayling)—has previously told the House that the new single Work programme will not be introduced until the first half of 2011. How can that timetable be reconciled with the trials now under way, which were announced in Burnley and Aberdeen?

I welcome the comments made on the radio this morning by the Employment Minister, who said that he would be prepared to modify the test if it were not working properly. Indeed, I welcome the gracious acknowledgement of the Secretary of State’s confirmation of that point today. However, he concluded his statement by describing welfare reform as an historic opportunity. It is, none the less, an historic error to fail to realise that effective welfare reform requires economic recovery. He seems to be in denial of the fact that getting people back to work requires there to be jobs for them to take up.

That insight explains why the previous Government took measures to ensure that unemployment was kept at about half the level of that in previous recessions, that the unemployed were supported and that, at the same time, those who could move from benefits into work were doing so. In contrast, the Government’s own Office for Budget Responsibility revised forecast predictions that public sector jobs would be cut by 750,000 and that unemployment would increase to nearly 3 million people. Over the next few years, the Treasury’s own papers indicate half a million more jobs lost in the public sector, half a million jobs lost in the private sector and half a million fewer jobs and opportunities for the unemployed.

Labour Members will continue to make the case for backing our economy, fighting for jobs and standing up for fairness while reforming our welfare system.

[Mr Duncan Smith]

I thank the shadow Secretary of State. May I answer a few of his particular questions? First, I thank him for his general support for the aims of what we are trying to do. I am sure that we will work together to achieve those. I think that is the best thing to do. I recognise fully that, of course, there are things that he will not agree with. That is reasonable, and it is exactly what I would say were I sitting in his place. In fact, I did exactly that some 10 years ago. How time goes on.

I also welcome the shadow Secretary of State’s acceptance of the need for conditionality in the system; we will need to discuss that with him further. There is absolutely a need for conditionality, which can properly be introduced only once we have created what I call the contract—that is, when we can genuinely say that we have improved the programmes to get people back to work, and have made the benefit system simpler, having made sure that there are no blocks to people going back to work. If we fulfil that bit of the contract, those out of work and looking for work need to fulfil their bit of the contract—they need to take the work when it is available. That is the key to conditionality.

The shadow Secretary of State asked about the level at which child benefit will be removed. It is simple—it will be removed at the higher-rate threshold. At the moment it is £43,875, but of course I cannot predict what it will be. It is a matter for the Chancellor; no one should read anything into what I said. It is not my job to set the rate, but the benefit will be removed at the higher-rate threshold.

The shadow Secretary of State went on to say that the change is not fair. He describes the tax system when he says it is not fair, although I am not sure what he is trying to describe. The reality is we think, fairly, that it is wrong for someone on lower income to have to pay tax so that someone on higher income can receive an element of benefit to look after their children. If he thinks that it is unfair to make the changes through the tax system, I would like to know what he did in the past 10 years to reform the tax system that he now thinks is unfair. The very same tax system actually penalises those who have one single high earner in the family as against a household with two lower earners who together could be earning £80,000, so he is condemning the tax system that he has given to us. We can only use the system that we have, but he may now think that that is unfair.

The measures will help enormously to meet what I call a progressive form of reduction in costs. I think that the process will be ultimately welcomed—it has been welcomed by the general public.

The shadow Secretary of State made the point that he did not think there were enough jobs. Of course, we could do with many more jobs. We have inherited an economy that has been stuttering. In the past month or so there have been just under 500,000 jobs in the jobcentres. Those are not static jobs. Those are jobs that are available—they rotate; some are taken and new ones come on. We know that in the informal economy there are many more jobs being taken. That is evidenced by the fact that some 280,000 people went into work in the past quarter, which is the highest number of people back to work since modern records began in ’89. The reality is that there are some jobs.

The shadow Secretary of State talked about growth. As he knows, over the period of the spending review, the independent Office for Budget Responsibility, the IFS—sorry, the IMF—and others have made forecasts; the IFS may yet make the same forecast as them. The IMF has forecast that growth levels will be between 2% and, in the medium term, 2.5% and that there will be a net increase in employment over that period. We can jostle over the figures, but I do not agree that there are no jobs available. As the economy begins to grow we will see even more jobs, but if we do not get people ready for those jobs, we will be in the same situation as he found himself in with 5.5 million people on out-of-work benefits doing nothing and languishing in households that had no work at all.

The shadow Secretary of State talked about the work capability assessment and he said that there were concerns. He is right. The figures that we were talking about were estimates of where we believe we could and should be. They are not hard targets. We cannot and will not set hard targets for a simple reason. As I explained earlier, this is a process. As we look at what happens in Aberdeen and Burnley, I hope—I am prepared to share this with him—that we will figure out whether there are things that we are doing right or wrong, so I am not saying that there are targets. It would be wrong to set targets.

As for the idea of reviewing the measures, the shadow Secretary of State said that he welcomed the Employment Minister’s views. We will modify all the measures as necessary. The key thing is that nearly 1 million people have sat on incapacity benefit without anyone seeing them over the past 10 years. We have to change that. The Labour Government started that programme; we must finish it. I hope that we will receive his support. The right hon. Gentleman commented on the way that we do these things. We will consult where necessary and make sure that the Opposition get the evidence that they require to decide whether to oppose our measures.

I conclude by saying to the right hon. Gentleman and all Opposition Members that we inherited a major deficit from him and his team. That deficit is the largest in the G20. If we do not get that down, the interest payments on the loans alone will dwarf everything we do. What we are doing in the spending review is looking for ways to do that. At the same time, it is important to make sure that when we act to reduce the deficit, we share the burden across the income scale and we do not achieve savings on the backs of the poorest in society. I am here to make sure that that does not happen. I hope I will have the right hon. Gentleman’s support in that when he sees how progressive the review turns out to be.