Welfare Reform

Douglas Alexander Excerpts

Thursday 11th November 2010 Commons Chamber

[Mr Duncan Smith]

For ever.

A far simpler system, which operates on the basis of real-time earnings, will also reduce the scope for underpayments or overpayments. We all know from our experience as constituency MPs that that can create anxiety and disruption, and can prove very difficult to correct. Our simplification and reform will help to end that particular problem. As well as reducing official error, these changes will also make life far more difficult for those who set out to defraud the system. They are a very small group of people, but they are there none the less.

The system will be simpler, safer, more secure, fairer and more effective, but it will require investment. Some £2.1 billion has been set aside to fund the implementation of the universal credit over this spending review period, and I have been assisted in that work by my right hon. Friend the Chancellor, who has agreed to and guaranteed the investment programme.

This is not just expenditure; it is also investment. We are investing in breaking a cycle of welfare dependency, which I believe is a price worth paying. The universal credit will provide a huge boost to individuals who are stuck in the benefit trap, reducing the risk involved in taking work and lifting 850,000 people out of poverty in the process. That investment will produce a flow of savings, as a simpler system will help to drive out more than £1 billion of losses due to fraud, error and overpayments each year. On the wider economic considerations, dynamic labour supply effects will produce net benefits to this country, as greater flexibility helps businesses and fuels growth, particularly in the high street. We will invest the £2.1 billion provided in the spending review 2010, seeking a multi-billion pound return.

That is how we will make work pay, but as I said earlier, and as our document states, it simply will not be enough. We also have to support people as they make their move back to work, and the two issues cannot be separated. That is why we are moving ahead with our new Work programme, which will provide integrated back-to-work support. It will pick up and bring together many of the programmes that were in place before, and add to them to create a comprehensive system of support. That is why we have already started a three-year programme to reassess the 1.5 million people who have been abandoned for years on incapacity benefit. The Opposition started that process before the election for the flow of new claims, and we are now trialling it in two cities.

Essentially, this is our contract: we will make work pay and support people to find a job through the Work programme, but in return we expect co-operation from those who are seeking work. That is why we are developing a regime of sanctions for those who refuse to play by the rules, as well as targeted work activity for those who need to get used to the habits of work. That will be a selective process, targeted at those who need to do it, not at everybody. It will be targeted as required, using the understanding and knowledge of those based in jobcentres.

Furthermore, evidence from the already existing work capability assessment, which the last Government started, shows that 36% of people withdrew their applications before reaching the stage of being assessed. The knowledge that they are likely to be assessed has a stark effect on those who may be trying to defraud the system. That underlines the effect that the system could have on those who are currently working while claiming benefits.

This new contract, in which we do our best to help people find work, to make them work-ready, to make work pay and to say that they will always be better off in work than on benefits, is a fair deal for the taxpayer and a fair deal for those who need our help. I commend the reforms in the White Paper to the House.

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

I thank the Secretary of State for his statement, for advance sight of it and for his personal helpfulness and co-operation preceding it.

I will deal directly with the principles underlying the universal credit. Both our parties want a simplified benefit system in which less money is clawed back as people move into work. That is why I have been very clear since I started in my position that if the Government get the approach right, we will support them. Pension reform was the subject of significant cross-party working in the last Parliament, and I sincerely hope that welfare reform can be in this Parliament. The right hon. Gentleman can count on Labour’s support when he is pursuing laudable aims, even when it appears that he cannot count on the support of his own Chancellor.

In office, we introduced the working tax credit, which substantially reduced the marginal deduction rates. It halved the number of people facing marginal deduction rates of 90% or more. The Secretary of State has just mentioned that matter. From reading his work in opposition, one cannot fail to see some of his ideas as welcome steps. His dynamic welfare paper promised a 55% taper rate, lower marginal deduction rates for every family, £2 billion a year more going into the pockets of families and £500 million a year less being spent on administration.

The Secretary of State now appears to want to set a taper rate for the universal credit of 65%, 10 percentage points less generous than he advocated in his previous paper. The impact of that was described by his own Centre for Social Justice thus:

“Setting it higher than 55% would increase MTRs”—

marginal tax rates—

“for those working households in receipt of benefits other than Housing Benefit (even if their net income was higher than today). As a result, there would be a negative impact on earnings, and on the number of second earners in employment.”

From an initial inspection of what we have been offered today, it seems that in this Parliament we will get a higher taper rate, higher marginal deduction rates for some families, no additional money overall going into the pockets of families and a £2 billion increase in administration and start-up costs. Is that proof that there is no plan so worth while that the current Chancellor of the Exchequer cannot delay or damage it?

There is real concern that some of the measures imposed on the Secretary of State in return for allowing the universal credit to proceed are contradicting the policy aims that he has set out today. On the Government’s own figures, because of the June Budget 20,000 more people next year will face marginal tax rates of 90% and 30,000 more will face rates of over 70%. That is because of the Government’s plans to increase taper rates for tax credits. We must remember that phase 1 of the implementation plan for his dynamic benefits plan was to reduce tax credit taper rates from 38% to 32%. From this March, the Government are increasing the taper from 38% to 41%.

The small print of the Green Paper published in the summer read:

“The changes in the June 2010 Budget will increase the maximum Marginal Deduction Rate to 95.95 per cent.”

That is before even taking into account changes in the spending review, such as real-terms cuts in working tax credit and top-up low wages. Can the Secretary of State explain the approach that his Chancellor is adopting, and can he guarantee that as a result of these changes no one will have a higher marginal deduction rate? Will he tell the House whether anyone—for example, people who currently receive tax credits but not housing benefit—will face higher marginal deduction rates under his approach?

According to the IFS, of which the Secretary of State spoke approvingly in his statement, the tax credit and benefit changes announced in the June Budget mean that the poorest two deciles of the population will lose about 2% of their incomes over the coming Parliament, more proportionately than the rest of the population. Can he therefore inform the House whether all the analysis being bandied around today about out-of-work households moving into work and children being lifted out of poverty is relative to the position today, or only to the position after the substantial losses that people will face because of the Government’s already-announced cuts to benefits in this Parliament? Can the right hon. Gentleman simply provide the figures for this Parliament? Do the Government expect child poverty to have fallen or risen by the end of this Parliament? The Office for Budget Responsibility predicts that an extra £700 million will be spent on unemployment benefits because a longer dole queue following the June Budget has consequences for the welfare bill.

The right hon. Gentleman has allowed all this to happen in return for the Treasury allowing him to spend £2 billion on the new system. Can he give us today the breakdown of the £2 billion secured for the implementation of the universal credit—the IT breakdowns and the transitional costs for affected families? Can he pledge that he will not raid any other part of his departmental budget in this spending review for this purpose if it turns out that that money is insufficient? How does the right hon. Gentleman respond to reports in The Times today that he will need to secure another £2 billion on top of the £2.1 billion that he referred to in his statement to guarantee his pledge, which he repeated to the House today, that

“There will be no losers”?

Is the Treasury underwriting the promise that he has just given the House?

To conclude, securing headlines—I have to admit that my colleagues and I came to understand this over 13 years—is a lot easier than securing reforms. This morning, the Secretary of State said in an interview on the radio:

“This is about saying to people: if you try, if you co-operate, if we work with you and work pays and you still can’t get a job then our duty is to support you.”

How can he possibly reconcile those words with the plans his Government have announced to cut 10% of the housing benefit of anyone who cannot find work within a year, even if the jobcentre thinks that they are taking all the correct measures? When he gets to his feet, the Secretary of State can perhaps explain to the House how he justifies that measure, whether it is set to continue permanently within the planned universal credit and, frankly, how it fits with the principles that he set out on the radio this morning.

[Mr Duncan Smith]

I am glad that the right hon. Gentleman spent so much time saying how much he supported this measure—that is really helpful. He then dwelt on a lot of things that were not necessarily relevant to it, but I will come to those none the less.

I am sorry that the right hon. Gentleman seems to be less than positive. I had hoped that he would consider this to be a major change, which would benefit the very people he says he is in favour of supporting. There is absolutely no question but that this measure will support and improve the quality of life of those who are likely to be affected. When he gets to the White Paper, I would draw his attention to a chart on page 53, which shows that the bottom deciles—this is from the moment that he left office right the way to the moment set out in the chart—will actually improve their life quality dramatically, taking all matters into consideration and sweeping all the way up to the moment we implement this. The poorer will be better off, and I wish the right hon. Gentleman could have taken the opportunity to welcome that. That is the reality for him and his party, and if I were in his position, I would have been a little more positive.

We believe that child poverty will fall. Let me just deal with the story in The Times about the money, which the right hon. Gentleman mentioned. The fact is that the £2.1 billion is a full envelope for spending review 10; it is absolutely enough to get us to that point. I said to the right hon. Gentleman privately, and I say again publicly, that as we implement these measures over three years of this Parliament and a further two years of the next Parliament, more money will, of course, be required, and that is guaranteed, but we will come to that in the spending review for the next spending review period. [Interruption.] Yes, it will be guaranteed, because we have to implement this programme.

Within that £2.1 billion, we will also invest in setting up essential IT systems. The right hon. Gentleman knows, because we have spoken about this, that these are medium-level IT systems. Even in his time, the Department for Work and Pensions handled these systems very well, and there were no problems with them at all. The money will also be used to support the running of the new system and the migration of current benefit and tax credit recipients from today’s system. Within that, we will also guarantee, as I said, that nobody loses out.

On the IT challenge that we dealt with, I remind the right hon. Gentleman that, even in his time, we managed to implement some very similar projects and to operate them very well. This is by no means a monolithic system like the Rural Payments Agency or the National Offender Management Service. During his time, the DWP had a strong record of successful IT delivery on systems such as the employment support allowance system, which was roughly on the same scale, and the pension reform system. Both were similar IT systems and both were managed without any particular problems. We are determined that the IT situation will be managed very well, and that we will be able to complete the process.

The support that, as the right hon. Gentleman says, we will give to those who are transiting is covered in the £2.1 billion. I repeat that we will protect those people who, for particular reasons, find themselves on slightly lesser moneys for as long as they stay in that situation. As they move up, they will gain dramatically. Even if they were to fall back, relative to where they were, they will gain dramatically. The reality, I hope, for the Opposition, as they think this over carefully, is that even if they were to return to power, this system would benefit those people.

The right hon. Gentleman asked me about the taper rate. The taper rate that we talked about when I was at the Centre for Social Justice was an optimum taper rate with everything taken into consideration. The taper rate itself involves a decision, which a Government of any hue would take, about how to set the balance between what we can afford and how much we will be able to give people as they go back into work. The real issue here is not that the taper is 65%. Even with 65%, all those who go back into work will be better off as they work through the hours. If the right hon. Gentleman is saying to me that he would prefer a 55% rate if he were in power, that is fine. He just has to tell me where he intends to get the money from, and that is the issue I have not heard him or his colleagues say anything about since they left us with the worst budget deficit in living memory. I only ask the right hon. Gentleman and his colleagues to think of this as a positive measure. Even if they were in power right now, it would help the poorest in society absolutely dramatically.