Autumn Statement Distributional Analysis, Universal Credit and ESA

Ian Blackford Excerpts

Wednesday 16th November 2016 Commons Chamber

[Ian Blackford (Ross, Skye and Lochaber) (SNP)]

The UK Government must commit to protecting disadvantaged people from the impact of future budget cuts in their autumn statement. Post-Brexit, it is essential, that with the risks to economy and with inflation rising and set to rise further, the Government act now.

Analysis by the IFS is the latest sign that the UK leaving the EU is having a negative impact on the UK economy even before article 50 is triggered. The IFS said that “virtually all” forecasters revised down their predications for growth and revised up their expectations for inflation in the years ahead. The collapse in the value of the pound, combined with potential rises in inflation, will hit the poorest and the most disadvantaged in society hardest. It will mean more of their income will have to be spent on day-to-day costs and living standards will push people into poverty.

[James Cartlidge]

If the hon. Gentleman is so concerned about the disadvantaged, will he explain why it has been reported that the Scottish Government will defer, until April 2020, taking powers from the UK Government to administer the welfare system?

[Ian Blackford]

I expected this issue to be raised, given press speculation. Let me tell the hon. Gentleman the facts of the matter: with the powers coming to us, we will control 15% of welfare spending in Scotland. We have to put in place the mechanisms for us to deliver fairness with the revenues we have at our disposal. We certainly would not punish the poorest in our society in the way that this Government have, and we certainly would not be punishing the Women Against State Pension Inequality Campaign women, who are not getting their just rights when they have had only a year’s notice. What I would be saying to this Government is, “Give us the powers over welfare so that we can protect the people in Scotland.” When we have put in place the mechanisms to allow us to look after people, we will certainly be doing a better job than the Government are doing today.

[Hannah Bardell (Livingston) (SNP)]

Does my hon. Friend agree that the point about powers is that, unlike this Tory Government, we are able to help and support people properly? We should not have to fill the black hole they have created in our budget. When we get those powers and have that agency, they will be set up properly. We will protect the people in Scotland properly.

[Ian Blackford]

My hon. Friend makes a very valuable point, because this is about powers and responsibilities. For us to protect people in Scotland in the way that we want to, we need powers. We were promised—since this has been raised—devo to the max. We were promised home rule for Scotland. How on earth can we have home rule for Scotland when we control 30% of our revenues and 15% of social security? I am afraid that the UK Government’s failure to protect the disabled and pensioners demonstrates that if we want to do what is necessary in Scotland, we will ultimately have to have the independent powers to do so. I am sure we will get to that point.

Let me return to what I want to address. [Interruption.] I am only responding to the Conservatives’ uninformed distractions, with which we are all too familiar.

The IFS stated:

“Normally, working-age benefit recipients would also be at least partly protected as benefits usually rise in line with prices, but, as we have discussed before, their benefits have been largely frozen in cash terms, meaning that their income from this source is fully exposed to future inflation. Those in work will, unless they are able to negotiate a bigger pay rise, find that their earnings will stretch less far than they otherwise would have done.”

Why should the most disadvantaged pay the price for Brexit and its consequences? That is what the Conservative Back Benchers should be addressing today rather than making an undisguised attack on the Scottish Government. What we need to address this afternoon is why working people will suffer from rising inflation. The weakest in our society deserve to be protected and their benefits ought to be inflation-proofed. Why are the UK Government not doing that? Why are they not seeking to protect the vulnerable in our society?

[Hannah Bardell]

Does my hon. Friend agree that while the tax gap in the UK sits at £36 billion, this Government should be focusing on closing that gap, and not marginalising and targeting some of the most vulnerable people in our society?

[Ian Blackford]

I fundamentally agree. There is a £36 billion tax gap, so let us fix that hole. I listened to the Minister talk earlier about the challenges the Government face in fixing the deficit. What they fail to recognise is the interaction between fiscal and monetary policy. It is the richest who have benefited most from quantitative easing. We should have had a fiscal stimulus package. That would have driven investment and productivity into the economy, and got more people back into work. That is what we should be doing.

[Jeremy Quin]

This is not the first time I have heard the hon. Gentleman refer to the great fiscal reflation he is planning. I welcome the fact that in the same speech he is also talking about the problems with inflation, but is that not a contradiction in terms?

[Ian Blackford]

It most certainly is not. The reason for the rise in inflation—to something between 2% and 3% next year, according to commentators—is, quite simply, that the pound has crashed, and the reason the pound has crashed is that investors do not have confidence in the UK economy, and who caused that? It is a direct consequence of Brexit, through the referendum, which was the misjudgment of the previous Prime Minister.

[James Cleverly (Braintree) (Con)]

Does the hon. Gentleman not see an inconsistency in his argument, given that only a few years ago, his party was campaigning to leave the United Kingdom and, by virtue of doing so, the EU?

[Ian Blackford]

The hon. Gentleman has made a gross misjudgment. When we were campaigning for independence for Scotland, it was about securing Scotland’s future as a European nation. Those in the Better Together campaign continually told the people of Scotland that our European future would be secured only by staying with the UK. Well how has that worked out? I am glad that the Scottish Parliament has given a mandate to the Government of Scotland to make sure we protect Scotland’s position as a European nation and remain within the single market, and, through that, to ensure we protect the prosperity and jobs of the people of our country.

Let me come back, if I may, to the subject we are supposed to be discussing.

[Alison McGovern (Wirral South) (Lab)]

While half of me is loth to continue this debate, I want us to be clear. We have here an economic crisis brought about by political instability caused by the rupturing of unions between countries. So for the hon. Gentleman to argue that Scottish independence would not have had similar disastrous effects for the Scottish economy is, frankly, disingenuous.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I remind Members to be cautious with the language they use. Also, I do not want this to degenerate into a debate about independence, and I know that the hon. Member for Ross, Skye and Lochaber (Ian Blackford) wants to get back to his brief and not to be tempted by those who want to go out fishing today. To those Members intervening, I say this: when your speaking time is reduced to four minutes, do not blame me.

[Ian Blackford]

I will take your guidance, Mr Deputy Speaker. I only say to the hon. Member for Wirral South (Alison McGovern) that she has demonstrated once again that Better Together is still alive and well—and how did that work out for the Labour party in Scotland?

I will return to the issue we are dealing with. We have inflation created by Brexit and a falling the pound, and the result of this failure will be a fall in living standards for many of our poorest—falling living standards brought to you by this Government. On top of the benefit cuts next year, the Prime Minister is sleepwalking into a perfect storm for low-income families, rather than living up to her promise of delivering for just-managing families. The UK Government must use the autumn statement to end their austerity obsession and instead bring forward an inclusive programme that will truly support low-income families and their children.

The UK Government’s U-turn on tax credits last year was simply a delaying tactic that kicked cuts to universal credit further down the line. The Government should take the opportunity to reverse the cuts to universal credit work allowance in their autumn statement. The original intention of universal credit was to increase work incentives and make sure that, as the Government put it, work paid. On top of damning economic forecasts, however, which will push up the cost of living, the work allowance cut will simply push more working people into poverty. It has slashed the income of working universal credit claimants. The IFS has calculated that in the long term more than 3 million working families will lose an average of more than £1,000 a year as a result of the work allowance cut.

[Hannah Bardell]

Shameful.

[Ian Blackford]

As my hon. Friend says, it is shameful. The Child Poverty Action Group estimates that the resulting cut in income will mean that many low-income parents cannot protect the income levels they had before April 2016.

House of Commons Library analysis from February 2016 calculates that lone parents without housing costs will experience the largest reduction in their work allowance, from £8,800 in 2015-16 to £4,764 in 2016-17—a loss of over £4,000. Is that what the Government want to defend? A person or couple without housing costs who claim universal credit where one or both are disabled will see their allowance reduced from £7,764 in 2015-16 to £4,764—a loss of £3,000. The U-turn on tax credits in the short term saved families and working people from having their benefits cut, but in the long term the work allowance cut will have a similar impact.

The House of Commons Library analysis also states that the work allowance reductions announced in the summer Budget

“will ultimately have a similar impact to the changes to tax credits which are not now going ahead, though the impact of changes to UC work allowances will not be fully felt until the roll out of Universal Credit is complete.”

By cutting the work allowance, the Government will impose an eye-watering level of marginal taxation on people in low-paid jobs and make it harder than ever for those in low-income households to break out of the poverty trap.

That point is well understood by many, including the right hon. Member for Chingford and Woodford Green (Mr Duncan Smith), the previous Secretary of State for Work and Pensions, who said:

“At present, the 2016 Budget’s plan to reduce Universal Credit work allowances will not be the most effective way of controlling welfare expenditure and, moreover, it goes against the key principles. The planned reduction will affect more than three million people, reducing their income by an average of over £1,000 per year. This will reduce people’s incentive to move into work. Moreover, in November 2015 the previous Chancellor decided to reverse the reduction in working tax credits, increasing the pressure on Universal Credit as it created an artificial disincentive to move to Universal Credit from Tax Credits.”

I do not say this too often, but I fully agree with him. I would even say that, for the Government, the game is up when even the architect of much of the landscape on this issue can see the fatal flaws in what they are doing. When will they start to listen and begin to act?

We are having this debate today, and welcome though it is, it is important that we achieve a cross-party consensus on the substantive motion we are debating tomorrow, on the cuts to employment and support allowance. The House will have an opportunity to send a very clear signal to the Chancellor ahead of the autumn statement next week. It is a scandal that proposed cuts to ESA WRAG are still going ahead. The Chancellor must halt these planned cuts until the UK Government can deliver the long-awaited support promised for disabled people in and out of work. Almost 500,000 disabled people in the UK rely on ESA WRAG. This £30 cut will make the cost of living more expensive for many people—even more so in the context of the devalued pound and a possible inflation increase.

The UK Government said that these changes were introduced to

“remove the financial incentives that could otherwise discourage claimants from taking steps back to work”.

But Mencap’s review of this policy found

“no relevant evidence setting out a convincing case that the ESA WRAG payment acts as a financial disincentive to claimants work, or that reducing the payment would incentivise people to seek work”.

It is a positive step that the new Secretary of State has announced the Green Paper on support for disabled people in and out of work, and we look forward to assessing the detail of the Department’s proposals in due course. However, until the detail in the Green Paper comes to fruition, storming ahead with these cuts is simply putting the cart before the horse. The autumn statement is a key opportunity for the new Cabinet to prove it is true to its rhetoric about delivering for just-managing families. That can be achieved only by abandoning austerity by reversing these cuts and delivering an inclusive Budget fit for the post-referendum economic turmoil.

A failure to act will drive more people into poverty and the use of food banks. Recent data show that the Tories’ austerity agenda continues to push people into poverty across the UK. A survey for the End Child Poverty coalition suggested that 3.5 million children were living in poverty in the UK, with 220,000 of them in Scotland. A separate study by the Trussell Trust found that in the first half of this year there was an increase in food bank usage that included 500,000 three-day emergency food supplies distributed across the UK, of which 188,500 were for children.

A recent Resolution Foundation report has highlighted the need for the urgent delivery of support for families who are just managing. It also noted:

“Average incomes in the low to middle income group were no higher in 2014-15 than in 2004-05, reflecting not just the turmoil of the post-crisis period but also a sharp pre-crisis slowdown in income growth.”

It also points out that the projections for unemployment have been revised up since the March Budget following the referendum in June, and real pay growth is now projected to be lower than previously thought.

In conclusion, with this autumn statement, the Chancellor has the ability to re-prioritise the spending agenda to reflect the very real danger of economic turmoil resulting from the June referendum and ongoing negotiations with the EU. The Chancellor must use the autumn statement to propose measures that reverse benefit cuts and mitigate the impact of economic uncertainty on disadvantaged people.

[Several hon. Members rose—]

--- Later in debate ---

[James Cartlidge (South Suffolk) (Con)]

I applaud the hon. Member for Edinburgh East (Tommy Sheppard) for his great passion. He speaks very eloquently. I could not resist intervening on him about the currency because I think that the key economic challenge for the country involves rebalancing. Every aspect of what we are debating today is affected by the sustainability of our growth.

I want to focus on two key points. The first is why I support the move to a universal credit system in principle, based on my experience of running a small business. The second is that, when we talk about distributional analysis, we need an analysis of the intergenerational impacts of any changes. We have to start talking about all benefits in the system, not just those that are paid out to those of working age.

Last year, we had a number of debates about tax credits at the time when the changes were meant to be coming through. I spoke about this several times, and I said then—I say it again now—that tax credits were one of the greatest mistakes in the history of the welfare state, bringing in a £30 billion means-tested in-work benefit for healthy working people to make them completely dependent and to nationalise the income of the country for political purposes. I say that not out of ideology but out of experience.

My experience of running a small business taught me about the problems of the people who are trapped on the rough edges of the welfare state. I had a member of staff who told me that she did not want a pay rise because she would lose too much in tax credits. More commonly, people working 16 or 24 hours a week told me that they did not want to work any more hours. I heard that many times, and other business owners have told me exactly the same thing. People should be encouraged to make the most of the talents they were born with, and we should not have a system that stymies that aim or disincentivises people from making the most of their talents.

What I particularly welcome about universal credit is the fact that it smooths out the rough edges by being more generous in terms of childcare and support. I am sure we all agree that we want people who are unemployed to move off benefits and into work, but we never talk about people who are on in-work benefits needing to work harder to get off those benefits. To me, however, it should be the goal of our economic system to reduce dependency and help people to maximise their income from real employment. The other part of the system that I welcome is the extra support that it will give, not just to get people into work but to get people who work part time to work more hours. That is very much to be commended.

It is quite extraordinary that, for the first time ever, pensioners are now better off than the working-age population, once housing costs have been taken into account. This is something that we need to talk about, because 68% of benefits are paid out to pensioners. The point about housing costs is incredibly important.

[Ian Blackford]

Does the hon. Gentleman not recognise that a pension is not a benefit? People who have paid national insurance have an entitlement to a state pension, which they have paid for.

[James Cartlidge]

That is a very fair point. Our voters say, “Well, I’ve paid in so I should get it,” but that is not the case for the winter fuel allowance—as the hon. Gentleman knows, millionaires get that along with everybody else—the free TV licence or the Christmas bonus. Although the state pension is based on paying in, it is a pay-as-you-go system. The fact is that the current young working generation are paying in but they might not receive the triple lock. Also, we know for certain that many of them will still be paying their housing costs when they retire. We know that 94% of home-owning pensioners own their property outright. They have no housing costs. The young working generation are probably paying for the defined benefit pensions of those who are fortunate to receive them, and for the state pension of those who have the triple lock. They are also paying for those who possibly do not even have housing costs, yet they themselves will have housing costs perhaps well into their retirement. We are reaching a critical point here.

[Ian Blackford]

I am conscious that we should not be diverted from the topic, but the key point here is that the national insurance fund is currently running at a surplus that, according to the Government’s own figures, is due to increase. It is not the case that pensioners are taking their income from others. They have paid their national insurance contributions, which fund the amount that is paid out to pensioners.

[James Cartlidge]

It is a pay-as-you-go system, but the key to this is the triple lock. The hon. Gentleman is welcome to read the report on intergenerational payments produced by the Work and Pensions Committee. It has my name on it, although I have to say that I approved it having been on the Committee for only 15 minutes. I did not contribute to it, but I welcome all of it. It makes the point that we have a pay-as-you-go system and that the younger people currently paying in might not benefit from the present generosity, particularly in relation to the triple lock, which is unaffordable and unsustainable.

This is primarily a political question. During the leadership hustings, I asked the final two contestants the same question. I said, “Given the situation of many young people, is it morally defensible to continue to protect pensioner benefits?” The answer that both contestants gave me—quite rightly, given that we are a democracy and that we have elections—was that our manifesto had pledged to protect those benefits. However, as the shadow Chancellor has said—I am certainly not trying to pray him in aid—we also pledged to wipe out the deficit. That pledge is now coming home to roost. We are protecting so many budgets and forcing so many disproportionate cuts on others because of this huge cost which we will not touch, and I think we have to talk about it. This has to be done in a cross-party way. We all know the political reality of this situation. I am not naive, and I know the political price that can be paid if these things are not done correctly, but from canvassing in my constituency, I know that the older voters understand this point. They are as concerned about it as anybody else. We have to start talking about how the whole benefits system—not just the one for working-age people—can be reformed.

I very much welcome the speech made by my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith), and I welcome what has happened with universal credit. It will smooth out some of the perverse incentives created by the tax credit system, and it will encourage people to make the most of their talents and reduce their benefit dependency. Just as we had radical reform on in-work benefits, we must now start to think about what will happen to those who are retired and who will live longer and longer, so that we can all live in a happy, one nation situation in which all the generations get a fair deal.

--- Later in debate ---

[Justin Tomlinson (North Swindon) (Con)]

It is a pleasure to contribute to the debate. Given the upcoming autumn statement and the incredibly important Green Paper, it represents a welcome opportunity for us to shape some of the decisions that will be taken. It is disappointing, however, that only two speakers so far—my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and my hon. Friend the Member for South Suffolk (James Cartlidge)—have actually made suggestions about where funding could come from should any changes be made.

I want to look first at the context of the debate. This Government have introduced the national living wage, benefiting 2.75 million of this country’s lowest earners, and we have committed to reach at least £9 an hour by 2020—a whole pound higher than what was in the Labour party manifesto at the election. The increase in the personal tax allowance, taking it from £6,495 to £11,000 with a commitment to reach £12,500 and then index-link it going forward, has lifted the lowest 3.2 million earners out of income tax altogether. Despite the doom and gloom of some speeches, we are delivering the strongest economic growth of any developed country, leading to record employment—461,000 more people are in work today than at this time last year. With my old Minister for disabled people’s hat on, I welcome the news that a further 590,000 disabled people are in work compared with three years ago—a 4% increase. There is still much more to be done, but we are making a genuine difference to some of those who are most desperate to be given an opportunity to work.

Wages are also increasing at 2.3% against inflation of 0.9%. I gently remind the SNP speakers, in particular the hon. Member for Ross, Skye and Lochaber (Ian Blackford), that inflation fell this week. I do not know whether that news escaped them.

[Ian Blackford]

rose—

[Justin Tomlinson]

The hon. Gentleman has had plenty of opportunities to contribute to this debate and other Members still want to speak.

We are also significantly extending childcare with a doubling of free childcare coming in.

Specifically on universal credit, the key difference is that it provides additional much-needed support. We know how important it is. Only 1% of ESA claimants came off the benefit every month despite the vast majority wanting the opportunity to work. There will be additional childcare, which will be beneficial for lone parents in particular, the provision and identification of training opportunities and specific job search help. Most importantly for me, in-work support will be offered for the first time. Many people coming off that benefit will go into low-paid jobs. They will often then stay at that low level and not benefit from a growing economy. In-work support will be provided. Someone may be told, “Look, you have been going for three months. You have turned up and been a diligent worker. Perhaps it is now time to push for greater responsibility and greater earning opportunities.” That is something that is very much welcomed by people I talk to.

My hon. Friend the Member for South Suffolk highlighted the 16-hour cliff edge. He pointed out that his staff did not want to work extra hours. That is not quite the case. They were desperate to work additional hours, but they were just unable to work them, and that was blocking opportunity for them.

On ESA, I wish to take a moment to pay tribute to the staff in the jobcentres, the Work programme providers, including Shaw Trust, plus many other organisations and charities that support those activities. They do a huge amount of work that often goes unseen. They are often not thanked, but I know that they have made a real difference to many people and we are seeing that in the jobs figures.

As my right hon. Friend the Member for Chingford and Woodford Green said, there has to be an emphasis on what people can do, rather than on what they cannot do. That is highlighted right the way through the very welcome Green Paper. I am proud to have made a small contribution to bringing that forward. It is very welcome that organisations such as Scope, Leonard Cheshire, the Royal National Institute Of Blind People, the National Autistic Society and hundreds of others are using their expertise and first-hand experience to help shape policy. I will continue to raise the importance of making them a priority in policy development and in delivering in the future.

We have already seen with the additional £60 million rising to £100 million that we will have more of a personalised and tailored approach. There will be quicker assessments, which is particularly important because 50% of people on ESA also have a mental health condition, and it is vital that we get support to them as quickly as possible. There will be a place on the new Work and Health programme, work choice for those who choose to volunteer, and additional places on the Specialist Employability Support programmes.

If anyone visits a jobcentre, they will understand how desperate people are to have those extra places. It is a bit like getting tickets for a very popular concert—first thing, once a month, it is about getting on the phone to try to grab those one or two available places. Job clubs will provide support, which will be delivered by peers, particularly those who have disabilities, who will give their first-hand experience and support. For many people, trying to return to the work environment is a very, very scary prospect.

There will be the new community partners and increased access to work for young people. There are also future opportunities, particularly through the Disability Confident campaign, which is very proactive in identifying to employers the huge wealth of talent that is out there if people will make a small change. I am particularly excited by the encouraging early results from the Small Employer Offer, which, in effect, doorsteps local employers saying that there is a wealth of talent out there. It asks what their skills gaps are and whether they can find the people to match them. Some really impressive results have been achieved.

We have seen increased funding for Access to Work. At the moment, it assists about 38,000 people. There will be funding in place for an additional 25,000 people. People who do not understand the scheme may say that it only helps 38,000. They ignore, or simply do not understand, how often we need to help people on only one occasion to then be able to get them into work. It could be by purchasing equipment, or by providing additional training. That person could then end up having a long-term sustainable career.

The other area is to make sure that the Fit for Work service supports people earlier than the four weeks, because, often, it is simple early advice, particularly to small employers, that will help keep people in work. It is far easier to keep people in work than to try to get them back in. Finally, we need to make sure that the charities are central to the delivery, because they have so much proactive experience. Their policy teams are constructive. When I was a Minister, it was a real pleasure to work with those organisations. Through the Green Paper, they can help to make a real difference.