Low-income Households

Kate Green Excerpts

Tuesday 14th September 2010 Westminster Hall

[Kate Green (Stretford and Urmston) (Lab)]

I congratulate my hon. Friend the Member for Westminster North (Ms Buck) on securing an important debate, which has been constructive and thoughtful thus far. From the long dealings I had with the Minister before I became a Member of Parliament, I know that she will want to think about the concerns that my hon. Friends and I have raised this morning. She will want the Government’s policies to be as effective and constructive as they possibly can be in meeting the needs of the poorest and most disadvantaged in society.

I shall focus on a number of the Government’s announcements so far where there seem to be a set of policies that work against the Government’s own objectives. A number of policies reveal contradictions, inconsistencies or discrepancies between what Ministers say they want to achieve and what their policies are likely to do. I highlight, in particular, Ministers’ objectives of increasing employment, simplifying the benefits system and making work pay.

The coalition Government have repeatedly, and I think unjustly, criticised Labour’s record on reducing poverty and inequality, but they have indicated none the less that they intend to do better and reduce poverty and inequality further. Ministers have emphasised that they are keen to encourage responsibility and self-reliance by encouraging people to save for the future and addressing problems associated with high levels of personal debt. They have talked about their wish to strengthen families and communities and build a big society, and many of us are trying to understand the details of some of that.

Those objectives have much to commend them. Indeed, they are similar to the objectives that Labour sought to promote when in government. However, many of the policies that have been announced so far are likely to take matters in the opposite direction. I am keen to give the Minister an opportunity to respond to those concerns and indicate where there might be some scope for Ministers to think again. I believe that the raft of changes to benefits and tax credits that have been announced so far will make the poorest worse off and will not meet Ministers’ goals.

Let us look at one of the most significant changes, the decision to link the future operation of benefits to the consumer prices index, which I believe will increase relative income poverty, particularly in a time of rising unemployment. Ministers are keen to emphasise their long-term vision of reduced unemployment as more people move into work in the private sector, but not all their ambition is supported by the projections of bodies such as the Chartered Institute of Personnel and Development and the TUC. Therefore, it is important that we accept, while seeking to promote increased employment, that a substantial number of people will be dependent for at least some time on safety-net benefits and that linking those benefits to the CPI will inevitably make the poorer worse off.

For families with children, child benefit is important. It is simple, straightforward and has an extremely high level of take-up. It is effective in reducing poverty and, because it is not means-tested, making work pay, but Ministers have decided to freeze it. That is a perverse move for a Government who say that protecting work incentives and strength in families is top of their list of priorities. Child tax credit, which my hon. Friend the Member for Westminster North mentioned, acts as both an in-work and out-of-work benefit for families, but Ministers plan to remove the family element and sharpen the taper as income increases. That, too, is a work disincentive.

Refusing to go ahead with the free school meals pilots means a further disincentive. Many parents with low incomes say that the loss of free school meals is one of the biggest shocks to the household budget when they move into paid work. On paid employment, reducing the cushion for the recovery of tax credit overpayments from £25,000 of income to £5,000 will penalise people who return to work mid-year and add complexity to the system. Ministers are keen to reduce complexity, and rightly so.

My hon. Friend and the hon. Member for Cities of London and Westminster (Mr Field) rightly drew attention to the concerns in London about the measures relating to housing benefit that have been announced. I can assure you, Ms Clark, that they cause just as much concern in Trafford, the borough in which my constituency sits. Reducing housing benefit for those who remain on jobseeker’s allowance for more than 12 months is a particularly punitive policy for those who might be doing as much as they possibly can to get into work but who are furthest from the labour market. Of all the announcements that we have heard on housing benefit, that is one on which, across the board, we strongly urge Ministers seriously to think again.

Reducing the rent that will be received by social landlords as a result of the introduction of the cap on housing benefit, and then reducing local housing allowance to the 30th percentile, means that social landlords will have fewer funds available to devote to social and employment programmes. Several social housing providers have already indicated that the loss of a couple of hundred thousand pounds from their budgets will mean that those employment programmes will have to go. Furthermore, we can certainly see that in some parts of the country people faced with those cuts in their housing benefit will be forced to move to lower-cost housing in other parts of the country, and those lower-cost areas are the least likely to have jobs available.

We can also expect a worrying increase in homelessness. In Trafford we already have 12,000 people on the housing waiting list, and we can expect the situation to become worse, particularly for larger families. As my hon. Friend the Member for Westminster North has mentioned, the measures, far from reducing costs to the Exchequer and to local authorities, will significantly increase costs by forcing greater use of costly temporary accommodation. We can also expect to see more families falling into arrears and debt, although it is Ministers’ stated intention to reduce the personal debt burden.

We should also be concerned about the impact on mixed communities, and Ministers have rightly spoken a great deal about their wish to protect and secure community cohesion. My hon. Friend touched on non-dependant deductions. With regard to supporting families, the decision to increase non-dependant deductions is likely, for example, to put families with young people still in the family home under great pressure to keep those young people in the family home and will penalise pensioners who may have adult children still living at home.

There are many concerns about the true impact of those measures, and they seem to work against Ministers’ stated goals. None of that is simplification. For example, why are the housing benefit changes, if they have to come in, being introduced in two stages next year? That is difficult for tenants and landlords to plan for. Surely it would make more sense to do everything later in the year after there has been proper time to prepare. Housing benefit has long been seen as a potential candidate for simplification through the creation of some sort of housing credit within a broader tax credits and benefits system, but the complexity that is now being introduced is likely to make that less achievable in the medium term, not more. A further example of complexity that Ministers are unnecessarily and inappropriately introducing into the system is medical testing for disability living allowance, a benefit that has nothing to do with a claimant’s medical needs.

I will also mention the policies that have been announced that seem to damage Ministers’ wish to create a savings culture. The axing of the savings gateway and the child trust fund seems absolutely to work against their wish to see low-income households seeking to save more. There are real concerns about how all that adds up to the big society. Not only will the cuts in public service spending put great pressure on communities and public services, but charities in my constituency are already expressing concern about how they will continue to fund the support they provide to the most disadvantaged. I know that will be a concern for the Minister, and I am anxious to hear from her on that.

Our concern is not only about the impact on the most disadvantaged families and the fact that the Budget fails the fairness test, but that many of those measures, since they are at odds with Ministers’ stated intentions, call into question the Government’s competence and the direction in which they truly seek to go. I strongly urge the Minister to think again about policies that seem to be taking us in the wrong direction, before the comprehensive spending review does more damage and takes us further away. I know that she will want to respond in full to those concerns and take note of them when formulating her thinking for the comprehensive spending review. It is important that we have the fullest and most constructive debate possible on that between today and 20 October.

--- Later in debate ---

[Lorely Burt]

I am not sure that what I am saying is not relevant. I shall discuss the effects of the reductions that we will make, but I contest the hon. Lady’s claim that many of them are not fair. Well researched though her presentation was, there are things that she cannot know—a great deal is still to come from the Government.

Much of what has been presented has been based on speculation, and there is a great deal of scaremongering at present. Clearly, as the hon. Member for Cities of London and Westminster (Mr Field) said, people are afraid. The time to become afraid is when we see what the Government are proposing. They are trying hard to make their proposals as fair as possible.

I want to make a second point about why we are doing this—it is the legacy. The hon. Member for Cities of London and Westminster said that we must take a grip of the existing situation. That would apply whatever party were in government. I am declining the invitation of the hon. Member for Westminster North because I want to talk about the issues that she wants to me to raise. She mentioned the report of the Institute for Fiscal Studies. I do not claim to be an expert, but it was selective in what it chose to raise, and it ignores some of the major parts of the Budget, including changes to tax credits, the increase in income tax personal allowance and freezes on council tax. It does not take account of the choices on which measures in previous Labour Budgets to continue and which to reverse, or the effect of future Budgets.

The debate on the effect of Government policy is legitimate, and all parties must be prepared to discuss that, but with respect, the debate is happening too soon. The way in which the vast majority of changes to Department for Work and Pensions policy and savings in the welfare budget will be implemented will not become clear until after the departmental spending review in October. Any debate before then is bound to be based on media speculation, of which we have had sufficient.

One reason for the consultation on departmental spending is to ensure that the difficult decisions are not made lightly, and that any cuts are made in a way that protects those on the lowest incomes. Alongside the cuts is a radical programme of core Liberal Democrat policies specifically targeted at people on low incomes—the income tax pledge, the pupil premium and the re-linking of the basic state pension to earnings. However, in the coming weeks and months, the Government must ensure that they focus on ensuring that those groups most likely to be on low incomes are protected, specifically disabled people, older people, young people and people who are long-term unemployed.

[Kate Green]

It is absolutely right to want to protect the most vulnerable, and I am grateful to the hon. Lady for mentioning the disabled, but are we not already seeing increasing numbers of disabled people going through the new work capability test for employment and support allowance and being found to be ineligible for that benefit, and being pushed on to the lower level of jobseeker’s allowance? Can we expect that position to become even more of a problem as existing incapacity benefit claimants are put through the test and perhaps experience the same outcome? Is that not a cause for concern, particularly when there is an exceptionally high number of appeals against work capability tests, many of which are proving successful?

[Lorely Burt]

The hon. Lady makes an important point, but the issues to which she refers began under a Labour Government, which she supported. We must be sure that the tests that are imposed on people are absolutely fair.

Several hon. Members mentioned housing benefit. The proposals have not yet been fully created, and it is not yet possible to say what impact they will have on low-income households. However, any cap on maximum local housing allowance payments must ensure that those with large families are not unfairly discriminated against, and I hope the Minister will speak about that.

I shall conclude on a slightly more positive note, by mentioning some of the positive changes for low-income households. On the income tax threshold, we have increased the personal allowance by £1,000, so 880,000 people will come out of tax altogether and 23 million other taxpayers will benefit by £170 million a year.

We have discussed the child element of tax credits, and some hard decisions have been made so that the poorest families will benefit much more than those who can afford to bear the burden. In addition, the coalition Government will increase the personal allowance to £10,000 per annum, which the Liberal Democrats pledged in their manifesto, and will lift the poorest 3 million people out of income tax altogether.

The Government are consulting on the pupil premium to determine the exact figure for it. It will attach additional funding to children from low-income households and will dramatically improve the life chances of children from families that fell into a poverty cycle under the last Government.

With the re-linking of pensions to earnings, pensioners will finally receive a fair deal with no more 2p—or whatever it was—increases in their pension. Under the triple lock proposed by the Liberal Democrats, the basic state pension will rise in line with prices or inflation, or by 2.5% a year, whichever is highest.

The consultation is taking place. The theory and principle to which we adhere is that savings may be made on benefits through large-scale simplification. The consultation paper proposes a universal credit to replace the main three forms of benefit support—jobseeker’s allowance, employment support and income support—as well as other sorts of benefit. We will allow a uniform taper rate so that when people find work, benefits will be withdrawn in line with earnings. I agree that the previous Labour Government tried hard to resolve the poverty trap, and the taper may be a solution to ensure that it will always be profitable to go to work.

The division between rich and poor increased under the previous Labour Government. Throwing money at the problem has not provided the solutions that they and everyone wanted. I hope that in the dire financial straits facing the country, the present Government will be imaginative in creating a fairer way of ensuring that people achieve prosperity and work in the best possible way.