Universal Credit and Welfare Reform

Liam Byrne Excerpts

Tuesday 11th September 2012 Commons Chamber

[Mr Liam Byrne (Birmingham, Hodge Hill) (Lab)]

I beg to move,

That this House notes that the Universal Credit is late and over budget; recognises that there is widespread unease surrounding the implementation of the £2 billion scheme’s IT system; further notes that the project is so badly designed that it is set to reduce work incentives for over two million people and hurt small businesses and the self-employed; believes that Ministers have failed to properly account for numerous basic details of how the scheme will work, such as its interaction with free school meals or what is to be done with 20,000 Housing Benefit staff; further believes that the project is poorly thought through and is now at risk of descending into chaos; and calls on the Government to publish the business case, so that the House can see a detailed plan of implementation, and urgently to set out a plan to address these deep flaws before it is too late.

At the heart of the debate is a very simple principle, which is that anyone in this country should be better off in work than they are on benefits. That is a principle in which we in the Opposition passionately believe. We are a party that was founded by and for working people and that is why we want universal credit to succeed. It is now, however, an open secret in Whitehall that universal credit is a flagship that is sinking fast. The Treasury, says Mr Nick Robinson of the BBC,

“have long had deep anxieties that”

the Secretary of State

“might not be able to control spending”

on universal credit. Last week, the Minister for the Cabinet Office and Paymaster General, who is an old friend of the Secretary of State, was asked how universal credit was going. He said:

“Are we there yet? Am I absolutely confident we are there yet?”

His answer? “No.” This morning, an unnamed Minister weighed in to support the Secretary of State in his own way with a ringing endorsement, saying that universal credit

“is another car crash waiting to happen”.

The Secretary of State is no stranger to friendly fire. Indeed, back in 2002, he described himself as the “quiet man” who was about to “turn up the volume”. Today, we are not asking the Secretary of State to turn up the volume. We are asking him to dial down the chaos and dial up the competence in his Department.

The Secretary of State and I share a faith. He, like me, believes that confession is good for the soul, and today is confession time. We need answers to a host of questions about universal credit and we cannot help to get this vital project back on track unless he comes clean about exactly what is going on.

[Jacob Rees-Mogg (North East Somerset) (Con)]

While we are on a religious theme, I wonder whether the right hon. Gentleman might think about motes and beams, as there is rather a large beam in the eye of those on the Opposition Benches.

--- Later in debate ---

[Mr Byrne]

It is unclear how I might respond to that. I hope I will be able to set out for the hon. Gentleman this afternoon what I think will be a shared set of concerns about how to get this vital project back on track. I hope we have a degree of clarity, honesty and openness from those on the Treasury Bench.

[Mr Denis MacShane (Rotherham) (Lab)]

My right hon. Friend is starting at a macro level, but last Friday I had meetings with the people who have to apply the universal credit scheme in Rotherham. I also met the voluntary groups that deal with the people who rely on it and there are genuine fears. People want reform and they are not necessarily anti the Government for political reasons, but they do not think that the scheme will work as it is devised. The computer crashes for which our Governments are so famous—both those of whom he was a member and this Government—are a legend in the computer industry.

[Mr Byrne]

Let me start with precisely that risk. We were told when universal credit was first proposed that the IT costs would be in the order of £2 billion. Some £200 million was taken off for subsidies for another problem with child care created by the Secretary of State’s friend, the Chancellor. The former Minister responsible for unemployment, the right hon. Member for Epsom and Ewell (Chris Grayling), before he departed for the Ministry of Justice, said that the cost had spiralled to £2.1 billion. Already, two years in, the project is £100 million over budget and we learned yesterday that universal credit, when it is introduced and fully rolled out in 2017, will demand an extra £3.1 billion in welfare payments each year. That was the figure that the Department for Work and Pensions gave to the Office for Budget Responsibility in July last year.

Yesterday, however, the Secretary of State told the House that he had agreed to a Treasury target of £2.5 billion, wiping £600 million off tax credits by so-called policy designs. Where on earth is that money going to come from? It is, I am afraid, a mystery. It is a mystery shrouded in further questions about whether people will be better off in work when universal credit is introduced. What on earth is going to happen to free school meals, which are worth £410 million a year to families in many of our constituencies and are a vital lifeline every week? The Children’s Society says that if universal credit integrates free school meals in the wrong way, that will wipe out incentives to work for 120,000 families. What is going to happen to that budget?

Then there is the question of council tax benefit, which is worth £5 billion for 6 million households in Britain. As it turns out, we are going to get not a national scheme but a local scheme, because the Secretary of State lost his battle with the Secretary of State for Communities and Local Government. He was sat on by the right hon. Member for Brentwood and Ongar (Mr Pickles), which is a fate we would not wish on anyone. The result is that whether someone is better off in work or on benefits will depend on where they live. The Institute for Fiscal Studies says that universal credit “severely undermines” the simplification.

Then there is the question of how universal credit will interact with increases in personal allowances, which were introduced with such a great fanfare over the past year or two. Last week, Gingerbread said that because universal credit is calculated on post-tax income, the lowest paid would see most of the increase in personal allowances wiped out. In fact, when universal credit is introduced, the low paid will lose two thirds of the increase in personal allowances. Somehow the Chancellor of the Exchequer forgot to tell us that when he unveiled the proposal in his last Budget.

Then there is the question of how universal credit will lock in the cuts to tax credits that hit so many of our constituents this April. Those cuts now mean, according to answers given to my hon. Friend the Member for Stockport (Ann Coffey), that a couple with kids working part time—and goodness me, there are more people working part time these days—will now be more than £700 better off on benefits than in work. How on earth can that send the right signal?

[Mr John Redwood (Wokingham) (Con)]

rose—

[Mr Byrne]

Perhaps the right hon. Member for Wokingham (Mr Redwood) will be able to tell us.

[Mr Redwood]

Will the right hon. Gentleman give the House some of his ideas on how we could make it more worth while for people to work, given that all parties in the House think that that is the right aim and that it is not worth while enough at the moment?

[Mr Byrne]

That is very much the point of bringing the debate here today. We need from the Government transparency about the business case, which is being kept secret. Until we get to the heart of how the policy will be rolled out, until we get some answers to these basic questions, it is difficult for us to offer some constructive advice—advice we would offer for free.

[John Healey (Wentworth and Dearne) (Lab)]

Will my right hon. Friend take a look at the Rotherham citizens advice bureau survey, which I have sent to the Secretary of State today? The bureau questioned more than 100 people who had been through employment and support allowance assessments last year; more than half said that the assessment was rushed, nearly two thirds said that the assessor did not listen to them and only a quarter felt that the assessor was fully qualified to assess their medical condition. Does he agree that a fair benefits system and a fair universal credit depend on a fair and accurate system of assessment?

[Mr Byrne]

It absolutely does. Our chief concern is that that open and fair system of assessment will not fall into place for universal credit, with enormous consequences for our constituents.

The final point about the basic principle of whether people will be better off in work or on benefit is the evidence published by the Secretary of State’s own Department in the impact assessment that he signed earlier in the Parliament. The evidence shows that the marginal deduction rates will not go down for many people but will go up—2.1 million people will see their marginal deduction rates go up when universal credit is introduced. The incentive for them to work does not increase with universal credit; it goes into reverse. We have problems with free school meals and with council tax benefit, a short-changed personal allowance, the lock-in of cuts to tax credits and a worse incentive to work. That raises fundamental questions about a system that is about to go live in 150 days. That is why in this debate we want some answers on how these problems will be solved.

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

I will just give the right hon. Gentleman some answers on the marginal deduction rates. The fact is that 1.2 million people will receive a reduced marginal deduction rate as a result of what we are doing with universal credit. At the moment, 500,000 families see marginal deduction rates of well over 80%. Virtually nobody will see that once universal credit comes in. Some 2.8 million households will gain and 80% of those gains will go to the bottom 40%, improving their life chances dramatically.

[Mr Byrne]

But the Secretary of State refuses to admit that the marginal deduction rates will get worse for 2.1 million people. Until he answers the question about what will happen to free school meals and to council tax benefit, he cannot give us the assurance that that number of people will be better off in every single part of this country. He has to come clean about a system that is about to go live in 150 days. He is cutting it too fine, which is why No. 10 is worried, why the Treasury is worried and why his old friend the Minister for the Cabinet Office is worried.

[Charlie Elphicke (Dover) (Con)]

The fact is that 1.4 million people have been on out-of-work benefits for nine of the past 10 years. Rather than fear-mongering, shroud-waving and trying to frighten people, why is the right hon. Gentleman not working with the Government to get the best result and tell those people, “You’re needed in the workplace. We want you to play a part in building up the economy for future generations”?

[Mr Byrne]

If the hon. Gentleman was serious about wanting to get unemployed people in his constituency back to work—goodness knows there are enough of them—he would support Labour’s proposal for a tax on bankers’ bonuses that would get 110,000 young people back into work over the course of the next year.

[Mr John Denham (Southampton, Itchen) (Lab)]

Those of us who were here when the Child Support Agency was introduced know the dangers of introducing legislation that everyone agrees with in principle but that is badly carried out. My right hon. Friend is doing the right thing by raising these questions, but does he not agree that it is a little odd that it was the Secretary of State who was in danger of being forced out of his job when so many of the problems with the system lie with the Treasury, the Department for Communities and Local Government and the Department for Education, all the bits of the Government that are refusing to play ball with this vision?

[Mr Byrne]

My right hon. Friend is precisely right. That is why we are here to help the Secretary of State this afternoon by setting out some of the questions on which, if he was only a little clearer with the House, we would be happy to engage and help. One of the issues in which we share an interest is the way we support the enterprise spirit in this country. The CBI and the Chartered Institute of Taxation have flagged up their worry that universal credit will be a car crash for Britain’s entrepreneurs. The number of self-employed people in this country increased by 280,000 over the past couple of years and many people must now look to their own resources for work, but what is being prepared for self-employed people is frankly chaotic.

[Mrs Anne Main (St Albans) (Con)]

Will the right hon. Gentleman give way?

[Mr Byrne]

I will in a moment.

We have heard from the Chartered Institute of Taxation that the system proposed for entrepreneurs will require self-employed claimants to report their transactions each month and that they will have only seven days after the end of the month to file them. They will have to put all that information into a great big IT system and calculate their earnings using a system that is different from the one they use to calculate their tax bill. How on earth does the Secretary of State think Britain’s entrepreneurs, who are busy doing other things day to day, will deal with the new system? I thought that the Government were committed to cutting red tape, not swaddling entrepreneurs with it if they want any chance of help with tax credits. Perhaps the hon. Member for St Albans (Mrs Main) can explain a way through it.

[Mrs Main]

The right hon. Gentleman should take a little while to consider that not everybody who is self-employed is the entrepreneur he is talking about. The reason that degree of scrutiny is needed is that people who sell The Big Issue for a certain period of time can suddenly declare themselves to be self-employed, so the scrutiny is not something he should want to remove; it is a question of whether it is reasonable. If he wishes to help my right hon. Friend the Secretary of State, he might like to propose a constructive way forward for how we can stop people abusing the system by declaring themselves to be self-employed when all they are doing is a minimal amount.

[Mr Byrne]

Members on both sides of the House want this to work, but if the hon. Lady looks at the evidence submitted by the CBI and the Chartered Institute for Taxation to the Work and Pensions Committee on Friday, she will see that there is now a real worry that this is going to be a catastrophe for the many entrepreneurs who rely on tax credits for help to balance the books at the end of the month. What I want from the Secretary of State is clarity about how this is going to work in practice.

This is the start of a whole series of risks that have been brought to the attention of hon. Members here and in the Select Committee. Flagged up in the evidence submitted on Friday was the decision to deny people a choice about who receives the money. I hope that the Secretary of State will reform this before implementation of universal credit, because many people who run women’s refuges say that the system is so badly thought through that refuges for women fleeing from domestic violence will have to close. In fact, Refuge tells us—[Interruption.] This is not scaremongering by me; it is evidence submitted to the Select Committee by Refuge, which says that the idea is so badly thought through that unless changes are made, 297 refuges will have to close. This is not scaremongering; it is bringing to the House’s attention information and arguments provided by one of the most important charities in the country.

[The Minister of State, Department for Work and Pensions (Steve Webb)]

Yesterday in oral questions, at which I think the right hon. Gentleman was present, the Secretary of State gave categorical assurances about refuges, so to repeat the smear after receiving those assurances is scaremongering.

[Mr Byrne]

If the Minister is accusing Refuge and Women’s Aid of a smear, I am afraid that he has got his facts seriously wrong. This element was not in the original design. Yesterday we finally extracted from the Secretary of State a commitment to change; now we want to know how it, along with a host of other things, will work in practice.

Some of these issues are now bedevilling local authorities. There is a serious risk that direct payments of universal credit, which includes housing benefit going to the individual, will result in local councils’ arrears bills and eviction rates beginning to rise. We are still no clearer about what will happen to the 20,000 housing benefit staff who work for local councils and will no longer have to process housing benefit claims once the DWP takes over the task. Are they going to be sacked or made redundant? Who will pick up the bill? Is it yet another bill that will fall on the shoulders of hard-pressed council tax payers?

[Jim Shannon (Strangford) (DUP)]

In my constituency, housing benefit applications are up by between 10% and 15% and extra staff have been employed. The waiting list for applications to be processed takes anything from six to eight, or even 10, weeks. Yesterday the manager of the housing benefit office told me that only six months into the scheme he is already cutting back on the moneys that are allocated to try to make them last until next April. Does the right hon. Gentleman think that in the case of housing benefit, chaos is knocking on the door?

[Mr Byrne]

I am afraid that that is absolutely right. That is the message that is coming back from local authorities all over the country. In fact, the Local Government Association told the Select Committee on Friday that there is

“a real risk that the central Government universal credit IT systems will not be ready on time”.

That was part of an array of evidence submitted about the mounting risks. The CBI said that the

“tight delivery timetable…is a risk to business”.

Citizens Advice said that universal credit

“risks causing difficulties to the 8.5 million people who have never used the internet”.

The Chartered Institute of Taxation said that for many people

“The proposed procedures for self-employed claimants…will be impossible to comply with.”

Shelter has said:

“Social landlords and their lenders have voiced considerable concern at the implications of direct payments for social tenants”.

The Association of Directors of Adult Social Services says that the abolition of severe disability premium is an

“apparent contradiction of the Government’s stated aim to protect the most vulnerable.”

[Alison Seabeck (Plymouth, Moor View) (Lab)]

On direct payments to landlords, last night I met representatives of south-west housing associations, and to a person they all expressed serious concerns about the implications for them, their lenders and their loan books.

[Mr Byrne]

My hon. Friend is absolutely right. Once arrears build up, it becomes far more difficult for social landlords to raise the money they need to build much-needed social housing. These are very serious risks.

[Dame Joan Ruddock (Lewisham, Deptford) (Lab)]

I am grateful to my right hon. Friend for reciting the concerns of a whole range of people and organisations. One of the things that has surprised me most is that every employer in the country will have to report to Her Majesty’s Revenue and Customs on the circumstances of every employee on a monthly basis and sometimes, perhaps, even on a weekly basis instead of annually. Is this not going to be an incredible burden on British business, which is already in difficulty?

[Mr Byrne]

Exactly—as if British businesses were not struggling enough. The point is that the 500 pages of evidence submitted to the Select Committee on Friday present to the Secretary of State a whole range of issues to which we have received no answers, despite the fact that the system will go live in 150 days. The system is already over budget and late, and I am afraid that we now need some urgent answers from the Secretary of State this afternoon.

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

Does my right hon. Friend agree that one of the great concerns of the many agencies that he has mentioned—they are worried about how universal credit will affect the client groups that they work with—is that the funding of those advice agencies that could support individuals is being squeezed and that there will simply be no access to support, either to make applications or to sort out problems when things go wrong?

[Mr Byrne]

That is a real concern. I know from the fact that a number of advice centres in Birmingham have been forced to close that advice is simply not available for many people in some of the most deprived parts of our country. They are being asked to contend with a new benefit system that is complicated and vital to their living standards, so that is a real worry. I hope that the Secretary of State will take that into account in his response.

I am going to draw my remarks to a close, because I know that many hon. and right hon. Members want to contribute to the debate. All I will say to the Secretary of State is that, following the recent attacks on him by the Treasury, the Cabinet Office and No. 10, he could be forgiven for wanting to retreat to the deepest, darkest bunker in Whitehall. The truth is that his Department is already one of the most secretive in Government. He is refusing to publish information about the Work programme and he has refused Labour’s freedom of information request to release the business case for universal credit. I know that he does not always see eye to eye with the Minister for the Cabinet Office, but I hope that he will pay heed to his words:

“Transparency is at the heart of our agenda for government…We are unflinching in our belief that data that can be published should be published.”

Unflinching indeed.

Universal credit is a massive project—it is too big to be allowed to fail. We need to make sure that it is on track and I hope that the House will join us in sending an unequivocal message to that effect this afternoon.

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

This debate cannot take place in a vacuum, as the right hon. Member for Birmingham, Hodge Hill (Mr Byrne) would wish. Let me start by saying that he is wrong: we are not over budget on the programme and we are not out of time. Both are proceeding much according to the plans that we laid. He referred to a report or note that mentioned £3.1 billion. That was considered as a possible end position and the Office for Budget Responsibility, which is independent, looked at it well before Members of both Houses had completed their scrutiny of the legislation. It was done in July of last year. Since then we have had a series of discussions with the OBR. It has looked at the modelling in detail, and continues to do so.

[Mr Byrne]

rose—

[Mr Duncan Smith]

Wait a minute.

As far as the OBR is concerned, we are progressing in the right direction and the modelling seems to be about right. We are committed to the £2.5 billion a year and the £2 billion of investment in our IT programmes.

[Mr Byrne]

I am grateful to the Secretary of State for being characteristically generous in giving way so early in his remarks. Will he explain what policy designs resulted in the £3.1 billion estimate, made by his own Department, dropping down to £2.5 billion? Will he also confirm to the House that everybody affected will be on universal credit by 2017, as initially planned?

[Mr Duncan Smith]

First, I will answer the second question. That is exactly what we intend and we believe that we are on track to do just that. The right hon. Gentleman and the House should realise that this is not, as has been the case with previous IT programmes, a “waterfall” approach whereby everything explodes and is launched on one date, which I think the previous Government used to realise was probably not a good idea. This will be a progression over four years, so that, as we bring in different groups, such as jobseeker’s allowance recipients, and first address the flow, then the stock, and then look at tax credits and how they fit in, we can make sure that we get this absolutely right at every stage. We know that there are important things to consider so that people do not suffer as a result of universal credit. We want to get this right, even as we do it.

We agreed on the £2.5 billion figure. That is our position. As we look at all these things, including the disregards, we see that we can realise better ways of doing them. It is a work in progress. That is how we are able to achieve these things, just as when we looked at them originally.

The right hon. Member for East Ham (Stephen Timms) has peppered us with freedom of information requests, which is exactly what an Opposition Member should do. However, it does him and the shadow Secretary of State ill to lecture us about releasing business cases. When they developed employment and support allowance, a system about as large and complicated as this one—I think that the right hon. Member for East Ham was a Minister in the Department at the time—at no stage, despite the request, did they ever release their business plan to us.

--- Later in debate ---

[Mr Duncan Smith]

The reality about marginal deduction rates, as I have just said, is that the massive majority of the money that we are investing will go to those in the lowest income groups, which has to benefit them. People who would otherwise not enter work because of the margins will now find that it is beneficial to do so. Despite what the hon. Lady and the right hon. Member for Birmingham, Hodge Hill, have said about marginal deduction rates, the median increase will be just about 4%. The truth is that there will be a massive improvement in the marginal deduction rate for vast numbers of households. As I said earlier, half a million people who struggled under the previous Government’s complicated taxes had marginal deduction rates of well over 80%. That will not happen under universal credit, which is a critical point.

[Mr Byrne]

rose—

[Mr Duncan Smith]

I am going to make some progress, and I will pick up on some of the points that have been made as I go through my speech. If the right hon. Gentleman will bear with me, I will certainly give way to him later.

I turn to the delivery of universal credit. As I said earlier, its implementation is on time and on budget. Of course, the process is challenging, and I have never said anything else. The right hon. Member for East Ham knows that I have a huge amount of time for him and believe that he was an effective Minister. When we have discussed universal credit I have always told him that all our programmes have challenges and risks to them, but the job of Ministers and our officials is to manage that risk. Life has risks, and we deal with them and manage them. The universal credit programme is challenging, but we are investing £2 billion—I say again to the right hon. Member for Birmingham, Hodge Hill, that the figure is £2 billion—to get the infrastructure and IT systems right.

[Mr Byrne]

But the Secretary of State must have seen the parliamentary answers that his ministerial colleagues have provided stating that the implementation costs for parts of the programme are now running at £103 million, £391 million, £600 million and £1 billion. By my maths, that adds up to £2.1 billion, which is £100 million more than the budget that he has set out. Is the programme on budget or over budget?

[Mr Duncan Smith]

I am never keen to rely on the right hon. Gentleman’s maths—that is what ran us into trouble in the first place. Maybe this is a confessional now, and I will take that as a confession from him. All I can say to him is that we are investing £2 billion, but I will drop him a note about any detail that he is concerned about.

As I said earlier, we are making progress. We completed our first testing stages in August and have already held two open sessions with MPs, peers and the media and intend to hold many more. We will demonstrate the IT front-end systems next week and will do so again afterwards for many hon. Members.