Income Equality and Sustainability

Lord Agnew of Oulton Excerpts

Wednesday 6th May 2020 Lords Chamber

[The Minister of State, Cabinet Office and the Treasury (Lord Agnew of Oulton) (Con)]

My Lords, I begin by congratulating the most reverend Primate the Archbishop of York on his valedictory speech in this House. I echo the many tributes to him that we have heard today. We thank him for 15 years of service as the Archbishop of York and recognise his valuable work across his career, speaking out against authoritarian regimes and championing diversity, the environment and a range of social causes. I know noble Lords will join me in wishing him a very happy and well-earned retirement from his office. I draw particular attention to his work as chair of the Living Wage Commission, where he has rightly championed the need to end low pay, an ambition this Government share. In this role, in his career and today in this House, the most reverend Primate has chosen to highlight the important issue of inequality in our society.

Because of the limited time available and the large number of speakers, I may not be able to address each individual’s points, but I hope to cover the bulk of the issues. I shall begin with income inequality, the main subject of the debate. The Government take inequality very seriously. We are committed to improving the living standards of all in our society. I am pleased to report that in the latest data available, income inequality was lower than it was in 2010. However, it is striking how little overall inequality has changed over the past 20 years, given the efforts of all Governments—Conservative, Labour and coalition. This shows just what a challenge it is to shift. Furthermore, it is important to acknowledge that, whatever the overall statistics on inequality tell us, as noble Lords have highlighted, there are clearly groups in our society struggling to make ends meet.

It is right to consider how government policy as a whole impacts upon people’s lives and incomes. While the world has changed dramatically since the Spring Budget, Treasury modelling published at that time demonstrated that this Government are supporting the poorest in our society, showing that the poorest 60% of households receive more in public spending than they contribute in tax. For pensioners, the absolute poverty rate has fallen since 2010. It is also right that those with the broadest shoulders in society take their fair share of the burden. The top 1% of taxpayers are estimated to have paid over 29% of all income tax in 2018-19. Their contribution has increased since 2010-11, when it was 25% of the overall burden. I respectfully point out to noble Lords that the money has to come from somewhere, and they are doing their bit.

We know that work is key to improving people’s living standards and quality of life, providing more than just financial rewards—a sense of social glue, connection, well-being and aspiration. The Government have a strong track record on work, with the statistics for the three months to February 2020 showing a record high employment rate. Of course, we have seen significant events unfold since February, and I will turn shortly to the action the Government have taken to protect jobs in recent months. I reassure the most reverend Primate that work continues, and we have set an ambitious target for the national living wage, building on the progress so far. Supported by the national living wage, the lowest paid, defined here as full-time workers in the fifth percentile, saw their wages grow by 11% above inflation between April 2015 and April 2019. This is higher than at any point across the earnings distribution.

The Government have also confirmed an ambitious target for the national living wage to reach two-thirds of median earnings by 2024, if economic conditions allow. Since the national living wage was introduced in 2016, it has delivered the fastest pay rise for the lowest paid in 20 years. I accept that this may not go far enough for some noble Lords—the noble Lord, Lord Boateng and the right reverend Prelate the Bishop of Durham—who would like to see a universal basic income, but I believe that this is solid progress.

For those who need it, the welfare system provides a strong safety net. Before the current response to Covid-19, the Government were continuing to spend more than £220 billion on the benefits system, including an additional £1.7 billion a year on universal credit, increasing by £1,000 the amount that 2.4 million households could earn each year before their universal credit begins to be tapered.

Coronavirus has been one of the biggest crises that this country has faced in 80 years. The latest figures show that over 29,000 people have tragically died in the UK. At this time, the Government are rightly focused on saving lives. Our science-led action plan aims to slow the spread of coronavirus so that fewer people need hospital treatment at any one time, protecting the NHS’s ability to cope. That is why the Government have announced unprecedented support for public services, individuals and businesses to protect against the current economic emergency. We will protect, as far as possible, people’s jobs and incomes. In 2018-19, income inequality was lower than in 2009-10. In 2020-21, households in the lowest income decile will receive more than £4 in public spending for every £1 they pay in tax.

We are ensuring that the public sector has the funds it needs. The coronavirus emergency response fund will provide more than £14 billion to public services, including the NHS and local authorities. This builds on the £5 billion fund announced at the Budget and includes nearly £2 billion for the devolved Administrations. On top of this, we have announced a package to help individuals affected by the crisis. This includes the Coronavirus Job Retention Scheme to help firms keep millions of people in employment. As at 3 May, 800,000 employers had claimed £8 billion to help protect 6.3 million furloughed jobs. To support those on low incomes through the outbreak, we have also announced a package of temporary welfare measures. This includes a £20 per week increase to the universal credit standard allowance and working tax credit basic element. We have increased the local housing allowance rate so that it covers the cheapest third of all local rents, and we have extended statutory sick pay to self-isolators and those in their households.

We know that, for some, this period will be more difficult than for others. We are making every effort to ensure that the most vulnerable are protected. Our shielding package is in place to safeguard over 2 million people in England with the most serious under- lying health conditions. To answer my noble friend Lord Caithness, we have provided assistance to some 325,000 people, who have received predominantly food supplies in the last seven days. On the broader question of whether a trade deal will reduce the quality of food coming into this country, there has to be a balance between keeping food affordable for people such as those mentioned by the noble Baroness, Lady Boycott, to ensure that they are able to eat healthily, while not undermining in any way the quality of the food we eat.

We have worked with local authorities and homelessness charities to offer safe accommodation to over 90% of rough sleepers, either on the streets or in communal shelters, who were known to local authorities at the start of this crisis. In addition to the wider package of support for English local authorities, we have provided £3.2 million specifically to meet the cost of accommodating rough sleepers with Covid-19 who needed to self-isolate. This is on top of the £492 million already committed to address homelessness and rough sleeping in 2020-21. Public Health England has also published guidance for those working in hostels and day centres. We absolutely understand that local authorities are under considerable pressure, both to continue providing essential services and to respond to the challenges of Covid-19 during these difficult times. This is why we have provided an additional £3.2 billion for local authorities, as well as further measures to aid their cash flow.

Now, more than ever, charities and those who work and volunteer for them are providing essential services to support the most vulnerable. We are supporting them with a £750 million package, including funding for hospices, St John Ambulance, Citizens Advice and charities supporting vulnerable children, victims of domestic abuse and disabled people. As well as this, the Government have pledged to match whatever the public donate to the BBC’s “Big Night In” campaign with the same amount to support further charities.

I will now try to pick up on the individual points raised by noble Lords. To save time, I will not mention everyone by name. A number of noble Lords asked about furlough extensions. I can confirm that the Chancellor has made it clear that there will be no cliff edge to the job retention scheme. The Government are working at pace to come up with the most effective way to wind down the scheme and ease people back into work in a measured way. We will ensure that the approach is coherent, with any necessary non-pharmaceutical interventions to protect public health, while considering the status of the economy, the scheme’s affordability and the need for certainty for employers and employees.

A number of noble Lords asked about rents and protection for tenants, particularly vulnerable ones. The Coronavirus Act required that landlords would be unable to start proceedings to evict tenants for at least a three-month period. We have targeted support at lower-income households to provide financial support to pay rent. Universal credit provides support for housing costs; we have increased the amount available to ensure that the lowest third of local rents will be covered in full.

The noble Lord, Lord Young, asked about the longer term and restoring a fiscal balance to the economy. As he will know, we have spent the last 10 years bringing borrowing and debt under control. This has ensured that our finances were well placed to deal with some of this crisis. We expect the spike in borrowing to be temporary; under the OBR scenario, borrowing is expected to fall back reasonably quickly in 2021-22 as temporary policy costs end and the economy starts to recover. By the end of the scenario horizon, the OBR expects borrowing to have returned to close to the Budget forecast.

The Government are currently considering options to fund social care, which would consider the financial impact on taxpayers as a whole, along with competing demands on taxpayers’ money from other public services and how to fund reform on a sustainable balance. All views, solutions and concerns are being considered as part of that process; we are absolutely looking at the longer term.

The most reverend Primate asked about the real living wage. As I have mentioned, low-paid workers will benefit from the April 2020 increase in the national living wage. That represents an increase of over £930 for the annual earnings of a full-time worker on the national living wage, equivalent to a total increase in annual earnings of more than £3,600 since its introduction in April 2016. The Government have also confirmed their target to push on, as I mentioned earlier, to reach two-thirds of median earnings by 2024 as long as economic conditions are secure. The Government are responsible for setting the legal minimum wage floors, which protect vulnerable low-paid workers. We commend employers who pay more when they can afford to do so. The Living Wage Foundation is clear that its measure is voluntary.

Regarding pay rises for key workers, they deserve to be properly rewarded for the work that they do. Last July the Government delivered a second year of above-inflation pay rises for almost 1 million public sector workers, in addition to the previously agreed multiyear pay deal for NHS non-medical staff, including nurses. More than 1 million NHS workers continue to benefit from the three-year “Agenda for change” pay deal. The reforms will see the starting salary for a newly qualified nurse rise to £24,900 in 2020-21, 12.5% higher than in 2017-18. The Government have also agreed temporary pay and pension packages for a number of public sector workforces, including the NHS, to increase system capacity and recognise their work tackling the Covid-19 outbreak.

We are determined to do everything we can to ensure that our social care workforce is safe, supported and truly valued. Supporting our workforce is one of the four pillars of our core action plan, published on 15 April. In March we provided local authorities with £1.6 billion of emergency funding which could be used to pay for additional costs we knew the sector would face. In April we announced a further £1.6 billion of emergency funding for local authorities.

A number of noble Lords raised universal basic income—UBI. There are, of course, fundamental problems with the realities of UBI. A flat rate of UBI would not take into account people’s circumstances and the additional needs and costs faced by some individuals. Therefore, it would not target support where it was most needed. The Government have therefore announced alternative measures to support people’s jobs and incomes, which can be delivered relatively quickly and effectively through existing benefits. At a time when the DWP and HMRC are experiencing unprecedented demand, the Government have to prioritise the safety and stability of the existing benefit and tax system.

The noble Baroness, Lady Warwick, raised sustainable public housing. The only way to stabilise and improve affordability over the long term is to build more houses in the right places. That is why this Government are committed to building at least 1 million more homes by the end of this Parliament, continuing the progress towards our target of delivering 300,000 additional homes a year, on average, by the mid-2020s. More than 241,000 additional homes were delivered in 2018-19, the highest level in the last 32 years, representing a 66% increase since 2009-10. Since 2010 we have increased housing supply by more than 1.5 million, including 460,000 affordable homes. We have helped more than 600,000 additional households purchase a home since spring 2010 through government-backed schemes, including Help to Buy and the right to buy.

Noble Lords raised free school meals. The Government are committed to ensuring that children who receive free school meals do not miss out. We have asked schools to work with their existing catering providers to continue to offer free school meals. Demand has been extremely high, but they are reaching families and we continue to work with our suppliers to improve the service. We thank schools, which we know are doing their best for parents and children while the system is upgraded. It is also worth pointing out that while we considered initially that a 20% occupancy of schools would be safe and reasonable during the crisis, we are seeing less than 2%, so there is the opportunity for more children to be in school, particularly children who are vulnerable, who were considered a priority area, along with the children of key workers, at the time.

Noble Lords raised child poverty and benefits. The Government’s official statistics on poverty for 2018-19 show that there was little change in overarching poverty rates between 2017-18 and 2018-19. Child poverty rates fell before housing costs, and the relative child poverty rate reduced by 2 percentage points and the absolute rate by 1 percentage point. Since 2010 there are 100,000 fewer children living in absolute poverty and the absolute child poverty rate has fallen by 2%.

On progressive taxation, as I said earlier, the top 1% of taxpayers are estimated to have paid over 29% of income tax in 2018-19. The poorest 60% of households receive more in public spending than they contribute in tax. The Government have already taken steps to ensure that those with the broadest shoulders bear the greatest burden, including reforming dividend taxation, reducing the amount of tax relief on pension savings that an individual can accumulate over their lifetime, and ending permanent non-domiciled status.

Between 2010 and 2015 we took 4 million people out of income tax altogether. Around 1.7 million people have been taken out of tax between 2015-16 and 2019-20. We cannot add those two figures together because one uses the RPI and the other the CPI, but it gives an indication of the work we have done and the priority we have focused on some of the lowest paid. The income tax personal allowance was £6,475 in 2010-11. That is rising to £12,500 in 2021. The basic rate—the lowest rate of income tax—was 20% in 2010 and has remained stable but it is now applying to fewer people.

A number of noble Lords raised the issue of the environment. The Government continue to take our environmental responsibilities very seriously and are committed to meeting climate change and wider environmental targets. The Budget reinforced the UK’s strong track record in this area. Announcements included £640 million for tree planting and peatland restoration, over £1 billion for further support for ultra-low emission vehicles, at least doubling funding for energy innovation and tax measures to encourage greater energy efficiency and reduce plastic waste.

The most reverend Primate the Archbishop of Canterbury asked about support for migrants. We are facing a rapidly evolving and unprecedented global health emergency and the Government are committed to doing whatever it takes to support people through this. We have announced a range of measures to ensure that people can stay safe and many of these are available to those with a no recourse to public funds condition, such as the Coronavirus Job Retention Scheme, the Self-employment Income Support Scheme, protections from eviction for renters and a mortgage holiday for those who need it. Statutory sick pay and some contributory-based benefits are not classed as public funds, so are also available to all. Local authorities may also provide basic safety net support if it is established that there is a genuine care need that does not arise solely from destitution, for example when there are community care needs.

I am running out of time, but what I have tried to illustrate is that we are making a lot of interventions to support people, in particular the most vulnerable in society. The range of contributions we have heard today demonstrates what a broad and complex issue this is. I have highlighted some of our actions. I will finish by thanking noble Lords for their contributions, and especially the most reverend Primate for securing this valuable debate. I am sure that noble Lords will join me in once again giving him our very best wishes ahead of his forthcoming retirement.