Taxation: Families

Lord Bates Excerpts

Thursday 17th January 2013 Lords Chamber

[Lord Bates]

My Lords, it is a privilege to speak in this debate and I congratulate the noble Baroness, Lady Hollis, on securing it. She has an acknowledged expertise and a well deserved reputation in this area. One of the things that has been most healthy about the political debate over the past 10 years is that sometimes the debate on this whole area of welfare reform had been taking place on the left of British politics. However, the work of my right honourable friend Iain Duncan Smith, Philippa Stroud and my noble friend Lord Freud, has started a debate about a compassionate view of how welfare reform could be undertaken on the right and centre-right of British politics. That informed level of debate is overwhelmingly healthy as we wrestle with these important issues.

My first point is that the 1% benefit increase limit is the result of a desperately difficult choice that the Government have had to make in light of the macroeconomic circumstances in which we find ourselves. Had we inherited the type of economic legacy that a Government coming into office in, say, 1997, would have had, there would be absolutely no question about having this debate or being forced into a position of having to consider the types of situations that I have absolutely no doubt will bring hardship to many of the most vulnerable and poorest people in our society. Nor do I deny the veracity of the statement made by my right honourable friend the Secretary of State for Work and Pensions in the foreword to his, State of the Nation Report: Worklessness and Welfare Dependency in the UK. He said:

“Addressing poverty and inequality in Britain is at the heart of our agenda for government. It is unacceptable that, in one of the wealthiest nations in the world, millions of adults and children are living in poverty. Whole communities are existing at the margins of society, trapped in dependency and unable to progress. In these areas, aspiration and social mobility disappear, leaving disadvantaged children to become disadvantaged adults”.

That was a clear and true statement of where this Government are going. It is evidenced by one or two things.

Mention has been made by my noble friend Lord German of the macroeconomic situation. That is what is driving this review and rethinking. It is not possible for the Opposition to say with credibility that this measure is absolutely wrong when we know that welfare accounts for roughly £1 in every £3, or a third, of revenue raised. They claim that they have a credible plan for reducing borrowing and yet cannot say what they would do to reduce that level of borrowing. The noble Baroness, Lady Sherlock, is chipping in. I greatly respect her and I welcome her to her position on the Front Bench. I hope that when she responds she can give us an insight as to where in the Opposition’s view the fair way would be to apply savings to the welfare budget. We would all be interested to hear that. The veracity of the argument presented would be much stronger if those points were put forward.

It was with a great sense of irony that the current work and pensions spokesman in the other place, Liam Byrne, famously left a note on his desk in 2010, saying, “Sorry, I am afraid to say that there is nothing left”. That may well be the case. If you have nothing left, you have to make very tough choices about where savings have to be made.

There is another view that I want to challenge and that is that somehow these changes are being made in a capricious and arbitrary rather than considered way. There is no room in a society in what is one of the wealthiest nations on earth for there ever to be that type of charge levelled against a civilised government; it does not stack up. The reason is that pensions are exempt from these changes. Those pensions will be increased in line with inflation, taking the single person’s state pension to about £110 per week, which is up from about £97. We inherited that. That was a clear statement of intent. Mention has been made of carers and the importance of people who look after children, or elderly relatives. The announcement last week that there is going to be a reduction of a flat-rate state pension, at about £144 per week, is tremendously good news for those people. It is based on the principle that if people can work, they should work. In the past it has not always been the case, but it is a clear-cut choice.

A charity that I work with in the north-east of England deals with young, hard-to-reach, unemployed people. People make a calculation about benefit entitlement and whether employment will pay. Benefits may be well meant but on the matter of the cap on benefits, coming in at about £26,000 for a couple, that would require them to have an income in the region of £45,000 to be able to exist without those benefits. If that does not create dependency, I do not know what does. To say to somebody with no qualifications whatever that they ought to be able to seek a job at the level of deputy head teacher is clearly nonsense.

We must be careful about how we go about this and in saying that we do not want to create dependency. We must always make sure that work pays. That is where universal credit comes in. That says that no matter what the salary of the job that you are taking is, with a straight-line taper of 65p in the pound, you will always be better off when you work. That is a basic principle and seems to me to be good. Work is the best route out of poverty. What is most difficult in the charity is for people to get their first employment on their CV. Once they have a job they can more easily find another one and progress out of poverty. Education is a key to that and that is why education reforms are key to our drive to reduce to child poverty. These general steps can be widely welcomed.

There is room for further work to be done. This is an ongoing debate. We understand the difficult choices that have to be made, the challenges in the market and the importance of raising tax thresholds. That is another important element in making work attractive, particularly at the lowest levels—not so that people stay there but that they progress from there. Page 13, table 2A of a helpful briefing for this debate from the Institute of Fiscal Studies and provided by the Library looks at average earnings growth. Reference has been made to the historic figures, so I will not repeat them. The institute forecasts that average earnings will increase by 2% in 2012, by 3.1% in 2013, by 4.3% in 2014 and by 4.5% in 2015. That tells us that you need to make every possible effort to ensure that people get into work in order to benefit from those increases.

I leave two final thoughts for my noble friend to ponder. First, I endorse what my noble friend Lady Jenkin and the right reverend Prelate have said about recognising the importance of marriage in the tax system through a system of transferable allowances. Secondly, I remember having debates about the minimum wage. I argued vigorously that it would never work. I was absolutely wrong. The minimum wage does work. It is a very important safeguard in our society that people have a basic wage. The fact that we accept the Low Pay Commission’s increase of 1.8% is also right. When winding up, would my noble friend consider the argument that in reducing welfare dependency we need to move progressively from a minimum wage towards a living wage?