Welfare Benefits Up-rating Bill

Lord Bates Excerpts

Tuesday 19th March 2013 Lords Chamber

[Lord German]

My Lords, in his speech moving the amendment, the noble Lord, Lord McKenzie, made it perfectly clear that it would break the Government’s policy proposal. There was no indication given of how much the benefit bill should rise, though the noble Lord, Lord McKenzie, indicated his preference. However, that is not what is in front of the House. If the amendment were to be passed there would be no proposal as to how much it should rise: 0.5%, 1.5%, 2%, 3% or whatever. Neither does the amendment offer any solutions: it does not offer any ameliorations, it does not seek any exemptions. However, Her Majesty’s Opposition say no to a 1% cap on working-age benefits, yet support a 1% cap on public sector workers’ pay. It is quite strange. I sometimes wonder whether we are living in a parallel universe where the economy is healthy, where there have not been any fundamental economic shocks and where Cypriots can get all their money out of their banks.

However, it is not like that and the Bill is not set in the sort of financial vacuum that some Members seem to think it is. I accept that borrowing is higher than it ought to be, though I wish it were less. I know that we have had to borrow in order to maintain the essence of our welfare state and I agree that growth is critical. However, in these tough times the Government have to take difficult decisions. These decisions are, no doubt, uncomfortable but it could have been worse. As I said at Second Reading, there were lots of things on the table for discussion which could have made this a much tougher prospect for us. As it stands, this is our biggest budget—the budget where we spend £1 in every £4 of government money—and, despite all previous efforts, it is still growing as a proportion of total government spend. Therefore, no matter what we may think, this budget has to make its contribution to helping to put our finances back on a sound footing.

Yesterday, there was a debate in the Moses Room in which the Government proposed a £2.545 billion reduction in the overall welfare spend for 2013-14. Her Majesty’s Opposition rejected this as “vicious” and “contemptible”. Today, we have before us in this Bill a budget proposal of £3.7 billion for the two years following, and that is also rejected by Her Majesty’s Opposition. Therefore, £6.245 billion of savings have been rejected in two days. Yesterday—I have not heard it yet today—I heard a vague assertion about tax avoidance, but it is my understanding that this Government are spending far more on tax avoidance than the previous Government did and putting far more effort into it. When she replies, perhaps the Minister can tell us how much success the Government have had compared with the previous Government.

However, we are talking about £6.245 billion of savings and, in return, the Opposition are offering a tax rise. I refer to the issue of the 50% or 45% rate, which at Second Reading the Minister stated the OBR said would raise £100 million. If you slice that £100 million per annum off the total in cuts which have been rejected over the past two days, that means that there is still £6 billion to find, just to round up the figures. Therefore, we should reject these amendments because they offer no solutions beyond borrowing even more, raising taxes significantly or making deep cuts elsewhere in government expenditure, putting the burden of raising the money to repay it on my children and grandchildren.

This Bill would, in the end, save more than £3 billion a year. In their final year, the previous Government were spending £4 for every £3 they raised from the people of this country in tax. In comparison, this Bill saves £3 billion, but that should be compared with the last year of the Labour Government, when they were borrowing £3 billion a week. This is not a comfortable position in which we find ourselves and I would prefer it not to be happening. I share the aspiration for growth and I want to see our country back on track again. However, as the International Monetary Fund said in its World Economic Outlook last October, Governments need to create the right conditions for growth. It said:

“To anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation”.

That is what the Bill proposes today and that is what the amendment just does not do. As we cannot get an answer to whether higher taxes, lower spending or borrowing alternatives—or a combination of the three—is being proposed, I have no hesitation whatever in recommending to my noble friends on the Liberal Democrat Benches that these amendments, should the Opposition put them to a vote, should be rejected.

[Lord Bates]

My Lords, the noble Lord, Lord German, referred to the Opposition’s support for the cap on salary increases at 1%. I rise because I came across an interview that the shadow Chancellor, Ed Balls, gave when that policy was announced. This policy will impact on people with a salary above £21,000, below the benefit cap. When pressed on the “Today” programme about how he could justify limiting salary increases in the public sector to 1%, he said:

“And if people expect the Labour Party to say ‘We’ll just oppose’, we can’t do that. [It] would be irresponsible because the priority has got to be getting people into jobs rather than people being paid more”.

That is quite an interesting statement for the shadow Chancellor to make because, in my view, it very much reflects the purpose of this Bill and this amendment.

I do not think that my noble friends on the Front Bench have made life easy for themselves by making this a stand-alone Bill. It certainly should not be viewed that way. It needs to be viewed in the context of the introduction of universal credit, which will bring about benefits of £168 a month to 3 million families. That, because of the wage incentives and the attractiveness of work, will lead to an estimated 300,000 more people finding their way into employment. We need to be very clear that, in all of these measures, whether it be raising tax thresholds, universal credit or this Bill today, we are saying that the best route out of poverty is undoubtedly work.

The scale of the challenge we have in doing that is quite immense. Prior to the recession, unemployment in this country was around 1.62 million. It rose very sharply and when the party opposite left office the rate was 2.49 million. It continued on a trajectory up to 2.68 million. However, it has started to fall and has been coming down quite steadily for a few months and is now down to 2.5 million. The figures show that there are 1 million extra private sector jobs, and that is to be welcomed. Benefit changes that encourage growth and help people find their way into employment are surely things we ought to support.

It would also be nice to ask some of those who supported this amendment where they were last year when benefits were increased by 5.2% and salaries for the lowest paid went up by 1.7%. Where were their voices then? What is so compassionate about paying child benefit to people earning more than £50,000 or letting people earning up to £70,000 receive tax credits? We need to change the configuration so it is always in the interests of people to work and then we need to work to ensure that the jobs are there.

How do we create the jobs for that to happen? Clearly we need to get public spending under control so we can raise tax thresholds for individual workers and reduce corporation tax thresholds. We know that that creates employment the world over. That is why unemployment in this country is falling while in so many other countries it is rising. I understand the points that have been made quite seriously and the concerns that have been raised, but they are looking at this in isolation and, placed in context, this is undoubtedly a measure that in the years to come will reduce the levels of poverty in this country.

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[Lord Forsyth of Drumlean]

My Lords, I am grateful to the noble Lord, Lord Griffiths of Burry Port. I did not think that he was a bishop and I was addressing my remarks to the Bishops’ Bench, but I say to him that the burden of tax has gone up substantially, and the reductions in government expenditure have so far been quite limited. We are discussing not a cut in government expenditure but limiting the increase in government expenditure to 1%.

I have had several goes at persuading the right reverend Prelate to indicate where the money for his proposal might come from. One possibility might be for people to put wages up. If the Church of England were to put up its clergy’s wages, less would be claimed in benefits and more would be available for others, but that is not a practical proposition for the church because the church, like the Government, is faced with a financial crisis and has to live within its means. What is good for the church is good for the Government and is good for particular families.

The most irresponsible part of the arguments that have come from the Bishops’ Bench this afternoon is about what happens if inflation is allowed to let rip. I fear that that may be about to happen as we continue to print money and borrow. As the noble Lord, Lord McKenzie, pointed out, we are borrowing far more than we planned to meet our commitments and to be fair to the most vulnerable. What happens when inflation takes off? I remember the 1970s, when inflation was running at very high levels, at 20% and more, and interest rates were at 15% and more. Who suffered? Children, the poorest and families suffered. There is nothing Governments can do to protect them once inflation takes off.

We do not want to go back to that kind of society. It tried to cope with inflation by protecting people through indexation, but it was unable to keep up with it and the result was, as the then Labour Prime Minister put it so eloquently:

“Inflation is the father and mother of unemployment”.

Jim Callaghan said:

“We used to think that you could spend your way out of a recession, and now we know that you cannot”.

Those words were said as the Labour Government left in 1979, leaving another Tory Government to clean up the mess, just as we are doing now.

The right reverend Prelate’s amendment of course carries great emotional impact. We would all like to see working families with children have a higher standard of living, but the way to do that is to create the wealth that enables us to support those families and enables them to get the levels of income and employment that they need. You do not do it by shaving the edges of the currency, allowing inflation to take off and committing those families’ children as adults to a debt burden that, frankly, will be impossible to pay off. They would be paying the interest for the rest of their lives, and that would disadvantage their children. In rejecting this amendment, as I hope she will, my noble friend is speaking not just for our children but for our grandchildren, who are entitled to expect responsible government in these straitened times.

[Lord Bates]

My Lords, I support what my noble friend Lord Forsyth said. When the right reverend Prelate comes to respond to the debate, I would be grateful if he would comment on the following point. He made great play, and I do not underestimate this, of the effect and impact of limiting the uprating of child benefit and child benefits generally to 1%. According to Appendix 3 of the helpful Library note on the Bill, regarding the child tax credit element, in 2011-12 the child element of child tax credit increased by 11.1%, a significant sum. That followed significant increases of 13% in 2008-09 and 12.5% in 2004-05. If one is to argue that limiting that increase now to 1% would have a significant effect, if you take it as a snapshot, that may be the case, but if one looks over time, one has to factor in those significantly higher-than-inflation increases that have occurred in the child tax credit element in the past.

One of the problems with trading figures with regard to child poverty is that you get some curious results. One of the most notable is that in 2010 there were 300,000 fewer people in poverty because the recession had caused the median income to drop—in other words, children were said to have been pulled out of poverty not because anything had changed in their lives but because the rest of society had got poorer. We have to be clear about what we are arguing for when we talk about the interests of children, which of course should be paramount.

I turn again to a theme in the debate on the previous amendment: one cannot just take this in isolation. One needs to look at what the Prime Minister has announced today on childcare, for example, which will make a significant difference to people by enabling them to move into employment. One needs to look at the pupil premium or the raising of tax thresholds, which means that someone on the minimum wage has seen their tax bill halved under this Government. One has to look at these things in the round. Unlike the Opposition, we have ring-fenced the budget for the National Health Service, on which people significantly depend. Again, in the round, we need to get this absolutely correct.

I will react to the charge that somehow there is an easy pot at the other end of the income scale to be tapped into. As a result of this Government’s actions, the richest pay more tax on capital gains, more stamp duty on their homes and more tax on their pensions and are less able to evade tax than was the case before. These factors need to be borne in mind in the broad reach of these changes that I know when taken in cold, clinical isolation, one year at a time, without reference to trends over time, may allow one to draw one conclusion but should be placed in the proper context. I seem to recall from my youth the good theological concept of placing individual verses in context in order to understand their meaning, and one might think it was a good idea to place this one measure in the broader context in order to understand what the Government are doing to bring people out of child poverty, which we accept is significant. Other measures, such as limiting the proposed increases in fuel duty—another factor that has a big impact on the poorest in society, particularly those with families—and caps on rail fares and on council tax, all seek to address the issues.

We also need to recognise that child poverty has a wider set of causes than cash payment alone, and in many ways, we are focusing here on cash payment on its own. We need to place in context the fact that the children’s opportunities and their likelihood of being in poverty are affected primarily by the extent to which they live in a workless household. Therefore, all our efforts to get people into work should be welcome.

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[Lord Forsyth of Drumlean]

I have the highest regard and respect for the noble Baroness, Lady Hollis. She knows more about social security and understands the issues better than anyone else. I wish that she was on the Front Bench. If she was, she would be putting forward alternative proposals that might be more attractive and meet some of the points that are being considered, but she is not on the Front Bench and there are no alternative proposals.

We have to contain public expenditure not to within our means, because we are spending more than our means; the noble Lord, Lord McKenzie, pointed out that the Government are already borrowing and spending £200 billion more than was planned. I am simply arguing that if we continue like this the pound will continue to sink. The cost of energy, which, as the noble Lord, Lord Kirkwood pointed out, is a major cost for families, will go up. He supports windmills and other forms of energy generation that are the most expensive known to the planet and which are put on people’s bills without their knowledge as a tax and add to the pressure on these families. That is another example of where, if he is worried about poor households, he should abandon his attachment to windmills and other things that are raising energy costs and adding to inflation. The name of the game is to contain inflation by not having daft policies such as windmills and other energy policies. It is to act in a responsible way so that people will not decide that they do not wish to buy government debt, which is already a problem, and will not result in further pressure on the exchange rates.

I am sympathetic to the points that the noble Lord, Lord Kirkwood, has made and with which the noble Baronesses, Lady Morgan and Lady Masham, are concerned in respect of the people who are affected. The problem is that the remedy that they propose would make things much worse. It is not a good place to be. We would prefer not to have started from here, but it was Mr Gordon Brown who put us in this position, ably assisted by the noble Baroness, and we must sort this mess out. Clever as it is, this amendment is a smart attempt to get round the basic purpose of the Bill, which is fundamental to protecting people on low incomes.

[Lord Bates]

I support the noble Lord, Lord Forsyth, but I want to go one step further. He has dealt incredibly effectively with the measured arguments put forward by my noble friend Lord Kirkwood in Amendment 9, but it does not quite hit the interesting amendment in the names of the noble Baronesses, Lady Morgan and Lady Masham. I want to make a couple of points drawn from the Office for Budget Responsibility report looking at this Bill and the impact assessment.

Front and foremost are two things. The first is the control of inflation and the second is the creation of employment. They will help the poor more than anything else. If we fail to tackle the debt, the cost of borrowing will rise, as my noble friend Lord Forsyth has said. If the cost of borrowing rises, inflation will rise on the back of it. Therefore it follows that tackling the deficit is the best thing that can be done to help the poor. In table 2 on page 6 of its forecast, the OBR estimates that inflation will be: 2.6% in 2013-14; 2.2% in 2014-15; 2% in 2015-16; and 2% in 2016-17 and thereafter. It is clearly assessing that the culmination of the effect of these and other measures being taken is to move us towards a situation in which inflation is on a steadily downward course. That is the OBR’s assessment, which was used as the basis of the 2012 Autumn Budget Statement. As noble Lords have said, we will find out tomorrow where we stand vis-à-vis that.

Other elements need to be taken into account. We have the Low Pay Commission’s report coming up shortly. The Low Pay Commission provides a report that influences the minimum wage. The report was submitted at the end of February. I do not know whether my noble friends on the Front Bench have had sight of that recommendation, but it, too, provides a lock. Despite in previous incarnations being against the minimum wage, the Government have said that they support the minimum wage and have always accepted the recommendations of the Low Pay Commission to increase income as a result. Taking that together with the changes to universal credit that are deemed to be providing additional benefits to people estimated at £168 a month for 3 million families and the likely increase in tax thresholds and their impact on the salaries and incomes of the poorest in our society, it seems fair and reasonable, as the noble Baronesses, Lady Morgan and Lady Masham, have suggested, periodically to undertake a review. Post-implementation reviews normally take place three to five years after implementation.

We are talking about some of the most vulnerable. I believe that the position affecting the poorest in our society will not be as great as some people anticipate and that the situation with the combination of policies that I have outlined will lead to an increase, but as we are not having the annual uprating review, some periodic review of how this is working against projections of inflation and of the impact on the poorest in society would be sensible. I encourage my noble friends on the Front Bench to support it if possible. Should such a review take place, it should not need focus on the one narrow measure that has been the theme of this debate but should assess the wider impact on the poorest in society, taking into account the other measures—the pupil premium, NHS, the lid on fuel increases, the increase in personal allowances, the increase in the national minimum wage et cetera—which we are talking about. With that, I support the noble Baroness, but I am afraid not my noble friend Lord Kirkwood.