Welfare Reform and Work Bill

Lord Freud Excerpts

Tuesday 17th November 2015 Lords Chamber

Moved by

[Lord Freud]

That the Bill be now read a second time.

[The Minister of State, Department for Work and Pensions (Lord Freud) (Con)]

My Lords, this Bill will ensure that the welfare system is put on a sustainable footing, while continuing to support the most vulnerable. It will ensure that work always pays and it will restore fairness in the system.

It is important to remember that this Bill forms part of a broad package of reforms, which includes the introduction of the national living wage, increases to the personal tax allowance and an enhanced childcare offer. Our welfare reforms are focused on transforming lives by supporting people to find and keep work. There is a focus on employment, fairness and affordability, while supporting the most vulnerable.

We have already made some key achievements over the last Parliament: 2 million more jobs have been created; there are 2.3 million apprenticeships; the number of workless households has reached a record low, down nearly 700,000 since 2010; and there are 800,000 fewer people with relative low income. Perhaps most importantly, these achievements came during a Parliament in which welfare spending increased by the lowest rate since the creation of the modern welfare state. But we still have work to do.

We will continue to bear down on the deficit and debt, achieving a surplus by the end of the Parliament. We spend £3 billion on government debt interest payments alone every month: that is £33 billion a year or £1,230 per household. Every pound we spend on paying off the debt is a pound we are paying to others, such as overseas investment funds, rather than spending on public services such as schools and hospitals. We need to end the cycle of borrowing, which is burdening our children with an ever-increasing debt. Eliminating the deficit and paying off our debts is the moral and most effective thing a responsible Government can do for people on low incomes who rely on those services.

This is a Bill for working Britain, underpinned by three key principles: first, that work is the best route out of poverty, and being in work should always pay more than being on benefits; secondly, that spending on welfare has to be put on a more sustainable footing, but in a way that protects the most vulnerable; thirdly, that people on benefits should face the same choices as those in work and not on benefits.

In the past, we have seen that just throwing money at the problem is not the solution—it is much more complex than that. That is why we are bringing in changes to help support people back into work and drive real change in their lives, both now and in the future.

Everyone deserves to have the dignity of a job and the pride that comes with earning your own pay packet. We want to support everyone in society who can and wants to work, and that is why we are committed to progressing towards full employment.

We also need to make sure that today’s young people start off on the right track, with the skills and experience required to open up employment opportunities in the future. That is why we are committed to delivering 3 million more apprenticeships during the course of this Parliament. The measures in this Bill will help to drive these commitments by requiring us to report on each measure every year.

The £26,000 cap we established in 2013 has reintroduced fairness into the system. Most importantly, it has driven meaningful change in people’s lives. The cap has helped get people back into work. Capped households are over 40% more likely to go to work than similar uncapped households. More than 18,000 previously capped households have now moved into work.

The changes to the benefit cap in this Bill are underlined by three basic principles of fairness. First, the cap should be set at a level that ensures it continues to be fair and to provide the right incentives for people to move into work. Secondly, this measure ensures that the cap better reflects the circumstances of working families around the UK. We know that around four in 10 households outside London earn less than £20,000, with the same proportion of households in London earning less than £23,000. Thirdly, welfare spending needs to be put on a sustainable footing.

Let me be clear: we will continue to provide protection and support for the most vulnerable. That is why exemptions will still apply, including those households entitled to DLA, PIP or Armed Forces PIP, industrial injuries benefit, the ESA support group component, and the limited capability for work-related activity component in UC; those moving into work who are entitled to working tax credit; and war widows and widowers. We have provided considerable additional support through discretionary housing payments for those claimants who need temporary financial assistance to adjust to the reforms. This additional funding will continue, and we are making £800 million available for discretionary housing payments over the next five years.

For too long now, this country has been dependent on unsustainable borrowing, with government debt repayments currently costing each household more than £1,200 every year. We simply cannot continue this way. It is not fair to keep borrowing and burdening future generations with even more debt. That is why we are committed to achieving a surplus by the end of the Parliament. During recent years, since the financial crisis began in 2008, benefits have been increasing at a greater rate than average earnings. Between 2008 and 2015, the minimum wage increased by 17%, whereas the main rates of most benefits, such as jobseeker’s allowance, have increased by 21%, and the individual element of child tax credits has increased by 33%.

The Bill will freeze working-age benefits for the next four years, helping to bring welfare spending under control. As part of our commitment to protecting the most vulnerable, benefits reflecting the additional costs of disability are excluded from the freeze. This includes PIP, DLA and the support group component of ESA. Pensioner benefits and statutory payments will also be excluded from the freeze.

During the last decade, growing evidence has shown that work can keep people healthy, as well as helping to promote recovery if someone falls ill. We are committed to ensuring that everyone who is able to has the opportunity to take advantage of the financial, social and health benefits which employment brings. However, perverse incentives in the benefits system and the lack of appropriate support can mean that some miss out. The work-related activity group component of ESA was never designed to help towards the additional costs of disability.

It is clear that the current system is failing claimants. Some 61% of WRAG claimants want to work but only 1% leave the benefit each month. People on ESA receive nearly £30 a week more than those on JSA, but receive far less support to move closer to the labour market and, when they are ready, into work. For new claims, the Bill will end this disparity between what people receive. Current claimants will not be affected, and new funding rising to £100 million a year in 2020-21 will be provided to help new claimants with limited capability for work to move closer to employment. A similar change will be made to the limited capability for work element of universal credit, ensuring that we provide the same level of support under the new system as we do through the current one. We are committed to ensuring that everyone who is able to has the opportunity to take advantage of the financial, social and health benefits which employment brings.

The Bill will also enable the Government to recover the expenses they incur for administrating benefit diversions to the Motability scheme. This is a purely administrative change which will not affect Motability’s users. The change involves less than £1 million a year and has the support of Motability, and I am sure that noble Lords would not wish such a minor issue to occupy too much of the Chamber’s time.

We also want to support parents claiming universal credit to get into and stay in work after having a child. We found out just last month that the number of children living in workless households is at a record low, down by 480,000 since 2010. That is really good progress and we want to build on it. The Government are introducing a far-reaching childcare offer. With universal credit, people will get up to 85% of their childcare costs paid from April 2016, up from 70% under the previous system. Working parents of three and four year-olds will receive an additional 15 hours of free childcare a week, while tax-free childcare will benefit up to 1.8 million working families. In line with that, we think that parents claiming universal credit should be required to look for work when their youngest child turns three, and to prepare for work when the youngest child turns two. In addition, the Bill will create a statutory duty to report on our progress supporting troubled families with multiple, highly complex problems. This will include how we have supported them to move closer to work.

We are also making provision to tackle social rents, which have increased by 20% since 2010. The Bill will reduce rents in social housing in England by 1% a year for four years from April 2016, protecting taxpayers from the rising costs of subsidising rents through housing benefit and protecting tenants from rising housing costs. This will reduce average rents for households in the social housing sector by around 12% by 2020 compared with current forecasts. It will also mean that people who are not on housing benefit and not subject to “pay to stay” will be better off by around £12 per week by 2019-20.

The Bill reforms the way support for mortgage interest will be paid in the future. The current system of providing benefit payments towards the cost of mortgage interest payments will be replaced by a system of interest-bearing loans which are secured against the claimant’s property. Loans will not be repayable until the home is sold. This change will ensure that claimants receive the same level of protection from repossession that they enjoy now, while providing a better and fairer deal for the taxpayer.

We are ensuring that people on benefits face the same choices as those in work and not on benefits. Families in work have to make careful choices about what lifestyle the money they earn can support, and what their income can provide for. People who receive child tax credit should make the same financial choices about having children as those who are supporting themselves through work. Therefore, from April 2017, the Bill will limit the child element of child tax credit to the first two children. A two-child limit will also apply in universal credit in relation to third or subsequent new children in the household, and to completely new claims. Again, we are ensuring that this change is fair, so it will not affect existing claimants at the point of change.

Finally, I turn to how we will tackle the root causes of child poverty and improve children’s life chances. We want to see substantial and sustained improvements in the life chances of our children. The past approach, enshrined in the Child Poverty Act, has focused on dealing with the symptoms of child poverty rather than addressing the root causes. It has incentivised Governments to move families a pound above the poverty line, not to help them transform their lives.

Evidence tells us that worklessness and educational attainment are the factors that have the biggest impact on child poverty and children’s life chances. We want legislation to focus government action where it can have the biggest impact. The Bill will provide a statutory basis for much-needed reform to drive real change to improve children’s life chances and tackle the root causes of child poverty.

The Bill will remove the existing measures and targets in the Child Poverty Act and introduce a new duty on the Secretary of State to report on worklessness and educational attainment. Alongside these statutory measures, we will develop indicators to measure progress against other root causes of child poverty, including family breakdown, addiction and problem debt. Our new approach will drive action which will make the biggest difference to the most disadvantaged children, both now and in the future.

This Bill is an important legislative step. It will ensure that the right support and incentives are in place, so that people are always better off in work rather than trapped on welfare, and it will protect the most vulnerable members of our society. We acknowledge that these are difficult decisions to make, but we think they are the right decisions. They are decisions that put work first, drive sustainable welfare spending and allow us to continue to protect the vulnerable and those most in need. I beg to move.

--- Later in debate ---

[Lord Freud]

My Lords, I was expecting some excellent contributions to this debate, and I was not disappointed. We have all been privileged to enjoy the quartet of maiden speeches this evening. I was particularly struck by my noble friend Lord Lansley saying that we need to add value in our measures of poverty. No one could mistake the passion with which my noble friend Lady Stroud has devoted her life to tackling the root causes of poverty. My noble friends Lord Lupton and Lord Polak concentrated on the importance of the troubled families programme. As my noble friend Lord Lupton said, we need to intervene, not just look at statistics. I also thought that we had a complete variety of styles from the four—you could not get a more varied set of contributions—and I look forward to many more contributions from my noble friends.

This Bill builds on the principles first introduced in the Welfare Reform Act 2012. In the past, Governments spent money in an attempt to solve problems rather than drive real change in people’s lives, and our approach is different: we believe that we should reward work and support aspiration, that we must have in place a fair, affordable and sustainable welfare system, along with the appropriate protections for the most vulnerable, and that we must relentlessly focus on tackling the root causes of child poverty to improve the life chances of our children. It is also worth remembering that the measures in the Bill must not be taken alone. We must also take into account the national living wage, increases in the personal tax allowance and the reforms of childcare, all of which will help to ensure that work pays.

Let me address some of the points that were made in the debate. There were quite a lot, and I will attempt to answer as many as possible. We will have a chance to go into them all in Committee. To help that process, I will, as the noble Lord, Lord Kirkwood, asked, make sure that we have the same process that we had with the Welfare Reform Bill. I will make briefing sessions available for noble Lords on the specific policy in good time, so that we have an informed process.

Let me begin with the first three clauses of the Bill: the statutory duties to report on full employment, apprenticeships and troubled families. The noble Lord, Lord McKenzie, asked why we are not setting the target for full employment there. We set out in our manifesto the aspiration for the UK to be the best place in the world to start a business, and to achieve the highest employment rate in the G7. Producing an annual report will illustrate our progress towards that goal.

The noble Baroness, Lady Donaghy, asked whether underemployment as a result of working part-time is contributing to low earnings. The figures show that 85% of people who are working part-time are doing so through choice. The number of vacancies are now pretty substantial—in excess of 700,000 at any one time. In answer to the question asked by the noble Baronesses, Lady Manzoor, Lady Doocey and Lady Hollis, full employment will allow support for those with disabilities. We have already found 450,000 people in the Work Programme sustained work. We need to continue to support individuals into work through successful programmes such as Access to Work, and to work with the health system to improve access to treatment.

Closing the disability gap and improving employers’ attitudes to disabled people is a theme that was picked up by the noble Baronesses, Lady Doocey, Lady Meacher, Lady Hollins, and Lady Grey-Thompson, and by the noble Lords, Lord Rix and Lord Young. Clearly, it is a challenging ambition and we are committed to it. We have extended Access to Work and launched specialist employability support. We continue to work with employers through our Disability Confident campaign, and announced funding of a further £100 million per year for additional practical support. Clearly, progress here is a key factor in achieving full employment and closing the gap.

The noble Lord, Lord Young, my noble friend Lord Blencathra and my noble friend Lady Stedman-Scott asked about the quality of apprenticeships. Improving quality has been central to our reforms, and employers are developing new standards to ensure that apprenticeships meet the skills needs of their sectors.

The Government ensure that small businesses are engaged in the development of those apprenticeship standards, and we have made significant progress in making them easier for small businesses to take on. In answer to the question of my noble friend Lord Hodgson, there are 40,000 people with disabilities or learning difficulties starting an apprenticeship. More clearly can be done. My noble friend Lady Eaton asked about care leavers. The Government provide full funding for apprenticeship training for entitled 19 to 23 year-old care leavers. They can also get access to programmes such as traineeships for the support they need to get ready for an apprenticeship.

I turn to life chances. We have made it clear that our focus is on the symptoms of child poverty—excuse me, the existing statutory targets focus on the symptoms of child poverty—and we have a new approach, the life chances one, focused on transforming lives through tackling the root causes of child poverty. Clause 4 therefore places a duty on the Secretary of State to report annually on the key life-chance measures of worklessness and educational attainment.

[Baroness Hollis of Heigham]

How is the Minister going to account for poverty among children of working families?

[Lord Freud]

The HBAI measures are still there. We will have all the measures that we normally have.

The noble Baronesses, Lady Hollis, Lady Sherlock and Lady Lister, were concerned about the impact of this on the Budget. Our reforms are designed to incentivise work and ensure that it always pays, and then to allow people to keep more of what they earn. The new life- chance measures will drive continued action on work and education, which will make the biggest differences to disadvantaged children now and in the future.

Numerous noble Lords argued that we should keep income-based measures and measure in-work poverty, as the noble Baroness has just reinforced. The existing statutory framework set around the four income-related targets is unfit for purpose. The framework does not drive the right action, so instead we will focus on the root causes such as worklessness and educational failure. The income measures led Governments to spend their finite resources on action that did not produce the best results for our children, and that is the reason for our new approach. As I just said, though, and in response to the noble Lord, Lord Kirkwood, we will still be publishing all the income measures and the HBAI report. I remind him that no other country in the world uses those measures as a target as opposed to a measure.

I am flattered by the vigorous quoting by the noble Lord, Lord McKenzie, from that small piece of work. I should point out that when I say there were some remarkable changes, there were no remarkable changes in the number of NEETs, which went up through the longest boom in history, nor in the amount of worklessness or social housing, which plateaued whether one was at the top or the bottom of the cycle, and I recommended a major effort to pull the disabled back into the labour market and into society. Of course some of the figures that I was so pleased with then fell straight off a cliff when we had a rather remarkable recession—probably the worst recession that this country has had since the 1920s. However, we took £60 billion out of the welfare bill over the last coalition Government, and up until the time for when we have the latest data, the relative measure of people in poverty had declined in that period by 800,000 people. So it is wise to use not people’s forecasts of income but what has actually happened.

I turn to the benefit cap. It is not fair for someone on benefits to receive more than many people in work; reducing the benefit cap to £23,000 in London and £20,000 elsewhere better aligns the level with the circumstances of hard-working families across the country. On the question raised by a number of noble Lords—the noble Baronesses, Lady Sherlock, Lady Hollis, Lady Lister and Lady Warwick—about whether the level was too low, we originally set the cap at £26,000 but we want to balance the key aims of strengthening work incentives and promoting fairness between those in work and those in receipt of out-of-work benefits.

Any changes to the cap level will require the passage of regulations. I can assure the noble Baroness, Lady Sherlock, who was concerned about this, that the regulations which lower the level of the cap will follow the affirmative parliamentary process. In response to the question from the noble Baroness, Lady Lister, and the noble Lord, Lord McKenzie, carer’s allowance is included in the cap. The Government fully acknowledge and value the very important role that carers provide to society but 94% of households in receipt of carer’s allowance will have a benefit income above the new cap level. They are, anyway, exempt from the cap.

The benefits freeze is a vital part of the Government’s welfare reforms, providing £3.5 billion of savings by 2019-20—without any cash losers—which would otherwise need to be found elsewhere. The noble Lord, Lord Low, asked about the impact of the freeze on the disabled. We have exempted the benefits which contribute to the additional cost of disability and care from the working-age benefit freeze. The noble Baronesses, Lady Hollis and Lady Bakewell, raised the issue of the two-child limit. Families on benefits should make the same financial decisions as those families supporting themselves solely through work. Families on lower incomes will continue to receive child benefit for all children in the household, including a higher rate paid for the eldest qualifying child or young person. The noble Baronesses, Lady Sherlock and Lady Manzoor, both raised questions about involuntary two-child families. The Government will look at the important issues around exemption through secondary legislation and will provide more detail in due course. The situation with kinship carers is similar.

The noble Baroness, Lady Sherlock, raised the point of the impact on disabled children. Parents of disabled children will continue to receive the disabled child element and severely disabled child element in child tax credit and, in UC, the additional amount of the child element in respect of all disabled children, regardless of the total number of children in the household. The noble Baroness, Lady Manzoor, asked for assurance that the architecture of UC will not be lost. I appreciate her support on that and give credit to the Liberal Democrats, who were utterly supportive of universal credit and our efforts to bring it into reality under the previous Government. I am delighted to see that they maintain that level of support.

I turn now to the clauses which remove the work-related activity component in ESA, and its equivalent in universal credit, for new claimants from April 2017. The noble Baronesses, Lady Sherlock, Lady Manzoor, Lady Doocey, Lady Browning, Lady Meacher, Lady Howe and Lady Gale, asked for evidence that the WRAG component is a disincentive. A report by the OECD in 2005 argued that:

“Financial incentives to work can be improved by either cutting welfare benefit levels, or introducing in-work benefits while leaving benefit levels unchanged”.

On the other hand, employment support provides an opportunity to begin talking to ESA claimants about their ability to work. A positive relationship with a work coach, combined with evidence-based methods for goal-setting and striving, offers a promising way towards moving ESA claimants back into work. We will be increasing the practical support with new funding. The noble Baronesses, Lady Sherlock, Lady Manzoor, Lady Doocey, Lady Browning, Lady Meacher and Lady Gale, the right reverend Prelate the Bishop of St Albans and the noble Lord, Lord Patel, argued that these claimants have been found unfit for work. The ESA claimants in the work-related activity group have been found to have limited capability for work. This is very different from being unfit for any work and, although they are not required to look for work, ESA explicitly recognises that claimants may be able to undertake some work via the permitted work rules. This change, combined with the new funding, is about providing the right incentives and support to encourage more people to move closer to the labour market.

The noble Lord, Lord Patel, made a point about those with cancer. The vast majority of those with cancer claiming ESA are actually in the support group, a point that he himself made. This includes anyone who is preparing for, receiving or recovering from chemotherapy or radiotherapy that will significantly limit their ability to work. Only a small proportion of individuals whose initial diagnosis is cancer will be placed in a work-related activity group.

On mental health conditions, raised by the noble Baronesses, Lady Manzoor and Lady Howe, and the noble Lord, Lord Layard, it was clearly acknowledged that returning to work can improve mental health, which is why we are committed to ensuring that as many people with mental health conditions as possible receive effective support to return to and remain in work. We will actually be investing £43 million over the next three years in trialling ways to provide specialist support for people with common health conditions to get back into the workplace.

On conditionality for parents, raised by the noble Baroness, Lady Sherlock, we believe that more can be done to support parents with young children to prepare and look for work. Where childcare is not available, requirements will be tailored around caring responsibilities.

On the clauses to turn support for mortgage interest into a loan, the noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, raised issues around pensioners. Pensioners will have access to the same level of support for mortgage interest payments as the current system provides. This will be provided via a loan, but that will not have to be repaid until the individual’s property has been sold—which often, in the case of pensioners, will be on their death, so the people who actually pay are the inheritors; that is not something the party opposite would have a huge problem with, I would have thought.

A large number of noble Lords talked about social housing rents. The answer to the noble Lord, Lord Smith, is that the Government were elected with a mandate to put welfare spending on a sustainable footing to reduce the deficit. We are confident that housing associations and local authorities will be able to find and make efficiencies to accommodate the new settlement.

On specialist supported accommodation, which a large number of noble Lords brought up, we are proposing that there will be some exceptions from the rent reductions. We have set out some of those in the Bill and we will be setting out further exceptions in regulations. Our intention is to align exceptions with the equivalent provisions of the rent standard. At present these include specialised supported accommodation, residential care homes and nursing homes, and intermediate rent and private finance initiative housing. We will work with the sector to ensure that the most vulnerable people are not adversely affected—indeed, I am planning to meet St Mungo’s.

Regrettably, I cannot deal with all the questions and must draw to a close. I thank all noble Lords again for their contributions. Welfare reform is about much more than simply money. Our reforms seek to change the state of the nation, break the cycle of dependency, create the right kinds of incentives, have a fair welfare system, provide the best possible start in life for children, and bring lasting change that directly affects attitudes and behaviours. This Bill is a real opportunity to make a difference to the lives of some of the poorest, the neediest and the most vulnerable people in our society. It is an important and necessary piece of legislation. I commend this Bill to the House and ask for it to be given a Second Reading.

Bill read a second time and committed to a Committee of the Whole House.