Welfare Reform

Lord German Excerpts

Thursday 11th November 2010 Lords Chamber

[Lord German]

I congratulate the Minister on the Statement, particularly on him and his team securing £2.1 billion of expenditure to overhaul a system that has had many epithets, including “complex”, “cumbersome” and “inefficient”. I am sure that if we wrote a dictionary of the problems of the current system, we would see the need for making progress towards change.

I am keen to explore the key area of the Statement—that 850,000 people in our land will be lifted out of poverty as a result of these measures. That would be a tremendous achievement for the Government, one which we have not seen in the past. Can the Minister explain how that figure is arrived at and the Government’s direction of travel? It is an aim worth achieving in itself, although it is not the only ambition they have.

Given that there will be a long period of transition, how will the existing benefit structure begin to look to the new benefit structure? Clearly you do not want to continue the old system and change rapidly; you will need to ensure that the sense of direction is towards the new structure. I am sure the House will wish the Government every good speed in doing this, but “crawling” is not the epithet that I would use at the moment.

[Lord Freud]

I thank my noble friend Lord German for raising the issue of the impact on poverty. I have a much shorter word on record: it is not “complex”, “cumbersome” or “inefficient”; I call it a mess.

How will this work? In effect, by having more generous tapers and disregards we are putting money into the pockets of people doing small amounts of work. So there is the direct economic impact of that money going in. There will be a second order impact, which will be twice as large because we will simplify the system and have only one form. This will encourage a much higher take-up rate and, in practice, will almost eliminate the scourge of in-work poverty. So that is where the figure of 850,000 comes from.

There will also be the dynamic or incentive effect of always knowing that it is worth working, and being incentivised to work will reduce the number of workless households by about 300,000. We have not put that poverty impact in the Statement; it is in addition to it. Some households will be pulled above the artificial 60 per cent median line, and we expect the poverty impact to be even greater than the 850,000 we have referred to. These are big figures. I remind the House that, on conventional analysis, the reduction in child poverty during the 13 years of the previous Government was about 600,000 children, so we are looking at making a big relative effect in one go.