Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Monday 25th February 2013 Lords Chamber

In conclusion, the Bill as it currently stands seriously fails to protect working families, and will cast children into poverty. It simply does not go far enough to promote work, so that work always pays, particularly for the lowest earning working families. My amendments go some way to mitigate these deficiencies, and I beg to move.

[Lord Kirkwood of Kirkhope]

I am happy to support these amendments and have added my name to most of them. The House owes a debt of gratitude to the right reverend Prelate the Bishop of Leicester for raising these points. I particularly support his concerns about lone parents. Over the whole systematic process of change, my concerns are getting greater and greater about the compounding effect of all these changes that we see in the social protection available in the United Kingdom. Lone parents, who are mainly women, are struggling already, and we need to watch their situation with great concern in future.

My heart absolutely sank when I saw that this Bill was being applied to universal credit, because universal credit should be the future; it is the architecture around which we as a country should and must have serious consideration about provision for low-income households. We need to have a discussion with people such as my noble friend Lord Forsyth of Drumlean as well, between now and the next election. I hope that there will be a grown-up discussion about how the United Kingdom, as a poorer country, accommodates some of these new pressures, and I am willing to engage in that to the best of my ability. However, what is wrong about applying these two years of locked-down 1% increases is that they risk prejudicing the whole new future, as I see it, of how we cope.

In my experience, the administrative cuts in the health service prejudiced the view of a lot of people towards some of the NHS reforms. My real fear is that people will not know that the cuts are being introduced by the uprating Bill and will think, in the early years of universal credit, when they are transitioned across into the new system, that they are being sold a pup. That will potentially damage the public’s understanding of what universal credit is about and that is a real shame. I understand perfectly well all the arguments that the noble Lord, Lord Forsyth, makes, and we have to put up with them in the best way we can, but we should have isolated universal credit for the reasons that I have explained.

Further, I do not think that we know how universal credit will work out when it is in steady state, and it will take a long time to get there. I come back to the costs that will be saved by applying this uprating Bill to universal credit because I am a bit confused about exactly what the Government think they are going to save. Therefore, I make my first complaint—it is another moan—with conviction. The noble Lord, Lord Freud, bless him, has worked very hard to try to get universal credit to stand up. I read a worrying story in the Financial Times, which said that the self-employed have not yet been told that there is a real-time HMRC system heading in their direction. Not many of them know about it. That is more than slightly worrying—it is very worrying, because the computer system is essential to that measure working sensibly. However, we must try to do the best we can to make it work in future.

Secondly—again, the right reverend Prelate was right to give this priority—one of the best elements of universal credit is the way it deals with what used to be known in the old language as income disregard. Some of us have fought for years to do something constructive about income disregard. It is a very intractable problem and universal credit has given us an opportunity to get hold of that and provide incentives to get into work. Universal credit does that, but the first thing that the Government do after bringing in this new progressive reform is to cap it at 1%. How that is supposed to meld with everything else that has been done in connection with the Work Programme makes no sense to me. It will save relatively small amounts of money in terms of the big picture savings that the Government are trying to lock in, but for the life of me it seems a counterproductive, silly cut to introduce and it compounds my first point in that it makes the universal credit system look worse than it is.

The right reverend Prelate the Bishop of Leicester made eloquent and important points about child poverty targets. I concur with everything that he said, so I do not need to elaborate on that. My final point is about costs because I am struggling to understand the savings that have been alluded to. I do not expect the Minister to be able to do this off the top of her head but it would be helpful to me if, before Report, I could be told what the universal credit cost savings are in this measure because I cannot make any sense of the impact assessment. I agree with the noble Baroness, Lady Hollis, that it is—

[Baroness Hollis of Heigham]

Perfunctory.

[Lord Kirkwood of Kirkhope]

Indeed. I am looking at the Treasury Autumn Statement 2012, Table 2.1, which has a category headed, “Exchequer savings resulting from 1% uprating of benefits and tax credits”. This is over the three years, not just the two years in the Bill. The table also has a category headed, “Universal Credit: finalise disregards and increase by 1% for two years from 2014-15”. The figure given suggests that the saving for 2015-16 will be £640 million. However, my honourable friend Steve Webb, in a Written Answer to Stephen Timms on 13 February, identified universal credit additional savings as £20 million in 2014-15, £100 million in 2015-16 and £150 million in 2016-17. I am not sure how these figures relate to one another. I may be misreading the statistics and the tables may be drawn up using different bases, but between now and Report I would like to understand how these figures are worked out.

As the noble Baroness, Lady Hollis, said, the assumptions about how many people will be translated on to universal credit are best guesses, to put it mildly. I think the roll-out programme will take much longer, for the reasons that I explained earlier, and the story in the Financial Times compounds my anxieties in this regard. I think the figures that the right reverend Prelate gave of 10% of claimants being on universal credit by 2014-15 and 30% by 2015-16 are ambitious, to put it mildly, so can we have some greater clarity?

This is an important Bill. I understand the significance of the situation in which the Government find themselves. If I did not believe that before this weekend, all the financial circumstances of the past few days have confirmed the difficulty of the situation. However, before Report, we must try to get a better fix, in particular on the savings related to the universal credit inclusion in the Bill, because it is unclear to me. It is important and, from where I am sitting at the moment, I do not think that the savings are worth the candle. I would be much happier leaving universal credit out of the Bill. Let it be the future and let us all work on it, try to protect it and build on it in the best way we can. The Bill is a retrograde step as it affects universal credit, and I support these amendments for that reason.

[Baroness Howe of Idlicote]

My Lords, I want to say a very brief word about two groups—children and families. Before I do so, I congratulate the right reverend Prelate the Bishop of Leicester on his excellent briefing on these very important areas. I agree with a great deal of what the noble Lord, Lord Kirkwood, said.

We know that the Government are not on target to meet the Child Poverty Act commitment to eradicate child poverty by 2020. The right reverend Prelate referred to that. We are told by the Institute for Fiscal Studies that there can be almost no chance of eradicating child poverty, as defined in the Child Poverty Act, by 2020. It predicted that there would be an additional 500,000 children living in absolute poverty by 2015. However, that leaves out a further 200,000 children who will be pushed into relative income poverty. How on earth will this Bill help the Government to meet their commitments under the Child Poverty Act?

I am even more concerned about the disproportionate impact that all this is having on women. The Bill disproportionately affects women, including through the cap on child benefit payments and statutory maternity pay. Furthermore, those in low-paid work, who are more likely to be women, will lose the most. It is estimated that 300,000 nurses and midwives, 150,000 primary and nursery school teachers and 1.14 million admin workers and secretaries will be affected by the cap. Some 98% of child benefit payments are paid to women. Child benefit has already been frozen for three years, meaning that over five years there will be a total of a 2% increase; for the same period, CPI will have risen by 16%. Of different family types, lone parents, who are mostly women, as we know, will lose the most: £261 a year by 2015.

--- Later in debate ---

Moved by

[Lord Kirkwood of Kirkhope]

6: Clause 1, page 2, line 2, at end insert—
“( ) Subsection (1) does not apply in relation to a tax year if, on the review in that tax year under section 150(1) of the Social Security Administration Act 1992, the Secretary of State determines that the general level of prices, measured by the Consumer Price Index, for Great Britain has increased by 3% or more over the period under review.”

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to move Amendment 6, standing in my name and that of my good friend, the noble Baroness, Lady Lister of Burtersett. This is a probing amendment. It is something about which I feel very strongly. It is a modest proposal that does not seek to disrupt the certainty of which my noble friend made so much earlier in the course of these important debates. The amendment simply disapplies the 1% uprating in Clauses 1 and 2 in the event of inflation reaching 3% in 2014-15. In those circumstances, we would revert to the default position of the annual uprating mechanisms that we all know and love. We would achieve the savings without exposing clients on benefits in future to the risks of inflation above and beyond the government estimates on which the savings will be made.

It is important to remember that the Bill deals with two years of annual uprating. However, we must factor in to the totality of the situation we face the already accepted £505 million that the Autumn Statement estimated that the 1% uprating would yield in this current year. I am sure that we are all looking forward to the uprating statement later in the week. In addition, the saving from the 1% uprating of local housing allowance is being dealt with through separate legislation. Both these reductions have already been made for the current year, 2013-14. We must not forget the reductions this year, in addition to those of the two years for which the Bill provides.

What will the Government do if the OBR estimates are too low? We know that the Budget Statement is a few weeks away. No doubt the Office for Budget Responsibility will discharge its duty to make available to the Chancellor, and subsequently to the rest of us, its best evidence and estimates about the inflationary risks that we face. However, we all understand that the Bill is based on the CPI and inflation forecast of the OBR, which at the moment stands at 2.6% in September this year, to be followed by 2.2% in September 2014. Those are the estimates on which the savings of £1.2 billion in 2014-15 and £1.9 billion in 2015-16 are posited.

--- Later in debate ---

[Lord Newby]

My Lords, economists say all kinds of things. For every economist who says one thing, I guarantee that I can find you an economist who says the other thing. There will be a new inflation forecast from the OBR at the time of the Budget. It would be completely inappropriate for me to speculate on what that might say and I am certainly not going to do so today.

As I said at Second Reading—and I repeat—we will continue to monitor closely the rate of inflation and its impact on the cost of living for families and the wider economy, as we always do. Again, as I said at Second Reading, the Government have taken action in response to the changes in the cost of living, including cancelling the January fuel price rise, providing further funding for local authorities to freeze council tax and, of course, for virtually everybody in work, implementing the largest ever increase in the personal allowance in April 2013.

The Government believe that what really matters to families is the impact of our policies as a whole and this will continue to be a key consideration for our policies in the future. However, that does not mean that we believe that we should add conditions to the Bill, and I am certainly not going to agree to that this evening. People have seen very significant restraint in their pay across the private and public sectors without the comfort of a safeguard against increases in inflation. Noble Lords have said a lot about certainty today. The truth is that no one has certainty, whether they are in or out of work, about their future real income. As noble Lords know, many people in the public and private sectors have not been getting pay increases linked to inflation and have been falling behind in real terms. This is exemplified by the difficult decision we took to freeze public sector pay at a time when inflation was rising to 5.2%. It is also borne out by the fact that, according to the latest figures, over the past year average earnings have risen by only 1.3%—not very different from the increase that is being proposed in the Bill. This means that on the best available forecasts—those produced by the OBR in November last year—even with the effects of this Bill, by the end of the financial year 2015-16, out-of-work benefits will still have risen faster since the start of the financial crisis than if they had been linked to average earnings, which many noble Lords are concerned about.

It is vital that we set out clear and credible plans to reduce welfare spending, tackle the deficit and secure the economic recovery. Adding conditions to the vital savings delivered by this Bill would remove that certainty.

[Lord Kirkwood of Kirkhope]

My Lords, I am very grateful to my noble friend. These are very difficult issues. I do not think that his response takes us any further forward from the Government’s position at Second Reading. I hope that he will do me the favour of reflecting carefully on what he has heard today. I am grateful to my noble friend Lady Lister for her wise counsel and support, as always.

I am seriously interested in this issue. I think it is a modest proposal. I will go away and think carefully about what my noble friend has said today but we may have to return to this at later stages of the Bill. On that basis, I beg leave to withdraw the amendment.

Amendment 6 withdrawn.