Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Tuesday 19th March 2013 Lords Chamber

Moved by

[Lord Kirkwood of Kirkhope]

4: 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, my Amendments 4 and 9 in this group take us into much lighter territory. I hope that the noble Lord, Lord Forsyth of Drumlean, will understand and relax, because the purpose of the amendments is not to attack the savings which it is the principal purpose of the Bill to achieve but only to protect the position of benefit recipients should the Office for Budget Responsibility’s estimates for inflation be exceeded by 3%, which is the figure that I have chosen for the purposes of the amendments.

The amendments are different from those which have gone before because, apart from anything else, they are much less susceptible to attack on grounds of financial privilege. A problem that I had with some of the earlier amendments, and I share some of the analysis, was that they were prone to attack on those grounds. I think that those of us who participated in consideration during the passage of the Welfare Reform Act last year felt that financial privilege was being used rather rashly in the other place, but the purpose of this House is to persuade the House of Commons perhaps to think again about some of the legislation that comes to us.

Amendment 4 would simply disapply the 1% limit on benefit uprating in the event of inflation reaching 3%. I would be interested in the view on this of the noble Lord, Lord Forsyth, because he knows a lot more about it than do. Judging where inflation will come out in September 2013 and September 2014 is an inexact science. We will learn tomorrow what the Office for Budget Responsibility and the Chancellor think about the situation, but the two years covered in the Bill, September 2013-14 and September 2014-15, are considered to be facing inflation increases of 2.6% and 2.2% respectively. The purpose of the amendment is to ask what happens if those estimates are wrong. They are forecasts; they are not scientifically worked through. We have therefore to ask ourselves what we do as a legislature if inflation reaches 3%.

Change in the real-terms value of benefits is very sensitive to inflationary increases. I have said that the Office for Budget Responsibility’s baseline is 2.6% for September 2013 and 2.2% for September 2014. That reduces the real value of benefits by 4% and produces a saving of £3 billion; that is already agreed and is in the Bill. However, checking Library figures, I am advised that if inflation exceeds Office for Budget Responsibility estimates by 1% in the two years covered by the Bill, it will reduce the real value of benefits in the hands of claimants by 6% and result in a windfall saving to the Treasury not of £3 billion, which is what the deficit reduction programme is looking for, but of £5.1 billion. You can multiply the figures. If the OBR baseline is exceeded by 2%, that reduces the real value of benefits by 8% and produces a windfall saving for the Treasury of £7.2 billion. I have no way of knowing whether any of that will happen. All I seek with this amendment is to ask what the Government will do if it does.

The financial context is slightly worrying and has been getting worse since the coalition Government promulgated this policy some months ago. We will learn more about this in the Budget tomorrow. The Budget may well be—and some of us will argue that it should be—looking to promote growth and loosen some of the constraints on inflation that the Bank of England’s Monetary Policy Committee is required to oversee. However, we have a Bank Governor-designate in Mr Mark Carney, who comes with a reputation of being prepared to live with higher levels of inflation. If that happens, then the 3% figure in the amendment may well be breached sooner rather than later. In some of the earlier debates the noble Lord, Lord McKenzie, rightly adverted to the fact that the markets are already pricing in higher inflation in the short term over the two years that the Bill covers.

As a legislature, we now face an increasing risk of inflation for these two financial years; I put it no higher than that. We very much need to take that into account. The CPI calculation of inflation is a national figure, worked out with average figures on a statistical basis, but someone said to me the other day that childcare costs have gone up 6%, as anybody who has studied the incidence of rising costs on low-income families will know. That is a long way in excess of the general CPI rates that we face, as with food prices, rents and energy prices, particularly for the low-income families that I am concerned about.

I am grateful to my noble friend for the considerable discussion that we had about this. He was generous in considering what I said, but it would be helpful if the House knew what the Government would do if the 3% inflation figure was breached. I am reasonably content that there are overriding powers in the Social Security Acts, but I do not think there are in the Tax Credits Acts; I might be wrong about that. What happens if something untoward happens to inflation and we end up in the 2014 and 2015 fiscal years with something unexpected suddenly coming over the horizon? Surely some of these reductions in the value of benefits that I have alluded to would be quite unconscionable as a windfall increase to the Treasury’s coffers in a way that is not intended, as I understand it, but may well happen by mistake?

[Lord Forsyth of Drumlean]

I have looked carefully at my noble friend’s amendment and listened to his speech with care, but he does not provide the remedy in the amendment. It simply says that the uprating limited to 1% is cancelled if inflation reaches 3%. Would he indicate why he chose 3% and what the remedy would be? If he specifies a remedy, then we are back into the argument about cost.

[Lord Kirkwood of Kirkhope]

The remedy would simply be that if 3% was breached, then the clauses in the Bill fall and there would be the default position of an annual uprating process. It would be at the Secretary of State’s discretion with the usual provisions of Section 150 of the Social Security Administration Act 1992. It would be taken year by year and would say that inflation was forging ahead in an unforeseen way. For myself, I would listen to an argument that said that we should stick to 1% on costs shown in those circumstances, but if 3% was breached we would go back to the status quo. That does not have a cost at all.

The noble Lord, Lord Forsyth, and I have been doing government uprating statements for 30 years together and I have never known a Government not get an uprating statement that they wanted if they had a majority. That is what I think would happen in these circumstances. However, the Secretary of State would be obliged to come back and say to both Houses that the circumstances were not what he had anticipated or what the Office of Budget Responsibility had calculated and that therefore there would be a chance for reconsideration. That is all I ask.

In fact, Clause 1(5) and Clause 2(4) of the Bill give the Treasury power to protect itself from the downside. These clauses say that if inflation falls below 1% it will not admit the full 1% uprating and will reserve the right to adjust it. Yet there is no limit to which the Treasury will allow inflation to increase before it comes back and argues its case in Parliament one way or the other. There is a 50:50 chance of this happening. I believe in my heart of hearts that the Government would respond to that. I do not believe it would be at all conscionable to leave 3.5% or 4% inflation with these 1% caps for the two years in this Bill.

We need more than that. We need some inflation-proofing and protection for recipients of benefits in the two years covered by the Bill if inflation races ahead. That is the burden of the argument. It is no more and no less than that. I do not think that it would be attacked on the grounds of financial privilege. It has no direct effect, as I see it, on deficit reduction. I am content that the Government get £3 billion in savings, but not content that they get £5 billion or £7 billion, because that is not what the Bill is designed to do. I argue in this amendment that there is no protection in particular for low-income families. I hope that my noble friend will give me some reassurance about what the Government will do in these eventualities. If he is not prepared to accept this amendment, I may well be tempted to test the opinion of the House. I beg to move.

[Baroness Morgan of Drefelin]

My Lords, I am not an economist. I declare an interest as chief executive of a cancer research charity. My concerns are similar to those voiced by the noble Lord, Lord Kirkwood. The Bill locks in the 1% and does not contain a very important review provision. I am sure that my amendment is so anodyne that the Minister will say either that it is unnecessary or that he will accept it.

For that reason, I will be brief. It is important once more to challenge the myth that disabled people will be protected from the measures in the Bill when that is so clearly not the case. Let us remember that, by 2015, in excess of 40,000 cancer patients will be claiming ESA. It is the main benefit claimed by cancer patients, as we have already heard. For those cancer patients in the support group, only a proportion, the support component, of what they receive, will be protected, while their core payment will rise by only 1%, as my noble friend Lord Low mentioned.

Overall, cancer patients in the support group will see their ESA payments rise by only 1.4%, rather than by inflation, and Macmillan Cancer Support has estimated that, by 2015, cancer patients will be £138 worse off each year than if they had received the 2.2% rise which could have been expected with the CPI level as was in September 2012. I cite the £138 figure, but I am conscious that we do not yet know the true effect of the Bill. That figure shows how far ESA will fall behind inflation if the consumer prices index were to remain at the September 2012 level of 2.2%. However, it has now risen to 2.7%. If, as we have heard, inflation were to rise to 3% over the next three years, the loss to cancer patients and others in the ESA support group would be even greater. The actual impact on cancer patients and others supported by those payments is just as uncertain as the level of inflation itself.

In its current form, the Bill leaves no flexibility to protect vulnerable groups such as cancer patients if there is a significant rise in inflation over the next three years. For that reason, I support the amendment moved by the noble Lord, Lord Kirkwood. I fully expect the Minister to say that he will accept my amendment or that it is unnecessary because it is a matter of course that there will be a review by the Social Security Advisory Committee if we have such a rise in inflation. I very much look forward to hearing the Minister’s remarks about how the Government aim to continue to protect cancer patients as much as possible.

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[Lord Forsyth of Drumlean]

The noble Lord, Lord Foulkes, normally cheers when I get up to speak, but not on this occasion, perhaps because we have found something to disagree on.

I must congratulate my noble friend Lord Kirkwood on this very ingenious amendment. I suspect that he started from a position opposed to the Government’s proposals, knowing his long and distinguished record in supporting people on low incomes. I am sure that he would have preferred that the status quo had a rival—

[Lord Kirkwood of Kirkhope]

Since the noble Lord asked, let me tell him. I am looking him straight in the eye. I have voted for the Government all through this afternoon against my better judgment, but I say this to him: if any further cuts are introduced by the coalition Government for the rest of this Parliament, he can forget any support coming from my direction for the next two years.

[Lord Forsyth of Drumlean]

The noble Lord and I both have our crosses to bear in the coalition. I am grateful for his confirmation that he does not support the principle. This is just a very clever device to try to get us back to where we started from without making a commitment to spend money. The amendment states that the provisions in the Bill which limit the benefit increases to 1% can be set aside if inflation reaches 3%. That is for very good reasons. The noble Lord argues the case about people on low incomes and the effects of inflation. The noble Baronesses, Lady Morgan and Lady Masham, in their amendment, have highlighted the desperate impact that inflation has on cancer patients who are not working.

The best way to protect those people is to ensure that inflation does not rise to 3%. The idea that it is inevitable that inflation will rise to 3% is deeply damaging.

If the noble Lord, Lord Foulkes, wishes to interrupt, I will be happy to give way, but otherwise I would be grateful if he did not make remarks from a sedentary position, which is distracting me from my argument—which of course, was his intention.

The best way to protect people is not to have inflation. One thing that sets inflation running uncontrollably is people’s expectations of inflation. When the noble Lord makes a speech saying, “I think that inflation is going to be more than 3%”, people hear that and think, in their wage negotiations, “Lord Kirkwood says that it will be more than 3%; the Government say that it will be two and a bit per cent”. Expectations drive the inflation rate, and inflation is devastating for the poorest in our society and for people on fixed incomes.

Therefore, we need to follow a policy that will limit the possibility of large increases in inflation. That is where we have a problem. To do that, we must show that we have control of public expenditure and have plans in place that can be relied on.

If the amendment were accepted, anyone looking at the Government’s plans for financial responsibility over the next two years would say, “They have marked down that social security and benefit payments will be this, but, of course, because of Lord Kirkwood’s amendment we cannot rely on that because if inflation is above that figure, the Secretary of State will need to take a decision”. They will note that he will be taking a decision in the run-up to an election and will therefore draw conclusions about what the pressures on the Secretary of State might be.

The amendment drives a coach and horses through the Government’s finances for anyone looking at whether they can rely on the Government delivering.

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[Lord Kirkwood of Kirkhope]

I think it is me, in fact, but let that pass. I am grateful to my noble friend. He and I had a good private discussion about this. I understand the Government’s position and he understands my position as well. I plead not guilty to his charge of being clever. All I am trying to do here is to get an insurance policy to protect people who are on benefits who may well need it. I hope I am wrong. He knows more about inflation than I do, but there is a real risk that in the demeanour of the coalition Government’s policy, which I would support, to try to attract higher levels of growth, it may be a price worth paying—not to let inflation rip, as my noble friend said, but to allow it to rise reasonably in expectation that growth would follow as a result of that. The shift in the policy changes that.

When the Bill was drafted we were in a different position. We are now—we will see tomorrow whether that is correct or not—in a position of the proposals of the noble Lord, Lord Heseltine, for growth, much of which I support. I must say to the noble Lord, Lord Forsyth, that I pay attention to what he says as Britain is a poorer place. These are huge sums of money and we need to work out collectively how we make provision for social protection in future. However, I say to my noble friend—I am looking him straight in the eye—that I cannot accept that this is a safe position to leave the House in. I want the protection—

[Lord King of Bridgwater]

Is not the key point here that the Government have to be able to convey credibility to those around the world who may lend us money? The noble Lord, Lord McKenzie, has made the point very well. We have to borrow a lot of money or there will be nothing like the present level of benefits if we find, as the Minister has made clear, that we are out on the market trying to borrow from countries and lenders who say, “I thought they had a clear plan. Now they’re qualifying it, they may not follow through”. I make this simple point. The noble Lord quite rightly talks about the risk of inflation rising. The risk that he is prepared to accept is that we lose our rating and then we will be in a very much worse state.

[Lord Kirkwood of Kirkhope]

I thought that we had lost our rating. I have now lost my drift.

This is very simple. This is a one-way bet for the Chancellor. If the Government end up with a windfall of £1 billion or £2 billion over and above the saving that I am supporting here, that is completely unconscionable. I am moving this amendment only to try to get an element of inflation protection for benefit claimants. I am grateful to everybody who has taken part in the debate, even the noble Lord, Lord Forsyth. I am sorry to do this to my noble friend, but I want to test the opinion of the House.