Welfare Benefits Up-rating Bill

Lord Kirkwood of Kirkhope Excerpts

Monday 25th March 2013 Lords Chamber

Moved by

[Lord Kirkwood of Kirkhope]

After Clause 2, insert the following new Clause—
“Annual report to Parliament—
(1) Within a year of the passing of this Act, and annually thereafter, the Secretary of State shall publish and lay before both Houses of Parliament a report on the costs to the Exchequer arising from the provisions of this Act. (2) A report under this section shall include a comparison of the costs to the Exchequer arising from the provisions of this Act against the costs that would have arisen had each of the individual relevant sums and relevant amounts, as defined in the Schedule to this Act, been increased by a sum equivalent to the change in the general level of prices, measured by the Consumer Price Index.(3) A comparison shall include an analysis of the effect of the provisions in this Act on each of the relevant sums and relevant amounts in the Schedule.”

[Lord Kirkwood of Kirkhope]

My Lords, it is a pleasure to move the amendment on the Order Paper to insert a new clause after Clause 2, entitled “Annual report to Parliament”. It will give my noble friends on the Front Bench some comfort, perhaps, if I tell them that this is a probing amendment. This is a case of once bitten, twice shy.

However, it is important to spend some time reviewing the context in which the Third Reading of this important Bill takes place, particularly against the background of our not having had the advantage of having the Budget Statement available to us when we were on Report. We are now better informed in terms of the updated projections that have been done by the Office for Budget Responsibility, which inform this debate directly. I cannot resist the temptation to say to my noble friend that we are also better informed on CPI in that, as we were speaking on Report last week, the BBC was reporting that the February monthly figure for inflation had ticked up by 0.1% from 2.7% to 2.8%. Admittedly, that is two points away from the magic 3% that I was using in an amendment—as it happens, unsuccessfully—to try to get some inflation protection for people on benefits.

I mention that merely in passing. I will not go back to discussing what we did on Report because I would be out of order to do so, but it illustrates the point that inflation can be capricious. It is a difficult thing to forecast. Some commentators who know more about it than I do were saying that, for example, the recent weakness of sterling, which has dropped by 7% in recent days, increases the risk of inflation, and so does the new monetary policy framework that Mark Carney, the Governor-designate of the Bank of England, is going to work with. We therefore need to look at the Bill carefully.

This amendment is a rather clichéd parliamentary device, as an annual report to Parliament is the last thing I could get the clerks to accept as being in order. However, it gives us time to reflect on the full-blown consequences of this Bill as we launch it on to the statute book. I still have some deep concerns, which are not merely around the question of the reduced household budgets of low-income working-age families. As I said in Committee, the Bill sets a very dangerous precedent for future Governments. If you believe, as I do, in the value of social protection then implicit in that is your understanding that temporary or maybe even long-term benefit recipients are also entitled, over the longer term, to have a share in the national wealth of the country. We all know that that national wealth is stagnating and we are in difficult times; I understand that perfectly well. However, since 1992—and I stress that date, which is a long time ago—we have had the absolutely implicit foundation of an understanding across party divides: an acceptance that the uprating formula would be sacrosanct.

These are exceptional times. Certainly, if the Government had said, “For the forthcoming 12-month period, 1% is all we can afford”, as they did, I am perfectly willing to consider that. I am sure that other noble Lords are, too. On the savings in this Bill, colleagues may have an advantage over me because I am just off a train from the Siberian north and I have not had a chance to look at the new impact assessment—I assume that one exists—on the new costs of the Bill. Obviously the OBR’s estimates for inflation have changed from 2.6% and 2.2% to 2.8% and 2.4%. Again, there is an inflation uplift, which will adjust, in the Treasury’s favour, the savings that the Bill will make. The Bill covers two years of uprating but not this immediate year’s uprating, so an extra £500 million will be saved in the coming year. Of course, housing allowance, which is a different category of benefit, is not covered in the Bill so the totality of the savings is not reflected in the impact assessment, and last week’s impact assessment has been adjusted because of the OBR’s more recent and accurate estimates of inflation.

--- Later in debate ---

[The Countess of Mar]

We are at Third Reading, and the noble Lord has spoken for 16 minutes. He might believe that we have actually got the point. Is he going to be very much longer?

[Lord Kirkwood of Kirkhope]

No. I have two remaining points to make before I sit down. First, we have learnt over the past few days that Mr Alan Milburn, the chairman of the Social Mobility and Child Poverty Commission, has made it clear that he thinks that income is important for low-income families when trying to deal with child poverty. Finally, we need to invite the Social Security Advisory Committee to look at all this between now and July.

A lot of work needs to be done, and an annual report would help to inform that work. It is not safe to allow this Bill to continue into its later stages until we are sure that we have some way in which to track its progress and can ensure that those at the bottom of the low-income scales do not get hurt as a result of its provisions. I beg to move.

[Lord King of Bridgwater]

I shall intervene very briefly, supporting the point made by the noble Countess, Lady Mar. My noble friend Lord Kirkwood and I had an exchange last time on this matter, and he has made it clear once again that he does not like this Bill. I do not like it either. I do not think that any Member of this House would like to have this Bill at all, were things more normal and better than we actually find.

Since we have debated the Bill we have had a Budget and we have had Cyprus. If anyone wants to think that the situation is improving, the most significant thing in the Budget was the absolutely frank admission by the Chancellor of the very serious debt situation that we face. We now realise that it will be extremely tough to turn the ship round. Since then, we have had the comments from the rating agencies, and my noble friend may recall an intervention that he allowed me to make in his previous speech that we had better watch out for the rating agencies.

We have already heard that we are on negative watch by the other rating agencies, and that is even in our present situation. If we ally to that some recognition that this Government are not going to be able to stick even to the programme that they have proposed, if we faced a further downgrade from the rating agencies we might start to move into territory where the Government have to borrow to meet our debt at interest rates that are significantly higher. It will not then be a question of benefits being uprated by only 1%; there could be, as in other countries, significant cuts. If we get higher interest rates as well, with the impact on a huge raft of people who depend on their mortgages and who are finding it an extremely tough battle to maintain them, and with the risk of a significant increase in repossessions around the country, we will be in a very tough situation indeed.

To summarise, the purpose of my noble friend’s amendment is simply that at the end of the year we should discover how much we have saved and what the impact has been. If the Treasury is not going to do that anyway, I do not think that we need to spend a lot more time on this amendment, writing complicated additional amendments into a Bill on a matter that will surely be part of the normal purpose of government.

--- Later in debate ---

[Lord Newby]

My Lords, this amendment would require the Government to produce revised costings of this policy annually. I fully understand the inflation risk about which the noble Lord, Lord Kirkwood, is concerned. However, as I said last week, while I share his concerns about measuring the impact of government policies, I believe that additional reports on the Bill are simply not necessary. As I said last week, the Government already have comprehensive arrangements in place to report on the impacts of government policy. We publish impact assessments of every Bill, including the Exchequer impacts. These are based on the OBR forecasts available at the time.

At Budget, we publish an updated account of the Exchequer impact of any government policy that has changed due to modelling or forecast changes and has not yet been implemented. The DWP publishes benefit rates and expenditure tables of all its benefits, and we produce analysis of the cumulative impact of government policies on changes to households across the income distribution at every major fiscal event. This analysis will use updated inflation projections and will look at the cumulative impacts of all changes, rather than artificially isolating just one policy. These mechanisms go further than any Government have gone before in increasing transparency and enabling the effective scrutiny of policy-making.

Since we previously debated this matter, we have had a Budget. As the noble Lord, Lord Kirkwood, said, at Budget last week the OBR revised its forecasts for inflation slightly upwards. The forecasts increased by 0.3 percentage points for the purpose of uprating in 2014-15, and by 0.1 percentage points in 2015-16. As I said last week, it was always a possibility that the forecasts would change. Similarly, they can change again at the Autumn Statement, and again at Budget 2014. These forecasts could go up as well as down. However, Governments must make decisions based on the best forecasts available at the time. The OBR’s forecast at the Autumn Statement showed that while inflation is forecast to be above 2% in the near term, it is then forecast to fall back towards the target in the medium term. This has not changed. As I set out last week, the OBR is not alone in taking this view. The IMF, the OECD and the Bank of England all show inflation falling back to target in the medium term. Nor has the inflation target changed: it remains at 2%.

One thing that has changed since we were last in this House is the Budget announcement on public sector pay. The Budget announced that public sector pay awards will be limited to an average of up to 1% in 2015-16. This will be on top of four years of pay being either frozen or capped at 1%, which included the period when inflation was at 5.2%, far above the forecasts for the periods covered in the Bill. This is not a justification for the Bill, but it is a reminder that people face inflation risk in everyday life. The decision that the public sector should continue to face a further year of pay restraint was a difficult, but necessary, decision to support fiscal consolidation.

It is against this background that I repeat what I have said many times on the Bill: that this Government do not take decisions to find savings from welfare lightly. However, this Bill is necessary to make vital savings from welfare, to help reduce the deficit and to restore economic recovery. The Government have set out their plans for spending in advance to give confidence to the markets that we are taking the necessary tough decisions. We can do that only by using the best forecasts available at the time. These forecasts have changed, but they continue to show inflation falling back to target in the medium term. I hope I have reassured the noble Lord that the amendment is simply not necessary, and I beg him to withdraw it.

[Lord Kirkwood of Kirkhope]

My Lords, the House has a busy schedule for the rest of the day and, as I said earlier, I am happy to withdraw the amendment. I am grateful to colleagues who have contributed. We are all of the same mind that we need to be very careful and monitor the consequences of these Bills. The noble Lord, Lord King, is correct that the Treasury does that annually, but I will make it my own business to make sure that working-age, low-income families do not suffer more than the Government feel they will in the course of the next five years as a result of this Bill. I beg leave to withdraw the amendment.

Amendment withdrawn.