Poverty

Lord McKenzie of Luton Excerpts

Thursday 22nd July 2010 Lords Chamber

Moved By

[Lord McKenzie of Luton]

To call attention to the impact of the Budget on people in poverty; and to move for papers.

[Lord McKenzie of Luton]

My Lords, I welcome the opportunity to open this debate and am grateful to all noble Lords who are proposing to contribute. I look forward to hearing maiden speeches from four new Members of your Lordships’ House. I also thank the number of organisations that have offered us briefings for this debate. The consistency of their analysis and the intensity of their concerns are startling.

Poverty has many faces, none of them attractive. There are many in our world who live in abject, absolute poverty without sufficient nourishment and with no access to clean water, shelter, simple life-saving medicines or rudimentary education. Defeating such poverty remains, quite properly, a supreme cause of our time. There are, however, issues closer to home that should also command our attention and commitment. These might be described as matters of relative poverty, which, for families, was characterised by the founder of the Child Poverty Action Group in this way:

“Their resources are so seriously below those commanded by the average … family that they are, in effect, excluded from ordinary living patterns, customs and activities”.

It is from this perspective that I would like us to consider the impact of the recent Budget, which cut spending beyond inherited plans by £32 billion a year, as well as raising net taxes by a further £8 billion. Eleven billion pounds of spending cuts will come from specific welfare measures.

In analysing these issues, let me anticipate and deal with the complaint that the state of the public finances gave no room for any other Budget judgment. Our borrowing has risen because the global financial crisis caused tax receipts to fall and spending to rise. The fiscal stimulus led to more borrowing, but it was the right choice to stop recession turning into depression. We had set out our clear deficit reduction plan, which would have brought the deficit down to 5 per cent of GDP in 2013-14. The coalition Budget goes faster, cuts deeper and adopts a different set of priorities. Let us be clear: the Government chose to do this; they did not need to do it.

In March, George Osborne declared that we are all in this together and said that he would not balance the Budget on the backs of the poor. It is by that statement that we will judge him and the coalition Government of which he is part. The Chancellor of the Exchequer claimed his Budget as a progressive Budget, saying that it was tough but fair. Tough it was; progressive and fair it most certainly was not. The Budget Red Book presents various charts to justify the claim of being progressive, but the truth has been laid bare, in particular by the IFS. Only by overlaying the Budget measures with the progressive measures inherited from Labour’s March Budget can the net result be seen as progressive, even taking account of the personal allowance change. Even this must be treated with some caution, as the analysis does not fully factor in all the draconian consequences of the housing benefit measures. It also cannot as yet take account of what is coming down the track from the cuts that will pour from the expenditure review—cuts that will inevitably impact most on the poor.

When we hear that the Budget is grounded in fairness and that we are all in it together, frankly, we beg to differ. We do so because of what the Budget contains in rises in VAT; in reductions in tax credits; in the freezing of child benefit; in restricted benefit and pension uprating; in narrowing the gateway to disability living allowance; and in illogical and spiteful cuts in housing benefit.

I start with the impact of the changes to housing benefit. These changes include taking a reduced level of local rents for the housing allowance; capping rent levels for each type of property; increasing the non-dependant deduction; uprating the local housing allowance rates by CPI, rather than actual rent levels; and docking 10 per cent from the long-term unemployed. These amount to a net cut of £1.7 billion a year—a cut to be met by the poor and those on low incomes. Penalising working-age people who are unemployed is a particularly savage act. The need for reform of housing benefit to improve work incentives is accepted, but a 10 per cent deduction in housing benefit is entirely arbitrary, will cause incredible hardship to those who seek to make up the shortfall from their jobseeker’s allowance and will exacerbate poverty in those very communities where jobs are hardest to come by.

As Shelter points out, the reforms adopting the 30 per cent level rather than the median level of rents for housing allowance will lead to a significant reduction in the amount received by many claimants across the country. Citizens Advice calculates that an average allowance for a two-bedroom property in England will fall by nearly £10 a week, and for a three-bedroom property by £13, worsening existing rent shortfalls. Shelter says:

“We expect that many households will try to remain in their home and be forced to make financial sacrifices in order to do so. For those households already struggling to balance very tight budgets, a reduction in local housing allowance will … push … them over the edge, triggering a spiral of debt, eviction and homelessness”.

This will be made even worse by the uprating over time of local housing allowances by CPI, rather than actual rents, so that the allowance will be increasingly disconnected from rent levels.

The National Housing Federation has warned that these cuts will put more than 200,000 people across Britain at risk of homelessness. It says that they will force families to move, for some away from social and family networks, undermining well-being, employment and childcare opportunities. It will amount, in effect, to the expulsion of low-income families from some communities. These consequences are not difficult to predict. There is no massive affordable housing programme to rely on to take the pressure off private sector rents. If the expectation is that there will be downward pressure on private sector rents, this is a huge gamble being taken with the lives of some of our most vulnerable families. From the Government there seems to be no recognition of the consequences, no compassion and no understanding of the devastation that this will cause to so many who need our help.

I turn now to issues of indexation. Until now, most benefits have been uprated by the RPI, with means-tested benefits by the Rossi index, a variant that excludes certain housing-related costs. Moving to uprating all benefits by CPI will mean that the real-terms value of benefits will continue to fall compared to average earnings and will fall at least 1 per cent faster—although the IFS suggests that this would be closer to 2 per cent—than under previous uprating rules. Without countervailing measures, uprating benefits by RPI was anyway at risk of driving inequality as the cumulative gap with earnings widened. Uprating by CPI will, in the terms of CPAG, cause the downward escalator to move even faster. This is a cut to benefits of nearly £6 billion annually—this when research shows that, because of their spending patterns, people on low incomes face much higher inflation rates than CPI. How does the Minister justify this? What rationale underpins this change, other than reducing the costs of benefits?

The use of CPI does not relate only to benefits; it has a profound effect on pensions and pensioners. More than 10 million people get a state second pension, including 6 million women. The reforms to S2P in recent years have been particularly focused on improving outcomes for the low-paid. The average state second pension is now £36 a week. The switch to uprating this by CPI rather than RPI means a loss on average of more than £2 a week by 2015, with growing losses thereafter. There was no mention of that when boasting about the triple lock. There are also ramifications for public sector pensions and for many private sector occupational pensions because uprating is linked to S2P uprating. This comes at a time when pensioners are faced with the burdens of the VAT increase and no benefit from the increased personal tax allowance. As the Public Service Pensioners’ Council points out, it was assured by all three parties that any changes to public sector pensions would have a long lead-in time and be the subject of consultation. Where was the consultation? It may be fashionable to attack public sector pensions, but many who gave public service are on low or modest pensions and the uprating changes affect them, too. What evidence is adduced to support the Government’s intention that CPI is a better measure of inflation for pensioners than RPI? Given that the coalition agreement specifically recognises that work is needed to amend the CPI index, can the Minister advise us of progress?

We should give credit where credit is due. We welcome the increases in the child tax credit announced for April 2011, even though—as Save the Children pointed out—those on housing benefit will see a reduction in housing support of up to 65 per cent of this increase. However, these increases in child tax credits are dwarfed by a plethora of reductions to the tax credit regime. CPAG calculates that only 20 per cent of the £3.2 billion of cuts will come from reducing entitlement for families on higher incomes. The rest will have a direct impact on low-income families. The increased rate at which tax credits are withdrawn would lose someone earning £16,420 a year £200. Introducing the £2,500 income disregard for households facing a drop in income— a novel invention, I am bound to say—could mean a reduction in tax credits of £1,000, particularly affecting people who take maternity leave or long-term sick leave.

Families with babies seem to have been especially targeted by this Budget, despite the rhetoric around family values. They lose the health in pregnancy grant, the £545 baby element of the child tax credit and the £500 Sure Start maternity grant, other than for the first child. Then there is the demise of child trust funds. The increase in the child tax credit is not enough to compensate for these. Freezing child benefit for three years will have a disproportionate effect on the poor, because child benefit contributes a larger proportion to their household income than it does for more affluent households. Notwithstanding all this, the Government assert that increasing the child element of the child tax credit above inflation to ameliorate the freezing of child benefit will cause no measurable impact on child poverty in the next two years. Will the Minister please confirm that this assessment is made on the basis of all the measures set out in the latest Budget, rather than just those two items? We welcome the Government’s commitment to the child poverty targets but, frankly, this Budget takes us in the wrong direction.

Time does not permit a detailed analysis of how different households might be affected by different combinations of Budget measures, but the Citizens Advice briefing is recommended reading. However, we know that one group will particularly bear the brunt of this Budget—women. This was covered extensively in yesterday’s debate on the role of women. The analysis shows that, of the £8 billion net revenue to be raised in 2014-15, some £6 million will be from women—and this at a time when women still lag behind men in earnings and wealth.

That is just one more manifestation of a regressive Budget judgment. If we needed proof, the choice of a VAT increase as a revenue-raising measure is it. The 2.5 per cent increase in VAT is the biggest single item in the Budget, raising some £13.4 billion. Both the Prime Minister and his deputy are on record as acknowledging that it is a regressive tax, hitting the poorest hardest. The IFS analysis shows percentage income losses for the poorest to be more than twice those for the richest. The Government know that the VAT hike will have a significant adverse impact on the incomes of poor families but chose it in preference to targeted taxes on the assets and income of the wealthiest.

On proper scrutiny, it is clear that the 2010 coalition Budget is deeply regressive. It cuts benefits, reduces tax credits for families on low and moderate incomes, short-changes pensions and pensioners, exacerbates homelessness and chooses regressive taxes. These choices did not have to be made.

We came into politics through a variety of influences. Many of us wanted to bring about social justice, combat poverty and promote equality. The improvement in our own material well-being and our inculcation into grand institutions such as your Lordships’ House may have dimmed or deflected that commitment. However, if that cause needed a catalyst—a call to action—it is writ large in this unfair, regressive and ill judged Budget. We have work to do to expose its excesses and we must use our energies to protect those whose lives will be scarred by its ideology.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, it just remains for me to thank all noble Lords for contributing to today’s debate. It has been wide-ranging and informative, as one would expect from your Lordships’ House.

I add my congratulations on four marvellous maiden speeches, from my noble friends Lord Boateng, Lady Donaghy and Lord McFall of Alcluith, and from the noble Lord, Lord Shipley. The passion, knowledge and experience that went into these speeches make me feel glad that I slipped under the wire earlier when the standard was not so high.

I thank the Minister. It is a pity that we did not hear from any Conservative Back-Benchers on poverty issues. Perhaps we should take a message from that. I accept that the Minister has an interest in and is passionate about tackling poverty; I know that from our debates on the Child Poverty Bill. His assertions about protecting the most vulnerable were not particularly convincing, if I may say so. Concern about increasing work incentives on the basis of the Budget is partly about driving down the level of benefits, and fairness in housing benefits is very difficult to see from the propositions that are coming forward.

We shall clearly have the opportunity to debate these at length as the primary and secondary legislation comes forward. I am gratified by the fact that, on today’s showing, more noble Lords will participate in that endeavour. I beg leave to withdraw the Motion.

Motion withdrawn.