Welfare Reform Bill

Lord McKenzie of Luton Excerpts

Monday 21st November 2011 Grand Committee

[Lord McAvoy]

My Lords, I would like to follow the point made by the noble Lord, Lord Skelmersdale, that medical science might come up with a cure, but I am puzzled as to why that is problem. Surely when the facts change, the law would be changed; I do not see any great problem with changing the law.

[Lord McKenzie of Luton]

My Lords, we have a degree of sympathy with the amendment moved by my noble friend Lord Touhig and spoken to by the noble Countess, Lady Mar, and the noble Lord, Lord Wigley. As I understand it, it goes with the grain of what the Government are seeking to do. When we debated similar issues last week, I thought the term “exceptional circumstances” was somewhat broader than a strict reading of it might lead one to conclude. Therefore, I ask the Minister to expand on that when dealing with this amendment and to say whether he accepts the proposition that there will be those with long-term degenerative conditions that are unlikely to improve.

The noble Lord, Lord Skelmersdale, makes the reasonable point that we never know if there might be medical scientific breakthroughs, but, as my noble friend said, these matters could always be revisited. It seems to be important to try to give some comfort to people whose condition is sadly not going to improve. What is the purpose of bringing them in simply to pile stress on to their lives and use resources that could be deployed elsewhere?

[The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)]

My Lords, we think it is right that an individual’s benefit entitlement is based on the degree to which he or she is participating in society. This level of participation can vary as health conditions or impairments improve or deteriorate, their impact changes or individuals adapt to their circumstances. We want the benefit accurately to reflect relevant changes in circumstances to ensure that people receive the right level of support. The 2004-05 national benefit review found that about £630 million a year of DLA is overpaid as a result of unreported changes in circumstances. This cannot be right. However, it is equally about ensuring that, when people’s circumstances deteriorate, the benefit keeps track with them.

The same study estimated that around £190 million of DLA is underpaid each year—vital money that is not reaching the people for whom it was intended. There is no one-size-fits-all answer; our approach will involve a combination of awards that, in some cases, will be fixed for a short time and in others will be longer term, depending on the individual, the impact of their disability and the extent to which they are able to live independently. In many circumstances, this can change for better or indeed for worse during someone’s lifetime, and this will be different for different people. We think that an active management regime that involves planned reviews is the most appropriate way of responding to this.

However, it is important—and on this I feel we agree—that we do not undertake inappropriate or unnecessary assessments and interventions where there is unlikely to be a change in award. Key to this is ensuring that decisions on award duration and interventions are evidence based. Here I refer back to comments I made during the debate on the noble Lord’s previous amendments. In PIP assessment, we want to get the best mix of evidence from a variety of sources. This will be partly about what the claimants tell us about themselves, partly what can be gathered at face-to-face consultations and partly what we can obtain from relevant people who support them. Moreover, as I said, we want individuals to tell us who is best placed to advise us on these matters.

Therefore, I think we are fundamentally in the same place as the noble Lords and the noble Baroness. The one key difference is that we do not think that an individual’s type of health condition or impairment matters—for example, whether or not it is a lifelong condition; what matters is the likely impact of the condition going forwards and whether it is likely to affect benefit entitlement. Conditions and impairments—even ones that are usually degenerative—can affect people in very different ways. That is why we want decisions on award durations to be based on individual circumstances following consideration of all the evidence of the case.

--- Later in debate ---

[Lord Freud]

Yes, my Lords. That is what I said and it has not changed. Noble Lords might be reassured by the fact that, even where awards are fixed term and periodic reassessment is required, this does not have to be burdensome. As I have just said, in some cases the assessments will involve scrutiny of paper evidence only and will not require a face-to-face consultation. This will especially be the case where there is considerable supporting evidence on which to base decisions. Conditions or impairments which are life-long and/or degenerative are particularly likely to have such supporting evidence.

We will provide guidance on the duration of an award, including when an ongoing award would be appropriate and with what frequency that award would be reviewed. We are committed to developing the duration assessment in consultation with disabled people and their representatives to ensure that we get it right. We recognise how important this is to ensure that the process of deciding award durations remains both fair and transparent.

I should also like to tackle a misconception that seems to have built up in relation to this issue—that is, that there will be a requirement for everyone to be reviewed on a yearly basis. This is simply not true. While some people will receive one-year awards where their circumstances warrant it, the vast majority of awards are likely to be longer than this, with some being much longer and some indefinite.

I hope that I have reassured noble Lords that we are in the same place as them on this issue. We want award durations to be based on individuals’ circumstances and the likelihood of change; we do not want unnecessary reviews or assessments; and we want decisions on these issues to be based on the best evidence, including that from the professionals involved in supporting claimants. On that basis, I urge the noble Lord to withdraw his amendment.

[Lord McKenzie of Luton]

Can the Minister clarify one point? He said that some awards might be long- term and some short-term. Can he give us an inkling as to the department’s thinking about that spectrum and what long-term awards may mean?

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his explanation of these amendments, which I think I understand and accept. I wondered at first when I saw them whether we had done something to upset Treasury Ministers, and they no longer wanted to come before us. To be clear, we have provisions in here relating to tax which we are simply moving out of the Bill because they are going to go back in a Finance Act. If they remained in the Bill in their current form, would that in any way invalidate them? There might be a procedural issue that has gone awry in this case, but I am still a little unclear as to why it is necessary in the event, given that those provisions are there, they could not remain.

More importantly, I am anxious that if these provisions come out of this Bill, there is certainty that they will end up in a Finance Bill. Can the Minister give us any assurance as to which Bill that is likely to be and what processes, given the oversight that we dealt with a couple of Committee sittings ago, there are in place to make sure that these are followed through and put into effect?

[Lord Freud]

When you look at these detailed measures, which is something that I do not encourage anyone to do who wants to retain their sang-froid, you can see that they are closely associated with taxation and trust funds. It is much more coherent for them to be dealt with in a Finance Bill or another finance Act rather than one dealing with welfare reform. That is simply the reason, because it means that if you restructure a piece of tax trust law, you can do the whole thing in one, rather than having to go to different Acts. That is the reason.

--- Later in debate ---

[Baroness Sherlock]

My Lords, I move this amendment on behalf of the noble Lord, Lord Patel, who has been unavoidably detained, as he has an important meeting on other legislation. I shall speak also to Amendment 98A.

In doing so, I am grateful for briefing, particularly from CLIC Sargent, a charity that works with children with cancer. These are probing amendments that are designed to ensure that personal independence payment is able to meet the distinct needs of young people aged 16 to 24 who have a long-term health condition or disability. I understand that the Government have confirmed that the reform of DLA for under-16s will be taken forward separately, but there is still an issue about whether PIP is able to meet the unique needs of young people aged 16 to 24. There is a concern that they will end up being treated the same way as adults, despite being much less likely to have financial independence and having fewer benefits available to them. I understand that DLA is at present the only benefit available to young people with a health condition which is available in all circumstances. Therefore, it is particularly important that PIP is able to meet the unique needs of this group of young people with health conditions or disabilities.

As noble Lords will appreciate, those young people aged 16 to 24 face a range of transitions as they approach adulthood. They may leave education and move on to higher education or employment, perhaps leaving their family and moving into their own home. They may enter into long-term relationships and have children; increasingly, those key transitions happen in the 20s. In particular, I am conscious that elsewhere the Government are moving to raise the age participation rate for children in education. There are also reviews going on of SEN; the disability Green Paper is looking at a co-ordinated system of assessment and support from birth to age 25. But the plans to raise participation age will mean that, for example, most 16 to 18 year-olds will still be in education or training, but PIP will classify them as working-age adults. By way of example, I understand that the best practice NICE guidance treats 16 to 24 year-olds with cancer as being a distinct group with specific social, psychological and educational needs and goes on to explain the best way for services to be shaped for this group. Could the Minister be encouraged to look at that as an approach that might be helpful in transitioning across to examining PIP?

The effect of relying on different age ranges within the benefits system not only complicates transition for long-term health conditions or disabilities but can also see them facing a cliff edge. Can I put some specific questions to the Minister? I have no desire to press this amendment but perhaps he could help the Committee to understand how the Government intend to support this group of people. Has he looked at the possibility of introducing specialist teams or a tailored approach to young people aged 16 to 24 in the benefits system? Would he consider a distinct PIP system for those aged 16 to 24, which would include an age-appropriate system of assessment for that age group? In particular, would he consider whether those already in receipt of DLA could continue to receive it until they turn 18—or maybe even up to 24, if he is feeling particularly generous today? Would he comment on the qualifying period? Could he reassure the Committee that that will not apply for those under 18, and ideally not for those under 24? Could he help the Committee to understand what approach the Government are taking to harmonising the various age limits across the benefit system?

This is a potentially particularly vulnerable group of young people, and it is important that in looking at how PIP will operate we take careful account of the impact on this group. I hope that the Minister is able to reassure the Committee. I beg to move.

[Lord McKenzie of Luton]

My Lords, these are useful probing amendments to understand fully what is happening or proposed in respect of this group of young people. I imagine that the Minister will say that, as the Bill stands, there are already powers to make regulations as proposed for 16 to 24 year-olds, but it is an opportunity to get something on the record. We certainly support the thrust of this and the needs for regulations that are affirmative—not just the first set. I think that we will hear from the noble Lord, Lord German, on that in a moment.

The age 16 already has ramifications in the DLA system. Below that age, young people cannot qualify for the lower-rate care component via the cooking test, and there are additional tests for the lower-rate mobility test. So there is already a potentially stressful transition under DLA that could be compounded with the transition to PIP. The figures that have been mentioned are that over the next three years 173,000 disabled children will turn 16. If they have to seek or apply for PIP immediately, that is a big challenge. There was a hint in the other place when this was debated that that would not necessarily be the case and that, in the scheduling of young people in this age group, they would go directly on to PIP. Perhaps we can have the Minister’s reassurance or an update on that point.

The briefing note that we got from the DWP sets out the work undertaken to date, seeking to base the assessment on the education health and care plan that is being developed across government, which we would support. But I am not quite sure how it fits together on timing, particularly over the next couple of years, with PIP being relatively close by and due to be with us shortly. Can the Minister confirm to us the process of assessment for young adults and say what the likely migration process is? What happens to 16 year-olds who are on DLA at the point when PIP is introduced?

[Lord Freud]

My Lords, I am grateful to the noble Lord, Lord Patel, for tabling these amendments and to the noble Baroness, Lady Sherlock, for moving them in his absence. The amendments allow me to set out the Government’s position on how we will deliver PIP effectively for young disabled people in a way that is sensitive to their needs. Noble Lords may be aware that the Government published a briefing document that specifically considered the position of young people. The briefing document set out some of the main insights that we have learned from them and their representatives, which are informing our design work.

Let me be clear from the outset. I know that there are particular issues and sensitivities when dealing with disabled young adults at what can be a particularly challenging period of their life. That is why we have been working closely with people aged 16 to 24 and their representative organisations in order to understand how we can ensure that the benefit is administered in a way that best meets their needs. Two main considerations that young people have raised with us are: whether 16 is too young an age to begin the process of moving from DLA to PIP; and making sure that the transition arrangements for moving on to the new benefit are easy to understand and transparent—the role of advocates and information needs, for example, being particularly important.

Under current arrangements for DLA, the child-related rules fall away at the age of 16 and the entitlement conditions to the care component are extended. The age of 16 therefore forms a natural touch-point to re-examine entitlement and take young people through to entitlement and receipt of DLA in their own right, where that is appropriate. Paying young people directly gives them direct control over how the benefit can enable them to live independent lives. It is our firm belief that the principle of giving individuals control over how they can tackle the barriers to their independence should be brought forward into PIP.

In developing our proposals for PIP, we know that there are particular issues that we need to address concerning its delivery to young adults. For example, young disabled people can expect to go through a number of assessments as they move from childhood to adulthood, and many of them will require varying degrees of support to negotiate those assessments. That is why we will ensure that all young people who claim, or transition on to, PIP will have the appropriate support to allow them fully to express their needs. This could be, for example, by allowing a parent, advocate or friend to accompany them to their face-to-face consultation.

We are fully involving young disabled people and their representatives as we design and build the delivery mechanisms. For example, we are working with user-led organisations through the PIP implementation development group, which is made up of a wide range of organisations including those that represent young people. We have also begun work with focus groups and have conducted one-to-one interviews directly with young people, appointees and their representatives to inform both the way in which PIP will be delivered and the transition arrangements for those moving from DLA to PIP.

As I mentioned, the transition from childhood to adulthood brings with it numerous assessments at different ages. We are therefore also working across government, in particular with the Department of Education, to see what more we may be able to join up and share information with the proposed single assessment process for education, health and social care. This means, for example, that if an individual is still in education or training, exploring whether we may be able to use evidence from special educational needs assessments or information from the school or college to inform the determination of a PIP claim. But we need to look carefully at this so that we get the right balance between not overassessing someone and having an approach that is too general to identify a person’s specific needs. My officials are therefore working closely with officials in the Department of Education so that we get this right.

To ensure transparency, credibility and a smooth transition from DLA to PIP, we know that we will need to build in processes, with appropriate information and engagement, that let young people and their families know what to expect and understand what they have to do. Our intention is to ensure continuity of payment, with no gap between DLA ending and PIP starting when an individual makes a claim and subject to their meeting the eligibility conditions. We are continuing to consider how the detailed rules should work and, as with all the changes that we are making, we will continue to involve disabled people and their representatives in the design.

--- Later in debate ---

I hope that I have been able to describe the approach that we want to adopt. Given the assurances that I have been able to make, I urge the noble Baroness to withdraw the amendment.

[Lord McKenzie of Luton]

Could the Minister clarify a point? I apologise if I have missed this. In the case of someone who at the moment is under 16 and on DLA, if they reach the age of 16 before PIP is introduced, will they undergo the normal reassessment to adult DLA? If they reach 16 after PIP has been introduced, will they automatically go through the PIP process, or could they potentially stay on the DLA adult process for a period, whatever that may be?

[Lord Freud]

My Lords, we have not done a detailed migration strategy. When people are effectively on adult DLA, even though they have transitioned from child DLA, we will have to work out the exact timings for when to take them. We do not have those precise details yet.

[Lord McKenzie of Luton]

I am grateful for that. The Minister will see that the issue that that highlights is the one that was probed: if people reaching 16 are going to go straight on to PIP, given what is going to happen with the number of young people achieving the age of 16 over the next couple of years, they are in large measure going to be first through the gate for PIP. That was the concern.

--- Later in debate ---

[Baroness Tyler of Enfield]

My Lords, I should like to explain why I decided to add my name to the excellent amendments that have just been put forward by the right reverend Prelate the Bishop of Ripon and Leeds. I, too, was indebted to the work of the Children’s Society, which did an excellent analysis in this area. I understand the rationale for a benefit cap. I am not trying to say that I am against it; I understand the arguments about promoting fairness between those in work and those receiving benefits, and indeed the need to reduce the cost of the rapidly growing benefits bill as part of the overall deficit reduction strategy. My concern, though, as I looked at the numbers, at who would be affected and at the types of families that would be affected, was the implications for some of the most vulnerable families, particularly families with children. I shall say a few more words about that.

I was very taken by the analysis of the Children’s Society that showed that children would be disproportionately affected by how the benefit cap is currently constructed. While it is estimated that some 50,000 households will have their benefits reduced at the moment by this policy, it has also been estimated that over 200,000 children will be affected and up to 80,000 of those could be made homeless.

The composition of the households that are likely to be affected is interesting. The figures are one-third couples, two-thirds single women—generally single mothers—and about half will also be disabled. Indeed, 60 per cent of the households likely to be affected live in London, where housing is more expensive, particularly people living in private rented accommodation. Various ethnic groups will also be particularly affected, when they have larger families.

The first consequences of the benefit cap, unless it is possible to look at constructing it in a different way—perhaps using one of the approaches suggested in these excellent amendments—will be families having to move very abruptly to cheaper areas. This risks children moving school in the middle of a year, thereby disrupting their education and their social networks. It also risks families splitting up, and I shall come back to that point. It could have adverse consequences on kinship carers—family and friends—which is why in the next grouping I am moving an amendment on that point. I also feel that families who will be able to continue to pay the rent will have less money left for other essentials such as food and clothes, which will therefore contribute to child poverty. For families who are not able to pay the rent, are evicted and become homeless, this will be a parlous situation. Children are a priority group for council housing so this is likely to lead to additional pressure on temporary accommodation costs, adding to the cost pressures on local authority budgets. We have heard quite a bit about this in recent months.

There is then a very real danger, which has had virtually no attention, that children at risk will simply disappear from view. This raises real child protection and safeguarding concerns for me. We all know the very tragic stories of children who have disappeared from view and what happens to them in the very worst circumstances. We must ensure that the benefit cap does not, however inadvertently, have that consequence.

Then there is the reduction in what I call mixed communities, as poorer families are forced to move out of an expensive area. As I said earlier, this is particularly the case in London. Not only will it create very undesirable ghettoisation but there will be pressure on public services in ways that different bits of different boroughs will find difficult to deal with. For example, the concentration of workless households in some areas has significant potential implications for a wide range of local authority services. Boroughs that have an inward migration of households are likely to face severely increased service pressures such as demand for school places, the impact of unemployment, poverty and poor housing conditions, whereas in contrast other boroughs will experience reduced demand for such services but will themselves face challenges and costs in adapting very quickly to these different demands.

The point that I should like to finish on, which I feel particularly passionate about—perhaps because I am chief executive of the country’s largest relationships support organisation Relate, which is a declared interest—is the inherent couple penalty currently built into the benefit cap. This has had very little attention so far, but it will affect couples substantially more than lone parents. Indeed, it has been suggested by experts in the field that the cap will introduce one of the most substantial couple penalties ever seen in the benefits system, so it could have the perverse consequence of breaking up families as well as deterring people from entering new relationships and forming new households. Surely this couple penalty is completely at odds with the Government’s, and indeed the Prime Minister’s, very clear stance on wishing to support strong and stable family relationships. I am sure that this is an unintended consequence and has not been thought through, but we need to look at this.

Finally, the impact would be particularly keen where two lone parents decide to move in together, particularly if they both had children from the previous relationship. Such couples could then find that they would be far worse off by moving in and forming one household rather than living as two separate households. I will not detain the Committee’s time any longer, but I just wanted to explain why I feel that having some in-depth discussion of an alternative way of constructing the benefit cap is so vital.

[Lord McKenzie of Luton]

My Lords, I think that the noble Lord, Lord Best, wishes to speak.

[Lord Best]

My Lords, in speaking to Amendment 99AC in this group, I am very grateful to Shelter, Homeless Link and the National Housing Federation, which have formulated a series of amendments here and given invaluable advice to all of us.

It turns out that the new benefit cap is really about two factors: children and housing. As was so clearly demonstrated by the noble Baroness, Lady Tyler, and the right reverend Prelate, because the cap is not adjusted to take account of the number of children in a family, larger families will be hardest hit. The other factor for which no allowance is made in the crude calculation of the benefit cap is housing costs. No account is taken of the fact that families in otherwise identical circumstances have to pay very different amounts for their housing, not out of choice but because of where they live, what type of landlord they have and the size of home that their family requires.

Rents are far higher in some areas than in others. In London and the south-east, rents may be four times the levels in the cheaper areas of the north of England or, say, south Wales. If the accommodation is in the private rented sector, again rents can be several times higher than in the social, council or housing association sector. Of course, accommodation costs will be higher if you have a larger family. Heaven help you if you have, say, three children—let alone four, as in my own family—and you are in the private rented sector and you live in the southern half of England. If you cannot find a job, you are probably going to have to move, most likely to a cheaper area where, unfortunately, employment prospects are likely to be even worse, or you will face homelessness.

The cap is very much about housing, and the way that it is applied relates directly to housing costs. Where a family’s entitlement to benefits exceeds the cap, the cut to their state support is to be achieved, in the first instance, by cutting their housing benefit. The DWP calculates that some 50,000 households will be affected. On average, they will lose £93 per week from the amount that they can contribute towards their rent. This shortfall, which cannot possibly be covered by cutting back on food, clothing, heating and so on, rises to a colossal £150 per week for some 7,500 families. The cap also raises the prospect that some families who will have to move in 2012, because of caps on housing benefit and local housing allowance already announced, will be hit again and uprooted for a second time when this overall cap reaches them in 2013.

Amendment 99AC in my name seeks to address this fundamental flaw in the proposal for a benefit cap by excluding the housing benefit component from it. This would not save all those affected since the largest families will be left with virtually nothing with which to pay their rents if they are not to fall below the poverty line. However, it recognises the extreme consequences, even for those in smaller households, of having to pay today’s market rents in so many areas. Removing the housing benefit element from the cap would greatly moderate its effect upon already very poor households.

The DWP itself points out in its impact assessment that households are very likely to go into rent arrears, which means landlords and the courts incurring the expense and effort of evictions, and local authorities facing the increased cost of handling homelessness. Shelter research shows that out-of-work families with just two children will face a shortfall in what they receive for their rent in the private rented sector in all inner London boroughs and many outer London boroughs, from Hounslow to Haringey to Newham. Those with three children will face this problem in every London borough and in 82 per cent of all local authorities throughout the south-east of England.

I may be pre-empting the Minister’s response but the problem would be solved if private landlords and housing associations charging the highest rents were to cut dramatically the rents of their tenants receiving housing benefit or local housing allowance. However, we should remember that housing benefit and local housing allowance are being cut and capped in several other ways, including through the high rent caps and the restriction to the lowest 30 per cent of rents. Therefore, in total, some pretty hefty rent reductions will be necessary. I fear that there is simply no chance of private landlords, who now have lots of new customers because so few younger households can afford to buy, slashing rents to accommodate the extra cap. Rather, Amendment 99AC seeks to remove much of this problem by taking housing benefits out of the equation.

In the next set of amendments, I will look at some of the ways in which the problem might be mitigated. However, this overarching amendment seeks to remove from the problem of a simple, overarching benefit cap the housing costs that make such a big difference to who is and who is not affected by the new overall cap.

--- Later in debate ---

[Lord McKenzie of Luton]

My Lords, we are indebted to the right reverend Prelate the Bishop of Ripon and Leeds for leading the charge on this. Indeed, faith communities generally have been a voice for people who might otherwise not have been heard. The need for so many amendments around this proposal in the Bill highlights the extent to which it is a badly conceived policy. Whether or not you believe there should be an overall cap on benefit entitlement, what we know about the approach taken to applying such a cap in the Bill shows it to be unfair, inconsistent and to ignore the needs of many of the most vulnerable.

This first group of amendments relates to how the benefit cap is to be calculated and shows the extent to which there are major inconsistencies in the Government’s approach. The second group relates to the fact that the Government appear to have ignored the needs of many of the most vulnerable people when thinking about who is to be excluded from the benefit cap.

The Government have argued that applying the benefit cap is fair. The Secretary of State for Work and Pensions, Iain Duncan Smith, has stated:

“The benefit cap will restore fairness to the taxpayer and fairness to those who do the right thing on benefits”.

Of course, we are learning with this Government that fairness has many different meanings to different people, but it would be hard for anyone to justify the idea that the current policy will be fair to children, who, as we have heard, the Children’s Society has shown are nine times as likely to lose out from the cap as adults. Out of the 50,000 households that will be affected by the cap, the Children’s Society estimates that 210,000 will be hit, compared to 70,000 adults. Perhaps the Minister will tell us whether he thinks this policy is indeed fair to children.

The Bill impacts so heavily on children in part because of the way that the Government have stated that they will calculate the level of the cap. At present it is proposed to set the benefit cap at two different levels. The first, for single people without children, will be introduced at around £350. For couples, it will be introduced whether they have children or not, and for single parents with children the cap will be introduced based on net average earnings for a working household with or without children, which the Government estimate to be around £500 per week at the point of introduction.

We should note that that proposal creates a substantial couple penalty, which the noble Baroness, Lady Tyler, spoke about. Research by Family Action showed that for two lone-parent households that decided to move in together this penalty could be as much as £9,000 a year. Does the Minister believe that financial penalties of this type form a disincentive for families to move in together? If so, what assessments has his department made of the likely impacts of applying the cap in this way on the rates of lone parenthood and cohabitation?

We note that while the universal credit has a higher personal amount for couples than for single people with children, the benefit cap has not followed the same principle. Not only is the current calculation unfair towards couple families, it is also unfair in its comparison between those in and out of work. Both working and non-working families were able to receive child benefit and housing benefit. As the level of the cap is based on earning levels rather than income, however, these will, as the right reverend Prelate said, be excluded from consideration of the amount of money that working families have to live on but included in the calculation for those out of work. Amendments in the next group seek to exclude child benefit and those in this group to exclude housing benefit from being included in the calculation of total income for out-of-work families. Perhaps now the Minister could explain exactly the basis on which this method for calculating average family earnings was chosen.

In-work benefits, including working tax credit and, subsequently, universal credit, will also be excluded from the calculation of the level of the cap, but not from the calculation of the amount of income that out-of-work families are expected to live on. Here we come to another lack of clarity about the Government’s approach, as it is once again not clear what the definition of work is expected to be for the benefit cap when universal credit is established. Before universal credit is established, the cap will initially be applied to housing benefit, and the note with the draft regulations that we received states that a claimant in receipt of housing benefit will be considered to be in work if they are entitled to working tax credit. It has been announced that when working tax credit is abolished, there will be a corresponding exemption for people on universal credit who are considered to be in work. The precise criteria for this exception are still being considered.

Again, the thinking behind the benefit cap appears to be out of kilter with what is behind the universal credit. Indeed, the Government have just spent a large amount of money on ensuring that households working under 16 hours will still be able to claim support with childcare costs under universal credit. Yet in benefit-cap terms, it seems that working less than 16 hours is not really considered as work, and it is possible that this childcare support will be removed by the restriction on the total amount of benefit that a family can receive. Large families may be caught in a trap whereby any move into work brings with it additional childcare costs, which are then reduced by the cap to the extent that working is no longer worth while. Does the Minister believe that a family in which someone is working for less than 16 hours a week is a “working family”?

Amendments 99ABAA and 99ACA in our names seek to understand why housing benefit and council tax benefit have been included in the benefit cap. At present, the proposals seem both unfair and unworkable. The differences in rent around the country, as we heard from the noble Lord, Lord Best, mean that families in different areas will be affected very differently by the cap, with the most severe impact on families in London. As the Government’s own impact assessment states about the possible impacts of the cap, it is likely to affect where different family types will be able to live, housing benefit may no longer cover housing costs, and some households may go into rent arrears. This is a direct consequence, they acknowledge, of government policy. Some households will be pushed into rent arrears, which will require expense and effort by landlords and the courts to evict and seek to recoup rent arrears. Some households are likely to present as homeless and may, as a result, need to move into more expensive temporary accommodation at a cost to the local authority. These costs are likely to fall most heavily on local authorities in London. Shelter, Crisis, Homeless Link and the National Housing Federation state that although the cap has been characterised as a cap on large families, high rents in London mean that families with just two children will be subject to the cap in all inner London and many parts of outer London, including Newham, Haringey and Hounslow, because of higher housing costs in those areas. London Councils points out that rent levels vary widely across the country. London has the highest average private sector rents in the country, at £220 per week, which is more than 35 per cent higher when compared to £164 nationally. It is estimated that more than 50 per cent of couples with more than three children in London are unlikely to be able to afford their rent.

The benefit cap will come on top of the already imposed cap on the local housing allowance, as we have heard, while Shelter, Crisis, Homeless Link and the National Housing Federation state:

“Unless housing benefit is removed from the calculation of the cap there is a risk that low income households will be displaced from large areas of the south-east, on a scale far wider than that feared in response to”

the local housing allowance caps. For families already hit by those caps, the organisations state,

“there is a risk that they could be hit again and forced to move twice within less than a year”,

as the noble Lord, Lord Best, said. What estimates has the Minister made of the additional cost to local authorities in London and the increased costs that they are likely to face as a result of the household benefit cap?

In the post-Bill world, these same local authorities will also be delivering council tax benefit. For the Government to be able to take council tax benefit or its replacement into account for the purposes of the cap, they will therefore need local authorities to tell them who is in receipt of the benefit and how much they are receiving. What arrangements does the Minister expect to be in place to ensure that the benefit cap correctly takes into account the amount of support with council tax?

The variation in local authority support for council tax also means that how families are affected by the benefit cap will vary by local authority. Those local authorities faced with additional costs in temporary accommodation as a result of the cap may be tempted to recoup their costs by limiting the amount of support that they give with council tax—knowing that, in effect, the DWP will pick up the bill by paying out more universal credit before the benefit cap is imposed. Perhaps the Minister can tell us what estimates have been made of the potential for savings from the benefit cap to vary, depending on the level of council tax support put in place by differing local authorities.

The Minister may say in his response that according to the impact assessment the benefit cap is expected to hit just 50,000 households—roughly 1 per cent of the out-of-work benefit caseload. Yet the impact on these families will be extreme, with an expected average loss of £93 a week. He may also tell us that he has no money and no way of recouping the expected savings from this policy of £225 million in 2013-14, and £270 million in 2014-15. However, it is clear that the costs of this policy, not only in terms of family well-being but for local authorities, will be high. The amendments proposed today seek to rescue this policy and to ensure that it can retain some aspects of the fairness that the Government say that they are aiming for. I hope that the Minister feels able to accept the amendments.

Perhaps I may conclude with a few questions. The impact assessment, as has been discussed, sets out the consequences of the benefit cap—that it will force people into rent arrears and cause them to be evicted—but it has not been able to put a cost on that. Do central Government accept that this is an increased burden on local authorities which, under the Government’s policy, should be met on one basis or another, and has any further work being undertaken to quantify this? What about the costs falling on the devolved Administrations? As to those Administrations, which benefits, if any, are included under Clause 93(9) that could be capped in England but not in Wales or Scotland? Perhaps the Minister could let us have a detailed note, not today but by correspondence, on the local authority obligations to individuals and families made homeless by these provisions and the types of rules that local authorities have to take into account, particularly in relation to local connections.

Can the Minister also say something about the number of people who will be affected by this cap and who live in social housing? I think that a figure of something like 70 per cent was discussed in the other place, but that may not be up to date. The point is that social housing is, generally, of lower cost than pretty much any other housing around. If people in social housing are being forced into rent arrears and eviction, the only consequence will be that they will face being rehoused in higher-cost accommodation.

[Baroness Hollis of Heigham]

Does the noble Lord not agree that, with the new affordable rents—which are going to be 80 per cent of market rents—we could end up with social housing being higher than the benefit available to somebody on the 30th or 20th percentile in the private rented sector?

[Lord McKenzie of Luton]

Indeed, I very much agree with that. In fact, one of my other questions to the Minister is to ask what assessment has been made of the impact of the capping policy on RSL’s ability to charge rents of up to 80 per cent of market value, which is the key to the housing programme that the Government have promulgated. They have moved away capital spend to revenue spend. Perhaps the Minister could spell out more generally the whole evidence base for this policy that is presented to us.

I also ask the Minister—because part of the rationale is supposedly its impact on work incentive—whether, out of the 50,000 households expected to be affected by the cap, he could split that 50,000 between those who are within income support currently, those who are within the WRAG, those in the support group and those in the full conditionality regime of JSA. Does he agree that the cap will effectively create a cliff edge that undermines a key benefit of the universal credit? Whether it is hours or income, movement to either side of the cut-off point could be dramatic. What modelling has been done to assess the consequences of that?

Finally—for the time being—I ask the noble Lord for his comments on the report from the Centre for Social Justice, which I think is an organisation dear to the Minister’s heart. It says,

“we do share some of the criticisms about how such cuts are being introduced in the welfare system”.

That was a reference to child benefit. The Centre for Social Justice goes on to state:

“But our main contention is with current plans to introduce a full benefit cap on households in one fell swoop. Without the careful phasing in of such a cap … the CSJ is concerned it will bring hardship to as many as 50,000 large families who will have the plug pulled from under them overnight”.

As we discussed, average losses are projected to be £93 a week. The Centre for Social Justice states that, “it is likely to be devastating” and that the Government should think again urgently about their implementation plan. Does the Minister accept that assessment?

--- Later in debate ---

[Lord Skelmersdale]

Can I just finish? I accept that this will involve lifestyle changes. It is inevitable, is it not? Noble Lords have spoken about housing. There is no doubt that idleness—no, idleness is an unfair word—having more time than someone in full-time work costs money. How and with what—

[Lord McKenzie of Luton]

Would the noble Lord approve of a lifestyle change that forced someone out of a council house, whatever the level of rent, into much more expensive private sector accommodation because they had been made homeless? Is that a lifestyle change that the noble Lord would approve of?

[Baroness Hollis of Heigham]

Perhaps I may add to my noble friend’s comments. Would the noble Lord care to compare apples with apples rather than apples with oranges—in other words, not compare the situation of a single man earning the average of £25,000 with the situation of a family who would also be entitled, for example, to child tax credits? If the noble Lord is going to make comparisons, he must in all integrity compare like with like.

--- Later in debate ---

[Lord Freud]

My Lords, these amendments seek to increase the amount of welfare benefits that households which are out of work will be able to receive to above the level that we have said we will be introducing for the new benefit cap. Before I speak to the specific points that they raise, I need to make it clear that the coalition Government believe that there has to be a limit on the overall levels of benefit that it is appropriate for the state to provide to those who are not working. Indeed, I understand from the comment of Liam Byrne MP in yesterday’s Observer that this is also the position of the Opposition. Perhaps the noble Lord, Lord McKenzie, will be happy to confirm that.

A welfare system that provides payment at unrestricted rates ultimately serves nobody—not those paying taxes to fund it and often not those it traps in welfare dependency by providing little or no incentive to move off benefit and into employment. It is important that the benefits system is fair and is seen to be fair. We do not believe that it is appropriate that households getting out-of-work benefits should receive a greater income from benefits than the average weekly net wage for working households.

We believe that the cap for lone-parent and couple households should be around £500 a week, which is the level of median household earnings. This is the equivalent of a net salary of £26,000 per year, or a gross figure of £35,000 per year. There will be a cap of around £350 per week for single-adult households. Therefore, even within the limits of the cap, households will still be able to receive significant amounts of financial assistance from state welfare payments—an amount equal to the median national wage without going out to work. To make that explicit, it is the equivalent of what more than half the households in the country are earning.

The right reverend Prelate’s Amendment 99ZA and several of his other amendments seek to differentiate and improve the position of families with children in the way that the cap is calculated and applied. I acknowledge that, because of in-work benefits, there will be some working households that earn at the level of the average weekly wage whose total income will exceed the level that we are setting for the cap. However, we believe that work should always pay more than out-of-work benefits. That is one of the driving principles of the Bill and at the heart of our welfare reform.

When we introduce the cap, we intend to use a method that looks at median earnings after tax and national insurance for all working families, which will strike the right balance between providing support for families, promoting fairness between those out of work on benefits and those in work and, crucially, ensuring that there are clear financial incentives to work because work is the best route out of poverty. The benefit cap provides a clear, simple message that there has to be a maximum level of financial support that claimants can expect the state to provide. The aim of this policy is to achieve positive effects through changed attitudes to welfare, responsible life choices and strong work incentives. People must be encouraged to take responsibility for their decisions in light of what they can afford. I accept that a case can be made for making the estimate in a variety of ways. However, I should make it clear that the clause would provide us with flexibility, should it be necessary in future to adapt how we estimate average earnings if it is felt that we are no longer achieving the correct balance.

I will address Amendments 99ABAA, 99AC and 99ACA together, as they are all concerned with housing-related benefits. Each of these amendments would undermine the fundamental principles underpinning the cap—that, ultimately, there must be a limit to the amount of benefit that a household can receive and that work should pay. It is not right that some families on benefits have been able to live in homes that most working families could not afford. With the introduction of the cap, people receiving benefit will have to make the same choices about their housing that people who do not get benefit make.

The noble Lord, Lord Best, raised a point about whether the cap will force families to move. It will not necessarily mean that people need to move but they will have to make the same choices about affordability as those in work. While some may well choose to move, there are a number of ways in which they might be able to meet any such shortfall, such as moving into employment, trying to negotiate a reduction in their rent—I accept the noble Lord’s point that in some cases that may not be possible—and meeting it from other income or capital. The Government are looking at ways of easing the transition for families and providing assistance in hard cases. We recognise that there are households for which it would be inappropriate to restrict the amount of benefit that they can receive. We have announced the groups that we intend to exempt and will discuss these groups further as we move on to the next debate.

The noble Lord, Lord McKenzie, asked about childcare—specifically whether those working a small number of hours will be eligible for support for childcare costs through the universal credit. I confirm that support for childcare through the universal credit will not be affected by the cap.

[Lord McKenzie of Luton]

Could the noble Lord clarify whether he is saying that it will not be included in the total of benefits that is judged against the cap, or whether it cannot be withdrawn from that component of the benefit?

[Lord Freud]

It is the former. It may be helpful if I explain now that we feel that the best way to support these households is to exempt them completely from the impacts of the cap, rather than attempt, as these amendments do, to alter its design to accommodate their particular circumstances. For the groups to whom the cap applies, this measure creates a very strong incentive to work. The most effective way of smoothing transition will be to engage closely with those families likely to be affected by the cap in the year before it is implemented. We are having initial discussions with local authorities and will provide them with guidance on the implications of the caps so that they can take account of this when working with affected households, especially those affected by the LHA cap.

On the council tax benefit question, I confirm that we are looking at the implications of localised support for council tax, including the implications of decisions taken by the devolved Administrations.

--- Later in debate ---

[Lord Freud]

Regrettably, yes, it may or it may not. That will depend on how we reach our design by taking in the implications of localised support. I cannot design a system on the spot when we do not know several of the components, but we have the powers here to take that into account and we are planning to do so.

[Lord McKenzie of Luton]

Will discretionary housing payments be included as benefits for these purposes?

[Lord Freud]

They will not be included. Moving on, with regard to the couple penalty, we should not assume any automatic link between the benefit cap and family breakdown. One of the key drivers of family breakdown is long-term unemployment, which puts considerable pressure on vulnerable families. One of the most supportive things that we can do for these families is ensure that work always pays and that the transition to work is as smooth as possible.

The benefit cap is intended to support our new universal credit, which will improve the incentive to work and the level of support for many low-income families, especially couples with children in rented accommodation. At the same time, we will also look to offer additional support through Jobcentre Plus. This would include working with local providers to support claimants with budgeting and the management of their housing costs, and encouraging families affected to engage with more employment support, particularly the work programme. We have always made clear that we would look at ways of easing the transition for families and providing assistance in hard cases.

Picking up the remarks of my noble friend Lord German, where he read from a putative letter—

--- Later in debate ---

[Lord Freud]

Putative is a good word. The figures to which he was referring came from internal modelling from the Department for Communities and Local Government which had not been externally validated. That analysis was out of date, having been produced in January and before we announced that we were looking at transitional arrangements for dealing with particularly hard cases. It is not possible to predict robustly the effects of this policy on homelessness as we cannot anticipate the resulting behaviours of tenants or their landlords. We will think carefully about all these matters, but the clause is drafted so that we have all the powers we need to ensure, through regulations, that the cap achieves its purpose in the fairest way possible.

Picking up the question of the noble Lord, Lord McKenzie, on the devolved Administrations, under Clause 93(9) we will be able to reduce only payments that are the responsibility of the United Kingdom Parliament. No payments that are within the legislative competence of the Scottish Parliament, the National Assembly for Wales or the Welsh Ministers will be reduced by the cap.

[Lord McKenzie of Luton]

I understand that; I have read the clause. I was trying to understand what might be included in the items that cannot be capped in Wales and Scotland.

[Lord Freud]

Such payments could, however, be taken into account when determining whether the cap itself should apply and whether the non-devolved payment should be reduced. Presently, we expect the cap to apply to housing benefit and ultimately to universal credit, which are the responsibility of the UK Parliament.

The next, or rather the last, question put by the noble Lord, Lord McKenzie, was on whether the Government accept that there would be an increased burden on local authorities as a result of this measure. The impact assessment recognised that there could be a cost to local authorities in connection with temporary accommodation. That is why we intend to work closely with local authorities on the implementation of the cap.

[Lord Freud]

My Lords, the principle, as noble Lords will know, is that the grants to particular local authorities reflect the number of people living in those authorities. Therefore, there is an automatic adjustment process. I accept there are some timing issues if there are sudden movements, but the DWP is talking very closely to DCLG about these practical implementation matters.

I come to an end with this question. As I understand it, certainly the parties in the Committee—I am not sure whether that covers all the Back-Benchers—are all signed up to the principle of the cap. We believe that the cap is the right approach. In the light of these comments, I hope that the right reverend Prelate and the other noble Lords will withdraw their amendments.

[Lord McKenzie of Luton]

My Lords, I thank the Minister as ever for his detailed response but there are still a few questions left unanswered. I can confirm that he correctly sets out the position of the Labour Party in respect of the cap, but we want to see something that is evidence-based, properly analysed and fair to people. This is our great concern with what is on the table at the moment. The Minister did not deal with the analysis of the 50,000 households to be affected by this and the extent to which they are in a group which is subject to full work conditionality. If a big thrust of this is to look at work incentives but it then applies only to a minority of those people, where does that leave the policy?

[Lord Freud]

I think that we have a scattering of figures in this area. It is a minority, which I think is around 10 per cent. If the noble Lord is after a detailed response, I ought to offer to write on that matter if it would be satisfactory to him.

[Lord McKenzie of Luton]

That would certainly be satisfactory but even if that 10 per cent estimate is roughly right, it means that 90 per cent of the people who will be affected by this cap are under no obligation, under the Government's policies, to have full work conditionality. How does that square with the big thrust of this being about work incentives? I should also like to follow up on another point which the Minister did not touch upon: the profile of those, again within that 50,000, who would be tenants and paying rent of one sort or another. Is it the case that a significant proportion of that 50,000 are tenants of social landlords, RSLs or councils?

[Baroness Lister of Burtersett]

While the noble Lord is conferring, can he perhaps explain to the Committee what behavioural effects the Government are trying to achieve in the case of those who are not required to seek work?

--- Later in debate ---

[Lord McKenzie of Luton]

I am sorry to press the Minister but, for us, the percentage of people affected by the cap who might be tenants of social landlords is a hugely important issue. I accept that the information has been updated but perhaps he can at least confirm the original estimate. Does he not understand that it is impossible for those people to get lower-cost housing? Generally you cannot get housing that costs less than social housing, so what are those people meant to do?

[Lord Freud]

The best I can say is that according to the current published impact assessment roughly 70 per cent of those affected are in social housing. However, the direction of travel of those figures in the new assessment is downwards, although I do not know by how much.

--- Later in debate ---

[Lord Freud]

As to the first question asked by the right reverend Prelate on where all the people in social housing have gone, the situation is, to be honest, probably nothing more than a result of greater depth of analysis. I do not think that there is any real movement there but, as we have homed in and obtained more information, that is our understanding.

On his second question, the interesting reality is that childless couples have higher earnings than couples with kids. Perversely, therefore, having a differentiation based on what actually happens would have the opposite effect to the one that I imagine the right reverend Prelate wants. That is the point. It is not a useful approach because it would do exactly the opposite.

[Lord McKenzie of Luton]

My Lords, is that right? It might be right if you are looking at earnings, but if you are looking at income, which was part of the proposition, it might not be the case.

[Lord Freud]

I very elegantly have a wonderful piece of paper to hand. On the median, it works for total income—all gross and net household income—and it works for the mean. I can give noble Lords all the figures but it would bore them.

[Lord Freud]

I am sure that noble Lords probably have them at their fingertips anyway. They are meant to be accessible figures, but if noble Lords would like some help and for me to use up another Scandinavian forest, I will circulate them. I will put them in an e-mail instead. That would be cheaper.

[Lord McKenzie of Luton]

I am sorry to come back to this but there are still some unanswered questions. I do not think the noble Lord dealt with the definition of “in-work” and when the cap will apply. Is the threshold set at 16 hours, as it is for working tax credit at the moment? How will that change from April? I think for couples there is a joint requirement for 24 hours a week, rather than 16. How will that all work?

[Lord Freud]

That is a matter that we will look at very closely. We want to encourage work and one of the main aspects of universal credit is to encourage smaller amounts of work. We will look at that issue very precisely.

[Lord McKenzie of Luton]

In which case, I have one final question. In relation to homelessness, I asked whether we might have a detailed note setting out all the obligations of local authorities when people present as homeless or when they are evicted.

[Lord Freud]

I will be happy to do that.