Welfare Reform Bill

Lord McKenzie of Luton Excerpts

Wednesday 14th December 2011 Lords Chamber

[Baroness Grey-Thompson]

My Lords, I rise to support the amendment of the noble Baroness, Lady Meacher, and to look specifically at the removal of the severe disability premium and the effect that it will have on young carers who are looking after a lone parent who is disabled or two parents who are both disabled.

The severe disability premium is really important in supporting young carers. Children who are still in full-time education cannot claim carer’s allowance, but many play an invaluable role in supporting disabled parents. However, if there is no other adult in the household, and no one claiming carer’s allowance, the family can benefit from the extra financial help offered by the SDP.

The abolition of the SDP will cost families with a young carer up to £55.30 per week, which is £2,876 per year. This cost could be equivalent to 20 per cent of household income after housing costs. The Department for Work and Pensions estimates that around 25,000 lone parents are in receipt of severe disability premium. That is 25,000 families with a disabled adult, in receipt of the mid or high-rate care component of DLA, but with no adult either in the household or receiving carer’s allowance to look after them, and with children in the household.

Many of these children are likely to be doing a substantial amount of caring for the parent, but this measure could force them to have to take on additional caring and household responsibilities because the family just cannot afford to pay for help. This is likely to put additional pressures on their children to make up for this loss of additional care. This is happening at a time when support services for young carers are being cut back, according to a recent survey by Action for Children. The charity surveyed 23 of its young carer projects between May and June this year. Findings reveal that almost half of services questioned reported a rise in the number of children on waiting lists and had seen an increase in the needs of young carers.

The Children’s Society, which works with young carers, gave the following example of the pressure that some of these children face and why they should not be pushed into even tighter financial circumstances. Kelly’s mum, Jenny, became ill about 10 years ago when she was only eight years old. An aggressive illness hospitalised Jenny, and has since entirely paralysed her down one side. After staying with relatives for several months while her mum was in hospital, Kelly was able to move back in to live with her mum from the age of nine. Since then she has cared for her mum non-stop. She makes meals and does the washing and cleaning. She said early on that she could only make simple dinners such as scrambled eggs on toast, but she has learnt quickly, and she has had to. She does not do it alone; she has a rota of professional carers who come to help out day to day, but they cannot do everything, and they do not stay overnight.

About three years ago, the year before Kelly was due to sit her GCSEs, Jenny became extremely ill for a while. Kelly had to get up around four times a night to help her out. Naturally, she was exhausted, dragging herself to bed as soon as she got in from school. Jenny currently receives the severe disability premium, meaning that she and Kelly are just one of 25,000 families with a disabled single parent. They will presumably be covered by transitional protection, unless Jenny’s reassessment for ESA from IB is viewed as a change of circumstances. It would be useful if the Minister would be able to clarify that. However, families who find themselves in a similar position after the measure is brought in are likely to be left £55 a week worse off as a result of losing this premium.

[Lord McKenzie of Luton]

My Lords, we should be grateful to the noble Baronesses, Lady Meacher and Lady Grey-Thompson, for introducing this important issue on which we have all received representations. Quite a lot of numbers have been bandied around with particular reference to benefits, and I will be interested in the Minister’s response. As I understand it, in the current system the severe disability premium is paid to people, whether in or out of work, who receive at least middle-rate care, live on their own and do not have a carer. It is payable only as a means-tested benefit so it supports those with a severe disability who have a low income and face many extra costs as a result of living alone.

Alongside that is the disability element of the working tax credit, so under the present system someone who is entitled to DLA or has recently been receiving a long-term sickness benefit would be entitled to the disability element of working tax credit if they worked for at least 16 hours a week. That is where we start from. As we have heard, though, the proposed support for adults in the universal credit depends upon the gateway of the WCA. This is what will drive the new arrangements. The briefing that we have had says that only those with a level of impairment sufficient to be found not fit for work will receive any extra help. I am not totally clear whether in that context “not fit for work” means someone who would only be going to the support group or someone who was going to the WRAG as well. I think the Minister is shaking his head, or rather he is nodding to say that only those in the support group would receive that.

That creates the difficulties that have been spoken about. The changes would mean that someone who could self-propel a wheelchair 50 metres or was registered blind but could undertake a journey unaccompanied could be found fit for work or, presumably, for work-related activity. Of course no one would want to claim that such individuals could not be encouraged to work if they wanted to, but that does not mean that they do not face considerable disadvantage and cost compared with someone with no impairment. So if they are out of work but found fit for work they face the same conditionality as everyone else, but if they are in work, because the gateway for extra support within the universal credit is the WCA, someone who is found fit for work will receive no extra support in work. The juxtaposition of the present and the future is concerning.

I am sure that the Minister will have seen the briefing that we have had. It says that the following are some of the ways in which different groups will be affected. Those who are terminally ill or who develop a severe level of impairment and live on their own could be disadvantaged to a significant degree—by something like £50 a week. Someone who is entitled to a middle rate of the care component but found fit for work—for example, someone who is severely visually impaired—will in many cases be found fit for work. However, if they are living on their own and doing some work, they are likely to have considerable extra costs that are not met by the DLA or by PIP when it comes along. Currently, most would be entitled to at least the middle rate of the DLA care component and therefore the SDP.

Under the current system, a severely visually impaired person in the work-related activity group and living on their own earning £100 a week will be left with a disposable income of £188 a week plus their DLA, after housing costs are paid. Under the universal credit, the same person will be left with a disposable income of less than £100 a week plus whatever PIP is payable after housing costs. There are plenty of other examples and we have heard some of them today from the noble Baronesses. These sorts of disparities are quite disturbing. The Minister might say that these are quite specific and narrow examples of the full spectrum of people who are affected by this, but a serious issue has been raised here and we need to understand fully how people are being protected in comparison with the current system under the new world of the universal credit.

[Lord Freud]

My Lords, this amendment seeks to put an additional element into the amount of universal credit that is payable for those who are severely disabled and who have no one receiving either carer’s allowance or a carer’s premium for looking after them. In essence it seeks to recreate the current severe disability premium within universal credit. As such it would involve a significant increase in cost compared with the Government’s plans. That increase stands at £400 million, unless there were other readjustments. However, let us just take it at face value. At face value, it is unaffordable.

On Monday the House approved the Government’s plans to simplify the disability-related additions. Instead of the seven different components within the current system of benefits and tax credits for adults, and two further rates in child tax credits for disabled children, universal credit will just have two rates for both adults and children. By restructuring the rates in this way, we are not looking to make any savings. We are redistributing around £800 million of current spend without returning any savings at all to the Exchequer. The full amount will be reinvested by increasing the higher rate for more severely disabled people. In our policy briefing note we made it clear that there would be some phasing. I know that I owe the noble Lord, Lord McKenzie, a letter on that matter.

Once resources became fully available, we expected to be able to provide a higher rate, at around £77 a week. This is significantly higher than the current £32.35 payable as the support component within ESA: £44.65, to give the noble Baroness, Lady Meacher, the exact figure she was seeking. It will provide a much more meaningful amount to severely disabled people than the current patchwork of premiums, which gives some people more than others and makes it difficult for people to understand and obtain their full entitlement. I should make it clear that one of the features of the universal credit as a whole is that we are expecting a substantial amount of the gains to the poorer people to come from much better take-up. The simplicity of a system with automatic provision of everything that people are entitled to will mean that more people in this category are likely to be recipients and get what they deserve.

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[Lord McKenzie of Luton]

My Lords, I speak initially to Amendment 26. The amendment takes us into the as-yet uncharted waters of in-work conditionality—waters into which my noble friend Lady Drake has at least dipped her toe.

The Bill introduces for the first time the requirement on claimants who already have a job to take action to secure more paid or better paid work. We understand the need, within a system that has no clear distinction between in-work and out-of-work benefits, to have some mechanism to ensure that people do not simply reduce their hours of work to take advantage of the more generous support for lower-hours jobs that universal credit provides, but there are a host of unanswered questions about how in-work conditionality will work. The amendment is intended to ensure that Parliament has an opportunity to review the arrangements once they have come into force.

We debated these questions at some length in Committee, and the Minister's response was basically, “We are thinking about this”, with some indication that he would not be in a huge hurry to introduce this element of the Bill. The most fundamental of those questions is: what exactly is taken to be work in the context of universal credit? When will the state judge that someone is doing enough to be free of the requirement to report on their activity to the jobcentre? Although we have some indication that single people with no caring responsibility or health issues will be expected to work for 35 hours a week, and couples in the same situation for 70 hours, we have no idea what flexibility will be given to those whose circumstances mean that that is not reasonable.

For example, what will happen if one partner of a couple decides to reduce their hours—perhaps to look after children? The way that the incentives are structured within universal credit may encourage many second earners to do just that. Will they then face a jobcentre penalty for not engaging in sufficient work?

It is also unclear exactly how the in-work conditionality provisions will impact on the employment relationship. How will it impact on the likelihood of employers offering somebody a part-time job if they know that the jobcentre will be encouraging them to leave their job for one with longer hours? We know that, despite today's employment figures, some unemployment was avoided at the start of the recession due to employers reducing people's working hours rather than making redundancies. Would they have been penalised for reducing hours in that way under the Bill? The in-work conditionality proposals will bring many more people into the orbit of Jobcentre Plus at a time when the agency is being asked to make challenging efficiency savings. Can the Minister outline what estimate he has made of the additional resource that will be needed to deliver conditionality for in-work claimants and whether he expects to be able to secure that?

In Committee we discussed the position of the work programme providers under these provisions. The Minister assured us that the fact that work programme providers must get somebody into work for 16 hours and keep them there for two years was not in conflict with the aim of this part of the Bill to ensure that somebody leaves a 16-hour job and goes into one that either pays more or has more hours of work each week. A review of this provision after a year will enable us to see whether the Minister’s confidence is justified.

Finally, we have had no equality impact assessment on this proposal. A review would enable us to assess its impact on different groups. As the proposal intends to assess whether somebody is fulfilling their in-work conditionality requirements by looking at how much they are earning rather than how many hours they are working, for those who earn more these requirements will obviously be easier to meet. I hardly need remind noble Lords of the substantial pay penalties faced by women, by people with disabilities and by certain ethnic groups. We will need to look carefully at whether people within these groups are significantly disadvantaged by these proposals.

This amendment in effect accepts the assurances that the Minister gave us in Committee that these matters are under consideration and simply asks him to report back to Parliament on how the proposals are operating in practice. I am sure that he will want to accept it, if only in order to be able to demonstrate that, as we all hope, this policy is achieving its intended aim of supporting people to move on in work.

I move on briefly to the contributions of my two colleagues. As well as talking about the very important issue of the focus on children being the driver of these provisions, the noble Baroness, Lady Drake, referred again to kinship carers. The amendment that she spoke to seeks to add kinship carers, carefully defined, and limited to the first year in which they are caring for a child, to the existing list of exemptions. When we debated this issue in Committee, my noble friend Lady Hayter said that she was able to rip up her speech given the willingness of the Minister to recognise this issue, suggesting that he was looking to address it. My noble friend, who has provided me with the text this evening, says that she is perfectly happy to rip up another one if the Minister can let us know the results of his deliberations and what these have been.

I will not repeat the powerful case made by my noble friend Lady Drake. As she emphasised, kinship carers can play a vitally important role, offering children in extremely vulnerable situations some family continuity and, in doing so, saving the state the considerable costs of taking a child into care—some £40,000 a year in independent foster care. The Who Cares? Trust has highlighted the difficult experiences of many children cared for by their parents, estimating that one-quarter will have lived with abuse, neglect and violence and one in four will have been deserted by their parents, often after drug and alcohol abuse. Sixteen per cent go to their grandparents after family breakdown, one in 10 after a parent’s illness—often mental illness—and one in 10 after the death of a parent.

Although the existing conditionality arrangements provide some protection to those caring for young children, with no conditionality until the child is one, and then work-focused interviews until the child is five, many of the children who move to live with kinship carers will be older than five, as older children—indeed, those over 12 years old—make up a higher proportion of those in kinship care than in the wider population. Despite not being babies, for obvious reasons they need pretty much full-time attention and care. They will be new family members when they arrive, yet, not being adopted, will have no equivalent recognition. They also usually arrive after some sort of trauma and are therefore likely to take time to settle down. The amendment my noble friend spoke to simply seeks to provide for those who take on the care of a related child a year in which they will not be asked to look for work. This will give those considering taking on this huge task some certainty about their income and security during this first year and a chance to focus on their care for the child. A year’s exemption from looking for work would give them time to manage the upheaval in their lives before starting to juggle work and care.

Our concern, expressed by my noble friend, is that, without this amendment, the Bill risks undermining families’ capacity to care for children and increases the likelihood of those arrangements breaking down. Unlike with formal adoption, there is no adjustment period for family carers, despite the needs of the children. Furthermore, carers often have to give up work as a condition of a placement. We are aware that, as my noble friend said, the Minister is sympathetic to this case and we look forward to hearing his response.

Finally, I should like to refer briefly to the contribution of my noble friend Lady Turner of Camden in relation to Amendment 23. As she explained, this amendment seeks to ensure that evidence from a health professional will be accepted as good reason for failing to attend a work-focused interview—a requirement that will, under the Bill, be placed primarily on lone parents with children aged between one and three. We hope that this will be a simple amendment to accept, as my noble friend has explained. In Committee, the Minister told us:

“We will not sanction claimants with limited capability for work, or those who have learning difficulties or mental health conditions, without first making every effort to contact them, their carer or healthcare professional to ensure that they have fully understood the requirement placed on them and had no good reason for failing to meet it”.—[Official Report, 1/11/11; col. GC 417.]

We hope that the Minister will be able to extend this to include those who provide their adviser with evidence that they have a health-related reason for failing to comply with the work-related requirement.

This amendment also enables us briefly to revisit the question that arose in Committee about the relationship between Jobcentre Plus advisers, Atos assessors and the healthcare professionals who deal with a claimant. It also enables us to ask the Minister again to clarify exactly what information is available to Jobcentre Plus and work programme advisers, who have to decide on the type of requirements to which the claimant should be subject. Will they have access to information about a claimant’s health and capability for work that has been uncovered during the assessment phase for employment and support allowance?

We want this whole scheme to work to help those who can be helped but not to waste advisers’ time, nor to bring the system into disrepute by demanding inappropriate behaviours of claimants where evidence of their health needs exists within the system. Therefore, we hope that the Government will feel able to accept my noble friend’s amendment.

[Lord Freud]

My Lords, this group of amendments contains a number of measures that align with our intentions, so we are apparently in agreement. Indeed, many are in line with current practice and we intend to carry them forward into universal credit. I shall take each of them in turn.

With regard to Amendment 23, we recognise that there may be medical reasons that prevent a claimant attending a work-focused interview. We do not need expressly to legislate for this to be recognised. If a claimant gives advance notice that he will be unable to make an appointment and has good reason for this, the interview can be rearranged. If a claimant fails to attend an interview, he will have a reasonable period of time to explain why. As part of that explanation, the claimant will be able to provide any relevant information, including any medical evidence. If the claimant has a good reason, then obviously no sanction will be imposed. This is essentially what happens already and it will continue.

I turn to Amendment 23A in the name of the noble Baroness, Lady Drake. I appreciate the sentiment behind the amendment and agree that it is important to balance the requirements placed on claimants with any childcare responsibilities they may have. Therefore, legislation will provide clear safeguards, ensuring that no claimant who is responsible for a child under five can be made to look for or take a job, and no claimant with a child under 13 will be required to look for a job that does not fit with their child’s school hours, including a reasonable allowance for travel time.

Advisers will have flexibility to tailor the requirements placed on claimants—including allowing limitations to the work that claimants must search and be available for—to take account of their circumstances and the needs of any children for whom they are responsible. Where the child is over 13, advisers will continue to have discretion to permit the claimant to limit their availability if the child’s needs make it necessary. We do not intend to make blanket rules for this age group in legislation, as the children’s maturity and need for parental supervision will vary widely. Therefore, although we agree with the spirit behind the amendment, we do not think it necessary.

On Amendment 25, we are now making provisions in the jobseeker’s allowance on domestic violence. The regulations giving effect to this policy will be subject to affirmative debate early next year as parliamentary time allows. The changes will take effect soon afterwards. The draft jobseeker’s regulations will provide that where a claimant has left the abuser because of violence or the threat of domestic violence, they will be treated as complying. This will be automatic whenever the claimant provides evidence of violence or the threat of violence and may be extended through existing domestic emergency provisions to up to 17 weeks, or to 24 weeks for claimants with childcare responsibilities. The amendment would allow an exemption from work-related requirements only while the threat continues. Our proposal recognises that claimants may need unconditional support for a period after the actual threat has receded.

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Moved by

[Lord McKenzie of Luton]

27: Clause 26, page 12, line 41, leave out “three years” and insert “one year”

[Lord McKenzie of Luton]

My Lords, I will be brief on Amendments 27, 30, 31 and 29, which deal with sanctions. However, given the hour, there is just one particular point I wish to pursue.

We have already had the assurances of the noble Lord and his colleagues that there will be no target set in respect of sanctions. That is clearly on the record in Committee. We might like one more go at it, but we need not spend any more time on that. In the other place we made the argument for reducing the maximum sanction from three years to one. Given where we are, I do not see merit in going over those arguments again; we will just have to differ on that.

The point that I wish to pursue is the opportunity for people to mitigate that longer-term sanction. My noble friend Lady Hollis touched upon this briefly in Committee. If someone is sanctioned for three years, your leverage to encourage them closer towards the labour market is very limited. Three years is a long period of time; people change and perhaps understand the consequences of what they have done. It seemed a reasonable proposition that they should have an opportunity of mitigating and reducing that three-year period. That is the point that we wanted to pursue in this amendment. I beg to move.

[Baroness Hollis of Heigham]

My Lords, I strongly support my noble friend on his last point. The whole point of sanctions is not just to punish but to change behaviour. If someone does so and therefore, having learnt their lesson, is willing to comply, they should get rewarded for that, so to speak, otherwise there is no incentive for them to change their behaviour. I hope that the Minister will hear my noble friend’s wise words, otherwise the sanctions regime will not work or stick—and, I suspect, will end up being judicially reviewable.

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[Lord Freud]

Can I leave it like this, without giving a hard commitment right now, on my feet? When we get to the regulations on this, I will look very hard at exactly what the protection is. I cannot offer any more now but I am sure we will debate this in the months to come. My main point here is that overall duties, rather than lots of specific ones, are the way to go.

Let me turn now to Amendment 36, which proposes an exemption from the sanction for losing employment due to misconduct where the claimant disputes that the dismissal is fair and has instituted proceedings—in other words, is taking a case to an employment tribunal. First, I assure noble Lords that the decision-making process around sanctions for misconduct is rigorous and rounded. We are proposing nothing in this Bill that changes the current process. Decision-makers will take all relevant matters into account when determining whether a sanction should apply, including evidence about whether claimants have left employment through misconduct or been unfairly dismissed. If a tribunal finds that there has been no misconduct by the claimant, this will be very compelling evidence. Where a decision-maker decides that there has been no misconduct, a sanction will not be applied.

However, we do not consider that there can be a blanket rule which says that, where a claimant has instituted proceedings for unfair dismissal, sanctions cannot be applied in that case. One of the reasons for this is that we want to avoid creating a perverse incentive for claimants to make claims to employment tribunals, which would put a burden straight on to employers for no fundamental reason. Decision-makers must have the flexibility to look at each case on its facts and to assess the strength of the evidence. I trust noble Lords will agree that this flexible, case-by-case approach is the right one.

The final amendment, which the noble Lord touched on right at the beginning, and which seemed like a game of tiddlywinks between us, is on targets. He knows what I am going to say—his side likes targets, we do not like targets—so I will say it, as it just keeps the night going. We will continue to collect this information to support our work. We need to know how many sanctions are being imposed, but collecting information is not the same as using it to target. It helps us to assess the consistency of approach in this area and to monitor and evaluate the impact of those sanctions, so that is what we are collecting.

On the basis of that rather rapid, somewhat biblical, summary I would ask noble Lords to withdraw or not move these amendments.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his reply. I thought we were going to have a quicker canter through these issues, and we may wish to return to at least one of them at Third Reading. In relation to the mitigation issue, I am obviously grateful for the Minister’s consideration of that and recognition that there is an issue to address. However, like my noble friend, I am a bit dismayed that the route to dealing with it is the six months—

[Baroness Anelay of St Johns]

My Lords, I know that we are in a cordial mood and we have reached a magical moment as far as noble Lords and perhaps the staff, too, are concerned. As Government Chief Whip, I ought gently to remind the noble Lord, who was a Minister himself with distinction, that Third Reading rules are very carefully framed by this House and I know he would not wish to breach them. There are matters which may very properly be brought back at Third Reading. I know that he will consider whether any wish he expresses now to bring back at Third Reading will later be translated into action only within the rules.

[Lord McKenzie of Luton]

Indeed, my Lords. We aspire to do nothing but stay within the rules. We would not dream of treading outside of them.

It is disappointing, for the reason my noble friend gave, that if the idea is to get somebody to re-engage, it must surely be possible to evaluate prior to them actually getting into work. After they have been in work for six months, it may be that there is frankly not a lot to sanction in any event. It depends on the level of earnings and the impact of universal credit on that. I would urge the Minister to reflect and think again on this point. We have had our exchange on targets and I understand that the data are still going to be collected. I trust they are not going to be posted on office notice boards to act as an indirect incentive. I accept the Minister’s assurance on that.

The noble Baroness, Lady Meacher, made a very important point which has not, I think, been fully addressed. In summary, she is seeking a requirement for the department to be proactive with people before they are sanctioned, not just relying on them to respond, question and challenge.

My noble friend Lady Turner’s amendment raises an interesting point. If the decision maker is going to make an up-front judgment as to whether there has been misconduct by an individual who has left work or whose employment has been terminated, this might pre-empt the role of the tribunal itself, whose job it is to make that assessment.

I am not sure how that sits four-square but, given the hour, I would urge the Minister to reconsider the first item in relation to mitigation. I am sure we will all be happy if we can avoid Third Reading and a possible challenge from the noble Lords’ Chief Whip. I beg leave to withdraw the amendment.

Amendment 27 withdrawn.

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[Lord De Mauley]

That further consideration on Report be now adjourned

[Lord McKenzie of Luton]

My Lords, we were happy to try and continue a bit further to reach the target amendment. My noble friends are nodding in agreement. Perhaps it is not too late.

[Baroness Anelay of St Johns]

My Lords, I know that it is unusual for the noble Lord to put such a matter. I certainly am content to accept that offer, but I do not wish in any way to make the House feel that it is being overworked. I am looking carefully at the opposition Front Bench and I see the noble Lord, Lord McAvoy, giving his consent. Perhaps I may check with my noble friend the Minister. We are all aware of the other side of the coin of that offer, to which I have no objection whatever. It is a perfectly normal way for an Opposition to behave and I certainly recognise it as such. It is a generous offer met in generous spirit. Perhaps we may continue.

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[Baroness Donaghy]

My Lords, the amendment was in the first grouping on the first day of Report, when we were all bright-eyed and bushy-tailed. I asked for this to be degrouped, and I therefore accept my punishment with good grace.

I asked for the amendment to be degrouped because the issue of self-employed people is extremely important and deserves a slot on its own. The purpose of the amendment is to recognise the particular needs of the self-employed. It will ensure that the power to prescribe a minimum level of income applies only to those self-employed claimants if they under-declare their earned income with a view to maximising their entitlement to universal credit.

While it is important to prevent abuse of the system, it is equally important not to discourage the genuine self-employed claimant with a potentially viable business in the early stages of development or in financial difficulty. There are some 4 million self-employed people in the UK and that number is likely to grow as employment becomes more difficult. They are an enormously varied group who face a greater degree of risk than traditional employees. Profits are affected by any number of events—the loss of a key customer, the sickness of the sole proprietor, a bad debt, the accumulation of slow payers, or even taking on a new employee.

The measurement of self-employed income for universal credit purposes should follow generally accepted accountancy principles and aim at a true and fair view of a business’s profits. The welfare system needs to support business through such periods, not discourage them by imposing unrealistic levels of deemed income such as the minimum income floor. My amendment recognises that real abuse should be directly targeted. If you impose a minimum income floor for each hour worked, that in itself will open the floodgates for abuse. That view is supported by the National Farmers’ Union, the Tenant Farmers’ Association and the Federation of Small Businesses, as well as Community Link, Citizens Advice and the Child Poverty Action Group.

There are those with a disability or medical condition which makes it difficult for them to take traditional employment. Indeed, it is often difficult for the disabled to find employment. Being self-employed allows the disabled to work at their own pace and according to a pattern which suits their circumstances.

What steps are the Government taking to minimise the compliance burden on the self-employed? The current system requires only one set of accounts to be prepared, which is accepted for both tax and tax credits. That allows the individual to get on with running their business. If a different measure of self-employed income were to apply for universal credit, the burden would be increased by having to assess profits for tax purposes according to one measure; and income for universal credit purposes according to another, quite different measure. If income is to be based on reported hours, the harder a self-employed individual works to get their business on its feet, the more they could lose from their universal credit entitlement.

It would be unfortunate if the measure were to put off genuine claimants from taking the risks inherent in self-employment, when its purpose was to deter a minority from underdeclaring their profits. One real example, which I gave in Committee, was of an arable farmer whose crop was completely destroyed. I was going to give another detailed example of livestock farmers who could not move them if they were under BTB restrictions, but in view of the hour, I will not.

There are already regulatory powers to counteract moves by claimants to underdeclare their income for tax credit. For benefit purposes, under the income deprivation rules, a person is deemed still to have income of which they have divested themselves to maximise their claim to benefit or tax credit. Where the Government perceive that abuse, surely the right course is to enforce existing powers rather than to invent new ones which will discourage genuine cases.

This brings me to a group who are in practically every sense of the word employees, but where individuals are treated as self-employed because the alternative is no job at all. They are often referred to as bogus self-employed. The Government's difficulty in drawing up criteria to deal with the genuine self-employed may be alleviated by proper enforcement of the tax laws by HMRC and employment laws by the BIS department, with all the resources that that implies. It also means a greatly increased level of interdepartmental co-operation in Whitehall.

As I said earlier, self-employment entails a greater risk than traditional employment. The self-employed must often choose between taking drawings for themselves or reinvesting in the business to enable it to grow. Welfare policy must reflect those different needs if it is to succeed in promoting work through self-employment. The success of working tax credit in encouraging work and, in particular, self-employment, rests on its recognition, in alignment with the tax system, of the economic reality of how a business is doing—particularly with regard to investment in business equipment and trading losses. Will the Minister indicate what guidelines will be issued and when? I ask him to accept my amendment, which aims at the real target, rather than those struggling to survive in these deeply difficult times. I beg to move.

[Lord McKenzie of Luton]

My Lords, my noble friend Lady Donaghy has made a very strong case, and I look forward to the Minister's response. What she said warmed the cockles of my heart. She referred to generally accepted accounting principles—the true and fair view—and it took me back to another life, but she raises a real issue: rather than having artificial rules for assessing what people are deemed to earn, is it not better to try to capture the actual profits and to target resources on those who seek to abuse the position? That seems a very straightforward matter.

My noble friend raises once more, as she did in Committee, the matter of bogus self-employment. We all know that that is a continuing issue. I have always believed that it rests particularly with HMRC, together with BIS and other departments of government, to make progress on that. It is primarily HMRC that could begin to make a real difference. She wrote reports for the Government, as did the Minister, on the construction sector, and health and safety in particular. There is bogus self-employment in that sector, so she is an expert on that matter. We support the thrust of her amendment.

[Lord Freud]

My Lords, when we discussed a similar amendment to this in Grand Committee, I explained that we intend to retain the existing practice in the benefit system whereby claimants can be treated as having income or capital in cases of deliberate deprivation. However, we believe that different issues arise in relation to self-employment. We think that it is right in principle to apply a minimum income floor to claimants who choose to be self-employed but whose earnings do not make them financially self-sufficient. I confirmed in Committee that the floor will not be based on the hours claimants work. We assume that claimants’ earnings are at a level that we would expect from claimants with similar circumstances in employed work.

Claimants will not be forced to take reduced benefit payments by accepting the minimum income floor. Self-employed claimants will have the choice in universal credit. Some will choose to continue solely with their existing activity with the expectation of increasing their earnings. They will accept the minimum income floor. Those who do not will need to satisfy conditionality requirements. The conditionality regime will aim to guide the claimant towards the most appropriate form of gainful work. For some claimants, this would combine their self-employed activity with part-time employed work. In other situations, the regime may very well encourage the self-employed to keep going in their self-employed efforts. We will need to build a quite sophisticated regime to manage this.

This approach differs from tax credits, which allow claimants to receive maximum support so long as they declare that they are working a minimum number of hours. However, in 2009-10, for example, around 60,000 of the households claiming tax credits that received some or all of their earnings from self-employment declared earnings of under £2,500 a year—less than £50 a week. While this is legitimate under current rules, we believe that some intervention to guide claimants towards increasing their income is justified in return for state support.

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[Baroness Hollis of Heigham]

My Lords, I strongly support the amendment. I had the privilege many years ago of being responsible for vaccine damage payments within the department and always tried to make a distinction between payments that were in lieu of earnings, which tended to be of the incapacity benefit sort, and payments which were a lump sum. Sometimes there was a structured payment of capital over a period of time as compensation for suffering and injury as opposed to an earnings replacement. We always excluded that second element from coming within the debiting of benefit. That distinction has been well drawn by the noble Baroness, Lady Hollins.

I hope that the Minister can respect the ethics as well as the long history of making a distinction between getting an income replacement benefit—ESA, for example—and getting an element of compensation for damages, for suffering, for pain and so on. In my understanding that has always been protected and has not been debited against your rent. Otherwise it is not worth anything to you at all. That was never the intention of the law. I hope that the Minister can support the proposals of the noble Baroness, Lady Hollins.

[Lord McKenzie of Luton]

My Lords, the noble Baroness has brought an important point to our attention. I have only two questions for the Minister. Can he explain the extent to which the current rules are going to be translated and taken up in universal credit? The position at the moment is that the compensation recovery scheme does not apply to criminal injuries compensation. Can the Minister say whether that would continue under universal credit?

[Lord Freud]

My Lords, Amendments 32A and 34A seek to use primary legislation to exclude criminal injuries compensation from the capital test for universal credit. The existing benefit system does not have a specific disregard for criminal injuries compensation. However, such payments will usually fall under the rules governing personal injury payments where they relate to physical or psychological injuries suffered by the claimant. As indicated in the illustrative draft regulations on capital and income, shared with noble Lords in September, we intend to replicate these personal injury payment provisions in the universal credit regulations. I hope that that answers the question of the noble Lord, Lord McKenzie.

Personal injury payments are disregarded in the current benefit system for a period of 52 weeks from the date that they are paid. Even after that period, remaining capital will continue to be disregarded if it is placed in a trust, as the noble Baroness, Lady Hollins, indicated. This rule allows us to distinguish the personal injuries payment from other savings. If the payment is not separated by placing it into a trust, it becomes increasingly difficult to identify the source of the capital as time goes by. Ultimately, any capital test must consider the balance in a claimant’s account, and over time it becomes impossible to say whether it is from one source or another unless it is held in a different form. That is the reason for the way that this is structured.

The current arrangements are long-standing, and we are not aware of significant practical problems with their use. In any case, the details of capital disregards are a matter we will address in the universal credit regulations. If there are particular problems, we will have a further opportunity to consider them when drafting regulations, and I will bear in mind the points the noble Baroness has made.

In answer to the question asked by the noble Lord, Lord McKenzie, I agree that the compensation recovery scheme does not apply to criminal injuries compensation.

I hope I have made clear why the Government cannot support Amendments 32A and 34A. I hope the noble Baroness will withdraw her amendment.