Welfare Benefits Up-rating Bill

Lord McKenzie of Luton Excerpts

Monday 25th February 2013 Lords Chamber

Moved by

[Lord McKenzie of Luton]

2: Clause 1, page 1, line 5, at end insert—
“(1A) In the case of employment and support allowance receivable by claimants of the support component of the allowance (who receive both personal allowance and support components) the mandatory 1% uprating stipulated in subsection (1) shall not apply to any components of the employment and support allowance (including personal allowance and support components) receivable by them.”

[Lord McKenzie of Luton]

My Lords, this is a focused amendment concerning disabled people who are in the support group for the purposes of the employment and support allowance. Noble Lords will recall that in the main phase of ESA an individual will receive a personal allowance and an additional support component. Those are currently £71 and £34.05 respectively. They will increase to £71.70 and £34.80 under the Social Security Benefits Up-rating Order 2013. This is an increase of 1% for the personal allowance but a CPI increase of 2.2% for the additional component. We will have the opportunity to debate the regulations shortly, although, of course, they cannot be amended. Under income-related ESA, other premiums may be applicable, such as the enhanced disability, severe disability and carer’s premiums. Of course, the final amount of any payment depends also on the income, if any, of the claimant.

So far as the Bill is concerned, for those in the support group, the support component and the premiums are outwith the maximum 1% cap, and we support this. However, that is not the case for the personal allowances for a single lone parent and couple, and it is this injustice that we are seeking to rectify. In doing so, we are placing reliance on the commitment made by the Secretary of State for the DWP. On 8 January 2013, he said:

“I stand by what we said originally, and I say it again: in this Bill we have protected people on disability living allowance, as well as people in the support group on ESA”.—[Official Report, Commons, 8/1/13; col. 194.]

That is not the case. Noble Lords will recall that those in the support group are those with the greatest challenges who are deemed neither fit for work nor work-related activity. They are not generally in a position to improve their financial background by way of accessing the labour market and I believe it is generally accepted that they experience higher living costs. The amendment would not represent a hugely expensive change to the Bill, but this is fundamentally about an issue of fairness and insisting that Ministers carry out their promises.

Amendment 3 stands in the name of the noble Lord, Lord Low. I will perhaps offer our view on that amendment when I reply on my amendment. I beg to move.

[Lord Low of Dalston]

My Lords, I support the amendment moved by the noble Lord, Lord McKenzie, to which I have added my name, but I rise principally to speak to Amendment 3, which is in my name alone and provides that the 1% uprating should not apply to benefits paid to claimants in the work-related activity group.

The amendment is essential if the Government are to fulfil their pledge to protect disabled people from the 1% uprating cap. Only disabled people are in the work-related activity group. The assessment process ensures that non-disabled people do not qualify. A recent DWP study tracking those receiving ESA over 18 months revealed that three-quarters of recipients were undergoing regular treatment for a health condition, including a stay in hospital for some. ESA for those in the work-related activity group is paid in two parts—the main component, which is equivalent to jobseeker’s allowance and worth about two-thirds of the total benefit, and the work-related activity group component, which is worth the other third. Many disabled people are being placed in the work-related activity group. Capping increases in their benefit at 1% will mean that households receiving ESA in the work-related activity group will be £87.65 a year worse off. The Government’s proposals to exempt from the 1% cap the support group component for those placed in the support group mean that less than a third of ESA payments for less than half of disabled people receiving ESA will be protected. That is what the amendment of the noble Lord, Lord McKenzie, would achieve, but it would address the shortfall only for the quarter of a million disabled people in the support group.

The most recent DWP figures show that there are 360,000 disabled people in the work-related activity group who also need protection. This amendment would achieve that. One third of disabled people in the UK were found to be living in poverty before the global economic crisis. Disabled people routinely experience higher living costs associated with their disability on things such as equipment, personal assistants and special diets. Disabled people experience the same increases in general living costs as everyone else: food inflation is running at 4.5% and travel inflation at 7%. Unfortunately, disabled people were not able to catch up financially during better economic times. We should not allow them to slip further behind as a result of this Bill; rather, we should ensure that the Government’s objective of protecting disabled people is fully delivered.

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[Baroness Stowell of Beeston]

My Lords, I am grateful to all noble Lords who have contributed to this debate. It is probably worth my summarising that the two amendments we are talking about seek to make changes to the ESA. Amendment 2 would remove from the Bill the 1% increases in the personal allowance for those in the support group, while Amendment 3 relates to those in the work-related activity group.

I understand why noble Lords have tabled these amendments and raised the points that they have in this debate. We all want to protect those who are furthest from the labour market, or who have additional costs because of disability, and that is what the Government are doing.

On the points raised by the noble Baroness, Lady Meacher, referring to the principles outlined by my noble friend Lord Freud during the passage of the Welfare Reform Act, I am clear that those principles—that we will target welfare spending to those most in need and ensure that we do not do anything to disincentivise people from pursuing work—remain intact via this Bill. We are prioritising those in greatest need.

It is right to say that there will still be some effects among disabled people through the Bill because we are including the personal allowance for both types of ESA as well as the additional element for those in the work-related activity group. However, we are ensuring that all those benefits that are paid specifically to cover the additional costs associated with disability are not included in the Bill. For example, the disability living allowance and the attendance allowance are protected, as are the disability premia in benefits such as income support, ESA, JSA and housing benefit, and we have excluded the disability elements of tax credits from the Bill.

In many cases, the basic rate of ESA is just one element of the total package of benefits received. Many people on ESA are also in receipt of other benefits, such as DLA, to which I have just referred, and housing benefit. It is worth noting that around 65% of people in the support group also claim DLA. The point I am trying to make here is that ESA is not the only benefit that most people are relying on. People in the support group receive a component worth £34.80 a week, as has already been said, and they are also automatically entitled to the enhanced disability premium of £14.80 a week if eligible for income-related ESA. We should not forget that some people will be eligible for the severe disability premium or the carer premium. All these are protected, like the support component. Income-related ESA households where a member of the couple is over pension age also receive a pensioner premium to ensure that the rate of benefit is the equivalent of the pension credit rate. This rate is also uprated as normal.

My noble friend Lord German asked in particular about the personal allowance aspect of ESA and why it is included in the Bill. It is important for me to be clear that the personal allowance is there to provide basic support. It is designed to meet the basic needs of all those on out-of-work income-related benefits. The personal allowance is consistent across all benefits which relate to those of working age. There is a standard amount. For single people, it is currently £71 a week. It is important that I am clear that this rate is common across all claimants who receive ESA, JSA, income support and housing benefit and reflects the fact that they perform a similar function of providing basic support for everyday needs. They do not reflect disability or the additional costs of disability, so therefore it is right that they are set at a standard rate. That is the rationale for including the personal allowance in this Bill and for the personal allowance to be subject to the 1% cap on annual increases. Treating one personal allowance rate differently from that in other benefits would mean that there would be no clear level of income at which state support is set and at which access to other help would be available across a wide range of services. It would also introduce an element of complexity in terms of the coherence of the benefit system which would introduce new challenges and be likely to add further costs to the running of the overall system.

As has been acknowledged, the support group component is protected, so it is not included in the Bill. It is the component element of ESA which differentiates the need based on the effects of a disability or a condition. That particular component relates to the effects of a specific disability. The support group component is paid in recognition of the fact that more severely disabled people are less likely to be able to increase their income by moving into work and may have additional needs. Therefore we pay those in the support group a higher increase than those in the work-related activity group.

It is worth making the point that for those in the work-related activity group, ESA is not like the old incapacity benefits that usually led to people being in receipt of that benefit for a long period. This is intended to be a short-term benefit for those in this group. Those who are placed in the work-related activity group are there because they have been found able to prepare for work. As such, they will be referred for appropriate support, training and provision to ensure that they get the help they need. ESA for people in that group is intended to be a short-term benefit and we expect these claimants to be closer to the labour market and be in a better position to prepare for work. Therefore, while they may not be looking for work immediately in receipt of that benefit, they have some ability to affect their own incomes. That is why it is right that the annual increase for those in the work-related activity group should—unlike that for those in the support group—be fully within the scope of the Bill.

In his opening remarks, the noble Lord, Lord McKenzie, again referred to the alternative option of the Government bringing forward annual orders rather than introducing the Bill. It is important for me to stress heavily that a central purpose of the Bill, in addition to achieving savings, is to provide certainty. I will say that regularly throughout the passage of the Bill; it is an important aspect of what we are doing. I know that the noble Lord seeks to undermine that, but it is central to what we are trying to do. It is important that we recognise the long-term benefits of providing that certainty; that is how we retain the credibility of the Government’s fiscal policy.

[Lord McKenzie of Luton]

Can the Minister explain to me the certainty that is achieved for claimants on the real value of their benefits as a result of the Bill?

[Baroness Stowell of Beeston]

The point I am making, which the noble Lord is clear about, is that the Bill still provides annual increases in benefits, but at a reduced rate for some elements of those benefits. We are doing this in the way that we propose because it adds to the certainty. As I told the noble Lord when we were outside the Chamber, the IMF was very clear that to anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation or fiscal frameworks. This is part of what we are doing, and why it is important.

As I have said, despite the economic situation, which we have already discussed today at some length, we have found the resources to fund a 1% increase in working-age benefits and, in doing so, protected the incomes of disabled people as far as we can—especially those elements which are provided to cover the additional costs of disabled people.

The noble Lord, Lord McKenzie, said that it would not be hugely expensive to accept these amendments and to make this change. It is important that I make it clear to the Committee that accepting these amendments would mean a loss of £340 million in savings, which we would have to find elsewhere. Those in the work-related activity group are deemed able to prepare for work and, as such, are better placed to be able to improve their income levels. Therefore, we believe it right that the component is also within the scope of the Bill.

Personal allowance rates are common across the working-age benefit system, as I have already said, reflecting the fact that they perform the same function: to provide basic support for everyday needs. Accepting these amendments would therefore break away from that model and would create additional complexity in the benefits system. Our proposals are proportionate. Although I understand the concerns and points that have been raised in the debate—please believe me, I do—what is being proposed here is fair. I therefore ask the noble Lord to withdraw his amendment.

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[Baroness Hollis of Heigham]

My Lords, this simply will not give you certainty. The whole of the impact analysis brief was a set of mythological language. This will not do what the Government claim. I understand that they are seeking to cut possible expenditure demands but to say that this is about certainty is simply an abuse of language, if I may say so.

[Lord McKenzie of Luton]

My Lords, I thank all noble Lords who have spoken in favour of Amendment 2: the noble Lord, Lord Low, the noble Baroness, Lady Meacher, and my noble friend Lady Lister. From the Minister’s response it seems that this is all about a better future for everyone, and that seems to encompass a rather strange load of decisions. My noble friend Lady Lister asked a question which I do not believe was answered. She raised the comparison with pensioners who are being protected—and we support that because they are not so readily in a position to make up their income by accessing the labour market. However, people are in the support group because they are not expected to be able to be in, or are some distance from, the labour market.

In respect of the WRAG, I think that the Government are generally drawing closer together the JSA group and the WRAG to blur that distinction. People in the WRAG were not expected to look for work. Yes, they were expected to be fit and were deemed to be fit for work-related activity, but there is a constant push by the Government to blur that distinction and ease them much more towards the JSA category, if that job is not being done, in any event, by the WCA and Atos.

The noble Lord, Lord German, asked whether this is a rough edge. It seems to me that it clearly is a rough edge—it has not been overlooked, and it is not being dealt with in any other way. It is a hit that people in the support group and the WRAG have got to take. It seems to me that this is incredibly mean-spirited. It just focuses on the support group—the people who are in the most difficult position and not able to access employment. The noble Baroness said that 65% of them were on DLA and acknowledged that DLA is outwith the Bill. What is the Minister’s understanding of the percentage of people in the support group who will end up on PIP rather than DLA?

In Amendment 3, the noble Lord, Lord Low, makes a broader case for removing ESA from the scope of the 1% restriction on uprating for those who are in the WRAG. It obviously goes further than our Amendment 2. We have made clear that the 1% uprating restriction should be removed in its entirety from all the relevant sums and amounts as defined, and we are grateful for the support of the noble Lord in that endeavour. If we are successful, the noble Lord’s amendment, and several others including our own, would fall by the wayside. Should we be unsuccessful we need to consider how we can at least move some way towards that objective.

As we have just discussed, we focused in our Amendment 2 on those in the support group. We did that because those affected are the most seriously disadvantaged—the furthest from the labour market—and because the Minister has made a commitment that this group would be protected. That commitment clearly is not being met. The noble Lord’s proposal that we should go further, beyond the support group, is entirely reasonable. Those in the WRAG are similarly judged under the WCA as not being fit for work although capable of work-related activity. But for those who seek work, we know that the prospects are not good. Not only do we have a work programme which is failing overall but there is at least anecdotal evidence to suggest that the hardest to help are not being properly supported. We have the shutting of Remploy factories, concerns over the looming bedroom tax, the restrictions on contributory ESA and the loss of the severe disability premium in universal credit. These have all added to the pressure on disabled people.

As the noble Lord, Lord Low, has said, the Bill will mean that people in the WRAG will be some £191 a year worse off by 2015. If we cannot carry the day on removing the 1% restriction across the board, we would look to support the noble Lord should he decide to pursue his line on Report. I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

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There we are: those in low-paid work will lose the most as a result of this Bill; 71% of the families affected are at or below average income. The IFS estimates that the combined impact of all the tax and benefit changes introduced between 2010 and 2015 will reduce the incomes of the poorest fifth of families with children by around 7%. Will that really do what the Government want to do? I get increasingly worried by all the evidence that is sent to us, and it is evidence from people who are working on a daily basis with the families about whom we are most concerned. I really hope that the Government will think again on some of these areas.

[Lord McKenzie of Luton]

My Lords, I start by thanking the right reverend Prelate, the Bishop of Leicester, for these amendments. I hope he will understand that, should he press them to a vote tonight, he would present us with a little difficulty. I doubt that will come as a surprise. The difficulty is that the strictures under which we are operating mean that we cannot at this stage make commitments in respect of the next Parliament. Clearly, an uprating in the tax year beginning 5 April 2015 would operate in the subsequent year, which crosses that particular line.

Having said that, there is much to support and sympathise with in the case made by the right reverend Prelate and the noble Lord, Lord Kirkwood. We on this side wish universal credit well and hope that it will deliver that which is promised for it. However, we know that there are a number of teething problems; we think the Government have been right to extend the introduction way beyond the original intention. It therefore seems to me that very important questions have been raised about why we should at this stage include universal credit within these provisions. We on these Benches want to see everything outside this Bill; we think that would be the right way forward, but certainly the universal credit would be a start.

The issue of work incentives is very important. Although we probably do not espouse it often enough, I think we have a shared view around this Chamber about the importance of work, which is the route out of poverty for most people. It generally seems to be better for their health and well-being and all those things. Therefore, it is crucial that any measures such as this support the proposition that we should try to get people into work when they can work, and help them get closer to the labour market when they cannot.

The noble Baroness, Lady Howe, widened the debate to discuss the broader impact of this Bill on child poverty. The figure of 200,000 is the one that was identified by the Minister in the other place. That comes on top of IFS figures, which suggest that another 800,000 children are going into poverty as a result of measures since 2010—in a sense, reversing the gains of the past decade for children and women, too. Therefore, without being able to support the wording of the amendment formally tonight, there is much for us to reflect on and support in the right reverend Prelate’s proposals. I hope that between now and Report—particularly picking up the points made by the noble Lord, Lord Kirkwood—we could end up in a position where we were not only in sympathy but were marching through the same Lobby.

[Baroness Stowell of Beeston]

My Lords, we have covered a lot of ground with these amendments tabled by the right reverend Prelate the Bishop of Leicester. I will do my best to cover that ground. It is probably worth starting by noting some common issues raised by this group of amendments. They come under the headings of their impact on savings from the Bill, their impact on certainty—as I have already talked about—and the inclusion of in-work benefits. I will then refer to some of the points related to housing. Before I begin, however, I note that the right reverend Prelate has added his name to Amendment 13, which removes housing benefit and personal allowances from the schedule, but Amendment 13 is to be discussed later as part of a different group.

[Lord McKenzie of Luton]

I should have said when I got up to speak that Amendment 13 was originally part of this group but unwittingly got moved to be grouped with two later housing benefit amendments in the names of my noble friends. I apologise to the right reverend Prelate for that.

[Baroness Stowell of Beeston]

I was going to say that because Amendment 21, which inserts housing benefit and personal allowances into a different part of the schedule, and Amendment 5, which places a duty to uprate by at least prices, are reliant on Amendment 13, I will speak to the amendments in this group as if Amendment 13 were assumed. I hope that makes sense. Hopefully, we are all following each other in respect of these different amendments.

Noble Lords have already outlined the effects that the amendments would have on the Bill. In broad terms, the legislation would revert to the existing annual exercise of discretion by the Secretary of State. To remove these benefits and payments from the Bill would reduce savings by around £800 million in 2015-16: that is, around £600 million that year from removing universal credit, which would increase over time as more households moved to universal credit; around £160 million that year from removing working tax credits; and, under Amendment 13, around £60 million that year from removing housing benefit and personal allowances—in total, an £800 million reduction in the Bill’s savings in the final year, which is about 40% of the Bill’s savings.

I have to disagree with the right reverend Prelate and say that it would simply not be affordable to give up those savings. If we look at the two years of the Bill together, we are talking about a loss of £1.1 billion in savings. As I have said before, none of these decisions is easy, but we have to recognise that if we do not take the savings that this Bill provides in the way it does, this money will have to be found elsewhere.

While I am talking about general matters, it might be worth responding to a point made by the noble Lord, Lord McKenzie, either just now or in an earlier debate—I cannot remember—about the wide range of changes that the Government are introducing in welfare reform. The noble Baroness, Lady Hollis, is not in her place, but she also made the point in an earlier debate. We are making a lot of changes to the welfare system. We absolutely believe in those changes; we think that we are doing the right thing and that those changes will result in a much more effective system. It is safe for me to say that in broad terms most of those changes have received support from the House. There has been recognition on all sides that the welfare system as it stood needed to be reformed. As we move into 2013-14, a lot of those changes will be implemented, so it will no longer be a discussion in theory; it will be real in practice. Of course, as we go through the implementation phase, we will ensure that all changes are implemented in a way that we designed them to be made and that they have the effect and the outcomes that we set out in the legislation. This is not something that we will not be closely involved in to make sure that things operate in the way that we intended.

While talking about general issues, it is perhaps worth responding to points raised about cumulative impacts and assessments. I know that my noble friend Lord Newby referred to this in his response to the first group of amendments, but the matter having been raised again it is worth making a couple of points. The Government introduced a new system of greater transparency around impacts and we publish the impacts of government policy every time there is a fiscal event. The last time we did this was in the Autumn Statement. That cumulative impact includes information about changes to all tax, welfare and public spending policy that can be modelled since the June Budget of 2010.

So far that analysis has not included universal credit, and a separate analysis shows that 75% of the gains from universal credit goes to the bottom 40% of the income distribution. It is worth adding that the IFS has acknowledged that the effects of reforms, such as those to DLA and housing benefit, cannot be precisely modelled, but as I say we are producing quite a lot of information. It is there and publicly available, but let us not forget that all those assessments are against the previous Government’s plans for this period—this Parliament, had they come into power—and we have acknowledged that those plans were not affordable. We are assessing something against a benchmark that we have already acknowledged we cannot afford.

A key principle of this Bill is the certainty that it gives as part of the Government’s fiscal plans. I have said that before, and said then that I hoped noble Lords would not tire of me saying it. I will not tire of saying it to the House as it is important. By taking these benefits out of the Bill and thereby restoring the annual exercise of discretion in relation to prices, the amendments would undermine the key principle of certainty. Amendments 4 and 5, if taken with the others, would make it a requirement to uprate universal credit, working tax credit elements and housing benefit personal allowances by at least prices. I am not sure whether that is the intention, but the amendments would take us further than existing legislation, while not giving a firm commitment to addressing the deficit that the Bill provides.

Noble Lords have talked about the inclusion of in-work benefits and questioned whether these should be included. We cannot escape the fact that some working households will be affected. I am not seeking to suggest for one moment that they will not. Tax credits, for example, account for around £30 billion of expenditure this year. Tax credit spending rocketed under the previous Government by an extraordinary 340% compared with the benefits they replaced. Eligibility for tax credits was extended to nine out of 10 families with children, so it would be unrealistic to exclude the benefits received by working people from these decisions that we are taking. For my part I think people understand that. There is a general recognition that this element of spending could not be excluded, particularly when those in work are facing tight restrictions, if not freezes, to their own pay.

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[Lord McKenzie of Luton]

My Lords, we should be grateful to the noble Lord, Lord Kirkwood, and my noble friend Lady Lister for this amendment and the manner in which they have spoken to it. I start by reiterating that obviously our overall objective is to get rid of the 1% uprating cap throughout the Bill. Obviously, if we were successful, the protection that both speakers are seeking here would be unnecessary, but if we are not able to do that, we have to consider a range of mitigations to these cuts. The aspect identified by the noble Lord, Lord Kirkwood—the bearing of inflation risks much in excess of OBR forecasts—is certainly one that should concern us all. As it is, on the basis of the OBR forecast, by 2015-16 the 1% uprating will imply a real cut of some 4%. Depending on what happens to inflation, that real cut could be much higher. We have heard a range of figures from both speakers that could flow from that.

We need to recognise that these real cuts lower the base for whatever the uprating may be for the future. Studies point to the rate of inflation for what might be termed as essential items being higher than the overall rate, with essentials for this purpose including such items as food, heating, transport, fares and water charges. These are costs which are largely inescapable for low income households. The briefing we have had from USDAW records electricity prices rising by 3.9% and gas by 5.2% up to December 2012, with the poorest 10% of households spending 17% of their income on food, which rose by 3.8% in the period to December. As it stands, this Bill places the whole of the inflation risk on benefit and tax credit recipients, irrespective of the size of the risk. However, if inflation is less than 1% the Government can take the benefit of that and, if they so choose, uprate by less than 1%.

It was the noble Lord, Lord Kirkwood, and his noble friend Lord German who demanded of the Government at Second Reading that there should be no further cuts beyond those set out in the Bill. Of course they got a dusty answer from the Minister, but the problem is that we do not know the level of the real cuts which flow from this Bill because we do not know the rate of inflation. The point made by my noble friend Lady Lister is that inserting an upper rate of 3% should not be taken to imply that real cuts up to this level are acceptable, but that automatic cuts above that level are certainly not.

I hope that the noble Lord will not press his amendment at this stage—I think he said it was probing in nature—because we believe that the right course of action is to eliminate the 1% cap in its entirety. But if we are unable to do that on Report, the type of backstop being sought by this amendment is something which deserves our support—subject to only one exception, which is that the Minister can give assurances about how poor people are to be protected from inflation, a phenomenon over which they themselves have absolutely no control.

[Lord Newby]

My Lords, the effect of Amendment 6 would be that if inflation as measured by the September CPI was to rise to 3% or above in 2014-15 or 2015-16, Clause 1 would not apply. Amendment 10 would do the same for Clause 2.

As I set out earlier today, a key purpose of the Bill is to deliver clear and credible plans for our public finances. It is only through having these plans that we can maintain confidence and keep interest rates at near-record low levels. We have clearly stated our intentions on uprating policy for the next three years, but the plans for 2014-15 and 2015-16 are made possible only by this Bill. Adding conditions to the Bill would remove that certainty and weaken the credibility of our plan to reduce public spending and tackle the deficit.

The Autumn Statement operating decisions were taken on the basis of the Office for Budget Responsibility’s CPI forecast. As the noble Lord, Lord Kirkwood, explained, the OBR does not forecast inflation to reach 3%. The CPI forecasts for the purpose of uprating in 2014-15 and 2015-16 are 2.6% and 2.2%. The Bank of England’s Monetary Policy Committee is committed to maintaining price stability, which is defined by the Government as an inflation target of 2% as measured by the 12-month increase in the consumer prices index. Inflation is forecast by the MPC and the OBR to be above the 2% target in the near term but is forecast to fall back towards the target in the medium term. The inflation target is not set by the Governor of the Bank of England. The inflation target is set under the terms of the Bank of England Act 1997 on an annual basis by the Chancellor, and that will continue to be the case whoever the Governor of the Bank of England is.

As I said at Second Reading, and as the noble Baroness, Lady Lister, helpfully reminded me, these are forecasts and targets. External factors and unforeseen events can produce a different outcome—on the upside or the downside. Nobody can say with absolute certainty what inflation is going to be two years from now.

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[Lord Bates]

My Lords, I wish to comment on the amendment, in which I find a lot to support, particularly the idea of a review. Before I do so, I owe the noble Lord, Lord McKenzie, an apology because in my earlier intervention I made a point about higher-rate tax and said that it had decreased, when of course it had increased. I apologise for impugning his tax-raising credentials. It was a low blow that was not intended. I take this opportunity to correct the record and hope that he might accept my apology.

This is an interesting amendment to consider because we are dealing with a significant crisis. There is no doubt that housing benefit itself needs to be focused on: how it has increased from roughly £11 billion, circa 1997, to a predicted £25 billion in 2015. Clearly, no one could sit in the Treasury, not have a view on that trend and not say that it needs to be looked at carefully.

My second point is that private rents have been increasing at an alarming rate when compared with the rest of the housing market. One needs to consider the increases, which, according to the National Housing Federation, have been something like 35% over the past three years. Over that same period, we have seen an 86% increase in the number of those claiming housing benefit, from 485,000 to 905,000. This is happening at a time when, outside certain sections of the London property market, house prices are actually falling. This is happening when interest rates are at historically low levels, and mortgage rates are at levels whereby 1.99%, two-year fixed rates are being offered. There are very low mortgage rates while house prices are falling, yet at the same time private rents are increasing by not only the rate of inflation but in many cases by twice the rate of inflation. It does not take a great economist—and I note that there are some in the Chamber—to work out that there might be some correlation between housing benefit and a potential inflationary effect on the private sector. I therefore understand that that is one of the issues that my noble friends would look at with some care.

I also note that one of the solutions to the problem is to ensure that there is a greater housing supply through housebuilding. This is an area on which I would pitch to my honourable friend in his pre-Budget purdah and ask him to reflect on how additional funds could be made available. I do not say that the Government have done nothing in that regard. They have put up £10 billion in guaranteed loans to try to stimulate the market, and they have introduced shared ownership schemes through FirstBuy and NewBuy to try and increase house purchase. That is an important element. We do not want, as a society and for the health of our society, to divert people into a life in private rented housing. We want to encourage people to have an ownership stake in society and to own their own home. For them to do that, there need to be enough homes coming on to the market.

There is a competition because, as people are coming on to the market and wanting to own their own home, investors who are experiencing low rates of return in other asset classes are finding, according to Rightmove, that there is a yield of 5.8% on private rented properties—the figure is 6.5% in London—which represents extraordinarily good value in the present market. Capital is therefore flowing into the buy-to-let market, rather than the build-to-buy market. There needs to be some step back from this approach and one needs to ask what is actually happening and how it all connects with changes in benefits.

We are, I assume, taking an approach whereby we believe that capping the local housing allowance and housing benefit will lead to a slowing down of the increases in rents. The noble Baroness is shaking her head, but that is the assumption. We have certainly seen how rents have increased when housing benefit and local housing allowance have increased. Perhaps we should test this out, but that is difficult because we are talking about affecting lots of very vulnerable people. However, there is a case to be looked at. Some annual or periodic review of how this is working and impacting on the housing market would be welcome, and I encourage that part of the amendment. I am delighted to note that my noble friend Lord Freud had been supportive of the idea, and I very much hope that my colleagues on the Front Bench will also be supportive.

Finally, perhaps I may take this opportunity to raise one further question about the way in which benefits are to be paid to the tenant rather than to the landlord. I know that various demonstration projects are undergoing trial in Edinburgh, Oxford, Shropshire, Southwark and Wakefield involving direct payment, and that they have some time to run, but I should be grateful if my noble friend in her response can provide some assessment of how they are going. There are some concerns that paying benefits directly to tenants, particularly when that may represent the largest component of their income, might put them in an invidious position, and some people might get into greater debt as a result. I know that such schemes are being trialled and I should be grateful for some comment from my noble friend on the Front Bench in her winding-up speech.

[Lord McKenzie of Luton]

My Lords, this has been a good but short debate, as any debate around amendments of my noble friend Lady Hollis and the noble Lord, Lord Best, on housing would be. You cannot do better than that in your Lordships’ House. I am grateful to the noble Lord, Lord Bates, for his earlier comments. I thought that he had got it the wrong way round but was not quite sure whether I had misheard. I think that my problem is that I am not confident to challenge him; however, I am grateful for his clarification.

My noble friend and the noble Lord, Lord Best, are on the same page on this matter and we are happy to support the amendment, which calls for a review of housing welfare benefit, especially regarding the affordability of private sector housing. My noble friend and the noble Lord made a particularly powerful case in their analysis of the consequences of a growing divergence between levels of private sector rents and levels of support. We know and recognise why there is a growing divergence—the 30th percentile, the individual cap, CPI uprating, and now the proposed 1% cap. It will be made worse by direct payments when universal credit comes in. There are certainly causes of the pressure on rents, with growing numbers of households and insufficient new builds, but no evidence—indeed, quite the reverse—that the restrictions on housing support are driving rents in the opposite direction. It remains to be seen, as the noble Lord, Lord Bates, suggested, whether there will be any slowing down with the further ratcheting down of housing support.