Small Pension Funds

Lord McKenzie of Luton Excerpts

Tuesday 27th November 2012 Lords Chamber

[Lord McKenzie of Luton]

My Lords, we should be grateful to the noble Baroness, Lady Greengross, for the opportunity to discuss, albeit briefly, issues of access to good advice, particularly in relation to small pension pots. The debate touches upon just one of the issues which are part of the challenging backdrop to the current UK pension system, which has an aging population but with working-age people still not saving enough to meet their expectations of income in retirement.

Our discussion this evening has mostly been around private pension provision, be that personal pensions or workplace pensions, but the state pension has cropped up—the noble Lord, Lord Stoneham, and my noble friend Lady Hollis referred to it. We should not forget that advice in relation to the state pension may be appropriate as well for people who do not have a full contribution record—advice on how they should deal with that and advice on whether they should defer their pension and, if they do, whether they should take the lump sum or the extra annual amount. So not only private pensions are involved.

My noble friend Lady Hollis, in particular, referred to proposals to create a single-tier state pension and the benefits that that would have in relation to rewards for saving. I certainly agree with that. The White Paper which was issued last week states that the reforms will be introduced in the next Parliament, that the new rules will apply to future pensioners only and that the Government will publish more details on their plans for single-tier shortly. Can the Minister expand on how short is “shortly” and whether we might expect the legislation in this Parliament even if it may not be introduced until the next Parliament, if that is a matter for the coalition’s determination?

We know that too many people do not save for a pension outside of the state provision because they do not trust the system. ICM research shows that 56% of savers lack confidence in those who manage their investments; 60% of private sector workers are not saving for a pension at all; and old DB schemes are available to fewer and fewer private sector workers. That is why the introduction of auto-enrolment in October this year, developed under a Labour Government but with cross-party support, is so important. It turns pensions inertia on its head: you are enrolled unless you positively opt out. It is to be hoped that auto-enrolment will be part of the route to restoring trust and confidence in the pensions system.

If people are to have more secure retirements, that confidence must not just be about decumulation; the issues run throughout the pensions life cycle. They relate to contribution levels, investment strategies, default funds and, of course, to charging. We know, for example, that an annual management charge of 1.5% can reduce a final pension pot by 22%, while a 0.5% charge—the NEST equivalent—will reduce the pension pot by 9%. Greater transparency and more straightforward charging structures are essential. The noble Lord, Lord Patten, spoke with some passion on this matter.

The provision of financial advice has been affected by the upcoming implementation of the retail distribution review. While this will raise standards in the advice sector and change the way people pay for advice, unless further action is taken an unintended consequence, referred to by a number of noble Lords, is likely to be that those on modest and small incomes and pension pots will be excluded from or priced out of the advice market—and this at a time when the number of small pots is set to grow as auto-enrolment draws more into pension savings and a changing job market means that, on average, an individual will change jobs 11 times over their lifetime, and with the prospect of the abolition of short-service refunds. The noble Lord, Lord Kirkwood, said that he appreciated fully the extent of what that change may bring.

We know that small pension pots are costly and inefficient to administer, and can be difficult for individuals to keep track of and convert into pension income. We therefore support the Government’s attempts to address the inertia preventing consolidation by some form of automatic transfer. The current proposal is that the pot will follow the individual. Perhaps the Minister can give us an update on progress on the thinking around that. Further, can the Minister say whether it will apply to existing pots or just future pots that are created? The logic would seem to be that pots can follow individuals into NEST. Can the Minister confirm that that is going to be the case?

The current landscape was the subject of a retirement income summit hosted by the International Longevity Centre and the actuarial profession in June this year. I think that the noble Baroness, Lady Greengross, is a distinguished board member, and I believe that the noble Lord, Lord Kirkwood, was at the summit. It saw the immediate challenges as the advice gap, too few savers exercising the open-market option, insufficient focus on the type of annuity purchased rather than the annuity rate, and information overload. What is of particular concern from the analysis is that only 2% of annuitants who did not take advice bought an enhanced annuity, although up to 50% are thought to be eligible. This means that thousands of people will miss out on hundreds of pounds of income each year. The National Association of Pension Funds estimates that half a million people a year fail to shop around for the best annuity, losing in aggregate £1 billion a year in income. The failure of married couples to include a spouse’s benefit can lead to significant hardship for a dependent spouse on the death of the policy holder. Clearly, these outcomes could be improved through access to proper advice. My noble friend Lord Lipsey said that £1,000 a year may not be a huge sum for some in your Lordships’ House but that for some it means the difference between surviving and going under.

The ABI code of conduct on retirement choices may assist in this, and the recent government White Paper points out that the open market option review group is currently developing an evaluation test for the code. Can the Minister tell us whether the evaluation is actually under way and what further steps might be contemplated in the light of it? A brief from the Society of Later Life Advisers, referred to by my noble friend Lord Lipsey, states that while the cost of advice is an issue, and while government action on improving transfers and dealing with small pots is welcome, what really prevents people taking advice is that they do not know where to go or whom to trust. Raising awareness of the benefit of advice is important, but in itself it will not overcome the hurdle of lack of trust.

There is of course no lack of information and guidance from providers and organisations such as the Pensions Advisory Service, referred to by my noble friend Lady Hollis, the Money Advice Service, to which the noble Lord, Lord Kirkwood, referred, particularly on the volume of queries it is getting and likely to get, and the Pension Service itself for the state pension. But that information and guidance must be distinguished from advice, and indeed it can be part of the problem of information overload.

The noble Baroness, Lady Greengross, made an important point about clarity on the distinction between advice and information. Noble Lords, and in particular the noble Lord, Lord Kirkwood, will recall the debates we had on auto-enrolment about what employers had to do and whether it was information or advice: it was, of course, the former. The retirement income summit proposed that the regulator should work with the pensions industry to develop a solution for those with small pension pots. In particular, the FSA should develop guidance for providers on how to implement simplified advice models safely and in the consumer’s best interest. It is impossible to disagree with this proposition but it is not easy to deliver.

In conclusion, I echo the comments of my noble friend Lord Lipsey: poor people should not have to put up with poor advice.

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[Lord McKenzie of Luton]

Perhaps the Minister might write on another point: whether or not the automatic transfers—be they legacy pots or otherwise—could be transferred into NEST.

[Baroness Stowell of Beeston]

I will certainly write to the noble Lord about that matter as well.

The noble Lords, Lord Stoneham and Lord Kirkwood, referred to the Government’s Reinvigorating Workplace Pensions strategy. As they acknowledged, the Pensions Minister, Steve Webb, announced a range of proposals to restore people’s confidence and trust in pensions and to encourage savings. The most significant, in terms of scale, is the defined ambition scheme. I absolutely acknowledge the point made by all noble Lords tonight that there is a serious issue about lack of trust and confidence in pensions and savings; that is something on which the Government are very clear. For me, however, perhaps the most important point made in that strategy—indeed, it is one specifically raised by the noble Lord, Lord Stoneham, although others mentioned it too—was the Minister’s call on industry to use plain language when sending information to its members. As a new reader on this topic, I absolutely share people’s view that the jargon around pensions can create a real barrier.

I have very little time left but would like to say in response to the proposals from the noble Lord, Lord Patten, about perks—as he described them—for well-off pensioners that I will of course highlight to my right honourable friend the Chancellor what has been said. However, if I may beg the indulgence of the House, as my mum will definitely be watching on a matter such as this, I would be doing her a great disservice and be in huge trouble if I did not say that many of her friends, as pensioners, make the point to me on many occasions that they feel passionately about their bus pass. I want to mention that for my mum.

In conclusion, the number of stakeholders who have engaged with the Government in developing all these policies is indicative of common goals and a real drive by all to ensure that consumers can engage with the choices that they need to make about their retirement income. In the future, the FSA will be closely monitoring the impact of the RDR on consumers’ engagement with the market through its post-implementation review. An evaluation strategy will be agreed for measuring the success of the open market option package of measures, including the code of conduct. More generally, the Government remain committed to ensuring that everyone has the information and tools that they need to make responsible and informed decisions at retirement. I will of course follow up this debate with any letters to cover the issues that I have not been able to cover today.

Disabled People’s Right to Control (Pilot Scheme) (England) (Amendment) Regulations 2012

Lord McKenzie of Luton Excerpts

Monday 26th November 2012 Grand Committee

[Baroness Stowell of Beeston]

My Lords, for the record, I should like to begin by paying tribute to the noble Baroness, Lady Campbell of Surbiton. Although she is not here today, it was her work that helped shape this policy and it was she who chaired the Advisory Group on Right to Control until earlier this year.

The purpose of these amendment regulations is to make two changes to the main Right to Control regulations, which were made in November 2010. The first change is to extend the period of the current pilot from December 2012 to December 2013, and the second is to remove Oldham Council from the list of local authorities delivering Right to Control.

In November 2010 your Lordships considered and supported the Right to Control (Pilot Scheme) Regulations. The purpose of the 2010 regulations was to pilot giving disabled people in certain parts of England a legal entitlement to choice and control over some of the public services they receive. Rather than providing disabled people with what we think they need or what is most convenient for the service provider, the Right to Control pilot gives the power to the disabled person to decide how money is best spent to meet their needs. For many, this right has been empowering. However, others have concluded that they do not want the responsibility of managing a personal budget and are happy for the services they need to be purchased and managed on their behalf. A third group may have been keen to take control of the funding allocated for them but have felt that they lacked the knowledge or experience to do this. This is where the support of their peers, perhaps from a disabled people’s user-led organisation, has helped them to gain the skills and confidence to take control of their funding.

The purpose of running a pilot scheme is to test what works and what does not, and Right to Control is no different. Seven trailblazing areas in England are currently testing the right. The results from the pilot will be used to inform decisions about the long-term future of Right to Control. The pilot scheme is currently due to end in December 2012, and when the 2010 regulations were made we thought that two years would be enough time for the pilot to show us what has worked best and how. However, while a great deal of progress has been made since the pilots began, there is still insufficient evidence on which to make an informed decision about the long-term future of Right to Control.

This view was informed by the interim evaluation report, which was published in February of this year, and by our ongoing monitoring, review and discussion with all the trailblazing areas. The interim evaluation identified some early successes as well as some areas for improvement. Moving from the start-up phase to a steady-state environment took longer than originally envisaged and the trailblazing areas also told us that the cultural change required proved to take far longer than had been anticipated.

Although progress continues to be made and more than 34,000 people have benefited from Right to Control, we concluded that there was insufficient evidence on which to make a firm decision about the best way forward. As a result, we decided that the best solution was to extend the pilot scheme by a further year, taking it to December 2013. This will enable us to gather more information and evidence of what works best, both for disabled people and for the authorities and organisations delivering Right to Control.

At this point, I should reassure the Committee that the primary legislation in the Welfare Reform Act 2009 places an overall limit of 36 months on the pilot. To be clear, it is not possible, even if it were our intention, to come back in another year with a proposal to extend the pilot again. The Welfare Reform Act 2009 also requires us to consult on any draft regulations about Right to Control. So between June and September of this year we consulted on the draft regulations before the Committee today. Although the number who responded to the consultation was low—only 40— those who did respond were in favour of extending the pilot by a year. We also consulted with, and sought the agreement of, each of the local authorities currently delivering the right, and all but one agreed to continue in the extension period. Oldham Council decided that it did not want to remain as part of the pilot but, importantly, its participation so far will be captured in the evaluation. The experiences of disabled people living in Oldham and of Oldham Council will feed into the formal evaluation and the overall lessons learnt from the pilot. We will use the extension period to continue to collect management information and to monitor progress. The results from this, together with the results of the full evaluation exercise, which is due next spring, will enable us to make a final, evidence-based decision on the way forward.

In conclusion, we see the extension of the pilot scheme as a key factor in reaching the right decision about the future of Right to Control. I am satisfied that the draft regulations are compatible with the European Convention on Human Rights and therefore I beg to move.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for the introduction of these regulations, which have our full support. Right to Control is an important new right for disabled people, giving them greater control and choice over the support they receive to go about their daily lives. It results from the powerful advocacy, not least from the noble Baroness, Lady Campbell of Surbiton, who the Minister rightly referred to, which was advanced during the Welfare Reform Bill 2009 and from the approach of co-production which helped frame these important opportunities. We were also supportive of Right to Control being piloted through trailblazers prior to being rolled out nationally, with the inevitable lessons and challenges that emerge from its practical application.

As the noble Baroness has said, we have had the benefit of the interim evaluation of the trailblazers. However, although not published until February 2012, this related to field work undertaken between June and September 2011, not long after the trailblazers had started. The interim evaluation is therefore inevitably influenced more by start-up issues and less by what might become the steady state. Nevertheless, there are some encouraging messages, even from this early assessment, around changes in culture, encouraging partner organisations to work together and positive influences on how delivery staff work with disabled people. The evaluation identified co-production as having long-term benefits for the design and delivery of services for disabled people.

However, at the early stage the evaluation pointed up some big challenges, including lack of awareness and understanding of Right to Control among staff, including front-line staff. This extended to a lack of certainty over process, a lack of differentiation from previous personalisation initiatives, and a lack of knowledge about legal entitlement.

There was also a lower than expected take-up of Right to Control in the Work Choice and Access to Work funding streams, although it was noted that young people’s access might be through their college rather than through Jobcentre Plus. There was caution on the part of some delivery staff about investing time if the future of Right to Control is not assured. There was the perception of conflicting priorities with the belief by some that it made it more difficult to safeguard vulnerable adults. For some trailblazers some funding streams were already tied into block contracts. Moving away from these has resource implications at a time of severe financial constraints. Budget cuts, redundancies and organisational restructuring have affected trailblazers, making implementation and delivery of Right to Control more difficult.

The Minister said in the other place, and the noble Baroness has reiterated it this afternoon, that the Government continue to monitor the position and to collect management information. Perhaps we can hear how matters are progressing on those above issues. What proactive steps are the Government taking to overcome some of these difficulties and challenges? Collecting information is all very well but there needs to be something more positive, particularly around awareness and understanding. Clearly, trailblazer authorities and stakeholders have a role in this, but so do the Government. Is it still the Government’s intention to see Right to Control being rolled out nationally?

As I said, we support these regulations and the extension of the pilots for one year—as we have heard, the maximum permitted under the 2009 Act. However, we would not wish that to be an excuse for doing nothing in the mean time to help make a success of Right to Control.

[Lord Low of Dalston]

My Lords, I declare an interest as an ambassador of Disability Rights UK, the largest pan-disability, user-led organisation in the United Kingdom, which has only come into being in the past year as the result of a merger between the Disability Alliance, RADAR and the National Centre for Independent Living. It supports the extension of these pilots but takes this opportunity to raise a number of key issues relating to the promotion of the Right to Control objectives and the evaluation of the pilots.

The Right to Control is about transforming disabled people’s lives and giving them real control over the support that they need to enable them to play a full and equal part in society. That was supported by all political parties when the Welfare Reform Act 2009 went through Parliament. It would be good to see the DWP explicitly recognise that objective, and promote it strongly and consistently both within the department and across government. I hope that this would be used as an opportunity to ensure that the evaluation process will be co-produced with disabled people. “Nothing about us without us” critically and essentially means that researchers should work with disabled people—in particular with disabled people’s organisations which have participated in the pilots—to shape and review the evaluation, so that disabled people are not involved only as respondents.

Disabled people also seek an assurance that, in looking at the cost benefits of Right to Control, the department will take full account of the outcomes achieved. Even where there are no direct savings from the pilots—although it is hoped that there will be savings, especially in reducing bureaucracy—there needs to be recognition that the benefits in freeing up disabled people so that they can access education and employment opportunities and play a full and equal part in society will bring long-term savings as well as improve their quality of life.

I observe that the trailblazers have suffered from a lack of consistency and a change in DWP structures and Civil Service roles. I hope that, in the time left for the project, there will be no more changes of this kind. I would also welcome it if the Minister met with disability organisations to discuss what personalisation means in the context of the work that the department is doing on Right to Control and how to advance choice and control for disabled people. This is particularly relevant in the light of the care and support reforms, the transition to the personal independence payment, the Access to Work review that is going on and the disability strategy.

Finally, I raise a question on the Access to Work review. What assessment has the department made of the readiness of Access to Work to be included in the Right to Control, so that users can make spending decisions across funding streams? The evaluation report says that most significant barriers to the integration of the funding streams under the Right to Control relate to money being tied into block contracts and framework agreements. As a result, there is low eligibility for multiple funding streams. People cannot spend budgets across funding streams while still facing different monitoring systems. However, those trailblazers that invested early in co-production with user-led organisations and individual disabled people have progressed further in this respect. As regards Access to Work, in particular, it is mentioned that someone with an eligible frequent need to use taxis could not buy a train season ticket due to Access to Work guidelines.

From evidence from the Disability Rights UK helpline, Disability Rights UK says that often people who get social care funding and who are also at work will be caught between social care and Access to Work. For example, someone who needs personal care such as help getting to the toilet is told by social care services that the latter do not have to meet the needs for personal care if they arise at work, and Access to Work says that it does not have to fund personal care because that is the responsibility of social care services. Indeed, at an event run by Disability Rights UK last year the case arose of a man who has an adapted bathroom at home and does not need assistance to get to the toilet. However, his workplace does not have an adapted bathroom and so he needs assistance when he is at work.

I would be glad if the Minister would take these issues of overlap and conflict between these different funding streams—Access to Work and social care—and consider how these conflicts can be resolved as the evaluation moves forward.

Child Support Management of Payments and Arrears (Amendment) Regulations 2012

Lord McKenzie of Luton Excerpts

Tuesday 20th November 2012 Grand Committee

[Baroness Stowell of Beeston]

My Lords, these regulations were laid before both Houses on 15 October and will implement powers inserted into the Child Support Act 1991 by the Child Maintenance and Other Payments Act 2008, which was introduced by the previous Administration. A correction slip was published on 5 November, but the change was purely technical to correct a simple typing error in draft Regulation 3 concerning the amendment to the Child Support Information Regulations 2008.

I shall move on to the detail of the regulations in a moment, but first I will assure the Committee that the Government are determined to get to grips with the long-standing issue of child maintenance arrears. More and more parents are paying child maintenance, but we must ensure that those who do not are compelled to meet their financial responsibilities for their children and pay what they owe. To this end, we will shortly publish an arrears strategy, setting out our approach to preventing their accumulation and to collecting and enforcing them in future.

There are, however, some cases where child maintenance arrears are very unlikely ever to be collected in full, where we have no legal power to enforce them, or where they are no longer wanted by the parent with care. It is only these cases that the regulations we are debating today look to address. The regulations provide the ability for the department to accept a part payment in satisfaction of a child maintenance debt in full. When these regulations are introduced, the department will use them only in response to part-payment offers received from clients and will not take a proactive approach. Only once we are satisfied that we have a robust process in place will we consider how and when a proactive approach could be taken.

Where the department has exhausted all appropriate enforcement measures but has been unable to enforce the full amount owed, and where both parties are in agreement to a lesser amount being paid, this power will enable the department to bring cases to an acceptable resolution for clients. It is intended that the ability to accept such lower amounts will enable money to flow to children in cases where it may otherwise not have done and incentivise non-resident parents to come to agreements in respect of their arrears. As part of maintaining this principle of providing a real incentive for non-resident parents to pay, where a part-payment offer is made and the non-resident parent pays maintenance to more than one parent with care, they will have the ability to specify which parent they want the money paid to.

In plain English, what that means is that if the non-resident parent—for these purposes, let us assume that it is a man—is paying maintenance to two different parents with care—for these purposes, let us assume that they are both women—he will be able to choose which mother and child he makes the part payment to. However, I shall come on to a very important point about any parents to whom a part payment is not made. We will be clear with the non-resident parent that the arrears will remain owed in full and will be subject to enforcement. To make that absolutely clear, if a part payment is made to one parent with care—one woman—and there is another woman to whom the non-resident parent is paying maintenance, the other woman will not be in any way affected by this decision.

Where a part-payment offer is made, the department will consider on a case by case basis whether the offer made by the non-resident parent is reasonable, taking into account the probability of collecting all the arrears due and the non-resident parent’s employment status and income. The department will also obtain written consent from the parent with care in every case and will not accept any part-payment offer to which they have not given their explicit consent. So if the parent with care does not agree, it will not be forced upon them. This will continue to be the case if, in future, a more proactive approach is taken by the department in relation to part payment.

When the part-payment powers are introduced, they will only allow part payments to be made by non-resident parents in one lump sum. However, following the views of stakeholders in response to the public consultation, the department will introduce further regulations in future that will allow part payments to be made by instalments, once the required system changes have been made to accommodate them.

Moving on, the regulations also provide the power to write off some arrears of child maintenance, but only in the explicit circumstances set out in the draft regulations. The provisions of the 2008 Act limit those regulations to circumstances where it would be “unfair or otherwise inappropriate” to pursue enforcement of the arrears. An example of where arrears can be written off under these regulations is where the parent with care has explicitly informed the department that they do not want the arrears collected. Where this is the case, the department will ask the parent with care to confirm this in writing and ensure that it provides all the information necessary to enable them to make a fully informed decision.

In other circumstances covered by the regulations, such as where the non-resident parent has died and we cannot recover from their estate, there is no way of ever collecting the arrears. In such cases, where the arrears will never be collected, it is not sensible to allow them to remain outstanding. It is better to be open and transparent and write off the arrears. Where the department is considering writing off arrears it will inform both clients of this if they are still alive and, where appropriate, will give them 30 days to make representations. As my honourable friend pointed out in the other place, this period has been extended from 14 days following responses received to the public consultation on these regulations.

The department will then consider those representations and inform both clients of the decision on whether to write off the arrears. Cases will always be considered on their own merits and the views and information provided by clients will always be taken into account. All arrears written off under the write-off and part-payment powers will be carefully and fully recorded. Clients will be kept informed of what is happening in their case and why. Where appropriate, their consent will always be sought.

In summary, these powers are intended to address a minority of cases. They will be used only where the department is unlikely ever to collect the arrears in full, where all enforcement measures have either been exhausted or are not appropriate, and where clients have either been informed or, where appropriate, have given their consent. The department will continue to collect arrears whenever a parent with care wishes and it is appropriate and possible to do so.

I am satisfied that this statutory instrument is compatible with the European Convention on Human Rights, and I commend it to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing these regulations in a comprehensive way. As she said, they derive from the provisions of the Child Maintenance and Other Payments Acts 2008. It was legislation of the previous Government, so we clearly support its thrust and that of the regulations. Incidentally, the “Other Payments” bit of the Act, as the noble Lord, Lord Kirkwood, will remember, was the no-fault scheme of compensation for sufferers of mesothelioma.

We have a few questions. One was prompted in particular by the Minister’s introduction, when she referred to the arrears strategy that will be published shortly. Can she give us a rough idea of what “shortly” means?

On the write-off of arrears, the Minister in the other place was clear, as was the noble Baroness, that the intent was that the power would be used only where the arrears were no longer wanted or where there was no legal way of enforcing the arrears owed. As example of the latter circumstance, the Minister instanced the PWC or NRP having died, or there having been an interim maintenance assessment. We have no questions on interim assessments, which were a mechanism designed to get some sort of payments out of non-resident parents who were not co-operating with the system. However, the new regulations also include circumstances, at paragraph 13G(f), where,

“the non-resident parent has been informed by the Secretary of State that no further action would ever be undertaken to recover those arrears”.

I am unclear whether this a separate circumstance rather than just an administrative requirement of the others. If it is not, what are the circumstances in which that would apply?

The death of the PWC raises the question—I cannot remember the answer although I asked it in the past—of whether the debt due from the non-resident parent is technically a debt due to the parent with care or to the CSA, or CMEC as it is now, which has a corresponding liability to the PWC. If the latter, is there any reason why it should die with the PWC? Even if the former, would it not be an asset of the estate—to the extent that it is collectable, of course? Presumably, if someone else takes on responsibility for caring for the child when the PWC dies, a new child maintenance assessment is potentially in point, unless a voluntary arrangement can be agreed. A similar power—which was referred to—applies when the NRP died before 25 January 2010, or where there is no further action which can be taken with regard to the NRP’s estate.

I presume that the January 2010 date is the relevant date under Section 43A, which was introduced to enable recovery from a deceased person’s estate. Will the Minister remind us of the status of such debts when the estate has insufficient funds to meet all outstanding debts and obligations? What will be the approach to compromising, or otherwise, on that which is owed under child maintenance arrangements? Before accepting part payment it is obviously important that the full rigour of the enforcement procedures available has been deployed. Doubtless the Minister will be aware of the considerable range of powers in the 2008 legislation. These include disqualification from holding or obtaining travel authorisation, curfew orders and disqualification from driving. Can we have an update on which of Sections 20 to 30 of the 2008 Act have been brought into force and when any remaining provisions are to commence?

Where part payment of arrears is to be accepted, whether or not appropriate consent is required, as I understand it, depends on the extent, if at all, that the amounts are due to the Secretary of State or to the PWC. It reasonably follows that where the amount of any payment is due to the Secretary of State—presumably for benefit recovery—then appropriate consent is not required for accepting a smaller sum in settlement. Will the Minister explain what safeguards are to be in the system to prevent any amounts being accepted as part payment in such a way as to leave the amounts which are collected due to, or disproportionately due to, the Secretary of State? If it is accepted that there must be a written agreement involving the PWC, what guidance and support will be available for them to make a judgment in these matters? Will amounts accepted in part payment always maximise the amounts due to the PWC, with the Secretary of State picking up any residue? Is there scope for the NRP to disagree with any allocation between the Secretary of State and the parent with care?

These regulations will presumably be applicable to the charging regime in due course. Again, what safeguards will be in the system to prioritise moneys for the PWC? As discussed in another place, the Explanatory Note envisages acceptance of part payment being by way of a lump sum—the noble Baroness referred to this in her introduction. However, it has been accepted that the primary legislation does not limit arrangements to lump sums. Nor, it would seem, does the order. The noble Baroness referred to bringing forward further regulations in due course. I am not clear, from these regulations, why that would be necessary and why the regulations cannot operate to cover a series of payments when the systems can cope with it.

If it is the intention to limit settlements to lump sums, this would appear to be a more limiting facility than is necessary. Would it not be the case that more NRPs are likely to be able to enter into some form of settlement if there were some prospect of spreading payments than if the compromise could only be by way of a lump sum? Indeed, it begs the question: if the NRP can make a payment in settlement of the arrears, what is defective in the enforcement powers that otherwise prevents these sums from being collected in the normal way?

We have followed the exchanges in another place concerning circumstances where the NRP may be obligated to make maintenance payments in respect of children in more than one family. Giving the NRP the right to allocate any settlement moneys is not an easy matter, but we see the thrust of the Government’s position on that, particularly as reinforced by the Minister’s comments in respect of the other parent whose arrears remain fully due and collectable.

As I said, we support the regulations. We are aware that they could be applied in a positive way to help move more money quickly for more children, but also in a negative way—the latter to avoid the grind of using to the full the extensive enforcement powers, with the temptation offered to PWCs to have the promise of some early money even if it is not their full entitlement. However, we note the assurances given by the Minister in the other place that the Government will only be reactive in the initial stages of using these powers, which again was reinforced by the Minister this afternoon. Nevertheless, when considering an offer from an NRP, what kind of assurances will be sought concerning full disclosure of the NRP’s current financial status? All in all, we are prepared to give the Government the benefit of the doubt, but we seek assurances on the monitoring of these provisions and regular reporting to Parliament.

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[Baroness Stowell of Beeston]

My Lords, I am very grateful for the support I have received from the noble Lords, Lord McKenzie and Lord Kirkwood. I will endeavour to respond to the various detailed questions that have been put. I note the generous offer made by the noble Lord, Lord Kirkwood, that he will accept responses in writing to any questions that I am not able to address today. Of course, if that is necessary, I will ensure that I follow up in that way, although I hope that I can get through most of the points raised.

To try to make this manageable—for myself if no one else—I will take this in three chunks. I will start with what I would categorise as general queries, then move on to the small number of points made on the write-off part of the regulations, and finally I will deal with part-payment, on which I think most of the points were raised.

On the general questions, both noble Lords asked about the new arrears strategy. I can confirm that that will be published shortly and certainly in line with the deadline that the noble Lord, Lord Kirkwood, mentioned, which was this side of Christmas. The noble Lord, Lord McKenzie, asked about the commencement of the full range of enforcement provided for in previous Acts. As I think I have made clear, our primary focus is the delivery of the new scheme. We will consider what additional enforcement powers should be brought into effect after the new scheme is introduced. We have introduced deduction orders and are using them widely, so they are already in operation.

The noble Lord, Lord Kirkwood, asked how the exploration of a new means of reporting arrears was going—apparently a previous Minister referred to this. Following the recommendation of the independent arrears panel, we have begun a trial of the reclassification of arrears, based on an approach undertaken in Australia. This trial is still under way but once it is complete and we have undertaken a full evaluation of its results, the department will take a view as to whether the approach should be rolled out across the case load. That is something that is still ongoing.

I am new to the DWP but I am getting the impression that IT is a general theme, so I have put it under “general issues”. The noble Lord, Lord Kirkwood, asked whether the computer system can cope with part-payment. The answer is: yes, but not part-payment by instalments yet, hence the system changes that we are making. That is something that we acknowledge but are dealing with.

I will move on to write-off, although there are some things that I want to come back to. The noble Lord, Lord McKenzie, asked about the date under Section 43A and the deceased’s estate where a non-resident parent has died before January 2010. This is the coming into force date of the powers relating to recovery from a deceased’s estate. I apologise but I cannot quite remember the question the noble Lord put to me.

[Lord McKenzie of Luton]

I think that the noble Baroness has answered the question. Could she just confirm that that is the date from which recovery could be made against a deceased person’s estate? Prior to the 2008 Act, there was no facility for that. I seek confirmation only because it is the first time I have seen the date.

[Baroness Stowell of Beeston]

Yes, it is the coming into force date of the recovery from the deceased estate powers.

The noble Lord, Lord McKenzie, asked whether debt is due to the parent with care or to CMEC or the CSA, or should a debt die with the parent with care. The debt is due to the parent with care. Where the parent with care has died, we will try to find the executor of the estate, who may have an entitlement to the money. If we cannot find the executor, the debt cannot be collected. The reason I am hesitating here is that I am wondering if we have “parent with care” and “non-resident parent” in the right place in this answer.

The debt is due to the parent with care. Where the parent with care has died, we will try to find the executor of the estate, who may have an entitlement to the money. If we cannot find the executor, the debt cannot be collected. We have got to identify the person who would be legally entitled to that debt. We cannot collect on behalf of someone we have not been able to identify.

I shall move on to part payment and the various questions that were raised. Perhaps I may start with the points put by the noble Lord, Lord McKenzie—

[Lord McKenzie of Luton]

I am sorry to interrupt, but just so that we can tick the points off as we go along: in terms of write-offs, there is the issue around paragraph 13G(f) and whether that is an additional provision relating to write-offs and the circumstances in which that would apply.

[Baroness Stowell of Beeston]

This may be something I would prefer to write to the noble Lord about.

Again, moving on to part-payment, the noble Lord, Lord McKenzie, asked about safeguards and what guidance and support would be provided to the parent with care. The department will make an assessment of whether an offer is reasonable before passing it on to the parent with care. We will certainly not pass on an offer if we do not think that it is reasonable. In response to a later point raised by the noble Lord, Lord Kirkwood, in making that assessment, the agency will want to be clear about the status of the non-resident parent in terms of their current employment and so on.

The noble Lord, Lord McKenzie, asked how we will measure the success of these powers. The department will record all instances where a debt is extinguished as the result of a part payment agreement or under the explicit circumstances in the regulations which allow write-off. We will monitor the results carefully to ensure that the powers are being used correctly, effectively and only in appropriate circumstances. This information will be made publicly available as and when it is requested, for example in the usual way via a Parliamentary Question, and the department will be happy to answer any questions and to respond as we progress.

I was also asked in what circumstances the CSA has advised a non-resident parent that their arrears will never be collected. Advising non-resident parents that their arrears will never be collected is not standard practice in the CSA. We are, however, aware that this has happened on occasion. Where the non-resident parent can provide evidence to support their claim, it would be very unlikely that the department would be successful in enforcing a liability through the court in the future. The non-resident parent has been given a legitimate expectation that this would not happen and therefore the arrears should be considered for write-off.

[Lord McKenzie of Luton]

I think that deals with the point I raised earlier that the Minister was going to write to us about. There is a specific provision that says,

“the non-resident parent has been informed by the Secretary of State that no further action would ever be taken to recover those arrears”.

If that refers to what has happened in the past occasionally, that deals precisely with my query.

[Baroness Stowell of Beeston]

I am grateful to the noble Lord—he is demonstrating his experience in this area. That is one fewer letter for us to have to commission and I am sure that my friends behind me will be grateful for that. The noble Lord asked if there is scope for the non-resident parent to disagree between allocations to the Secretary of State and the parent with care. We will give the parent with care’s debt the priority and both clients will be informed of this. The non-resident parent can specify which parent with care, as I explained in my opening remarks, but the department will decide the priority hierarchy after that. Obviously, we will give the parent with care priority over the Secretary of State.

The noble Lord asked what was defective about the enforcement powers that might lead us to this arrangement for part-payment. The enforcement powers are not defective, but there are circumstances in which there is no suitable action to take; for example, where a non-resident parent is self-employed and has no assets. In this example, there is often no way of collecting the debt in full—I think that might address one of the points of the noble Lord, Lord Kirkwood, as well.

The noble Lord, Lord McKenzie, asked about the lump sum of part-payments and clarified why instalments have to be regulated for at a later date. This is one of those technical answers. If we regulated to allow for that now but could not facilitate it in practice I am advised that we could face legal challenge. We can therefore only introduce the legal power once we know that we can deliver it in practice. So we would if we could, but we cannot.

Benefit Cap (Housing Benefit) Regulations 2012

Lord McKenzie of Luton Excerpts

Tuesday 6th November 2012 Grand Committee

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

My Lords, these regulations will allow for the introduction of a benefit cap, as set out in Sections 96 and 97 of the Welfare Reform Act 2012. From October 2013, the benefit cap will form a key part of our plans for universal credit and we will shortly be bringing regulations to the House to support the introduction of this. However, we do not believe that it is right to wait until all existing claimants have migrated to universal credit before taking action. We are, therefore, bringing these regulations forward now, which will enable us to introduce the benefit cap from April 2013 by working with local authorities to reduce the amount of housing benefit in payment. The regulations are regarded as being compatible with rights under the European Convention on Human Rights.

The regulations set out the detail of the cap, including the level that it will be set at; how we will calculate a household’s overall entitlement to welfare benefits for the purpose of applying the cap; what benefits will be taken into account; how any reduction will be applied; exemptions from the cap; the relationship between the cap and benefit sanctions and other deductions; and rules on decision-making and appeals.

The level of the benefit cap will be set with reference to average earnings for working families. On its introduction in 2013, the cap will be set at £500 per week for couples and single parent households and £350 per week for single adult households. For couples and lone parents, that is a weekly income from benefits equivalent to earnings of £26,000 a year net or £35,000 gross. Exempting those entitled to working tax credit and setting the level on an earnings basis ensures that we incentivise work even further by not including in-work benefits in the cap.

This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the Summer Recess. I am grateful for their input. Noble Lords will by now be well aware of the Government’s reasons for introducing a benefit cap. It is about incentivising work and promoting fairness. As it is currently designed, we know that we pay some claimants more money when they are out of work than they could reasonably expect to earn from working full time, making it hard for people to see that they are better off in work. We are trying to tackle this with the introduction of universal credit and, alongside it, the benefit cap. The core principle is that the state should not pay more in benefits than the average family earns from work.

We have said from the start that there are certain groups to whom it would not be appropriate to apply the cap. We are exempting households which are in receipt of disability living allowance, personal independence payment, attendance allowance and the support component of employment and support allowance, as well as households entitled to working tax credit and war widows and war widowers. Since the debate on the Welfare Reform Bill, the Government have announced some additional easements: namely, those relating to industrial injuries benefits and war disablement pensions and their equivalents under the Armed Forces Compensation Scheme.

We do not want to penalise those who have recently found themselves out of work and are doing the right thing to find new employment. Therefore, we have put in place a 39-week grace period for those who have been in work for the 12 months previous to losing their job. This will allow people time to find alternative employment or consider alternative options in order to avoid the cap. Following the point raised very helpfully by the noble Lord, Lord McKenzie, during the Welfare Reform Bill debates, we have made sure that this grace period will run from whenever a person’s job comes to an end, whether or not the job finished before or after the introduction of the cap. We have consulted with stakeholders and the Social Security Advisory Committee, which considered the regulations and subsequently consulted on the impact of the cap. This has informed our plans for evaluation. We have already announced that we will publish a review after the first year of operation.

It was inevitable that our proposal for a cap would raise concerns about how it would be delivered and the impacts it might have. Many of the concerns that have arisen around the cap are based on an assumption that people will not change their circumstances. We do not believe that this is right, although sometimes people will need help and encouragement to make these changes. In the run-up to April 2013 we are working with claimants who may be affected by the cap to do exactly that.

Since May this year, those households which may be affected by the cap have been offered support from Jobcentre Plus. To date we have written to over 85,000 claimants potentially affected by the cap. We have followed this up with over 150,000 phone calls to make sure that claimants understand what the benefit cap means for them and to offer them the opportunity to work with Jobcentre Plus for employment support or to speak to their local authority for housing advice. We are also engaging across government and with local authorities to ensure that households are given the assistance they need to avoid the cap or mitigate its impact.

This Government firmly believe that those in the local area are in the best position to make decisions which impact people in their locality. That is why we are providing up to an additional £75 million for discretionary housing payments in 2013-14 and up to a further £45 million in 2014-15. This will be divided among local areas based on which has the greatest need. It will be used by local authorities to support those claimants affected by the benefit cap who, as a result of a number of complex challenges, cannot immediately move into work or more affordable accommodation, providing support to those who need it most, such as those fleeing domestic violence, and to prevent homelessness.

Finally, the Government firmly believe that there has to be a limit on the overall levels of benefit it is appropriate for the state to provide to those who are not working. The benefit cap aims to encourage long-term positive behavioural effects through changed attitudes to welfare, responsible life choices and strong work incentives. I commend these regulations to the Committee.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for the way in which he introduced these regulations. They will inflict profound hardship on many households—according to the department’s own impact assessment, nearly 60,000 households, including 80,000 adults and 190,000 children. Next year the average reduction in benefit is estimated to be some £91 a week. Our opposition to these regulations should be clear from consideration which took place just this morning in another place. It is clear, and has been since our debates on the Welfare Reform Bill, that a one-size cap never fits all—we believe that people should be better off in work than on benefit, but these regulations are flawed and likely, in our view, to increase homelessness with a likelihood also of the cap costing more than it would save.

Having said that, we welcome the commitment to the 2014 review and, as far as they go, to the categories of persons who are exempt from these and the limited DHP top-up—the loaves and fishes as they will for ever be known as a result of my noble friend Lady Lister. The Minister’s department says that it is giving early notice to all claimants who could be affected by the cap. We have heard that 85,000 claimants have been contacted, with 150,000 phone calls made, so that they can change their circumstances and perhaps move into work. In addressing the inequities of the underoccupation provisions, the Government expect households to cope with this loss of income by starting work, reducing non-rent expenditure, using other income and moving to cheaper accommodation or a cheaper area. Given the work which the department has done to identify those households affected, can the Minister tell us how many households have other income to ameliorate the effect of the cap, what types of income are involved and what the average amounts involved are?

Some 64% of those affected are claiming either ESA or income support; that is, they are not required to be available for or seeking work. Some 50% of the households likely to be affected are lone parents. The criteria under which people are characterised at the moment under the welfare system are stringent. They are not spurious, so on what basis is the department seeking to override these designations? Is the department seeking to differentiate between individuals for this purpose and, if so, on what basis? We know that some 5,200 affected by the cap are in receipt of carer’s allowance because the qualification for carer’s allowance depends, among other things, on a person not being gainfully employed. What advice would the Minister give to these households and what is their route to avoiding the impact of this cap?

So far as reducing non-rent expenditure is concerned, can the Minister tell us what the department’s detailed engagement with those affected has concluded to date? How many households has it assessed as having scope to reduce non-rent expenditure and what are the main types of expenditure involved? So far as moving to cheaper accommodation is concerned, we note that nearly half of the households affected—46%—are in the social rented sector. What cheaper accommodation does the Minister think can be accessed and how does he consider that local authority allocation policies, which would typically have a local connection requirement, will assist in these circumstances? As for uprooting and going to other areas, has any assessment of the impact of this on families been made, especially the consequences of fracturing local support arrangements with the impact on health and educational outcomes? From the work undertaken to identify those families currently likely to be affected by the cap, how many such households have someone with a mental health condition and how many occupy housing that has been the subject of a disabled facilities grant?

We are indebted to the National Housing Federation for its briefing notes and the points that it raises, which I would like to go over. So far as discretionary housing payments are concerned, it says that the announced increase to help people hit by the cap after losing their jobs is welcome but that it is not appropriate to rely upon a discretionary, time-limited scheme to cover ongoing and legitimate higher housing costs. Concerns have also been raised about the levels of DHP available. In its report on the impact of housing benefit changes, published this month, the NAO said:

“It is not clear how the current level of funding for Discretionary Housing Payments has been determined or whether it is likely to be sufficient for local authorities in tackling the impacts of reform”.

Perhaps the Minister can therefore give us a breakdown of those calculations and the assessment.

The issue of temporary accommodation has, I think, exercised a lot of people. The National Housing Federation says:

“Temporary accommodation is a vital part of the homelessness safety net. It saves money by minimising the need for more costly emergency interventions such as housing families in Bed and Breakfast accommodation. However, it is more expensive to procure and manage than mainstream private sector accommodation.

It is for this reason that the Federation has argued for it to be exempted from the benefit cap. Due to these additional costs, without an exemption from the cap, many families will find themselves unable to meet their rent.

Households are placed in temporary accommodation by local authorities and as a result will have little scope to move to reduce their housing costs. These families, who have been made homeless through no fault of their own, could be forced to move long distances or cut back on essentials in order to pay for accommodation which they themselves have not chosen”.

How does the Minister respond to that point? The federation goes on to say:

“The cost of exempting temporary accommodation from the cap is £30 million—a small proportion of the estimated £270 million savings expected to be gained from the imposition of the benefit cap itself”.

What is the Minister’s response to that? It continues:

“While Government has said that under Universal Credit it will fund the management costs, if not the housing costs, of temporary accommodation outside the benefits system—helping some families avoid the cap—this will not protect claimants before they transfer to Universal Credit”.

--- Later in debate ---

[Lord Freud]

I am trying to say that if you read the stories carefully, as I have been, you will see that they refer to preparatory moves about what councils may do and what they are preparing for. The stories are fairly evanescent, if you look at them closely. Clearly one reason for that is that these changes have not happened yet. Through this year, we have had the introduction of the LHA reduction from 50% to 30%, which my noble friend Lord German talked about. There has not been a huge flood of changes as a result of that. The stories are about councils being worried and their preparatory plans. They are about plans to move people around councils, but local authorities have always done that, for the reasons that I have given. They have always had this problem in London—people arrive and the councils have had to do something about them. Let me repeat the obligation in the 9 November regulations. Under the regulations, local authorities are required to keep people in the local area whenever they can and to carry out a full impact assessment before moving people out to other boroughs. We have strengthened that localism point in recognition of the same sentiments that are concerning noble Lords today.

[Lord McKenzie of Luton]

Could the noble Lord just remind us which regulations these are? Is it right that they have already been laid and will come into effect? Under which provisions are they?

[Lord Freud]

They were DCLG regulations—I cannot remember the exact title, so forgive me. They have been laid and cleared and they are due to come into effect on 9 November. They are under the Localism Act—the noble Lord may be more familiar with them than I am.

On whether people will be treated as intentionally homeless if they are evicted as a result of rent arrears caused by the cap, again, it is for local authorities to make decisions on individual homelessness applications, as they do now. Under the statutory legislation, if the only reason for a person’s homelessness is a reduction in benefit that is outside their control, they should not be considered intentionally homeless by their local authority. The help available includes cases where the reduction is not much; it includes help in renegotiating rent or making up small shortfalls, help with moving to more affordable accommodation, other means of trying to help people back into the workforce, and so on.

There was a group of questions around the delivery process, which I will try to gather up into one. The department will identify cases through scans of analytical data, which will be clerically checked against live IT systems to see whether any exemptions or grace periods are in place, and it will obtain up-to-date benefit amounts. Data will then be transferred electronically to local authorities via ATLAS. The LA will confirm the correct amount of housing benefit and can apply the cap via an automated system. It will issue a notification to the claimant informing them that their housing benefit is being capped and the amount of their new housing benefit award. This notification will also give information on support available and who they should contact if they have a query about the decision.

[Lord McKenzie of Luton]

Before the Minister leaves that point, I am interested to understand the process, the mechanics. He said that there will be scanning of all the data. Of course, some of that would have to be of benefits that do not currently feature in housing benefit calculation. Will that be an ongoing scanning? I see that the Government are going to do something upfront to try to identify people, but people’s circumstances change. Will it be a real-time scanning?

[Lord Freud]

When there is a change in circumstance, it is up to the claimant to inform us of that, as it is now. We are still in the old world, or the existing world before universal credit. To ensure that all changes of circumstance are applied in a timely manner, we will use CIS, the customer information system, to report them. I think that the noble Lord is referring to that system, which holds a record of most benefits included in the benefit cap calculation. As the noble Lord pointed out, some of them are not included in CIS—especially child benefit, which will be identified by a further data match with the monthly IGS scans.

[Lord McKenzie of Luton]

I know that the noble Lord has a lot to get through, but is the obligation to report a change of circumstances an obligation arising from a change of circumstances which would affect the application of the cap, quite apart from obligations in respect of other benefits? Is that what we are talking about here?

[Lord Freud]

I was referring to the change of circumstance to the individual. Clearly, if we are changing benefit structures in some way, we will know that and be able to make that adjustment and send the new information over to ATLAS, but the important facts are the changes of circumstance of the individual, who will make the application for the benefit in the normal way. It will come through the systems and be scanned, checked, compared and sent over.

[Lord McKenzie of Luton]

A change of circumstance that would put someone within the benefit cap when they were not currently? Would an individual making a housing benefit claim have to say, not only, “I have applied for a change of circumstances that may change the level of housing benefit”, but, “I think I am therefore liable for the cap? Can you do me for it?”?

[Lord Freud]

It will not be exactly like that. It will be no change from the present position, where you should inform us of changes in your benefits in the normal way. When that happens, it will work through in the normal way into our systems. There is an obligation on all benefit recipients to inform us of changes in circumstances. There is no obligation on the part of the benefit recipient to inform us in relation to the cap; it is only to inform us in the normal way of changes in circumstance, as applies to the rest of his or her benefits.

[Lord McKenzie of Luton]

I apologise; I promise not to intervene again after this one, but that obligation, for example in relation to housing benefit, would be to report the change of circumstance to the local authority, not to the DWP. How does that fit with the notion that it is basically the DWP which has to notify the local authority, “We’ve got somebody here who may be subject to the cap”? Seemingly, there is no ongoing separate obligation on the local authority to report back in the opposite direction?

[Lord Freud]

I will be corrected on this if I am wrong, but ATLAS works both ways, so the information flows both ways, so we will have the information and will be able to notify and go through the normal process. We will know what is happening on housing benefit. That is how it will flow back and forth. There had to be an adaptation to ATLAS to make it a two-way flow. When it started, as the noble Lord probably remembers, I hope with nostalgia, it was a one-way process.

How and when are the guidelines being produced? The local authority Practitioners Operational Group, with a subgroup based on the benefit cap, has been briefed at working level on detailed procedures and guidance. Members have confirmed that people will develop detailed guidance and products which will supplement those to be published via the DWP intranet and the LGA’s knowledge hub.

The way that the benefit cap interacts with financial sanctions is that the benefit cap will apply to the overall level of household benefits. If the sanction is imposed, any reduction will be applied to the sanctioned benefit after the application of the cap. Otherwise, clearly, the impact of the sanction would be negated.

My noble friend Lord German and the noble Lord, Lord McKenzie, raised the issue of ESA. The specific exemption is to do with the people in the support group of ESA, not in the WRAG group. Several noble Lords mentioned carers. The benefits system is designed to provide financial support where caring responsibilities prevent carers working full-time. As such, the carer’s allowance should be treated in the same way, for the purposes of the cap, as other income-maintenance benefits. Clearly, where the carer is in the same household as someone entitled to DLA or ESA support, the whole household, including the carer, will be exempt. Most carers of working age want to retain a foothold in the labour market where possible. We know that more than nine in 10 claimants receiving carer’s allowance are claiming another out-of-work benefit. In other words, they are looking for work. Carers who move into work clearly become eligible for the working tax credit and will be exempt from the cap.

--- Later in debate ---

On my noble friend’s question about the regionalised cap, we do not have a regionalised benefit system and therefore we intend to implement the cap on a national, rather than a regional, basis in April.

[Lord McKenzie of Luton]

Can the Minister help me on one more point on the period of grace? If somebody is employed but falls out of work completely, and would otherwise fall within the benefit cap, the period of grace would operate. One of my questions is to do with circumstances where somebody is outwith the benefit cap because they are fully employed and then they fall below the level at which working tax credit kicks in. They are not unemployed at that stage, but their earnings are lower, their benefits are higher and they are potentially within the cap. Does the period of grace protect them in those circumstances? It would be logical that it should, but I am not sure that it does.

[Lord Freud]

Yes, effectively, in the current system, going below the 16 hours would take you into the benefit system, so formally out of work. Clearly, under universal credit it would be a very different system, and we would have to have a notional figure of what the equivalent of work is, which we will introduce when we have the universal credit. The noble Lord is absolutely right in his analysis and his conclusion that there is no other way of doing it when you think about it, given our existing system.

My noble friend asked when we will publish our guidance. We had consultation on that guidance in August and we will make it available towards the end of the year. I can confirm that DHP will be allocated on the basis of greatest need. We are consulting with local authority representatives right now—in November—and we will make an announcement at the end of that time.

I am taking a long time, but with the forgiveness of noble Lords I will keep going, because there are a lot of interesting questions to answer. I could end up writing, but I would prefer to deal with them now if noble Lords will indulge me. My noble friend raised the cumulative impact of the changes on the housing market. We are monitoring this really robustly; I think we have one of the best assessments on what happened to housing changes in terms of the LHA changes that we have made. I think the noble Lord, Lord Best, would agree that it is one of the most thorough examinations of what really happens in a housing market when you make these changes and it will be valuable for a lot of the purposes. Clearly there is an overlap when we look at the effects of the benefit cap as well.

On the issue of the calculator not working, we have had stringent availability standards and there were two short periods when it was down for maintenance. There is a lot of help available to use it. On behavioural change, one of the things you can never predict when putting in these pressures is how people’s behaviour will change. However, we really are working with a lot of stakeholders to make sure that decisions are made such that people respond positively to the implication of the cap for them.

I can confirm to my noble friend that we are committed to tackling child poverty, but clearly our focus is on trying to tackle the causes of that poverty and not just moving people around on slightly artificial income lines. One of the things that universal credit will do is to move a lot of adults and children out of poverty. I make the same point to the noble Baroness, Lady Lister. We are looking for better measures and clearly the negative impact on child poverty may be mitigated if affected adults in the family move into work and the benefit cap supports our plans to make work pay. The £500 per week limit for couples and households with children is above the poverty line for a lone parent with up to four children, and broadly equates to the poverty line for a couple with four children; looking at the mechanics, that is where it is.

Housing Benefit (Amendment) Regulations 2012

Lord McKenzie of Luton Excerpts

Tuesday 6th November 2012 Lords Chamber

Moved by

[Lord McKenzie of Luton]

As an amendment to the above Motion, at end to insert “but this House regrets that the measures under the draft Regulations to introduce size criteria restrictions to the calculation of housing benefit for working age claimants living in the social rented sector are blunt and take no account of whether alternative accommodation is available; will result in cuts to the incomes of some of the poorest in society; fail to provide sufficient safeguards to protect the most vulnerable claimants and ensure that they are not pushed into poverty and homelessness; will not achieve their aim of tackling under-occupancy; and will risk costing more than they will save.”

[Lord McKenzie of Luton]

My Lords, for many people who are out of work, disabled or on low incomes, housing benefit is a crucial safety net and a vital support to help pay the bills at the end of the month. I am moving this Motion of Regret at the measures to introduce size criteria restrictions in the calculation of housing benefit for working-age claimants living in the social rented sector because we see this as a very important issue.

It is but one of the changes to housing support introduced by the coalition which overall will result in around 2 million households receiving lower benefits. The National Audit Office tabulates the range of losses as running on average from £5 a week for those affected by the CPI uprating of local housing allowance to £91 a week for those affected by the overall benefit cap. The size criteria restrictions—called the bedroom tax by the noble Lord, Lord Best—are estimated by the DWP to affect 660,000 claimants with an average weekly loss of £14. Most underoccupy, as defined, by just one bedroom with the average weekly benefit loss being £12. Half of those affected will lose between £10 and £15 per week. Of those affected, 390,000 will be local authority tenants and 270,000 will be housing association tenants. Alarmingly, 420,000 of the households contain a family member with a disability. Noble Lords will recall the extensive and intense debates on this issue and the strong views expressed by your Lordships’ House in opposing these measures. The Minister referred to them a moment ago.

The overriding issue is fairness. The arguments have not changed and will not go away. Hundreds of thousands of tenants have been penalised for the circumstances in which they find themselves, with no ready means, for most of them, to mitigate what is perceived to be their alleged offence. Of course we recognise the need to deal with the deficit, but it is who you choose to bear the burden that is at issue here. In an era when we are producing tax cuts for millionaires, we are asking 660,000 of the poorest people in our country to bear a cut of £14 a week. Most people deemed to underoccupy will not have a smaller alternative property to which they can move. All housing benefit claimants of working age considered to have spare bedrooms will see their benefit cut by 14% for one extra bedroom and 25% for two or more extra bedrooms. The reality is that this is not a serious attempt to address underoccupancy but is about cutting people’s benefit.

Of course underoccupancy must be addressed. We agree with the Minister on that. Many councils have imaginative schemes to do so for the elderly, who are not affected by these regulations, as well as for working-age tenants. The DWP’s own impact assessment is clear that there is a mismatch between household size and the availability of suitable houses in the social sector for underoccupying claimants to downsize to. The NAO’s report reached the same conclusion, noting that there is a mismatch between need and availability. Modelling by the National Housing Federation found that while 180,000 social tenants in England are underoccupying two-bedroom houses, only 85,000 one-bedroom social homes became available for letting in 2011-12. It concludes that the lack of mobility in the sector is not a product of tenants needlessly underoccupying larger homes but rather of the logjam created by a national shortage of affordable homes.

What choices do tenants have if they are to avoid the benefit hit? The Government say that they can make up the shortfall by using their other income or their savings, which is the same argument we heard in relation to the benefit cap. Is this really living in the real world? What level of savings do the Government think these families may have? An alternative is that tenants can move into work or work longer hours. This is notwithstanding that many are not, under the stringent rules that apply to conditionality, required to be available for or seeking work. For those who are, it presupposes that they are not already trying to, that the current claimant obligations are somehow deficient and that the level of support available via the work programme is not helping them. As for taking in a lodger, for many, this will be an unworkable and unreasonable option putting the safety and privacy of the family at risk.

The alternative is to take the hit or move to accommodation that better suits the current size of the household, assuming that it is a stable size. But where? It is not very likely in the social rented sector, where there is not only a shortage of supply but, as has been identified, a dearth of one and two-bedroom properties. A move to the private rented sector would inevitably lead to higher rents and higher benefits. There would be no certainty of that being cancelled out, as I think the Minister suggested, by a move in the opposite direction to a cheaper area, but given the allocation policies of local authorities, that is likely to be only in the private rented sector.

The Housing Futures Network found that 50% of claimants would not be likely to move home when they were faced with a cut. Over one-third considered that they would be likely to run into arrears, so we have a certain recipe for driving the poor into greater poverty and debt. We have seen the now-familiar tactic of the bit extra in the discretionary housing payment fund each year, albeit funded by bumping up the percentage reductions for underoccupancy. While this will undoubtedly give some help where the properties of disabled claimants have been subject to significant adaptations and to foster carers between placements, it should be compared with the annual cut of half a billion pounds that the Treasury is seeking.

A review of the consequences of this is right, but it will not help with the misery that these provisions will cause in the mean time. The discretionary housing payment fund has a fixed budget and is having to cover an increasing range of circumstances, as we discussed on the benefit cap when my noble friend Lady Lister referred to it as “the loaves and fishes” concept. We challenge whether it is an appropriate or sufficient method to deal with disability issues. The DWP’s equality impact assessment shows the disproportionate effect the size criteria measure will have on the 420,000 sick and disabled tenants. An additional £25 million of discretionary housing payment for tenants whose homes have been adapted will undoubtedly be challenged as being insufficient mitigation, and rightly so. It is not a reliable safeguard against rent arrears, evictions and homelessness for chronically sick and disabled tenants.

True to form, the Government seek to offer some justification for this approach by juxtaposition with some other group, in this case, those in the private rented sector. As we have heard, the argument goes that private rented sector claimants receive housing benefit for accommodation based on the reasonable needs of their household, while in the social rented sector, it is based on the accommodation that they occupy. This is not comparing like with like. The nature of the tenancies is different and, in any event, when tenants are first placed in accommodation in the social rented sector, it would typically have regard to the size of the family. The reality is that household composition and need can change over time. The changes may not be permanent. Families grow with children and reduce as children fly the nest. The logic of underoccupation provision is that each change should drive a change of home; what a nonsense. It is a back-door way of undermining security of tenure in the social rented sector.

The National Housing Federation is deeply concerned that no flexibility has been given to social rented sector landlords to define whether a property is underoccupied. For example, if a home has a double bedroom and two box rooms, according to the regulations it would be underoccupied if a couple and two children were living in it, despite the reality being that the home is fully used. If the landlord reclassifies the property as a two-bedroom unit, it would lose money, which simply does not seem right. This is just another anomaly of the system.

This is a grotesque experiment in behavioural economics. The department has no idea how tenants will react, and the Government do not seem to care. Indeed, they hope that tenants will sit tight and take the hit because that way the Treasury maximises its saving. It is a callous piece of public policy that will put people into debt, drive increased homelessness and fracture communities, and we should have none of it. I beg to move.

[Baroness Turner of Camden]

My Lords, I rise to support my noble friend in his amendment. I agree with him fully that the new regulations before us are unfair to vulnerable people. They are being introduced at a time of a housing crisis that is particularly acute in places such as London. The situation in London is that rents are too high and wages are too low. The right to buy was fine for some, but it reduced the number of social homes available for rent. The social homes should have been replaced but, of course, that did not happen. Now local authorities are already looking to acquire premises for alternative social housing, often on sites very many miles away from where the individuals concerned are actually living and where they have some sort of support. This would be particularly difficult for people who are disabled, for disabled people require the support services that are often where they happen to live. It is quite unfair that they should be placed in the position of having to worry about future housing.

As far as London is concerned, my own neighbourhood has a particularly acute situation. When I first moved to West Hampstead, the area in which I now live, it adjoined Kilburn and was never regarded as a very posh area. Unfortunately that is no longer the case. The rents now being charged are absolutely enormous, and I do not understand how ordinary working people can be expected to afford them. It is quite common for large houses to be converted into one-bedroom flats, and the landlords charge as much as £500 a week for a one-bedroom flat. That is the kind of area and range of accommodation that is available in the area, and I do not see how working people on very low incomes can possibly afford it.

As for underoccupancy, quite frankly domestic circumstances for people change. Children move away; sometimes, nowadays, they move back because they cannot find anywhere to live. There are people who require support because they are ill. Sometimes they die. Domestically the whole situation changes for people, and it is unfortunate that they should be placed in the position of worrying, every time there is a domestic change, about what is going to happen to their living accommodation. It really is quite unsatisfactory.

As for general housing, I well remember what the situation was like at the end of the war—I am old enough to remember that. There was an acute social housing crisis because a lot of London had been bombed and there was no accommodation available. So what did the then Labour Government and the subsequent Governments do at that time? They had a very bold policy of social housing that was radically put up; we used to call these houses prefabs, and some of them are still in existence. There was a set of regulations that involved rent tribunals. In those days, if you were overcharged, you could go to a rent tribunal and your rent would be reduced. That meant that you could go on living in your accommodation. If you were concerned about it, the rent tribunal had the final say about what the rent should be. That meant that your rent had some relationship to the general level of wages, and therefore people were able to go on living in their homes because they had legislation to support them.

--- Later in debate ---

There is nothing new in these regulations that we have not debated at length and several times. I have given a clear assurance about carrying out research on the effects of this change. That is something noble Lords asked for and something I have put in place. I hope noble Lords will understand my disappointment at this amendment being tabled, particularly when we seem to be going over old ground. I have done what I can to explain the Government’s position and I hope that I can urge the noble Lord not to press the amendment.

[Lord McKenzie of Luton]

My Lords, I start by thanking all noble Lords who spoke in the debate, particularly those who spoke in support of my amendment. I think that that was all noble Lords apart from—not surprisingly—the Minister, with perhaps a degree of equivocation from his noble friend on the LibDem Benches.

My noble friend Lady Turner spoke movingly about how the measures were unfair to vulnerable people—we heard about the London experience in particular—and about the impact of the right to buy scheme, about which we all too readily forget. The right reverend Prelate the Bishop of Norwich spoke about the changes that take place in family groups over time. He and a number of other noble Lords acknowledged that there is insufficient housing stock. He spoke in particular about the rural dimension and the cost to the social fabric of disrupting the current arrangements.

My noble friend Lady Lister, as ever, spoke movingly, in particular on the point that homes should not be treated as a marketplace; that is not how we should view things. The impact of social networks was a strong theme that she rightly continues to pursue.

My noble friend Lord Smith told us about his practical experience of how these things are playing out in the area for which he has responsibility; about the problems arising from the lack of suitable alternative accommodation; and about the impact on rent arrears. He also gave us some history about HMOs and the drive to get rid of them in the past.

The noble Lord, Lord Best, confirmed our view that this is about raising money, not tackling underoccupation. The noble Lord made the point that it is not the fault of occupiers that they have to pay higher rents; it is the fault of the market. He spoke in particular about the significance of all this to housing associations, which effectively will have to collect the tax, about what it means to their finances, and about how potentially it could restrict the role that they can play and have played in the big society.

The noble Lord, Lord Freud, talked about the NAO figures and said that they did not assume behavioural change. I accept that, but it is exactly the basis on which the Government have costed the savings that they hope to achieve. He said that homelessness appeared to be steady under the current statistics. The reality is that the big impact of the changes that are coming is just about to start. The underoccupation rule will come into effect in April, along with the benefit cap. These will be the big drivers of change and concern, driving people into debt and homelessness. That is yet to come—a point made by the noble Lord, Lord Best.

The Minister said that he was unhappy to see the amendment before us tonight. I certainly do not propose to press it, because it would not change anything. The points that noble Lords raised are already on the record, or will be as a result of this debate. I do not promise the noble Lord that he has seen the last of this. We feel very strongly that the contributions in the Chamber tonight focused predominantly on the problems that the legislation will create. We are getting closer to them as the regulations come towards implementation. I have no doubt that we will have to return to the matter again and again in the hope that we can persuade the Government to change course. The circumstances that will arise when the regulations come into effect will help the Government realise how draconian, unfair and unjust their provisions are. In the mean time, I beg leave to withdraw the amendment.

Amendment to the Motion withdrawn.

Universal Credit

Lord McKenzie of Luton Excerpts

Tuesday 6th November 2012 Lords Chamber

[Lord Freud]

My Lords, I am happy to confirm that the Treasury is whole-heartedly in support of this radical transformation of our welfare system. Part of the system relies on real time information through HMRC networks, and HMRC is driving ahead with a series of expanding pathfinders. It currently has 2 million employees or pensioners on the system today and is ramping it up into April and October next year.

[Lord McKenzie of Luton]

My Lords, the Minister will be aware, no doubt, of the KMPG survey undertaken recently. It concludes that:

“Moving to real-time information (RTI) reporting in which employers send payroll information to HMRC on or before every payday instead of after the end of the tax year is an enormous change. In the main, the larger employers are putting plans in place, or at least thinking about it. But many small and medium-sized businesses are likely to be blissfully unaware of this radical change”.

Is that not a cause for concern?

[Lord Freud]

My Lords, there is naturally a programme to get employers on board. HMRC has launched a major campaign—for instance, writing to 1.4 million employers so that they are ready in time. Even in the KPMG report, 75% of employers were aware of the change over and that was before this campaign got going.

Unemployment: Young People

Lord McKenzie of Luton Excerpts

Wednesday 24th October 2012 Lords Chamber

[Lord Freud]

My Lords, the figure I have on apprenticeships for 19 to 24 year-olds is 31% of the total, which is 457,000 starts. I cannot work out the 31% in my head, but I might be able to do it later.

[Lord McKenzie of Luton]

My Lords, on the matter of the youth contract, how many wage subsidies have been taken up to date? How does the Minister consider that sustainable employment opportunities for young people would be enhanced by denying the right for under-25s to access housing benefit?

Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012

Lord McKenzie of Luton Excerpts

Monday 15th October 2012 Grand Committee

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing this order. I doubt whether it will take us quite as long as the business we have just dealt with. Like the Minister, I am happy to celebrate the start of auto-enrolment, which is a very important development in the pension landscape. In that context, we accept and support the need for this change to the regulations. I am sorry that my noble friend Lady Drake is not able to be with us today. She is not well, but she lumbered me with some questions.

What happens if as a result of current considerations of CPI and RPI, the construction of CPI is amended to include housing costs, which could cause it to be higher, and the formula for calculating RPI, using geometric rather than the current arithmetic mean, could cause it to be lower? Is the Minister confident that revaluation by RPI is likely to be more generous in most years?

On my noble friend’s behalf I want to ask about the schemes that apply discretionary revaluation increases. Does this mean that under their statutory funding objective to secure sufficient and appropriate assets to cover their technical provisions, those provisions must include revaluation at a rate no less than the minimum set out in regulations? Further, what happens when such a scheme is in deficit? Must its schedule of contributions and recovery plan be based on assumptions that include the minimum revaluation rate?

My noble friend has asked a further series of questions. For those schemes which apply discretionary revaluation increases, who under this SI can continue to do so and remain qualifying schemes provided that the revaluation is funded for and included in the statement of funding principles? Will the provision for revaluation be required to be at least that necessary to meet the minimum rate for the revaluation requirement of CPI or 2.5%, whichever is the lower? Further, in the event of an employer ceasing to participate in a scheme that applies discretionary revaluation increases, will any Section 75 debt be calculated on the assumption that the minimum rate for revaluation will apply? Finally, will those schemes which revalue by reference to the increase in average earnings continue to be required to meet the minimum rate for the revaluation requirement of CPI or 2.5%, whichever is the lower?

If the noble Lord would prefer to write on any or all of these questions, that may help us all. Having said that, we are happy to support these regulations.

[Lord Kirkwood of Kirkhope]

My Lords, I want to add my support for these regulations. I have myself had one of the four or five questions from the noble Baroness, Lady Drake. It concerns the consultation that the Office for National Statistics is engaged in at the moment in terms of RPI versus CPI. That needs to be thought about quite carefully because it could have a dramatic impact on some of the scheme rules we are talking about and which these regulations cover. I want to put in a request that the department ensures that the ONS is careful about this issue and that people are made aware of the consultation it is currently engaged in.

There is one point I do not understand. I imagine that an average salary scheme must be a defined benefit scheme and therefore it will have a statement of funding principles and trustees. Given that, I do not understand why the easier fix for this was not to change the scheme rules in order to make them compliant. I cannot believe that trustees would want to do anything other than that. They may have a contest for the sponsor of the scheme in terms of getting the resources, but I cannot see how that would be a problem. My question is this: although I am in favour of them, why are these regulations necessary? Why can the trustees of the scheme not deal with it by making a small amendment to the funding rules in the statement of principles for their own individual salary schemes?

If it is easier to give answers to these rather more simple questions by letter, I am quite happy to receive one as well.

Child Support Maintenance Calculation Regulations 2012

Lord McKenzie of Luton Excerpts

Monday 15th October 2012 Grand Committee

[Lord McKenzie of Luton]

My Lords, I thank the Minister for introducing these regulations. We should start by making it clear that we support the thrust of the approach reflected in them. Indeed, why wouldn’t we? It stems from our work on legislation when in government. We support the objective of maximising the number of effective maintenance arrangements for children and of encouraging voluntary or family-based arrangements as well as use of the statutory system. I am not sure that we necessarily agree with the emphasis that the noble Lord places on one rather than another but that is probably a point of detail.

We do not need to dwell on the complex history of CMEC/CSA—I will call it the CSA from now on—and the misery that it inflicted on many families, not to mention more than a few Ministers. However, much of the difficulty derived from the system requiring a lot of information, latterly just from the NRP, many of whom had no interest in complying; indeed, quite the reverse. This was compounded by failures of IT systems and inadequate enforcement powers. So the move to a system which is based on gross income of the NRP, which is accessible from HMRC and does not rely on information from the non-resident parent, is, we believe, the correct way forward. It is also right, in our view, to give some emphasis to what is practical rather than in every respect to make a calculation of intellectual purity, which can, I think, sometimes frustrate delivery.

--- Later in debate ---

[Lord Freud]

Yes, my Lords. The approach is to bring in a new system, which is efficient and automated, at a level that does not consume a lot of resource to start with. You are running your existing systems with the resource that they require. As you ramp up the new system, it starts to establish itself, because you are doing it on a careful pathfinder basis that maintains that automation and efficiency. Then you can start, in practice, reducing the load on the other three systems. That is how you get the gains by doing it, and that is why it is so important to ramp up the new system so that it does not throw a huge amount of clerical work back into the system to compound the clerical overload. We are still running 100,000 cases clerically in one way or another. It may appear a bit smoother to the outside world now, but every £100 transferred is costing the state £35, and that is not something that any Government can tolerate. That is the process: get something efficient; roll it out when you know that it works; build it up; and then start to work down your existing portfolio. That is the process.

The noble Lord, Lord McKenzie, and the noble Baroness, Lady Sherlock, asked about assets and lifestyles. The reality is that that provision was very difficult to use, as everyone involved knows. It was not a successful mechanism for the parent with care to use. Capturing actual income is far more meaningful for parents and far more administratively achievable, which is why we switched over to that approach.

The minimum flat rate of £5 has not increased since 2003 and will remain until the new scheme is fully open to all new applicants. I fully accept the point made by the noble Baroness, Lady Sherlock, about whether it is compatible with UC. At some stage in the future, it may be possible to look at tapers and matching it up, but it is too soon to do that. I accept the general point, but I do not think we are there yet.

The noble Lord, Lord McKenzie, asked about ignoring unearned income in the calculation. We are making the main calculation on taxable employment income, trading income or pension income because HMRC holds that information for the vast majority of taxpayers. Taxpayers who are not liable for self-assessment are not required to declare income of less than £10,000 per year from savings and investments. It would be unfair to take account of unearned income details sourced from HMRC and not pursue parents who had that income but were not required to declare it. Asking non-resident parents to supply that information would be to repeat the delays of the current schemes where non-resident parents are often unco-operative. A parent with care can apply for a variation to take account of unearned income. It is the same with shared care. The noble Lord was right that where it was agreed that there was shared care and the disagreement was about how much it was, the one-seventh assumption would come in. Where there was no agreement that there was sharing, it would have to be done by way of variation.

On taking account of pension schemes, the new scheme will, as now, allow contributions to an occupational pension scheme to be deducted from income, with the resulting figure used to calculate child maintenance. There is no limit on the amount of contributions that can be deducted. That is not a change in the existing system.

[Lord McKenzie of Luton]

I apologise for interrupting the Minister. The question I asked there was: if it is a net pay arrangement, does it get dealt with automatically via HMRC? If it is not, then it requires the non-resident parent to do something, to say, “I am making these contributions and want that reflected”. My question was whether there would be any prompt to the non-resident parent because many would not necessarily know that that was available to them.

While I am on my feet, perhaps I can go back a bit to this issue of variations, lifestyle and all that. We accept the difficulty in identifying unearned income, particularly that which does not have to be reported to HMRC. Why would it not be in every parent with care’s interest automatically to seek a variation on the basis that the non-resident parent may well have some unearned income, simply to see what comes out of the pot? Effectively, HMRC will automatically have to look at that.

[Lord Freud]

May I offer to write on that issue? We are layers down. Rather than dealing with that impromptu I will aim to write, as I will on how the prompts might work for the non-resident parent on their pensions. Again, that is getting to a level of technicality that I do not have at my fingertips. On tax credits, ignoring that loses 100,000 families about £6 a week in maintenance. Both noble Lords made that point. Again, that is an attempt to get rid of a level of complexity and drive through simplicity. We have set the percentages and thresholds to ensure that changes in liability are minimised except where, as a flat rate, we deliberately intended to raise them. We expect more than half of non-resident parents to pay more than under the current scheme.

--- Later in debate ---

[Lord Freud]

I will either produce information or a justification.

On the war pension point made by the noble Lord, Lord McKenzie, a war disablement pension is considered a prescribed benefit, in which case the flat rate of maintenance will apply. A parent with care can apply for a variation to take account of any additional income received by the non-resident parent.

On the 12-month rule and the position with the Scottish minutes of agreement, we are in discussion with the Ministry of Justice and colleagues in the Scottish Government to ensure that the statutory maintenance system and the family justice system both north and south of the border work together as effectively as possible in the interests of parents and children. We are hoping to meet family lawyers’ representatives in England and Wales and Scotland to discuss this soon. However, I should say that at this point we are yet to be convinced that there is a compelling case for legislative change.

In reply to the question from the noble Baroness, Lady Sherlock, on the level of information and evidence required from a parent with care to make an application for variation, the link with HMRC means that the department has immediate access to a non-resident parent’s income information, which removes the requirement for the parent with care to supply substantial evidence of the non-resident parent’s financial circumstances. That means that fewer applications will be rejected at the preliminary stage and makes it easier for the parent with care to apply for variations. I believe that I have dealt with all the questions.

[Lord McKenzie of Luton]

Perhaps I may briefly revert to the issue of shared care when it is equal shared care. Obviously if both parties agree that there is equal shared care, they would not be in the system anyway because no maintenance would flow from it. Clearly it is potentially in the interest of the non-resident parent to claim equal shared care because then there would be no maintenance liability. What will the process be for determination of that and whether any form of appeal is attached to it?

[Baroness Sherlock]

One of the questions I asked was in relation to preparing parents in the current system for moving across to the new system, in particular transitional protection. I apologise if I missed the Minister’s answer.

Housing Benefit (Amendment) Regulations 2012

Lord McKenzie of Luton Excerpts

Monday 15th October 2012 Grand Committee

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

My Lords, these regulations introduce the underoccupancy reductions for working-age social sector tenants. They also support the implementation of the annual CPI uprating of local housing allowance. The regulations are regarded as being compatible with rights under the European Convention on Human Rights. This policy was debated at length during the passage of the Welfare Reform Act. On top of that, many noble Lords came to the briefing session that I ran for MPs and Peers before the summer Recess. I am grateful for their input. I do not intend to go over old ground. There is nothing new in the regulations that we did not debate during the passage of the Act. The purpose of today is to look in detail at the working of the regulations.

As I have said, there are two main purposes to the regulations. First, they make two changes to support implementation of the measure to uprate the local housing allowance by CPI from April 2013. The current provision to review existing LHA cases on the anniversary date of the claim will be abolished from January 2013. Instead, all claims will be reviewed annually on 1 April when the new LHA rates are set. This brings LHA in line with annual changes to other benefits. There will also be provision to review a case if the rent changes throughout the year, so that tenants will not have to wait until the annual review date.

Secondly, the regulations introduce restrictions to housing benefit for working-age claimants who are living in the social rented sector and occupying accommodation larger than their household size requires. The same size criteria that are applied to claimants living in the private rented sector will be used to determine whether accommodation is being underoccupied. These changes will result in a 14% reduction to housing benefit for those underoccupying by one bedroom and a 25% reduction for those underoccupying by two bedrooms or more. The average reduction in housing benefit will be £14 per week for those affected.

The reasons for reform are clear. As noble Lords are aware, this is part of a package to contain housing benefit expenditure. Importantly, there are more than 250,000 households living in overcrowded accommodation in the social rented sector in England—they need more space. We cannot justify paying housing benefit to cover the cost of extra bedrooms while others struggle in cramped accommodation. People who rent from a registered social landlord or local authority have in large part had their rent paid in full through housing benefit. This is not the case for those who receive housing benefit for a privately rented property. They have to make hard decisions about what is affordable to them and where to live, as do people who pay their own rent in full. It is time for those in the social rented sector to make similar choices. Some tenants may look to meet any shortfall in housing benefit by increasing their hours of work or taking in a lodger.

Crucially, this change will provide an impetus for landlords to manage their stock more effectively and help us address the real shortage of homes. There are approaching 1 million extra bedrooms in the social sector that are being paid for by housing benefit for working-age customers. This is indefensible. It is a waste of valuable housing stock. Interestingly, there is already evidence within the industry of a change in management of stock since the policy was announced. Seven local authorities and 11 housing associations in the West Midlands have come together as the West Midlands Making Best Use of Stock partnership and agreed to pool at least 150,000 homes to allow tenants easy access to properties across the region. The partnership hopes that this will enable people to find a house with the exact number of bedrooms that they need in order to avoid underoccupation.

Landlords across Merseyside have also developed a region-wide home swap scheme in response to the size criteria. Twenty housing associations and five councils are taking part; they own a total of 107,000 homes between them. Of these homes, 2,000 have been identified as underoccupied and they believe that another 5,200 could be underoccupied.

We expect to see positive behavioural changes among housing benefit tenants in the private rented sector, following our earlier reforms. Some claimants have said that they will look for a job to make up any difference between their rent and housing benefit and others will look for more affordable tenancies. This supports our view that the changes are both proportionate and measured.

During the debates on the Welfare Reform Act, I made a number of commitments to noble Lords and I will take a moment to update you on these issues. I know that some are concerned because the regulations do not define what constitutes a bedroom, including the room size. However, in practice, others take a different view. After discussions with the National Housing Federation, the Riverside Housing Association and others, we have concluded that most welcome the flexibility that comes with not including in the regulations a definition of what constitutes a bedroom. Some landlords made it clear that defining this in legislation would introduce a system that might involve them having to measure every room. So we are leaving it to landlords to specify the size of property, as they are best placed to do that. We expect the information that they provide to be reflected in the level of rent charged and to match what is agreed in the tenancy agreement.

In previous debates I said that we would think about costs to landlords as part of our engagement with other departments. We are working through the financial impacts on local authorities with the Department for Communities and Local Government as part of the new burdens protocol. That department has also funded the Chartered Institute of Housing to produce guidance for landlords. Making it Fit was published in May and included information on how to model and assess any risk to rental income. My department has met local authorities and advice organisations during the development of this policy. We have also produced comprehensive guidance to help them prepare for the changes in April next year. This includes a toolkit with model letters, leaflets and posters designed to heighten awareness among claimants.

On the next issue, we are adding £30 million to the discretionary housing payments fund from 2013-14. This is aimed at helping claimants living in significantly adapted accommodation and foster carers. I said that I would keep a watchful eye on this. We are currently talking to local authorities and are considering carefully how best to allocate this money. A decision will be made later in the year. I will also keep the discretionary housing payments funding under review.

There has been much debate over whether there should be specific exemptions from the underoccupation reductions for different groups. A presiding principle in the development of this policy has been simplification. For a policy to be administered easily and simply there must be few exceptions.

I have heard concerns that we are relying too heavily on the DHP fund and that there is not enough in the fund to help all those who will be affected. But we do not expect DHPs to be available to everyone who sees a reduction in their housing benefit due to underoccupation. The additional £30 million is targeted at those in adapted accommodation and foster carers. We have added a realistic sum based on what we can afford.

Finally, I should like to confirm that as far as the research timescales are concerned, the monitoring and evaluation will be for two years from April 2013 to March 2015. Initial findings will be available in 2014 and the final report in late 2015. We hope to start the formal commissioning process in the next month or so. We currently envisage that the evaluation will include small-scale primary research with a range of social landlords in local authorities across England, Scotland and Wales. Different types of authority, including a range of urban, rural, county and district local authorities, will be included. These will be selected to cover a range of different housing market demands so that we can explore the effects of the size criteria effectively.

[Lord McKenzie of Luton]

My Lords, I thank the Minister for his introduction to these regulations, which as he has explained cover two main areas: the introduction of size criteria into the social rented sector and the process for uprating the local housing allowance by CPI. I should say at the start that we oppose the regulations, particularly those related to underoccupation. The introduction of the size criteria— I think that we should adopt the Lord Best terminology and call them the bedroom tax—via the Welfare Reform Bill was hotly contested and rightly the subject of government defeats in your Lordships’ House. As noble Lords will recall, the hammer of financial privilege was ultimately deployed by the Government to get their way on the bedroom tax, and a £13 million top-up to the discretionary housing budget paid for by increased pain on the bedroom tax does not adequately address the strong reservations that are being expressed. Nor does it compensate for the misery that these regulations will bring to potentially hundreds of thousands of households. As the Minister has explained, the impact assessments make it clear that the regulations could affect 660,000 housing benefit claimants living in the social rented sector. They could mean an average loss of housing benefit of £14 per week, which is £700 a year.

Of course underoccupation in the social rented sector should be tackled, and many councils have a variety of schemes to do this. We would certainly support the arrangements and partnerships referred to by the noble Lord in presenting the regulations, but seeking to tackle it by curtailing housing benefit, as these regulations provide, is simply not acceptable. Indeed, it does not address the situation where under-occupation as defined is most prevalent—among older tenants. One of our objections to this policy is the lack of practical alternatives that tenants face. The uprated impact assessments make it clear that there is generally a surplus of three-bedroom properties and a lack of one-bedroom accommodation, so in many areas there are simply insufficient smaller properties for tenants to move into. I would also ask the Minister how far the Government think it reasonable for someone to move and thus uproot their family from existing networks of support—100 miles, 200 miles or perhaps 300 miles. If someone has to leave a job to move to a smaller property, will that be treated as good reason for the purposes of a claim for JSA, and does the Minister have any data on the average cost of moving home?

How practical does the Minister consider some of the various options that are laid out for tenants to consider, such as making up a shortfall from income? What other income does the Minister have in mind which is not taken into account in a housing benefit calculation in the first place, and which would of course gradually have a 65% taper in any event? Does the Minister specifically include disability benefits in this consideration? If it is savings, perhaps the Minister can tell us what the average working-age household savings are and how many weeks’ shortfall in housing benefit at £14 a week they would cover? It is suggested that moving into work or increasing working hours would be a solution. So far as moving into work is concerned, what happens if there is no work, and why does the Minister consider that the incentives to come in with universal credit are insufficient of themselves to encourage people into work? For how many households does the application of the WCA determine that somebody is not fit for work?