Budget Resolutions and Economic Situation

Mark Field Excerpts

Thursday 9th July 2015 Commons Chamber

[Mark Field (Cities of London and Westminster) (Con)]

As the City’s MP, it would be remiss of me not to touch on the issue of the bank levy. When it was introduced in the immediate aftermath of the financial crisis, it was specifically designed to reflect the cost to the public purse of the implicit insurance provided by the Government to the finance sector. The suspicion is that more recently the bank levy has become as much an instrument to assist in deficit reduction.

I understand why the Chancellor sought to outwit his political opponents in March’s coalition Budget—that close to an election, I guess there were few votes to be gained by siding with bankers—but now that we have political stability, I welcome his commitment to ensuring that in future the replacement surcharge does what was initially intended. I suspect that this will sufficiently impress HSBC to stay for now, although I appreciate that perhaps too much good will has been expended by the Government on the ring-fencing arrangement for much to change in that regard—despite the threat to the international competiveness of the UK financial services from elements of the Vickers regime.

The more significant medium-term threat to banks remaining headquartered here in London probably arises from the “reckless banking” legislation. Once this is properly tested in the courts, it will be instructive to see just how many senior executives in the largest global banking conglomerates regard London as a place where they will be happy to be domiciled. That is work in progress for most of the City and the Treasury.

I shall say a quick word on the infrastructure and airport capacity debate. My constituency will undoubtedly be adversely impacted by the enlarged flight paths that will accompany the proposed third runway at Heathrow. I am also deeply concerned about air quality, even before the prospect of additional aviation pollution. However, all of us west and central London MPs need to recognise the national interest. There were certainly only anti votes when I supported Crossrail, which has disruptively carved its way through several residential districts in my constituency, but this major infrastructure is essential. Similarly, the UK and London economies desperately require additional airport capacity.

I would have been keener had the Davies commission come out in favour of Gatwick, but it has unequivocally come out in favour of expansion to the north-west of the Heathrow site. It is a finely balanced judgment, and I think there will be some funding problems when we come to put this in place in the years to come, but with reluctance I now take the view that the Government should move ahead with minimal delay and implement the Davies commission’s clear conclusions.

The Government have been wise to raise their horizons in addressing the sustainability of the UK’s recovery in an ever-expanding sea of global debt. At the last emergency Budget, in June 2010 as the last Parliament began, the Chancellor assumed that the then £1.32 trillion of accumulated national debt would cost some £66.5 billion annually to service. The debt pile has now risen to £1.63 trillion, but here’s the rub: we are expecting that to cost only about £51 billion a year in debt interest.

At this point, it should be said that the Chancellor’s determined rhetoric of fiscal retrenchment has earned him the confidence of the capital markets, which I am sure would rapidly have deserted any Labour Finance Minister. However, there is a herd of investors in the capital markets pricing Government debt with a deceptive, even dangerous, sense of calm. Incidentally, it is worth noting that the record low global interest rates apply to Government bonds issued by all but the most basket-case economies, even in the eurozone. In large part, there is a fear that deflation might be here to stay and that a prolonged period of stagnant or very low growth could be in the offing.

[Kelvin Hopkins (Luton North) (Lab)]

Will the right hon. Gentleman give way?

[Mark Field]

I will not, if the hon. Gentleman will forgive me; we are under a strict time constraint.

In such uncertain circumstances, taking on Government debt often seems the safest bet in the markets. The impact of quantitative easing and the excess demand for bonds, driven largely by EU regulatory requirements to invest in safe havens, have both helped to reduce the cost of borrowing by Governments. At the same time, however, our own Office for Budget Responsibility, along with the International Monetary Fund, is projecting healthy growth for the UK economy in the years to come. They are both predicting not a period of Japanese-style deflationary stagnation implied by the pricing of Government debt but solid year-on-year growth at a rate of 2.5% to 3%. The trouble that lies ahead for the UK economy is that once the markets catch up to this reality, it is a racing certainty that the cost of servicing our debts will rise, and fast.

In short—and perhaps paradoxically—it is a sustained economic recovery that risks blowing a huge black hole in future years’ budgets as the UK continues to grapple with the vastly expanded debt that has been accumulated over the past decade. That is why the Government are absolutely right to say that drastic and determined Government action on deficit reduction is essential for the medium-term health of the economy. The Chancellor is right to tackle the debilitating impact of entitlement in much of our welfare system, and now is clearly the time to do that, while the sun is shining. Given all the difficulties in the markets, and all that is going on in Greece and China, our positive economic news might not be around for much longer.

At the beginning of this year, analysis by the McKinsey Global Institute revealed that global debt had risen by some 17% since the final quarter of 2007, when the collapse of Bear Stearns and Lehman Brothers was in the offing. The racking up of debt on this scale represents the biggest experiment we have ever conducted in the global economy. Short of the unleashing of a burst of unprecedentedly high levels of output and sector-wide productivity growth, or alternatively a programme of fiscal contraction hard to imagine in an era of welfare dependency and universal suffrage, it is impossible to see how the developed world will ever be able to repay these levels of debt properly.

Historically, Governments have dealt with debt piles by allowing a little inflation to develop. The other option is to introduce what the economists call fiscal retrenchment. The double whammy of the 1930s depression and the cost of fighting world war two in the following decade left all western economies with equivalent debt levels relative to national income. Between the 1950s and 1970s, yields from Government bonds were deliberately set at just below inflation. As a consequence of the alchemy that comes with compound interest, a lot of our debts were paid off.

That might seem to be a comforting parallel, but there are key differences today. One is that we live in an age of free cross-border capital flows, and much of our borrowing comes from international sources. The model of squeezing creditors by means of negative real interest rates and rising prices simply will not work when credit is denominated in a foreign currency or in a deflationary era. We need only look at the ongoing travails of the eurozone to see the limits of imposing financial repression when nation states are locked into a monetary straitjacket.

Much is made of the fact that one third of UK Government bonds have been mopped up by the Bank of England, which has helped to keep interest rates very low—we have now had 76 consecutive months at the emergency 0.5% rate. More distorting still is the fact that more than 40% of our gilts are owned by foreigners. In this uncertain world, those overseas creditors might take on the chin the impact of artificially low returns on their bonds, but they may be considerably less sanguine about the impact of currency risk. The market sentiment towards sterling is currently benign, despite record current account deficits, but if that were to change and if the pound were to fall, sterling-denominated gilts in the hands of foreign investors would rapidly lose their value. The prospect of such overseas creditors losing confidence in the UK economy would then be very real.

For that reason, the Government’s actions are of critical importance. They must persist in reducing the deficit as a matter of national urgency, to ensure that we collectively start to live within our means as rapidly as possible. What really concerns me, and what should concern policymakers, is that at the moment it is difficult to imagine the circumstances in which the cost of credit might be rapidly increased—as will be necessary in the years to come—without the economic roof falling in.

--- Later in debate ---

[Mr Brown]

In fairness, Mr Deputy Speaker, I took the intervention, but I accept what you say.

There is an issue for those who rely on working families tax credits and who are in relatively low-paid jobs in the north-east of England. Let us take the example of a lone parent with two children who is working 16 hours a week on the minimum wage. Once both changes have come into place, the Chancellor’s living wage announcement makes up about £400, which is just under half the £860 that person would lose from the tax credit change. I listened to the earlier exchange between the Front-Bench teams. I take into account what was said and accept that it might ameliorate the position; none the less, the change is shown in the Red Book as a saving to the Exchequer, which means that it is money that my constituents get now but will not be getting in the future.

The reduction in the employment and support allowance to jobseeker’s allowance levels will not help anyone find a job; it just makes them poorer. The public sector pay freeze of 1% for the next four years is on top of a public pay policy that saw a freeze for two years from 2011, then below-inflation settlements of 1% up to the current financial year. This will be the longest sustained public sector pay freeze ever, and it is just not fair on the workers, especially the low-paid public sector workers. The benefit tapers have been narrowed, and on top of all that there is the benefits cap itself. I am not against the cap in principle, but reducing it from £26,000 to £23,000 in London and imposing a lower regional ceiling of £20,000 outside London is harsh on the English regions.

The Chancellor has burdened housing associations with an unwanted right to buy, which is good for the few but not for the many. Local authority housing stock is still burdened by the bedroom tax, which is not just unjust but actually counter-productive in communities such as my own constituency where a private one-bedroom bedsit in Jesmond costs more to rent than a two-bedroom council flat in Walker. Yet full housing benefit will go to the one-bedroom flat, and those in the two-bedroom local authority-owned flat will be penalised by £8 a week. I do not see how any of this helps the north-east. Certainly, it does not help to make work pay.

In some parts of the country, it may be reasonable to argue that employers should pay better wages rather than rely on the state to top them up, but the danger for the north-east is that those who rely on working families tax credit will not be able to get extra hours at work to make up for the shortfall in their weekly income and will not be able to get a pay rise because there is not sufficient profitability in the business for that to be sustained.

[Mark Field]

I understand some of the right hon. Gentleman’s concerns and I appreciate that we live in two different worlds, but does he not think it slightly ironic that he is more or less making the case that was made from the Conservative Benches 20 years ago when the minimum wage was brought in? It was said that it would somehow lead to a reduction in jobs. That is the case he is making today, yet it was one that he eschewed two decades ago.

[Mr Brown]

The even greater irony is that I was the Government Chief Whip when we put through the minimum wage legislation. My hon. Friend the Member for Sheffield South East (Mr Betts) was the Whip on the Committee that went right through the night on this. But that is going down memory lane. Indeed, it was the current Secretary of State for Defence who was making the case in the Committee at the time. There was some substance in the point, which is why I make it now in relation to the specific circumstances of the constrained nature of the private sector economy in the north-east of England. A broader, deeper and stronger private sector economy is the way forward for our region. It will help to give us the wages and the breadth of job opportunities that the south-east of England enjoys.

The great hope offered by the Government to the north-east is in their northern powerhouse initiative. The Chancellor is right to take regional policy seriously, but he just does not seem to understand how the north-east of England works and what precisely it needs. Indeed, he did not reference us once in his Budget speech when he was going through the offers to the other English regions. The only practical manifestation of the Government’s northern powerhouse policy so far is in the rail upgrades, and they have been delayed.

Pension Schemes Bill

Mark Field Excerpts

Tuesday 2nd September 2014 Commons Chamber

[Crispin Blunt]

I will take advantage of your invitation, Mr Deputy Speaker. I am not suggesting anything other than that the guidance is incredibly important—frankly, it needs to be closer to advice than guidance in its scale if it is to ensure that people are properly equipped to make such very difficult and complex choices—but I am concerned by the suggestion that the levy will be directed at firms that will benefit, whereas we want a competitive market which highly entrepreneurial firms that can put together new products will enter to win business from people who have left their money sitting or have not moved it, and who take annuities from existing providers and the rest. There is a dichotomy there.

[Mark Field (Cities of London and Westminster) (Con)]

Will my hon. Friend give way? [Laughter.]

[Steve Webb]

I do not think that my hon. Friend can intervene on an intervention, but I will give way to him in a moment if he so wishes.

I agree with my hon. Friend the Member for Reigate (Crispin Blunt) that we want to see innovation. The industry is talking about a decade of innovation, so although this system will be up and running next April, it is widely assumed that the market will develop and new markets will indeed be brought forward. I have seen no evidence that the envisaged level of levy will hamper entry into the market. As he well knows, the financial services industry is a big industry, and this is a huge opportunity. We are also talking about the auto-enrolment of between 8 million and 9 million new pension savers. These are huge additional sources of revenue for the pensions industry. Relative to that, the scale of the levy for the guidance is modest, so I think that I can reassure him about that issue of scale.



To move on to the substance of the Bill, I will make my remarks in two sections: the first on the pension schemes and the defined-ambition proposition, and the second on freedom and choice in pensions.

First, what is defined ambition? Essentially, it is a radical reshaping of pensions legislation to ensure that it remains relevant for future generations, and to reflect, recognise and, to quote the coalition agreement, “reinvigorate” innovation in consumer-focused product design in either shared-risk or, as we are calling them, defined-ambition pensions.

The Bill will introduce three categories of pension scheme based on the type of promise that they provide to savers during the saving phase about the benefits that will be available to people on retirement, including a new defined-ambition or shared-risk category of pension scheme. The Bill will enable collective benefits to operate in the UK, as they do successfully in many other countries. We have very much tried to focus on pension members’ experience of what their scheme offers. The new Bill will apply and refocus existing legislation in relation to the new terms.

The first category is for salary-related pension schemes—for example, traditional final or average-salary schemes—where the pension is specified in relation to the person’s salary. They have been in decline since the 1970s, and the majority of them are now closed to new members. They are often known as defined-benefit pension schemes, in which the employer bears the risks of longevity, investment returns and inflation.

The switch has been to the other extreme—schemes commonly known as defined-contribution or, more technically, money purchase schemes. The number of defined-contribution schemes established per year has generally increased since 2007, with 1,060 new schemes in 2013. Membership of such schemes increased by 15% to 2.7 million in 2013.

As you can clearly see, Mr Deputy Speaker, we have a binary model: people get either a money purchase or a non-money purchase benefit. Although both types of pension will be the right product for many people, is it right that the only future for pensions that is encouraged by our legislation is one in which either the individual consumer or the employer takes on all the risk? We do not believe so. Many employers have found the increasing costs of longevity and investment risk too heavy to bear, but if defined-contribution schemes are the only alternative, outcomes for savers will be less certain and more volatile than for earlier generations, making it much harder for future generations of savers to plan for later life.

Consumer trust in the pensions industry is low. As I have said, we can protect people against the risks of high charges or poor governance, but our research has shown time and again that many individuals want more stability and certainty. They want to know something about what their savings will give them and have some protection from the worst vagaries of the market. That is why the Bill provides new definitions for private pensions, including the new defined-ambition category of pension scheme, and for collective benefits.

The new shared-risk definition describes a middle ground between the more polarised money purchase and non-money purchase definitions. It will create a distinctive space to encourage innovation in pension design, and it will provide more certainty for individuals than defined-contribution schemes by sharing risks among employers, employees and third parties.

The collective benefit definition will enable a new form of risk pooling among scheme members that is able to provide greater stability in outcomes for members. Collective pension schemes are often recognised internationally as high quality, and it is only right that the United Kingdom should have access to pensions viewed as being among the world’s best. We also have the advantage of providing protections at the outset that address issues to which the more mature schemes overseas are now turning their attention.

We have engaged extensively with stakeholders across the pensions industry and found that there is an appetite for legislation that allows greater risk sharing and risk pooling. There are employers who will welcome the greater flexibility to create pension schemes that suit the needs of their work force. Pension providers want the flexibility to design and offer pensions that provide greater certainty. Individuals value the option to have greater certainty than that provided by DC pension schemes, as well as the greater stability that collective schemes may provide.

I am pleased to share with the House the warm welcome that the proposals have had. Age UK says that it

“welcomes the overall intention of the Bill”.

The National Association of Pension Funds says that it has

“long supported enabling greater risk-sharing in pensions arrangements”

and welcomes the creation of a framework that enables greater innovation and risk sharing. The TUC says that it has long supported collective pensions

“as a means of improving the income available to workers in retirement. The legislation will bring the UK into line with countries such as the Netherlands, Denmark and Canada where such schemes already operate.”

I welcome the fact that the Opposition have sort of, vaguely-ish welcomed our proposals. The more stability and consistency we have on pensions, the better, because pensions are not just for Christmas but are a long-term business. The fact that there is a degree of common ground in this area is entirely welcome.

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[Mark Field (Cities of London and Westminster) (Con)]

I paraphrase the Minister when I say that it is probably fair to say that like holy matrimony pensions reform is probably best entered into—or not entered into—advisedly, soberly and discreetly. For good reason the final year of a Parliament is often not the best time to embark on radical reform in the sector. It simply becomes all too easy for political adversaries wilfully to misrepresent some far-reaching proposals. Yet there is no disguising that the notion of pensioners being able to unlock their life savings during an uncertain retirement is a revolutionary change, and one I support.

As deficit reduction remains more straightforward to explain than achieve, these pension reforms also allow for some considerable fiscal loosening. Once implemented the proposals will release a vast dollop of cash for those over the age of 55 to pump into the economy, rather than being forced to buy an annuity at a woefully uncompetitive rate. Make no mistake—this is not an unintended consequence of the proposals. The Red Book to last spring’s Budget made it clear that the reforms anticipate a boost to aggregate pensioners’ spending to the tune of £320 million in 2015-16, rising to over £1 billion in 2018-19.

[Guy Opperman]

Is it not fundamental that, given the failures of annuities, the Government provide extra flexibility? Fundamentally, they are doing one thing: trusting people with their own money.

[Mark Field]

I confess that I wholeheartedly support the Treasury’s belief in the principle of freedom to which my hon. Friend refers. It is right that we as Conservatives trust those who have worked hard and saved throughout their adult life to make their own decisions on their savings. Nevertheless, we must accept that the generous tax relief that attaches to private pension savings has always been predicated on the basis that, by providing for their old age, pension savers will not be a drain on the state. It will become ever more difficult to justify reliefs at the generous levels we have all been used to over the past few decades if the compulsion that goes with annuities or restrictions on access to savings is consigned to history.

I am also pleased that the coalition has consulted a little more widely on these plans, albeit somewhat belatedly. One hopes that some technical issues will be ironed out, but I wanted at this stage to make some more general observations. The Government have been commendably vigorous in reforming the pensions system since 2010. As the Minister pointed out, we are already on the third pensions Bill and he already has another in his sights. Eligibility for a state pension will only kick in at a later age. That has to be the right move forward. The earnings-related element of the pension has been abolished. We now have a system of automatic enrolment for employees. Many of these reforms have been undertaken for one simple reason: we could not go on as we had. Our understanding of retirement has changed beyond all recognition and comprehension since the state pension was introduced in 1909. Life expectancy then was lower, so there was no point in continuing the pretence that the state could adequately sustain decent incomes for generations that will now live for 20 or 30 years after retirement.

If the emphasis is now firmly on self-reliance and the ever greater involvement of private providers, the most crucial ingredient will be trust. If the law is essentially to compel citizens via auto-enrolment to hand over an unspent surplus of their hard-earned cash to what they may regard as the unqualified or incompetent, there is little incentive for anyone to save. Central to addressing all this must be a pensions industry in which there is universal public confidence and which willingly recognises a collective responsibility. As we know, we are a hell of a long way from that point. The regulator, encouraged by the Government, now needs urgently to engender a culture among the major institutions in the sector akin to that prevailing among the leading banks during the 1970s.

[Ian Swales (Redcar) (LD)]

Does the hon. Gentleman share my concern that the move to individualism will potentially shoot away the concept behind annuities, which effectively provide group insurance for life expectancy? Therefore, is he concerned about annuities having a bad name? Will the industry get its act together to provide the right kind of insurance products to substitute for annuities?

[Mark Field]

I do share some of those concerns. I agreed to a certain extent with the Opposition spokesman’s points about the tension that exists. There is a tension, perhaps an understandable tension, between the drive towards individualism, which as a Conservative I support, and elements of the collective nature of pensions that have hitherto been in place.

Unfortunately it is clear that confidence in the pensions industry has not recovered after the debacle of Equitable Life, with investment in a residential property seen as the more reliable bet to all too many of those planning their retirement. That applies to virtually everyone of my generation and I suspect to many younger voters, too.

If we are to reduce reliance on the state, we might also reflect on the sobering fact that, earlier this year, the Financial Conduct Authority found the average pension pot to be a mere £17,700. For all the promotion of pensions, no amount of legislation will overcome the fact that far too many of our fellow countrymen are too poor to save adequately for their retirement. I fear that will only become truer for younger generations who find an ever-increasing portion of salary dedicated to servicing high rents or mortgages based on inflated house prices.

I should like to touch on coherence across Government pensions policy, which was referred to earlier by the Opposition. On the one hand, the Government are trying to create a new regime which places much greater trust in the individual to manage their own retirement funds, yet on the other their new system of automatic enrolment for employees suggests they have limited faith—let us put it that way—that people will take sufficient responsibility for saving in the years preceding their retirement. Similarly, while there is an implicit understanding that the state will no longer be able to provide citizens with adequate incomes in retirement, the Government have made a costly commitment to the so-called “triple lock” which guarantees that the state pension will increase in line with wages, prices or 2.5%, whichever happens in any one year to be highest.

In short, the messages to the electorate on pensions remain mixed to the point of confusion. I am not being critical of the Government in this regard, because this is a very complicated area and there are those almost inherent tensions in the pensions system which have been referred to earlier, but it would be helpful if the Minister restated in his winding-up speech the basic principles that underpin Government thinking in this vital area.

As I have suggested, as a Conservative I instinctively welcome the notion that people who have saved and planned their finances carefully should be free to spend their retirement funds as they see fit. It is exciting to see the Treasury and the DWP inject the principles of trust and self-responsibility back into the heart of Government policy. Nevertheless, it would also be wise for the Government to examine whether such policies alleviate or potentially increase the burden on the state.

In this regard, I ask the Minister what examination he has conducted into the system in Australia. Some 20 years ago, the Government there made similar decisions to those now being made here on annuities. However, I understand that the Australian Government are now considering reversing that decision after their Murray review, examining their financial system, found that roughly half of those retiring take money out as a lump sum with a quarter of that group exhausting their funds by the age of 70. In addition, many had got themselves into debt in the years preceding retirement in anticipation of using the lump sum on retirement to pay off those accumulated debts, rather than using it for living expenses in retirement. What safeguards do we have in place to avoid such an undesirable outcome?

Turning to guidance, I have received constituency representations from an industry specialist who is concerned that the new pensions “guidance guarantee” has the potential to create widespread confusion among consumers and damage to regulated financial advisers. The Treasury has announced that under the new regime everyone will be provided with free guidance from bodies such as the Pensions Advisory Service and the Money Advice Service. The cost of this will apparently be borne by a levy on regulated firms. Not only will the new levy add cost to the operations of independent financial advisers, but they will essentially be funding a service that stands to undermine their own offering since many customers will now take the view that it is not worth paying for that independent advice. This in itself is not a problem for the consumer. However, financial advisers currently already operate in a very strict regulatory environment, whereas the guidance guarantee will set out generic options, such as whether an individual should consider an annuity or income drawdown, rather than specific recommendations. There is a danger, therefore, that many pensioners will see broad guidance as an inexpensive substitute for tailored, quality advice. My correspondent therefore recommends either that the Government’s delivery partners remove any suggestion that they will be providing advice rather than simply general guidance, or else that policy is delivered through regulated, private sector firms, perhaps through a voucher system, which would offer consumers the kind of helpful, impartial and personalised advice that they need.

Finally, I should like to say a few words on unintended consequences. It has been clear for some time that the annuity system was not designed to fund the kind of long retirements we have seen as a result of improved life expectancies. However, there are implications for the health of the wider economy if we turn our backs on annuities in ever greater numbers. The vast majority of annuity money is invested in bonds, a crucial source of alternative finance for businesses beyond the traditional banking system. This helps spread risk in the system by ensuring that problems in the banking system, such as those we saw emerge in 2008, do not completely turn off the tap of finance to the wider economy. Currently, those saving in defined-contribution pension schemes buy approximately £11 billion of annuities per annum, with around £7 billion flowing to firms through corporate bond purchases as a result. What consideration has the Minister given to a collapse in such purchases should there be a sudden drop in the sale of annuities, which might well happen as a result of these changes? While I expect this will be offset in part by a fresh flow of money from those pensioners who decide to reinvest their lump sums, this cannot be guaranteed and, as I have suggested, my fear is that, without sufficient trust in the markets, property and the rental income received from it will prove a very attractive destination for this cash. An unbalancing of the property market as a result would not be a desirable outcome of these changes.

While I should appreciate the Minister’s response to all the issues I have raised today, I would like to finish my contribution by reiterating my admiration for the boldness of the coalition in trying to tackle a pensions system that clearly is not functioning well for the majority of our fellow Britons.

Welfare Reform Bill

Mark Field Excerpts

Wednesday 1st February 2012 Commons Chamber

[Chris Grayling]

I am sorry, but I simply do not buy the homelessness argument that Labour Members keep making. We are talking about a cap equivalent to a salary of £35,000 a year. Labour Members were vociferous 12 months ago when the housing benefit cap was introduced, but we have not seen the consequences of which they warned in the terms they used. I simply do not accept that somebody receiving the equivalent of £35,000 a year should be categorised as homeless and unable to find anywhere to live.

Much was said in the other place on the importance of child benefit. Let me make it clear that the introduction of a benefit cap will not result in a single household losing its entitlement to child benefit, which will continue—rightly—to be paid to the current recipient. That important principle will not change.

We are, however, changing another important principle: households on out-of-work benefits should not in future expect to receive unlimited financial support from the state. Like other welfare benefits, child benefit is funded by taxpayers. We therefore believe that it is right for its value to be taken into account along with other state benefits when applying the cap.

[Mark Field (Cities of London and Westminster) (Con)]

I agree with where the Minister is coming from, but he should not doubt the sincerity of many London Members, particularly those of us who represent inner-London seats. We have deep concerns that some of our local residents will have to move. They will not be made homeless—I agree with him that we should not exaggerate—but they will have to move to other parts of London or the UK.

However, all London Members have constituents who might be forced to move out of central London if they have a second or a third child because of the requirement for more space. Does my right hon. Friend think it perverse that the one category of people who are exempt from that is those on housing benefit?

[Chris Grayling]

That is important. I said at the beginning of the debate that our amendments are not simply about money, but about points of principle. What we are trying to achieve with our reforms is to replicate in our benefits system the realities of the world of work so that people can move quickly from one to the other—we need to do that as closely as we can. Fundamentally, that is what the our proposals are about.

--- Later in debate ---

[Mr Byrne]

The principle on which we both agree and which we have advanced reforms to put in place is this: people should be better off in work than on benefits. That is why we are so frustrated with the Government’s failure to get people back to work. Five people are now chasing every job. That is the situation with which we now contend in many of our constituencies. In my constituency, 33 people are chasing every job. That is frustrating for those who believe that people should be better off in work than on benefits. That is why we are so disappointed with the performance of the Work programme.

[Mark Field]

In constructing a regional cap, will the right hon. Gentleman ensure that no more money is expended than by having a cap of £26,000— in other words, that the regional pot will remain as it is? If we are to go down that route, will he also support the idea of regional pay and regional benefits?

[Mr Byrne]

I will come to the localisation of the benefit system, which, as the hon. Gentleman will know, we have had for 70 years in this country, when I set out how I believe our proposal can work in practice.

Low-income Households

Mark Field Excerpts

Tuesday 14th September 2010 Westminster Hall

[Ms Karen Buck (Westminster North) (Lab)]

I am grateful for the opportunity to hold this debate because, over the recess, a number of studies and reports have emerged that have analysed and cast doubt on some of the central claims of the coalition Government in respect of the impact of the Budget and the differential impact that the comprehensive spending review will have on the lowest-income households. All claims about the June Budget being progressive are now being dismantled, and the theme that the pain will be shared is proving to be clearly inaccurate. The refrain has been “We’re all in this together,” and that has been explicitly stated by the Chancellor of the Exchequer. The claim that the measures in the June Budget are progressive has been widely echoed by Government Members, yet that is clearly not the case. In challenging that assertion and asking further questions of the Minister, I am hoping that the Government will, even at this late stage, see sense and acknowledge the dangers that are implicit in a number of their proposals.

I will draw heavily on the analysis carried out by Institute of Fiscal Studies, which has been challenged by defensive Ministers, and I look forward to hearing what the Minister has to say this morning. It would be wise for Ministers not to rubbish the IFS conclusions too rapidly, not least because they extensively used such research when they were in opposition. When the Chancellor was in opposition, he did not hesitate to summon IFS statistics to his aid when he was participating in pre-election economy debates, and the Conservative party policy document, “Labour’s Two Nations”, published in 2010, favourably quoted IFS research in its attack on Labour’s record on poverty, so what is sauce for the goose must surely be sauce for the gander.

Before talking a little about the content of the IFS critique of Government policy, I want to spend a moment or two challenging the two myths that are repeated so frequently: that Labour’s record on inequality was a failure and demonstrated the inability of the Labour Government to put forward progressive measures; and that the Labour Government failed to tackle the reform agenda, and particularly welfare reform.

[Mr Mark Field (Cities of London and Westminster) (Con)]

On that latter assertion, I am sure that the hon. Lady has avidly read the books of Lord Mandelson and the erstwhile Prime Minister, Tony Blair; it is fair to point out that both would stand up and say that the reform agenda did not go through in the way in which they envisaged, and that there was insufficient planning in the run-up to May 1997 to enable them to succeed in making the reforms to the welfare system that were required. I am not suggesting for one minute that such decisions are easy. I am sure that the coalition Government will face some significant problems in the years to come, despite the quite significant long-term planning that took place in the run-up to 201. That planning is in great contrast to what happened when there was an incoming Labour Government 13 years ago.

[Ms Buck]

I am grateful to the hon. Gentleman for his comments. I will not shy away from it: there was internal debate within the Labour party, both in the run-up to 1997 and subsequently, on what reform agenda was needed and how it would be carried forward. As can be traced through numerous speeches in Parliament and elsewhere, I was not always in agreement with the priorities of either Tony Blair or Peter Mandelson. It is historically inaccurate to claim that the welfare state was not subject to significant reform throughout the 13-year period. One of the earliest, and fairly controversial, proposals was on incapacity benefits; it was voted on in 1998. The first clash that took place after the 1997 Government were elected was over lone-parent benefits. Housing benefit was subject to a number of changes. My hon. Friend the Member for Bishop Auckland (Helen Goodman), who was a Minister at the time, will confirm that I beat a path to her door to exercise my concerns about what the Labour Government were proposing on housing benefit reforms, which I felt then and feel now were wrong, but which have been picked up on and exaggerated by the Government.

On the more positive side, the whole tax credits agenda was clearly designed and had an impact on work incentives. The idea that there was no reform agenda is complete nonsense. The reason why welfare reform, particularly in relation to work incentives, has not satisfied the incoming Government is that it is extremely difficult to achieve reform that both makes it easier to work and does not increase poverty. Clearly the new Government have come down on one side of that equation. The simple facts are that inequality soared under previous Conservative Governments. As measured by the Gini coefficient—I do not think that we can argue against this—there was a very sharp upward curve on inequality throughout the mid to late 1980s; it levelled off a little during the 1990s. During the first two terms of the Labour Government, real progress was made on turning the curve down again. Levels of inequality flattened out and then turned up again in the last term of the Labour Government, not least—but not solely—because of the impact of the financial crisis.

In its pre-election briefing, the IFS said:

“The tax and benefit measures implemented by Labour since 1997 have increased the incomes of poorer households and reduced those of richer ones, largely halting the rapid rise in income inequality we saw under the Conservatives.”

[Ms Buck]

I will not make a similar error to that being made by the Conservatives. I will not say that absolutely everything that the Labour Government did was perfect, and that they achieved every single goal and target that they set for themselves, whether on child poverty or on reducing income inequality; they did not. However, it is also nonsense to use the hon. Gentleman’s line to make the case that the Labour Government’s investments, whether in employment growth or in tax and benefit changes, did not slow down and flatten out the rapid rise in inequality that took place throughout the 1980s and into the 1990s. That would be to claim that all the investment in tax credits, increased child benefit and the national child care strategy failed, and it absolutely, clearly and demonstrably did not.

[Mr Mark Field]

Does this exchange not sum up the big problem in trying to assess equality or inequality? The question is whether we consider the matter in an absolute or in a relative sense. As we represent neighbouring constituencies, the hon. Lady will know that one of the effects of globalisation and the huge wealth that has come from the financial services industry in Britain over the past 20 years is that relative inequality has increased. The huge wealth of certain people in our constituencies—whether in St John’s Wood, Mayfair or Belgravia—is clear. That is not to get away from the idea that some progress was made under her Government, and I am sure that the same will be true under the coalition Government. The most vulnerable will be looked after and we will ensure that absolute levels of inequality are at the forefront of our minds.

[Katy Clark (in the Chair)]

Order. I remind hon. Members that interventions must be short.

--- Later in debate ---

[Mr Mark Field (Cities of London and Westminster) (Con)]

I congratulate my constituency neighbour, the hon. Member for Westminster North (Ms Buck), on obtaining this important debate. I hope hon. Members will forgive me if I discuss issues affecting central London specifically and some of the alleviation that will take place in our local authority area. The hon. Lady is absolutely right to identify the key problem of in-work poverty. We often think of low-income households as consisting of people who are simply out of work, but in-work poverty is an important issue.

There are a range of issues that have not been dealt with over the past 20 years. Perhaps we can achieve little on some of them, such as the impact of unregulated immigration, over which we, as members of the European Union, have no control. I am not making an anti-European statement; that is simply a fact. There is no doubt that with the growth of the EU, immigration levels over the past six years have played an important part in driving down wages. Employers have perhaps been somewhat irresponsible in taking advantage of that, but it has and will continue to have a significant impact on welfare.

Understandably, the hon. Lady prayed in aid the high-profile report by the Institute for Fiscal Studies on the Budget, and its concerns about what will happen on 20 October. It is fair at least to argue that the outgoing Labour Government made it clear that they too would have had to do a lot to sort out the deficit. The erstwhile Chancellor of the Exchequer stated that their own Budget would have included £40 billion in cuts. None of those was specified, so it is slightly unfair for the hon. Lady to be accusatory, as she has not analysed where Labour’s cuts would have come into play and what impact they would have had on the lowest-income households.

[Ms Buck]

I remind the hon. Gentleman of what I said in my comments. The IFS analysis says that the more progressive elements of the changes to tax and benefits, which the coalition Government now claim will balance out their other changes, were in fact among those proposed by the previous Chancellor of the Exchequer. The less progressive changes, which will hit lower-income groups disproportionately, are the ones introduced in the June Budget.

[Mr Field]

That is a fair point. To be absolutely honest, the core problem that we all face is a lack of any explicit mandate for anything that is being done on the issue. For we Conservative Members who have been warning about the deficit and levels of public debt for many years, at a time when conventional wisdom was that we would stick to the outgoing Government’s spending plans, that is obviously a matter of some concern.

During the run-up to the general election, a spurious debate took place in which all parties danced on the head of a pin. Apparently, the necessity for £6 billion in cuts was a matter of Armageddon on one hand or sunlit uplands on the other. As the political class, we all took a decision to keep the electorate away from some of the harsh choices that would have been inevitable whoever won the election. That lack of an explicit mandate will cause difficulties in making the necessary case for deficit reduction, a case that I have discussed many times in the House. It is of great importance that we reduce the deficit as responsibly and as early as possible, not just to impress the money markets.

I feel strongly that we will now face intergenerational conflict. Almost uniquely outside wartime, the children of the present middle-aged generation—I see several 40 and 50-somethings here—will have a less good financial situation than the one that we have taken for granted. In many ways, that is a terrible indictment of the debts that we are building up, and it is one reason why we need to reduce those debts. It will make this country a more acceptable place for our children to live in.

The hon. Lady and I both have sons. I worry for my son when he comes to adulthood at 20. I hope he will have the education and skills to make him a globally mobile citizen. He and many of the brightest and best of our young men and women may choose to vote with their feet. I fear that we are already seeing an element of that, given the huge levels of unemployment among our graduate population, many of whom have globally mobile skills that they may well use to go elsewhere. I took for granted the opportunities that were available to me when I left university in the 1980s. We need to bring back those opportunities as quickly as possible. Reducing the deficit and ensuring that debt is kept to a minimum will provide a level playing field for future generations.

I appreciate that others want to speak. I will say a bit about some things that are happening in central London specifically. Due to the grave financial situation inherited by the coalition Government, all of us, whether in business, in households or in local and national Government are, understandably, being forced to tighten our purse strings. My local authority, Westminster city council, is no exception. One clear priority in Westminster is the most vulnerable in our community. Hopefully, that is a benefit of having two Members of Parliament for Westminster, one on each side of the political divide, to make the case.

It is easy to characterise my constituency in particular as extremely wealthy. The hon. Member for Stretford and Urmston (Kate Green), whom I have not had a chance to meet, is an erstwhile constituent of mine, and indeed a former candidate for the Barbican in 1997. She will recognise that although the Cities of London and Westminster contain pockets of incredible wealth, there is a lot of poverty not far from the surface. An important part of my job has always been to provide a voice for the most vulnerable in my community.

[Bob Russell]

I thank the hon. Gentleman for drawing attention to pockets of poverty, which are different sizes in different parts of the country. If housing benefit is cut and people cannot afford to pay the rent, what happens to them?

--- Later in debate ---

[Mr Field]

I will come to that later. One issue facing us in central London is that—without wanting to be unkind about it—it will cease to be our problem. Many of those people will leave central London and end up being rehoused elsewhere, potentially in communities a long way from where they were brought up, where housing is relatively cheap but they have no connection. That is a problem we need to deal with.

I have historically had a concern that too much social housing, particularly in central London, has tended to be clogged up with people who are perhaps in long-term unemployment or who have chaotic lifestyles. There inevitably needs to be some sort of balance. As the hon. Lady says, the interests of some of the most vulnerable and voiceless people need to be properly looked after.

In Westminster, we have an innovative scheme called the family recovery programme, which provides a form of intensive intervention. That programme tries to assign resources to specific families with a track record of causing problems within the community. In 2008, Westminster council identified a small number of families with complex and entrenched social problems, who were responsible for the vast majority of the antisocial behaviour in Westminster. The social impact on the neighbourhoods in which those families were located was immeasurable. I think all hon. Members know that it takes only one or two problem families on an estate to ruin the quality of life for all who live there.

The kind of engagement that the family recovery programme has been involved in includes appointing a specific team to work with individual family members on a one-to-one basis. Such a programme is not inexpensive, but Westminster’s commitment to its family recovery programme has been unswerving and in the two years that it has been in operation the results have been encouraging. The proportion of families who remain unregistered with a local GP has fallen by more than two thirds and more than 80% of children for whom truancy had been an issue have increased their school attendance. In a study of families where crime and disorder was a major concern, the number of offences of which they were accused decreased by 69% in the 12 months following a family recovery programme engagement. The average number of suspected offences per month fell from nine in the previous year to roughly one and a half. Importantly, a survey of 100 of the families’ neighbours found that two thirds were either satisfied or very satisfied with the response from both the police and the council.

A housing renewal programme is also in place, which is integral to the city council’s plans to support households currently in employment in Westminster that are on low incomes. The strategy outlines the city council’s commitment to health and well-being. Its objectives are to increase the amount of housing, particularly family housing. Much of both the social and private housing that is being developed tends to be very small, caters for two adults and often has no more than two bedrooms.

We need more affordable homes for local workers and we need to increase the range of tenure types to help residents who wish to get on the housing ladder to do so. The hon. Lady made the stark reality of the situation very clear when she said that, without relying on help from family members, the average age at which someone gets on the housing ladder is 52. That is a pretty depressing statistic. One appreciates that in central London we are part of a global housing market. However, affordable housing is not just a central London issue; it is a problem in suburban areas and I am sure in the Solihulls and Colchesters of this world. Only a generation ago, the average person in their mid-20s could get on the housing ladder, but that is now an absolute impossibility, unless they work in a highly remunerated business. In addition, through CityWest Homes—the city council’s arm’s length management organisation for housing—the city council is committed to building some 500 new homes across our existing estates over the next four to five years. The majority of those will be available for social housing.

Returning to the housing benefit issue that the hon. Member for Colchester (Bob Russell) mentioned, we are still awaiting full details of the cap and we do not know quite how it will operate. I hope the Minister will give us a bit more detail on that, although I appreciate that she and her Department have a very busy work load that they are still working on in the run-up to 20 October. It would be helpful if we could get some indication of the cap, particularly for those authorities whose housing benefit profile means that there is likely to be a significant shift as a result of Government policy.

I know that my city council is lobbying for a significant proportion of the additional money that was announced in the emergency budget to help manage out the existing system. As part of that, a policy will be developed to clarify whom the city council will prioritise for help. Although the details will depend on the nature of the discretionary award, it is likely to focus particularly on low-income households, pensioners and, of course, disabled residents.

Local housing allowance residents will also be written to shortly to advise them of a change to the system. Obviously, in many ways, the uncertainty is the most difficult element of the situation. We have all had letters—the hon. Lady has probably had more than I have—from constituents who are worried sick about the potential changes. That has perhaps not been helped by one or two of the scare stories being put around. However, those people are legitimately worried about where their medium and long-term future will lie. I hope we will be given some concrete details as quickly as possible, so that, as I said, we can ensure that the most vulnerable in our communities are properly looked after.

I want briefly to touch on a local matter on which I have worked with the right hon. Member for Holborn and St Pancras (Frank Dobson) and the hon. Members for Islington South and Finsbury (Emily Thornberry) and for Lewisham East (Heidi Alexander). That issue is the Crown Estate’s announcement of its intention to sell properties on the Millbank estate. With Westminster city council, I have been lobbying through the Greater London authority and independently to try to ensure that we keep the key worker nominations that are on those estates. Fewer than 1% of properties in central London are currently available at intermediate rent, so it is essential that properties such as those provided by the Crown Estate remain available at their current level of subsidy. Although Westminster city council remains concerned about the sales, given that the Crown Estate has been proven a successful landlord over many decades, guarantees have been received that the intermediate rent properties will remain available at their current rate in perpetuity and that there will be no reduction in the number of intermediate rental properties.

I could say much more, but I appreciate that other hon. Members want to have their say on the matter. Such issues will be high profile for us all and I accept that the nature of representative—and perhaps argumentative—politics means that they will be utilised by the Opposition to try to make political capital with both coalition parties. As someone who feels strongly about the most vulnerable, who need a voice and must be looked after in our communities, it is important to me in my role as an inner-London Member of Parliament who feels passionately about such matters to do all I can.

These are not simple issues. Clearly, we all have to face the fact that there is a huge deficit, which we need to address for the reasons that I set out in my earlier comments. As a matter of equity for the entirety of our communities—particularly the young—we need to do so with some haste. However, it is also of great importance that the most vulnerable are looked after. I am very worried—as the hon. Member for Westminster North is—about those in work ending up in poverty. It is understood that the workless will have some poverty issues, which are equally important and must be dealt with, but we all have a great concern about the people in our communities who work extremely long hours—they often have two or three jobs—to try to make ends meet. The voice of such people is often ignored and they are often regarded in the national context as not being such high priority welfare cases. However, those cases are very close to our hearts and we will do our best to represent those interests both in the House and at local government level in the years to come.

[Several hon. Members]

rose—

--- Later in debate ---

[Helen Goodman (Bishop Auckland) (Lab)]

It is a pleasure, Ms Clark, to see you in the Chair this morning. I congratulate my hon. Friend the Member for Westminster North (Ms Buck) on securing this extremely important debate on an issue that concerns millions of our fellow citizens.

My hon. Friend pointed out some key facts, and I hope that the Minister will respond to some of them. The Government have made huge play of the importance of work incentives, but the Red Book, which the Chancellor of the Exchequer presented to the House, shows that 80,000 people in this country will face worse work incentives as a result of his Budget. That demonstrates the point that my hon. Friend the Member for Stretford and Urmston (Kate Green) made about the total incoherence of the policies being presented.

My hon. Friend the Member for Westminster North asked some sharp questions, and I hope that we will hear from the Minister where the extra £2.5 billion—or is it £4 billion?—will come from in the public spending cuts in the autumn, and what exactly her assessment is of the impact on homelessness of the massive cuts in housing benefit. The hon. Member for Cities of London and Westminster (Mr Field) placed great stress on the need to tackle the deficit. Of course we need to tackle the deficit; there is no question about that. The policies set out by my right hon. Friend the Member for Edinburgh South West (Mr Darling) would have produced a debt to GDP ratio in 2014 of 75%—a high level and not one that we would want in the long term. However, over the next five years, the Government propose an additional tightening of £120 billion in public spending cuts and tax rises. The net result will be to reduce the debt to GDP ratio by 5%, so that it will be 70% rather than 75%. That is not even a 5% reduction now; it is a change in 2014. The hon. Member for Solihull (Lorely Burt) backed that point and said that we should worry about the markets. I am sorry, but I do not believe that the markets will take such a different view of a debt to GDP ratio that is 5% smaller in four years’ time, or that that will make all the difference. That is the altar on which we are told we should smash our public services.

[Mr Mark Field]

No one supports the smashing of public services, but in defence of the assertion made by the hon. Member for Solihull (Lorely Burt) and me, the bond markets have made it clear in the aftermath of the emergency Budget that they are impressed by the resolution of the coalition Government. That is one of the reasons that the yields have relaxed, which augurs well for the long-term debt to which the hon. Member for Bishop Auckland (Helen Goodman) referred. This year, £1 in every £4 that we spend has been borrowed, and we must try to keep the cost of that borrowing to a minimum.

[Helen Goodman]

We have tested to destruction the theory that we should drive our politics by what bankers want. That is not what we want to do, which is why Labour Members regard this Budget as deeply ideological. It will damage the life chances of the most vulnerable people—

[Mr Mark Field]

Will the hon. Lady give way?

[Helen Goodman]

Not again. My hon. Friend the Member for Stretford and Urmston made an excellent forensic analysis of the policies that we have seen so far. She is right to question the competence of Ministers who say one thing but do something completely different. Some seem to be totally out of their depth.

The hon. Member for Colchester (Bob Russell) is rapidly building a reputation as one of the most effective parliamentarians in the House. I would like to point out two facts in response to his contribution. First, under the three Labour Governments, the number of children in child poverty fell by 600,000. Secondly, the number of pensioners living in poverty fell by 900,000.

On 22 June, the Chancellor put the best possible gloss on his Budget, claiming that the effects were progressive and that the richest people would bear the greatest burden. He produced tables in the Red Book which purported to demonstrate that. Since then, independent study after independent study has demonstrated the precise opposite to be the case. In every dimension of vulnerability, the poorest do worst. The Red Book tables were incomplete and did not include the effect of the benefit cuts. Moreover, the Chancellor took credit for the decisions of his predecessor.

As my hon. Friend the Member for Westminster North has said, the first major study was undertaken by the Institute for Fiscal Studies and showed that the impact of the full £11 billion of cuts to the benefits programme, taken together with the tax changes, was regressive. Next, analysis carried out by the House of Commons Library into the impact of the cuts on women, showed that women will lose £6 billion while men lose £2 billion, thereby widening a gender gap that is already too great. In part, that reflects the cuts in support for children, but even if those cuts are stripped out, women will pay two thirds of the extra revenue taken by the Chancellor, and men will pay one third. The Government have admitted that they did not carry out an equality impact assessment of the Budget beforehand. Will the Minister tell us what stage that impact assessment is at, and when we will see it?

Many hon. Members have spoken about the significance of housing benefit. The Minister’s Department carried out an impact assessment into some of the changes to housing benefit, but once again, it was an incomplete analysis because the papers produced at the end of July looked at the effect on the private rented sector only. Even that study showed that over 50,000 of the poorest pensioners will lose an average of £14 a week and that tens of thousands of severely disabled people will lose an average of £13 a week. Lone parents and people with children will lose more than adults without children.

The next major study was the analysis by Cambridge university, which showed that 134,000 families who already live in poverty will face the most cruel dilemma—whether to move or whether to cope on a lower income. When he accepted the position of Secretary of State for Work and Pensions in May, the right hon. Member for Chingford and Woodford Green (Mr Duncan Smith) said that he was interested most in the poorest people. However, the Cambridge university study shows that 54,000 families will have less than £50 to live on after the cuts to housing benefit.

Research produced at the end of August by Experian and published by the BBC looked at the north-south divide. It showed that the spending cuts will hit the north-east and parts of the midlands the most. Middlesbrough is ranked as the most vulnerable place in the country and will suffer most from spending cuts. The average income in Middlesbrough is £18,000. Elmbridge in Surrey is ranked as the most resilient town; the average income there is £27,000.

Most recently, the TUC has looked into the impact on public spending. It shows that the poorest 10% of people will lose 20% of the value of their income in terms of public services, while the richest 10% will lose 1.5%. I have looked again at the work done by the TUC, and put it together with the analysis carried out by the IFS. The work done by the TUC included the impact of the strongly progressive measures introduced by my right hon. Friend the Member for Edinburgh South West in March. However, if we strip those figures from the table, we see that the impact of the measures for which the Government are responsible will be even more regressive. By 2012, the picture looks even more unfair. After tax, benefit and spending changes are taken into account, the poorest 10% of people will lose 23% of their income, while the richest people will lose 2%. That situation will get worse over time. If we put the TUC distribution of public spending together with the IFS tax and benefit figures for 2014, we see that the poorest will lose one quarter of their income in terms of the loss of value in public services, tax and benefits, while the richest will lose 2%.

All that is before we look at the impact on jobs and unemployment. The facts speak for themselves: 25% of income will be taken from the poorest people, 2% from the richest. The effects will be felt not only over the next two or three years. We all know that poverty in childhood affects a person’s opportunities throughout their lives. Of course the deficit needs to be tackled, but the speed, depth and manner of the cuts is short-sighted, unnecessary and unfair. The coalition Government are losing all credibility in their repeated claims to be concerned about fairness. The evidence shows that there is not a shred of integrity in their claims.

Housing Benefit

Mark Field Excerpts

Tuesday 13th July 2010 Westminster Hall

[Mr Mark Field (Cities of London and Westminster) (Con)]

I congratulate the hon. Member for Hackney South and Shoreditch (Meg Hillier) on securing the debate. We have worked together on a problem in our communities concerning the Crown Estate, along with the right hon. Member for Holborn and St Pancras (Frank Dobson), and will continue to do so. I have significant sympathy with some of her concerns, particularly those that relate to London. I fear that elements of the proposals are similar to those adopted by previous Governments, of all colours, and that there is a lack of understanding on specific issues that affect the capital and that an entirely nationwide approach cannot necessarily focus on. Many people will argue that if we remove the opportunity of central London life for the unemployed or the poor, we risk losing the fundamental character of the inner city and perhaps ghettoising the outer capital where families would inevitably be placed.

A housing benefit cap is not about driving people out of London; it is about bringing rents back into the real world, and saying that a system that pays for accommodation that is well out of the reach of ordinary taxpayers is wrong. That system is largely absurd. It has been broken, and become more absurd as time goes by. I am not focusing on Daily Mail articles that appear day by day, because we all know that those exceptions do not prove the rule. None the less, they reflect some of the reality as well as the anger felt by many people who take responsibility for their lives and do not have a lot of children and then throw themselves on the mercy of the state through housing benefit or subsidised housing. There must be fairness.

London will continue to have vibrant estates, and its housing association properties and relatively cheap private sector offering will probably come within the reach of many ordinary workers when the artificially raised rents that have in part been caused by the housing benefit system fall. The issue is not just about the regulated rents of recent years, but goes back some years. There is no doubt that some rents have been artificially raised over the last few years because private landlords have known what they can get away with. That has led to some of the current absurdities.

[Ms Buck]

On that specific point, is the hon. Gentleman aware of the proportion of private sector tenancies in London where a claimant is on housing benefit? He is making the point that the market is distorted by housing benefit, yet housing benefit claimants make up only a small proportion of total private sector leasing, so why should that be the case?

--- Later in debate ---

[Mr Field]

It distorts the overall price level that landlords—often absentee landlords, of which there are far more—reckon they can get away with. That has a distorting effect on the rest of the free market in this area.

Westminster city council—my local authority and the hon. Lady’s—supports the cap even though the announced changes are estimated in the worst case scenario to cost local authorities some £8.1 million this year. That reflects another element of the absurdity: the expense of long-term temporary accommodation contracts that the council was encouraged to enter into under the previous cap regime.

[Ms Buck]

Does the hon. Gentleman agree that two years ago, when the Labour Government proposed changes to the broad market rental area that would have impacted on Westminster, the council not only opposed that and asked us to lobby against it, but said that it would seek judicial review?

[Mr Field]

I do. The hon. Lady and I have done work and spoken in debates here over many years, but it is absurd that there is a massive incentive for local authorities to work within that system, and that they will lose a significant amount because of the cap system.

The local connection guidelines must change because, again, there is a phenomenal incentive for people to come to London, particularly central London. It is understandable that people from established communities abroad would want to be in central London, and I share some of the concerns of Opposition Members about tampering with ideas about local connections. However, in relation to the requirement on a local authority to provide housing, it has been suggested that we consider a three-year period instead of the existing six months out of 12. There is no doubt that central London remains an extremely attractive place in which to live, and it is important to ensure that only families most in need of temporary accommodation are here.

I understand the knock-on effects—I see the hon. Member for West Ham (Lyn Brown) shaking her head. I understand that part of the difficulty is that wherever the boundary is drawn the knock-on effect will mean that in Barking, Dagenham, Newham and so on there will be many more people, and that is equally a wrong way forward to a large extent. I hope that we will implement the caps for new claimants with immediate effect, because nothing would be worse than having too long a gap, such that there would be an incentive for people to enter into long-term contracts before the cap comes into effect.

I appreciate that many hon. Members want to speak, but I want to provide a bit of balance. I am broadly supportive of what the Government are trying to do, but they must consider seriously the specific problems in London, which I am sure will be articulated elsewhere.

It is only right to put another side of the story. A housing provider in my constituency—St Mungo’s—is dedicated to providing a recovery solution for homeless people, and I have worked closely with it during my time as an MP. We know that finding employment must be part of homeless people’s recovery. St Mungo’s welcomes the Government’s promise of further support for those who live a long way from the labour market. The people it works with have many problems, which have contributed to their joblessness and homelessness. It is worried about the announcement that jobseeker’s allowance claimants will have their housing allowance cut by 10% if they have not found jobs within a year.

Many Conservative Members welcome the review of the housing benefit system, because its flaws have become glaringly obvious to those of us who frequently deal with housing cases. I probably speak for all London Members when I say that housing and immigration are the two biggest elements of our work load. Given the great financial straits facing our country, the case for reform is more compelling, but I share the concern of the hon. Member for Hackney South and Shoreditch, and I hope that the Minister will respond to it. Urgent as the need for reform is, there must be proper consultation and an emphasis on the issues particular to the capital. I fear that if we do not change the system, we risk undermining the most compelling aspect of the case for reform, which is that the measures must be primarily about fairness, with hard work rewarded and the truly vulnerable protected.

[Several hon. Members]

rose—

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[Emily Thornberry]

Much more than I could possibly have hoped for, although I have to say that most of my speech will appear on my website.

[Mr Gary Streeter in the Chair]

In some areas of the country—my constituency is an obvious example—there is a serious mismatch between earnings and housing costs. The average worker in my constituency earns £20,000 a year and pays tax on that. The average rent for a two-bedroom flat in inner north London, which is not the most expensive part of my constituency, is more than £17,000 a year. That leaves an average working parent with less than £60 a week for food, clothes, travel and council tax. It is clear, therefore, that there has to be some form of intervention in areas where the rent is so high. Either we build more affordable housing—I am sure that everyone here knows and agrees that that is exactly what we should do with the money—or we intervene to subsidise rents and put people in the private market.

[Mr Mark Field]

This lack of building has been a problem not only over the past 13 years. Does the hon. Lady not recognise, however, that there has to be some sharing of the blame? During the past 13 years of the Labour Government, there was no substantial building, and that is the nub of the problem, particularly in central London.

[Emily Thornberry]

Many of us in the Chamber have been major campaigners on that issue, and I know that the hon. Gentleman is, too. I was completely outraged that the Lib Dem council in my area, which was in power for 10 years, built only one flat for social rented housing for every seven new flats that were built, which is completely inappropriate in a constituency such as mine, given the needs that it has.

Of the 850 Islington families in flats with two or more bedrooms who are claiming LHA, or housing benefit in the case of private landlords, more than half—more than 500 families—will lose benefits under the new capping rules, and some will lose more than £100 a week. Where will they go? Is there room for them in Thornbury and Yate? Will they move into cars? Where do the Government expect them to go when they lose all that money? They certainly will not be able to keep their flats.

To make an obvious point, expecting housing benefit claimants to live in the cheapest 30% of private rented flats will cause real hardship in areas such as London, where housing is already in short supply. The differential between the median and the 30th percentile might be small in some areas. For example, in central Lancashire—perhaps in Thornbury and Yate—there is less than £6 difference between a two-bedroom flat on the median and one on the 30th percentile, and people can get a family home for less than £120 a week. However, in my constituency, in Islington, the difference between the median and the 30th percentile for a two-bedroom flat is £40 a week—the difference between £330 and £290 a week. Where will people get that money? What will happen? It is fundamentally unfair to expect claimants in my constituency to make up a housing benefit gap of £40 a week when claimants elsewhere will be expected to find only £6 a week.

--- Later in debate ---

[Steve Webb]

Clearly, there is a differential impact in different parts of London; I do not dispute that for a second. Taking London as a whole, just a little under a third of properties will be available within the caps. Obviously, the figure will vary from area to area, and there are particular issues that affect central inner London.

[Mr Mark Field]

Will the Minister briefly give way?

[Steve Webb]

I will carry on just for now, because I want to respond to as much of the debate as I can.

The question is, how can we appropriately look at this matter? Some of the figures that have been quoted for losers assume that nothing changes and that people will go on living exactly where they are living and making the same choices, but the whole point of the reform is to have an influence on the housing market, and to try to do something about escalating rents.