Welfare Reform and Work Bill (Third sitting)

Peter Heaton-Jones Excerpts

Tuesday 15th September 2015 Public Bill Committees

[The Chair]

We have 12 minutes left for this session, colleagues. Three colleagues wish to ask questions, so can I ask, please, for brief questions and brief answers? I will call Peter Heaton-Jones, followed by Neil Coyle, followed by Emily Thornberry, who will ask the final questions.

[Peter Heaton-Jones (North Devon) (Con)]

Q 187 I will be very brief. I seek just one point of clarification from Professor Gordon. In your opening answer, you made a reference I want to clarify. You said certain measures in the Bill had previously been proposed in 2007, I think—

Professor Gordon: Between 1999 and 2007, under the last Labour Government.

[Peter Heaton-Jones]

Q 188 And what were the measures that that Government proposed?

Professor Gordon: They were part of the opportunities rule, which had a whole suite of measures of child wellbeing. There were effectively identical to the measures proposed in the Bill.

--- Later in debate ---

[Stephen Timms]

Q 197 You had some comments, I think, about what the apprenticeships report should tell us. Could you say a few words about that?

Julia Unwin: Apprenticeships clearly matter. We can learn from other countries about how to do them so much better, but we need to understand in fairly fine-grained detail the impact of apprenticeships and what they do for people’s life chances, as opposed to thinking that they are a process through which people go and that there are automatically positive outcomes.

[Peter Heaton-Jones]

Q 198 I want to move on to discuss clauses 9 and 10, which put in place measures to freeze certain elements of benefits and tax credits over a four-year period. I am keen to get your knowledge and experience on how, since roughly 2008, average earnings have risen by about 11% while average benefits have risen by—depending slightly on how it is measured; I agree that there is a grey area—about 21%. Do you think that the measures in the Bill to freeze certain elements are welcome in that they would get a bit of equalisation in the system? We should bear in mind the Government’s stated intention that they are trying to bring more people closer to work, and to make work pay—to use the slogan.

Dr Niemietz: The problem with an across-the-board freeze is that you do not really incentivise work, because you freeze out-of-work incomes and also in-work incomes, or at least that part of the transfer that is supposed to top up low incomes and thereby incentivise people to enter the workforce. If you freeze both, you lose that effect because the gap remains the same. It would have made more sense to freeze only out-of-work benefits, or even to uprate them at a rate below inflation, but not to touch the work-related top-ups, especially the 30-hours element of working tax credit, which was meant to give people an incentive not only to move into some work but, once they were in work, to move further—to move from minor employment towards something closer to full-time employment.

Julia Unwin: The benefits freeze is a huge risk for the Government to be taking, and to have taken in advance in this way. The basket of goods on which poorer households spend their income has been subject to more inflation than the rest because the cost of essentials has gone up. We are currently in a period of lower inflation, but we cannot predict what will happen. I would recommend, as we did in our submission, that the Government review the rate of inflation annually. The outcome might well be a freeze, but actually, what the Government are doing is removing the one buffer that the poorest households, both in and out of work, have against inflation. That is hugely risky.

[Peter Heaton-Jones]

Q 199 What is the panel’s view on taking the measures in the Bill alongside the wider approach of some of the measures proposed in the Finance Bill—for example, the national living wage and the uprating of income tax thresholds? If you take them all as a bundle, is there not—well, I do not want to lead you. What is your view on whether that package of measures would be welcome in moving people closer to work and making work more attractive?

Julia Unwin: There is no question but that we need to move people closer to work or that people’s best route out of poverty is work—that is, work that gives them security, confidence and some progression. We have done some analysis of the package of measures, as you described it, and some are welcome. All the measures are welcome in their own right, but their impact is different on different groups of people. As you heard in the previous session, the better impact is on couples without children who are both working. That is welcome, but for child poverty, particularly for single parents, there are some very real losses. This freeze only compounds those losses.

Dr Niemietz: I would have started from a very different angle. One of the transfers that most undermines work incentives is housing benefit, because in a lot of areas—particularly London, but other cities as well—a lot of low earners could not realistically earn an income that gets them off the housing benefit taper. That means they will always have this taper rate of 65% of net income, which is a huge disincentive against work. That cannot be addressed within the remit of the Bill, but it is always worth bearing in mind that the only reason why housing benefit dependency has risen so much is that rents have increased at a faster rate than incomes for a very long time. The reason for that is simply that we are not building enough houses to keep up with demand. Once you get that right—once you allow the construction of sufficient numbers of homes—rents will fall and housing benefit dependency will automatically fall with it, meaning that far fewer people are exposed to that 65% taper rate. You would massively increase work incentives while saving a lot of public money.

The UK has a higher proportion of its population depending on housing benefit than any other developed country. It is about one in five households. That is the highest proportion in the developed world. I would have started from that angle.