Universal Credit and Welfare Reform

Stephen Timms Excerpts

Tuesday 11th September 2012 Commons Chamber

[Charlie Elphicke]

I thank my hon. Friend for making that important point. That is, indeed, the kernel of what universal credit is about: it gives a clear message that it pays to work and it is good to work. The Opposition call themselves the Labour party, yet too often when in office they gave the impression of being the non-labour party. This coalition is on the side of the working person—those who are working in a job in order to earn money and bring cash back to their families, and thereby to lift their children out of poverty.

It was often said in past times that the best cure for deprivation is a job. Many people in my constituency live in deprivation. It is important to get people back into work, to incentivise and encourage people to be in work and to make work pay; that is an important message to send. That is why I see universal credit as a message of optimism saying that we want everyone to play their role, and that everyone is expected to play their role and to be active in the workplace.

I support universal credit because it is a simpler system. It makes the situation easier to understand. There are not five different types of payments; there is just one simple payment. It is a fairer system, too. Rather than people losing 90p in the pound—thereby entirely disincentivising them from working harder to get a pay rise or from working longer hours—only 65p in the pound will be withdrawn, which incentivises them to work harder and for longer, and to bring more prosperity back to their families.

[Stephen Timms (East Ham) (Lab)]

Is the hon. Gentleman worried, as I am, about the proposals of some local authorities to add a 40p in the pound taper on council tax benefit on top of the 65p taper he has just talked about? Under that approach, people who earn more would get less because they would lose more benefit than they would gain in income.

[Charlie Elphicke]

The right hon. Gentleman knows, as I do, that the fine tuning of council tax is still under discussion and still under way, and I hope that that will come out in the wash. I represent a coastal constituency, so I watch that situation carefully, as I know my coastal MP colleagues have been doing. They, too, want to ensure that the low paid in our constituencies are not adversely hit. That is an important point, but it is a fine part of the detailing of the implementation of the policy rather than the overall purpose of the policy, which is to encourage work and to give people more money if they work harder, do better, skill up and get a better job. That is a really important thing.

--- Later in debate ---

[Stephen Timms (East Ham) (Lab)]

This has been a thoughtful debate which has covered a lot of important ground.

Let me begin by endorsing the concept of universal credit. It is a good idea to bring different benefits together. The last Government looked forward to a single working-age benefit, and the present Government are right to take that idea forward. It ought to make it possible to simplify the system, strengthen work incentives, and make those incentives clearer. It is in the task of translating those noble aspirations—which every Member in the Chamber has shared this afternoon—into reality that Ministers are struggling so badly. The Treasury is worried; the Prime Minister is worried, as we discovered from the reshuffle last week; and, as we have heard in the debate, people in the system are worried. The wheels are wobbling, and, as my right hon. Friend the Member for Birkenhead (Mr Field) pointed out, the public mood and, indeed, the mood on the Conservative Back Benches is becoming much chillier in regard to this initiative.

The first big thing that went wrong was the decision that the credit should not be universal after all. Council tax benefit, one of the most widely claimed benefits, has been left out. So we now face the prospect of a “not quite universal credit”. My right hon. Friend the Member for Southampton, Itchen (Mr Denham) rightly observed that that was not the fault of the Secretary of State, who wanted council tax benefit to be included. The Secretary of State for Communities and Local Government wanted it to be excluded, and unfortunately the Secretary of State for Communities and Local Government won. It is now becoming clear what a blunder that was.

As I mentioned earlier in an intervention, Welwyn and Hatfield district council is consulting on a 40% taper rate for council tax benefit, on top of the 65% taper rate for universal credit. If the council proceeds with that proposal, for every extra pound that people earn they will lose more than £1 of universal credit. That is precisely the kind of lunacy that universal credit was supposed to abolish. The idea was supposed to be that work should always pay. I think that that was supported by every Member who spoke today, and it was mentioned specifically by my hon. Friend the Member for West Dunbartonshire (Gemma Doyle). However, thanks to the success of the Secretary of State for Communities and Local Government in winning a row with the Secretary of State for Work and Pensions, it will not now happen. Every council in the country will have its own council tax benefit scheme and its own taper, so people’s work incentives will depend on their postcode. So much, sadly, for simplicity.

[Mr Frank Field]

Is my right hon. Friend not being too kind to Treasury Ministers? The moneys for the rebates will be limited, and it will be up to local authorities to meet existing need, let alone new need.

[Stephen Timms]

My right hon. Friend is absolutely right. The money is being cut by 10%, so councils must somehow come up with a scheme that will save 10% and will be introduced on a local basis. It will be chaotic. Many councils are saying that they will not be able to do it in time, and it will certainly mean that there will be no national taper that everyone can understand.

However, that is just the start of the problems. The project is not on schedule, despite what the Secretary of State said earlier. According to paragraph 21 on page 37 of his White Paper of November 2010, between October 2013 and April 2014

“All new claims for out-of-work support are treated as claims to Universal Credit. No new Jobseeker’s Allowance, Employment and Support Allowance, Income Support and Housing Benefit claims will be accepted.”

I believe that that is what my right hon. Friend the Member for Wentworth and Dearne (John Healey) was told. It is absolutely clear, but it is no longer true. A newsletter appeared on the Department for Work and Pensions website over the summer announcing that, in fact, that timetable will apply in only one Jobcentre Plus district per region. In all the other districts, the change will take place some time after October 2013 and by summer 2014. The timetable has slipped; it has been delayed from what was stated in the White Paper—I am delighted that the Secretary of State is back in his place. On the budget, to the end of the last financial year the project was due to spend £400 million. In fact, it spent £500 million. So it is already over budget, too.

I welcome what the Secretary of State said about online claims: he told us that the Department expects that at the beginning only about half of claims will be submitted online. That is a very significant change from what has been said until now in respect of the digital-by-default proposal. It would be helpful to know what will happen to the 50% who do not apply online. How will things work for them? When people have problems, who is going to help them? As my hon. Friends the Members for Denton and Reddish (Andrew Gwynne) and for Makerfield (Yvonne Fovargue) rightly pointed out, the introduction of universal credit will coincide with a drastic reduction in the availability of advice, just when people are supposed to be grappling with these new processes.

What about people’s documents? At the moment, people applying for housing benefit present their documents to the local authority. Where will they present them in future? Will people start turning up at jobcentres with their documents or will they be expected to post them somewhere—or will we no longer have the fraud checks that are currently built into the system?

This is supposed to be all about work incentives, but large numbers of people will find that their work incentives are worse. The Government apparently plan a simple income cut-off for free school meals. If people earn less than X, their children will be entitled to free school meals, but if they earn more than X, they will not. That is a disastrous new cliff edge—far worse than anything in the current system. It means that someone with three children who earns less than X will suddenly have to start paying out over £3,000 in school meal charges per year if their income increases above X by just a pound or two. That is a massive disincentive to people to increase their income.

We have been asking how Ministers are going to tackle this issue since March last year. We asked the Secretary of State when he would make up his mind when he gave evidence to the Welfare Reform Bill Committee. He said that

“during the Committee stage we should be in a much stronger position to make it much clearer how we will do that.”––[Official Report, Welfare Reform Public Bill Committee, 24 March 2011; c. 155, Q299.]

Some 18 months have now passed, and today the Secretary of State told us he is talking to various people about it. All this is supposed to be in place within 12 months from now and Ministers still cannot tell us what they will do, but it does appear that that very damaging feature will be part of the system.

I have asked about the publication of the business case. I believe that Ministers will not publish it because it projects that there will be no increase at all in the total number of hours worked as a result of the introduction of universal credit. In other words, the whole basis on which this project is being taken forward is flawed. That is partly because of the situation for second earners, which has been mentioned. My right hon. Friend the Member for Lewisham, Deptford (Dame Joan Ruddock) asked the Secretary of State what would happen to hours worked. He did not answer, and I think I have just explained the reason why. As my hon. Friend the Member for Stretford and Urmston (Kate Green) pointed out, second earners in a couple face sharply worse work incentives than in the current system. We are going back to an outdated male breadwinner model, where the second person in the couple is not expected to work.

As my hon. Friend the Member for Glasgow North East (Mr Bain) pointed out, incentives for self-employment are terrible, too. Tax credits have encouraged self-employment, but, under universal credit, the DWP will assume after the first year that people are earning at least the minimum wage for every single hour they are working in self-employment.

[Nia Griffith (Llanelli) (Lab)]

Does my right hon. Friend share my concern that the Federation of Small Businesses is saying that this will be a disincentive to people to get up off their backsides and start their own businesses and get going? That suggests that something is fundamentally wrong.

[Stephen Timms]

My hon. Friend is absolutely right, and that is because of the design that has been chosen. In July, the chair of the Low Incomes Tax Reform Group called for a rethink. He said:

“In many cases the income of self-employed earners will fall sharply making it, in some cases, uneconomic for them to continue to work.”

That is the opposite of what everybody in this debate has said universal credit is supposed to do, but that appears to be where we are heading. It is, I am afraid, a mess.

As you know, Madam Deputy Speaker, a great deal of care was taken over the design of tax credits to ensure that mothers receive cash support for their children. All those safeguards are deliberately being removed from universal credit, which will cause serious problems.

I very much welcome what the Secretary of State said yesterday about refuges. As we know, Refuge has been saying that it will have to shut all its domestic violence shelters. I am pleased that my hon. Friend the Member for Walthamstow (Stella Creasy) was able to secure a pledge from the new Home Office Minister, the hon. Member for Taunton Deane (Mr Browne), that he will lobby DWP Ministers on that point, but how are the costs of other kinds of supported housing to be met? The Government concluded a consultation on that in October last year. Another year has passed, and nothing definite has been announced, and in one more year this is all supposed to be up and running.

As has been said, we do not know anything about how in-work conditionality will operate. I have not even mentioned Her Majesty’s Revenue and Customs’ real-time information system for pay-as-you-earn. That is supposed to start from next April. Every company in the land is due to start reporting PAYE to HMRC not, as now, once a year after the end of the financial year, but every single month. The Government say it will all happen automatically through everybody’s computerised payroll systems, but what about small firms that do not have a computerised system? The Low Incomes Tax Reform Group says:

“Businesses will have to draw up two sets of accounts—one for HMRC, the other for DWP—and the latter will have to be done monthly, thereby massively increasing bureaucratic burdens.”

This is a mess. It has not been properly worked through. Key decisions have not yet been made. It is no wonder the Treasury and No. 10 are so worried. The House should be too, and should support our motion.

--- Later in debate ---

[Steve Webb]

Let me deal with that point directly. Under the current system, people who are below the tax and national insurance threshold and get tax credits and housing benefit lose 79p in the pound—that will fall to 65p. Under the current system, people who are above the tax and NI threshold and get tax credits and housing benefit lose 91p in the pound—that will fall to 76p. Under the new system, there will be almost no one who loses more than 80p in the pound, compared with 500,000 people who do so now. What is not to like about that? This is good news for work incentives.

[Stephen Timms]

What is the Department’s assessment of the effect of the introduction of universal credit on the number of hours worked in the UK economy?

[Steve Webb]

As the right hon. Gentleman well understands, the impact on every individual will be different, so we have not used a specific figure for the number of hours worked. However, what I have demonstrated is that the people who face the biggest barriers to working more hours will see cuts in their marginal rates and the people who face the biggest barriers to working at all will get more return for working. So this is good news for work incentives. The right hon. Member for Birkenhead referred to the people facing an increase in their marginal rate, but that increase is by four percentage points, from a median of 41 to 45. That is the trade-off. We give people an incentive to take work and we tackle the most severe marginal rates, while some people face a four percentage point increase. That seems to me to be a good trade-off.

Quite properly, a lot of hon. Members raised the issue of internet access. We want to make it absolutely clear that the proposition is digital by default, so if we can get people in on the internet and online, we will do so. However, as the Secretary of State said at the start, we fully recognise that not everybody is online and not everybody will be, so the core planning for the universal credit contains provision for people who will not be online.

Some of the figures we have heard grossly distort the extent to which people of working age in the benefit population are online these days. The evidence suggests that 74% of claimants—not of the whole population, but of claimants—have home broadband and that 41% of claimants do internet banking. To hear the speeches we have heard in this debate, one would not think that these people even knew what a computer looked like. It has been suggested in this debate that we have to avoid patronising people on benefits, and that is absolutely right. We want to support people who are not online—jobcentres will play a part in that and we are talking to local authorities about it—but let us see this as an opportunity to get more people to be internet savvy, online and more employable. Let us not condemn people; let us give them opportunities and training.

The impact of this measure is very important, and the hon. Member for Stretford and Urmston (Kate Green) asked about the equalities impact. We will publish an updated equalities impact assessment with the final regulations after the autumn statement.

The hon. Member for Glasgow North East (Mr Bain) gave some bizarre figures about the impact of this reform on lone parents, and I do not know where he got them from. Lone parents gain from universal credit: 400,000 lone parents who rent will gain, as opposed to 200,000 who will have lower entitlement; there will be twice as many gainers as losers in that category. This reform will reduce child poverty, because we are spending huge sums of additional money at a time when money is tight. We are doing so because of our priority of making work pay.

We have heard discussion of the real-time information system, the fact that people’s benefit will be based on their current situation and the impact on business. This approach has been assessed as saving businesses £300 million a year. Those figures are signed off not by us, but by the Regulatory Policy Committee, which is a business-led organisation; they have been validated by business. Businesses are doing a lot of these calculations anyway, with the software doing it for them in most cases, but the streamlining of the system will save businesses cost overall. We are working closely with our colleagues at Her Majesty’s Revenue and Customs; there has been close working between the two Departments. The Department for Work and Pensions is represented in the governance of HMRC’s real-time information programme at every level, and the DWP and HMRC have jointly presented to Parliament.

The right hon. Member for Birkenhead, in another bizarre, overstated allegation, said that there has been a mass exodus of senior civil servants on the programme. That is completely untrue. The senior responsible officer, Terry Moran, whom he will know from years gone by, has held that role since November 2010. The programme director has been in place since August 2011. At HMRC, the senior responsible officer for the real-time information service has retired—we still allow people to retire, even under our policies—but has been replaced by someone from the DWP. So the suggestion that people are just walking out the door is nonsense and is scaremongering.