Welfare Benefits Up-rating Bill

Stephen Timms Excerpts

Monday 21st January 2013 Commons Chamber

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

Before I call the first group of amendments I must tell the Committee that the amendments to the schedule have been marshalled in error before the new clauses. The Committee will deal with the new clauses before it considers the schedule. I invite Members who wish to speak to clause 1 as a whole to do so in this debate, as I do not anticipate that there will be a separate debate on clause 1 stand part.

Clause 1

Up-rating of certain social security benefits for tax years 2014-15 and 2015-16

[Stephen Timms (East Ham) (Lab)]

I beg to move amendment 12, page 1, line 4, leave out ‘by 1%’.

[The First Deputy Chairman]

With this it will be convenient to discuss the following:

Amendment 7, page 1, line 4, leave out ‘1%’ and insert

‘the Retail Prices Index measure of inflation.’.

Amendment 10, page 1, line 4, leave out ‘1%’ and insert

‘the percentage by which the general level of earnings is greater at the end of the period under review in that tax year under section 150(1) of the Social Security Administration Act 1992 than it was at the beginning of that period’.

Amendment 20, page 1, line 22, leave out subsection (5).

Clause stand part.

[Stephen Timms]

In this Bill the Government are punishing people who are already hard up for the failure of their economic policy. We were promised that the policy would lead to steady growth and falling unemployment, but it has failed. We have had a double-dip recession, and some predict that this week we will learn we are in a triple dip. Unemployment is now officially forecast to go up next year, so spending on unemployment benefits will go up, and borrowing will go up too.

The Chancellor’s policy has failed and the Government have decided to respond by forcing down the incomes of those whose incomes are already the lowest of all. Roughly speaking, the saving over the two years to which the Bill refers will be about the same as the increase in welfare spending resulting from the rise in unemployment forecast just between the Budget last year and the autumn statement.

The Government want to cut the incomes of the least well-off in real terms, not just for the coming year but, through this Bill, for the year after and the year after that. At the same time, in April they will give a tax cut to everybody earning more than £150,000 per year. That combination of policies will force up poverty in every part of the country, and it is a disgrace that Ministers are forcing this Committee stage into a single day.

This Bill is a bitter blow to large numbers of families—in work and out of work—who are on low incomes at the moment and struggling to make ends meet. Three new food banks open every week; last year a quarter of a million people received help from a food bank because they could not afford enough to eat, and this Bill will make matters significantly worse. It means that for three years, low-income families will get below-inflation increases. The number of people visiting a food bank will be higher this year and, because of this Bill, it will be higher still next year and higher again the year after that.

As Citizens Advice points out:

“The cumulative impact of capping the uprating of most benefits to no more than 1%”,

for the next three years, will lead to an exponential increase in net losses each year. Child Poverty Action Group stated that

“the poorer you are, the greater your loss.”

[Mr John Redwood (Wokingham) (Con)]

Do the Opposition want to make it more worth while to be in work than out of work, and if so, how would they do it?

[Stephen Timms]

We certainly want it to be more worth while for people to be in work, but forcing down the incomes of those who are out of work is not the way to do it.

Clause 1 affects mainly out-of-work benefits, but people struggling to make ends meet in work are hit as well. Schedule 1(b) means that the personal allowance used in the calculation of housing benefit for people in work will go up by only 1%, irrespective of what happens to rent levels.

[Charlie Elphicke (Dover) (Con)]

Is it therefore the right hon. Gentleman’s and the Opposition’s policy that uprating should be not by 1%, but by inflation? Is that a commitment?

[Stephen Timms]

Uprating should indeed be in line with inflation, as it always was in the past.

[James Duddridge (Rochford and Southend East) (Con)]

Will the right hon. Gentleman give way?

[Stephen Timms]

I will make a little more progress, and then gladly give way again. As I was saying, schedule 1(b) means that housing benefit for people in work will be cut in real terms as well. We will return to that when we speak to amendment 17.

The change in the personal tax allowance, which we have heard a good deal about, will not do very much to help people who are in work on low incomes. Citizens Advice points out that

“any rise in net earnings leads to a reduction in housing benefit and council tax benefit.”

In addition, of course, the change will do nothing at all for people who are out of work.

[Neil Carmichael (Stroud) (Con)]

I listened carefully to the right hon. Gentleman’s observation, but note that about 3,800 people in my constituency who are in work have been lifted out of tax altogether. Does he not believe that that is a step in the right direction?

[Stephen Timms]

Those people will lose council tax benefit, and if they are paying rent, they will lose housing benefit. Citizens Advice is right that the effect of the change in the threshold on people in low-income work is very low indeed.

[Helen Goodman (Bishop Auckland) (Lab)]

Thirteen pence a week.

[Stephen Timms]

My hon. Friend says that the change is 13p week, which is a derisory amount.

[George Freeman (Mid Norfolk) (Con)]

Will the right hon. Gentleman give way?

[Stephen Timms]

No—I will make progress before I give way again.

The Bill was designed by the Chancellor to promote his party’s narrow interest. Like a number of the Chancellor’s efforts of that kind, it has not worked out as he hoped, but let us be clear that the Government have restricted uprating to 1% for the coming year without a Bill and did not need a Bill to restrict uprating for future years. The Chancellor thought he could boost his party’s standing if he introduced a Bill, so we have one. Coalition Ministers are here to help advance the Chancellor’s cause.

In particular, it is ridiculous to announce now—before we know anything about the future course of inflation—by how much benefits will be uprated in more than two years’ time, which is well after the general election. The Opposition therefore reject the proposal to restrict the uprating of social security benefits and tax credits to 1%. As I have said, in our view, uprating should be in line with inflation and assessed, as it always has been, at the end of the preceding year.

The Secretary of State claimed in his speech on Second Reading that, as part of employment and support allowance, the support group is protected, but it is not. The Secretary of State said that people who are not in the support group will find that they are affected. That is true, but people in the support group will be hit as well. Citizens Advice has worked out that a lone parent with three children who is in the support group will lose £600 in 2015-16 because of the exponential way in which the Bill will grind down the incomes of people who are already hard-up. We will come back to that.

[Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)]

Is my right hon. Friend aware of the coalition of 60 Scottish charities that says that the Bill contradicts the principle that everyone should have a reasonable income in order to live a dignified life, and that many people in Scotland will be adversely affected by the Bill?

[Stephen Timms]

My hon. Friend is absolutely right, as are the organisations to which she refers. Indeed, as I shall say, there has been a widespread call along those lines pointing out the damage that the Bill will do. Disability Rights UK states:

“The Government has suggested that all disabled people are protected from the lower 1% increase in benefits. This is not the case.”

In fact, as the impact assessment tells us, disabled households are more likely than others to be hit by the changes in the Bill.

[James Duddridge]

The right hon. Gentleman has twice from the Dispatch Box repeated the commitment to uprate benefits by inflation. Is that the retail prices index or the consumer prices index, or has that yet to be decided?

[Stephen Timms]

That is a matter to be announced at the appropriate time. At the end of this year, we will set out how benefits should be uprated for the following year, as it always has been done, and at the end of next year for the year after that.

[Several hon. Members]

rose—

[Stephen Timms]

I will make a little more progress and then I will gladly give way again.

In moving amendment 12, I wish to focus on the effect of clause 1, as it stands, on child poverty. Previously—reflecting the commitment in the coalition agreement to eradicate child poverty by 2020—the Government have published the effect of Budgets, spending reviews and autumn statements on child poverty. We know from the Institute for Fiscal Studies that, taking account of everything that the Government announced before the autumn statement, child poverty is set to go up by 400,000 by 2015 and 800,000 by 2020. In this autumn statement, they did not mention child poverty at all. There was no mention in the impact statement, where it should have been. I tabled a question and the Minister told me that he would reply as soon as possible: I am still waiting.

Despite the Government’s best efforts, the answer did slip out in an answer from a different Minister. In that, we read that the three years of uprating will increase child poverty by an additional 200,000 on top of the increase that is already due. That means that we are on track for 1 million more children below the poverty line by 2020. That is a devastating blow and will undo all the progress of the last 15 years.

[Caroline Lucas (Brighton, Pavilion) (Green)]

The powerful figures that the right hon. Gentleman cites show that this is a cruel and callous Bill. Given that that is the case, does he not think that Labour supporters might be disappointed that he will not commit now to re-link the upratings with RPI? Nor has Labour said that if it were to form a Government next time, they would reverse the Bill. Is not there a danger that people will think that it is all rhetoric and no action from the Opposition?

[Stephen Timms]

The time to announce how benefits would be uprated for next year is later this year in the normal way. The time for the following year is the end of next year. We reject the Bill, which is the Chancellor’s partisan and unprecedented device to set out the trajectory for two years’ time, before we know anything about the future course of inflation.

Ministers still say that they are committed to eradicating child poverty. It says so in the coalition agreement. That commitment is clearly now fictitious. The Bill is simply incompatible with that commitment. Ministers should stop pretending. They have given up on reducing child poverty. They have not just given up on publishing the numbers as they used to do: they have given up on delivering the goal as well. Now they are implementing policies that will force child poverty up.

[George Freeman]

Given that the last Government spent £150 billion on tax credits and achieved a 6% reduction in child poverty, does the right hon. Gentleman think that lifting 350,000 out of child poverty for a £2 billion investment in universal credit represents good value for money?

[Stephen Timms]

The policies of the previous Government reduced the number of children below the poverty line by 1.1 million. The policies of this Government are set to increase it by 1 million by 2020. That is a shameful record.

What we will have from April is a toxic combination of policies that will cut the highest rate of income tax and real-terms cuts in benefits and tax credits. Some 8,000 people who earn over £1 million a year will get a tax cut in April averaging more than £2,000 a week. Someone receiving the adult rate of jobseeker’s allowance will receive 71p a week. People are getting angry at what the Government are doing.

[Martin Horwood (Cheltenham) (LD)]

The right hon. Gentleman may or may not think that the Bill is a partisan device by the Chancellor—and he may or may not be right—but in refusing to support either the amendment tabled by the hon. Member for Brighton, Pavilion (Caroline Lucas) or the various amendments tabled by Liberal Democrat Members, is not the Labour party being absolutely pathetic? It has the opportunity to do something about this and it is not taking it.

[Stephen Timms]

We will announce uprating policy in the normal way on the normal timetable, not on a date chosen by the Chancellor for his own partisan purposes.

I think the Minister knows that I have been looking back at his speech in the Child Poverty Bill Second Reading debate in July 2009—fewer than four years ago. It was an autobiographical speech, as he said at the time. He explained that his first job was with the Institute for Fiscal Studies, where he had the task in the 1980s of compiling its poverty statistics. He said that

“year after year the level of child poverty would remorselessly grow. A majority of people would do relatively well, enjoying tax cuts, and the people at the top would do exceptionally well, but year after year more and more children would find themselves in poverty.”

He said that he decided to become a politician because he

“was appalled at what was happening in our country to the most vulnerable people”—[Official Report, 20 July 2009; Vol. 496, c. 625.]

Now here he is, three and a half years later, arguing in this Committee for exactly the same combination of policies he condemned at the time: tax cuts for the highest paid and benefit cuts for the most vulnerable. Exactly as in the 1980s, as he knows better than anybody, the result is certain: child poverty rocketing. With the extra rise as a result of the Bill, if current policies are maintained it will go up by 1 million by 2020—right back up to the level he was logging at the IFS in the 1980s.

[Margot James (Stourbridge) (Con)]

Does the right hon. Gentleman accept that the most recent data demonstrate a reduction in child poverty last year of 300,000? If he disputes that, does he have any comment on the way the previous Government measured child poverty, and whether that measure should be changed?

[Stephen Timms]

Absolutely right—the policies of the previous Government have continued to have beneficial impacts, but as soon as this Government change the policy the numbers will rocket back up again. According to the IFS, child poverty will rise by 400,000 by 2015 and by 800,000 by 2020. On top of that, there will be an additional rise of 200,000 as a result of the Bill. That is what the Government’s policies are doing.

[Kate Green (Stretford and Urmston) (Lab)]

Of course, that is the figure the Government have been prepared to acknowledge in relation to relative income poverty, but they have said nothing about the impact on absolute poverty, material deprivation or persistent poverty—all measures they are signed up to in the Child Poverty Act 2010. Does my right hon. Friend agree with me that they should publish the impact on those measures of poverty as well?

[Stephen Timms]

Absolutely. That is what they have done in previous Budgets and autumn statements; in this one there was silence. I agree with my hon. Friend that the Government should absolutely return to the practice they adopted after the election.

Like the Minister in the 1980s, anybody who cares about poverty and who is looking at what is set to happen to the most vulnerable in the next few years, will be appalled. Child poverty will be growing remorselessly once again—back to the policies of the 1980s and back to their consequences, too. There is enormous public concern about the effects of clause 1 and the Bill as a whole. My hon. Friend the Member for Ayr, Carrick and Cumnock (Sandra Osborne) referred to the coalition of organisations in Scotland who have written about their concern. The Child Poverty Action Group has said:

“The Bill is a cause of great concern.”

Barnardo’s has stated:

“This policy will punish children the most by trapping them in poverty and impacting on their lives, leading to poor health, poor qualifications and unemployment.”

Citizens Advice said:

“It is imperative, particularly whilst increases to earnings from work are restricted, that support for low earners received through the welfare system is not disconnected from inflationary measures to the cost of living.”

The Children’s Society said:

“Groups which are meant to be protected (such as households with somebody with a disability) are more likely to be affected than households without protection.”

In an open letter this morning, the chief executives of Catholic charities in Liverpool, Manchester and London warned of the threat the Bill

“poses to the fundamental well-being of disabled, unemployed and low paid people, as well as their families who are already buckling under the weight of recent changes to the welfare system.”

[Sarah Newton (Truro and Falmouth) (Con)]

I ask the right hon. Gentleman to look at the facts, rather than scaremongering. The fact is that the child element of tax credit has gone up by 16% under this Government—£470. He really should look at the facts.

[Stephen Timms]

I simply ask the hon. Lady to look at all the other things the Government have done and at the Institute for Fiscal Studies assessment of the consequences for child poverty. As I have said, its assessment is that the number of children living below the poverty line will increase by 400,000 by 2015 and by 800,000 by 2020 and that there will be an additional rise of 200,000 as a direct result of the Bill.

The general secretary of USDAW, the shop workers’ union, has spoken of

“a kick in the teeth for working people that will fill many households with despair.”

Disability Rights UK has said:

“We are fearful that the Welfare Benefits UP-rating Bill will… impoverish thousands more disabled people.”

Homeless Link has said that

“the proposals contained in the Bill are grossly unfair, hitting the poorest in society the hardest.”

[Mr Redwood]

I just wonder how the right hon. Gentleman can forecast with such certainty this abrupt turnaround and deterioration until 2020. Does his forecast assume that there will be a Conservative Government for that second period?

[Stephen Timms]

The right hon. Gentleman should ask the Institute for Fiscal Studies, where the Minister served with considerable distinction in the 1980s. It has been a reliable guide in the past and will be in the future. The assumption is that the existing policies will continue.

This is a terrible Bill that is being rushed through in a disgraceful manner. It will hit very hard those people who are already struggling to make ends meet. It will hit women disproportionately hard. It will hit disabled people, including everyone in the support group for employment and support allowance. It will hit children, pushing 200,000 below the poverty line.

At a time when the coalition Government are—

[The Minister of State, Department for Work and Pensions (Steve Webb)]

What the right hon. Gentleman is saying sounds like a peroration, so I think that he might have accidentally dropped the page on which he was going to say where, if not from these measures, he would find the £3.5 billion. Where would he find the money?

--- Later in debate ---

[Stephen Timms]

Of course, the background to this policy is the failure of the Government’s policy. If we look at the unemployment forecast set out at last year’s Budget and compare it with the forecast set out at the autumn statement, we will see that it will cost an extra £3 billion in additional benefits. What the Minister and the Chancellor should be doing is putting in place policies that will reduce unemployment, not see it continue to rise.

At a time when the coalition Government are handing the richest people a tax cut of £2,000 a week each, they have decided that people on jobseeker’s allowance can have only 71p each, 72p the year after, and 73p the year after that. To quote the Minister’s 2009 speech, it is “appalling”. I urge the Committee to support our amendment and vote against clause stand part.

[Charlie Elphicke]

I will speak briefly. I think that it is important that all of us who represent communities with a lot of deprivation, such as my constituency of Dover and Deal, make sure that the Government, or any Government, have policies that make work pay. About 5 million people in this country could work but do not. We need more of an incentive for people to realise their potential and do well in life. Part of that needs to be an economic incentive. Let me pray in aid the words of the Chancellor of the Exchequer:

“We have to acknowledge that over the last five years, those on out-of-work benefits have seen their incomes rise twice as fast as those in work. With pay restraint in businesses and Government, average earnings have risen by about 10% since 2007. Out-of-work benefits have gone up by about 20%. That is not fair to working people who pay the taxes that fund them.”—[Official Report, 5 December 2012; Vol. 554, c. 879.]

--- Later in debate ---

[Mr Redwood]

I have already expressed the view that I did not come to Parliament to impose such restrictions on people with very little income, that that is a difficult thing to have to do but that I quite understand why Front Benchers are in that position.

Yes, I will trust Ministers’ judgment today but I am also saying to them that there are those two important conditions. They have to watch the situation because if inflation starts to rise too far, things will be too tough, and it would be wrong not to recognise that. If there is not a sustained increase in the number of jobs, that, too, will make the policy difficult to sustain. I am hoping that the economic policy can kick in with lower price rises and more jobs, which would make the measure a little less unpalatable. However, surely nobody can say that they want to do this—it is not very pleasant—but what else can we do?

[Stephen Timms]

The right hon. Gentleman is making an interesting speech. However, is not a clear consequence of his argument that it is a serious mistake to be setting now the levels of benefits in two years’ time, when we just do not know what inflation will be in the meantime?

[Mr Redwood]

The Government are fighting for credibility with their general finances. They have a series of difficult decisions to make and have decided to make this decision. The Opposition cannot always come here and say that they must get the deficit down but never support anything that makes a contribution towards that. That is where they have great difficulties.

The Opposition have great difficulties today because they are coming here and saying that they do not like the measure, but will not support amendments that would mean that we were definitely going to pay a lot more. They have sufficient maturity to understand that the benefits bill is extremely large and difficult to manage.

I have one final thought to put to Ministers. The British public, who wish to see the benefit bill controlled and brought down, are keen for us to check up on eligibility, which causes more issues than anything else. Most of us feel extremely generous when it comes to eligibility for disabled people and we want the Government to do the best they possibly can, which might not be generous enough.

What we are worried about is extending eligibility too far—through the European Union rules, for example. I hope that that kind of thing will be pursued. I hear that the Prime Minister is now looking at the matter, but I do not think it is right that a large number of people should be able to come into the country and immediately start claiming benefits that other people, who have been settled here for a long time and are working hard, have had to pay into and make contributions towards. I hope that we will get better news and that there will be some kind of contributory principle or settlement before people can get those benefits, so that somebody who has been living here clearly becomes our responsibility after a sensible period.

--- Later in debate ---

[Steve Webb]

The hon. Lady will know perfectly well that the Labour Government never forecast poverty rates. She was a Work and Pensions Minister with—if I remember rightly—responsibility for child poverty, and never once forecast poverty rates, but in opposition she suddenly believes that this Government should do so. We will publish the annual figures that show the effects of all our policies and the state of the economy. That is what the public want to see.

Another question that resonates with my hon. Friends in the Liberal Democrats is why we are taking money off poor people and giving it to rich people. That is a summary of what was said. I worked for the IFS for nine years and have the highest regard for it, but, to be clear, when the IFS does its numbers, it does not count almost all the taxes on the rich we have introduced—it cannot, because it uses household surveys, to which the rich do not, on the whole, reply at all, partly because they are too busy salting their money away in Swiss bank accounts. [Interruption.] Not any more—we have tackled Swiss bank accounts to the tune of several billion pounds. We have increased the main rate of capital gains tax to 28%, which is a substantial increase.

The Labour party focuses on the wages of millionaires as if millionaires are those who earn a £1 million wage. However, millionaires on the whole are folk who have capital gains and properties. They pay stamp duty. They try to avoid paying tax, but we have been cracking down on that, and there is a further clampdown on pension tax relief. The vast majority of those gains for the Government are not counted in the IFS figures. The overall impact is that we are taking far more from the rich than Labour ever would have done. I can therefore assure my right hon. and hon. Friends that this is not a question of taking money from the poor when we could take it from the rich. Even the Budget that reduced the higher rate of tax from 50% to 45% raised many times more in other measures. As we have heard during the course of the debate, the 45p rate, which Opposition Members tell us they find morally repugnant, is 5% more than the Labour Government levied in 13 years.

Amendment 12 would create a vacuum instead of a policy. It would give us no credibility in the financial markets and drive up interest rates when we want to keep them low. Amendment 7 would reinstate the RPI, which even the official statistician says is not up to international standards, and cost £2.5 billion a year compared with the Government’s plans. I have no doubt that amendment 10, in the name of my hon. Friend the Member for St Ives, is well-intended, but unfortunately it would tie the Government in to an above-inflation increase in 2015-16. The Liberal Democrats would not choose that as a priority, but I can assure him that the Bill, on top of the decisions the Government have made to prioritise the poor, will mean that benefits will rise in line with earnings over the period since the financial crisis. My hon. Friend wants that through his amendment, and that is what we will deliver through the Bill.

I therefore urge the Committee to reject the amendments and support the Bill.

[Stephen Timms]

We have had an interesting debate. The right hon. Member for Ross, Skye and Lochaber (Mr Kennedy), the former leader of the Minister’s party—the Liberal Democrats—described the Bill as a device dreamed up by the Chancellor, which was recognised on both sides of the Committee during the debate. The Government are bearing down on the incomes of the least well-off people because of the failure of their policies. I urge the Committee to support amendment 12 and to reject clause 1.

Question put, That the amendment be made.

The Committee proceeded to a Division.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Will the Serjeant at Arms investigate the Aye Lobby? We seem to have a hold-up or a blockage of some kind.