Autumn Statement Distributional Analysis, Universal Credit and ESA

Stephen Timms Excerpts

Wednesday 16th November 2016 Commons Chamber

[John McDonnell]

The hon. Gentleman clearly has not been listening. We introduced a fiscal credibility target, which would have built in the flexibility that we need—and actually, which his colleagues would have benefited from as they sought to deliver the goals set out in the manifesto upon which they were elected. That is the critical problem—that this fiscal target has become unworkable. Next week, most probably, we will see that not only will it be reset, but large elements of it will be scrapped; and some of those political disputes within the Government will be seen to have been completely unnecessary if only the Chancellor, at that stage, had listened not just to us, but to some of his own colleagues.

On the Government’s own economic metrics, the fiscal framework has failed. I remind the hon. Member for Horsham (Jeremy Quin) that the former Chancellor’s target was to eliminate the deficit by 2015. The deficit remained at over £45 billion in the first six months of this financial year. I remind the House that his target was to reduce the debt. The debt now stands at £1.7 trillion and has increased over the past six years, according to the latest estimate, by £740 billion. I believe that the biggest failure was to ignore the needs of the real economy and use the fiscal framework to constrain investment. The failure to invest on the scale needed to modernise our economy resulted in stagnating productivity.

In the face of all the evidence that the fiscal framework was not working and not achieving its target, the decision to set a target for the framework not just to eliminate the deficit, but to produce a multibillion-pound surplus by 2019-20 demonstrated to many of us how far the former Chancellor’s politics was overriding sound economics. The result of his setting targets even more removed from reality was that he imposed on his own colleagues the task of scrambling round to find a scale of cuts that, in many instances, undermined what chance they had to implement the policies on which they were elected and their long-standing ambitions, some of which could have secured cross-party support.

That was no more evident than at the Department for Work and Pensions. For the Treasury to demand cuts to universal credit that would take, on average, £2,100 out of the incomes of people who were doing all that was asked of them—working all they could to come off benefits, bringing up their families, contributing to society—flew in the face of all that the universal credit system was meant to be about. The same can be said of the cuts of nearly £30 a week to employment and support allowance. That is an extremely significant cut to the incomes of disabled people who are also doing all that has been asked of them—seeking work to lift them off benefits, and overcoming their disabilities and conditions.

[Stephen Timms (East Ham) (Lab)]

On the ESA cut, does my right hon. Friend recall that at the time it was being taken through the House, we were assured that the Government would introduce an ambitious plan to reduce—indeed, to halve—the disability employment gap by 2020? Does he share my dismay that that goal has been abandoned completely?

[John McDonnell]

I recall my right hon. Friend advising the Government of the unreality of their proposals at the time. What worried us all was that, on the one hand, benefits were being reduced, but the support was not being put in place by which those people could gain work and supplement their incomes.

I understood the motivation of the right hon. Member for Chingford and Woodford Green (Mr Duncan Smith) when he resigned. The overriding demands of the Treasury were undermining the policy goals he was seeking to implement. He rightly objected to a further burden being placed on the social security budget, especially at a time when new, long-planned systems were at the early stages of introduction. I understood then his sense of frustration, and I understand now why he and many of his hon. Friends have called on the new Chancellor to look again at the burden that is being placed on the welfare budget and the threat, above all else, that it poses to the successful roll-out of universal credit and the policy of supporting disabled people into work.

The planned cuts are more than a threat to the implementation of policies long advocated and cherished by many Government Members. More importantly, they are a threat to the livelihoods, living standards and quality of life of millions of low earners and some of the poorest and most vulnerable people in our communities. The Government have sought to judge themselves on their own set of economic metrics: eliminating the deficit, reducing the debt and adhering to a cap on welfare spending. On all their own metrics, they have failed. However, there is an alternative and very basic set of metrics on which a Government should be judged—whether they ensure that their population is adequately fed, decently housed and kept warm in winter, and has sufficient income through employment or a support safety net to have a decent quality of life.

--- Later in debate ---

[Damian Hinds]

I was in the middle of talking about how wages have been rising. If the hon. Lady will forgive me, I thought that she was challenging me on that point, so I will continue to make it. According to recent data on earnings from the Office for National Statistics, the lowest 5% of workers saw their wages grow by more than 6% in 2016, the highest growth for that group since that statistical series began nearly 20 years ago. Based on the Office for Budget Responsibility’s forecast at the Budget, almost 3 million low-wage workers are expected to benefit directly by 2020, with many more benefiting from the ripple effect on income distribution.

At the same time, universal credit is transforming the welfare system to ensure that it always pays to work more and to earn more. That is in stark contrast with the pre-2010 system, in which in-work poverty increased by 20% between 1998 and 2010, despite welfare spending on people in work increasing by £28 billion. Evidence is already showing that people move into work faster under universal credit; for every 100 people who found work under the old jobseeker’s allowance system, 113 universal credit claimants have moved into a job. We estimate that universal credit will generate around £7 billion in economic benefit every year and boost employment by up to 300,000 once fully rolled out.

Most important of all, universal credit will drive progression, delivering sustainable outcomes for low-income families. Unlike tax credits, with the 16-hour cliff edge, it supports part-time and flexible working—as well as full-time working—adjusting on a month-by-month basis according to household income. The work allowances are just one element of a much wider system of support and incentives. The personalised work coach support, the smooth taper rate and the reimbursement of 85% of childcare costs as soon as someone starts working, even for a small number of hours, are all key to making work pay for universal credit recipients.

In this morning’s employment figures, we saw that the employment of disabled people is up by 590,000 in the past three years. The disability employment rate has gone up by 4.9% in that time, and the gap has been narrowed by two percentage points. We were talking about this earlier, and it is welcome news, but there is much, much more to be done, as only half of people with disabilities are in work, compared with 80% of the non-disabled population.

[Stephen Timms]

I am glad that the Minister has raised the question of the disability employment gap. Former Ministers—two of them, the right hon. Member for Chingford and Woodford Green (Mr Duncan Smith) and the hon. Member for North Swindon (Justin Tomlinson), are in their places this afternoon—promised that a quid pro quo for the cuts in employment and support allowance would be halving the disability employment gap by 2020. That was in his party’s manifesto, and the former Prime Minister, David Cameron, committed to halving the gap by 2020. Why has that promise now shamefully been abandoned?

[Damian Hinds]

We are committed to working towards halving the disability employment gap. The right hon. Gentleman is reading somewhat more into things than he can or should. We are absolutely committed to doing that, but there is a long way to go, and he will know better than most how hard it will be. But the figures we have announced this morning show that the employment rate for people with disabilities is up by almost 5%. That is welcome news that I had hoped would receive a more positive response from the Opposition.

[Stephen Timms]

I am not reading any more into the promise that was made than what was set out very clearly. In the election campaign David Cameron made it clear that the commitment was to halve the disability employment gap by 2020. There was a press release in the name of former Minister for Disabled People, the hon. Member for North Swindon, saying that it would be by 2020. Why has that promise now been so shamefully abandoned?

[Damian Hinds]

We are working hard on this. When my colleague the Minister for Disabled People, Health and Work sums up at the end of the debate, she will no doubt elaborate on that more. To be able to do everything we can as a Government, we need employers to do more as well, as the right hon. Gentleman will recognise. A whole-society approach is required to address this great challenge. Progress is being made but more is needed. He should have no doubt about the Government’s commitment to doing everything possible to achieve that.

One reason why so much more needs to be done is that we still have that yawning gap despite all the progress that has been made—despite the regulatory reform, the medical advances, the advances in assistive and adaptive technology, and, critically, the fact that we know that so many people with disabilities want to move into work and that so much talent is not currently being fully utilised. We know that being in work can have wider benefits for the individual, beyond the purely financial. There is clear evidence that work is linked to better physical and mental health, and to improved wellbeing. That is a key theme in our recently published Green Paper “Improving Lives”, and a driver behind the changes to the employment and support allowance and universal credit that were announced in last summer’s Budget.

ESA was originally introduced—I am happy to acknowledge the bipartisan parts of this debate—in 2008 by the then Labour Government. The expectation at that time was that the Atos-run assessment process would place the clear majority of claimants into the work-related activity group, leaving a relatively smaller number in the support group. Over time it became clear that that was not the case, with around three times as many people in the support group as in the work-related activity group. At the same time, fewer than 1% of people were leaving that benefit for work each month.

That is why we are introducing changes to encourage and support claimants to take steps back to work and to fulfil their full potential. From next April we will no longer include the work-related activity component for new ESA claims, or the equivalent element for people on universal credit with a health condition or disability. I stress that that is for new claims after April next year; there will be no cash losers among those already in receipt of ESA or its universal credit equivalent, and there will be further safeguards meaning that they will not lose the extra payments even if reassessed after April and placed in the work-related activity group.

--- Later in debate ---

[Mr Iain Duncan Smith (Chingford and Woodford Green) (Con)]

I shall be as brief as possible and certainly intend to be well under that limit. I shall not follow the hon. Member for Ross, Skye and Lochaber (Ian Blackford) down a memory-lane trip involving independence or leaving the single market. I will say, however, that I am a huge admirer of him. Many of my ancestors are buried in his constituency, so I like to claim a little bit of union with him, even though he would not want to admit it. I shall visit the area as often as possible to ensure that I give the hon. Gentleman the best support I can for him to stay up there as long as possible.

I rise for the first time in, I think, nearly seven years to speak from the Back Benches, and I do so to speak on an issue that is very close to my heart. I want to explain why that is the case to my colleagues. Let me start by welcoming both Ministers to their new roles on the Front Bench, and I congratulate them on continuing to commit to the changes and reforms necessary to improve the quality of life for so many people who would otherwise be left behind.

In passing, let me note one or two figures. The number of children in workless households has fallen to record levels—down to just under 11% from the 20% that we inherited. A child in a workless household is nearly three quarters more likely to be in poverty than a child in an in-work household. That is an important point, because that dynamic is critical—a point to which I shall return. The fall in income inequality has been mentioned, and it is falling because more people at the lower end are going back into work.

There is another important issue about disability. We have committed to, want to commit to and must stay with the position of wanting to see more people with disabilities in work. We want the gap to be at least halved, which I think is feasible. I shall explain in a few moments why I think that it is feasible.

[Stephen Timms]

Will the right hon. Gentleman give way?

[Mr Duncan Smith]

In a minute, but let me finish this point first.

A lot of the work of the Green Paper was done when I was in the Department. It was a White Paper at that stage, and I hope it gets speeded up and becomes a White Paper again fairly soon. After five reviews of the inherited employment and support allowance, I would be the first to acknowledge that although we have stabilised it and it is better than it was, it is a very difficult area, as we all know. If every Member was prepared to be reasonable, we would all recognise that these things need to change.

Let me clarify that the main single thing that I wanted to see change and I still want to see changed is this artificial idea that people are either too sick to work or unable to work. There should be a greater nuancing in people’s lives, and universal credit now opens the door to a much more flexible process that allows even those diagnosed and reasonably said to be “not capable of work” to be able to work—and if they wish to work, they should be allowed to do so as far as they possibly can, with the taper used to take benefit money away gradually. I think that might improve the quality of life for many people. I know that this is a submission in the Green Paper, and I hope the Minister will bear it in mind.

Let me return to the point that when universal credit was set up by my noble Friend Lord Freud, who worked very hard on it, and me, the idea was that it was not just about money, but about human interface. The people in jobcentres now stay with individuals as they go into work to help advise them and be with them. This will be a more human interface, so that people can be helped through to gain extra hours, which opens the door for people with limited capabilities to work to be helped in a way that would not have been possible if we had stayed with the original system. All this is very good and very positive.

There are two critical elements. First, when people step into work, the barrier must be reduced by improving the amount of money that can be held from benefit before it is tapered away. The second element is the taper itself, which is the simple process by which people have their income reduced. I say to the Minister that those two elements, notwithstanding all the other stuff such as improved childcare and everything else, are at the heart of what delivers.

The Institute for Fiscal Studies and others recently looked at what the dynamic effect of universal credit might be as it rolls out. The IFS was very clear: it said that the effect was a 13% improvement in all elements—going back to work, staying in work, taking more hours and earning more money. I know from my experience in the Department that every time one benefit has been substituted for another, it has almost always been worse on arrival than the previous benefit before people engage with it and improve it. This is the first time that a benefit being rolled out is a net improvement on a previous benefit.

I therefore make this recommendation. That figure of a 13% improvement was made on the basis of the original work allowances. In the spirit of general collective view and belief, I say that if we really want to see the right thing happen to people out there who try to get into work and stay in work, the allowances are critical. I recommend and hope that my colleagues in government will think very carefully again about the decision to reduce those allowances. I recognise the problem with the deficit, and we of course want to reduce it. I am not asking for more money; I am asking for wiser spending. I wonder whether we could revisit the idea of a tax threshold allowance and look to see whether getting the money to the lower five deciles would be better served by universal credit. Some 70% of those people will be on universal credit, whereas only 25p of a tax threshold allowance will actually go to the bottom five deciles.

I urge the Minister to speak to his right hon. Friends and say, “Look, we have a very good opportunity to do something that is really bold and right for those whose lives we really want to improve—those that the Prime Minister rightly said was her target group.” It is a very Conservative thing to do to help people who are doing the right thing to improve their lives. Even if the Government cannot do it all, they should look at two elements: lone parents and those with limited capability for work. This would answer the problems surrounding the WRAG, too. I urge Ministers to do just that. It is the right thing to do, and it will be the thing to do that changes lives and improves the quality of those lives.

--- Later in debate ---

[The Minister for Disabled People, Health and Work (Penny Mordaunt)]

May I associate myself with the sentiments expressed by the shadow Chancellor about the late Debbie Jolly? She was a noted researcher and sociologist, as well as a tireless campaigner. I am sure that our comments will be just two of the many tributes that will be paid to her.

I thank all right hon. and hon. Members for their contributions to this debate. It has been a lean-but-fit Opposition day debate, and I will try to make my reply lean and fit as well.

Let me answer the question asked by the right hon. Member for East Ham (Stephen Timms) about the disability employment gap. I am sure he is aware of the evidence the Work and Pensions Committee has taken on the complexity involved in measuring and tracking progress on the gap. I am taking a much more low-brow approach. All Members will shortly receive an invite to an event in this place on 5 December, when they will receive information not just about the Green Paper and how they can get involved in the consultation at local level, but about the focus on unmet and existing needs in their local area. We will crack this—getting services to focus on what we need to do not just to halve the gap, but to close it completely—by, for example, looking at exactly how many people with learning difficulties there are in their constituency for whom roles need to be carved out.

[Stephen Timms]

Will the Minister give way?

[Penny Mordaunt]

I am sorry, but I am very short of time.

The welfare state is a safety net, but—done well—it should anticipate, empower, be seamless with other services, be unbureaucratic, have commons sense and compassion at its heart, and be focused on helping someone in their ambitions as well as on their basic needs. In the last quarter, there have been many tweaks to the system, some so dry and small that they have not registered with the House. Others have registered, such as the decision to stop reassessments for those with degenerative conditions, the increase in the number of groups able to access hardship funds, and our concerns—they have been expressed by the Secretary of State for Work and Pensions today—about sanctions on people with mental health conditions.

We will continue to work methodically through the improvement plan: reducing the number of people having to go to appeal to get the right decision; ensuring that our programmes work better and improving them; ensuring we have the reach we need; and building capacity and expertise in our organisations. That will build on the substantial reforms already carried out by my right hon. Friend the Member for Chingford and Woodford Green (Mr Duncan Smith) and my hon. Friend the Member for North Swindon (Justin Tomlinson). I pay tribute to them for the work they have done.

The proof that we have listened and understood will be seen in our actions. A person’s experience of the system and their support is the only thing that will assure confidence, but I hope this debate will afford me the opportunity to reassure colleagues on both sides of the House about the specifics that have been raised. To deliver well, we must understand the impact of a policy on people who are often in complex situations and under considerable strain and challenge. There is the challenge of budgeting for those who have suddenly had to stop work or have lost employment due to their condition, ill health or accident, or the challenge of facing increased costs, or both.

Hon. Members have pointed to three concerns. First, there is a person’s liquidity—their ability to afford the additional costs of looking for work and being poorly or disabled. Someone with a neurological condition will spend almost £200 a week on costs related to their disability, and hon. Members on both sides of the House have raised concerns about that. Secondly—this is often exacerbated by the first—there is a person’s dignity and mental wellbeing. Thirdly, there is the obvious point that someone is more likely to get into work and make a success of it, as well as to recover from ill health, if they are able to devote themselves to that. If they have other worries or concerns, their energy and focus on their objectives will be diluted. Many who find themselves in receipt of universal credit or ESA will already have complex situations to deal with, and the delivery of our services should not add to that.

Let me briefly touch on each of those three concerns. To inform our view of the income needed by the range of people we are considering, we have relied heavily on the work of third parties, most notably Macmillan and Scope. Personal independence payments will be able to help some people with some of those costs, but not with them all. More is therefore needed, and more will be provided.

First, there is the flexible support fund, a discretionary fund that is used by work coaches to provide local support for the costs related to getting into work, such as travel to and from training and travel costs when in work. As part of the enhanced offer, we have committed an additional £15 million to that fund over the next two years. The partners we work with are aware of the fund and signpost people to our work coaches, so that they can access it.

Secondly, we have schemes such as the travel discount scheme for those on ESA, universal credit and jobseeker’s allowance. Thirdly, we are continuing our work that focuses on sectors such as energy costs and insurance. In relation to April’s changes, we are doing new work with key providers, such as mobile and broadband providers, to see whether they can offer further help. Where there is existing help, we must ensure that our clients know about it. We are building on the excellent work that Scope has done through the Extra Costs Commission to drive down costs and utilise the consumer power of this group of people.

In the context of this debate, I am working to provide a greater number of ways to reduce a person’s personal outgoings by next spring by using funds to alleviate the costs directly related to work, negotiating better deals on expenditure not directly related to employment and extending the hardship fund with immediate effect. That will use new money from the Treasury over the next four years.

Happily, my hon. Friend the Member for North Swindon helpfully outlined the measures in the Green Paper, which will be key to supporting those who are in the WRAG. That support may not seem relevant to some hon. Members, who understandably have focused purely on liquidity, but we have a duty to do more than provide what can only be limited financial support. We must also provide a way through to the workplace for the many who want to be there. No Government support can ever compensate for a pay cheque and the financial resilience, health and wellbeing that come with it. That is why, in the last Parliament, we increased the benefits that contribute to the additional costs of disability and care and the elements of ESA that are paid to people with the most severe work-limiting conditions and disabilities.

The changes that we deliver in April will provide more support to those people—something that I hope all will welcome. Alongside that, we will ensure that the focus on personal liquidity, dignity and the ability to focus on one’s health and work ambitions is maintained. We will invest in helping a person out of their situation, rather than helping them endure it. We will support people’s ambitions as well as their basic needs. We will enable them to build their future, as well as helping them in the here and now.

Question put (Standing Order No. 31(2)), That the original words stand part of the Question.