Cost of Living

Stephen Timms Excerpts

Tuesday 5th July 2022 Commons Chamber

[Sir Stephen Timms (East Ham) (Lab)]

I am grateful that we have been granted this debate to discuss the spending of the Department for Work and Pensions. We are all familiar with the facts of the cost of living crisis: price rises are accelerating and inflation in May was the highest since 1982—the highest for 40 years—at 9.1%. In France, inflation was 5.8% and in the eurozone, it was 8.1% on average, so we have a particularly acute problem in the UK. The Bank of England Monetary Policy Committee said last month that it expects inflation to rise to slightly above 11% in October.

In the light of those rapidly increasing costs, the Chancellor announced measures to support households in February, March and May. I warmly welcome that support, which is valued at £37 billion. Two of the support measures that he announced are funded by the DWP and are therefore a focus of this debate: first, the £650 payment for households receiving means-tested benefits, and secondly, the £150 payment for people receiving disability benefits.

I understand that the DWP will pay the first £326 instalment of the £650 payment in the second half of this month. The qualifying day for that—the day on which someone had to have been claiming means-tested benefits—was 25 May. The qualifying day for the second instalment has not yet been announced, but I gather that it will be no later than 31 October. Those payments will be tax free and will not affect other benefit awards. I particularly welcome the fact that, as the Secretary of State confirmed to me in the debate on the recent legislation to enable the payments, they will not be constrained by the benefit cap.

The other measures that the Chancellor announced in May, which are not legislated for by the Social Security (Additional Payments) Act 2022, include two extensions of existing programmes for which DWP is responsible. First, pensioner households will receive a one-off £300 pensioner cost of living payment as a top-up to their winter fuel payment, which will cost in total £2.5 billion. Secondly, there will be an additional £500 million for the household support fund for local authorities to make discretionary payments to people in need—some £421 million for England and £79 million for the devolved Administrations through the Barnett formula. That will cover the period from October this year to March next year.

The household support fund was originally announced in September 2021 with £500 million for local authorities for the six months from October 2021 to March 2022. It was extended with another £500 million for the following six months from April to September this year. I will say more about that later as a relatively new feature of the estimates.

It is worth pausing to reflect on the fact that, although the Chancellor’s announcements are welcome, there are still some concerns. The Resolution Foundation estimates that the

“measures announced this year to support households will in effect offset 82 per cent of the rise in households’ energy costs in 2022-23, rising to over 90 per cent for poorer households.”

It is a substantial response to a substantial problem. The Treasury says that households with incomes among the lowest 10% of all households in England will gain just under £1,200 a year on average as a result of the package, while those among the top 10% will gain around £700 a year on average—significantly less. That strikes me as a broadly appropriate distributional impact.

There are some caveats—for example, the payments are per household. As Save the Children and others have pointed out, larger families will not get any more support than smaller ones, even though children in larger families are at much greater risk of being in poverty. Nearly half—47%—of all UK children in a family with three or more children were in poverty in 2020, so that has a big impact.

The Joseph Rowntree Foundation made the point that:

“One key group who has lost out are unpaid carers”.

We have just debated kinship carers. Only 59% of the 1 million people who claim carer’s allowance also claim means-tested benefits, so the other 41% will not get any additional support through the package. I applaud the Welsh Government’s initiative to provide an additional £500 payment for carers in Wales, and I think consideration should be given to comparable additional support elsewhere in the UK.

People waiting to be assessed for a personal independence payment cannot access the £150 payment. People wait on average five months to be assessed and receive a decision, and some 300,000 people are waiting at the moment. We might think that they ought to be getting some help, but they will not. People waiting for a work capability assessment will not get the payment either. The backlog for work capability assessments for universal credit is not published, so we do not know the size of it, but we know that there is one.

In April, as we all know, inflation-linked benefits were increased by 3.1% in line with the increase in the consumer prices index last September. When the uprating took effect, however, inflation was already over 7% and, as we have been reminded, it is now expected to rise to 11% this year. The Secretary of State previously told the Work and Pensions Committee that she does not favour one-off payments of the kind that the Chancellor announced in May. She is right: welcome though the Chancellor’s announcements are, I agree that it would be far better to have an uprating system that works properly, rather than having to resort to these stopgap measures to deal with the emergency.

Universal credit can be updated quickly, as we saw when lockdown hit, but the legacy benefits cannot be. The permanent secretary told the Select Committee last week that the problem is that uprating programs can only be run at weekends, when the computer systems are not doing other jobs, and that is apparently why it takes such a long time to implement the uprating of the legacy benefits. We have already called for those older systems to be improved urgently, and for the gap between assessing inflation and uprating benefits to be reduced. The need for that to happen is now even clearer, given the problems that we have run into this year.

The crisis is also exposing a much bigger and longer-term problem, which is the continued failure to keep the level of benefits in line with inflation. That is a consequence of successive policy decisions over the last 12 years. The chief executive of the Resolution Foundation said yesterday that the headline rate of benefit for someone who is unemployed is now 13% of average earnings, and that that is the lowest level it has ever been. That is lower, I think, than when Lloyd George introduced unemployment benefit for the first time in 1911.

Nobody should be surprised that so many are having such a hard time; there is no resilience in the support that is being provided, because the level is now so low. We have asked Ministers to explain the reason or thinking behind setting the benefits so low, and all we have been told is, “Well, we uprated it that year, we did not uprate it that year, and this is where we’ve ended up.” There is no rationale for the situation that we have found ourselves in where, in real terms, the level of benefits is at its lowest for more than 30 years.

Citizens Advice North Lancashire, one of the organisations that contacted the Select Committee, told us that

“one-off payments are not a solution to inadequate benefit levels.”

It is right about that. It went on:

“Our detailed research…on Universal Credit from across Lancashire…shows that Universal Credit is not enough to live on in Lancashire. Benefit payments urgently need uprating so that people who cannot work can afford to live off them.”

The Select Committee has agreed to look at the longer-term issue of benefit levels in an inquiry in the coming months, and we will be considering these issues carefully.

I want to comment today on two specific features of these estimates. The first is the household support fund. As I have said, the Chancellor’s package included an additional £500 million for the household support fund, bringing the total amount in that fund to £1.5 billion since October 2021. It is administered by local councils in England, and each council sets its own eligibility criteria.

The grant conditions set by the Government are, frankly, pretty vague. They specify that assistance can be issued by the authority itself or through a third party. One third of the grant is to support households that include a child, another third is to support households that include somebody of state pension age and the balance is for everybody else. It is for support with food, energy and other essential living needs. In a so-called exceptional circumstance, the household support fund can be used to support housing costs.

Local authorities have to submit a statement of grant usage to the Department with plans of how they are going to spend the money, and they are supposed to maintain an adequate audit trail for how they do in fact spend it. We asked the Secretary of State about that at the Select Committee last week, and she told us that local authorities have to make two returns a year to the Department about what happens to that money. I think that information is supposed to be published, but as far as I can see, no information has been published about how the household support fund has been used. The truth is that we know very little about what has happened to that £1.5 billion.

One thing that money could be used for is supporting families with no recourse to public funds, some of whom have been in a desperate situation in the last two years. When asked if the household support fund can he used for that, given that it is a public fund, Ministers—absurdly—say that local authorities should take their own legal advice to find out. At the very least, there must surely be clarity about what councils are allowed to do with this funding.

It may well be that the household support fund is playing a valuable role—I imagine it very likely is—but we just do not know, and we should. If there is to be continued use of discretionary funds such as this, instead of uprating benefits properly, the Department must at least work with councils and develop a clear reporting framework for the household support fund to provide assurance that it is being used effectively and that the support is getting to where it is most needed, because at the moment we just do not know. It would be far better to have an effective and reliable system for uprating the level of social security benefits, so that we do not have to resort to these stopgap measures in situations such as the one we are in at the moment.

The second point I want to pick out is about the benefit cap. The cap has not been changed since 2016, and in 2016 it was lowered. It continues to limit overall annual benefit support for a family to £23,000 in London and £20,000 across the rest of the UK, with comparable figures for a single person of £15,410 and £13,410 respectively. The new cost of living payments will not be constrained by the benefit cap, and I warmly welcome that. I think this sets an important and welcome precedent. It recognises that families up against the cap—and there are over 100,000 of them at the moment—are seeing their costs rising like everybody else.

Given the uprating expected next April, based on the rate of inflation expected in September, the Child Poverty Action Group has estimated that

“an additional 35,000 households will become capped overnight, resulting in a total of around 150,000 households capped in April 2023”.

The North East Child Poverty Commission also contacted the Select Committee, and it told us:

“The benefit cap impacts a relatively small number of households in the North East (fewer than 5,000)…almost all…are families with children…but they are being prevented by the cap from receiving all the support they have been assessed as needing. We urge the Government to lift the benefit cap.” The Government have a statutory duty to review the level of the benefit cap every five years. Until March this year, the obligation was to review it in every Parliament. The last published review of the benefit cap was in 2014, which was eight years ago. The cap was lowered in 2016. The Secretary of State, when we asked her about this last week, could not tell us when it was last reviewed. If it has been reviewed within the last five years, the review certainly has not been published, despite promises to the Select Committee that it would be—and of course it should be. The Government should be open about their thinking in this area.

When the benefit cap was introduced in 2013—my hon. Friend the Member for Westminster North (Ms Buck), who is on the Front Bench, and I were in the Committee that debated this before it took effect—the income threshold was set at median full-time earnings, which at that time was £26,000 a year. Since then, it has been reduced, and of course median full-time earnings are very different now from what they were in 2013 anyway. The level of the cap now bears no relation at all to any particular earnings level.

I warmly welcome that the cap will not apply to the additional payments announced by the Chancellor. That is an important precedent, recognising that families at the benefit cap will be hard hit too. However, with inflation at over 10%, it is imperative that the cap is reviewed ahead of next April’s uprating. It needs at least to reflect average household incomes, as it initially did—it needs to bear some relation to them, surely—and take account of increasing rent, energy and food costs. I urge the Minister to be open with the public and to publish the outcome of that review. The Chancellor’s package means relief from the benefit cap for tens of thousands of families this year, but next year the cap will be back and presumably there will not be any further additional payments from the Chancellor. The level of the cap must be raised before next April because if it is not, the consequences will be dire.

I am very grateful for this opportunity to debate the very important estimates that the Government have provided for us. They make such a big impact on millions of our fellow citizens, and it is vital that such decisions about them are the right ones.

--- Later in debate ---

[David Rutley]

We are having to deal with some challenging headwinds, as a result of the pandemic and now these inflationary pressures, but we have sought to take targeted measures. During the pandemic, especially the early stages, we focused particularly on those who were feeling the impact of changes in the employment market, which were immediate. Now we are focusing our efforts on targeted support for the people and households who will be most affected by inflationary pressures. The means of dealing with those are complex, and we are having to develop systems and processes to get the payments out quickly. Because of their nature they will never be 100% perfect, but we have taken other steps to support those who may not previously have been eligible for support. I shall say more about that shortly.

Our labour market policies are part of our plan to manage inflation, and that is a further reason for us to redouble our efforts to encourage more people to get into work and take advantage of the current buoyant labour market, with a record 1.3 million vacancies. Our multimillion-pound plan for jobs is helping many people into work with the kickstart scheme and the restart programme. Opposition Members do not always talk about the importance of work and the achievements that have been made in the labour market, so let me point out that last week our Way to Work campaign met its ambition of moving more than half a million people into work in under six months. That is an important achievement, not necessarily for the Government —although we welcome it—but in terms of the difference it will make to households throughout the country.

Moving into work and making work pay are core tenets of our strategy to build long-term growth and prosperity up and down the country, which is why we have introduced a number of work incentives. In particular, we have cut the universal credit taper rate from 63% to 55%, and have increased work allowances by £500 a year. Tomorrow, 6 July, we are cutting the national insurance threshold, a move that will be worth up to £330 a year for nearly 30 million working people.

Some Members have mentioned uprating, including the Select Committee Chair, the right hon. Member for East Ham. As part of the Department’s long-term approach, the Secretary of State completed her annual review of benefit and pension rates last year in the usual way, using well-worn, well-proven methods and processes. The state pension and the pension credit standard minimum guarantee were increased by 3.1%, the rate of inflation for the year to September 2021 as measured by the consumer prices index. As I think the right hon. Gentleman will know, we remain committed to implementing the state pension triple lock for the remainder of this Parliament, and on 26 May the Chancellor confirmed that it would be reinstated next year. All other benefits have also been increased this year in line with the consumer prices index of 3.1%. That approach has formed part of a long-standing convention. Since April 1987, all benefit uprating has been based on the increase in the relevant price inflation index in the 12 months to the previous September, helping claimants through the inflationary cycles.

[Sir Stephen Timms]

I am grateful to the Minister for setting out the commitment to uprating in line with inflation, but does he accept my earlier point about the need, in this very inflationary environment, to uprate the level of the benefit cap? Is he able to tell us whether it will be reviewed between now and next April?

[David Rutley]

I was going to come to that later, but as it is an important point, I will address it now.

As has been acknowledged today, none of the new one-off payments will be taken into account in the benefit cap, but there is a statutory duty to review the levels of the cap at least once every five years, and that will happen at the appropriate time. The current unusual economic period, with potentially counterintuitive and shifting trends, will need to be considered in the context of any decision about a review. The benefit cap provides a strong incentive and fairness for hard-working taxpayers and households, and encourages people to move into work. Last week, the Secretary of State told the Select Committee that she was taking advice on the exact timing and the approach. The statutory obligation to review the cap levels at least once a year in each Parliament changed on 24 March 2022, when the Fixed-term Parliaments Act 2011 was repealed, and the new obligation requiring the Secretary of State to review the levels at least once every five years means that the DWP now has until 2027 to complete a review. As I have said, however, she is seeking advice on that.

The annual review of benefits and pensions for the next tax year will begin in the autumn. To measure inflation, the Secretary of State will use the consumer prices index in the year to September. To measure earnings related to the pensions side of the equation, she will use average weekly earnings for the period from May to July. The uprated benefits and pensions will come into effect in April 2023.

--- Later in debate ---

[Sir Stephen Timms]

I am grateful that we have been able to discuss these important issues, and I want to thank everyone who has contributed to the debate. I commend the hon. Member for Glasgow South West (Chris Stephens) for his long-standing campaign on bereavement benefits, and I hope we are reaching a successful conclusion on that. I am grateful to him for all his work on the Select Committee as well. He made an important point in his speech, which I had not thought of before: now that we have a new Government system for paying one-off grants, surely we could use it to make starter payments for universal credit, as the Select Committee recommended in its report on the five-week wait. As things stand, universal credit is not fit for purpose because of that five-week wait for the first regular benefit payment, and I am grateful to the hon. Member for his suggestion. I hope that we can take that up.

My hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) made some important points, and I thank her for her work on the Select Committee as well, not least her dogged advocacy for vulnerable claimants of disability benefits. We have heard far too many reports of tragic disasters and errors on the part of the DWP, and we are not yet convinced that those problems have been entirely overcome. She gave us some sobering figures on the extent to which social security has been cut over the last 12 years, and we need to do much better. The hon. Member for North East Fife (Wendy Chamberlain) was right to draw our attention to the position of carers and the need for us to do better on supporting them, as we are now doing in Wales and Scotland. I am grateful to everybody who has spoken today, including my hon. Friend the Member for Westminster North (Ms Buck) on the Front Bench and the hon. Member for Aberdeen North (Kirsty Blackman), who spoke for the SNP.

I think the Minister said, in answer to my intervention, that the Government were not required to review the benefit cap until 2027 because the five-year clock had gone back to square one. I do not think it was reviewed in the last Parliament and I have no information about it being reviewed in the Parliament before that, but whatever the statutory obligation, surely when inflation is 10%-plus the Government need to recognise that families on the benefit cap—there are now more than 100,000 of them—are facing rising prices like everybody else and that the benefit cap must be raised in time for next April.

Question deferred until tomorrow at Seven o’clock (Standing Order No. 54).

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