Impact of Government Policies on Family Budgets — Debate
3:05 pm

Moved By Lord Knight of Weymouth

To call attention to the impact of Government policies on family budgets; and to move for papers.

3:26 pm
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Lord Knight of Weymouth (Labour)

My Lords, I am pleased to introduce this debate on the impact of government policy on family budgets. Before I come to the substance of my contribution, I want to say something about the choice of the word "family" in this debate. Yesterday I asked, through Twitter and Facebook, for examples of how people have been affected by government policy in the past 18 months. I quickly had a response from someone called Ma on Twitter. She-I think she may be a she-said:

"Every single politician who talks about families is talking about those with kids. That has never changed. For my entire life in this country, I've been an irrelevance. Why? Talk about being 'excluded'".

I apologise to her if she felt excluded by the use of the word "family". Over a serious of tweets she had important things to say for us in this debate. I quote:

"I'm visibly older. What happens when I need to find a new job and can't? This government will have me out in the street. I'm way past old enough to be a grannie now. Am I supposed to live in a student flat or crummy bedsit now? One wage coming into my home to pay for fuel. How does that work, exactly? One wage to pay for housing? All very well to care about kids. I didn't have them in part because I couldn't afford them. So I'll freeze now? Nae good".

She may have been Scottish. Clearly single people are suffering under this Government as well as more traditional definitions of family and I am happy to speak for them too as best I can. The other most striking response was on Facebook from Caroline O'Brien. She wrote:

"One thing that I haven't seen mentioned is the effect of cuts in local services on family budgets. Particularly on families with special needs children. Very often as services are withdrawn families are forced to try to make up the shortfall or see their children suffer. Whether that is getting independent assessments of educational need, private speech therapy, funding activities previously coming from youth services or providing transport. The withdrawal of EMA is going to hit us too, as my daughter starts A levels next year and as for thoughts of university, the debt levels are terrifying. I am also noticing that charities are being hit hard, so far less help is now available from them. Many of these things are just starting to have an effect but from where I am standing the future seems bleak for so many families. I know I am lucky. We can afford to buy the food we need, heat our house and pay the mortgage but is equality of opportunity for my kids really something that should be cut? After all it is the tax payer who will have to pay if my kids are unable to participate in society in the future".

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Lord Campbell of Alloway (Conservative)

Would the noble Lord forgive me for asking whether his interesting speech is within the remit of the problems of this particular Statement?

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Lord Knight of Weymouth (Labour)

I am speaking to the Motion in my name around the impact of government policies on family budgets and I believe I am speaking directly to that, but I welcome the interest from the noble Lord. Those two responses are the authentic voice of people in this country-not the poorest perhaps but certainly what has been described as the "squeezed middle"-and it is appropriate that we heard from them first in this debate.

In the remainder of my time I want to make three broad points. First, the lack of growth in the economy is hitting family budgets hard and the country desperately needs a credible and urgent plan to return to growth. Secondly, tackling two of the big inflationary items in budgets, food and energy prices, means taking on vested interests and pushing them to act in the long-term interest rather than for short-term gain. Finally, this Tory Government are failing because they are out of touch with the problems of ordinary families in this country.

I start with the last of those first. It was, I think, in George Osborne's 2009 party conference speech that we first heard his soundbite: "We are all in this together". The Government want us to believe that the pain is shared fairly. Does the Minister still believe that to be true? The evidence that he is hitting the poorest hardest is stark. I quote from Peter Wilby's excellent piece in the 17 October edition of the New Statesman, where he said:

"One of Labour's most outstanding achievements in office was to reduce child poverty during an economic boom. This sounds nonsensical, but isn't. Poverty is defined relatively; children living in families that receive below 60 per cent of median income count as poor. As the median nearly always rises during a boom, more children automatically become poor unless employers increase their parents' wages or ministers increase their benefits. The Tories are about to pull off the opposite trick. In recessions, the median falls and so, unless poor families' wages and benefits are hit harder than average, child poverty automatically falls. In 2009-2010, that was exactly what happened, with 300,000 children coming out of poverty. But that was before the Tories got to work. Now, the Institute for Fiscal Studies reports, we can expect the same number (though not necessarily the same children) to go back into poverty over the next two years, despite the likelihood that median incomes will remain, at best, stagnant. You couldn't have a clearer illustration of the difference between Tory and Labour governments".

On the income side of family budgets, we know that wage increases are not keeping up with inflation and that families are therefore suffering real-terms cuts. The Government are adding to that by their own attacks on pay in the agricultural sector by abolishing the Agricultural Wages Board, on the pay and conditions of school support staff by abolishing their negotiating body, and on public sector workers generally by imposing an effective extra tax on them through increased pension contributions beyond those being recommended by the noble Lord, Lord Hutton.

At the same time, the Government are of course cutting the benefits bill. Their cuts to housing benefits, to tax credits, to child benefit, to childcare, to educational maintenance allowance, to baby tax credits, to the maternity and health in pregnancy grants, to concessionary transport and to disability living allowance amount to a list that is long and painful. These cuts are hitting the poorest hardest, because it is the poorest who claim the most benefits, both in and out of work. Worst of all, for some families, unemployment is rising once more, with too many families now going through the trauma of a sudden collapse in their income. It is clear that "We are all in this together" rings hollow. If Ministers want to continue to claim that their choices on spending have been spread fairly, they are even more out of touch than I thought.

I turn to spending. The biggest hit on family spending overall was the Government's decision prematurely to raise VAT to 20 per cent. As former Monetary Policy Committee member Professor Blanchflower wrote recently:

"It certainly appears that increasing VAT from 17.5 per cent to 20 per cent was a big mistake - it increased ... Consumer Prices Index inflation by 1.5 percentage points and hit ordinary working people's living standards".

His call to reverse that increase was repeated by last year's winner of the Nobel Prize in economics, Christopher Pissarides, who said this month:

"Cutting VAT back to 17.5 per cent ... will revive job creation and reduce unemployment. Deficit reduction is best done with spending cuts when the economy is recovering, not with higher taxes in a downturn".

Last week's inflation figures made grim reading. CPI, the Government's preferred measure, has never been higher at 5.2 per cent, and RPI, at 5.6 per cent, is the highest since June 1991. It is little wonder that the Markit Household Finance Index published this week showed 37 per cent of UK households expecting their financial situation to worsen this month, against only 7 per cent expecting an improvement, or that the Family Lives survey of December last year found that 53.3 per cent of families said that their finances were in a worst state now than last year.

If we look at the detail of the inflation figures, we see the reality for families. Bills for gas and electricity have risen by 9.9. per cent in the past month and are up 18.3 per cent since last year. Transport has risen 12.8 per cent in the past year and food is 6 per cent higher than 12 months ago. I expect that my noble friend Lady Smith of Basildon will talk about energy prices in her speech, but we know that the poorer you are, the higher the proportion of income is used in food and heating. I fear that this winter many more will have to choose between the two as the decision to cut winter fuel payments to £200 for over-60s and £300 for over-80s adds to the misery.

With regard to fuels costs, I have to press the Government on why they are not giving teeth to the groceries code adjudicator. This new body will be funded by the supermarkets. The responsible Minister, Ed Davey, has said it will "safeguard the consumer interest", and it will lead, in the words of the National Farmers Union to,

"fewer instances of flagrant bully-boy tactics ... by the supermarkets".

Yet the Government have rejected two Select Committee reports calling on them to implement the regulatory body quickly. It was ready to go last summer. The Government rejected proposals to allow it to fine without a resolution in both Houses of Parliament and to allow it to act on anonymous complaints. On the three big tests, the Government have shown that they are unable to resist the power of the vested interests of the supermarkets and unwilling to set up an effective regulator-the effective regulator that consumers and producers of food want and need.

Since the Minister is so well briefed on Europe now, and given the warm relationship that the Prime Minister has developed in Europe with the likes of President Sarkozy, perhaps the Minister can tell us how we will get heard on more radical reform of the common agricultural policy, which his friends in the TaxPayers' Alliance claim costs every household in this country £398 per year in higher food prices. If the Government are serious about helping family budgets, they must be willing to take on the short-termism and vested interests that are raising food and energy prices. That is the new bargain with business that Ed Miliband talked about last month in Liverpool and it is sorely needed.

Finally, what families in this country need more than anything is growth in the economy. Growth brings jobs, job security and consumer confidence. We are in a vicious circle that needs reversing. Today's British Retail Consortium figures show 23,000 fewer workers in high street stores than a year ago because of the collapse in consumer demand. How are the Government going to reverse it? To get the economy moving, we need spending to increase. As we have seen, that certainly will not come from consumers. Despite the welcome deal overnight in the eurozone, the best prospects of an export-led recovery is if China starts to import more, and we cannot see any signs of that. The lack of delivery by Project Merlin means that the prospects of businesses accessing the finance that they need are poor, so they are unlikely to start spending either.

That leaves the Government. In this downward spiral, we need a kick-start from the Government. That is the consistent lesson from history. We need a plan for growth. Call it plan A plus, call it plan B, call it whatever you like, but give us a plan for growth that will work. The Shadow Chancellor, Ed Balls, has offered his plan: reverse the VAT increase until growth is sustained; cut VAT to 5 per cent for home improvements; bring forward investment in schools and hospitals; repeat the bankers' bonus tax to invest in building new homes and thereby create work for 100,000 more young people; and offer small business a national insurance incentive to take on new staff.

The Minister may say we cannot afford to do it; we say we cannot afford not to. Where else is growth going to come from? Families in this country are up against it. The conversations around the kitchen table are very bleak. Too many cannot tighten their belts much more, and the real impact of many of the cuts is still to come. The poorest are hit the hardest. It is not fair. Without a change of heart from this Government and without serious progressive measures, I fear massive social problems, a sustained recession and a blight on families' chances for a generation. The families of this country need action now.

3:39 pm
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Lord Stoneham of Droxford (Liberal Democrat)

My Lords, this debate is being held at a time of worrying outlook for the economy. No family or household who saw the figures last week of a 5.2 per cent increase in inflation and a comparable increase in salaries of 1.8 per cent needs telling that grappling with high energy and food prices is very tough indeed. There is huge concern about job security, declining real incomes and frail confidence both in business and in households.

When I joined the House of Lords I thought that it had a reputation for being best at strategic policy debates. Although I would like to thank the noble Lord, Lord Knight, for initiating this debate, I regard it as more of a tactical debate with strong political undertones if not overtones. I have always admired his political skills, not least in retaining Dorset South in 2005. As somebody who was helping to organise the Liberal Democrats' election campaign that year, and also as a man from Portsmouth, I admired the way in which he arranged for the Sea Cadets to give the Prime Minister a welcome on the first day of that election campaign in Weymouth. It was one of the high spots of the campaign, which certainly did not get better in my view. It showed real political skill.

I would, however, like to correct the noble Lord. He kept referring to the Tory Government: This is a coalition Government. There are good reasons why this is a coalition Government. The Government are trying to grapple with decisions. If there had been a Labour Government, they would have had to grapple with the same problems.

All recessions are painful but I have worked through five of them and this one is undoubtedly the worst. This one is particularly bad because there has been a decline in gross domestic product, and that is bound to cause a fall in living standards. All recessions, sadly, weed out marginal companies and businesses, and that creates unemployment. Sadly, resources at a time of recession are always at their weakest to protect the vulnerable, and that is one of the difficulties that we face now. The aim of the Government is obviously to ensure that the broadest backs share the greatest burdens in this situation as we work to restore the economy, the destruction of which, I must point out again, started under a Labour Government.

At this difficult time, I recall JK Galbraith's warning to President Kennedy. He said:

"Politics is not the art of the possible. It consists in choosing between the disastrous and the unpalatable".

Sharing pain in these circumstances is not easy, but the broad parameters of what the Government are doing are right. There will be no restoration in confidence, job security and growth unless there is confidence in the fiscal debt recovery plan both nationally and globally. Wherever possible we have to direct help to the most vulnerable. I particularly welcome the Government's initiative, made despite all the pressures, in raising tax thresholds. At a time of severe economic pressures we have also given the triple guarantee for state pensioners, building on the pension credit scheme of the previous Government, which should protect those who are most vulnerable to inflation and least able to protect themselves. The brave universal credit reform will seek to reduce poverty, simplify a very complex system and improve work incentives.

The problem now is that many of the principal factors impacting on household budgets are externally driven. The exchange rate devaluation was 25 per cent in the last two years of the Labour Government. It has helped growth but-as Harold Wilson rudely discovered in 1967-the pound in your pocket is bound to be affected by higher prices.

The noble Lord, Lord Knight, mentioned fuel. Prices are obviously affected by the weak pound and the rise in wholesale energy prices. We would normally expect energy prices to fall in a recession. Most forecasters have been surprised that they have not fallen and there may be hope now that we may see some fallback in wholesale prices. But energy prices are now acting as a squeeze on real disposable income and deflating the economy. That is not a new problem. In a recent independent review of fuel poverty, Professor Hills has shown that the growth in households in fuel poverty grew from 2 million to 5.5 million between 2004 and 2009. This is a problem of rising wholesale energy prices and poor quality housing stock which is not sufficiently insulated to reduce the demand for energy, and therefore to help offset the price increases.

Although fuel costs and the weakened exchange rate are two key components of the extra costs on household budgets, we must accept that VAT has imposed a significant one-off increase in prices this year. I accept that the consequences of this tax and how regressive it is are disputed, depending on whether you assess it on income or household expenditure. However, the arguments are more complex when choosing between a cut in public spending or an increase in VAT. The critical question is where £13 billion in revenues would otherwise come from. Let us also not forget that no other authority than Alistair Darling was going down this track in 2009. I do not think that there is any guarantee that reducing VAT necessarily increases consumer spending; spending declined by 3 per cent in 2009 when the last Government tried it.

Let us also not forget-the noble Lord, Lord Knight, did not mention it-the benefits of low mortgage-interest rates. As the noble Lord, Lord Sassoon, reminded us in Questions today, a 1 per cent rise in UK interest rates today would add £10 billion to family mortgage bills alone. Actually, in the last year, the average fixed mortgage rate has fallen by almost 1 per cent. At least in this recession, unlike in 1989, we have not had negative equity in serious terms, with people forced to sell their homes because of high interest payments.

The Governor of the Bank of England has warned us that we are about to face the longest decline in real disposable incomes for some time. So what needs to be done to protect households? I believe that the Government must keep to their strategy that the broadest backs should suffer the greatest burden and that the most vulnerable should be protected. It is more than a symbolic gesture that we are maintaining high-pay restraint and the top rate of tax and that we have increased the CGT rate to 28 per cent.

Though all those aspects have to maintained, we must also maintain the Government's ongoing commitment to raising tax thresholds as we can afford it. We must also maintain the commitment to the triple guarantee for pensions in April 2012. With quantitative easing, we must also recognise that this will create problems for those depending on interest from their savings, and indeed those approaching retirement and taking up occupational pensions. We must not forget that the consequences of low interest rates mean that people living on their savings and on occupational pension schemes are under severe pressure at this time.

In the energy sector, I hope that we will look at recognising what Professor Hills has said this week-that fuel poverty is very much linked to the issue of quality of housing as well as pricing, and that we need more schemes for better insulation, pioneered and financed by energy providers. Indeed, we need a whole series of partnerships. If the Government cannot provide the money then the partnerships will have to come through activity in the housing sector, with housing associations and the private sector, to develop funds for more social housing. It will have to come from energy companies, through some of the work of the regulator, to help those on low incomes and to encourage schemes for energy insulation, all of which are employment-generating activities. The banks need to be seen as sources of credit for small businesses. We need to work on that.

Always remember that once confidence has been shaken it takes a long time to rebuild it. The best protection for vulnerable groups is a growing economy, low inflation, and more choice of jobs. That requires a renewed partnership between industry and Government, to use the resources for business investment which they have but, for the time, are cautious in using.

3:49 pm
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Lord Stevenson of Balmacara (Labour)

My Lords, I am delighted to be participating in this debate. I congratulate my noble friend Lord Knight of Weymouth on initiating it and on his speech, with which I agree 100 per cent. I will talk today about debt and its impact on families and on the financial services sector. In so doing, I declare an interest as the chair of the Foundation for Credit Counselling. Operating currently as the Consumer Credit Counselling Service in all parts of the United Kingdom, we are the UK's leading debt advice charity. We provide confidential, free and independent counselling and money management assistance and, now in partnership with Citizens Advice, we have reached nearly a million financially distressed families in the last two years.

Our typical client-just to give a sense of what we are dealing with-owes over £25,000 to between five and eight lenders, which include the banks, the credit card companies, store cards, utility companies and the Government. The role of the charity is to work with lenders-who do not get nearly enough praise for the highly responsible way they work with us on this issue-to find an appropriate way of dealing with problem debt, including setting up an affordable debt management repayment plan, which is free to the client, welfare benefit checks and other debt solutions.

As I said, we are in contact with over 1,000 clients a day. The issues which they tell us are worrying them at the moment include the rising cost of living-with CPI inflation at 5.2 per cent last month, and RPI inflation at a 20-year high of 5.6 per cent-and energy prices, which, as has been discussed, have increased: electricity by 7.5 per cent and gas by 13 per cent. From our statistics we find that 30 per cent of clients are in fuel poverty, defined as having to spend 10 per cent of their net income to heat their homes adequately. A similar proportion of those seeking our help did not have the means to meet their day-to-day cost of living let alone to repay their debts. Underemployment, mainly part-time employment as opposed to unemployment, is starting to emerge as a major reason for debt problems.

We also work with other think tanks and organisations, including the Bank of England, which uses our data to provide more information. In a recent report, Debt and Household Incomes, the Financial Inclusion Centre reported that, in its calculations, 6.2 million households can be identified as financially vulnerable; that 3.2 million are already in financial difficulty, because they are either three months behind with a payment or in some form of insolvency; and that 3 million are at risk because they find it hard to make ends meet or may be vulnerable to increases in household bills. The Resolution Foundation reported in August, having done a MORI poll, that 48 per cent of people on low to middle incomes have no cash remaining at the end of the month after meeting their expenses. This month, a Lloyds Bank survey of their current account holders reports that one in 10 Britons do not have enough money to meet their monthly outgoings, such is the parlous state of their personal finances. That report's other main finding was that incomes continued to fall in real terms in September, being on average 1 per cent down on last year, and that spending on essential items such as food and petrol has risen by 3.5 per cent compared to last year.

What are we to make of all this? In the immediate future, we know from our clients that people are borrowing less and, where they can, repaying their debts. That is a good thing, even though it may impact adversely on GDP. Yet as incomes are declining in real terms and saving is still not yet a habit, more and more people who come to us are unable to pay their debts. I will share some of my medium-term worries with your Lordships' House. First, on the timing of the return to what we might call normal mortgage interest rates, we kid ourselves if we think that this extended period of ultra-low interest rates will last indefinitely. When we get back to real mortgage interest rates, which will be of the order of 5 per cent, it will cause significant damage to the budgets of millions of home owners.

A second concern is the impact that student debt will have on people who go to university after 2012. We had a recent Written Answer in this House which estimated the debt burden for new graduates after 2015 at between £40,000 and £50,000. How will they ever earn enough to repay that, and how will they get other borrowings in place to buy a house or start a family without recourse to the bank of Dad and Mum? This will certainly discriminate against those from deprived backgrounds and do nothing for social inclusion. My third and major worry in this area is that unless the bottom two deciles of income distribution get a real increase in their basic earnings-say of the order of 10 per cent-I do not see how they are ever going to square their family budgets, let alone repay the debts they have accrued. Where is that growth in real incomes going to come from?

The UK economy faces hard times. Debt is increasingly defining the experiences of what I might call the haves and the have-nots. The haves are households with no or low debts, savings and assets to provide a cushion in case of hard times, as well as sufficient income so that they do not have to rely on credit to make ends meet.

The have-nots are the millions of households who are burdened by debt, with little or no savings to protect them, struggling to make ends meet every month and increasingly vulnerable to predatory lending practices. I call on the Government to protect consumers from the aggressive practices of predatory lenders and commercial debt management companies who exacerbate, rather than alleviate, financial problems. This needs to be done through a combination of tough, properly enforced consumer protection and ensuring that financially vulnerable households have access to independent, objective and free debt advice.

In the future the legacy of personal debt will be one of the single biggest influences on the quality of household finances and will have an impact on the financial services industry. UK household finances have become unbalanced. Converting the UK from a debt culture to a savings culture, so as to promote self-reliance, is a major public policy challenge. This may be comparatively easy for the haves; however, if the financially vulnerable have-nots are to be supported on the road to self-reliance and freedom from debt burdens, they will need good, independent, free debt advice and financial work-outs from trusted intermediaries. However, this legacy of debt has wider implications for UK households and the financial services industry. UK households may be entering a new economic paradigm: a sustained period of high public debt, low economic growth, low interest rates and higher inflation with record levels of personal debt. This will affect household disposable incomes, consumer behaviour and attitudes to risk. This in turn will impact on the revenues and sustainability of business models in the financial services industry.

3:56 pm
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Baroness Pitkeathley (Labour)

My Lords, I am grateful to my noble friend Lord Knight for initiating this important debate. I wonder how many of your Lordships know what it is like to live on the margins. I am not referring to those who live outside the norms of society, to those who break the law, have a drug or alcohol problem or are homeless. I mean those who are just about coping, either financially or emotionally, and often both. I well remember a time, as a single parent, when I was just about coping financially, when I would go to sleep every night and wake every morning wondering how I could balance my income with the demands on it and constantly juggling the importance of paying this bill while putting off paying another. I am glad to say that that was a long time ago and now I feel confident enough to know that I have some leeway, some cushion to protect me if disaster strikes, if I become severely ill or if the roof blows off. I suspect that most of your Lordships are the same, but for millions of people, that is not how it is. They live just coping, because of a network of factors, financial, social and emotional, which, if they are kept in balance, allow them-just-to cope.

I want to talk about the experience of two such families. First, take the experience of Annette, a single mother of two children, newly divorced from a violent husband. She has an almost full-time job in a supermarket and receives tax credits, help with childcare and child benefit, all of which are now being reconsidered and are likely to disappear or be reduced. At present her children go to a breakfast club two mornings a week, to an after-school club once a week and to a play day at the local library on a Saturday morning. This helps her with her shifts at the supermarket and also with the food bills. Every other Saturday the children have a supervised contact session with their father at a local children's centre. Midweek, she and the youngest child attend a Sure Start centre where she meets others and receives help and support. She greatly values the social contact this gives her and the friendships she has made.

All these services, the things which mean that she just about copes, are now under threat because of cuts to either their voluntary-let us never forget how many of these services are provided in the voluntary sector-or statutory funding. If this young mother were like most of us in this House and had a cushion, even a cushion of £20 a week, this would not be so important, but she does not have that cushion and, as a consequence, she very soon may not cope at all, because this fragile network of support on which she relies is being taken away What will be the result of that? It does not take a genius to see that extra stress on this already highly-stressed situation will have dire consequences down the line. Annette's mental health is likely to suffer. The children's relationship with their father may be broken. The nutrition of the children may suffer. Let us not forget that a quarter of Britain's schoolchildren go to school without breakfast. Annette may lose her job and become entirely dependent on benefits. Need I go on? What is the potential bill for the state then, compared with the small amounts that it is investing in this family now?

The next family to which I want to draw your Lordships' attention is that of a carer, Shirley. She is aged 55. She is looking after her mother, who is 85 and is disabled by a stroke, which has affected both her mobility and her speech. Shirley's husband is about to retire but of course his pension is not going to be as much as they had expected. She works very part-time and receives the carers allowance-which, fortunately, is not to be taken into the universal benefits proposals, as was originally intended-but she is increasingly worried about the impact of local authority spending restrictions on the services they use for her mother. One of the day-care centres has already closed. The respite service, which enables the carer and her husband to have a night out once a fortnight, provided by a voluntary organisation, is under threat. The speech therapy group at the local hospital will come to an end next March when the specialist nurse who runs it retires and is not replaced. Shirley, not surprisingly, is very worried about fuel bills as her mother is immobile and some form of heating has to be provided in the house night and day. Her experience is typical.

Age UK says that spending cuts are projected to reduce spending on older people's care by £300 million over the next four years. Real spending on older people's care will be £250 million lower in 2014 than it was in 2004, but over the same period the number of people over 85 has risen by two-thirds. In 2005, 50 per cent of councils provided support to people assessed as having moderate needs, but in 2011 the figure has fallen to 18 per cent. As a result, the number of people receiving local authority-funded care at home has reduced from just under 500,000 in 2004 to just under 300,000 in 2009.

A survey in April 2011 of 61 councils by Emily Thornberry MP showed that 88 per cent of them were increasing charges for social care services, 16 per cent were raising eligibility criteria and no fewer than 54 per cent were cutting funding to the voluntary sector, which provides so many essential services. In addition, two-thirds were closing care homes or day centres.

I emphasise that cuts in support to caring families like this are a false economy. If financial and practical support to carers is cut and caring breaks down as a result, there will be a considerable knock-on cost to health and social care services, as well as serious damage to family life. I remind your Lordships, as I often do, that there are 6 million carers in the United Kingdom providing care to a value of £119 billion every year.

Both those typical families are doing their best to cope. They are fulfilling their family and societal obligations lovingly and dutifully, but government policies are having detrimental effects so significant that the end result may be family breakdown, with all its attendant costs to the state and to society itself.

We are all aware of the dire financial situation in which global events have placed the UK, but it must surely make sound economic as well as moral good sense to continue supporting families such as those that I have set before your Lordships. Local authorities and the voluntary sector are having to cut services that provide the difference between people just coping and not coping at all, and we shall all reap the whirlwind from that before many years have elapsed.

May we be assured that the Government, however inexperienced Ministers are in the normal lives of citizens, understand that many of them are just coping and just managing? Can the Minister assure the House that he understands that withdrawing these networks of support will result down the line in fractured and fragmented families which, in the end, will cost us all a great deal more?

4:04 pm
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Baroness Smith of Basildon (Labour)

My Lords, we owe my noble friend Lord Knight of Weymouth a debt of gratitude, not just for bringing forward this debate today but for his passionate comments. I like to think that when I am winding up a debate I can say how much I have enjoyed the contributions. While these have been very valuable, I regret to say that "enjoyable" is not the word that I would use on this occasion, given the depressing and serious impact that government policies are having on families, whatever their shape and size.

I was particularly interested in the comments of the noble Lord, Lord Stoneham. He expressed concern over the political nature of the comments of my noble friend Lord Knight. While he paid great tribute to my noble friend's political skills, we have to understand that economics and politics are inextricably linked, and that it is political judgment that has led to the economic decisions that the Government have made.

At the previous general election the economy was the key issue. There was little disagreement over the need to tackle the deficit. Where there was a real divide was on the issue of how that should be done. The Labour Party took the view that it could and should be reduced alongside economic growth, while the Conservative view was that cuts had to be harder, deeper and faster to have the kind of impact on the economy that the party wanted to see. In the event, no political party won an outright majority. In fact, more people voted against all three major political parties than voted for them. Eventually, a Conservative-led coalition Government was formed with the Liberal Democrats and those hard, fast and deep cuts that were promised by the Conservatives became a reality.

As we have already heard from my noble friend Lord Knight, at the 2009 Conservative Party conference the Chancellor in waiting, George Osborne, promised that everyone would play their part in a deficit-reduction plan. He said:

"Everyone must pay their share".

The famous and now discredited, "We're all in it together", was repeated three time in his speech, and then again by David Cameron. It is an excellent soundbite; it was attractive, understood and believed by many to be a commitment. It appealed to that very British sense of fairness. Everyone in the country would suffer equally in the pain that was to follow, no section of society would hurt more than any other, and all would pay their fair share. However, in their impact the Government's actions have achieved precisely the opposite, as we have heard today. The noble Lord shakes his head but I urge him to talk to people who are feeling the impact of this Government, and not just read the brief that he has received from civil servants.

That impact has achieved the opposite of what the Government said that it would. The evidence that some people have been hit harder than others is overwhelming. We have heard something of the pressures on families from my noble friends Lord Knight, Lady Pitkeathley and Lord Stevenson. We have heard real examples of real families. My noble friend Lord Knight read out what he called a long and painful list of cuts that are hitting the poorest hardest. My noble friend Lady Pitkeathley's examples of particular families highlighted not just the suffering that they face but the invaluable role that the voluntary third sector plays and how hard charities are being hit as local authorities cut their funding. That issue was raised with David Cameron at Prime Minister's Question Time. He said that local authorities should recognise the value of charities before they cut their money. I have to say to Mr Cameron that they do recognise the value, but when their funding is being cut and they are under pressure local authorities are often left with little choice.

The comments of my noble friend Lord Stevenson were particularly useful to this debate. His experienced observations from supporting those in debt via a charity add a significant contribution to the matters before us today. However, it is also very worrying that this will just get worse. I welcome my noble friend's constructive comments about what would help and hope that the Government will take them on board.

My noble friend Lord Knight referred to the Institute for Fiscal Studies report that was published earlier this month, which forecast the biggest drop for middle-income families since the 1970s, pushing 600,000 more children into poverty, taking the figure up to more than 3 million within two years. That is alongside 2.5 million working-age parents and 4 million working-age adults who do not have children being forced into poverty. However, for those not in poverty but who are struggling to make ends meet-the squeezed middle, as we heard from my noble friend Lady Pitkeathley-the IFS predicts that average income will fall by 7 per cent after inflation. That is the biggest fall in living standards for 35 years.

This is not just about numbers. As the chief executive of Barnardo's, Anne Marie Carrie, said:

"This isn't just about statistics as every day thousands of families are being forced into making choices between heating or eating".

Unfortunately, that is not an exaggeration. The most startling increases in energy bills are forcing people to go cold or face alarming bills, which they may not be able to pay. The increase in energy prices of around 18 per cent in the past year-more in some cases-is crippling for families.

The Government's response, with Chris Huhne complaining that people can not be bothered to switch energy companies, is an insult and is also inaccurate. It proves how out of touch he and the Government really are on this issue. In a Which? investigation, a third of calls to energy companies failed to elicit the lowest tariff, as requested by the customer. If an energy company is unable to identify the lowest tariff, how can the Government possibly expect the customer to do so? Why do the Government not ensure that the energy companies reduce the number of tariffs and automatically offer the lowest to the customer? Am I right to be curious about why any company would want such a confusing and complex system of tariffs, which they do not apparently themselves understand? Whose side are the Government on in this argument?

Given the dramatic increases in energy prices, the Government must take action to stop those who have the least paying the most. Individuals with pre-payment meters are not eligible for any discounts, so they end up paying more and often, in effect, disconnect themselves as they just cannot afford it. As prices rise to their highest ever, the over-60s will get £50 less winter fuel payment this year than last year, and the over-80s will get £100 less. Warm Front, the Labour Government's scheme for over 10 years, of which we are extremely proud, has brought warmth to the homes of pensioners, those with disabilities and the vulnerable. It is now being wound up. Having helped more than 2 million people with their bills, insulation and energy efficiency, the budget has been drastically cut this year and next, and will be ended altogether by 2013. The Government's answer is the Green Deal. I appreciate noble Lords' concerns about energy efficiency, particularly in private sector homes, but in principle the Green Deal is a good scheme which can make a contribution to making homes more energy efficient and reducing bills, as energy efficiency measures can be installed and paid back over time through energy bills. However, given that it is not to be available initially to those in some of the coldest, most energy-inefficient homes in the private rented sector, there is a lost opportunity to support those most in need.

I turn to feed-in tariffs for removable energy. The best reasons for feed-in tariffs are an increase in energy supply, thus making a contribution towards energy security, and to help those on lower incomes and local communities reduce their bills. But the Government have changed and cut the scheme so that the main beneficiaries will be private households that can afford the initial capital cost, knowing that they can recoup this in time. That is great for them but, despite today's announcement, the restrictions placed on the scheme have greatly reduced the benefits when just some relatively minor tweaks could have achieved the Government's objectives in reducing costs without losing so much capacity and limiting those who can benefit.

Although VAT on domestic energy bills remains at 5 per cent, the Government have increased VAT on energy bills for business customers from the Labour Government's reduction. This really hurts businesses, especially when prices are so high, and the increase just gets passed on to the customer in consumer prices. So we have higher costs at a time when unemployment is rising. In the quarter from June to August 2011, the average weekly pay increased by 2.8 per cent, compared with last year. However, bonus payments are up 28 per cent. In that same three months, 178,000 fewer people were in employment than the previous three months. ONS statistics show that the two constituencies in my home town of Basildon are suffering a 12 per cent and 10.9 per cent increase in those who are unemployed and claiming JSA. That is just one side of the equation and I want to come back to my opening remarks and those of the noble lord, Lord Knight.

The Government said, "We're are all in it together", and that everyone would take their fair share of the pain. The Government promised to tackle bankers' bonuses. It was reported earlier this year that the chief executive of Barclays said it was time for banks to stop feeling remorseful-as he wallowed in his £9 million payout. Labour's plans for greater disclosure were rejected and, despite the Government's levy on banks, the bonus culture continues unabated with an estimated £7 billion to be paid out this year. In 2009, before the General Election, George Osborne said that the Government should act in the light of the unacceptable bank bonuses and that we could not wait for the "promised land" of "responsible bonus culture". Does that mean that the Government now think these bonuses are responsible and acceptable? We are told that the best the coalition Government can now hope for is a declaration that bonuses are less than they would have been, despite reports that salaries will increase by up to 40 per cent in some cases to compensate for the so-called cuts or deferral of bonuses. So no fairness there.

The Secretary of State for Communities and Local Government, Eric Pickles, said he would crack down on the pay of council chiefs. Yet it is reported that even in the council next door to his in my home town of Basildon, the chief executive is to work for just three days a week from 2013 on a salary of £100,000 a year, and the council still has not cleared up the mystery of whether he will receive his pension at the same time. This is what really hurts people-when unemployment is rising, energy prices are soaring, those travelling to work face an average 8 per cent increase in their fares, supermarket prices are increasing, and the Government fail to act. Yet others are completely immune from pain, or at least from the fairness that the Government said they were so keen on.

It does not have to be like this. My noble friend Lord Knight read out to your Lordships' House the five-point plan proposed by the shadow Chancellor. The Government are cutting too far, too fast and too deep. They are cutting jobs and choking off economic growth. That is the choice the Government have made; but it is the wrong choice. It is not just bad politics-it is bad economics, because it is hurting people and the economy. This includes people such as Caroline O'Brien to whom my noble friend Lord Knight referred; Shirley the carer to whom my noble friend Lady Pitkeathley referred; and it includes my noble friend Lord Stevenson's charity that is helping people with debt.

The Government need to start thinking about such people as individuals and take action that will support them and their families-and the economy. I urge the Minister to take on board the comments that have been made today.

4:16 pm
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Lord Sassoon (Conservative)

My Lords, I am grateful to the noble Lord, Lord Knight of Weymouth, for initiating this debate on an important topic and for all the contributions that have been made.

As your Lordships are aware, and as we have been reminded, we are living through a period of real international uncertainty and instability. The eurozone, as we heard earlier, has been and is at the epicentre of this crisis, but the volatility has reached right around the world-to the US and China, and of course here in the UK. We are not immune from what is going on in our largest export markets. That instability acts as a powerful drag on what was already a difficult recovery from the deepest debt-fuelled recession in living memory.

It is right when we face such difficulties to ask ourselves: are we doing enough to support families; are we doing enough to protect the budgets of the poorest families; are we doing enough to provide opportunities for the youngest in our society; are we doing enough to support working parents; and, most importantly, are we doing enough to put the economy back on track to provide the opportunities, jobs and growth that we all need? When we came into government we inherited the deepest recession since the war and the largest budget deficit in our modern history. The adjective that the noble Baroness, Lady Pitkeathley, used was "dire". I agree. It was absolutely vital that we tackled that deficit. High deficits lead merely to higher inflation, taxes and interest rates. Cutting the deficit is a vital precondition to growth and prosperity. I am grateful to my noble friend Lord Stoneham of Droxford for underlining this point.

As we have seen over the past year, UK gilt yields and interest rates generally have fallen dramatically in response to the tough choices that we made in our spending review. Low interest rates help businesses to refinance debt and help families to stay in their homes. Of course the noble Lord, Lord Stevenson of Balmacara, was quite right to remind us that even in this time of low interest rates, debt is a very real problem for many in our society. Even a 1 per cent increase in interest rates would take £10 billion out of the pockets of families through higher mortgage payments. I therefore applaud the debt advice provided by a wide range of private and not-for-profit organisations. It is important that consumers know that many free and high-quality sources of help and advice are available from publicly supported projects and the voluntary sector.

Perhaps I may add a comment on one aspect to which the noble Lord, Lord Stevenson, drew attention-graduate debt-because I do not entirely share his analysis. Under the new system, all graduates will pay less per month than under the old system and they will have a longer repayment term of up to 30 years compared to the current 25 years. It is important to remember that.

Generally, on the deficit and interests rates, it is by getting ahead of the curve, by consolidating on our own terms, that we have avoided the uncertainty and the instability that have cut through other countries and plunged families in other parts of Europe into even more austerity and difficulty. More than that, in our spending review, we took the decisions to tackle the deficit in a proportionate, responsible, but also a fair, way. Therefore, I completely reject the charges coming from the noble Lord, Lord Knight of Weymouth, and the noble Baroness, Lady Smith of Basildon. Indeed, we are all in this together and it is critical that those who can, pay most. That is why we have tackled the deficit in the way we have.

The first transparent analysis of the distributional effects of our budget and spending measures-something never produced by previous Governments-shows that after combining the impact of tax, tax credit and benefit, and public service spending changes announced by this Government, the top 20 per cent of households will make the greatest contribution towards reducing the deficit as a percentage of their income and benefits in kind from public services. We take those distributional effects very seriously.

We are also taking more from the banks in our on-going taxation of them than the previous Government did through their one-off tax on bonuses. In relation to VAT, I share the analysis of my noble friend Lord Stoneham of Droxford. I believe that what we did to reverse the previous Government's national insurance tax-a tax on jobs-is what really mattered in making the difficult choices about where to prioritise tax measures so as to get our economy going again. These are painful choices, but it was our partial reversal of that tax on jobs, which noble Lords opposite did not mention, that was key to getting the economy going again. We took particular care to reduce the impacts on family budgets.

In relation to fuel poverty and rising fuel prices-a very important subject raised by the noble Baroness, Lady Smith of Basildon, my noble friend Lord Stoneham and the noble Baroness, Lady Pitkeathley-we have to acknowledge first of all the reality of rising world oil prices. We cannot be insulated from that. But what has this Government's response been? We cancelled the previous Government's fuel duty escalator and cut fuel prices. We have taken action on fuel duty, which has resulted in average pump prices being about six pence a litre lower than if we had continued with the previous Government's fuel duty plans. A typical Ford Focus driver will be paying about £56 less this year than he or she otherwise would have been doing. We have introduced the fair fuel stabiliser so that when oil prices are high, and oil profits are higher, fuel duty will increase by inflation only. This will ensure that the burden of high oil prices is better shared between oil companies and motorists. I say again that energy price increases are never welcome for consumers and we recognise that. It is important that these are limited to the costs and risks borne and are not about energy companies making excessive profits.

That is why we strongly support Ofgem's work in ensuring competition in the energy industry, including the recent proposals stemming from the retail market review launched in November last year. That is why we are taking a range of other actions to increase people's control over-and help them reduce-their energy bills. We are setting up the Green Deal for energy efficiency and the supporting energy company obligations. We are rolling out smart meters that will enable consumers to manage their energy use better and introducing the warm house discount to provide cash rebates for around 2 million vulnerable households by 2014-15. So, yes, we share the concern but I reject the charge that we are not going about it in a sensitive and proportionate way.

Taking some of our other measures to help families, we have made significant above-indexation increases in the child tax credit for the next two years, increasing it by £255 and benefiting 2.4 million low to middle-income families. This will also ensure that modelled tax and welfare policy introduced by this Government will have no adverse impact on child poverty for the next two years. I say that directly to the noble Lord, Lord Knight of Weymouth. He shakes his head but, again, we now have the benefit of the introduction by this Government of the independent Office for Budget Responsibility so that we can no longer make up such claims; all these things have to be independently assessed.

We made changes to the personal allowances to provide support for hard-working families on low and middle incomes, and increased the rewards for work. The increases in the personal allowances announced at the 2010 and 2011 Budgets will benefit 25 million individuals in 2012-13 and take 1.1 million of the lowest-income tax payers out of tax altogether. Our aim is to ensure that no one earning less than £10,000 will be caught in the income tax net. My noble friend was completely right to draw attention to this policy.

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Lord Knight of Weymouth (Labour)

I am grateful to the noble Lord for giving way. I would not normally intervene but he mentioned the Office for Budget Responsibility. Would he support the OBR having to report on relative child poverty as part of its reporting?

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Lord Sassoon (Conservative)

The OBR has a very clear and extremely wide remit. The previous Government had absolutely no check on any of their numbers. They could rewrite cycles or determine what path of growth they wanted to show. So I think we are now in a completely different world. Perhaps I may press on, because time is short.

We have reformed child benefit so that families with a higher-rate taxpayer are no longer eligible. Low and middle-income families are no longer being taxed to pay for child benefit for the rich. That, again, is another aspect of fairness. Of course, noble Lords have mentioned the important triple lock on pensions that we have introduced.

Finally in this area, this month my right honourable friend the Chancellor announced a freeze on council tax bills. Therefore, there will be a council tax freeze for a second year and that will provide real help for households in difficult times. Of course, in the spending review there were still difficult decisions to make on what to cut, but the previous Government's welfare spending was both unsustainable and unsuccessful.

Tackling poverty is not about moving families and children above some arbitrary line. It is not reduced by throwing good money after bad. This Government are taking a long-term strategic view to tackling poverty, which is about more than just welfare transfers; it is a strategy focused on transforming people's lives and the lives of future generations. I am grateful to the noble Baroness, Lady Pitkeathley, for reducing these almost abstract concepts to some really vivid case studies. I say to noble Lords that it is to that end, and it is in recognition of these very difficult situations, that we are increasing expenditure on public services where they can tackle the root causes of disadvantage. That is why we will introduce the fairness premium, refocus Sure Start and improve education. That will help to break cycles of disadvantage. The new fairness premium is worth £7.2 billion over the spending review period and will provide support to the poorest families in the UK. It will extend 15 hours a week of early years education and care from 2012-13 to all disadvantaged two year-olds; it will maintain Sure Start in cash terms, including new investment in Sure Start health visitors; it will introduce a substantial schools premium, rising to £2.5 billion by 2014-15, to support the educational development of disadvantaged pupils; and it will protect those on the lowest incomes in higher education through a scholarship fund of £150 million by 2014-15.

We are also reforming welfare to ensure that welfare payments are targeted at those who need them most and we are reforming tax credits to focus them on those who need them most. That means reducing the rate at which tax credits are withdrawn, while reducing the threshold at which they are paid. Importantly, we want to ensure that those who can move into work have a real incentive to do so. Currently some 800,000 individuals, including around a quarter of a million children, live in households where no one has ever worked. That has to be changed and it will be changed through the new universal credit being introduced over two Parliaments. To support working parents, the Government have agreed the extension of support with child care costs to those working less than 16 hours, as part of the new universal credit, which will enable the transition of second earners, typically women, into the labour market.

In conclusion, this Government fully understand the difficulties that families face in the current economic environment. The biggest thing that we can do as a Government to help families is to return the economy to sustainable growth: private sector growth through innovation, enterprise and export-sustainable, not debt-fuelled growth-that delivers the stability and jobs that we need across the country. That is our over-riding priority. Tackling the deficit is the precondition to realising that ambition. The recovery will be difficult, but we will not let the poor and vulnerable bear the brunt of these difficult times. We are committed to helping families, young people and job-seekers realise their ambitions and fulfil their proposals. I am grateful to the noble Lord for introducing this debate.

4:31 pm
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Lord Knight of Weymouth (Labour)

That is all right, then. The view from the Treasury is that everything is just fine. To too many families up and down the country, who are really struggling with their budgets, I am afraid that that will sound complacent and out of touch because, quite simply, the Government's economic policy is not working for them.

We have had a really interesting debate and I am sure that we shall return to this subject. I am grateful to the noble Lord, Lord Stoneham of Droxford, not only for his kind comments about me, but also for being confident and brave enough to take on responsibility for the economic policy on his party's behalf, the Liberal Democrats, as well as the Conservatives. I am grateful to my noble friends Lord Stevenson of Balmacara and Lady Pitkeathley for making very important speeches. What my noble friend Lord Stevenson said about the legacy of personal debt is something that we should keep in mind when we return to this subject. My noble friend Lady Pitkeathley's two poignant stories told the stories of so many more people who are now struggling to cope. I am obviously grateful to my noble friend Lady Smith of Basildon for the detail that she gave us about the impact of the high cost of energy now.

The Minister started off his comments by saying that it is difficult but that external forces are responsible for making the recession more drawn out and more painful. If he is going to pray in aid external forces now for why his Government's economic policies are not working, he cannot talk any more about the legacy that they inherited and the economic mess because that was down to the external forces of the global financial crisis. I shall come to a truce with him: I will not bang on at him about how he has got it all wrong, how everything that is going on with the economy of this country is all the Government's fault and I will admit that there are some external forces if he, too, will stop going on about how it is all the horrible inheritance from the Labour Government because that was all down to the global financial crisis. Before that hit, our level of debt in this country was the second lowest of any of the leading industrialised nations in the world.

We shall return to this subject, but it has been a good debate. I beg leave to withdraw my Motion.

Motion withdrawn.