Welfare Benefits Up-rating Bill — Committee (1st Day) (Continued)
4:54 pm

Amendment 2

Moved by Lord McKenzie of Luton

2: Clause 1, page 1, line 5, at end insert-

"(1A) In the case of employment and support allowance receivable by claimants of the support component of the allowance (who receive both personal allowance and support components) the mandatory 1% uprating stipulated in subsection (1) shall not apply to any components of the employment and support allowance (including personal allowance and support components) receivable by them."

5:03 pm
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Lord McKenzie of Luton (Labour)

My Lords, this is a focused amendment concerning disabled people who are in the support group for the purposes of the employment and support allowance. Noble Lords will recall that in the main phase of ESA an individual will receive a personal allowance and an additional support component. Those are currently £71 and £34.05 respectively. They will increase to £71.70 and £34.80 under the Social Security Benefits Up-rating Order 2013. This is an increase of 1% for the personal allowance but a CPI increase of 2.2% for the additional component. We will have the opportunity to debate the regulations shortly, although, of course, they cannot be amended. Under income-related ESA, other premiums may be applicable, such as the enhanced disability, severe disability and carer's premiums. Of course, the final amount of any payment depends also on the income, if any, of the claimant.

So far as the Bill is concerned, for those in the support group, the support component and the premiums are outwith the maximum 1% cap, and we support this. However, that is not the case for the personal allowances for a single lone parent and couple, and it is this injustice that we are seeking to rectify. In doing so, we are placing reliance on the commitment made by the Secretary of State for the DWP. On 8 January 2013, he said:

"I stand by what we said originally, and I say it again: in this Bill we have protected people on disability living allowance, as well as people in the support group on ESA".-[Hansard, Commons, 8/1/13; col. 194.]

That is not the case. Noble Lords will recall that those in the support group are those with the greatest challenges who are deemed neither fit for work nor work-related activity. They are not generally in a position to improve their financial background by way of accessing the labour market and I believe it is generally accepted that they experience higher living costs. The amendment would not represent a hugely expensive change to the Bill, but this is fundamentally about an issue of fairness and insisting that Ministers carry out their promises.

Amendment 3 stands in the name of the noble Lord, Lord Low. I will perhaps offer our view on that amendment when I reply on my amendment. I beg to move.

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Lord Low of Dalston (Crossbench)

My Lords, I support the amendment moved by the noble Lord, Lord McKenzie, to which I have added my name, but I rise principally to speak to Amendment 3, which is in my name alone and provides that the 1% uprating should not apply to benefits paid to claimants in the work-related activity group.

The amendment is essential if the Government are to fulfil their pledge to protect disabled people from the 1% uprating cap. Only disabled people are in the work-related activity group. The assessment process ensures that non-disabled people do not qualify. A recent DWP study tracking those receiving ESA over 18 months revealed that three-quarters of recipients were undergoing regular treatment for a health condition, including a stay in hospital for some. ESA for those in the work-related activity group is paid in two parts-the main component, which is equivalent to jobseeker's allowance and worth about two-thirds of the total benefit, and the work-related activity group component, which is worth the other third. Many disabled people are being placed in the work-related activity group. Capping increases in their benefit at 1% will mean that households receiving ESA in the work-related activity group will be £87.65 a year worse off. The Government's proposals to exempt from the 1% cap the support group component for those placed in the support group mean that less than a third of ESA payments for less than half of disabled people receiving ESA will be protected. That is what the amendment of the noble Lord, Lord McKenzie, would achieve, but it would address the shortfall only for the quarter of a million disabled people in the support group.

The most recent DWP figures show that there are 360,000 disabled people in the work-related activity group who also need protection. This amendment would achieve that. One third of disabled people in the UK were found to be living in poverty before the global economic crisis. Disabled people routinely experience higher living costs associated with their disability on things such as equipment, personal assistants and special diets. Disabled people experience the same increases in general living costs as everyone else: food inflation is running at 4.5% and travel inflation at 7%. Unfortunately, disabled people were not able to catch up financially during better economic times. We should not allow them to slip further behind as a result of this Bill; rather, we should ensure that the Government's objective of protecting disabled people is fully delivered.

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Baroness Meacher (Crossbench)

My Lords, I support Amendment 2, moved by the noble Lord, Lord McKenzie, to which I added my name, and Amendment 3, spoken to by the noble Lord, Lord Low. The Minister, the noble Lord, Lord Freud, consistently argued during the passage of the Welfare Reform Bill that there were two fundamental principles to the Government's welfare reform provisions. One was to make sure that people in work had an incentive to remain in work and that those out of work had an incentive to move into work. The second principle was that the money available, however much there was available, should be focused as far as possible on those in greatest need. Throughout the debates on the previous Bill, I found myself very much in agreement with those two principles. It seemed to me that if money is short, at least one should abide by those two principles. That seemed very reasonable.

I find myself therefore confused that in this Bill those two principles appear to be breached. It does not seem that you are focusing on those in greatest need if there is an impact that reduces in real terms the living standards of people who are severely disabled. You are certainly not increasing the incentive to work if you reduce the benefit of people who have not a chance in hell of returning to work. We know that a lot of people who in any normal view of things would not really be able to work have been put into benefit categories such as jobseeker's allowance, where they are expected to work, although they would regard this as being beyond their wildest dreams, much as they might like to. That is not the point that I wanted to make; I simply want to ask the Minister how she squares the provisions of this Bill with the principles so eloquently and consistently laid out by the noble Lord, Lord Freud.

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Lord German (Liberal Democrat)

My Lords, at Second Reading I said that this Bill had some rough edges, and the amendment moved by the noble Lord, Lord McKenzie, is directed at one of those rough edges. Can my noble friend the Minister tell the House whether a deliberate step was taken to exclude the personal allowance part of the support group to meet the budgetary requirements? Was this matter overlooked in the discussion that may have taken place on the principle espoused both in this House by the noble Lord, Lord Freud, and by the Secretary of State in the other place that those who are unable to do something to help themselves should not be penalised in this way? That is why the example of DLA and PIP has been given.

It may be, though, that in the words of the noble Lord, Lord McKenzie, people are generally not able to access the labour market. Can my noble friend the Minister tell us what the actual cost would be of reinstating the non-1% cap on the personal allowance part of the support group, given that people are in the support group because they obviously need support and cannot do things for themselves? That is the nature of the word. Has the department given any thought whatever to finding ways of ensuring that what is clearly not in the spirit of the statements made about providing for people who cannot help themselves will be carried through, if perhaps in some other way than by the amendment proposed by the noble Lord, Lord McKenzie? In other words, is there another way of dealing with this apart from using the methodology provided in the noble Lord's amendment?

5:15 pm
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Baroness Lister of Burtersett (Labour)

My Lords, I support both these amendments. I have a question concerning Amendment 2. Like the noble Baroness, Lady Meacher, I am slightly confused; I had understood that the rationale for not including, say, pensioners in the Bill was that that group could not be expected to make up the difference through paid work. Therefore, and in a sense this follows on from the noble Lord's question, why are disabled people in the support group affected, albeit not as much as some other groups? According to the Disability Benefits Consortium, a person in the support group will be £138 per year worse off by 2015. That is a considerable sum for someone living on benefits, and of course the personal allowance element is larger than the element that is protected. Why does that principle of excluding groups that the Government expect to go into the labour market to somehow protect themselves not extend to people in the support group who, by virtue of being in that group, are not expected to look for paid work?

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Baroness Stowell of Beeston (Conservative)

My Lords, I am grateful to all noble Lords who have contributed to this debate. It is probably worth my summarising that the two amendments we are talking about seek to make changes to the ESA. Amendment 2 would remove from the Bill the 1% increases in the personal allowance for those in the support group, while Amendment 3 relates to those in the work-related activity group.

I understand why noble Lords have tabled these amendments and raised the points that they have in this debate. We all want to protect those who are furthest from the labour market, or who have additional costs because of disability, and that is what the Government are doing.

On the points raised by the noble Baroness, Lady Meacher, referring to the principles outlined by my noble friend Lord Freud during the passage of the Welfare Reform Act, I am clear that those principles-that we will target welfare spending to those most in need and ensure that we do not do anything to disincentivise people from pursuing work-remain intact via this Bill. We are prioritising those in greatest need.

It is right to say that there will still be some effects among disabled people through the Bill because we are including the personal allowance for both types of ESA as well as the additional element for those in the work-related activity group. However, we are ensuring that all those benefits that are paid specifically to cover the additional costs associated with disability are not included in the Bill. For example, the disability living allowance and the attendance allowance are protected, as are the disability premia in benefits such as income support, ESA, JSA and housing benefit, and we have excluded the disability elements of tax credits from the Bill.

In many cases, the basic rate of ESA is just one element of the total package of benefits received. Many people on ESA are also in receipt of other benefits, such as DLA, to which I have just referred, and housing benefit. It is worth noting that around 65% of people in the support group also claim DLA. The point I am trying to make here is that ESA is not the only benefit that most people are relying on. People in the support group receive a component worth £34.80 a week, as has already been said, and they are also automatically entitled to the enhanced disability premium of £14.80 a week if eligible for income-related ESA. We should not forget that some people will be eligible for the severe disability premium or the carer premium. All these are protected, like the support component. Income-related ESA households where a member of the couple is over pension age also receive a pensioner premium to ensure that the rate of benefit is the equivalent of the pension credit rate. This rate is also uprated as normal.

My noble friend Lord German asked in particular about the personal allowance aspect of ESA and why it is included in the Bill. It is important for me to be clear that the personal allowance is there to provide basic support. It is designed to meet the basic needs of all those on out-of-work income-related benefits. The personal allowance is consistent across all benefits which relate to those of working age. There is a standard amount. For single people, it is currently £71 a week. It is important that I am clear that this rate is common across all claimants who receive ESA, JSA, income support and housing benefit and reflects the fact that they perform a similar function of providing basic support for everyday needs. They do not reflect disability or the additional costs of disability, so therefore it is right that they are set at a standard rate. That is the rationale for including the personal allowance in this Bill and for the personal allowance to be subject to the 1% cap on annual increases. Treating one personal allowance rate differently from that in other benefits would mean that there would be no clear level of income at which state support is set and at which access to other help would be available across a wide range of services. It would also introduce an element of complexity in terms of the coherence of the benefit system which would introduce new challenges and be likely to add further costs to the running of the overall system.

As has been acknowledged, the support group component is protected, so it is not included in the Bill. It is the component element of ESA which differentiates the need based on the effects of a disability or a condition. That particular component relates to the effects of a specific disability. The support group component is paid in recognition of the fact that more severely disabled people are less likely to be able to increase their income by moving into work and may have additional needs. Therefore we pay those in the support group a higher increase than those in the work-related activity group.

It is worth making the point that for those in the work-related activity group, ESA is not like the old incapacity benefits that usually led to people being in receipt of that benefit for a long period. This is intended to be a short-term benefit for those in this group. Those who are placed in the work-related activity group are there because they have been found able to prepare for work. As such, they will be referred for appropriate support, training and provision to ensure that they get the help they need. ESA for people in that group is intended to be a short-term benefit and we expect these claimants to be closer to the labour market and be in a better position to prepare for work. Therefore, while they may not be looking for work immediately in receipt of that benefit, they have some ability to affect their own incomes. That is why it is right that the annual increase for those in the work-related activity group should-unlike that for those in the support group-be fully within the scope of the Bill.

In his opening remarks, the noble Lord, Lord McKenzie, again referred to the alternative option of the Government bringing forward annual orders rather than introducing the Bill. It is important for me to stress heavily that a central purpose of the Bill, in addition to achieving savings, is to provide certainty. I will say that regularly throughout the passage of the Bill; it is an important aspect of what we are doing. I know that the noble Lord seeks to undermine that, but it is central to what we are trying to do. It is important that we recognise the long-term benefits of providing that certainty; that is how we retain the credibility of the Government's fiscal policy.

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Lord McKenzie of Luton (Labour)

Can the Minister explain to me the certainty that is achieved for claimants on the real value of their benefits as a result of the Bill?

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Baroness Stowell of Beeston (Conservative)

The point I am making, which the noble Lord is clear about, is that the Bill still provides annual increases in benefits, but at a reduced rate for some elements of those benefits. We are doing this in the way that we propose because it adds to the certainty. As I told the noble Lord when we were outside the Chamber, the IMF was very clear that to anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation or fiscal frameworks. This is part of what we are doing, and why it is important.

As I have said, despite the economic situation, which we have already discussed today at some length, we have found the resources to fund a 1% increase in working-age benefits and, in doing so, protected the incomes of disabled people as far as we can-especially those elements which are provided to cover the additional costs of disabled people.

The noble Lord, Lord McKenzie, said that it would not be hugely expensive to accept these amendments and to make this change. It is important that I make it clear to the Committee that accepting these amendments would mean a loss of £340 million in savings, which we would have to find elsewhere. Those in the work-related activity group are deemed able to prepare for work and, as such, are better placed to be able to improve their income levels. Therefore, we believe it right that the component is also within the scope of the Bill.

Personal allowance rates are common across the working-age benefit system, as I have already said, reflecting the fact that they perform the same function: to provide basic support for everyday needs. Accepting these amendments would therefore break away from that model and would create additional complexity in the benefits system. Our proposals are proportionate. Although I understand the concerns and points that have been raised in the debate-please believe me, I do-what is being proposed here is fair. I therefore ask the noble Lord to withdraw his amendment.

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Baroness Meacher (Crossbench)

Are the Government more concerned about certainty for the Government or certainty for the claimant? If the Government are concerned about certainty for the claimant, would it not be better to say that benefits would be uprated to the extent of 1% or 2% less than inflation, for example? That way, the claimant would know that they would not have a cut in their income of more than 1% or 2% a year. That would provide a level of certainty for the claimant, whereas it seems that the Bill is after certainty for the Government. Is that correct?

5:30 pm
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Baroness Stowell of Beeston (Conservative)

I think I am right in saying that the noble Baroness was not here at Second Reading when I laid out the purpose of the Bill and its wider context. In response to her question, my point is that this proposal is about certainty, so that in the long-term it will result in a better future for everyone. It is also about taking measures now which are difficult and will affect people but which have the sole purpose of helping us to achieve a stronger economy so that in future years all of us will benefit. That is what I mean when I talk about certainty.

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Baroness Hollis of Heigham (Labour)

My Lords, as the Minister will recall, that is not exactly what the impact analysis said nor exactly what she said at the pre-meeting on this Bill, which was very helpful. I am sure that we all appreciated it. She made the point that it was about certainty for the markets, certainty for the Government and certainty for the claimants. Many of us pressed her on the fact that certainty for the Government, the markets or the claimants depended not just on what the level of inflation would be but also on what the number of claimants would be in order to get some estimate of what spending would be. The Government had no way at all of forecasting two out of the three factors that went into giving themselves some comfort about their uncertainty.

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Baroness Stowell of Beeston (Conservative)

The point that I was making at Second Reading and continue to make is that certainty is a means to an end. It is through certainty for the Government, certainty for the markets and certainty in these measures that we will achieve a stronger economy. That is what I am talking about.

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Baroness Hollis of Heigham (Labour)

My Lords, this simply will not give you certainty. The whole of the impact analysis brief was a set of mythological language. This will not do what the Government claim. I understand that they are seeking to cut possible expenditure demands but to say that this is about certainty is simply an abuse of language, if I may say so.

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Lord McKenzie of Luton (Labour)

My Lords, I thank all noble Lords who have spoken in favour of Amendment 2: the noble Lord, Lord Low, the noble Baroness, Lady Meacher, and my noble friend Lady Lister. From the Minister's response it seems that this is all about a better future for everyone, and that seems to encompass a rather strange load of decisions. My noble friend Lady Lister asked a question which I do not believe was answered. She raised the comparison with pensioners who are being protected-and we support that because they are not so readily in a position to make up their income by accessing the labour market. However, people are in the support group because they are not expected to be able to be in, or are some distance from, the labour market.

In respect of the WRAG, I think that the Government are generally drawing closer together the JSA group and the WRAG to blur that distinction. People in the WRAG were not expected to look for work. Yes, they were expected to be fit and were deemed to be fit for work-related activity, but there is a constant push by the Government to blur that distinction and ease them much more towards the JSA category, if that job is not being done, in any event, by the WCA and Atos.

The noble Lord, Lord German, asked whether this is a rough edge. It seems to me that it clearly is a rough edge-it has not been overlooked, and it is not being dealt with in any other way. It is a hit that people in the support group and the WRAG have got to take. It seems to me that this is incredibly mean-spirited. It just focuses on the support group-the people who are in the most difficult position and not able to access employment. The noble Baroness said that 65% of them were on DLA and acknowledged that DLA is outwith the Bill. What is the Minister's understanding of the percentage of people in the support group who will end up on PIP rather than DLA?

In Amendment 3, the noble Lord, Lord Low, makes a broader case for removing ESA from the scope of the 1% restriction on uprating for those who are in the WRAG. It obviously goes further than our Amendment 2. We have made clear that the 1% uprating restriction should be removed in its entirety from all the relevant sums and amounts as defined, and we are grateful for the support of the noble Lord in that endeavour. If we are successful, the noble Lord's amendment, and several others including our own, would fall by the wayside. Should we be unsuccessful we need to consider how we can at least move some way towards that objective.

As we have just discussed, we focused in our Amendment 2 on those in the support group. We did that because those affected are the most seriously disadvantaged-the furthest from the labour market-and because the Minister has made a commitment that this group would be protected. That commitment clearly is not being met. The noble Lord's proposal that we should go further, beyond the support group, is entirely reasonable. Those in the WRAG are similarly judged under the WCA as not being fit for work although capable of work-related activity. But for those who seek work, we know that the prospects are not good. Not only do we have a work programme which is failing overall but there is at least anecdotal evidence to suggest that the hardest to help are not being properly supported. We have the shutting of Remploy factories, concerns over the looming bedroom tax, the restrictions on contributory ESA and the loss of the severe disability premium in universal credit. These have all added to the pressure on disabled people.

As the noble Lord, Lord Low, has said, the Bill will mean that people in the WRAG will be some £191 a year worse off by 2015. If we cannot carry the day on removing the 1% restriction across the board, we would look to support the noble Lord should he decide to pursue his line on Report. I beg leave to withdraw the amendment.

Amendment 2 withdrawn.

Amendment 3 not moved.

Amendment 4

Moved by The Lord Bishop of Leicester

4: Clause 1, page 1, line 5, at end insert-

"(1A) The Secretary of State must, in each of the tax years ending with 5 April 2014 and 5 April 2015, make an order by statutory instrument increasing each of the relevant sums by no less than the general level of prices over the period under review and for the meaning of the "relevant sums" see paragraph 3 of the Schedule."

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The Bishop of Leicester (Bishop)

My Lords, I shall speak to Amendments 4, 5, 16, 18, 20 and 21, which are in my name, and I am grateful to other noble Lords for adding their names to some of them. These amendments seek to make two key changes to the Welfare Benefits Up-rating Bill. The first is to ensure that universal credit rates, including work allowances, are uprated with inflation. This will protect the future value of benefits for low-income families while also achieving most of the short-term savings required as part of the Government's deficit reduction strategy. Secondly, the amendments seek to ensure that work will always pay and that all working families are able to afford a minimum, decent standard of living.

I turn first to those amendments which seek to ensure that universal credit is removed from the scope of the Bill. I have tabled them for four key reasons. First, the baseline amounts for universal credit have only just been established by the Government. It surely is reasonable that these are now increased with cost of living. Secondly, the majority of households protected in this way in the long term would be working households. The measure would promote work incentives, about which I will say more in a moment. Thirdly, the measure would protect 6.7 million children from some level of impact once universal credit is fully introduced. Finally, the cost of the change would be relatively low over the next two years as a result of limited levels of migration to universal credit.

A number of benefits have been substantially revised as part of the introduction of universal credit. For example, the lower disability addition for children, comparable to the disability element of child tax credit, has been halved in value. Personal allowances for those aged under 25 have been changed so that lone parents under 25 will no longer receive the same rate of personal allowance as single adults aged over 25. The severe and enhanced disability premiums present in the current benefits system are being removed. These are major changes to the system and, since we have only just established a new baseline for support provided through the welfare system, it is surely reasonable that that support should be increased to keep pace with rises in the cost of living to ensure that the situation for families remains comparable over time. Inclusion of universal credit in the Bill amounts to a cut to the new scheme before it is even introduced. This surely cannot make sense. At this stage, we do not yet know what the impact of these changes to the structure of support will be. We should at least wait and see what the implications of these changes are before initiating cuts to them.

So how much will this cost? With my proposal, the Government can still make savings, but they can also help to ensure that the success of universal credit is not undermined. Based on a migration rate of 10% of claimants by the end of 2014-15 and 30% of claimants by the end of 2015-16, the additional cost of removing universal credit from the scope of the Bill would be £90 million in 2014-15 and £510 million in 2015-16. This would mean that the Bill would still make savings of £810 million in 2014-15 and £1.2 billion in 2015-16. In fact, since many households migrated across will have a lower entitlement under universal credit and so receive transitional protection, the costs may be significantly lower than this. Does the Minister agree that, having only just set the rates of support for universal credit, it would be reasonable to increase these in line with cost of living?

Secondly, I turn to work incentives. A key objective of the current welfare system and of the future system in the form of universal credit is to ensure that work incentives are maintained. The Government rightly identify work as an important way for families to lift themselves out of poverty, and we all accept that. However, this can succeed only if the right work incentives are provided through in-work benefits and tax credits. The Government estimate that around half of the total number of households affected by the Bill are working households-a total of 3.25 million working households, including working families from all walks of life.

The impact will be reflected in children in poverty in working families. The Government have admitted that they expect it to push 100,000 more children in working families below the poverty line. The amendments in this group in my name explicitly safeguard work incentives. The amendment ensures that the allowances provided through working tax credit, personal allowances within housing benefit and work allowances in universal credit are increased in line with prices. Doing so explicitly improves work incentives and ensures the principle that work pays.

Working tax credit will be affected by this Bill as it stands. It is notable that the basic and 30-hour elements of working tax have already faced a three-year freeze, from 2011-12 to 2013-14. This means that, in total, these elements will increase by just 2% over the course of half a decade, a period in which prices have risen by eight times as much. On top of this freeze, as a result of the Bill, a lone parent working 30 hours per week would receive the basic, lone parent and 30-hour elements of WTC and, as a result, they will have a WTC entitlement which is up to £132 per year lower.

The amendments also seek for the personal allowances within housing benefit to be increased in line with inflation. The personal allowance rates for adults are included within the scope of the Bill. This will mean that households moving into paid work keep less of their earnings before additional earnings are withdrawn from their housing benefit entitlement.

Finally, with the passing of the welfare Act last year, the future of the welfare system is focused through the universal credit. A key aim of this credit is to promote work incentives through work allowances, but it is notable that these work allowances are not mentioned within the Bill. Failure to increase these in line with inflation will have a very substantial impact on the actual value of the allowances. For example, the higher work allowance-the rate provided to households not claiming for help with housing costs-for a lone parent family is £734 per month, worth up to £477 per month for working families. The Children's Society have calculated that, were this uprated in line with inflation, this would be expected to be £770 by 2015-16, worth up to £500 per month for working families. As a result, failure to uprate work allowances within universal credit would cost working lone parent families £23 per month, in the value of this allowance alone. Does the Minister agree that in-work benefits and tax credits help to ensure that work always pays? Secondly, will she confirm that the reason that the work allowances within universal credit are not included within the scope of the Bill is that the Government intend to increase them at least in line with inflation?

In conclusion, the Bill as it currently stands seriously fails to protect working families, and will cast children into poverty. It simply does not go far enough to promote work, so that work always pays, particularly for the lowest earning working families. My amendments go some way to mitigate these deficiencies, and I beg to move.

5:45 pm
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Lord Kirkwood of Kirkhope (Liberal Democrat)

I am happy to support these amendments and have added my name to most of them. The House owes a debt of gratitude to the right reverend Prelate the Bishop of Leicester for raising these points. I particularly support his concerns about lone parents. Over the whole systematic process of change, my concerns are getting greater and greater about the compounding effect of all these changes that we see in the social protection available in the United Kingdom. Lone parents, who are mainly women, are struggling already, and we need to watch their situation with great concern in future.

My heart absolutely sank when I saw that this Bill was being applied to universal credit, because universal credit should be the future; it is the architecture around which we as a country should and must have serious consideration about provision for low-income households. We need to have a discussion with people such as my noble friend Lord Forsyth of Drumlean as well, between now and the next election. I hope that there will be a grown-up discussion about how the United Kingdom, as a poorer country, accommodates some of these new pressures, and I am willing to engage in that to the best of my ability. However, what is wrong about applying these two years of locked-down 1% increases is that they risk prejudicing the whole new future, as I see it, of how we cope.

In my experience, the administrative cuts in the health service prejudiced the view of a lot of people towards some of the NHS reforms. My real fear is that people will not know that the cuts are being introduced by the uprating Bill and will think, in the early years of universal credit, when they are transitioned across into the new system, that they are being sold a pup. That will potentially damage the public's understanding of what universal credit is about and that is a real shame. I understand perfectly well all the arguments that the noble Lord, Lord Forsyth, makes, and we have to put up with them in the best way we can, but we should have isolated universal credit for the reasons that I have explained.

Further, I do not think that we know how universal credit will work out when it is in steady state, and it will take a long time to get there. I come back to the costs that will be saved by applying this uprating Bill to universal credit because I am a bit confused about exactly what the Government think they are going to save. Therefore, I make my first complaint-it is another moan-with conviction. The noble Lord, Lord Freud, bless him, has worked very hard to try to get universal credit to stand up. I read a worrying story in the Financial Times, which said that the self-employed have not yet been told that there is a real-time HMRC system heading in their direction. Not many of them know about it. That is more than slightly worrying-it is very worrying, because the computer system is essential to that measure working sensibly. However, we must try to do the best we can to make it work in future.

Secondly-again, the right reverend Prelate was right to give this priority-one of the best elements of universal credit is the way it deals with what used to be known in the old language as income disregard. Some of us have fought for years to do something constructive about income disregard. It is a very intractable problem and universal credit has given us an opportunity to get hold of that and provide incentives to get into work. Universal credit does that, but the first thing that the Government do after bringing in this new progressive reform is to cap it at 1%. How that is supposed to meld with everything else that has been done in connection with the Work Programme makes no sense to me. It will save relatively small amounts of money in terms of the big picture savings that the Government are trying to lock in, but for the life of me it seems a counterproductive, silly cut to introduce and it compounds my first point in that it makes the universal credit system look worse than it is.

The right reverend Prelate the Bishop of Leicester made eloquent and important points about child poverty targets. I concur with everything that he said, so I do not need to elaborate on that. My final point is about costs because I am struggling to understand the savings that have been alluded to. I do not expect the Minister to be able to do this off the top of her head but it would be helpful to me if, before Report, I could be told what the universal credit cost savings are in this measure because I cannot make any sense of the impact assessment. I agree with the noble Baroness, Lady Hollis, that it is-

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Lord Kirkwood of Kirkhope (Liberal Democrat)

Indeed. I am looking at the Treasury Autumn Statement 2012, Table 2.1, which has a category headed, "Exchequer savings resulting from 1% uprating of benefits and tax credits". This is over the three years, not just the two years in the Bill. The table also has a category headed, "Universal Credit: finalise disregards and increase by 1% for two years from 2014-15". The figure given suggests that the saving for 2015-16 will be £640 million. However, my honourable friend Steve Webb, in a Written Answer to Stephen Timms on 13 February, identified universal credit additional savings as £20 million in 2014-15, £100 million in 2015-16 and £150 million in 2016-17. I am not sure how these figures relate to one another. I may be misreading the statistics and the tables may be drawn up using different bases, but between now and Report I would like to understand how these figures are worked out.

As the noble Baroness, Lady Hollis, said, the assumptions about how many people will be translated on to universal credit are best guesses, to put it mildly. I think the roll-out programme will take much longer, for the reasons that I explained earlier, and the story in the Financial Times compounds my anxieties in this regard. I think the figures that the right reverend Prelate gave of 10% of claimants being on universal credit by 2014-15 and 30% by 2015-16 are ambitious, to put it mildly, so can we have some greater clarity?

This is an important Bill. I understand the significance of the situation in which the Government find themselves. If I did not believe that before this weekend, all the financial circumstances of the past few days have confirmed the difficulty of the situation. However, before Report, we must try to get a better fix, in particular on the savings related to the universal credit inclusion in the Bill, because it is unclear to me. It is important and, from where I am sitting at the moment, I do not think that the savings are worth the candle. I would be much happier leaving universal credit out of the Bill. Let it be the future and let us all work on it, try to protect it and build on it in the best way we can. The Bill is a retrograde step as it affects universal credit, and I support these amendments for that reason.

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Baroness Howe of Idlicote (Crossbench)

My Lords, I want to say a very brief word about two groups-children and families. Before I do so, I congratulate the right reverend Prelate the Bishop of Leicester on his excellent briefing on these very important areas. I agree with a great deal of what the noble Lord, Lord Kirkwood, said.

We know that the Government are not on target to meet the Child Poverty Act commitment to eradicate child poverty by 2020. The right reverend Prelate referred to that. We are told by the Institute for Fiscal Studies that there can be almost no chance of eradicating child poverty, as defined in the Child Poverty Act, by 2020. It predicted that there would be an additional 500,000 children living in absolute poverty by 2015. However, that leaves out a further 200,000 children who will be pushed into relative income poverty. How on earth will this Bill help the Government to meet their commitments under the Child Poverty Act?

I am even more concerned about the disproportionate impact that all this is having on women. The Bill disproportionately affects women, including through the cap on child benefit payments and statutory maternity pay. Furthermore, those in low-paid work, who are more likely to be women, will lose the most. It is estimated that 300,000 nurses and midwives, 150,000 primary and nursery school teachers and 1.14 million admin workers and secretaries will be affected by the cap. Some 98% of child benefit payments are paid to women. Child benefit has already been frozen for three years, meaning that over five years there will be a total of a 2% increase; for the same period, CPI will have risen by 16%. Of different family types, lone parents, who are mostly women, as we know, will lose the most: £261 a year by 2015.

There we are: those in low-paid work will lose the most as a result of this Bill; 71% of the families affected are at or below average income. The IFS estimates that the combined impact of all the tax and benefit changes introduced between 2010 and 2015 will reduce the incomes of the poorest fifth of families with children by around 7%. Will that really do what the Government want to do? I get increasingly worried by all the evidence that is sent to us, and it is evidence from people who are working on a daily basis with the families about whom we are most concerned. I really hope that the Government will think again on some of these areas.

6:00 pm
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Lord McKenzie of Luton (Labour)

My Lords, I start by thanking the right reverend Prelate, the Bishop of Leicester, for these amendments. I hope he will understand that, should he press them to a vote tonight, he would present us with a little difficulty. I doubt that will come as a surprise. The difficulty is that the strictures under which we are operating mean that we cannot at this stage make commitments in respect of the next Parliament. Clearly, an uprating in the tax year beginning 5 April 2015 would operate in the subsequent year, which crosses that particular line.

Having said that, there is much to support and sympathise with in the case made by the right reverend Prelate and the noble Lord, Lord Kirkwood. We on this side wish universal credit well and hope that it will deliver that which is promised for it. However, we know that there are a number of teething problems; we think the Government have been right to extend the introduction way beyond the original intention. It therefore seems to me that very important questions have been raised about why we should at this stage include universal credit within these provisions. We on these Benches want to see everything outside this Bill; we think that would be the right way forward, but certainly the universal credit would be a start.

The issue of work incentives is very important. Although we probably do not espouse it often enough, I think we have a shared view around this Chamber about the importance of work, which is the route out of poverty for most people. It generally seems to be better for their health and well-being and all those things. Therefore, it is crucial that any measures such as this support the proposition that we should try to get people into work when they can work, and help them get closer to the labour market when they cannot.

The noble Baroness, Lady Howe, widened the debate to discuss the broader impact of this Bill on child poverty. The figure of 200,000 is the one that was identified by the Minister in the other place. That comes on top of IFS figures, which suggest that another 800,000 children are going into poverty as a result of measures since 2010-in a sense, reversing the gains of the past decade for children and women, too. Therefore, without being able to support the wording of the amendment formally tonight, there is much to reflect on and support in the right reverend Prelate's proposals. I hope that between now and Report-particularly picking up the points made by the noble Lord, Lord Kirkwood-we could end up in a position where we were not only in sympathy, but were marching through the same Lobby.

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Baroness Stowell of Beeston (Conservative)

My Lords, we have covered a lot of ground with these amendments tabled by the right reverend Prelate the Bishop of Leicester. I will do my best to cover that ground. It is probably worth starting by noting some common issues raised by this group of amendments. They come under the headings of their impact on savings from the Bill, their impact on certainty-as I have already talked about-and the inclusion of in-work benefits. I will then refer to some of the points related to housing. Before I begin, however, I note that the right reverend Prelate has added his name to Amendment 13, which removes housing benefit and personal allowances from the schedule, but Amendment 13 is to be discussed later as part of a different group.

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Lord McKenzie of Luton (Labour)

I should have said when I got up to speak that Amendment 13 was originally part of this group but unwittingly got moved to be grouped with two later housing benefit amendments in the names of my noble friends. I apologise to the right reverend Prelate for that.

Photo of Baroness Stowell of Beeston

Baroness Stowell of Beeston (Conservative)

I was going to say that because Amendment 21, which inserts housing benefit and personal allowances into a different part of the schedule, and Amendment 5, which places a duty to uprate by at least prices, are reliant on Amendment 13, I will speak to the amendments in this group as if Amendment 13 were assumed. I hope that makes sense. Hopefully, we are all following each other in respect of these different amendments.

Noble Lords have already outlined the effects that the amendments would have on the Bill. In broad terms, the legislation would revert to the existing annual exercise of discretion by the Secretary of State. To remove these benefits and payments from the Bill would reduce savings by around £800 million in 2015-16: that is, around £600 million that year from removing universal credit, which would increase over time as more households moved to universal credit; around £160 million that year from removing working tax credits; and, under Amendment 13, around £60 million that year from removing housing benefit and personal allowances-in total, an £800 million reduction in the Bill's savings in the final year, which is about 40% of the Bill's savings.

I have to disagree with the right reverend Prelate and say that it would simply not be affordable to give up those savings. If we look at the two years of the Bill together, we are talking about a loss of £1.1 billion in savings. As I have said before, none of these decisions is easy, but we have to recognise that if we do not take the savings that this Bill provides in the way it does, this money will have to be found elsewhere.

While I am talking about general matters, it might be worth responding to a point made by the noble Lord, Lord McKenzie, either just now or in an earlier debate-I cannot remember-about the wide range of changes that the Government are introducing in welfare reform. The noble Baroness, Lady Hollis, is not in her place, but she also made the point in an earlier debate. We are making a lot of changes to the welfare system. We absolutely believe in those changes; we think that we are doing the right thing and that those changes will result in a much more effective system. It is safe for me to say that in broad terms most of those changes have received support from the House. There has been recognition on all sides that the welfare system as it stood needed to be reformed. As we move into 2013-14, a lot of those changes will be implemented, so it will no longer be a discussion in theory; it will be real in practice. Of course, as we go through the implementation phase, we will ensure that all changes are implemented in a way that we designed them to be made and that they have the effect and the outcomes that we set out in the legislation. This is not something that we will not be closely involved in to make sure that things operate in the way that we intended.

While talking about general issues, it is perhaps worth responding to points raised about cumulative impacts and assessments. I know that my noble friend Lord Newby referred to this in his response to the first group of amendments, but the matter having been raised again it is worth making a couple of points. The Government introduced a new system of greater transparency around impacts and we publish the impacts of government policy every time there is a fiscal event. The last time we did this was in the Autumn Statement. That cumulative impact includes information about changes to all tax, welfare and public spending policy that can be modelled since the June Budget of 2010.

So far that analysis has not included universal credit, and a separate analysis shows that 75% of the gains from universal credit goes to the bottom 40% of the income distribution. It is worth adding that the IFS has acknowledged that the effects of reforms, such as those to DLA and housing benefit, cannot be precisely modelled, but as I say we are producing quite a lot of information. It is there and publicly available, but let us not forget that all those assessments are against the previous Government's plans for this period-this Parliament, had they come into power-and we have acknowledged that those plans were not affordable. We are assessing something against a benchmark that we have already acknowledged we cannot afford.

A key principle of this Bill is the certainty that it gives as part of the Government's fiscal plans. I have said that before, and said then that I hoped noble Lords would not tire of me saying it. I will not tire of saying it to the House as it is important. By taking these benefits out of the Bill and thereby restoring the annual exercise of discretion in relation to prices, the amendments would undermine the key principle of certainty. Amendments 4 and 5, if taken with the others, would make it a requirement to uprate universal credit, working tax credit elements and housing benefit personal allowances by at least prices. I am not sure whether that is the intention, but the amendments would take us further than existing legislation, while not giving a firm commitment to addressing the deficit that the Bill provides.

Noble Lords have talked about the inclusion of in-work benefits and questioned whether these should be included. We cannot escape the fact that some working households will be affected. I am not seeking to suggest for one moment that they will not. Tax credits, for example, account for around £30 billion of expenditure this year. Tax credit spending rocketed under the previous Government by an extraordinary 340% compared with the benefits they replaced. Eligibility for tax credits was extended to nine out of 10 families with children, so it would be unrealistic to exclude the benefits received by working people from these decisions that we are taking. For my part I think people understand that. There is a general recognition that this element of spending could not be excluded, particularly when those in work are facing tight restrictions, if not freezes, to their own pay.

The Government have, however, taken real steps to support working families with the cost of living. The noble Baroness, Lady Meacher, who sadly is not in her place, talked about families being really concerned about the money they receive rather than percentage increases in this, that and the other. I absolutely agree, and that is why it is important when debating these changes that we also make sure that we take account of the other measures that the Government have introduced that provide some benefit to families. For instance, in the Autumn Statement we announced a further increase to personal tax allowance, and taken together, increases to the personal allowance brought in since this Government came to power will benefit 24.5 million individuals, providing a real terms gain of £443 for the most basic taxpayers in the next financial year. These changes will take 2.2 million individuals with low incomes out of tax altogether.

We should not knock important measures such as fuel duty and the fact that we cancelled the January fuel duty increase. That means that pump prices are about 10% per litre lower than they would have been had that measure been implemented. We have also provided an extra £450 million to help freeze council tax bills in England, which means that somebody in a band D home will save up to about £72 on a 5% rise in council tax. All those measures mean that an average working family will be £125 better off next year and better off on average no matter where they sit on the income distribution scale.

The Government believe that work is the best route out of poverty. Noble Lords have said this in today's debate, which is a point that we all agree on. Universal credit lies at the heart of coalition policies to combat child poverty and transform the lives of those who most need our help. The simplicity of universal credit means that people will clearly understand the improved work incentives it creates, allowing them to keep more of their income when they find a job or increase their earnings. That simple point should never be underestimated. I find the benefits system a complete minefield to understand, and the changes that we are introducing are incredibly important. More than 3 million people will gain from universal credit, with an average gain of about £168 a month, and we estimate that up to 300,000 more people will enter work as a result of the introduction of universal credit through improved financial incentives alone.

At this point, I should respond to one of the questions that the right reverend Prelate the Bishop of Leicester asked about work allowances. Committing to uprate the work allowances goes beyond the legacy system that saw no routine increases to the less generous disregards. It is also worth responding now to a point made by the noble Baroness, Lady Howe of Idlicote, who referred to statutory maternity pay. We will be debating that later on as there is a group of amendments specifically about that. She talked about the impact on women. There was quite a lively discussion online on the Mumsnet website about statutory maternity pay. One of the points made on the blog that was echoed by quite a lot of people is that for those who are in a relationship or marriage, their husband or partner benefits from maternity pay just as much as they do because all their household income is pooled. We undermine the intelligence of people if we argue that people are not clear about the impact of what we are doing and manage their finances in the strict way that the noble Baroness suggested.

Finally, I turn to housing benefit personal allowances. I should make it completely clear that the Bill does not uprate every aspect of housing benefit by 1% over the period in question. It uprates by 1% the housing benefit personal allowance. This figure is used in the calculation of housing benefit. I refer noble Lords to our previous debate. The personal allowance is a block of money that is consistent across all benefits. For single people it is £71 a week. That is what the Bill refers to when it talks about housing benefit.

As housing benefit is particularly complicated, I will make two things clear. For those who continue to satisfy the income test for all income-related benefits, including housing benefit, their eligible rent will continue to be covered by housing benefit, as it is now. There will be no change for them. Secondly, work will continue to pay for those on housing benefit. Renters in low-paid work will still be better off than they would be on out-of-work benefits.

6:15 pm
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Baroness Hollis of Heigham (Labour)

When the Minister talks about housing benefit, does she include local housing allowance? I think not.

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Baroness Stowell of Beeston (Conservative)

No, I do not. The Bill relates to the personal allowance element of housing benefit. The noble Baroness refers to another announcement in the Autumn Statement. This Bill concerns the personal allowance component of housing benefit.

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Baroness Stowell of Beeston (Conservative)

I think I am clear that the Bill refers just to the personal allowance for housing benefit. If I am wrong, I will of course correct that.

As I said, if we were to change the personal allowance for housing benefit, we would introduce inconsistency to the way in which this part of in-work benefit is calculated. There would no longer be consistency between the different kinds of personal allowances that apply to different benefits. In addition to increasing the complexity of the system, this would lead to additional costs.

Before I conclude, I will respond to a question from my noble friend Lord Kirkwood, who asked about costing methodology. I confirm that costs have been modelled and presented in a way that is consistent with the Autumn Statement. I will be happy to provide further details to the noble Lord before Report.

The Government are supporting working households. One of the key ways in which we are doing that is by taking tough decisions to reduce public spending, reduce the deficit and restore economic growth. The amendments tabled by the right reverend Prelate the Bishop of Leicester, including Amendment 13, would reduce the savings of the Bill by about 40%-or £800 million-in 2015-16 alone. Not including in-work benefits in the Bill would be simply unaffordable. Therefore, I ask the right reverend Prelate to withdraw his amendment.

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The Bishop of Ripon and Leeds (Bishop)

Perhaps I might ask the Minister about work allowances, which were referred to by the right reverend Prelate the Bishop of Leicester. The Minister's response left me unsure whether, as time goes on, they will be increased in line with inflation. They are a major element of support for those who are in work.

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Baroness Stowell of Beeston (Conservative)

I am sorry, I should have been clearer. Work allowances will be increased by 1% in 2014-15 and in 2015-16. That was announced in the Autumn Statement.

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The Bishop of Leicester (Bishop)

My Lords, I am grateful to the Minister and to noble Lords who contributed to this debate. The noble Lord, Lord Kirkwood, underlined my concern about lone parents and reminded us that the effect of the Bill compounds the effect of so much other legislation that is going through at the moment. In particular he made the point that universal credit is the central architecture of welfare for the future and reminded us that, in his view, the savings are not worth the candle, and the effect of including universal credit in the uprating provisions will be to prejudice so much that is good about it. The noble Baroness, Lady Howe, passionately expressed her concern about more children being tipped into poverty, and about the very wide margin by which it is now clear we will miss the 2020 children in poverty targets. The noble Lord, Lord McKenzie of Luton, indicated that his party shared concerns about universal credit and work allowances.

I am grateful to the Minister for her response. She reminded the House that my proposals for excluding universal credit simply cannot be afforded. I hope she will hear that it is very clear that many people in this House doubt whether the argument that we cannot as a nation afford to provide enough to keep the poorest out of destitution sits at all comfortably with the House. I continue to have many concerns about restricting the uprating of benefits to 1%, especially for families, children and the many in work who receive benefits. As others have said, I hope that the Government will continue to reflect carefully on the direction of the Bill, and I look forward to their response on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 4 withdrawn.

Amendment 5 not moved.

Amendment 6

Moved by Lord Kirkwood of Kirkhope

6: Clause 1, page 2, line 2, at end insert-

"( ) Subsection (1) does not apply in relation to a tax year if, on the review in that tax year under section 150(1) of the Social Security Administration Act 1992, the Secretary of State determines that the general level of prices, measured by the Consumer Price Index, for Great Britain has increased by 3% or more over the period under review."

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Lord Kirkwood of Kirkhope (Liberal Democrat)

My Lords, it is a pleasure to move Amendment 6, standing in my name and that of my good friend, the noble Baroness, Lady Lister of Burtersett. This is a probing amendment. It is something about which I feel very strongly. It is a modest proposal that does not seek to disrupt the certainty of which my noble friend made so much earlier in the course of these important debates. The amendment simply disapplies the 1% uprating in Clauses 1 and 2 in the event of inflation reaching 3% in 2014-15. In those circumstances, we would revert to the default position of the annual uprating mechanisms that we all know and love. We would achieve the savings without exposing clients on benefits in future to the risks of inflation above and beyond the government estimates on which the savings will be made.

It is important to remember that the Bill deals with two years of annual uprating. However, we must factor in to the totality of the situation we face the already accepted £505 million that the Autumn Statement estimated that the 1% uprating would yield in this current year. I am sure that we are all looking forward to the uprating statement later in the week. In addition, the saving from the 1% uprating of local housing allowance is being dealt with through separate legislation. Both these reductions have already been made for the current year, 2013-14. We must not forget the reductions this year, in addition to those of the two years for which the Bill provides.

What will the Government do if the OBR estimates are too low? We know that the Budget Statement is a few weeks away. No doubt the Office for Budget Responsibility will discharge its duty to make available to the Chancellor, and subsequently to the rest of us, its best evidence and estimates about the inflationary risks that we face. However, we all understand that the Bill is based on the CPI and inflation forecast of the OBR, which at the moment stands at 2.6% in September this year, to be followed by 2.2% in September 2014. Those are the estimates on which the savings of £1.2 billion in 2014-15 and £1.9 billion in 2015-16 are posited.

My colleagues have been as concerned as I have been over the past few days. I am no economist but I am now more nervous about inflationary pressures increasing. The Governor of the Bank of England designate, Mr Mark Carney, has already signalled that he might take a different view and so the strategy may change. If he goes for growth-I hope he will consider that seriously because it is an element of economic policy that we need to explore in the immediate future-it will almost certainly have inflationary consequences. The fall in the value of the pound and exchange rate concerns will all increase prices. I am a well-known pessimist-I am rarely disappointed-and I think that things will get worse before they get better. Food and fuel prices, and rents in certain parts of the United Kingdom, particularly in London, will certainly increase. To be confident that the figures of 2.6% in September 2013 and 2.2% in September 2014 are going to stick is not a safe basis on which to establish this policy.

As I said at Second Reading, the way the Bill is contrived at the moment is a one-way bet for the Chancellor because he locks in his savings but banks everything else if inflation goes beyond 2.2% and 2.6%. I do not think that is fair. It produces government certainty but, sure as anything, it will produce uncertainty for the benefit claimants in 2014-15 and 2015-16 if inflation breaches the OBR's estimates. The Government need a plan B to deal with the increasing risk that the price that will be paid by benefit cuts in future will be higher than the Government really need.

The value of the lost purchasing power of these benefits is very sensitive to inflationary increases and I asked the Library to look at what some of these measures would mean. It is difficult to make sense of tables in a speech because it is hard to speak in tables but if the OBR estimates for 2014 and 2015 increase by 1%, the savings will not be £1.1 billion and £1.9 billion but £1.8 billion and £3.3 billion. A 1% increase on the OBR estimates would change the cut in the value of the benefits from 4% to 6%. The next line in the table tells me that if the OBR estimates are underestimated by 2%-not 1%-in 2014 and 2015, the savings to the Chancellor will be £2.5 billion and £4.7 billion. That is a cut in the real value of benefits of 8%. I could go on-and, rather obviously, it would get worse-but we can all pay our money and take our choice about what the inflation rate will be. I have got a table, which is freely available, which shows its effect on the cuts in benefits.

There is no certainty of any kind about where inflation will come to rest in September 2014 and September 2015 and there is nothing in the Bill, as it stands, that gives any protection whatever to benefit claimants. For me, that risk is far too great. The purpose of the amendment is to try to get on the record-I will look at it very closely-the Government's suggestions about what will happen if the OBR estimates are under-estimates. I look forward to hearing from the Minister about that.

I was encouraged to receive support from a rather surprising direction. In Committee in the Commons, a Mr John Redwood-of whom noble Lords may have heard-argued that,

"every action should be taken to get inflation down. If inflation suddenly took off, this would become a much tougher and crueller policy than Ministers have in mind".-[Hansard, Commons, 21/1/13; col. 66.]

I agree with Mr John Redwood.

6:30 pm
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Baroness Lister of Burtersett (Labour)

My Lords, I am pleased to be able to support the noble Lord, Lord Kirkwood of Kirkhope, who, given his stance on these issues, has to be considered a noble friend. I am grateful to him for tabling the amendment, which I regard very much as a bottom line amendment; as he put it, a modest amendment. Support for it does not in any way imply acceptance of an uprating of up to 2% less than inflation, which would still happen even if the amendment was passed. Citizens Advice has calculated various scenarios assuming 2.2% inflation and taking account of any gains from the rise in the tax threshold, regularly waved as a fig leaf by Ministers. These show that for some families, in or out of work, the net loss could be as high as around £13 a week by April 2015. This is an enormous sum to lose for someone on a low income. The amendment would not prevent these losses if inflation is less than 3%. It is a damage limitation exercise designed to ensure that benefit and tax credit recipients are not required to bear an even greater burden should prices rise by 3% or more.

I, too, was going to quote the right honourable John Redwood MP-perhaps an even stranger bedfellow. As he said, it is a tough and cruel policy-and it is. He said that if inflation did go up by more than expected it would be extremely difficult. It will be extremely difficult for those affected. Inevitably, I shall be making some of the arguments that the noble Lord, Lord Kirkwood, made in his powerful opening speech. I hope that this will be to reinforce rather than simply to repeat.

The Bank of England has predicted that inflation could peak at 3.2% in the second half of this year. Given that the 2014-15 uprating will be based on the previous September's CPI rate-that is, the rate in the second half of this year-this could mean an increase in benefits and tax credits 2.2% below the actual inflation rate rather than the 1.2% below inflation upon which the impact assessment is based. As the noble Lord, Lord Kirkwood, said, given that the incoming Governor of the Bank of England is making noises about possibly easing inflation targets and the loss of the AAA rating's impact on import prices, it is quite possible that the 2% inflation rate predicted as the basis of the 2015-16 uprating could also be an underestimate. Indeed, many economic commentators are talking about inflation remaining in excess of 2% for at least the next two years.

A more relaxed inflation policy may well make sense in terms of stimulating the economy, but we should not leave the poorest members of the community to bear the burden-hence this amendment. My colleague, Donald Hirsch of the Centre for Research in Social Policy at Loughborough University, has calculated the likely impact of the Bill on a two-earner couple with two children on combined low earnings of £20,000 a year and in receipt of child tax credit and child benefit. Over the next three years, if inflation is on target at around 2%, they will lose just under £300 a year in real terms. To repeat the point, that is a cut. If it runs at 3% a year over the period, they will lose as much as £500 a year.

When we talk about inflation rates with reference to benefit upratings, we must remember two things. First, the switch from the RPI to the CPI is already expected to significantly depress benefit rates over the long term. The House of Commons Library cites the OBR's long-term assumption that the annual increase in the RPI will be 1.4% more than the CPI. The Library calculates that such a difference will result in benefits being worth, after 10 years, 86% of the amount they would have been had they continued to be uprated by the RPI. That is quite a big difference. Secondly, even the RPI does not provide an accurate measure of the impact of price rises on low-income recipients of social security benefits and tax credits at a time when the prices of the essentials upon which they spend a disproportionate share of their budget are rising faster than prices generally. Recent work by the IFS shows that the general trend in recent years has been for higher than average CPI inflation rates for those on low incomes. Again, Donald Hirsch has calculated the increase in the cost of a minimum basket of necessary goods and services between 2001 and 2011. This shows that someone whose benefits were uprated only by the CPI during that period would have a shortfall of around 11% as opposed to if they had been uprated by the cost of the minimum basket. He warns that,

"there is every reason to believe that similar trends, in which the cost of a minimum budget rises faster than general inflation, will continue in the future".

Analysis of the global influence on prices suggests that a long-term increase in commodity prices will have a knock-on effect on essentials such as food, fuel and clothing, and could mean that someone on basic benefits in 2020 would be at least 20% worse off relative to the minimum requirements in 2000-and that is before taking account of the long-term effect of three years of legislated cuts in the real value of these benefits.

It is not surprising that the Office for National Statistics reported in December that spending is falling fastest among the poorest, with an average reduction of 9% on the previous year among the bottom 10%. A number of noble Lords argued at Second Reading and earlier today that it does not make economic sense from the perspective of stimulating growth to depress demand in this way among a group with a greater propensity to spend than to save.

In the Second Reading debate, the Minister responded to the concerns raised by a number of noble Lords about what will happen if inflation soars. I guess he was trying to be reassuring when he said:

"We will continue to monitor the rate of inflation closely ... and the impact that it has on the cost of living for families. This will continue to be a key consideration for this Government's policies in the future".-[Hansard, 11/2/13; col. 553.]

If I were, say, the parent of a young disabled child and had little prospect of getting a job by 2016, I would not take much comfort from that assurance. I would want to know what the Government will do if their monitoring shows that inflation is on the rise and is having a highly damaging impact on the cost of living for low income families. The noble Lord, Lord Kirkwood, asked a very direct question: what will the Government do? I do not know whether the noble Lord who is to reply can give a more precise answer than simply that the Government will monitor the situation. In other words, I would want an element of certainty, which this amendment seeks to provide.

The need to provide certainty was a theme of the remarks from the Government Front Bench at Second Reading and has already been emphasised during this debate more times than any of us care to say. The point has already been made, but as the noble Baroness said, she will continue to repeat the point about certainty and we will continue to repeat our point about certainty. The Minister was concerned only about certainty for taxpayers and the markets and said nothing about certainty for those affected by the Bill. But they too are taxpayers, even if not all of them are direct tax payers.

The Minister said:

"We believe it is only right that we set out our plans in advance and give as much certainty as possible".-[Hansard, 11/2/13; col. 553.]

However, as other noble Lords have said, in the face of the very real possibility that prices could rise by more than the anticipated 2% or so during the uprating periods covered by this Bill, the application of an arbitrary 1% cap, regardless of the actual rate of CPI inflation, provides total uncertainty for people living in poverty who will be affected by this legislation. That is a point that we have to repeat over and over again. At the very minimum, I believe that we have a responsibility to support the noble Lord, Lord Kirkwood, in order to inject a modicum of genuine certainty for those affected and a modicum of justice.

6:45 pm
Photo of Lord McKenzie of Luton

Lord McKenzie of Luton (Labour)

My Lords, we should be grateful to the noble Lord, Lord Kirkwood, and my noble friend Lady Lister for this amendment and the manner in which they have spoken to it. I start by reiterating that obviously our overall objective is to get rid of the 1% uprating cap throughout the Bill. Obviously, if we were successful, the protection that both speakers are seeking here would be unnecessary, but if we are not able to do that, we have to consider a range of mitigations to these cuts. The aspect identified by the noble Lord, Lord Kirkwood-the bearing of inflation risks much in excess of OBR forecasts-is certainly one that should concern us all. As it is, on the basis of the OBR forecast, by 2015-16 the 1% uprating will imply a real cut of some 4%. Depending on what happens to inflation, that real cut could be much higher. We have heard a range of figures from both speakers that could flow from that.

We need to recognise that these real cuts lower the base for whatever the uprating may be for the future. Studies point to the rate of inflation for what might be termed as essential items being higher than the overall rate, with essentials for this purpose including such items as food, heating, transport, fares and water charges. These are costs which are largely inescapable for low income households. The briefing we have had from USDAW records electricity prices rising by 3.9% and gas by 5.2% up to December 2012, with the poorest 10% of households spending 17% of their income on food, which rose by 3.8% in the period to December. As it stands, this Bill places the whole of the inflation risk on benefit and tax credit recipients, irrespective of the size of the risk. However, if inflation is less than 1% the Government can take the benefit of that and, if they so choose, uprate by less than 1%.

It was the noble Lord, Lord Kirkwood, and his noble friend Lord German who demanded of the Government at Second Reading that there should be no further cuts beyond those set out in the Bill. Of course they got a dusty answer from the Minister, but the problem is that we do not know the level of the real cuts which flow from this Bill because we do not know the rate of inflation. The point made by my noble friend Lady Lister is that inserting an upper rate of 3% should not be taken to imply that real cuts up to this level are acceptable, but that automatic cuts above that level are certainly not.

I hope that the noble Lord will not press his amendment at this stage-I think he said it was probing in nature-because we believe that the right course of action is to eliminate the 1% cap in its entirety. But if we are unable to do that on Report, the type of backstop being sought by this amendment is something which deserves our support-subject to only one exception, which is that the Minister can give assurances about how poor people are to be protected from inflation, a phenomenon over which they themselves have absolutely no control.

Photo of Lord Newby

Lord Newby (Liberal Democrat)

My Lords, the effect of Amendment 6 would be that if inflation as measured by the September CPI was to rise to 3% or above in 2014-15 or 2015-16, Clause 1 would not apply. Amendment 10 would do the same for Clause 2.

As I set out earlier today, a key purpose of the Bill is to deliver clear and credible plans for our public finances. It is only through having these plans that we can maintain confidence and keep interest rates at near-record low levels. We have clearly stated our intentions on uprating policy for the next three years, but the plans for 2014-15 and 2015-16 are made possible only by this Bill. Adding conditions to the Bill would remove that certainty and weaken the credibility of our plan to reduce public spending and tackle the deficit.

The Autumn Statement operating decisions were taken on the basis of the Office for Budget Responsibility's CPI forecast. As the noble Lord, Lord Kirkwood, explained, the OBR does not forecast inflation to reach 3%. The CPI forecasts for the purpose of uprating in 2014-15 and 2015-16 are 2.6% and 2.2%. The Bank of England's Monetary Policy Committee is committed to maintaining price stability, which is defined by the Government as an inflation target of 2% as measured by the 12-month increase in the consumer prices index. Inflation is forecast by the MPC and the OBR to be above the 2% target in the near term but is forecast to fall back towards the target in the medium term. The inflation target is not set by the Governor of the Bank of England. The inflation target is set under the terms of the Bank of England Act 1997 on an annual basis by the Chancellor, and that will continue to be the case whoever the Governor of the Bank of England is.

As I said at Second Reading, and as the noble Baroness, Lady Lister, helpfully reminded me, these are forecasts and targets. External factors and unforeseen events can produce a different outcome-on the upside or the downside. Nobody can say with absolute certainty what inflation is going to be two years from now.

Photo of Baroness Lister of Burtersett

Baroness Lister of Burtersett (Labour)

Both the noble Lord, Lord Kirkwood, and I referred to economists and people who are suggesting that the inflation rate might be higher. Can the Minister quote the people who are saying it might be lower?

Photo of Lord Newby

Lord Newby (Liberal Democrat)

My Lords, economists say all kinds of things. For every economist who says one thing, I guarantee that I can find you an economist who says the other thing. There will be a new inflation forecast from the OBR at the time of the Budget. It would be completely inappropriate for me to speculate on what that might say and I am certainly not going to do so today.

As I said at Second Reading-and I repeat-we will continue to monitor closely the rate of inflation and its impact on the cost of living for families and the wider economy, as we always do. Again, as I said at Second Reading, the Government have taken action in response to the changes in the cost of living, including cancelling the January fuel price rise, providing further funding for local authorities to freeze council tax and, of course, for virtually everybody in work, implementing the largest ever increase in the personal allowance in April 2013.

The Government believe that what really matters to families is the impact of our policies as a whole and this will continue to be a key consideration for our policies in the future. However, that does not mean that we believe that we should add conditions to the Bill, and I am certainly not going to agree to that this evening. People have seen very significant restraint in their pay across the private and public sectors without the comfort of a safeguard against increases in inflation. Noble Lords have said a lot about certainty today. The truth is that no one has certainty, whether they are in or out of work, about their future real income. As noble Lords know, many people in the public and private sectors have not been getting pay increases linked to inflation and have been falling behind in real terms. This is exemplified by the difficult decision we took to freeze public sector pay at a time when inflation was rising to 5.2%. It is also borne out by the fact that, according to the latest figures, over the past year average earnings have risen by only 1.3%-not very different from the increase that is being proposed in the Bill. This means that on the best available forecasts-those produced by the OBR in November last year-even with the effects of this Bill, by the end of the financial year 2015-16, out-of-work benefits will still have risen faster since the start of the financial crisis than if they had been linked to average earnings, which many noble Lords are concerned about.

It is vital that we set out clear and credible plans to reduce welfare spending, tackle the deficit and secure the economic recovery. Adding conditions to the vital savings delivered by this Bill would remove that certainty.

Photo of Lord Kirkwood of Kirkhope

Lord Kirkwood of Kirkhope (Liberal Democrat)

My Lords, I am very grateful to my noble friend. These are very difficult issues. I do not think that his response takes us any further forward from the Government's position at Second Reading. I hope that he will do me the favour of reflecting carefully on what he has heard today. I am grateful to my noble friend Lady Lister for her wise counsel and support, as always.

I am seriously interested in this issue. I think it is a modest proposal. I will go away and think carefully about what my noble friend has said today but we may have to return to this at later stages of the Bill. On that basis, I beg leave to withdraw the amendment.

Amendment 6 withdrawn.

Clause 1 agreed.

Amendment 7

Moved by Baroness Hollis of Heigham

7: After Clause 1, insert the following new Clause-

"Review of housing welfare benefits

(1) The Secretary of State must undertake a review of the current relationship between the amounts of housing welfare benefits in each local authority area and market rents in the same area during the relevant period.

(2) The relevant period in subsection (1) shall be each period of twelve months starting on 1 April 2013 and ending on 31 March 2016.

(3) A review under subsection (1) shall include an analysis of the effect of the levels of housing welfare benefits on the amount of private sector housing which is currently affordable by those in receipt of or entitled to such benefits.

(4) The Secretary of State shall cause to be published at twelve monthly intervals starting on 31 March 2014 a report of the evidence and conclusions of each review undertaken under subsection (1).

(5) The Secretary of State shall publish a response to each report under subsection (4) within three months of its due date, and shall take steps to amend the method used to uprate housing welfare benefits if there is shown to be a significant divergence between rent levels in the private rented sector and housing welfare benefits.

(6) In this section "housing welfare benefits" means housing benefit in the form of the local housing allowance or (as the case may be) the housing component of universal credit and "significant divergence" within the meaning of subsection (5) is to be defined in regulations."

Photo of Baroness Hollis of Heigham

Baroness Hollis of Heigham (Labour)

My Lords, as others have said, this is a modest amendment, so modest that I hope it is not only going to be acceptable to the Government but it might even be welcomed by them-you never know-as it only specifies how the firm undertaking given on 14 December 2011 by the noble Lord, Lord Freud, on Report of the Welfare Reform Bill will be followed through.

The noble Lord, Lord Freud, agreed:

"If it then becomes apparent that local allowance rates"-

that is, private sector HB-

"and rents are out of step, they can be reconsidered".-[Hansard, 14/12/11; col. 1324.]

After I pressed him, he agreed to,

"change the word from 'can' to 'will'".-[Hansard, 14/12/11; col. 1325.]

So the substance of this amendment has already been agreed. This amendment is merely about process. The commitment made by the noble Lord, Lord Freud, needs to be embedded in primary legislation with follow-up regs so that we can have an agreed timetable and we can all enjoy what the Minister referred to as the certainty that would follow-certainty for the markets, should they be so interested, for the public, for the recipients and, above all, of course, for Parliament.

The noble Lord, Lord Newby, and the noble Baroness, Lady Stowell, did not have the considerable and extended pleasure of being active in the Welfare Reform Bill-how wise of them-so it might be helpful to them and the House if I retrace our steps a little. Why, first in Committee and then on Report, did we press for this review, which the noble Lord, Lord Freud, agreed to? The noble Lord, Lord Best, had already persuaded the noble Lord, Lord Freud, of the need for a high-powered independent review of the full housing implications of the Welfare Reform Bill for families. I pay tribute to the noble Lord, Lord Best, for persuading the Minister, and to the noble Lord, Lord Freud, for the open-minded, evidence-based way he responded, which was to agree to the review.

None the less, a partial and particular problem seemed to many of us to persist: the connection of the private rented sector-PRS-rents and local housing allowance; that is, LHA. Why? It is clear that we have three housing tenures-owner-occupation, PRS and social housing-but we have only one housing market and that housing market works effectively and efficiently only if there is a rough match between supply and demand, which there is not. We can all see that the housing market is currently in crisis.

Burdened with student debt and unable to build a deposit for owner-occupation while and because they are paying very high rents in the private rented sector, people in their 20s are now living in that sector not for five years but for 15. It is no longer tenure of transit but a permanent tenure of long stay. Rather like in the 19th century, when people consumed more potatoes whenever their price went up, as more people unable to afford to buy remain in the private rented sector, the more they push up demand and push up rents-which absorb more of their income and make it impossible for them to afford a deposit, move out and buy. So the higher the rent, the longer you stay in the private rented sector.

The result is that we are building fewer than 100,000 houses this year-the lowest number for 30 years-at a huge cost both to those needing homes and to those needing construction-related jobs. We need 250,000 houses-two and a half times the number being built. New households are forming three times faster than new homes are being provided, so the existing stock, especially in the PRS, soars in price. Those seeking to move out and up into an occupation cannot do so; those seeking to move out and sideways into social housing cannot do so either as local authorities and housing associations have seen their building programmes devastated-as in my housing association, in which I declare an interest as its chair.

An increased number of prospective tenants entering the PRS push up their rents as a result. This has a double whammy on the LHA bill-higher rents, pushed up by the greater number of those who cannot buy, while those same higher rents and reduced access to social housing increase the housing benefit bill for the neediest. Just at the point when government, understandably, wants to bear down on HB costs, it finds its efforts destroyed by the shortage of housing supply in the market. I sympathise, but the Government's folly lies in their response. Housing, like potatoes, is not a discretionary item-its consumption cannot be reduced except by illegal overcrowding in illegal slums-yet it is being treated by government as though it were rather like going to the cinema. People cannot choose not to have any housing unless they sleep rough or in cars or on cathedral doorsteps. They must live somewhere and must pay for it. The Government, instead of seeking to increase the supply of housing substantially-which is the only answer apart, possibly, from rent control-have chosen to drive down the HB bill by fixing it to below average rents.

Until now, HB has always been tied to real, actual rents, precisely because rents vary from place to place and by type of property. Local housing allowance was in each area placed at 50% of the median local rent and adjusted monthly-that is how sensitive it was to local rent levels-so that half the houses or properties in the private rented sector should be available and affordable to a tenant on HB. The Government have now brought that 50% figure down to 30%-that is, less than a third of properties will now be affordable-believing without any evidence, and we have pressed the Minister on that on many occasions, that this would press down HB and rents would fall. They have done so because they seem to think that it is a tenants' market. They have no evidence for that, understandably, because the evidence does not exist, and because it has not been a tenants' market-it is not and it will not be. If housing-benefit tenants dominated the private rented sector then we would have seen rents begin to fall during the past year. But they have not, and they do not, because tenants on HB are only 20% of the PRS, so they do not have the leverage that government attributes to them. Tenants are now being punished for the fallacies, failures and folly of government policy. Do you remember those notices in landlords' windows: "No Irish, no blacks, no dogs, no DSS"? I do. Well, that is reappearing. According to the National Landlords Association, nine in 10 private landlords say that they are reluctant to accept HB tenants because they do not have to. With five to eight tenants after every flat, it is a landlords' market, not a tenants' market, which is why cutting HB will not do anything to help drive down the bill.

By tying HB to 30% instead of the 50% median, all government is doing is subsidising the landlords of the least salubrious, most squalid property. However, HB tenants will now, Lord of the Flies style, compete savagely to occupy that property. Complain and you are out.

That is bad enough, but we have a second whammy occurring. Not only is the proportion of PRS property available to HB tenants being nearly halved, but HB will no longer rise even sufficiently to meet their needs. HB will in future be tied to inflation-this year, CPI-and not as in the past to what is happening to rents. For the first time ever, in other words, HB is being detached from what is happening to real rents in the market, whether at 50% or 30%. In the past decade, however, PRS rents have risen in real terms by more than 11%. As rents in London are rising by 7% a year and by 3.4% elsewhere, and as CPI is currently running at 2.7%, then HB, which is supposed to cover 30% of available properties, will instead cover only 20% in about five years and perhaps 10% or less in 10 years. Shelter estimates that in a third of the country the private rented sector will be inaccessible to all would-be tenants on HB. A third of the country will become a no-go area for tenants on housing benefit.

It gets worse. Local housing allowance will be uprated by CPI this year-as the Minister said, the Bill does not cover it this year-but thereafter, for the next two years, it will be uprated under the Bill by only 1%. London rents are rising by 7%. The Government's own impact analysis expects rents to rise overall by 4% while the benefits to fund it are rising by only 1%, and these are benefits fixed to only 30% of rent levels.

The result of this double whammy is an increase in the number of people needing housing benefit as rents soar and an increase in the number of people finding that even the housing benefit that they receive will not cover the ever smaller proportion of properties that they can access to rent. Rents will be too high, housing benefit too low and landlords too reluctant. What is the result? Either tenants will seek to make up the difference out of their benefit income, thus increasing severe child poverty, or they will not. If they do not, they may face eviction and end up homeless. If they have children, they may ultimately end up in bed and breakfast before-with the lack of available social housing-probably being recycled into the private rented sector for the same sorry cycle to be repeated another year down the line. As all the housing dominos fall over, misery cascades down the tenures, and the Government are choosing for this to happen because it is a policy choice-not a necessity but a policy choice.

Homelessness is already on the rise, having increased by 22% in the past two years, and so is rough sleeping, which is up 31% in the past two years. All this is happening before the indecent bedroom tax takes effect for some of the sorry occupants of the private rented sector. The Government may tell us that a third of the expected savings from all this will be recycled to help those areas with the highest rents, and that is welcome. However, as with the discretionary housing allowance, they will end up trying to cover gaps and holes in provision which I estimate will be five or 10 times larger than can be covered. Hence I offer this modest amendment.

The noble Lord, Lord Freud, accepted that that there could be a problem, though he argued that he expected the policy to work. However, he was open-minded enough to agree that there should and would be a review of what was happening to market rents and the adequacy or otherwise of local housing allowance to ensure safe and secure housing for those in need.

If rents and housing benefit diverge significantly, the Government must change the method of operating. That was the policy intent, and that was what the noble Lord, Lord Freud, accepted. I ask the Minister not whether the Government agree with the policy-they have already agreed the policy intent of this amendment-but how their delivery of the commitment of the noble Lord, Lord Freud, is to be secured. I beg to move.

7:00 pm
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Lord Best (Crossbench)

My Lords, I shall speak to Amendment 12A, which entirely supports Amendment 7, so eloquently moved by the noble Baroness. In fact, I think that I prefer her speech to mine. However, my amendment has a slightly different take on the same set of issues, as it has been prepared by the Residential Landlords Association, which represents its member landlords. I have no interest to declare as a member of any landlords' association, but I draw attention to other housing interests in the register.

It is important to note that the amendment's call for a review of the impact of capping rent increases in local housing allowances at 1% next year, rather than at the consumer prices index level, comes from the landlord side as well as from those excellent bodies Shelter, Crisis and the others representing tenants. If the case made from the perspective of tenants does not win the argument, perhaps the points made by the landlord representatives will prove convincing.

Why is there a need for a special review of how rent increases in the private rented sector in comparison with increases in help with rent from local housing allowance are likely to work out in the years ahead? I suggest that there are two distinct reasons why the capping of local housing allowance at 1% per annum irrespective of levels of real rent increases in the marketplace is critical. First, the local housing allowance can represent half or even more of the total benefits received by those out of work and can represent most of the support which many of those in low-paid jobs receive from the state. That means that there are huge repercussions for tenants where a gap opens up between the actual rent that must be paid and the local housing allowance received to cover it. Cutting housing support means the tenant finding the money to meet the shortfall on the rent out of income intended for food, heating and other essentials.

High housing costs greatly increase the level of child poverty-the issue of concern to my noble friend Lady Howe. Department for Work and Pensions statistics analysed by the Joseph Rowntree Foundation this month show the child poverty rate in England at 19% before housing costs are factored in, but at 28% afterwards. Where housing costs are lower, that huge impact does not show up. In Scotland, for example, the child poverty rate is the same as for England excluding housing costs, at 19%. It rises to 21% when housing costs are taken into account, far short of the 28% figure for England because of England's high housing costs. Help with housing therefore makes a very real difference to the number of households in relative poverty.

Not providing enough money to pay the rent for those who rely on income from benefits simply means a cut to the other benefits that they receive. For tenants in the private rented sector, the reduction in living standards in real terms resulting from the Bill could well be doubled: first, from the gap in direct help with income between 1% and whatever inflation turns out to be and, secondly, from the gap in housing help between 1% and whatever rent increases over the next three years turn out to be.

Secondly, there are consequences where support for housing costs is cut not only for those receiving benefits but for the housing market-the availability of accommodation. Obviously, it affects the attitude of landlords towards providing accommodation for those on modest incomes if they are subject to tough rent controls. In most parts of the UK, there are plenty of other people desperately keen to find a rented home-students, mobile single people who share, and, as we know from excellent new research by the Building and Social Housing Foundation, increasing numbers of working families with young children who would have bought a home in times past but now cannot afford the deposit and mortgage costs. The acute housing shortages in so many parts of England mean that landlords are most unlikely to reduce rents to assist those in receipt of local housing allowance. Rather, as the Residential Landlords Association survey cited by the noble Baroness, Lady Hollis, shows, landlords will avoid lettings where LHA rent controls could apply, and will go for lettings on the open market.

Gradually squeezing out that part of the rented sector puts more pressure on the social housing sector-housing associations and councils. Of course, that stock was diminished by right-to-buy sales of council housing. The building of social housing in the past 30 years has been at one-quarter of the level of the preceding 70 years. Now those landlords have massive waiting lists. There are consequences for the taxpayer if private landlords do not house lower-income households: the cost to local authorities of stacking families in temporary accommodation-hostels and bed and breakfast hotels. One London borough now has 2,320 families in temporary accommodation. In 2010, the figure was 610. That is an increase of more than 350% in less than three years, and expenditure will escalate wildly if we have to return to using those temporary solutions, including bed and breakfast hotels, at costs far higher than for private rented sector renting. I do not need to add that the social consequences for families of homelessness and having no fixed abode are horrendous.

As from April 2012, a cap on rent increases at the consumer prices index level was introduced in place of using the retail prices index or, indeed, the increase applicable in the wider market. That change came in combination with other restrictions on rents eligible for the local housing allowance. The noble Lord, Lord Freud, explained that the Government's hope was that landlords would set rents that reflected those new constraints, but he made clear that the cap on rent increases at CPI levels would be for just two years initially and agreed, as the noble Baroness, Lady Hollis, explained, to review the position at that point to assess any impact on the rental market.

Sadly, although we are less than one year into the new regime, it is clear that the measures are not driving down rents. Rents have been rising in most areas by more than RPI inflation, despite the tough downward pressure on rents through LHA caps. It seems extremely unlikely that the Bill's extension of the controls-not just to extend the limitation of increases to CPI levels beyond two years but to enhance the squeeze by the 1% limit, probably well under half the likely CPI increases-for three years makes a requirement for a thoroughgoing review much more significant.

The amendment, echoing the sentiments expressed by the noble Baroness, Lady Hollis, would ensure that that review will take place and that the Government will be encouraged thereby to act on the results. If present trends towards homelessness and, consequently, higher costs are revealed, the Government will have the mechanism to lift the 1% cap.

I have one last point. Can the Minister explain the Government's intention in relation to the special case of London? We have been led to understand that one-third of the gains from the 1% cap on LHA payment increases are to be recycled to support the higher rent increases in the London area. We know that London rents have been increasing by twice the level of inflation-6.7% last year, for example-and excluding London from the 1% cap would ease pressures there. However, it would be more than helpful if the Minister could explain how this arrangement, which would of course make the housing position of the capital even further out of step with the rest of the country, be implemented in practice.

I am sure that we should take note when landlord groups and tenants' groups are unanimous, and I look forward to hearing from the Minister on whether her department, not just to save tenants but to prevent further diminution in supply of accommodation, with its costly consequences, will be able to respond positively to my amendment.

7:15 pm
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Lord Bates (Conservative)

My Lords, I wish to comment on the amendment, in which I find a lot to support, particularly the idea of a review. Before I do so, I owe the noble Lord, Lord McKenzie, an apology because in my earlier intervention I made a point about higher-rate tax and said that it had decreased, when of course it had increased. I apologise for impugning his tax-raising credentials. It was a low blow that was not intended. I take this opportunity to correct the record and hope that he might accept my apology.

This is an interesting amendment to consider because we are dealing with a significant crisis. There is no doubt that housing benefit itself needs to be focused on: how it has increased from roughly £11 billion, circa 1997, to a predicted £25 billion in 2015. Clearly, no one could sit in the Treasury, not have a view on that trend and not say that it needs to be looked at carefully.

My second point is that private rents have been increasing at an alarming rate when compared with the rest of the housing market. One needs to consider the increases, which, according to the National Housing Federation, have been something like 35% over the past three years. Over that same period, we have seen an 86% increase in the number of those claiming housing benefit, from 485,000 to 905,000. This is happening at a time when, outside certain sections of the London property market, house prices are actually falling. This is happening when interest rates are at historically low levels, and mortgage rates are at levels whereby 1.99%, two-year fixed rates are being offered. There are very low mortgage rates while house prices are falling, yet at the same time private rents are increasing by not only the rate of inflation but in many cases by twice the rate of inflation. It does not take a great economist-and I note that there are some in the Chamber-to work out that there might be some correlation between housing benefit and a potential inflationary effect on the private sector. I therefore understand that that is one of the issues that my noble friends would look at with some care.

I also note that one of the solutions to the problem is to ensure that there is a greater housing supply through housebuilding. This is an area on which I would pitch to my honourable friend in his pre-Budget purdah and ask him to reflect on how additional funds could be made available. I do not say that the Government have done nothing in that regard. They have put up £10 billion in guaranteed loans to try to stimulate the market, and they have introduced shared ownership schemes through FirstBuy and NewBuy to try and increase house purchase. That is an important element. We do not want, as a society and for the health of our society, to divert people into a life in private rented housing. We want to encourage people to have an ownership stake in society and to own their own home. For them to do that, there need to be enough homes coming on to the market.

There is a competition because, as people are coming on to the market and wanting to own their own home, investors who are experiencing low rates of return in other asset classes are finding, according to Rightmove, that there is a yield of 5.8% on private rented properties-the figure is 6.5% in London-which represents extraordinarily good value in the present market. Capital is therefore flowing into the buy-to-let market, rather than the build-to-buy market. There needs to be some step back from this approach and one needs to ask what is actually happening and how it all connects with changes in benefits.

We are, I assume, taking an approach whereby we believe that capping the local housing allowance and housing benefit will lead to a slowing down of the increases in rents. The noble Baroness is shaking her head, but that is the assumption. We have certainly seen how rents have increased when housing benefit and local housing allowance have increased. Perhaps we should test this out, but that is difficult because we are talking about affecting lots of very vulnerable people. However, there is a case to be looked at. Some annual or periodic review of how this is working and impacting on the housing market would be welcome, and I encourage that part of the amendment. I am delighted to note that my noble friend Lord Freud had been supportive of the idea, and I very much hope that my colleagues on the Front Bench will also be supportive.

Finally, perhaps I may take this opportunity to raise one further question about the way in which benefits are to be paid to the tenant rather than to the landlord. I know that various demonstration projects are undergoing trial in Edinburgh, Oxford, Shropshire, Southwark and Wakefield involving direct payment, and that they have some time to run, but I should be grateful if my noble friend in her response can provide some assessment of how they are going. There are some concerns that paying benefits directly to tenants, particularly when that may represent the largest component of their income, might put them in an invidious position, and some people might get into greater debt as a result. I know that such schemes are being trialled and I should be grateful for some comment from my noble friend on the Front Bench in her winding-up speech.

Photo of Lord McKenzie of Luton

Lord McKenzie of Luton (Labour)

My Lords, this has been a good but short debate, as any debate around amendments of my noble friend Lady Hollis and the noble Lord, Lord Best, on housing would be. You cannot do better than that in your Lordships' House. I am grateful to the noble Lord, Lord Bates, for his earlier comments. I thought that he had got it the wrong way round but was not quite sure whether I had misheard. I think that my problem is that I am not confident to challenge him; however, I am grateful for his clarification.

My noble friend and the noble Lord, Lord Best, are on the same page on this matter and we are happy to support the amendment, which calls for a review of housing welfare benefit, especially regarding the affordability of private sector housing. My noble friend and the noble Lord made a particularly powerful case in their analysis of the consequences of a growing divergence between levels of private sector rents and levels of support. We know and recognise why there is a growing divergence-the 30th percentile, the individual cap, CPI uprating, and now the proposed 1% cap. It will be made worse by direct payments when universal credit comes in. There are certainly causes of the pressure on rents, with growing numbers of households and insufficient new builds, but no evidence-indeed, quite the reverse-that the restrictions on housing support are driving rents in the opposite direction. It remains to be seen, as the noble Lord, Lord Bates, suggested, whether there will be any slowing down with the further ratcheting down of housing support.

Another consequence of the Bill is that there is a growing gap between rent levels and support. I think the noble Lord, Lord Best, made this point at Second Reading. That has to be met from income which is itself, as a result of this Bill, coming under increasing pressure because of the real-terms cuts. The amount of housing support in the private rented sector has been determined by family type and the rent distribution in the local area. In the future, the link will be with the historical levels of local rents; that seems a slightly illogical basis on which to build a sensible system. The demand of my noble friend and the noble Lord, Lord Best, for a review of the current and changing relationship between local market rents and levels for housing support is no more than a reasonable search for the data to monitor what is going on. We hope that, on the basis of the commitment that the noble Lord, Lord Freud, has already made, there will be no difficulty with this so far as the Minister is concerned.

I would like to pick up a point that the noble Lord, Lord Best, raised about the uprating for 2014-15 and 2015-16 at a maximum of 1%, which is being dealt with by orders under the Housing Act 1996. As I think has been stated, 30% of the saving under this measure, or £140 million, will be made available to help with particular pressures on affordability. The noble Lord, Lord Best, asked whether we can get some more information on that and I should be grateful if the Minister could give us some further detail. If £140 million represents 30% of the Government's saving from this measure, I compute that the total gross saving-the total further amount being ripped out of support for housing-is something to the tune of £500 million.

I conclude by emphasising the point that has been made about what happens when there is pressure on the private rented sector and social housing, and who bears the consequences of that. There was a report in the Guardian on 18 February about the use of bed and breakfast to house homeless families beyond the legal time limit, which has risen by 800% since this Government took office. It said that,

"a third of the country's councils",

have unlawfully housed homeless families in bed and breakfast,

"for more than six weeks since government took office",

with,

"local authorities across England ... spending on average up to £650 a week to keep people off the streets".

The report went on to say:

"These emergency measures are expensive for the taxpayer. Councils are spending in some cases more than a thousand pounds a week to house people in hotels. Tory-run Wellingborough spent £1,961 in one week for a family. Lib Dem-controlled Eastleigh"-

it was written this side of Thursday-

"spent £1,932 for a family with seven children for a seven-day stay. Labour's North East Derbyshire district council shelled out almost £700 for a week. Tory-run Dartford said it spent £616 for one week for a family of five".

If there are consequences for the taxpayer, there will certainly be consequences for those individuals and families who have to endure bed and breakfast accommodation until we begin to get this housing policy right. The review that is requested by these amendments will be a step along the way and I would hope that the Government will fully support it and commit to delivering on it.

7:30 pm
Photo of Baroness Stowell of Beeston

Baroness Stowell of Beeston (Conservative)

I thank noble Lords very much for this debate. I should say at the start that although Amendment 13 is caught in this group, as I covered quite a bit of it in the previous discussion I will not go over it again, except to say that since the noble Lord, Lord Best, referred to the personal allowance of housing benefit, it is worth me repeating this for clarity's sake. First, eligible rent will continue to be wholly covered by housing benefit for those who continue to satisfy the income test for all income-related benefits, including housing benefit. Secondly, renters in low-paid work will still be better off than they would be on out-of-work benefits. Work will continue to pay. Although that relates to the previous discussion, I wanted to say that again because the noble Lord, Lord Best, had raised it.

I turn to Amendment 7, tabled by the noble Baroness, Lady Hollis, and Amendment 12A, tabled by the noble Lord, Lord Best. As they have explained, their amendments seek to specify how the Government should monitor and review the uprating of local housing allowance. It is probably worth my saying from the outset that, as noble Lords know, I am new to this policy area and on housing I very much bow to the long-term experience and expertise of the noble Baroness and the noble Lord. I know that they have a huge amount of knowledge in this area.

Noble Lords should be aware that the uprating of local housing allowance is not covered by this Bill. Reference has been made to that; it is made under separate secondary legislation, providing independent rent officers with a remit to set rates under specified rules. None the less, I will try to respond fully to the issues that these amendments cover. Now might be a good point for me to reconfirm a point that I made in response to the noble Baroness, Lady Hollis, about personal allowance in LHA. What I said to her in response to the previous debate is correct: the local housing allowance simply sets the local maximum for eligible rents, and calculation of housing benefit to meet that eligible rent is not part of the Bill.

Photo of Baroness Hollis of Heigham

Baroness Hollis of Heigham (Labour)

Can the Minister help me on the point that she made slightly before saying that it was not covered by the Bill, et cetera? It is certainly the case, is it not, that housing benefit and local housing allowance in the forthcoming year will rise by CPI? It is not caught by the 1% figure that other benefits are but thereafter, for the following two years, it will be capped by 1%. Is the Minister saying that that will not happen, or that it will but that it will done through the route of looping it through advice or instructions to rent officers by regulations?

Photo of Baroness Stowell of Beeston

Baroness Stowell of Beeston (Conservative)

Absolutely; it is the second. I am not disputing the fact that it will be capped at 1% for 2014-15 and 2015-16, but that will not be done via this Bill. That is just a point of process.

As noble Lords will know, the total bill for housing benefit has doubled in cash terms over the past decade and if unreformed by 2014-15, it would cost us more than £25 billion. This is why we are taking a number of measures to reduce housing benefit expenditure, including limiting increases in the local housing allowance to 1% for two years from 2014-15, as we have just discussed. This change will make a crucial contribution to the essential deficit reduction strategy but it will do more than that. As the Government are a major player in the private rented market, it will also exert downward pressure on rents-a point made by my noble friend Lord Bates. Where rents are increasing rapidly, there should be no presumption that the taxpayer should pick up the bill.

Noble Lords referred to the need to monitor affordability of accommodation for benefit claimants during the period where the limits are in place. The noble Baroness, Lady Hollis, paid tribute to my noble friend Lord Freud and his response when this matter was discussed during the passage of the Welfare Reform Bill. I certainly agree with what she described; I also agree with his decision. That is why we have already put in place a strong monitoring and evaluation plan. I reassure noble Lords that this is in place in light of that discussion that took place during the passage of the Welfare Reform Bill. My noble friend has honoured his commitment made at that time.

The Government have introduced a number of changes to the way that local housing allowance rates are calculated, including a cap on rates.

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Baroness Hollis of Heigham (Labour)

I am sorry to interrupt the Minister again but, before she goes on, she is saying that she confirms that the noble Lord, Lord Freud, made the commitment and that that commitment is now in the process of being delivered by a current review. Is she referring to the original review that was established by the noble Lord, Lord Best, is she saying that the terms of reference of that original review have been extended or, thirdly, is she saying that there is a further review for this particular aspect in order to deliver the pledge made by the noble Lord, Lord Freud, that he would keep under review any possibility of significant divergence between market trends and housing benefit?

Photo of Baroness Stowell of Beeston

Baroness Stowell of Beeston (Conservative)

I hope that as I continue to respond to the debate I will answer the question that the noble Baroness has just asked.

We have commissioned a consortium, led by Ian Cole of Sheffield University, to carry out an independent review of these changes. The interim report is due to be published in spring this year and the final report in early 2014. In addition, to monitor the specific effects of LHA uprating we have put in place a process for publishing on an annual basis a comparison of local housing allowance rates and the 30th percentile of market rents.

The first annual publication of these data took place in November last year and was carried out independently by the rent officers who set LHA rates and collect the most authoritative data on market rents. The noble Baroness, Lady Hollis, asked for some evidence. The published data show that only one-quarter of LHA rates have been subject to the CPI limit and more than one in 10 rates have actually fallen in line with local rents, to answer the point that my noble friend Lord Bates raised. At this moment we are not seeing a general divergence between LHA rates and market rents.

The noble Lord, Lord Best, and the noble Baroness, Lady Hollis, referred to several different potential outcomes from the changes that we have made. A couple of things were proposed, suggested or estimated during the passage of the Welfare Reform Act, one of them being a suggestion that 42% of landlords would scale back on housing benefit tenants. The reality is that the housing benefit caseload has actually risen in London by 5% in, I think, the past year.

The noble Baroness, Lady Hollis, suggested that no properties would be available to benefit claimants. Private sector landlords are not turning away housing benefit claimants. Since April 2011, when we introduced our first reforms of the LHA, the PRS caseload, as I just said, increased, and that includes London and the south-east.

The noble Baroness also made reference to rent control and suggested that that might be the way forward. We absolutely dispute that; we say that it would not make more homes available at rents that people could afford. We experienced regulated rents in the private sector some decades ago and they shrank from 55% of households in 1939 to 8% by the late 1980s.

Photo of Baroness Hollis of Heigham

Baroness Hollis of Heigham (Labour)

I was not recommending rent control. I was merely saying that if you are not going to increase the supply and rents continue to rise-and all the evidence is that they are-then that is one possibility. It is not one that I support because I would much prefer the Government increasing the supply of stock.

Photo of Baroness Stowell of Beeston

Baroness Stowell of Beeston (Conservative)

I think that I have just provided the noble Baroness with some evidence to show that rents are not actually increasing in light of the changes that we have made. Rents are actually coming down. We are having some success in downward pressure on rents.

We have taken care to retain some flexibility to react if problems with affordability emerge along with the need to take action should significant divergences emerge between LHA rates and market rents. We have set aside £140 million over two years from 2014-15 to help people most affected by the new 1% limit. The noble Lord, Lord Best, referred specifically to effects in London, and I can confirm that the funding that has been set aside will be there to address areas precisely such as London and the south-east. Our intention is to increase the local housing allowance rates by more than 1% in areas where rent increases are causing a shortage of affordable accommodation. Rather than specifying the details in legislation now, however, we plan to develop our approach in spring this year before making final details available in the autumn so that we can reflect the views of key stakeholders and take account of the most up-to-date evidence before making decisions.

My noble friend Lord Bates made the point that it is important to ensure that we reflect at all times that when we are talking about housing we are talking about people who are often very vulnerable; the fact that they are in this kind of housing means that we should be very conscious of the effect of our decisions. I hope that I have been able to reassure him that the measures that we are taking very much address that kind of concern, but we are committed to making savings from this measure until 2015-16. Subsequently, a future Government have the opportunity to reconsider the policy design in view of the balance between local housing allowance rates and market rents.

The noble Baroness, Lady Hollis, and my noble friend Lord Bates spoke about increasing the supply of housing. I shall respond to a few points on that. First, the Government have committed £4.5 billion, along with £15 billion of private investment, to deliver 170,000 new affordable homes over this spending review period. Almost 58,000 affordable homes were delivered last year. That is one-third more than the average delivery in the 10 years between 2000-01 and 2009-10. Secondly, the Government will provide up to £10 billion in debt guarantees to support private investment in the private rented sector and in new affordable housing. Thirdly, in last year's Autumn Statement the Government announced a new local infrastructure fund of up to £474 million to support key projects. This includes accelerating delivery of large housing sites and enabling quicker disposal of surplus public land for new homes.

In the wider context of the changes that we are making to housing benefit, my noble friend referred to direct payments and how the trial is going in terms of its impact on claimants. I would say two things in response to that. First, these are very early days for the trial and it is too soon to give a properly informed response to that question. However, there are certainly no immediate signs of any serious problem. It is worth reminding the Committee that this change is part of the wider reforms of the welfare system where we are trying not only to help people to prepare and, for those who are out of work, return to work but to help people to take control of their own finances. While I understand the risks that people point to in making that change, we should not ignore the importance of ensuring that we give people the opportunity to have control of their own budgets. This is an important initiative.

I hope that I have addressed the points raised by the noble Baroness, Lady Hollis, on Amendment 7, and the noble Lord, Lord Best, on his Amendment 12A, and have demonstrated to all noble Lords that our existing plans show that we are ensuring that there is proper monitoring and review of the arrangements we have introduced, and that it is not necessary to include these in the Bill.

7:45 pm
Photo of Baroness Hollis of Heigham

Baroness Hollis of Heigham (Labour)

My Lords, I thank all noble Lords who have contributed to this small debate. The noble Lord, Lord Best, emphasised that housing benefit was a high-ticket item. He is right, so any percentage cuts to that benefit are highly significant in terms of the income as it affects tenant recipients. He also emphasised, and he was absolutely right to do so, the folly as well as the cruelty of sending thousands of families into higher cost temporary accommodation. I agreed with every word he said-I hope that that does not damn his speech.

I thank the noble Lord, Lord Bates, for a thoughtful contribution to the debate supporting the review. I am delighted that he agrees with the commitment of the noble Lord, Lord Freud, that such a review is desirable and necessary. Contrary to what the Minister was saying, he is right that private sector rents are alone among the housing triple tenures in rising fast. They are rising faster than inflation. That, as I tried to argue, means that it is impossible to leave that sector because by paying those higher rents you cannot afford to save for the deposit that takes you out of it. In turn, that raises rents still higher because nobody is leaving that sector but other people are trying to enter, which makes it even more impossible to leave it in the future. It becomes a vicious upward spiral in which people are trapped. The noble Lord, Lord Bates, is absolutely right that that is exactly what is happening. Poorer tenants are also faced with that higher increased pressure on rents with only housing benefit to help them cope with it, and that housing benefit is being cut three times over-first by being connected not to the 50th percentile of rents but to the 30th percentile, secondly by being capped by CPI for the forthcoming year instead of actual rent levels, and thirdly, in the subsequent two years, by a further cap of only 1%, which the Minister has confirmed to us. That means that more tenants will follow the desperately sad route that the noble Lord, Lord Best, emphasised.

As my noble friend Lord McKenzie said, quoting the Guardian article that I missed, that will mean more families with children being uprooted and spending longer periods in bed-and-breakfast accommodation. Many years ago, as a former chair of a housing committee, I saw how long it took those children, who were often traumatised by those events, to get over them. They had had to move home, move school and lose connection with their friends. At the age of seven or eight, they were reverting to bedwetting and the rest. That is what we are now going to be imposing on thousands more children because of the folly of this policy.

Finally, I come to the Minister's comments. She emphasised that she thinks the policy is working and that according to her figures rents are already being driven down as a result. I listened carefully and I would very much like to see the evidence she has because it runs contrary to what the noble Lords, Lord Bates and Lord Best, and the National Landlords Association are saying; it runs contrary to my brief from Shelter and my experience of the housing market. It may be that the Department for Work and Pensions has a unique insight and extra special information denied to the rest of us, but it does not conform to what I know. Certainly it is the case that so far the CPI cap has applied for only something like 10 months of the current year. None the less, for the years thereafter-not next year, but two years thereafter-it is going to come down to 1%, so there is going to be an accelerating effect, a depression, on rent levels as a result of the rent benefit and housing benefit caps arising from the Government's policy.

The Government are banking absolutely everything on the fact that by pressing and cutting down on HB, even though only 20% of those in the market have HB, you will reduce the overall level of rents and therefore tenants will not suffer. There is not a shred of evidence that I have seen or that has been offered tonight to support that contention. The Minister is gambling on the lives of children going into bed-and-breakfast accommodation in the ideological hope that 20% of those in the market can affect the rents that the other 80% will pay. They will not do it because landlords do not have to let, and they will not let, except those who have substandard accommodation that people who do not need housing benefit will avoid. That is a form of Russian roulette that none of us should be party to.

I hope that the Minister will write to me with her evidence because it does not conform to anything that I am aware of. In the light of that, I would like to reflect on what she has said and on what evidence she can send me. I will also reflect on whether what she is saying means that the Government are continuing adequately to keep under review the possible divergence that, from all the evidence we have, is already beginning to occur between rents and housing benefit. I beg leave to withdraw the amendment.

Amendment 7 withdrawn.

House resumed. Committee to begin again not before 8.55 pm.