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Social Security

– in the House of Commons at 3:30 pm on 30th November 1994.

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Photo of Peter Lilley Peter Lilley Secretary of State for Social Security 3:30 pm, 30th November 1994

With permission, Madam Speaker, I should like to make a statement on social security following my right hon. and learned Friend the Chancellor's Budget statement.

Last year at this time I announced that social security spending would reach £88 billion next year and £92 billion the year after. Now I can announce that spending plans for those years have been reduced to £86.5 billion next year and £90 billion the year after. This is the first time since records have been kept that social security spending plans have been scaled down.

That reflects the impact not just of lower unemployment and lower inflation, but of my social security reforms. None the less, social security on average now costs every working person nearly £15 every working day. Therefore, I am now announcing further measures to curb the growth of expenditure and to help people get off benefit.

As my right hon. and learned Friend the Chancellor announced yesterday, we shall implement in full the second stage of help with VAT, as we promised last year. From next April, pensions will incorporate up to £52 for single pensioners and £73 for pensioner couples specifically to help with VAT on fuel. We shall let people know about the extra help with VAT on fuel by means of a special notice in their order books. We shall also increase help with cold weather payments and insulation grants beyond that previously planned. From this month, payments for cold weather will rise from £6 to £7 a week. They were to go up to £7.50 next November, but I shall in fact raise them to £8.50.

We are also spending a further £45 million, £10 million more than I announced last year, to help insulate homes and improve fuel efficiency. That will provide grants for more than 60,000 extra households next year.

A key aim of my fundamental review of social security is to improve work incentives. To help people out of dependency, it is vital to do four things: to make work more rewarding than benefit; to help people with the transition from benefit back into work; to persuade employers to take on the long-term unemployed; and to help companies create more jobs for the less-skilled. I can announce a £600 million package, which addresses all four tasks.

The first of those is to make work more rewarding. Family credit helps nearly 600,000 families in work. In October I introduced a child care allowance which, over time, should help 150,000 parents with their child care costs. But the more people earn, the less family credit they receive. Consequently, the incentive to move from part-time to full-time work is limited. So I am introducing a £10 a week supplement to family credit for those working 30 hours or more a week. The least well-off receiving housing benefit and council tax benefit will get the full value of the increase. That will cost £200 million and should help about 345,000 families.

Family credit has proved its worth in helping families back into work. But most unemployed people do not have children, so they are not entitled to family credit. However, an in-work benefit might help them into jobs, too. I therefore propose to test-run such a benefit through pilot schemes covering 20,000 claimants. If the pilots are successful, we shall consider introducing a national scheme.

Many people who want to work are hesitant about accepting a job because of uncertainties about the size and timing of family credit payments, so I intend to speed up payment of family credit so that all new claims are dealt with in five days. Other people fear loss of help with their rent or council tax, so I shall let people who take a job after six months out of work keep their housing benefits at their existing rate for four weeks, regardless of their earnings. We shall consult the local authority associations to ensure that entitlements to housing benefit and council tax benefit are revised speedily so that payments follow on seamlessly after the fourth week.

The new back-to-work bonus, which I announced in October, will be of particular help for people who want to work full time. It will enable people working part time on job seeker's allowance or income support to accumulate a bonus of up to £1,000 payable on return to full-time work. That bonus will be tax free.

I am also giving employers an incentive to take on unemployed people. Any employer who takes on someone previously unemployed for two years will receive a one-year holiday from the employer's national insurance contribution. That change requires legislation, so it will come in from April 1996. Assuming that employers take on 120,000 people a year, they will benefit by £45 million.

The greater the costs companies incur when they employ people, the less they can afford to pay or the fewer people they will take on. I particularly want to help less-skilled people to get jobs, so I shall be reducing employers' national insurance contributions by a further 0.6 per cent. for lower-paid employees from next April. I shall raise all the earnings bands used to calculate employers' national insurance contributions by £5. To help companies concerned about high levels of sickness, I can announce that we shall reimburse statutory sick pay for costs exceeding 13 per cent. of a company's monthly national insurance bill.

Housing benefit and income support for mortgage interest together now amount to £11 billion. They have doubled since they were introduced in 1988. The UK is almost alone in paying 100 per cent. of rents to those on benefit. As a result, tenants have no incentive to choose the less expensive of two dwellings or to negotiate over their rent level, and landlords may be tempted to push up rents for those on benefit. Rent officers determine whether rents are within reasonable market levels and help is not usually available above that. But in many areas, the market level is largely determined by those on housing benefit. The average private rent in the deregulated sector is about £70 per week. But housing benefit meets rents of more than £350 per week. Taxpayers on modest incomes, meeting their own housing costs, resent subsidising rents higher than they can afford themselves. People on housing benefit should have similar incentives to those paying their own rents when deciding what they can afford.

I will introduce a new scheme next October. New claimants and those moving home will be entitled to housing benefit for the full rent up to the average rent for similar properties in the area. Housing benefit will cover only 50 per cent. of the portion of rent above that. Existing claimants in their current tenancy will continue to receive full housing benefit as at present. Local authorities will be given funds to be able to reimburse more than 50 per cent. of the rent above the average in cases where they think that there is special need.

Prospective tenants will want to know how much housing benefit will be payable before they agree a tenancy. So we shall consult the local authority associations and the Institute of Rent Officers about how to produce that information. At present people who are away can claim housing benefit for up to a year, even if their home is empty. In future we shall limit that period to 13 weeks, except for people with exceptional reasons, such as those in hospital.

Taxpayers pay the mortgage interest of people on income support. Over the past 15 years, that expenditure has risen from £31 million to more than £1 billion, and the scheme has major drawbacks. Until I imposed a cap, it covered any size of mortgage—from cottages to castles. Next April, I intend to reduce that cap to £100,000. The generosity of the scheme for those out of work can create huge disincentives to move back into work—but to extend help with mortgages to people in work would be immensely costly.

Since income support cover is paid direct to lenders, the scheme is simply bailing them out for their bad lending practices. The present system also discourages individuals from taking out private insurance and dissuades lenders from insuring all their loans. None the less, private insurance has spread significantly. I believe that insurance of mortgages should become the norm.

For anyone taking out a loan after 1 October next year, we shall pay income support for mortgage interest only after the first nine months on benefit. I believe that insurance for that nine-month period will be readily available. I expect that many lenders will incorporate it in their loans at modest cost.

Existing mortgage holders qualify at present for 50 per cent. of their interest payments for the first 16 weeks—but that money is paid to borrowers, and they do not always pass it on to the mortgage lender. In practice, most people who lose their job and who are unable to meet their mortgage payments return to work within a few months. Most private policies make no payments in respect of the first few weeks. Lenders rarely repossess in such circumstances, even when the borrower is not covered by income support. I propose that no payments will be made for the first two months for existing mortgage holders who start an income support claim. For the next four months, the payment of 50 per cent. of mortgage interest currently made to the borrower will be made direct to the lender. Thereafter, mortgage interest will be paid in full, as at present.

We shall consult the Social Security Advisory Committee, mortgage lenders and insurers about circumstances that cannot be covered by insurance. I am confident that the insurance market will respond, that lenders will behave responsibly, and that sound lending will ultimately contribute to a healthier market.

The fight against benefit fraud remains a top priority. Last year, our crackdown saved a record £654 million and caught a record 300,000 people cheating—but prevention is better than detection. We want to stop fraud happening in the first place. That requires a secure system of payment. We are working with the Post Office to create an automated system of payment, probably involving a payment card, dramatically to reduce fraud involving pension books and giro cheques. We are seeking private sector finance for that major initiative, which will strengthen the whole Post Office network. Nine companies and consortiums submitted proposals to be prime contractors for a system that could be in use in 1996.

Most fraud involves people giving false information about their earnings or circumstances, so we shall be making more checks on people's circumstances and more home visits, and we are piloting a scheme in London so that local authorities can cross-check information about their housing benefit claimants. That programme will cost £100 million a year, but it should save more than £2.5 billion over three years. I am also tightening some benefit rules.

I have already acted against avoidance of national insurance contributions by employers who pay earnings in various non-cash forms, which undermines the whole basis of the NI scheme. Such practices are devious. I have already put a stop to fine wine wage packets, precious stone salaries and a number of other ruses. I give warning that I shall take further action as and when required.

Separately, I shall be limiting the grant paid through the social fund for funeral payments. Levels of payments for funerals through the social fund have grown by 6 per cent. a year above inflation. Costs rose from £18 million in 1988–89 to £61 million this year, a more than threefold increase. Funeral payments cover the whole cost, so funeral directors can force up costs to customers on social fund, knowing that they are unlikely to obtain better quotes. I have taken action to stop families claiming via remote relatives who happen to be on income support. I propose next April to limit the maximum payment to £875, which was the average payment for funerals last year.

The measures that I have announced today mark a further radical step in my reforms of social security. My aim is to improve incentives, to focus help on those most in need and to stop social security outstripping the nation's ability to pay. I have set out a £600 million programme to help people out of dependency and into work. I have fulfilled our promise to help pensioners and others cope with VAT on fuel at a far more generous level than anything suggested by the Opposition. I have also set out sensible plans to tackle the rapid growth in housing benefits. Any party that shrinks from those problems is unworthy of government; this Government have the courage to tackle them.

I commend the measures to the House.

Photo of Donald Dewar Donald Dewar , Glasgow Garscadden

The first basic point is that the uprating is the bare minimum to which the Secretary of State was committed; anything less would have been a breach of faith.

Does the Secretary of State accept that even the new figures represent modest subsistence levels? Is it not true that a family with two children under 11, living on income support, will be expected to exist on a bare third of average earnings and that, under this Government, the value of benefits as a percentage of earnings has steadily declined? Does not the settlement further underline and widen the gap between those trapped on benefit and those in work?

Does the Secretary of State recognise that anger over the hike in value added tax on fuel will be compounded by the Chancellor's presentation yesterday, which bordered on the dishonest? Will he confirm—it is important to make this clear—that, for people on benefits and pensions, yesterday's announcement added not a penny piece to the direct compensation that had been promised in last year's Budget? Is he really proud of offering a single pensioner an inadequate 25p over and above the statutory uprating and a pensioner couple an insulting 30p?

Has the Secretary of State seen the research carried out by the Disablement Income Group, which suggests that, with VAT at 17.5 per cent., people with disabilities—just one of the vulnerable groups—will face additional fuel bills after compensation varying from about £1 to more than £3 a week? I realise that the Secretary of State is bound to back the Chancellor, but does not his conscience prick? Is he happy that, for example, those on disability living allowance—another special and vulnerable group—will get no help from this package other than from the impact on the annual uprating for increased fuel bills?

The Secretary of State has made much of cold weather payment increases. How much will that cost the Treasury, given that the total payment last year amounted to only £12.4 million? Is there not a touch of humbug in pretending that it is a significant concession when the gross Treasury take on VAT on fuel amounts to £2.85 billion?

The Secretary of State will perhaps recognise that pensioners and others will resent the inadequate VAT package, but does he accept that they will be frightened by the announcement on funeral costs? I am anxious not to increase fears unnecessarily and I certainly do not want to make too much of the issue, but it is very serious.

Can the Secretary of State give me an assurance that he has had assurances from the undertaking trade that it can offer a decent, adequate and dignified service at or below the new cap of £875 on funeral payments under the social fund? Can the Secretary of State promise to avoid a situation, which I and he, I am sure, do not want, in which families who qualify, who are in great poverty at a time of distress, have to scramble around to try to bridge a gap between that ceiling and what they are being charged? If that happened, it would be widely seen as a disgrace. I very much hope that the Secretary of State can give an assurance that that will not happen, and an assurance that the cap is now adequate and will be uprated, as necessary, to ensure genuine and proper protection in deserving cases.

In the small print of today's announcement, there is, I fear, much misery. Yet again, the higher rate of statutory sick pay has been frozen. Can the Secretary of State confirm that there has been no increase since 1990, which is a real cut of £9.23 a week from April 1995? Is it not the case that someone who is incapacitated for more than six months will get from the new incapacity benefit £18.75 less a week than the invalidity benefit rate he would have got?

Why should the non-dependant deduction for housing benefit purposes, to take one other example, be increased well above the rate of inflation? What is the point of that? What will that do to encourage a family to stay together—a cause, we always understood, dear to the heart of the Secretary of State?

The Secretary of State has made much, as he always does, of the fight against fraud. The claims made for the introduction of electronic methods of payment are startling. Will the right hon. Gentleman note that effective moves to eliminate fraud will have our strong support, although we shall look closely at his claim that £2.5 billion can be saved over the next three years? When looking at fraud, will he not forget that last month, the Comptroller and Auditor General, yet again, found errors in income support payments amounting, on this occasion, to £672 million, and qualified the Department's accounts for the sixth year running? Is that not an eloquent comment on 15 years of Conservative stewardship?

I welcome the national insurance holiday for employers taking on the long-term unemployed. It is, however, a timid start and is unlikely to make any great impact. Why does the right hon. Gentleman's scheme ignore those who have been out of work for more than 12 months? Why is its start postponed to April 1996? I do not find the reference to the need for legislation convincing in any way. It means that someone who at present has been unemployed for more than two years may well find that he has spent four years in the dole queue before the scheme, which is meant to help such people, becomes operational.

Would it not have been better to adopt the Opposition's proposal for a tax allowance, which would have delivered a genuine incentive for the employer to take people off the unemployed list? Does the Secretary of State accept that if he wants to move on to Labour's ground, he must show a great deal more courage—[Laughter.] That is, apparently, what he is trying to do. Does he accept that he must show a great deal more courage and commitment than we have seen in the Budget?

We shall look carefully at the rather jumbled collection of schemes which the Chancellor paraded and to which the Secretary of State referred. Will he note that we shall welcome the sensible, although we believe minor, changes to speed up the availability of family credit to ease the transition from income support to work? I underline our fear, which will be widely shared, that, without minimum wage legislation, the pilot schemes on family credit will become an ineffective subsidy for low wages paid by bad employers.

Does the Secretary of State accept—I think that he must—that the clear implication of the announcement on housing benefit is that the escalating costs are a direct reflection of the Government's ruthless policy of forcing up rents? Is not the simple message of what the Chancellor and the Secretary of State have told us that the Government were wrong and that the Opposition were right throughout the argument? Is not the root cause of the Government's policy that they have forced up council rents in the past five years by 79 per cent. while the retail prices index has increased by only 27 per cent.? The effect on housing benefit has, of course, been devastating.

The Secretary of State appears to be proposing, in effect, an area cap on private sector rents for housing benefit purposes. Does he anticipate any problems with variations in rent levels within an area, as yet undefined? Is not there a legitimate fear that some landlords will set rents above the cap, leaving tenants facing a cruel raid on their limited incomes to keep a roof over their heads or, even worse, homelessness? Is not the Government's answer again to force local government into the firing line, leaving it to take the unpopular decisions and to take the flak? That does not say much for the Government's courage.

On the basis, however, that one should never fail to praise where praise is due, may I congratulate the Secretary of State wholeheartedly on repulsing the extraordinary theories of under-occupation, which the Chief Secretary has been peddling so enthusiastically in recent weeks? It will be a great relief to Labour Members that they have appeared to die a death.

Does the Minister recognise our deeply rooted concern about his announcement on assistance with mortgage interest payments? Is it not naive to think that private insurance cover can provide all the answers? Will it not impose on every new home owner a very considerable cost? I wonder whether the Minister can say anything about this: in the industry, they are talking of £25 or £30 a month for cover during that nine-month period. Will not the burden be especially severe for those who are seen to be most at risk?

How, for example, can the possibility of marriage breakdown, which one can never, perhaps, discount with total confidence, be covered at a reasonable and affordable premium? Will he confirm—this is important—that the Council of Mortgage Lenders' figures suggest that, of the 548,000 claimants currently receiving help, only 43 per cent. are unemployed and that the clear majority, the remainder, are made up of the disabled, lone parents and the elderly? Does the Minister think that it will be easy or convenient for them to find such cover?

The Minister's right hon. and learned Friend the Chancellor said: support will not normally be available in the first nine months".— [Official Report, 29 November 1994; Vol. 250, c. 1088.] Can the Minister explain the circumstances in which the nine-month rule will be waived? Has he consulted the insurance industry? I return to the point about cost: will he make available in the Library examples of the type of policy and premium that he believes will be involved? What does he estimate the nine-month moratorium will save from the £1 billion plus at present being spent?

Does the Secretary of State expect—this is important—building societies to make that insurance cover a condition of lending, and has he consulted the building societies about the danger that the changes will depress a housing market still looking for recovery, and inhibit labour mobility? Will the building societies be happy to know that the Secretary of State considers the very large number of defaults on mortgages to be a problem of bailing out bad loans and not a by-product of a recession brought about by the mismanagement of this country's economy?

Does the Minister accept that many people will be genuinely frightened by the tough penalties that he is imposing on any existing mortgage holder who has the misfortune to be forced by circumstance on to income support? Is it not tantamount to a sentence to homelessness to leave that person in that circumstance, suddenly facing life on income support, with no help for two months and only 50 per cent. of the mortgage payments for another four months?

This morning—I do not know whether you, Madam Speaker, were included in the mailshot—almost every hon. Member got a letter from the right hon. Gentleman stressing: we want to ensure that people starting work are not worried about paying their rent. Do not the changes for existing mortgage holders bring to many people the threat that, if they lose their jobs, they will also lose their homes? That seems to be a very unpleasant prospect.

Social security spending makes up 31 per cent. of Government expenditure. Does the Minister accept that the record of recent years proves to us at least, and I am sure to him, that a high social security budget is no guarantee at all of improving standards and social justice? There can be no satisfaction in funding economic failure and the high unemployment that it brings.

Today's statement is part of what I would see as a bric-a-brac Budget, with little shape or sense of direction. What logic is there, in social security policy, in forcing hundreds of thousands of people on to means-tested benefits, with the introduction of incapacity benefit and job seeker's allowance, while at the same time proclaiming determination to cut the numbers on such benefits and tempt those concerned back to work? Is not it clear that the insensitivities and false economies of the incapacity benefit and job seeker's allowance are the dominant note in this so-called review of social security policy? The British people will see little there to undo the damage that has been done in recent years.

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

The hon. Gentleman has shown himself to be unwilling to face up to any difficult decisions and resistant to change, and he refused to make any savings, but he was still willing to spend more on any conceivable programme than it is reasonable to expect the nation to afford.

The hon. Member for Glasgow, Garscadden (Mr. Dewar) began by saying that the increase in uprating to allow for VAT was the bare minimum. At least it was not as low as the 50p which, according to the hon. Member for Garscadden, would just do the trick and from which he constantly tries to dissociate himself. He would be more convincing if he could show us on the record that, before we announced these measures, he had ever proposed a higher sum than 50p, let alone a provision that will amount to £1.40 a week for a pensioner couple in the coming year and up to around £2 a week by the next year.

The hon. Gentleman asked whether it was true that the extra money is only 25p. In the coming year, single pensioners will receive £1 a week—£52 a year—and couples will receive £1.40 a week—£73 a year—of which they would not receive a penny were it not for the fact that VAT had been introduced and compensation was therefore necessary. That is substantially more than the Opposition have offered, proposed or suggested that they would be able to afford.

The hon. Member for Garscadden said that the total yield of the tax is about £3 billion. He did not mention the total value of the compensation package which, when it has all fed through, will be £1.25 billion a year.

The hon. Gentleman also referred to funeral costs. I can give him the assurance he sought. Of course funerals are available, within the pretty extensive sum of £875 that we are talking about, which are dignified and respectable. We want people to be able to have that. However, there must be a limit. It is absurd for the social fund to meet funeral costs of more than £2,000 for a funeral. A cap seemed reasonable in such circumstances.

The hon. Gentleman claims to have doubts about whether the electronic payment of benefits, probably through a payment card, would achieve the savings that I have suggested. We believe that such a system would largely eliminate the fraud and abuse of the payment system which, at present, is one of the easiest systems to abuse. It is important that we move in that direction. I believe that it is sensible to involve private capital and initiative in that regard to enable us—we hope—to introduce the new system in 1996.

The hon. Gentleman mentioned errors and overpayments in the benefit system. We hope that the various measures that I have taken to improve the accuracy of payments will help to eliminate those errors.

The hon. Gentleman rather grudgingly welcomed the change to national insurance contributions and the holiday for a year for employers taking on people who have been unemployed for two years. He asked why the proposal could not be extended to those who have been unemployed for just a year. Fortunately, more than two thirds of those who have been unemployed for a year find work in the ensuing year. The best way to achieve the maximum impact is to concentrate help on those who have been unemployed for two years, who find it most difficult to get back to work. That will be recognised as a sensible use of that incentive and of targeting the benefit.

The hon. Gentleman proposed a tax incentive. I believe that tax incentives are likely to be rather more complex and therefore less effective with regard to the motivation of employers. He also rather laughingly claimed that we were moving on to Labour's ground. We have heard precious little ever from the Labour party about incentives. As soon as we introduce yet another measure to improve incentives, Labour treats it at best with grudging support and most of the time attacks the very things that it rather belatedly now claims are its ground.

All Labour is really keen on is the minimum wage. The minimum wage amounts to a prohibition on the creation of jobs paying less than that. Family credit ensures that people's incomes are topped up so that they will have a decent income in work rather than be paid to stay out of work, because jobs would not exist if there was a minimum wage.

The hon. Member for Garscadden asked how much income support for mortgage interest would cost. At present, insurance policies, which cover more than will be required to meet the arrangements that we shall introduce in October, are available for a sum equal to roughly 0.5 per cent. or less of the mortgage interest rate. The Association of British Insurers has said today that it expects that cover to be widely available and that there will be no difficulty in meeting the wider demand that will ensue from the changes.

The hon. Gentleman suggested that we are introducing tough penalties and that we are making life difficult for people who find themselves homeless. That is not our intention. We have made it clear that we shall discuss the matter with lenders, insurers and the Social Security Advisory Committee, to make sure that the vulnerable groups whom we have mentioned are properly handled in the changes.

It is right that, in the first instance, people who are buying a home should expect to meet any problems that emerge, at least over a limited period, out of insurance or other cover. Some lenders might increase pressure on people to have such insurance or might even cover their whole mortgage book themselves by insuring the mortgage book, and thereby reduce the cost of insurance to those to whom they are lending.

The housing benefit and mortgage interest changes and our reforms to increase incentives to encourage people back to work will be widely welcomed throughout the country and seen as a coherent whole. They will be contrasted with the Opposition's unwillingness to take any difficult decisions or to acknowledge the need for any change.

Several hon. Members:

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Photo of Miss Betty Boothroyd Miss Betty Boothroyd Speaker of the House of Commons

Order. After that initial lengthy exchange, I remind the House that we shall return to these issues. Therefore, I seek brisk questions and answers from now on.

Photo of Mr Norman Fowler Mr Norman Fowler , Sutton Coldfield

May I congratulate my right hon. Friend on his statement? I hope that he keeps on his ground and does not move on to the ground of the hon. Member for Glasgow, Garscadden (Mr. Dewar).

Is my right hon. Friend aware that his announcements on family credit are particularly welcome and that they will help to create many jobs? Is it not clear that, contrary to what the hon. Gentleman said, it is better to tackle job creation and low pay by family credit rather than by minimum wages legislation?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I am grateful for that endorsement from a distinguished holder of my present office. I welcome his support for our measures to enhance family credit and to get people back to work, rather than to consign and condemn them to the dole in the way that a minimum wage undoubtedly would, as in many countries on the continent.

Photo of Ms Liz Lynne Ms Liz Lynne , Rochdale

Why will disabled people not be compensated for the increase in VAT on fuel in disability living allowance? Why did not the Secretary of State bring about a transfer scheme to encourage more employers to take on the long-term unemployed? Why is he not considering merging income support and family credit into a new low-income benefit, which would help the transition from unemployment into work?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

As I explained last year, we are uprating pensions for people on invalidity benefit and, of course, people on disability premium and income support, and those on severe disability allowance. That covers the vast majority of disabled people. That is the sensible way to try to ensure that there is help for people in those circumstances, and it has been widely welcomed during the current year.

Photo of Mr Andrew Bowden Mr Andrew Bowden , Brighton, Kemptown

Arising out of my right hon. Friend's reply to the hon. Member for Glasgow, Garscadden (Mr. Dewar) regarding VAT compensation for pensioners, will the increase in compensation next April be composed of part of the cost of living, of the 2.2 per cent. increase—that is, 25p—and a further 25p as a special increase? Is my right hon. Friend aware that if he does it that way, the average pensioner will be 56p per week worse off than before VAT was imposed on fuel?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I assure my hon. Friend that we are doing exactly what we promised to do last year and the proposal met with his support then, as it was meant to.

If we had not applied VAT to fuel, a single pensioner would receive £52 less in his pension next year and a pensioner couple would receive £73 less. The precise method by which it is calculated is not terribly important. The fact is that single pensioners have £52 and pensioner couples have £73 coming to them in their pensions next year to help them with their fuel bills. That is far more than the Labour party even dreamed of promising.

Photo of Frank Field Frank Field Chair, Social Security Committee

Does the Secretary of State recall that last year he announced a record increase in the social security budget and called it a stunning success? This year, he comes before the House to say that, for the first time ever, the projected increase in the social security budget has been cut and he calls that a stunning success. Which statement should the House believe?

Does the right hon. Gentleman accept that the back-to-work benefit programme is totally inadequate? Will he confirm that for each £100 paid in benefit only £1 goes in back-to-work benefits? When will he announce a radical programme that matches need?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

We accept that we have made commitments to increase social security spending, and we shall abide by them. Last year I was proud to say that, despite the speculation and scaremongering by the Labour Front Bench, we had met our obligations to the vulnerable and that we would help people with VAT on fuel, for example.

We are continuing to provide that help, but we are doing so while scaling down the prospective increases in the social security budget through our success in reducing unemployment and inflation and through the social security reforms that I have introduced. I think that it is a success when one is able to meet one's obligations within a curbed amount of money, and I intend to go on achieving that aim.

The hon. Gentleman believes that the back-to-work programme is inadequate. A £600 million programme—half of it in revenue forgone and half in money paid out—is substantially more than anyone anticipated before the Budget, and it is substantially more than was urged upon us by the Opposition.

Of course, that alone will not solve the existing problems which the hon. Gentleman and I recognise are endemic in the western world. They will be solved by improving skills and training, by improving the vibrancy of our economy through deregulation, by low taxation and by increasing the number of jobs, which we are doing better than any other country in Europe.

Photo of Mr Peter Thurnham Mr Peter Thurnham , Bolton North East

I particularly welcome the measures announced by my right hon. Friend that will concentrate help on the long-term jobless. As I wrote a Conservative pamphlet entitled "Operation Longstop" in 1987, which urged those very measures, will my right hon. Friend consider introducing the in-work benefit pilot schemes first in Bolton?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I am grateful to for my hon. Friend for his support and for his suggestions, which undoubtedly subliminally entered my consciousness and influenced the formulation of the measures. We shall certainly consider introducing the pilot schemes in Bolton and there will be consultation about them in due course.

Photo of Ann Coffey Ann Coffey , Stockport

Does not the Secretary of State understand that his proposals for housing benefit are likely to create a two-tier market in the private sector, with the most vulnerable people driven into the worst housing? Will he put pressure on his colleagues to deal with the real problem of private landlords ripping off an unregulated market and vulnerable people at enormous cost to the taxpayer and to council tax payers?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

The hon. Lady does not realise that we have a two-tier market at present, with those on housing benefit sheltered from the impact of their rent and the factors that influence everyone else. It is sensible to give everyone in the market—particularly those who are considering occupying a property above average rent—an incentive to choose the less expensive of two properties and to negotiate with their landlords to reduce their rent rather than accept whatever is asked.

The hon. Lady suggested that the market was unregulated. She is wrong. There is a system of rent officers. They have to assess whether the rent is at a reasonable market level. It is inevitable that in some areas where tenants are predominantly on housing benefit there will be little for rent officers to use as a comparator to assess what the reasonable market level should be. The measures will improve the working of the market and reduce any scope for landlords to rip off the taxpayer in the way the hon. Lady rightly disapproves of.

Photo of William McCrea William McCrea , Mid Ulster

Bearing in mind the statement by the Chancellor of the Exchequer about the healthy state of our economy, cannot the Secretary of State understand that there seems little reason why we should have the increase from 8 per cent. to 17.5 per cent. in VAT on domestic fuel? Is it not about time that he and his Cabinet colleagues listened to the country on this serious matter, which is causing grave concern despite the packages that Ministers have announced? Does he not realise that people are worried about the increase in VAT on fuel?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

My right hon. and learned Friend the Chancellor made it clear that money had to be obtained to help us reduce the deficit. If the revenue from VAT on domestic fuel was not available, it would have to come from somewhere else. Those who criticise the tax are remarkably silent about where they would find the money to replace it. They are also rather silent about the substantial support that we are giving to pensioners and others to shield them from the full impact of VAT in a way that goes beyond anything that the Opposition sought before the measures were introduced.

Photo of Stephen Timms Stephen Timms , Newham North East

What steps will be taken to reimburse local authorities for the additional spending that they will incur on housing benefit, which will not now be reimbursed to them? Why has the Secretary of State chosen to increase the non-dependant deductions by such a large extent, and considerably more than the Rossi index would suggest? Does he not recognise that that will increase the pressure on families to split up?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

On the latter point, it seemed reasonable that where there were non-dependants in a household who had an income, they should make a contribution to the rent rather than expect so much of it to be met by housing benefit. I am sorry: I missed the first part of the hon. Gentleman's question.

Photo of Stephen Timms Stephen Timms , Newham North East

I asked about the extra expenditure incurred by local authorities.

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

There is no question of us assuming that the local authorities will continue reimbursing 100 per cent. of rents. The entitlement to rent for new claimants and those moving property will be up to the average, and 50 per cent. above the average up to a reasonable market level. However, we shall give local authorities a significant sum from which they will be able to pay over and above that in cases in which they believe that that would be helpful to avoid hardship or difficulties for the individuals involved. That money will come from central Government funds.

Photo of Mr David Shaw Mr David Shaw , Dover

Will my right hon. Friend confirm that the £73 available to pensioner couples in their pensions next year will reimburse them for the VAT on the average annual energy cost of £417 and that that amount is close to the average fuel bill that a pensioner incurs? Can he further confirm that one way in which pensioners can reduce their fuel bills to the average amount is by taking advantage of the enormously generous home energy efficiency scheme, which allows pensioners to insulate their homes and gives them £305 of free household insulation courtesy of the Government?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

My hon. Friend is right: £73 is 17.5 per cent. of £417 and thus is the VAT that people will incur if their bill was £417 before the introduction of VAT. That is substantially more than anyone expected us to make available for people in those circumstances. My hon. Friend is also right that we are increasing the amount available to help pensioners who need insulation in their homes to reduce their heating bills. That must be in their interests and in the interests of conserving energy nationally.

Photo of Mr Clifford Forsythe Mr Clifford Forsythe , South Antrim

How will the areas that will be used to decide the average housing benefit be selected? The right hon. Gentleman will be aware that in Northern Ireland our local authorities do not look after housing. Also, in the past, even though the social security system applies to the whole of the United Kingdom, on occasions decisions taken in Northern Ireland have been different from those taken in the rest of the UK. Will he ensure that that does not happen in future?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

We have discussed with rent officers how best the areas within which averages will be calculated should be assessed. It seems likely that they will be sub-areas of the rent officers' areas, which they are in the best position to help to define. That will be decided more finally as a result of our discussions.

Photo of Mr David Madel Mr David Madel , South West Bedfordshire

If a man is unemployed and his wife has a small part-time job and manages to get a full-time job, while her husband remains unemployed, will she be able to claim the tax-free back-to-work bonus?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

We have certainly increased the number of hours that she can work without any loss of benefit from 16 to 24. If she is on benefit and working part time, she will be able to claim the back-to-work bonus when she returns to work full time.

Photo of Neil Gerrard Neil Gerrard , Walthamstow

The Minister is obviously aware that some local authorities rarely pay housing benefit at a level higher than the rent officer's assessment. Does he understand that there is not a shred of evidence that that has led to landlords cutting rents in those areas? Does he seriously believe that the average, low-paid, private sector tenant is in any position to negotiate a rent reduction with a landlord? If he does, he is living in a dream world. If he believes that some landlords are charging extortionate rents, why does he not do something to tackle that problem, instead of the ludicrous pretence that tenants can do something?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

The hon. Gentleman cannot simultaneously maintain that landlords are charging excessive rents and that there is no scope for negotiating those rents down when people are given an incentive to do so. Rent officers already cut benefit entitlement to rent in one third of rent assessments. They are able to do so only when there are comparators for them to use. That will make the market more genuine, and therefore better able to reflect reasonable market rents.

Photo of Mr David Congdon Mr David Congdon , Croydon North East

I welcome my right hon. Friend's determination to reduce the growth in housing benefit. Can he confirm that the measures that he outlined will help to reduce fraud in relation to housing benefit?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I am grateful to my hon. Friend for his welcome and can confirm that the measures that we are introducing on the fraud front will, I hope, reduce fraud in housing benefit. We have set up a pilot scheme, initially in 20 London boroughs, to enable them to cross-check that people are not entering multiple claims for housing benefit across borough boundaries, which is an important source of fraud that we hope to reduce and eliminate.

Photo of Malcolm Wicks Malcolm Wicks , Croydon North West

Will the Secretary of State tell us more about the new in-work benefits for single people and childless couples? If the scheme were up and running nationally, what would be the net cost to the Exchequer in a full year and how many people would be eligible? While that is a significant step, it does not seem sensible. What does it say about our low-wage economy after 15 years of a Conservative Government's stewardship that one can earn a weekly wage and yet not earn enough even to support a single person? Is it not the case that the Government's inability to regulate the market means that the taxpayer is increasingly subsidising exploitative employment practices in that market, at great expense to the Exchequer?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I do not think that low earnings are determined primarily by Government decisions. They are a reflection of people's earning power in the marketplace. In a pamphlet published last week, I tried to spell out the reasons why, throughout the western world, the earnings of unskilled people have lagged behind and sometimes fallen below average earnings, which are rising healthily throughout the western world. We must try to tackle the problems that ensue from that phenomenon, and the measures that I announced in the statement will help us to do so. I would hope that they would be welcomed.

I am sure that it is not the case with the hon. Gentleman, but some Opposition Members are more antagonistic about paying moneys that might be seen to be subsidising employers who happen to offer low levels of pay than they are grateful for the help that those on low pay will receive as a result of the measures.

Photo of Mr John Sykes Mr John Sykes , Scarborough

The housing benefit measures are extremely good news for Scarborough and for Whitby. Is my right hon. Friend aware that hon. Members with coastal resorts in their constituencies have had dreadful trouble in the recent past with badly run DSS hostels? Artificially high rents have made hotel conversions far too attractive, and the measures will help curb the scandal of "Dole-on-sea".

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I am conscious of the problems that my hon. Friend and other hon. Members representing coastal areas have found in their areas. I hope that the measures that we have announced on housing benefit will discourage the sort of abuse to which my hon. Friend referred and which may well be more prevalent in those areas. It is only right and proper that people who are occupying properties with above-average rent should have some incentive to reduce that rent where possible, or to choose a less expensive property to live in.

Photo of Harry Cohen Harry Cohen , Leyton

Is not the requirement of insurance on mortgages a hidden Tory tax on owner-occupiers, which the Chancellor of the Exchequer did not have the courage to announce in the Budget yesterday? Does not that insurance amount to about £25 to £30 a month on a £50,000 mortgage, a figure that will almost certainly soar at higher levels?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

The short answer to the hon. Gentleman is no. A statement from the Abbey National says that about 40 to 50 per cent. of new mortgages that it gives are covered by insurance already. It seems quite reasonable to encourage a higher proportion still to be covered by insurance, and that is the effect of the measures that I have announced.

Photo of Mr Ian Bruce Mr Ian Bruce , South Dorset

Will my right hon. Friend confirm that introducing compensation in advance of VAT going up is an unusual measure for the Government, and that when RPI goes up eventually—the RPI figure will be inflated by VAT going through—additional money will come in the uprating statement when pensions go up again? Is there any suggestion yet that people are modifying their use of electricity by ensuring that they are not wasting energy which, after all, is the policy urged by all hon. Members?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I can certainly confirm the point that my hon. Friend makes. In addition to the extra help that we shall give from April next year, there will be a further benefit to people as a direct result of VAT on fuel in the subsequent year through the natural up rating that will follow through. That reflects again the impact which has been, to some extent, already compensated for by earlier changes.

Photo of Janet Anderson Janet Anderson , Rossendale and Darwen

The Secretary of State said that employers who take on people who have been unemployed for two years will receive a one-year holiday from employers' national insurance contributions. Will the Government be seeking any assurance from those employers that they will keep on those workers at the end of that year?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I do not think that that would be feasible, as it would increase the bureaucratic add-ons to the scheme and make it less attractive. In general, I do not think that employers would seek to apply the scheme in the way in which the hon. Lady suggests. I think that employers will find that, when they take on people—about whom they may have a degree of suspicion, as those people will have been unemployed for a long time—they will be delighted by the response that they will receive from those people, who will be glad to be back in work, as most people want to be. The employers will be only too delighted to keep them on at the end of the year.

Photo of Mr Michael Brown Mr Michael Brown , Brigg and Cleethorpes

Does my right hon. Friend accept that, historically, as unemployment has come down people have been caught in the poverty trap? Will he accept it from me that the measures that he announced today, alongside those announced by the Chancellor yesterday, represent important means of overcoming that problem? Does he accept, however, that those changes are only the start of the new thinking, to which it is absolutely essential that both sides of the House devote time, which is designed to try to get people back into work? Does he recognise, as a member of the No Turning Back group, that some written work has been done on that subject, which he might like to re-read as he continues his programme of radical reform?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

My hon. Friend is quite correct that, since the war, there has been a tendency for unemployment to rise in a recession and then for that rate not to come down by an equal amount during a subsequent recovery. As a result of the changes that we have made to the labour market and our trade union reforms, one of the encouraging things has been that unemployment started to come down earlier in this recession than in previous ones. We are determined to build on that improvement and to encourage unemployment to fall further so that more people can go back into work. That is what the back-to-work package in the measures that I announced today is about. I shall certainly reacquaint myself with the writings of the No Turning Back group, which are invariably stimulating and good for us all.

Photo of Jane Kennedy Jane Kennedy , Liverpool Broadgreen

Yesterday, the Chancellor of the Exchequer described the changes that the Secretary of State announced today to the payments of housing benefit as a new system to prevent the current system from being prey to unscrupulous landlords. What estimate has the Secretary of State made of the amount that those unscrupulous landlords have taken out of the housing benefit system since it was deregulated in 1988? How much does he expect to save for the social security budget as a result of the changes that he announced today?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

The hon. Lady is quite right—we expect to make significant savings at a steady rate. The direct effect is likely to be about £200 million, but the indirect effect is likely to be substantially greater than that because many people will negotiate down rents and move to more economical properties. As a result of the changes that we have made, the entire rent level may be affected, so that the long-term effect could be substantially greater than that anticipated. We do not know how much has been ripped off by unscrupulous landlords, but I am glad to note the hon. Lady's implicit support for a system that will reduce such losses in the future.

Photo of Mr Clive Soley Mr Clive Soley , Hammersmith

Does the Secretary of State understand that the £72 market rent is disguised in the areas of greatest housing demand, where the average rent is well above that sum and where the market rent is set by rent tribunals? Will he therefore refund those local authorities on the basis of the average rent in the area, because he has based his philosophy on that? Please may we not assume that people who are looking for housing can choose, because often their only alternative choice is a cardboard box?

Photo of Peter Lilley Peter Lilley Secretary of State for Social Security

I can reassure the hon. Gentleman that the plan is to base the entitlement to housing benefit on the average rents for each type of property in each area and not to take a national average. It applies to those in the deregulated market where alternative accommodation is usually available, but in the event of hardship or any specific difficulties, local authorities will be funded to give additional support over and above the 50 per cent. above the average.

Several hon. Members:

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