My Lords, the Bill before us is about securing a stronger economy for the future. Noble Lords are well aware of the challenge we currently face. We are dealing with a deficit which is unprecedented in peacetime. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day.
My Lords, a considerable number of Members of this House are leaving, but there are still some staying behind to take part who would like to listen to the Minister, who is trying to present the opening of this debate. I should be grateful if Peers leaving could do so quietly.
I am grateful to my noble friend. Back in 2010, we were borrowing £1 in every £4 that we spent, and interest payments were costing us £85 million a day. We have begun to make progress on that deficit-it has since reduced by a quarter. But there are still difficult decisions to be taken if we want a stronger economy that delivers a better future for everyone. Let me be clear about that: everyone, all of us, whoever we are, deserves the chance to do the best for ourselves and our families.
Several commentators have said that we should look first to make savings from those with the broadest shoulders-the richest in society-and I am proud to say that we are. This Government's plans increase the total tax contribution from the most well off. As a result of our actions, the richest pay more tax on capital gains, more stamp duty on their homes, more tax on their pensions and are less able to avoid or evade tax. The top 20% of households continue to make the greatest contribution towards reducing the deficit. The Autumn Statement raises more than £1 billion pounds a year from the richest and more than £8.5 billion over the forecast period. Overall, the richest will pay more in tax during this Parliament than under the previous Government's tax plans.
However, as we seek to reduce the deficit and retain credibility with financial markets, we cannot ignore the welfare budget. From 1997 to 2010 spending on working age welfare increased by some 60% in real terms. Today, it accounts for £1 in every £8 that the Government spend. The Institute for Fiscal Studies has said:
"When cutting public spending dramatically to help reduce an unsustainable budget deficit it is almost inevitable that spending on benefits and tax credits-which account for 30% of the government's total budget-will be targeted".
But in seeking savings from welfare, we have always sought to strike a balance, and that is true of this Bill.
The Bill provides for most working-age benefits, tax credits and statutory payments to be subject to a 1% increase in 2014-15 and 2015-16. I will not go through the full list but it is set out in the Schedule to the Bill and the Explanatory Notes. As a result of this, the Bill will save £1.9 billion in 2015-16. We have also retained safeguards for a number of key benefits, which will not be subject to the provisions in the Bill.
For pensioners, we are maintaining our commitment to the triple lock, a commitment which will see the basic state pension rise by earnings, prices, or 2.5%, whichever is highest. In 2013-14, when both prices and earnings growth are below 2.5%, we will ensure that the poorest pensioners will see the same cash increase by over-indexing the guarantee element in pension credit, which would normally rise with earnings. In addition, for disabled people and carers, we have committed to uprating benefits covering additional needs to the costs that they incur because of their disabilities in line with inflation. The protection applies to disability living allowance, attendance allowance, carers allowance, the disability premiums in working age benefits, the disability elements in tax credits, the carer premium and the support component of the employment and support allowance. Those are not included in this Bill: they are protected. We have sought to find a balance between making necessary savings and protecting those who are least able to increase their spending power.
We have also sought to strike a balance between supporting those on benefits while containing the costs of the welfare system. Let us not forget that most people have faced significant pay restraint in recent years. Looking at average incomes over the past five years, including those in low-paid jobs, those in work saw their incomes rise half as quickly as those on out-of-work benefits, at a rate of 10% compared to 20%. Let us not forget that public sector workers have had their pay frozen and then increased by just 1%. Indeed, even with the 1% increase on these benefits, on current projections out-of-work benefits will still be at a higher level in 2015-16 than if they had been uprated by average earnings growth since the financial crisis began. While people want to know that the welfare system is there for them in hard times, when they need to draw on it, they also want to be confident that it reflects the budgeting decisions that people have to take in work and that it incentivises people to find and take work.
By setting out clear savings commitments in legislation, the Bill also seeks to give certainty, both to taxpayers and to the markets, that this Government are committed to securing fiscal credibility in the years ahead, and it is "the years ahead" that I am particularly concerned with. Investing in credibility and stability is an investment for the long term, and it is, of course, a means to an end. Yes, we have to rebalance the public finances, but not simply so that we can point to a nicely balanced budget in the ledger.
In my eyes, the real end is ensuring that the next generation can benefit from a stable and growing economy, one where they are able to secure a job, become productive members of society and get on in life. I do not believe we can achieve that end without taking these difficult decisions.
Noble Lords need not look far for reassurance that this Government's approach is the right one. In Spain and Greece, one in every two young people in the labour force is unemployed. Italy and Portugal are not far behind. I do not pretend that unemployment is not a problem in this country, but the decisions that we have taken to restore the public finances and the credibility and stability we have secured with the financial markets have been key to securing the stability of our own labour market. Over the past year, the UK employment rate has grown faster than any other G7 country. Employment in the private sector is up by more than 1 million since the election, while the last quarter saw further improvement in youth unemployment, a fall in long-term unemployment and a fall in unemployment overall. For me, this underlines the critical importance of the Government's fiscal plans. We are trying to repair a damaged economy so that we can secure something that makes a real difference to people's lives-a sound economy backed by an expanding labour market for them and for future generations.
But a sound economy has to go hand in hand with a strong social settlement. We can get the economy going again, but we will have failed if we still have a welfare system which does not make work worth while. So at the same time as we are restoring the public finances, I would ask your Lordships to remember that we are working to restore the welfare system as well. This year will see the introduction of universal credit, an historic change that will create a welfare system that is simpler, more effective, and designed to ensure that work pays. We expect some 3.1 million households to gain from the move to universal credit, on average by £168 per month. This is a progressive reform. Around 75% of the households that gain are in the bottom 40% of the income distribution. Overall, we believe that universal credit could lead to the equivalent of up to 300,000 additional people in work through improved financial incentives alone.
It is important that we see this Bill in its broader context. It enables the Government to make savings that are crucial to reducing the deficit and to maintaining our credibility with the financial markets while protecting those on fixed incomes or with additional needs. But at its heart it is a Bill for the long term, one that plays a crucial role in repairing the public finances, and so one that is an investment in a sound and stable economy in the future, and a future that is better for everyone. It is on that basis that I commend this Bill to your Lordships' House.
My Lords, I start by thanking the noble Baroness, Lady Stowell, for her explanation of this Bill, but let me say at the outset that we consider this to be a bad Bill that should not reach the statute book, and we have much to do in Committee.
The Chancellor of the Exchequer has said that it is, in his terms, shirkers who will be affected by these cuts to tax credits and benefits, and of course uprating by less than the rate of inflation is a real-terms cut. However, analysis now shows that two-thirds of those affected by this Bill are actually in work, striving to rise above poverty levels and support their families. The Children's Society shows that up to 40,000 soldiers, 300,000 nurses and 150,000 teachers will lose out as a result of this Bill. Despite what we are told, disabled people are not properly protected. The Bill penalises working mothers and punishes children, trapping them in poverty. Two-thirds of those hit by cuts to tax credits and benefits are women.
There could be no starker example of this Government's values than the fact that at the same time as they are introducing this Bill, they are seeking to give 8,000 millionaires an average tax cut of £2,000 a week. Compare this with the 71p increase per week for somebody on JSA. We will seek to ensure that the Bill does not proceed while these tax cuts are being implemented. It is anyway entirely unnecessary. If the Government are so determined to uprate most benefits and tax credits by just 1%, they can do it by way of the annual uprating process, precisely as they are doing for 2013-14.
Those affected by the Bill are having to shoulder the burden of the Government's continuing economic failure in jobs and growth. The 2012 Autumn Statement made abundantly clear that with a shrinking economy last year and growth forecasts downgraded again for this year, next year and every year up to 2016, the Government are also failing to tackle the deficit and debt.
The Chancellor has been forced to announce that he will not meet his fiscal rule to get the debt down by 2015, with the result that the Government are borrowing a staggering £212 billion more than they planned. Nearly 1 million young people are out of work and the claimant count is forecast to be 275,000 a year higher in 2015. The OBR expects the economy to be 3.6% smaller in 2016-17 than it thought it would be just a year ago.
However, the Government still will not change course. Nothing in this Bill will help growth and jobs. Nothing in this Bill will help build a stronger economy. Everything in this Bill will contribute to depressing demand and putting more pressure on hard-pressed public services. There is no recognition that low-income families have high marginal consumption rates, so restricting their income will impact very directly on demand in our economy. Therefore, the poorest are being asked again to bear more of the burden. The IFS says that this will include 7 million working households, who it calculates will lose on average £165 a year.
Taken together with other changes in the Autumn Statement, the real income of a one-earner family will reduce in real terms by more than £500 by 2015-16. The Government's own impact assessment shows that the average loss in income is higher for families in the lower deciles than for those in the higher deciles. Those at the bottom lose £4 to £5 a week; those at the top lose £1 to £2 a week.
As USDAW put it in its briefing, this Bill is another blow to working families. Compared with a CPI uprating, the Bill will cost a working family on a modest income nearly £800 a year. We know from the Minister herself -Esther McVey-that it will result in an extra 200,000 children being pushed into poverty on top of the 800,000 the IFS already estimates have entered that state due to the coalition's policies. This is why we will demand that the Government produce a comprehensive assessment of the Bill's effects on child poverty.
Any claim that increases in the personal tax allowances will compensate low-income working families for such losses does not bear examination. Many will not reach the tax threshold, being in part-time jobs at the minimum wage. For those who do, a tapering away in housing benefit and council tax support will negate much of the suggested advantage.
Of course, we still do not have from this Government a cumulative impact assessment of all the changes made to tax credits and benefits since May 2010-an issue so brilliantly pressed by my noble friends Lady Hollis and Lady Sherlock in a recent debate. When introducing the Bill, there was not a scintilla of recognition by the Minister of how much the living standards of the poor have already suffered under this Government. There was no recognition either of the tsunami of cuts that are about to engulf hundreds of thousands of our fellow citizens in the form of the bedroom tax and local council tax support schemes.
I accept, as the Minister said, that the Government have not ignored the welfare budget. Under it, they have already taken £20 billion from the poor. We are told that it is necessary to legislate for the 1% restriction to provide certainty for the taxpayer, the markets and claimants. These are entirely specious assertions. Taxpayers will not have certainty about the costs of social security without knowing claimant numbers, which of course are heavily dependent on the growth that this Government have failed to deliver.
It is frankly ludicrous to argue that the markets will take fright in respect of the amounts involved if you have just declared your intentions to uprate by 1% rather than enshrine it in legislation for two years in circumstances where your public sector net debt is heading north of £1.4 trillion. In any event, the market knows full well how determinedly brutal you can be when it comes to cuts.
When it comes to claimants, I am sure that most would forgo the certainty of a 1% increase-a maximum of 1%-for the prospect of a fair review on an annual basis, because what this Bill is doing is placing inflation risks with the most vulnerable members of society. Inflation just three years out is difficult to predict, and should it, contrary to current expectations, dip below 1%, the Government can pocket the benefit. Are the Government really saying that whatever the level of inflation, say in year three, they will allow any level of cut to be visited on the nation's strivers? The justification for the 1% is that benefits have been rising at a faster rate than earnings over the past few years-we heard that from the Minister-but this means that the families receiving in-work benefit are getting a double blow from the Bill. If you look at the longer trend-the DWP gave us the figures just this morning-average earnings have increased at a much faster rate than benefits over the medium and long term.
However, the reality is that this Bill is not about shoring up the markets. It is about trying to shore up the dwindling political standing of the Government. It is about trying to foster a political climate-a party-political dividing line-that says that recipients of tax credits and social security benefits are feckless and workshy, and stay in bed while others go out to work for a living. The Government, of course, are only for the latter.
I was struck by a contribution when the Bill was debated in the Commons, from which I shall briefly quote. It was stated:
"But the insidious aspect of the Bill is that, in seeking to open up a philosophical divide of that type, it becomes not an issue of political leadership, but of political pandering to some of the fears, insecurities and downright prejudices that can be stoked up in society-the 'us and them' mentality and the sense of resentment and envy. When people start playing fast and loose with those factors-and we have seen early examples against the backdrop of this legislation in the last week to 10 days-they are following a very risky strategy indeed".-[Hansard, Commons 21/1/13; col. 86.]
That was Charles Kennedy. That any Government should seek to prey on the lives of poor people in this way for party advantage is disgraceful. The ploy is anyway unravelling. Of some 14 million working age households with someone in work-strivers in anyone's language-around half are disadvantaged by this Bill.
However, it is not only people in work who are strivers. What about a lone parent struggling on income support to nurture a young child to be part of a responsible future generation; or someone on income support because they devote every waking hour to care for someone, saving the state hundreds of thousands of pounds over the years; or someone on JSA who has been made redundant through no fault of their own, desperate to get back into work? These are strivers too.
Any claim that disabled people are being fully shielded from the cuts in this Bill are of course false. Disabled people in the work-related activity group-by definition those found not fit for work-will have their ESA uprating capped at 1%, thereby losing, according to the Disability Benefits Consortium, £87 a year. Those in the support group fare little better, with the support component being out of scope but the core component being subject to the cap. This, at least, we will seek to address in Committee. Of course, disabled people will miss out not only on this basis. Other benefits on which disabled people are disproportionately likely to rely, such as housing benefit, will also be restricted. We will seek, in Committee, to reverse the real-terms cut in statutory maternity pay. That would reverse just part of the losses that working women are suffering from cuts to maternity pay, pregnancy support and tax credits. The House of Commons' Library research shows that low-paid new mothers are losing out to the tune of some £1,300 because of this.
This is a wretched Bill with the wrong priorities. It does nothing for jobs, which is why we will press that it not enter into force until a compulsory jobs guarantee can be introduced, focused on the long-term unemployed and paid for by restricting pension tax relief on high earners. The injustice at the heart of the Bill is another attack on the poor, including the individuals and families who subsidise all of us because they work for low wages, meaning that we all benefit from cheaper goods and services. They should not be treated in this way.
If the Government have their way on this Bill, it will mean another spur to poverty, more food banks, more payday loans, more households having to choose between heating and eating, and more despair for those striving to do the right thing. We have a duty to stop it.
My Lords, it will not surprise the House that I start from a different place from the noble Lord, Lord McKenzie. I will refer later to the use of the word "language". I hope that your Lordships' House will join us in saying that we should not use language that tries to segregate different groups of people. I shall illustrate that later. My starting point in examining this Bill is to ask whether it meets the policy objectives that it sets for itself and whether it is a proportionate response to the problem that it attempts to solve. As the principal policy objective that it seeks to fulfil is to make an impact on the underlying structural deficit that this country faces, it is an impossible analysis if we do not start with an examination of that factor.
In 2010, the Government set themselves the objective of eliminating the inherited structural budget deficit by the end of this Parliament-that is, by 2015. However, external circumstances, such as the problems within the eurozone, intervened which made that a much more difficult task to accomplish. So the Government took the decision to slow down the elimination of the structural deficit from five years to seven years, to 2017-18. Of course, they could have chosen to meet their original target date by imposing even more challenges to government expenditure-by increasing the tax take and by digging deep into the health and education budgets, and presumably further into the welfare budget as well. They chose not to do so. The consequence of that is a need to take further steps in budget reduction and this measure does that. It is aimed at 2015-16, the last of the financial years that will be determined before the next general election.
My first point is that sticking to the original timescale for deficit reduction would have meant a much more challenging debate than the one we are having today. Clearly, many noble Lords are concerned about the welfare budget reductions contained in the Bill. I can understand that concern. It is never easy reducing welfare payments; it is very uncomfortable and something which gives me concern as well. However, it would have been a lot worse if the Government had not slowed down the deficit reduction programme.
There are, and will continue to be, very difficult decisions to be made, and this Bill is one of them. However, those who object to the budget reductions in the Bill must say whether they are in favour of either a further extension of the already extended deficit reduction programme-slowing it down even further, going beyond the planned seven years and increasing the level of borrowing substantially-or taking money from some other source. It would be helpful to know where noble Lords stand on this matter. I listened very carefully, but I was unable to detect where that money might come from. The Bill cannot stand alone in some sort of splendid financial isolation. When there are hard choices to be made, it is important to know whether others are prepared to face up to them. There are also further tax measures to come if the Government are to meet the new seven-year timetable. We can take some comfort from the IFS Green Budget scrutiny, which, taking this Bill into account, determined:
"The whole set of tax and benefit changes introduced between the start of 2010 and 2015-16 will hit the richest households hardest".
My second point is about proportionality. Many noble Lords will recall debates in this House where the figure of an additional £10 billion reduction was bandied about. The Chancellor of the Exchequer said last year that,
"we will have to find greater savings in the welfare Bill. £10 billion of welfare savings by the first full year of the next Parliament. Iain Duncan Smith and I are committed to finding these savings".
However, the cumulative figure that this measure provides is not £10 billion but £3.6 billion-and that includes this year's uprating order. That accords with the approximately £1 in every £3 of public expenditure that goes on welfare. Therefore, it could have been far worse for the welfare budget.
I am pleased that arguments made by those on the Liberal Democrat Benches have been taken on board by the Government. There will be no capping of child benefit at two children; there will be no cessation of housing benefit for the under 25s; and there will be no absolute freeze on working-age benefits. Thankfully, that is not the trajectory of this measure.
Spreading the burden across the years and taking relatively small amounts of money from a large number of people is a sensible approach. A lot of people paying a little is better than the alternative of a small number of people losing a lot of money in a single year. Here, I am talking about the welfare budget. Some have suggested taking out child benefit and tax credits from the Bill, but this would wipe out £1.5 billion of the £3.6 billion of savings, which would once again have to be found elsewhere.
Given the budget restraint, the Bill takes a sensible approach. It is sensible because, since the financial crisis, out of work benefits have risen twice as fast as average earnings-by 20% compared to 10%. For many, the effects will be short-term, as most people out of work find work again within three to six months. Also, the Government have capped public sector increases at 1%, so there is also an element of fairness to the measure. Besides, the shadow Secretary of State for Work and Pensions recently said that he wished to see incomes rise faster than benefits.
This measure is temporary. It is time-limited to end in the financial year 2015-16. Unless changed again by an incoming Government, the present arrangements for annual uprating will apply once more. However, there are some rough edges to the Bill. I hope that the Government will explain and debate these in detail in Committee. It is right to have sweeping exemptions for pensioners, the sick and the disabled-but some anomalies will need explanation, justification and perhaps amendment.
I said that I would say a little more about the language used in discussions and debates on these matters. The word "shirkers" has been used already in the debate. I do not find it helpful. It is not just one side who are saying this. According to the Labour Benches, it was the Chancellor who used the word "shirkers". However, the word was also used by the shadow Secretary of State for Work and Pensions in a speech last year at the London School of Economics. I hope that noble Lords from all parts of the House will support the notion that we have to be extremely careful not to negatively categorise people. It does no good at all to use inflammatory language to distinguish between those in work and those out of work. The benefits trap itself is to be deplored. That is why there is so much to be gained by the new universal credit. The principal message I take from this is that as a country we must offer a helping hand, rather than deprecate the people who are trapped by the current benefits regime, which soon will be radically altered.
I want to say a word about child poverty, because I read so often of the figures produced by pressure groups that have written to many noble Lords in relation to this Bill. The child poverty measure, as I discovered when there was a committee inquiry in the National Assembly for Wales, is very difficult to sustain both internationally and in this country. In the first year of this Government, the numbers in child poverty-according to the international measure-fell substantially in the United Kingdom. That is because the median is used as the measure in this country. It is time that we had a new measure if we want to see what is happening in respect of children in poverty in this country and in other countries. I hope that noble Lords from all sides of the House would agree that continuing to use the current measure is no way to examine this issue, despite the fact that it substantially benefits the Government's argument.
Finally, I hope that the Bill puts to an end any further reductions in the welfare budget before the next general election. Of course, there may be minor, necessary adjustments, but these past few years have really been a difficult time, with very hard decisions having to be taken about the size of the welfare budget. I hope that, in his response, the Minister will offer your Lordships some reassurance that this area of spending reduction has now reached its conclusion for the continuing length of this Parliament.
My Lords, I declare my interest as chief executive of Turning Point, an organisation that works with many of the people who will be affected by this Bill, should it become an Act. I felt compelled to join in this debate because many of the people who stand to be affected are people with whom I and my organisation work; they are some of the most vulnerable in society. It is important that we remind ourselves of this during the course of the debate.
In his opening remarks, the Minister made the point that the rich were going to pay more and carry a greater burden than the poor. However, it is the poor who feel the impact more than the rich. I refer to an article I once read by the sister of the Mayor of London. She pointed out that during times of austerity, the rich of course feel the burden of cuts, but generally the burden is restricted to deciding whether they should take one or two cooks on holiday with them this year. We should think about this Bill in that context.
I would like to raise a few points about the Bill's potential impact on certain groups and make a few further points about fairness and public attitudes. Those who stand to be impacted include many working-age adults; many people accept that now as a given. Many of those with complex needs and challenges are the people supported by Turning Point. We work with people who are experiencing challenges such as substance abuse, mental ill health, learning disabilities, employment difficulties or a combination of some or all of these. I have said in earlier debates that I have yet to meet any one of our clients who does not want to work.
Around half of those who used Turning Point's integrated, complex-needs services last year have already had benefit and housing difficulties. They have had problems accessing disability benefits despite physical and mental health problems and have been left with debts due to lengthy appeals processes. The point is that people are already struggling due to changes that have begun to affect them and there are still other changes that will start to hit from April.
I got some advice from Crisis, an organisation that is well respected across the House. It gave me an example of a young man called Russell, who had been urgently looking for a shared property in London since September, but did not have the deposit that nearly all landlords require. His rent for a small studio flat was, until September, paid by housing benefit. However, when the changes to the shared accommodation rate kicked in, his housing benefit was slashed from the £180 a week he required to £86 a week. As a result, he had to drop out of his computer course to look for somewhere to live and has accumulated nearly £3,000 in arrears and been served an eviction notice. Homelessness was a real threat for Russell. I am really pleased to report that this morning, I was told that he has just managed to find a new place to live, but has no idea how he is going to pay back the debt accumulated over that period.
The Bill has been described as a real-terms cut with the IFS estimating that, given the current forecasts for inflation, it could amount to a cumulative 4% real cut in the benefits affected. In reality, we do not know what its impact will be as it depends on future inflation rates. The IRS states that this will expose some of the most vulnerable to inflation risk.
I recognise and welcome the fact that disability benefits and carer's allowance are exempt from the legislation, but the problem remains that the Bill will apply to the main rate and the work-related activity group component of employment and support allowance. According to Disability Rights UK, all of the 991,000 disabled people receiving ESA in the support group and work-related activity group will experience the impact of a 1% cap, and it estimates that that will amount to a loss equivalent to a loaf of bread and a pint of milk per week, or £87.65 a year. That does not sound like a lot, but I come across people whose lives are hugely affected by the ability to afford that loaf of bread and that pint of milk each week.
The Government talk about fairness, which is a big part of their motivation for reform. The debate about skivers versus strivers has been played out a lot recently, and whether it is helpful or it contributes towards polarising opinion and increasing stigma is perhaps a matter for another discussion. Still, the employed and the unemployed cannot be compared with one another so simply. For a start, many working people are in receipt of benefits. We know from recent data that households with at least one employed adult have accounted for 93% of the increase in the number of housing benefit claims in the past two years and that there are around 3.6 million working households already living on an economic "cliff edge" who could be squeezed further by this Bill. The Children's Society has calculated that the Bill will mean that by 2015, a lone parent with two children on a weekly income of £530 would lose £424 a year, and a couple with two children on a weekly income of £635 would lose £351 a year.
Public attitudes to welfare spending are often impacted. I think that the prejudices which have been mentioned by contributors to this debate are based on the fact that the public do not often understand what the actual impact of this Bill will be on individuals. An argument used in favour of reform is that the welfare bill accounts for a quarter of total government spending. Last year's data show that the DWP does indeed account for 23% of all public spending, or £166.98 billion. However, of the £159 billion of that sum which went on benefits, 47%, or around £74 billion, went on state pensions compared with JSA and incapacity benefit, which saw spending of approximately £4.9 billion each. Despite this, a YouGov poll recently commissioned by the TUC has found that on average, people think that 41% of the entire welfare budget goes on benefits to unemployed people. The same poll also suggests that support for this Bill actually depends on the level of understanding of it, as I have already mentioned. The Government have a duty to educate the public on the realities of welfare benefits and the impact on the poorest in society as opposed to being tempted to take advantage of ignorance of this matter.
The Government want to improve fairness and incentivise work, but welfare reform cannot be tackled in isolation from other factors such as the labour market and current inequalities. Despite it being a commonly held view, it is difficult confidently to identify evidence of widespread welfare dependency and intergenerational worklessness. The Joseph Rowntree Foundation and the University of Bristol recently found that only a very small minority of households, some 15,350, have had two or more generations who have "never worked" and of those, many of the second generation have been out of work for less than one year.
Policies that change behaviour are a risk when the roots of the problem go beyond behaviour. Just one worrying trend is the 109% rise in the number of people being helped by food banks, as reported recently by the Trussell Trust. While some people think that food banks are a good idea, research in Canada seems to indicate that the level of nutrition provided by such food is very low compared with the ability to choose your own produce. I am worried that the impact of welfare changes, spending cuts to services and rising living costs could contribute to a further increase in the use of food banks. It would be interesting to know whether Ministers think that an increase in the use of food banks would be a credible and useful outcome of this Bill.
I worry that the Bill risks pushing vulnerable people, including disabled ESA recipients, the working poor and people such as Russell, further away. I would like the Minister's response to perhaps provide some advice for the Russells of this world-he is not alone and represents maybe a few hundred thousand people-as to what they should do when faced with the impact of the proposed Bill.
My Lords, it is a privilege to follow the noble Lord, Lord Adebowale, who speaks with real authority and experience in this matter and who came to speak in Leicester this time last year to a group exploring the public responsibility for the poor.
It seems to me that, from time to time, it falls to these Benches to raise questions about the moral responsibility of this House and perhaps today is one such occasion. I want to ask what is the fundamental purpose of the Bill before us. The Minister has asserted that it is to achieve a stronger economy for the future. If that is the case, presumably it is designed to achieve short-term savings in response to a present budget deficit. However, because of its long-term effects, it looks like part of an ideologically motivated attempt to alter the very nature of the welfare state. If that is the case, we must ask ourselves what is the limit of our collective responsibility for the poorest in our society. I believe that there is confusion in this Bill about that limit in at least three key areas.
First, there is impact of the Bill on working families. One of the main arguments used to justify the Bill is that it is unfair that out-of-work families should see their benefits rise at a faster rate than hard-working families who are facing a squeeze in their wages. Others have made this point already. However, this claim is both inaccurate and unhelpful. It is inaccurate because the fact is that working families, and low earners in particular, are among those worst affected by this Bill, as we know. Working tax credit, one of the benefits included within the cap, is only available to working households. Other benefits that are also included, such as child benefit and child tax credit, are available to both working and non-working families. The House of Commons Library has estimated that if only out-of-work benefits were subjected to the 1% cap, 80% of the proposed savings would disappear. According to the Resolution Foundation, 60% of the impact of the Bill will fall on working households. In 2015-16, the 1% uprating policy will take a total of £2.8 billion out of the pockets of the very people who the Government should be seeking to support. More than at any other time, these families are relying on tax credits and other benefits to help compensate for the squeeze in their earnings and the rising prices of essentials.
As other noble Lords have mentioned, it is also unhelpful to set up a false distinction between in-work "strivers" and out-of-work "shirkers". All of us who are actually in touch with the effects of this Bill in local communities know that many are losing their jobs through no fault of their own. Contrary to ministerial rhetoric, the vast majority of unemployed people want to work: 70% of unemployed people find work again within a year and only a tiny minority of workless households contain two generations who have never worked. As if it is not enough to lose your job, some of these people are now being vilified and impoverished.
Secondly, the Bill will have an adverse impact on the population at large. In total, it is estimated that 6.4 million families with children will be affected. That is 87% of all families with children and 95% of lone-parent families with children. While nearly all families will be affected by this policy, it is the poorest families who will bear the disproportionate share of the burden. The Government's own impact analysis reveals that two-thirds of the cost of this measure is from the bottom third of the income distribution; only 3% is from the top third. Surely this is completely inconsistent with the Prime Minister's statement that,
"those with broader shoulders should bear a greater load".
I am not afraid to say that I think this is wrong.
Of course, this Bill comes on top of all the other welfare cuts that are disproportionately affecting low-income families, such as cuts in disability benefits and in the local housing allowance. I see at first hand the effects of these in my own city of Leicester, where the bedroom tax will affect 13% of tenanted households; the benefit cap will affect 585 households; and cuts in council tax support will affect 16,000 households, which will have to pay some element of council tax for the first time.
The Institute for Fiscal Studies estimates that the combined effect of all the tax and benefit changes introduced between 2010 and April 2015 is to reduce the incomes of the poorest fifth of families with children by about 7%. As others have said, the inevitable impact of this policy will be a further increase in child poverty. The Government's own estimates are that this Bill will push 200,000 more children into poverty. Even before this measure was announced, the Institute for Fiscal Studies was already estimating that relative child poverty was set to increase by about 400,000 between 2010 and 2015. In Leicester, 32% of children are already in poverty, well above the 21% national average. This policy will substantially increase that number. I ask the Minister: what are the Government doing to reduce the impact on these 200,000 children?
Finally, I fear for the long-term implications of this policy. This Bill breaks the historic link between benefits and price inflation, which will have implications not just over the next three years but in 10 and 20 years' time. We have not had enough public and political debate about this. The cumulative impact of this policy is a substantial erosion in the real value of benefits for the poorest working-age households, which is already considerably below what most people agree is necessary to achieve an adequate standard of living. Families that are already in a financially precarious position due to debt problems, lack of family support and so on will be particularly vulnerable, pushing many into unmanageable debt and triggering mental health problems, homelessness and family breakdown.
The changes to uprating policies announced by this Government already mean that the level of means-tested support will be 7% lower by 2016-17. If inflation turns out to be higher than currently forecast, the impact on living standards will be even greater-a serious risk that does not appear to have been adequately considered by the Government. Every unexpected increase in food prices or fuel costs will hit the pockets of those least able to bear the cost. What flexibility will there be to support vulnerable families if inflation rises much higher than the 2.2% measured by the consumer prices index?
If we wind the clock forward, what kind of safety net will be left in 10 or 20 years' time? I fear that we are heading in the direction of a United States-style welfare system, where healthcare provision and pensions are large and protected but working-age provision is less generous and more stigmatised, barely providing enough for people to live on without relying on charitable handouts, where visits to the food bank are not an emergency response to an economic crisis but an integral part of the welfare state. Is this really the kind of society that we want to live in?
This Bill will not help the well-being of the most vulnerable in our society. It will depress hard-working families even further, remove much needed support for the vulnerable and unable to work, and potentially take us in the wrong direction for a generation, condemning countless children to poverty. It is a proposal that I cannot support.
My Lords, as I listened to the right reverend Prelate, I struggled to think of one point in this Bill on which this House might be unanimous, but I venture that it is this: that the provisions of the Bill are unwelcome. However, the question was never whether they were welcome; it was always whether they were necessary.
The roots of this Bill in this Parliament lie in the bill for the previous Parliament: the doubling of the national debt and the biggest budget deficit in the developed world and in our own peace-time history. From 2003 to 2010, the previous Government spent £171 billion on tax credits, contributing to a 60% rise in the welfare bill, which was unsustainable. I have never quite been able to get to grips with the idea that profligacy is compassionate and that sound management of your finances is somehow hard-hearted and uncaring.
Other myths that have been put forward surround language. "Shirkers", for example, is an expression that I would never use, having grown up on Tyneside with many people who found it degrading to be in receipt of government aid through welfare rather than having the dignity of earning a salary. I never use that phrase, but, of course, it was never this Government who started its use; it was Mr Liam Byrne-to whom I shall refer a couple of times in this speech. He said at the Labour Party conference in September 2011:
"Let's face the tough truth-that many people on the doorstep at the last general election felt that too often we were for shirkers not workers".
That was not a Conservative statement. In a speech given by Mr Byrne at the London School of Economics in January last year, he said:
"Labour is the party of hard workers not free-riders. The clue is in the name. We are the Labour Party. The party that said that idleness is an evil. The party of workers, not shirkers".
It is important when we have a debate of this nature, which is clearly highly charged and emotive, that we correctly ascribe the language being used.
Let us place the proposed savings that this measure will bring about in some sort of context. We are talking here about proposed savings in 2014-15 of £1.1 billion, rising to £1.9 billion in 2015-16. That is 1% of £117 billion bill for social welfare, excluding pensions and sickness. Another argument used is that this is somehow a pernicious measure which seeks to attack the poor while helping the rich, yet the argument used about higher-rate tax cuts is worth further examination. Higher-rate taxpayers will pay more tax to the Government in every single year of this Parliament than they paid in any single year of the previous Parliament. The increase of the higher rate of tax to 50p in the pound came into effect on
Therefore, the point that the Government are focusing on fairness in restoring the public finances is an important one. For example, changes in child benefit will mean that those who earn salaries over £50,000 will progressively lose their child benefit, which has widespread support as being fair. The raising of the personal allowance has halved the tax bill of someone who is on the minimum wage and taken 2.2 million of the poorest working families out of tax altogether. The state pension has risen from £97.65 in 2010 to £110 per week in the current year, including one of the largest rises in the level of the state pension ever in 2011.
There is another crucial element, which is reducing the welfare dependency culture in the UK, which has trapped millions on welfare and is a huge waste of human potential. Between 1997-98 and 2010, while average earnings increased by 30%, tax credit spending increased by 340%. The result was that by 2010, 90% of all workers were eligible to some form of welfare.
That leads me to another point on which I should like to press my noble friends on the Front Bench a little further. Given the opportunity, I will return to it in Committee. With the introduction of universal credit, we will have a system where, no matter what the salary of the job, you will always be better off in work by a straight line table of 65p in the £1. It is very important that people should always be better off in work. That is one of the principles at the heart of this reform. However, in the debate on
I followed it up in a Question for Written Answer, in which I asked what would be the effect on the bill for social security benefits of raising the minimum wage to the living wage. If the argument, which I fully support, is that we want to reduce welfare dependency, then whether that welfare dependency comes through levels of benefits or inadequate levels of income, it needs to be treated exactly the same. The Answer was:
"The Government support the idea of a living wage and they encourage businesses to participate. However, requiring employers to pay a living wage higher than the national minimum wage could be burdensome to business and damage the employment prospects of low-paid workers ... In the absence of evidence on the living wage's adoption by employers and the resulting effect on employment levels and patterns, it is not possible to estimate the net effect on income tax and national insurance receipts, or on social security benefits".-[Official Report, 29/1/13; col. WA315.]
On the first part of the Answer, I would say that if it was the case that the minimum wage destroyed jobs, why have we continued to increase it from £5.93 in 2010 to £6.08 in 2011 and then to £6.19 per hour in 2012? Presumably, we accept that it does not destroy jobs.
When it comes to calculating the cost, Her Majesty's Treasury seems unable to estimate it, but the Resolution Foundation has estimated that the living wage would introduce gross savings of £3.6 billion in increased tax revenues and a reduction of £1.1 billion in tax credits and means-tested benefits-a not insignificant sum, as it is the same as would be yielded by the 1% cap on welfare increases over the next three years.
I therefore encourage my noble friend to reconsider the issue of the living wage. As a Conservative, I think that we should help companies to create wealth and jobs through lower taxes, not by subsidising low pay. That is worth looking at. It would be entirely in keeping with the principles of the Secretary of State for Social Security and, I am sure, the Chancellor of the Exchequer, and I would support it. That would show that we are on the side of low-paid employees who are struggling to get on in life and whose contribution and effort we respect and admire.
My Lords, normally one can say something halfway decent about some aspect of any social security Bill. I think that for the first time in 20 years in your Lordships' House, I can find nothing good to say about this Bill at all-nothing. It is simply a lock-in cuts Bill which, to save £3 billion, will send 1 million poor children into deeper poverty by 2020 so that the better off among us, including myself, are spared a tax rise while millionaire earners have a hefty tax cut that is, curiously, also worth £3 billion.
Why do we oppose this Bill? It is simple, really. First, as my noble friend Lord McKenzie said, it is entirely unnecessary. We have always had annual up-ratings to respond to inflation; we now have a 1% rise for the forthcoming year and a Bill, costing many hours of parliamentary time, continuing it for a further two years. Why? The only defence offered by the rather fragile impact analysis is "certainty" for the financial markets, the public, and recipients themselves. Certainty, my Lords? Even if the Government cruelly ignore inflation, which the OBR believes will hit nearly 4% by 2015-16, benefit spend will still depend on the future number of claimants as well as on the level of their benefit. Exactly how can the Government give certainty to the markets and, that nice touch, certainty for the recipients, who will no doubt be grateful to learn that their benefit cuts are guaranteed for the next three years? No, the Bill is to lock in these benefit cuts for the poorest-to take it off the agenda, so to speak-in preparation, I do not doubt, for further cuts still to follow.
After all, if our solicitous concern for the markets and the public was driving this Bill, we would offer the same certainty to taxpayers for the next three years. There would be frozen tax allowances, so no more Lib Dem raising of the thresholds with the very real uncertainty that causes for NEST, auto-enrolment and, no doubt, the markets. There would be frozen tax rates, so no pre-election handouts. No, the Chancellor wants to lock the poor into their cuts, while being free in an election year to adjust the taxes that fall on the rest of us.
Secondly, the spin surrounding this Bill is deliberately and unpleasantly misleading, suggesting that these cuts fall on the undeserving poor, so that is all right then-the ones with closed curtains. It is not all right but, in any case, it is completely untrue. We had the distinctly ugly spectacle of the Iain Duncan Smith press releases while this Bill progressed through the other place, implying that these cuts were morally as well as financially desirable because they would help to wean the poor off benefit dependency, which the noble Lord, Lord Bates, cited today, as though the recipients were addicts waiting for their next benefit fix rather than loving and responsible parents trying desperately to feed their children. That was while IDS knew, as we all know, that two-thirds of these capped benefits are going to people in work on low pay with children to support. IDS smeared every poor family in this land, and I had thought better of him.
Why do we need these top-up benefits, such as housing benefit and tax credits for people in work? We all know why, don't we? It was because while a wage may be acceptable for a single man in a full-time job on minimum wage, that wage will be hopelessly inadequate for a family man with two or three children to support unless it is topped up by tax credits. So unless employers raise wages substantially not to a living wage but to double the current pay to make good-to something like £10 or £12 an hour, which is not going to happen-their children will now become poorer still. That of course is why the argument that because pay is being capped to 1% so benefits must be is utterly fake, because Iain Duncan Smith-Mr Smith-knows perfectly well that they are largely the same group of people, their low but capped pay being topped up by low and, in future, artificially capped and lowered benefits.
It is precisely because earnings have fallen below inflation over the past few years during the recession that the tax credit bill has risen to compensate for that shortfall. Firms have also cut hours rather than sack staff; 3.5 million people are now involuntarily underemployed. As one family man in Norwich said to me not long ago, at least tax credits help to make up the difference.
So instead of the Government explaining and accepting, as they should, that the increase in tax credits is due to falling wages and that it helps to protect families, we are instead told that as wages have fallen, so must benefits, thus ensuring that the working poor face a double lock on pay and tax credits-and of course the universal credit, when it comes in, will no longer take the strain.
Nevertheless, the Government claim that we cannot afford not to cut benefits, an argument that has been run today. Benefit expenditure overall has grown, partly because tax credits help to offset low pay and lowered hours of work but mainly because pensioners are protected from any cuts, their pensions are rising and more of them are living longer. That is good news. However, the dirty news is that the unemployed and the low-paid, and their children, are now being blamed by IDS for what his colleague, Steve Webb, is rightly doing for pensioners. How cynical can you get? Pensioners get a triple lock into greater comfort, which I welcome, while the poor of working age get a double lock into increased poverty.
Let us be clear, and I make this point again: this is about policy choices. As my noble friend Lord McKenzie has said, the Government have shown that they are on the side of millionaires, who are receiving a tax cut worth £3 billion, rather than 1 million poor children who will see their parents made poorer still by around £3 billion.
Above all, the Bill and its impact analysis cheat. They both treat these cuts as though they were freestanding-one-off, so to speak-and apparently not so very large. Around 30% of households will see an average cut of £3 through this policy, according to the impact analysis documents, when actually those cuts are a further slice off income on top of the myriad other cuts since 2010 that are already damaging poor families. We have heard nothing about those today, even from those who sit on the coalition Benches. In that regard, I say, "Shame on you", because they are deleting what is clearly absolutely central to this debate. We have been offered no assessment of the cumulative impact of these cuts-£18 billion of cuts and no public analysis of how they build up or of whom they hit.
We had a debate on this a couple of weeks ago. I hope that noble Lords will forgive me if I repeat the broadest of statistics; as the Government will not, I will try. With the invaluable help of CAB and Landesman economics, we tracked the cumulative effects of all the cuts since 2010 on one family: a couple with two young children, he a security guard in full-time work on minimum wage, living in a £100 per week council house and, obviously, entitled to pay council tax. He gained £1.71 per week from the raising of the tax threshold and then went on to lose £30 to £35 per week in benefit cuts. If one of his children is disabled, say, he will lose over £40 per week. Under the universal credit, the cuts increase to £50 per week if he is in work or £65 per week if he is unemployed. It gives a new meaning to the slogan that the universal credit will make work pay-yes, by reducing the benefit floor underneath it.
Those statistics were the result of a weekend's work. With more time, I would have tracked the cumulative effect not only on the security guard's family but on a lone-parent family, on a childless couple and on a single person, because they all share the cuts. It is not rocket science; it is standard policy analysis on standard family types, as they are called, and yet we are told that the DWP and HMRC with, what, 60 professional analysts, powerful computer modelling and a couple of months in hand to do the work are unable tell us what the total effect of these cuts will be, which some of us were able to work out in a weekend? I really cannot believe that they do not know what the impact of their policy initiatives is and who bears the bill. They still will not or cannot tell us. If they do not know, it is an utter dereliction of social duty, it really is-you cannot develop policy and be indifferent to its effects-but if, however, they do know and are not telling us, it is a deceit that I cannot believe my former department would stoop to.
Finally, what makes me angriest of all-the right reverend Prelate the Bishop of Leicester powerfully focused on this-it that this Bill is grotesquely unfair on whom it falls, on poor children above all. Since when, as we talk about us all being in this together, do we include poor children in the we, but exclude comfortably off pensioners like me, who have experienced not a penny of cuts? What sort of we is that? The noble Lord, Lord Bates, said nobody was telling him where to find the money. I urge him and the noble Lord, Lord German, to accept that we are today making policy choices, not following financial imperatives. It really is about choices about who pays and, ultimately, who gains. It really is. With £32 billion spent on pension tax relief still untouched, although two-thirds goes on the better off, and what is happening on tax reductions for millionaires, these are political policy choices.
We could all have done different and in the process saved the situation that poor children will fall into, stumble into, as a result of what we are doing today. These cuts will fall on those in rented housing who rightly fear losing their home, rather than on those who have two, three or, as the papers have recently told us, even eight homes. They fall on those who go to food banks, not to foodie restaurants. They fall on separated loving dads who have their children stay over at week-ends, rather than on fathers who lose contact and refuse them. They fall on families with a wheelchair user rather than a Ferrari driver. These cuts fall on the vulnerable but voiceless, rather than on those of us with resilience and resources, but who, of course, are more likely to vote. It is a shameful little Bill. As Hobbes might have said, it is nasty, brutish and short.
My Lords, it feels presumptuous to rise after a powerful speech such as that, but I shall try to do my best.
This miserable little Bill is not only mean-spirited and out of touch; it, or rather the spin surrounding it, is misleading, not to say dishonest. Moreover, the whole enterprise is misconceived. It is out of touch in the way it perpetuates the relentless attack on welfare, which is depicted as an aberration in social policy, to put it no higher, that needs to be reversed instead of as a mark of a civilised society acknowledging its obligation with increasing prosperity to look after its less fortunate members. Recipients of welfare are demonised as battening on society, and crude cutting is mystified in the rhetoric of helping people off benefits and into work.
The Bill's justifications are misleading in their use, not to say their creation, of five myths. First is the myth that there is a radical separation between those on welfare and those in work, but many of the benefits that will be pegged by this Bill go equally to those on welfare and those in work: tax credits, for example. The second is that benefits have risen twice as fast as pay. They may have if you pick your dates correctly, but everyone knows that historically wages have risen considerably faster than benefits, which are pegged to the rate of inflation.
The third myth is that percentage, as opposed to cash, increases are a fair reflection of these things. I think that a caller to "Any Answers?" on the radio got this right when he pointed out that a 1% increase on the national average wage of £500 a week amounts to £5: a worthwhile sum. However, a 1% on jobseeker's allowance of £71 amounts to only 71p. That is as much of an insult as Gordon Brown's 75p increase in the old age pension.
Fourthly, there is the myth that any shortfall in benefits is made up for by the increase in personal tax allowance. This applies only to those in work, of course. Anyway, as Citizens Advice has shown, capping the uprating of benefits will swamp any gain from the increase in the personal tax allowance, certainly for low-income households.
The fifth myth is that the most vulnerable are protected, but you do not protect the poor by cutting welfare since it is the poor who rely on welfare. You only have to look at the treatment of disabled people, whom the Government maintain they are protecting under the Bill, to see the essential dishonesty of the Government's propaganda. Here, I declare my interest as having a connection with a number of disabled people's organisations, which are mentioned in the register.
Disabled people are certainly vulnerable. They have experienced a drop in income of £500 million since the emergency Budget of 2010. The Government have already reduced the measure by which benefits are uprated from the higher RPI to the lower consumer prices index. Some benefits for disabled people and carers, such as disability living allowance, the support group component of employment and support allowance and disability-related tax credits are exempted from the reduced uprating. This acknowledgment that disabled people need additional protection is welcome. However, notwithstanding the Government's claims, the Bill will still mean a real-terms cut in vital support for many disabled people. DLA will continue to rise by inflation, but this is not the case with employment and support allowance.
Following a work capability assessment, people who are unable to work can be placed in either the support group or the work-related activity group. Many disabled people are being placed in the work-related activity group. For them, the Bill will cap the uprating of this benefit to 1%. This will mean in effect that households in the work-related activity group receiving ESA will be £87.65 a year worse off. Furthermore, disabled people who are placed in the support group, meaning that their impairment or condition is such that they are not expected to look for work, have been given only limited protection from the reduced rate of uprating. The ESA that disabled people in the support group receive is made up of a core payment with an additional support group component. Only this additional component will continue to rise by inflation, with the core element rising by only 1%. This means that, overall, disabled people in the support group will see their ESA payments rise by just 1.4% rather than inflation. This will mean that a disabled person in the support group of ESA will be £62.76 a year worse off.
The real-terms loss of financial support that disabled people receiving ESA will face compounds a situation where disabled people are disproportionately more likely to live in poverty than non-disabled people. The problems of living on a low income are then compounded by the extra disability-related costs. When these are included in the measurement of poverty, the proportion of households with a disabled member living in poverty doubles to almost 50%. The Government's impact assessment recognises that the Bill will impact on disabled people. It states that households where someone describes themselves as disabled are more likely to be affected than those where no person describes themselves as disabled-34% of households as against 27%.
For disabled people who also rely on other benefits, such as housing benefit, the reduced rate of increase will impact on the financial support they need to live. Despite assurances that disability benefits will be protected and continue to increase by inflation, disabled people claiming ESA, housing benefit or any other benefit not specifically for disabled people will see a real-terms cut to the amount of financial support that they receive.
The Bill will also reduce the rate at which the lower tier of the disabled child addition of universal credit increases. Disabled children in the UK are already disproportionately likely to live in poverty. Approximately 40% of all disabled children-about 320,000-live in poverty, compared with a poverty rate of 30% across all children. Nearly one-third live in severe poverty, where a family's income is less than 40% of the national average. Under universal credit, which will begin to come into effect later this year, parents of disabled children can receive a benefit called the disabled child addition. This will replace the current disabled child tax credit.
Under universal credit, the support available for disabled children who do not receive the high rate of the DLA care component will be cut by one-half, from around £57 a week under the disabled child tax credit to £28.52. Furthermore, the Bill will mean that the value of this benefit will increase at a significantly slower rate-by just 1%-as opposed to in line with the consumer prices index, which is currently 2.7%. As a result of the Bill, parents of disabled children receiving the lower disabled child addition of the universal credit will lose £25.21 a year or £75.63 over the next three years.
Finally, the Bill is misconceived because, with the economy flatlining, it does not make sense to take purchasing power out of the hands of a section of the population that is most likely to spend what it has. The fiscal squeeze is set to tighten in 2013-14 compared with 2012-13, and the IMF is warning that planned cuts may need to be scaled back if growth does not build momentum by early 2013. Talk of growth, such as we heard in this House a fortnight ago, is largely beside the point while the level of demand in the economy is still so low. In these circumstances, the last thing we need is a further reduction in the level of demand. It even undermines the automatic stabilisers.
If the Government are to be as good as their word on the protection of disabled people, at a minimum the whole amount of ESA needs to be uprated in line with inflation for those in the work-related activity group, as well as the support group, and not just the additional support group component. Disabled people should be exempt from the reduced uprating of other benefits, such as housing benefit. I invite the Minister to respond positively to this proposal in the winding-up speech, before I start drafting amendments for Committee.