Families: Cost of Living — Motion to Take Note

– in the House of Lords at 3:22 pm on 31st October 2013.

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Moved by Baroness Prosser

That this House takes note of the current cost of living and its impact on family budgets.

Photo of Baroness Prosser Baroness Prosser Labour 3:35 pm, 31st October 2013

My Lords, I am privileged and pleased to be able to introduce this debate on the cost of living and its impact on family budgets. It would be disingenuous to pretend that the issues encompassed in the title are easy to deal with or to put right, but I will try to set out the ideas and proposals from these Benches which, we believe, would in the short term ease the pain currently suffered by so many ordinary, “get up and out in the morning” individuals and families and, in the longer term, strengthen our economy to the benefit of all players.

Let me start by setting out the major changes and events that have taken place in the UK in recent history which have contributed to today’s imbalance in our society. First, the world of work for many in this country has been turned on its head. An industrial revolution has taken place whereby thousands and thousands of decently paid but largely unskilled, mostly manual, full-time jobs mostly done by men have gone for good. They have been replaced with jobs in the service sector which are lower paid, requiring very different skills and often part time. In part, that has come about because of the extraordinary and rapid growth in technology, often replacing many hands with one worker and a computer screen; but let us not forget that that change also came about because thousands of jobs went overseas in the 1980s chasing the cheapest dollar and encouraged by the Government of the day. Some may say that that is no longer relevant because it was a long time ago, but that decimation of our manufacturing base and the skilled workforce that went with it has had long-term deleterious effects on our economy and on the livelihoods of many working people, still felt to this day.

Secondly on the big picture, we must take account of the 2008 banking crisis, a global collapse of confidence in financial institutions and a requirement for the Labour Government of the day to use millions of pounds of government money to save us from complete and utter catastrophe. We are of course aware that those events have led to a very difficult financial situation, with the need to curtail capital expenditure. Whether or not that justifies the current austerity regime is a matter of political opinion and fierce debate, which will no doubt run and run. However, it has been well documented that those on the bottom rungs and those in the middle of society have been the hardest hit by the Government’s actions, leading to a widening of the gap between the haves and the have-nots.

The final big picture point which needs to be mentioned is the opening up of European borders to some of the new members of the EU, enabling their citizens to come here to live and work. Many employees rely on EU labour, and most speak highly of the work ethic which those workers bring with them. Some, however, have, frankly, abused European Union labour, taking advantage of workers’ lack of knowledge of the legal protection available to them and often paying them below the rate offered to the indigenous workforce. That is not only wrong in itself but has introduced a “them and us” culture into workplaces and local areas which is divisive and unhelpful.

What comes out of all this? What is needed to being greater equality back to our society, so that people can feel that they have a stake in the future and that not all the rewards are reserved for those at the top? The coalition Government appear to have only one string to their collective bow when determining priorities for both expenditure and the cuts: more and more austerity and more and more in the name of “We can’t afford it”, to roll back the role of the state. I am not alone in thinking that the first point is there in large part to disguise the desire for the second. Is the Tea Party alive and well in No. 11?

I would argue, and I believe most of the general public would agree, that in a civilised society the role of the state in ensuring well-being and fairness, in providing essential services and physical infrastructure and in controlling the excesses of private companies and individuals is not only important but key to social cohesion and the long-term well-being of the nation as a whole. What we have at the moment is, of course, a disinclination on the part of the Government to do any of these things.

I start with incomes. According to the Government’s own Social Mobility and Child Poverty Commission, the UK has one of the highest rates of low pay in the developed world. The national minimum wage is now worth £1,000 less in real terms than in 2008. Average wages have fallen in 38 of the 39 months since David Cameron came to power and, only last week, official figures showed that working people are now £1,500 a year worse off since the 2010 general election. The Joseph Rowntree Foundation maintains that minimum income standards have been hit by 4% inflation; the Government declare that it is 2.4%, as measured by the CPI. Wages have risen by 1% overall; as Mr Micawber would say, “Misery”.

A future Labour Government will tackle low pay by strengthening the minimum wage. Moves are already afoot to investigate the role and powers of the Low Pay Commission to see that they are strengthened and extended, including consideration of where certain employers could pay more than the minimum. The Low Pay Commission will continue to make balanced decisions on these matters, taking into account the need for wage growth versus the possible impact on employment. Increasing pay would reduce the numbers of people reliant on benefit subsidies and therefore help the taxpayer and the nation’s coffers. It surely cannot be right that taxpayers generally are supporting low-paid workers while, in many cases, their employers make very large profits and often record their own accounts in such a way that reduces their corporate tax liability. The great British public are a bit fed up with that wheeze.

A future Labour Government will also be ready to help families back into work by assisting with the high cost of childcare. In particular, many women are deterred from participating in paid employment because the cost of childcare is far from affordable on the kinds of salaries that they can command. An extra 10 hours of free childcare will be available, on top of the 15 hours early years entitlement, and given to households with three and four year-olds where single parents or couple households are all in work. The cost of this extra provision will be met by increasing the bank levy rate to raise an extra £800 million a year.

I turn to housing, the costs of which are a reflection of supply and demand. Lack of supply has sent the cost rocketing. It is estimated that, today, it would take 22 years for the average family to save for a deposit. Effectively, that means no house. Rental prices have risen to an average of 41% of gross income for the 9 million people who rent privately. Our Prime Minister has presided over the lowest level of homebuilding of any PM in peacetime since the 1920s. The gimmick of providing guaranteed home loans will do nothing to increase the numbers of homes available and is therefore not capable of denting the current crisis. A Labour Government would provide a number of policy initiatives which will be key in helping to resolve this problem, including powers to tackle landholding; the development of new towns and garden cities; local authority access to fast-track planning processes to ease differences between neighbouring authorities; and ensuring that communities receive a greater share of the benefits of developments.

I turn to the major cost-of-living topic of our times: the rising cost of energy. What was supposed to be a move to install competition and efficiency—that is, the privatisation of the utilities back in the 1980s—has turned into what some of us always knew it would, a monopoly in all but name, with seriously hefty profits for those at the top and for dividend-holders. Just this week, Ofgem issued figures regarding the ups and downs of average wholesale electricity costs, showing categorically that the recently announced increases in consumer bills far outstrip anything that has had to be paid on the wholesale market.

A Guardian article on 29 October, a few days ago, cited Npower as having increased consumer prices by 7.2% and 9.1% in the years 2011 and 2012, despite the wholesale price reducing by 4% in 2011 and rising by less than 2% in 2012. As the article pointed out, running an electricity supply business is about more than wholesale and retail prices. However, complaints by the various companies that the network and environmental costs are a key factor appear to be rather dented by Ofgem’s assertions that network costs have risen by £10 in each of the past four years, with green costs rising by a similar amount.

The story of gas supply is a similar one, with recently announced gas prices ranging between 8.4% to about 10%. Meanwhile, the CEO of Centrica, owner of British Gas, enjoyed a pay packet last year of £4.97 million. He will not be turning down the thermostat or putting on an extra jumper.

This shameful state of affairs has even spurred Sir John Major to speak out, calling for the Government to recognise the unacceptably high profit margins by introducing a windfall tax on the industry. Neither the Prime Minister nor the Chancellor has responded positively to that proposal, preferring instead to continue their hopeless advice to be choosy and to change suppliers. Given that there is nothing to choose between suppliers, it is hard to know what benefit such an exercise would bring.

It is of course well known that the leader of the Labour Party, Ed Miliband, has committed to introducing a fuel price freeze, a proposal very much welcomed by the fuel-poor; when the choice is between heating and eating, any help is welcome. It is, I would say, a national disgrace that we have such a situation in this country. We may have something of a cash-flow problem at the moment but we cannot by any stretch of the imagination profess to be a poor country, and to have our citizens reduced to turning off the heating and/or lining up at food banks should be a matter of national embarrassment.

I started my contribution today by recognising that the financial difficulties that we face are very real and not easily overcome. I hope, however, that I have been able to persuade noble Lords that positive actions have to be taken if we are to get through this period with all our citizens on board. I hope also that I have been able to point out that it is unfair and unacceptable to expect those who have the least to carry the burden for those who have the most. I beg to move.

Photo of Baroness Dean of Thornton-le-Fylde Baroness Dean of Thornton-le-Fylde Labour 3:48 pm, 31st October 2013

My Lords, I thank my noble friend Lady Prosser for arranging this debate today and for the detail that she went into in her presentation. A recent YouGov poll reported that one-half of the working population believe that the coalition’s economic policies are making them feel less secure. That is not a revelation; I think that most of us would understand that from going around and reading the press. A Which? report this month says that consumers have less money to spend than they did a year ago; that more than one in four have cut back on essential spending; that women between 30 and 49, and those earning least, have been hardest hit by the austerity measures; and that basics such as the cost of fuel, energy and food were the biggest worry that households had—the three key factors that help keep a household together. One in five households had no savings at all to give them a barrier against these challenges. The Joseph Rowntree Foundation found that families with children were feeling particularly squeezed.

One of the areas they are squeezed on is related to the debate we had earlier on welfare cutbacks. If we look at the way the Government have applied housing policy—I do not expect the Minister to answer on this as it is not his portfolio—and consider underoccupancy, the Government have introduced the discretionary housing payment. That sounds good. The problem is that 200 local authorities are applying it in different ways. In one authority, you may get support for 12 months; in another, you may get it for three months. It is a postcode lottery. That is helping make people feel insecure.

Provident Financial, which is, I gather, the largest loan company in the country and is based in Leeds, said that rising food, fuel and utility bills are now the biggest reasons for people taking loans. It has 1.7 million customers, and debt levels are rising, which should concern us all. People are resorting to food banks. In April this year, we heard reports that the number doing so had trebled since last year. Last year, 113,000 people were relying on them; this year, there are 356,000 people, of whom 120,000 are children. I read in a newspaper—I cannot remember which—that one response was, “There are more food banks, so of course more people are using them”. What an arrogant, unthoughtful statement to make.

Reports indicate that we have growth, which is good news. I hope it will pick up momentum. Even so, the economy is still 2.5% smaller than it was before the recession, manufacturing is 8.9% lower and construction is even lower. Last Friday, the Daily Mail—yes, the Daily Mail—reported that workers expect a fifth successive year of below-inflation pay rises, and many have had no pay rise for four years. Working families are reading that and are reading about, for instance, the chief executive of Serco who is going because he has failed, but going with £9 million in his back pocket. He will not have any problems. They are reading about the enormous increase in dividends. Of course, I accept that savers need dividends, but it almost telling people that we live in two different worlds running in parallel: the world of the working poor, where two in a family working cannot bring in enough income to look after the family, and the other world of people who are exceptionally and enormously well paid. The subterranean world of working families did not create the problems this country has, yet they are taking the brunt of the austerity measures.

The recent report from the Government’s Social Mobility and Child Poverty Commission, chaired by Alan Milburn, a former Labour Minister, reported that the working poor are bearing the brunt of the coalition’s deficit reduction. That is quite a statement and quite an indictment, too. What is the Government’s answer? It is not good enough to say, “We have this debt problem”. There is no need to repeat that mantra that it is the Labour Government’s fault. That does not wash any more. It cannot wash; it never did. What is the Government’s intention? One thing that would help would be for the Government to adopt the living wage. That would give some hope because it is quite clear that the minimum wage is now not meeting what families need to live independently. We do not want working people to be dependent on welfare benefits, and they do not want that, either. A living wage would certainly help.

This is an issue that we need to address. I congratulate my noble friend on achieving this debate.

Photo of Baroness Tyler of Enfield Baroness Tyler of Enfield Liberal Democrat 3:54 pm, 31st October 2013

My Lords, I, too, congratulate the noble Baroness, Lady Prosser, on securing this critically important debate. Living standards are the most pressing issue facing this country, despite the recent and of course welcome signs of economic recovery and the preliminary estimate of gross domestic product, just published, indicating that output will grow by 0.8% during the three months to September. Nevertheless, real anxiety over the cost of living is the day-to-day reality of many British families, particularly those on low incomes. The stark fact is that living standards have been stagnating. The economic review, published yesterday by the Office for National Statistics shows that households in Britain have seen their living standards stagnate for the past four years and are spending an increased share of their income on essentials such as food, fuel and housing.

As has been referred to, the Which?Quarterly Consumer Report for this October found that just 24% of people surveyed believed that they were able to live comfortably on their earnings, and 52% in the lowest income group are still cutting back on essential spending. Furthermore, the Institute of Fiscal Studies has pointed that real average earnings continued to fall in 2012-13, and this trend is expected to continue into next year. The time for action on the cost of living is now.

As other noble Lords have already pointed out, the Social Mobility and Child Poverty Commission has done important work in drawing to our attention the problem of in-work poverty in Britain. As it has already been referred to, I will not repeat what was said, but this focus on children living in poverty in households where at least one adult works forces us to abandon for good the long-held prejudice that poverty is the preserve of the workshy. It is simply not the case.

Before addressing what needs to be done, I want to recognise that the coalition Government have a genuine commitment to easing the burden on lower and middle earners, and to acknowledge the welcome measures already taken. I particularly mention the raising of the tax-free allowance to £10,000—a flagship Liberal Democrat policy that has given a £700 tax cut to more than 20 million working people and lifted some 2.7 million of the poorest paid out of income tax altogether. We have also seen the freezing of council tax and fuel duty, expanded childcare and an increase in the state pension. Of course, these efforts to ease the pressure on household budgets are laudable, but more simply must be done, and quickly, if we are to tackle the looming cost-of-living crisis.

Because of my usual areas of interest, I wanted to talk about childcare and the living wage—but, this week of all weeks, I felt that I could not begin without saying something on energy prices. Like many other noble Lords in this House—and, I am sure, in common with many people up and down the country—the ever-rising price of energy, way above the rise in wholesale prices, makes my blood boil. It simply feels as if we are being held to ransom for a basic essential of life. I am no expert in this field, so my thoughts are those of a lay person. I certainly do not speak for my party on energy policy; others far more expert than I do that. However, the antics of the big six companies—which seem to operate as a price-fixing cartel—tell me that privatisation in this case has created an energy market that is simply not working in the public interest. Otherwise, why would prices be going up sharply when wholesale prices, which are by far the biggest element of energy costs, are relatively stable?

In recent weeks there have been many suggestions across the political divide about how to do something about a situation which is fast becoming intolerable; the noble Baroness, Lady Prosser, referred to some of them. They include a price freeze on energy, a windfall tax, far greater transparency over profits, the simplification of tariffs, a competition review, more focus on consumer power through things like collective switching, and switching green levies away from energy bills to general taxation. Personally, I think that anything which could feasibly and realistically bring down prices, and quickly, deserves further investigation to test its workability and impact. I hope that this does not simply turn into a political football match. The stakes are too high, with winter approaching.

I am fully committed to protecting the environment, investing in renewable energy resources and safeguarding our green energy and jobs. However, we must help those in fuel poverty. That is why I strongly support shifting some of the costs of green levies from individual energy bills to general taxation, which is more progressive in nature. In simple terms, it prevents the cost of vital energy efficiency measures such as insulation and new boilers for households in fuel poverty from falling disproportionately on poor households. For reasons of social justice, those with the broadest shoulders need to bear a bigger load.

That is why I strongly support the call made at the weekend by my honourable friend Simon Hughes, who called for the Autumn Statement to contain a rebate on energy bills that would help the poorest most, and bring immediate relief this year. Of course, we all understand that money is very tight and that George Osborne has many competing priorities to consider when he draws up the Autumn Statement. My message is simple. If the choice is between doing something to reduce energy bills and introducing tax breaks for married couples, the former gets my vote, and I suspect that the same could be said for many up and down the country.

On low pay, I contend that the living wage has a valuable role to play in the fight to raise living standards. As the Institute for Fiscal Studies’ recent report, Living Standards, Poverty and Inequality in the UK, concisely expressed it,

“it is low hourly wages rather than low hours of work that are most strongly linked to being in poverty”.

Encouraging employers to pay a wage that allows workers to have an acceptable standard of living without recourse to benefits is not just about fairness but makes sound economic sense. According to figures by the Resolution Foundation, savings of up to £3.6 billion could be made by the Treasury if employers paid the living wage, which would end the current situation whereby tax credits to low earners are used to top up wages—essentially, to be honest, subsiding some employers who could afford to pay more.

A much more empowering approach would be if people were able to maintain or improve their standard of life through earning their own money, rather than through complicated tax credits whose take-up rate is only 65%. I know that some will argue that this will lead to a loss of jobs, to which I would respond that the same thing was said when the national minimum wage was introduced, and it simply did not materialise.

That is why I am delighted that at our party conference in September, the Liberal Democrats decided to adopt in principle the living wage as party policy and to create a commission to establish an official living wage with a view to a gradual rollout across sectors and employers who can afford to do so. I hope that this will also help stimulate a debate about how a fixed pot of pay is distributed more fairly between those at the top and at those the bottom.

My final point is about childcare and the need to tackle its cost and availability, which again has already been referred to by other noble Lords. Much has already been done in this area thanks to Liberal Democrat Ministers who have pushed for this to be a priority. Lack of access to affordable and good-quality childcare prevents many women from returning to work following childbirth, denying their skills and the potential tax take to the economy, and is proving a major squeeze on the household budgets of those that do return.

The Institute of Fiscal Studies, yet again, has shown that female employment has been the key driver for increased income among low to middle-income families over the past 50 years. Of course, the current provision of 15 hours a week of free childcare for all three to four year-olds, and 20% of two year-olds from the most deprived backgrounds, rising to 40% next year, is hugely welcome. However, the cost of additional hours of care has been rising rapidly and squeezing the living standards of working parents.

Again, that is why I am so pleased that Liberal Democrat party policy is now to extend the number of free childcare hours on a stepped basis, starting with 10 hours of free care for babies between the ages of one and two, and culminating in 25 hours for four to five year-olds. That fills the gap between the end of parental leave and the existing free entitlement for two years. At a time when we all recognise that public finances are still very hard pressed, these are the sorts of measures designed to alleviate the pressure on living standards that I would like to see given clear priority in 2015 and beyond.

Photo of Lord Monks Lord Monks Labour 4:04 pm, 31st October 2013

My Lords, I, too, thank my noble friend Lady Prosser for initiating this very timely debate, which inevitably will be at the centre of the national conversations and debates as we come up to the next general election.

It is usually very nice to be part of an organisation that is top of the league. However, on this occasion it does not feel very comfortable to know that the UK is currently the EU’s inflation champion. Our rate last month of 2.7% was more than double the EU rate as a whole. In the wider OECD only three top us—Turkey, Mexico and Iceland. It is worth asking why we are in this uncomfortable position of being the EU inflation champion. Several factors have clearly played their part. One might be quantitative easing which boosts asset prices and thus favours the people who own the assets who are already wealthy, and in turn contributes to further rising inequality. It does nothing for most wage and salary earners who are the main source of effective demand and spending power. As the noble Lord, Lord Skidelsky, put it recently in the House, the winners are not the have-nots but “the have-yachts”.

What about the other factors behind inflation? Devaluation of sterling has certainly been a factor. The big fall in the pound in 2008 has probably mostly worked its way through now but there was a very strong inflationary effect, as one would expect given that we are a major importing economy.

The contrast with Ireland is stark. Ireland has had a very bad recession but it has also had some good things going for it. Whereas we have had a 20.7% increase in consumer prices over six years, Ireland’s rise was 3.2%. Food and drink prices have gone up by a hefty 35.9% in the UK in the past six years, but the Irish rise is 1%. The energy comparison is nearly as stark. The Irish rise is half ours and they do not have North Sea oil and indigenous sources such as we have.

I make it absolutely clear that I would not have liked the UK’s property bust to have been as severe as the Irish one has been. However, periodic devaluations have imposed big costs on us whereas that has not been the case with the euro. That is not a debate for today and I do not believe that the British economy was strong enough to hold its place in the euro in recent years. However, that situation shows that there is a cost to not belonging to a currency from which the Irish have benefited, at least as far as inflation is concerned.

My other concern is about pay, which other noble Lords have mentioned. Average real pay is down by 7.5% since 2008. Higher paid public sector jobs have been replaced with lower paid private sector jobs, which in turn have depressed demand. This problem was faced by many people before the recession, not just during it. Even when growth was healthy average wages barely grew and were negative for the lowest earners. Only the top 5% experienced faster earnings growth. The poorest half of the population has borne the brunt of the shrinking wage pie—a 25% drop since the late 1970s—with the winner being the increased share of profits in that pie. If profits had been ploughed back into investment, and therefore into growth, that might have been justifiable. However, that is not the case because the low rate of investment is another area where Britain is vying for top place in league tables in the European Union.

What can we do about all this? I know that the Minister thinks about these matters and I listen to his comments with great interest. However, can we not think about doing something about the following? What about the business culture in this country? The bonus system gives executives the incentive to use cash to buy back shares or to sell assets rather than invest in new capital and equipment. Bumping up the share price prompts executives to push up prices to keep profit margins high even when demand is weak and even though in the longer term the business is made rather anorexic. The bonus culture as it is creates an inbuilt bias against investment in new machinery, training and things that look like immediate costs but are benefits in the long term, and contributes towards inflation. This is not an insoluble problem. In Germany, after all, bonuses are tied not just to shareholder value but to growing market share, to organic growth. There is another factor in the bonus system and that is not the case in most outfits in this country.

How can we make an overdue change in that direction? The fact is that Britain needs a pay rise, as has just been said from across the House. Stagnating pay packets only depress demand and fuel borrowing on credit, and we have had too much of that in Britain in recent years. It also means reduced tax receipts and so intensifies our economic malaise. How about raising the minimum wage at least to its original real value? I know that the Government are beginning to look at this but can they accelerate that process and act on it urgently?

How about encouraging a new interest in the revival of collective bargaining in the private sector to help ensure that workers get a fair share—a fairer share than they are getting at the moment? One thing we do know is that inflation is not being wage-driven, which might have been the case in the 1970s but is certainly not the case now. As others have said, can we establish a mechanism involving collective bargaining for introducing the living wage concept? Trade union weakness has undoubtedly been a factor in the declining share of pay in the national income and in the growth of some undesirable things in the modern labour market such as zero-hours contracts, too much use of temps and agency staff, the ease of outsourcing and so on. The flexible labour market was supposed to generate faster growth and higher productivity. Does the Minister agree that it is now actually holding back growth, curbing demand, depressing purchasing power and making the economy go rather slower than it should be going in the right direction?

These are complex matters and I do not argue with that. They have been going for a long time and I do not argue with that either. I look forward to the Minister’s reply and hearing whether the Government are able to think strategically about what we do about a totally unsatisfactory situation.

Photo of Lord Horam Lord Horam Conservative 4:12 pm, 31st October 2013

I, too, congratulate the noble Baroness on having brought about this debate. She made a thoughtful speech because she acknowledged in her introduction that these are global trends. Whether you look at America, Canada or this side of the Atlantic in Germany, France or Britain, inequality has increased over the past 10 years. People on low incomes and middle incomes have been squeezed and in many instances their standard of living has reduced over long periods. The noble Lord, Lord Monks, also made an issue of the balance between profit and labour. That has in many cases gone the wrong way. I agree that there would have been a reason for that if investment had been as high as we would have liked it to be but obviously that has not happened, and that changing balance is an important part of what has gone wrong in the past few years for all sorts of reasons.

However, as the noble Baroness, Lady Prosser, said, tackling these big issues is difficult for any Government, whether they are Labour, Conservative or coalition. None the less, we have to be positive. There is no point in sitting back and letting all this flow over our heads. We have to do what we can. In that respect, the initiative by the leader of the Opposition, Mr Miliband, at his party conference was notable and certainly made a big political impact, if nothing else. Sadly, I am afraid that such an initiative is unlikely to bring the relief to ordinary people that they would hope for. In particular, the truth is that if there were to be a 20-month freeze it would be easy for companies to get around that, either by increasing their prices in anticipation of the freeze or, if it happened, looking at their situation and increasing their prices afterwards by more than they would otherwise have done. So the net effect over quite a short period may not be much different from what it would have been anyway. I am afraid that that is the difficulty of introducing freezes of that kind.

I heard what my noble friend Lady Tyler said. I prefer to look at the green subsidies, but not because we want to change them in any way. All three parties have, quite rightly, had a part to play in bringing in green subsidies to produce decarbonisation and to contribute to dealing with climate change. However, as my noble friend rightly pointed out, the way they are now weighted on gas and electricity prices means that they hit the poorest hardest, because those prices are regressive, whereas taxation is progressive. If a way could be found of shifting some of that burden from prices to taxes, we would make progress. I have no knowledge of what the Government may do but I know that not only Simon Hughes but the Prime Minister made a point about this. Much though I like my right honourable friend Mr Hughes, I think it is more important that the Prime Minister takes this on board and I am glad that he has. I hope that some progress can be made in this very delicate area.

When it comes to looking at the sustained effect on gas and electricity prices, one should also look at a well regulated competitive situation. I stress good regulation, as well as good competition, as both together are needed. I think that it was the managing director of Ovo Energy, Mr Fitzpatrick, who said precisely that to the Select Committee in the other place—that sometimes the “six”, as they are called, look like a rather cosy cartel which is immune to competitive good practice. People coming into the industry need to have that competitive good practice so as to make the energy companies bring down their costs and thus their prices. Those two arguments should be looked at by the Government, as we want to make a sustained impact on this problem.

I would point out to the Opposition that the Government, as my noble friend Lady Tyler said, have done quite a lot to keep down prices and costs for ordinary people. For example, mortgages have been at their lowest ever rates. The average bill for energy prices is £1,500 a year—a very high level for the average household—but mortgages are obviously even higher. They are a huge cost in many people’s budgets, and keeping them down has been a massive achievement by this Government.

Council tax has been frozen. My own borough of Hammersmith and Fulham has brought down its council tax charges three years in a row without any reduction in the quality of public services. That is a huge achievement by a Conservative council. The Government have also cancelled planned rises in fuel duty three years in a row. Fuel duty now stands at 13p per litre less than it would otherwise have been. The noble Baroness, Lady Tyler, mentioned childcare. That has been something on which the Government have honed in, and I am glad to say that the Labour Party is also talking about it. As a grandfather who occasionally looks after five grandchildren, I am aware that the cost of childcare is a real issue. I think that we should pay attention to that and be glad that the Government are doing so.

As was said earlier, we have also raised the tax threshold and are in the course of raising it further, so there will be help from April onwards. The lowest point of the threshold will be £10,000 a year, bringing a saving of about £705 to the average family. Frankly, that is a terrific saving. Therefore, there is help, and I am glad about that.

Again, I make the point to the Opposition that, as a result of all these measures that have been brought in under the coalition Government, inequality has in fact reduced. The fall in the income of the top 20% of the population has been 6.8%, whereas the income of the bottom 20% of the population has risen by 6.9%, I am talking about income, not living standards, and I accept that prices have gone up even more. The noble Lord, Lord Davies of Oldham—a good friend of mine—made the point the other day in Question Time that inequality was in the DNA of the Conservative Party. I am afraid that inequality was in the DNA of the Labour Party when it was in power: the Gini coefficient, which is the acknowledged measure of inequality, reached its highest point ever in our history under a Labour Government. Now, we are becoming more equal because of the measures that a Conservative Government are taking. I do not think that we will take any lectures from him or anybody else on inequality. In practice, the Labour Party talks a lot about equality but the Conservative Party has delivered more equality than the Labour Government ever did.

Obviously there is a big political battle going on but I will close by saying that we need to be positive, as the noble Baroness said, and do what we can to help low-paid families and people facing tough times at the moment. I agree with all those, including the noble Lord, Lord Monks, who said that there should be strenuous efforts to make the Low Pay Commission work effectively. A lot of work needs to be done in that area. The minimum wage is £6.31 and the London living wage is £8.55; there is a big gap between the two. I am talking about London only at the moment. We need to home in on this issue and make sure that people’s cost of living is reduced by as much as possible and that they have the income to cover it. There is hope but we must be positive. I am pleased that this debate has taken place as it has raised an issue that is important to every family in the land.

Photo of Baroness Donaghy Baroness Donaghy Labour 4:20 pm, 31st October 2013

I thank my noble friend Lady Prosser for introducing this debate. I think that it is very appropriate that we are having this debate on Halloween, described in the dictionary as the “eve of All Saints Day”, which is observed by dressing up in disguise, party turns, et cetera.

The noble Lord, Lord Newby, will be responding to the debate, no doubt in his usual balanced and intelligent way, and he will be the treat. Unfortunately, he will also be the disguise for some extremely nasty tricks from the majority in the coalition Government. The key test for any Government is the resilience of families to withstand the hard times. I maintain that we have a higher proportion of people in the UK who have no safety margin in the hard times, or even in the good times. I want to focus my contribution on inequality and low pay—in particular its impact on women.

Women have been clobbered by this Government—not surprising as they have been virtually barred from the Cabinet. On female employment, the UK performance ranks 15th in the Organisation for Economic Co-operation and Development. The Commission on Living Standards said that this,

“underperformance stems from a toxic mix of unusually high childcare costs, a lack of high quality part-time work and a poorly designed tax and benefit system”.

It continues,

“patchy and inadequate social care prevents many over 55s from working, as they care for elderly parents or partners”.

The report concludes:

“Compared with the best performing economies, around 1 million women are missing from the UK workplace”.

If policies do not change, a typical low-income household in 2020 will have 15% lower income than the equivalent household in 2008. I am not saying that solutions are easy, but this prediction is avoidable. We need to be far more active in promoting increased wages, employment and working hours in low to middle-income households. Today’s workplace is polarised, with employment growing in highly skilled jobs and in low-skilled, low-status service sector roles, but declining in middle-skilled jobs. While it is only part of the solution, we need massive investment in intermediate skills in tackling basic literacy and numeracy levels.

Let me turn, as other noble Lords have, to the issue of low pay. I am proud to be a founder member of the Low Pay Commission. It is 14 years since we set the first statutory national minimum wage of £3.60 but more importantly, its framework, which has stood the test of time. The figure was very modest because we wanted to establish a national minimum wage safely and securely.

The adult rate has increased by 72% since its introduction in April 1999. I am aware that the Low Pay Commission works within tight constraints and the fact that the hourly rate has increased by more than the increases in average earnings or prices is commendable. However, despite the increase this month to £6.31 an hour, it still means that the national minimum wage has not even doubled in 14 years. This is no criticism of the Low Pay Commission. It should have a wider remit, as has been said, and I welcome the statement by the Secretary of State, Vince Cable, that he is inviting the LPC to extend its expertise in this area. Let us hope it will come to something.

We need not only to extend its remit but to be much tougher on compliance. Research commissioned by the Low Pay Commission showed that around 6% of the bottom decile of adult earners in the UK were not receiving their entitlement to the national minimum wage. Areas of non-compliance are found in apprenticeships and internships; among those on work experience; in social care, especially domiciliary social care; and among hotel cleaners and home workers. The LPC recommended that more needs to be done to ensure that all available tools are fully utilised. It expresses disappointment that after two years only one non-compliant business has been publicly named.

Let me give a couple of examples of non-compliance. A company can show in its books that it pays the national minimum wage to its employees, but they then work substantial amounts of overtime at a lower rate off the books, bringing the total earnings to below the statutory minimum. We met complainants but they were not willing to raise the matter with their employer; they knew they would never get another job in the industry because of the close communications within it. We met home workers who were being paid 50p per pleated skirt whose circumstances prevented them going out to work. They were reluctant to complain because they knew that there was a huge queue of women waiting to take on the work.

One way to assist compliance is to have effective, clear and accessible guidance on all aspects of the minimum wage. However, the Government replaced the guidance which previously existed with a website which lacks the depth and breadth of that which appeared on the previous Government’s sites—the LPC’s words, not mine. Although the Government accepted the LPC’s recommendation about an improved information site, unfortunately it has not been implemented. There is no point in beefing up the national minimum wage if no one knows about it. Stakeholders have confirmed that the existing site does not meet their needs.

We should not forget that the floor provided by the national minimum wage is not intended to be a substitute for a low pay strategy—the two are entirely different. Too many employers rely on low pay rather than a skilled workforce and the taxpayer foots the bill for low pay. In-work benefits have been slashed by the Government, making the prospects for low-paid families far worse and saving money only in the short term. However, low pay will still be a cost to taxpayers because of the absence of savings and pensions to cushion any rises in the cost of living—not least because of increased debt, arrears and homelessness—which will eventually cost the Exchequer.

According to a Which? survey, 28% of men say that they are living comfortably on their incomes, but only 19% of women say they are. The gap between wealth and poverty continues to be obscene. When it comes to total disposable income, 45% is enjoyed by the highest earning fifth of the population and a mere 5% by the bottom fifth. The irony is that there has been a reduction in income inequality because of the recession but, as the Institute for Fiscal Studies has said, it is a temporary phenomenon.

I wonder how many in government have a clue about how difficult life is for those on low incomes. They seem to be invisible to this Government. It is a hand-to-mouth existence and includes people running from low-paid job to low-paid job, probably consuming gas and electricity via meter, the most expensive way, and being told they have a spare bedroom, which gives them either less money or less flexibility in managing their family life. Crocodile tears from the Liberal Democrats do not wash when they consistently troop through government Lobbies, cutting health services, health and safety, and welfare. I ask the Minister: when will his Government stop wagging their finger at the low paid and start to actually do something about it?

Photo of The Bishop of Derby The Bishop of Derby Bishop 4:30 pm, 31st October 2013

My Lords, I, too, congratulate the noble Baroness, Lady Prosser, on securing this debate and on setting such a good framework in her introduction. I want to look particularly at the human cost of this issue and at the family budgets of those who are at the sharp end of the struggle in trying to deal with rising living costs. I shall begin with the big picture. Earlier this year I organised a hunger summit in Derby. We looked at food poverty in what we call the developing countries, but we also looked at food poverty in our own city. We took the opportunity to launch a remodelled food bank system to provide a more comprehensive service to meet the growing food poverty that we are finding in our own back yard. That is the context in which we should begin to look at the pressure on family budgets. We were supported by the Fair Share Trust. Indeed, the noble Lord, Lord Newby, was in the House earlier this week when there was a Question about food waste, and I hope that one of the things we can do with excess food is redirect some of it towards organisations such as the Fair Share Trust so that it can be used to supplement those families whose budgets are so stretched that they cannot afford to eat properly.

Over the past 12 months in the city of Derby, we have seen a 100% increase in the use of food banks. The point I want to make in this debate is that the shift has moved away from the normal suspects, who are, tragically, homeless people, towards families who are housed, but whose incomes are so low that they cannot feed themselves seven days a week. The increased demand has been seen among occasional users who pitch up several times a week in order to secure a proper meal for the family that day.

It is the same situation with treats. Today, many people are living on such stringent budgets that they cannot afford any treats. St Peter’s Church in the middle of Derby runs something called “Christmas Lunch on Jesus”. The project has some 400 volunteers who send a meal out on Christmas Day. Last year the meals were sent to 1,500 families, and this year the project is budgeting for 2,000 families. People do not have the wherewithal even to celebrate Christmas in the way most of us would take for granted. There is a real issue here.

I want to comment briefly on three areas of complexity. The first is work and income, the second concerns lifestyle, and the third concerns the role of the state and other support. I turn first to work and income. Recently, a family with one child turned up at one of our churches. They had got out of work and into debt. It took 15 weeks of debt counselling, providing food and childcare support—all the normal things—to turn the family around and get them back into work. The person concerned is now contributing food to the local food bank. My point is that work for many people is very insecure. It does not plough on and on and it is not just about getting a living wage. The experience of trying to be in work is insecure for many people. It is not untypical to tip out of work, get into debt because of having been living at a certain pace, and to run out of food. Churches and other groups try to pick these people up again. The problem, however, is that churches and the volunteer sector are struggling with the increased number of people in this situation and finding it harder to make that kind of generous response. When we talk about work and a living wage, we have to remember how insecure that is for so many people. Whatever the system is that underlies it, an enormous amount of energy and good will is required of volunteers to help people to cope. As other noble Lords have said, we need a more systematic approach to the provision and security of work.

My second point is about the sheer complexity of lifestyles and the difficulty around interpreting the phrase “family budgets”. Perhaps I may share another story. Two weeks ago, a family turned up at one of our city centre churches comprising a mother who was eight and a half months pregnant and five other children. They were running away from domestic violence. By the way, the woman has successfully had her sixth child. They pitched up at the church, a strange place to them, with no support systems. The children had been out of school for six months. The church has worked hard to place the children in local schools, get them bus passes and school uniforms in order to help this woman through the trauma of the birth of her sixth child. Her benefits have been stopped because she has not replied to a letter from the DWP, but that is because she is no longer at home, having run away from domestic violence.

There is no easy answer for that story but it is not untypical of the very complex lifestyles that many people have. These are not normal families that you can just put in a box or bureaucracy, or find a welfare system for. There is a certain chaos and unpredictability about many people’s lifestyles. We therefore need to invest more in agencies with the sensitivity to pick up people who do not fit into the boxes, help them negotiate with the system, and discover what benefits and housing might be available. As family budgets are under such pressure, we really need to invest in those who can help people negotiate with the system.

My third point is about the role of the state. The big word is cuts: cuts in family budgets, in local authority budgets and in government expenditure. I encourage noble Lords to think that there is a potentially more positive side to this negative mantra of cuts in terms of the reshaping of welfare provision in our times, which is a challenge to all of us. Clearly, Government and local government are taking various decisions about the role of the state and public authorities, and we are having a political debate at the moment as to whether they are the right decisions. However, there is a very interesting role for not just the voluntary sector, which I have been talking about, but business. In the city of Derby, we are working quite closely with local businesses to see how they can support the management and leadership of schools, and support the development of work opportunities for young people and raise aspirations for children in certain educational environments.

My experience is that many local businesses have a genuine desire to be part of a new ecology of trying to reach out and help people understand what work is about, to access it and be part of growing up to make a positive contribution. As the Minister looks at the big macroeconomic and social issues that have, rightly, been raised, I hope that there might be some response on how we can properly encourage a role for the voluntary and faith sectors in this interface between those who are crushed in terms of family budgets and those systems designed to support them, and on how can we try to grow a different ecology of welfare and mutuality where society uses local resources and local businesses, and the state, in a different kind of partnership. There is lots of talk about it but, for those of us on the ground, not a lot of action and few encouraging signs.

We are, of course, approaching the liturgical seasons of All Souls and All Saints. They are wonderfully inclusive notions—you could not be more inclusive than All Souls. I hope, whatever our political divisions, that we would be united in a genuine passion and concern for all souls, particularly those whose family budgets are most pressed, most chaotic and most under pressure. I hope that there could be a positive line across all parties of the House about creating a new ecology for welfare and care that could be very appropriate for the future.

Photo of Baroness Drake Baroness Drake Labour 4:38 pm, 31st October 2013

My Lords, I, too, thank my noble friend Lady Prosser for securing this debate. “Making work pay” in a world where,

“those who aspire to work hard and do the right thing are rewarded”, is a challenging aspiration to achieve. Recent figures not only confirm the squeeze on living standards for low to middle-income households but also that it will be longer and deeper than previously projected. Despite job growth in the private sector, wages have fallen in real terms, many work fewer hours than they would like and the impact of changes to benefits and tax credits are all putting further downward pressure on those households. Although tax credits now make a smaller contribution to income for workers in the bottom half, it is still a significant contribution, and I speculate that deeper cuts to come in the welfare spend will be on in-work benefits.

To some extent, all families have been affected since the recession but households in work, on low and middle incomes, especially those with children, start with far less than the better-off, making the squeeze even harder to bear. They spend a greater proportion of their income on essentials such as food, fuel and transport, the costs of which have risen much faster than overall inflation, leaving them facing falling wages and an “inflation premium”. It is not surprising that calls to constrain energy bills have such resonance with the public. In addition, modest-income households are more prone to debt. According to the Resolution Foundation, among all households with some form of debt in the bottom half of the income distribution, 30% can be considered “debt-loaded”: their repayments account for more than a quarter of their gross household income.

The causes of the pressure on household budgets are both structural and cyclical, exacerbated no doubt by the events and policies of recent years. As my noble friend Lord Monks identified, it is also evident that many households benefited less from previous economic growth, when the wages of ordinary full-time workers barely grew and were negative for the lowest earners. Looking back even further, inequality increased at all points in the income distribution from 1979 to 1997.

The challenge for the Government is to ensure that the benefits of future growth are shared more equitably. To quote from the Commission on Living Standards’ Gaining from Growth report, only 12% of every £1 of UK GDP now goes to wages in the bottom half, down 25% in the past three decades. Polarisation of incomes is not unique to the UK but it is greater here than in most other developed countries, and so is the extent of low pay. To make up the ground left by the recession, wages for the low to middle-income groups have to grow by 1.1% a year in real terms over the next decade. That is without taking into account the reduced expenditure on tax credits and benefits. As my noble friend Lady Prosser said, that challenge has to make us consider how we can build on the current role of the Low Pay Commission and strengthen and broaden the contribution of the national minimum wage.

The factors contributing to low UK productivity are several and complex but they are neither new nor recent. Comparatively low labour productivity, low investment, lesser management skills and low company expenditure on training have been evident for decades, as has an institutional and cultural set-up that encourages many employers to seek low-paid low-skill routes to business success. Labour productivity has fallen further in the past three years.

A broad strategy to reduce the UK’s reliance on low pay must include a national minimum wage but setting that wage so as to avoid any perceived undue impact on employment and at a very modest level has not constrained growing income polarisation. There is a real danger that unless the national minimum wage is raised significantly, some firms will not need to be or become more innovative and more productive in absorbing higher wage costs. Those that are productive and could absorb the higher costs will simply continue to pay lower wages because they can.

Increased productivity is absolutely essential for sustainable rises in living standards but if we do not take a more radical approach to the national minimum wage and the role of the Low Pay Commission, we risk accepting that either the taxpayer must subsidise the wage bill of UK companies with low productivity with in-work benefits or, if in-work benefits are reduced, family budgets will become even more polarised. People who do the right thing will not be rewarded. Just over half of low to middle-income households have no savings at all, and two-thirds have less than a month’s income in savings. Yet the Government want people to save for their retirement and be less dependent on the state in so many ways. On the other side of that equation is that government must address the squeeze on living standards that is the reciprocal responsibility of government on a call to its citizens to accept that level of responsibility in return.

Time constrains my comments on employment levels and working hours as the driver of living standards, but I shall make a quick point. Yes, dual earnings act as an important source of protection for household budgets, but figures reveal that female employment has plateaued in recent years. Comparatively, the UK is distinguished by underperformance of women with children in their 30s and women over 50 due to the combination of intolerably high childcare costs, the lack of high-quality part-time work and the design of the tax and benefits system.

I refer to the point made by the noble Lord, Lord Horam, on the Gini coefficient, which is a measure of inequality, a statistical measure of which I am particularly fond, as it borrows my name. We need to be careful how we interpret statistics. If poverty is expressed as a percentage of earnings, and if earnings fall, there is a perception of there being a reduction in poverty, but the poor are still very poor. Although there has been a decline in the highest earnings, that will not be sustained, but the pressure on low to middle incomes will, because the fundamentals delivering income polarisation are still there—they are not the same as what comes to play in the rise of the highest levels of earnings.

The market alone will not address income polarisation. It requires intrusion by Governments with labour market policies. Economic policy that ensures not only steady growth but that those in the bottom half receive a fair share of the benefits of that growth will be one of the biggest challenges for all political parties and Governments in the following decade.

Photo of Baroness Pitkeathley Baroness Pitkeathley Deputy Chairman of Committees, Deputy Speaker (Lords) 4:47 pm, 31st October 2013

My Lords, I congratulate my noble friend on securing this debate and on her excellent speech setting out the problems relating to the rising cost of living. There is very little to add at this stage, and my two main points are the same ones that many noble Lords have put forward.

First, it is not so much cost of living that is the problem, but the level of income. When we go to Scandinavia, we find the cost of living there tremendously high, but it is not a major problem for them, because their incomes are adequate and sufficient. For most people, incomes in this country are both inadequate and static.

The other major issue which has been referred to several times today is that this is not a problem for everybody; we are definitely not all in this together. The disparity between those who are barely coping and those who seem to be more prosperous than ever is what rankles. This was encapsulated by what was overheard in a north London supermarket: “Darling do we need parmesan for both houses?”. This is not the big society about which we were promised so much; this is not even a halfway decent society.

The Joseph Rowntree Foundation study, which has updated the minimum income standards first published in 2008 to this year, shows that the continuation of several trends has made it harder for households to make ends meet. Increasing prices, especially in childcare, social rents and public transport, as well as in food and energy, have pushed the minimum cost of living up faster than the average cost of living. These increases show no sign of abating, while cuts in benefit entitlements both to those in and out of work are going to continue. We must remember that so many benefit recipients—some surveys say the majority—are actually in work. These discrepancies will continue; the report concludes that the minimum amount that households without children need to earn rose about in line with inflation, but for families with children this amount continued to rise more steeply. The people for whom rising prices for food and fuel are the problem are those whose wages are static or whose benefits have been cut. These people literally have to make that decision which I never thought I would see again in our supposedly decent society: whether to have food or the means of keeping warm.

Nowhere is this more acute than with those who are disabled and living—through no fault of their own—on benefits. Let me give a specific example. Beverley Smith is 47 and severely disabled.

“She’s tetraplegic and largely bed-bound. Most of her £174-a-week benefits income goes straight into her social care costs, leaving her with £71 a week for food, bills and any other expenses. In April this dropped to £55 when she had to make up a £16.55-a-week housing benefit shortfall as a result of the bedroom tax … Because of her condition she needs the heating on constantly, all year round, at a cost of around £108 a month. Two years ago it was around £80 a month. Her basic income has barely gone up since then, but now, she says, her gas supplier thinks she should pay £120 a month. ‘I can’t afford it now. How am I going to pay that?’”.

She has had to ask for help from a charity and gets food parcels from a local food bank. I join with others in condemning the Minister’s contention that people go to food banks because they are there. Beverley’s friends help out occasionally but she says,

“I miss out meals. Some days I might have some … toast, and some porridge, and that’s it”.

Beverley is one of hundreds of thousands of vulnerable people—particularly older people, people with a disability or families of low income—who face that heat or eat dilemma. Imminent energy price rises, soaring food bills and shrinking or static incomes have played havoc with budgets that were already tight. Many people are really in fear of what the winter will bring.

When we consider the difficulties such individuals and families now face, we must not forget that they are not only strapped for cash at present but also building up poverty for the future since they can make no possible provision for pensions from their current budgets. As our population ages, this will become more of a problem. I sincerely hope that the Government’s consultation on the deferred costs for care will clarify the position about how much in the way of resources you can have and still be eligible for the scheme. If the cap stays at its current level, the coalition’s much trumpeted reforms of care will mean very little to those in need of it.

One more issue, mentioned by the right reverend Prelate, is the effect of rising prices, especially of fuel, on community groups. Our local village hall in Herefordshire, a community hub if ever there was one, is a centre of not just leisure activities but vital links and social contacts, especially for the older people in the village who without it would be socially isolated. It is struggling to pay its heating bills, maintain the building and keep the rates for the breakfasts and lunches it provides at an affordable level for those who need it so much. This story will be repeated throughout our country, in towns and cities as well as villages. We often do not value such community hubs until they disappear but we should try to remember how vital they are in maintaining links and contacts. Such organisations and charities always work as hard as they can to ensure their services continue, often via the personal sacrifice of the volunteers in charge. Helping them invest in fuel-efficient heating, insulation, solar panels and so on can be useful not only now but as insurance for the future. We simply cannot afford to let such services close. We should remember that although volunteers are very good value, they are not cost-free.

So what must we do about it? First, as we have heard, we must enable people to maximise their incomes. Better access to benefits and no bedroom tax would be a good start. We forget, in the stigmatising of benefit claimants which seems to be de rigueur now, that huge amounts of benefits actually go unclaimed. We must also strengthen the powers of the Low Pay Commission, and I endorse what others said about the living wage. Better childcare and support for carers would also enable many who wish to undertake paid work but are currently prevented from doing so.

Secondly, we must ensure that instead of focusing on fraud in the benefit system—which is a tiny amount of the whole budget—we focus on fraud of all kinds in the tax system to target the rich as well as the poor. We must also do better with controlling prices of food and fuel. I hope that the Minister will not just say that the Government take those issues seriously but indicate what action they are committed to in order to address those most pressing problems.

Photo of Lord Davies of Oldham Lord Davies of Oldham Shadow Spokesperson (Transport), Shadow Spokesperson (Treasury) 4:54 pm, 31st October 2013

My Lords, this has been an excellent debate, and we owe a debt of gratitude to my noble friend Lady Prosser for both securing the debate and introducing it in such an expansive and perceptive way that it gave all other contributors some substance on which to cohere. She reflected on the changes in our economy and society over the past three decades, and the change in the nature of work. We have moved from a much more substantial manufacturing base 30 years ago and lost our capacity to make cars, unless the Japanese are employing British workers; all our companies apart from Jaguar Land Rover went down. The movement from the manufacturing industry to the services industry has produced a change for workers, with much greater part-time work; the emergence of the concept of zero-hours, which seems such an offence to the dignity of people presenting themselves for work; and the reduction in the bargaining power of the workforce.

The Government are represented today by a single voice from the Back Benches, the noble Lord, Lord Horam, who introduced some challenging concepts on which, if he will forgive me, I will not dwell too much on this occasion, because my noble friend Lady Drake raised the whole issue of how much the reduction of equality leads to the impoverishment of society, and what that means to those at the bottom end.

I am very grateful to the right reverend Prelate for identifying the community and local dimension of difficulty in acute economic circumstances, where a whole neighbourhood is beset by poverty among so many households. My noble friends have been concerned to emphasise the sheer blatant facts of the failure of wages to maintain the level of inflation. For wages to be stagnant over a decade when the inflation rate is more than 2.5% throughout that period is a reduction in the resources of working people. That is to say nothing about the level of unemployment, which also means that very many do not have work at all. Those in work have also suffered greatly in that period, at a time when on all sides we have been beset by the concept of the bonus culture and the “get rich quick” dimension of the City.

If we are talking about inequality, let us talk not just about inequality between groups but between regions. The real desperation of our nation at present is a ridiculous concentration of resources in London, which distorts the whole perspective of national statistics, but is reflected in the fact that ordinary Londoners are less able to get homes than people in other parts of the country. I was very grateful to the noble Baroness, Lady Tyler of Enfield, for her reflections on that point. She also raised the crucial question of energy. Let me emphasise that as we approach the depths of winter, the anxiety of people faced by the increase in energy bills at present is profound. Added to the insecurity which they suffer about the world of work, they are now facing circumstances in which the increasing bills will thrust many of them into considerable debt and, in order to avoid debt, into taking risks with keeping the household warm.

I know that there has been an element of dismissiveness about Ed Miliband’s proposal for a price freeze. However, that freeze is to do two things: first, to protect people in this crucial period of need so that further increases do not take place and, secondly, because we are concerned to restructure this imperfect market represented by energy. Of course, that means looking at the structure of Ofgem and its failure to avoid a situation in which our energy is overwhelmingly run by a group of six in a cartel, which play follow my neighbour in enriching themselves at the expense of ordinary members of the public.

One dimension that has not come into this debate but which is also of great significance to people on low incomes is the increasing cost of transport. I emphasise the cost of buses. Poor people do not travel a great deal by train, although those people who do become poor because of the massive increases in fares that the rail companies are able to perpetrate. Poor people travel on buses and are continually seeing those fares increase by more than double the rate of inflation. Travel costs are a very great concern for the person with a part-time job, and limited opportunities to work, who has to travel. That is so even for the person with a full-time job who has to travel. It is also true for our young people. How are they meant to get to their colleges and engage in education in circumstances where travel costs are so great?

I emphasise also a fact which my noble friends have covered very fully, as they have all aspects of this debate. There is a real issue of the pressure on housing. A very large percentage of our population are now in the private rented sector, and we all know the rate at which rents are increasing. Nothing is more disturbing to a family or to individuals than to feel that their housing costs are running out of control. As for whether one can get into the housing market with a purchase in London, unless a family is earning £100,000 a year its entry into the housing market is very difficult indeed. We all know the particular approach of the Government in their limited position with regard to 5% mortgages. The anxiety about that is obvious enough: that it will stimulate a housing bubble which will put us back to 2007-08, unless we are very careful.

In this debate, my noble friend Lady Prosser engaged with the fundamental issues of how people protect themselves and achieve security in a society in which so many issues are stacked heavily against them. She was followed by contributions from all parts of the House, but overwhelmingly from my own Benches, which have identified just where the Government need to act. It is a tough agenda that we have set for the Government, but the Minister has already been identified as our treat, so let us listen to him.

Photo of Lord Newby Lord Newby Lords Spokesperson (HM Treasury) (Whip), Captain of the Queen's Bodyguard of the Yeomen of the Guard (HM Household) (Deputy Chief Whip, House of Lords) 5:04 pm, 31st October 2013

My Lords, I thank the noble Baroness, Lady Prosser, for initiating this debate. I agree with many noble Lords, specifically the noble Baroness, Lady Drake, that what we have been discussing today is arguably the biggest challenge that we face with regard to economic policy—how we deal fairly with the bottom 50% of the workforce in terms of their earnings. I agree with the noble Baroness, Lady Prosser, that putting the current situation right is extremely challenging.

I agree very much with the noble Baroness’s analysis of the issues that are central to that challenge. Some of them, like the labour market changes that she and other noble Lords described, are very long-term challenges, while some have been exacerbated by the banking crisis. With regard to labour market changes, I agree with the noble Baroness, Lady Donaghy, who said that there is a real challenge because of, as it were, the hollowing out of the middle and the problem that people with intermediate skills have found their real wages squeezed. One of the reasons why we are keen to have a much higher level not just of apprenticeships but of advanced apprenticeships is to upskill many more people in that middle band so that they are more able to earn a higher income than they are at the moment.

I will talk later about low pay, but there has been quite sensible interest in and concern about what has been happening as part of a long-term trend on high pay. I was a member of the High Pay Commission, which looked at this whole issue. It has been very striking how over a couple of decades pay at the top has virtually lost touch with the reality of everything else and gone into the stratosphere. The Government are in the process of implementing the majority of the recommendations of the High Pay Commission, not least in giving shareholders a greater say in the pay of senior executives. It is a fact that bonuses have fallen by 85% since the peak year 2007-08, so something has happened in a way that we would all think was beneficial. However, I do not think anyone believes that we have gone as far as we should.

With regard to financial services, the remuneration code, which is in the process of being strengthened, will tie earnings much more closely to performance and lead to a much greater degree of deferred payment, which will not stop people being paid a lot of money but to a far greater extent will tie those earnings to what they have actually achieved. That, combined with greater shareholder control of earnings, will make some difference at the top end.

Fixing the economy is the Government’s first priority because this will raise everyone’s living standards. We are also keen to oversee a fairer tax system to ensure that jobs are created across the country and that those who make the most pay the most. However, we understand the immediate financial pressures that have been the main subject of today’s debate. I shall do my best to respond to as many of the issues that have been raised as possible—first, by looking at the way in which the Government’s economic policy is helping to keep employment as high as possible and interest rates low; secondly, by discussing the action that we have taken to protect standards of living; and, thirdly, by discussing our commitment to ensure that the impacts of our policies are as fair as possible.

First, on economic policy, we know, and have been discussing, the extent to which times are difficult. However, our view is that the only way to deliver a sustained improvement in living standards is to tackle the economy’s problems head-on and deliver a recovery that works for everyone. The Government’s economic plan is designed to equip the UK to secure a stronger economy and a fairer society and to help people who aspire to work hard and get on. The economy is turning a corner. Third-quarter GDP grew by 0.8%. This growth was broad-based across all sectors of the economy, and surveys of future intentions suggest that the growth will be sustained. This does not mean that we have eliminated all risks, but by cutting the deficit significantly, we have helped to secure near-record low interest rates which, as a result of the Bank of England’s forward guidance, are not likely to rise significantly in the short term. These low interest rates have supported hard-working families’ living standards, especially those families which have mortgages to pay. If mortgage interest rates rose by 1%, we would see average mortgage bills increasing by around £1,000 a year. It has been a central tenet of this Government’s policy to have a credible deficit reduction plan so that we can sustain low interest rates, and in this central aim, the Government have been successful.

Our economic policies are also helping people across the country get into work. There is obviously no better way to increase standards of living than by making sure that people are in work and securing a reasonable wage. There are now more people in employment than ever before: 1.4 million private sector jobs have been created over the past three years and 155,000 have been created over the past three months. It is pleasing that of the groups about which we have most concern the number of NEETs has fallen for the past five quarters. It has not fallen far enough, but there has been progress.

Last year, real household disposable incomes grew by 1.6% on average above inflation despite the squeeze, which was the fastest for three years, and according to the OBR, next year total earnings will increase above inflation and by 2015, they will be more than double the rise in inflation.

I realise that in the mean time pay, earnings and disposable income have been squeezed significantly, but one element of the issues that we face, which the noble Baroness, Lady Prosser, did not highlight, was that when this Government took office, there was no money left. This has been the leitmotif throughout all the policies we have had to adopt in order to get the deficit down and to keep interest rates down. We are also taking steps wherever we can directly to protect standards of living by pursuing measures that will keep cash in the pockets of hard-working people up and down the country. Noble Lords will be pleased to know that I am not going to list everything, but I shall mention the key points.

First, we are increasing the tax-free personal allowance to £10,000 by April next year. Taken together, this Government’s increases to the personal allowance will put £700 back into the pocket of each and every average taxpayer and will have taken around 2.7 million people on low incomes out of income tax altogether. We believe this is the most effective way to support those on low and middle incomes because it enables people to keep more of the money they earn. Achieving this in times of plenty would have been hard enough, but doing it under the economic circumstances we inherited makes it even more important. As a result of the changes that we have made, nine out of 10 working households will on average be almost £300 a year better off as a result of tax and benefits changes that took effect this year.

We are also taking a series of actions to keep consumers’ energy bills down. Although I agree that there is quite a row—to put it mildly—about what is happening to energy prices, and there is some suggestion that they are not actually rising very much, the wholesale price of gas this winter will be 8% higher than the price last year, according to Ofgem. That is the back ground to the price increases that we are seeing at the moment. The steps we are taking on energy bills include 2 million households getting help under the warm home discount, including well over a million of the poorest pensioners who will receive £135 off their electricity bill. Under the winter fuel payment, between £100 and £300 is available tax-free to those over 61 to help them pay their heating bills. A £900,000 Big Energy Saving Network will help the most vulnerable get the best deal for them. We are legislating through the Energy Bill to ensure that suppliers place all customers on the cheapest tariff that meets their preferences. We are making energy bills simpler, clearer and fairer, helping the 84% who do not switch and could be missing out on savings of up to £158. It simply is not the case that all electricity companies charge the same. There are savings to be made.

We are going further. The Prime Minister has announced there will be an annual review into the state of the competition in the market. This review will be led by the OFT, Ofgem and the new Competition and Markets Authority, when it comes into existence, to report by next year. Further measures on energy will be announced shortly by my noble friend Lady Verma when she gives the annual energy Statement. I recommend that all noble Lords stay for that.

In addition to announcements today, last week the Prime Minister announced a review of green levies on energy bills and more details on that will be announced by the time of the Autumn Statement.

Finally on energy, I completely endorse the comments of my noble friend Lord Horam on Labour Party policy in this area. It is simply incredible to believe that a temporary price freeze would have the effect for which the Labour Party hopes. I suspect that that is why the majority of people, when polled about this last weekend, said that they did not believe that it would work. We have also helped local authorities to freeze council tax, and we have frozen fuel duties. All these measures help to reduce the day-to-day cost of living for millions of people up and down the country.

I turn to redistribution and the distribution of income more generally. Before the fiscal consolidation we are now implementing, the richest 20% contributed three and a half times as much in tax as they received from public spending. This has now increased to around four times as much. As noble Lords have already discussed, there has been a fall in income inequality to the lowest level since 1986. There may be a number of caveats around that, but it is the case that income inequality is at the lowest level since 1986. For those of us to wish to see less income inequality, that is something to be pleased about. We have also taken steps to ensure that the most vulnerable low-income groups have been protected against the effects of economic circumstances.

Not least are the measures that we have taken for pensioners. It is interesting that not a single noble Lord has mentioned pensioners in the debate. I suspect that the reason is that the Government have treated pensioners, if not overgenerously, then certainly very fairly over the past three years. Pensioners have seen above-inflation increases to the state pension. The triple lock means that the basic state pension is higher by £6.85 a week than if it had been increased by earnings only. The average person reaching state pension age in 2013 with a full basic state pension can expect to receive an additional £12,000 in basic state pension over their retirement. In April this year, following a 2.5% increase, the basic state pension was estimated to be almost 18% of average earnings, the highest it has been in any year since 1992. In times of austerity, this is a significant achievement.

The noble Baroness, Lady Tyler, and others talked about improved childcare for people on low incomes. She referred to the fact that we are doubling the number of disadvantaged two year-olds receiving 15 hours of free childcare a week to 260,000 by September next year. We have also implemented 15 hours a week for all three and four year-olds and have announced free school meals for all children in their first three years of primary school.

Almost every noble Lord who has spoken in the debate has talked about low pay, which is clearly a very significant issue. The problems we now face are in part the result of long-term trends in unemployment. For example, the noble Lord, Lord Monks, pointed out that many people moving from the public to the private sector have taken a cut in pay because, on average, public sector wages have become somewhat higher than private sector wages. We have had a big shift from public to private, which has obviously had an impact on many people’s wages. The Government agree with the analysis of the Milburn review in this area. Its conclusion was that,

“the taxpayer alone can no longer bridge the gap between earnings and prices”, and that employers,

“need to step up to the plate by providing higher minimum levels of pay and better career prospects, enabled by better skills”.

On the minimum wage, as noble Lords have pointed out, my colleague Vince Cable has asked the Low Pay Commission to look at the scope for increasing the minimum wage without having detrimental effects on the level of employment. We hope very much that that will lead to a greater increase in the minimum wage. However, the minimum wage is the minimum, and the living wage is a level that the Government support and encourage employers to follow. As a number of noble Lords pointed out, when the minimum wage was introduced there was a lot of scaremongering about the employment costs, which proved to be completely false. It has been estimated that the living wage might cost 160,000 jobs if implemented overall. I do not know whether that is a realistic assessment, but certainly the work that we have asked the Low Pay Commission to do to increase the minimum wage will begin to tease that out.

My Lords, the noble Baroness, Lady Donaghy, called me something I have never been called in your Lordships’ Chamber—a “treat”, which is impressive given that yesterday in particular I was called quite a lot of things, all of which were extremely derogatory. It is a great pleasure to hear what I think is an undeserved accolade. The noble Baroness talked about compliance. When the minimum wage was going through, I remember expressing some concerns that the legislation seemed to have very little in it about compliance. Although I understand that greater arrears have been identified in the past year than there were a couple of years ago, more needs to be done. I will take up the point she raised about the website with BIS, as we ought to be able to do something about that.

I am extremely sorry that I have been unable to deal with many of the questions and points raised by noble Lords in today’s debate, but I am out of time. Again, I thank the noble Baroness, Lady Prosser, for tabling the Motion. If we do not try our very hardest to improve the quality of life for the hard-working people of the UK, then we are not doing our jobs properly. I can assure noble Lords that we understand the financial pressures that hard-working families are facing, and that we are taking and will continue to take what we believe are the right steps to help them.

Photo of Baroness Prosser Baroness Prosser Labour 5:24 pm, 31st October 2013

My Lords, I thank all noble Lords for their contributions to the debate and particularly thank the Minister for his detailed response. I should like to single out the noble Lord, Lord Horam, for putting forward a different point of view and keeping us all on our toes. However, I find it difficult to understand the point that he and the Minister made about the narrowing of inequality. It rather reminds me of the “lies, damned lies and statistics” statement with which we are all familiar. How is inequality being narrowed when we have seen such a huge increase in the number of people using food banks and those in rent arrears? That phrase does not mean the same thing out there on the street. I urge the Minister, as the representative of the Government, to take the arguments back to other members of the Government and to remind them that the word “govern” is a verb—it is a doing word. I, on behalf of these Benches, expect there to be rather more doing than talking because the consequences of not dealing with the major widening of inequality in our society will be hugely dangerous for our country in the future. I once again thank noble Lords for their contributions.

Motion agreed.