Second Reading

Part of Welfare Reform and Work Bill – in the House of Lords at 7:50 pm on 17th November 2015.

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Photo of Lord Farmer Lord Farmer Conservative 7:50 pm, 17th November 2015

My Lords, it is a great pleasure and an honour to follow my noble friend Lord Polak—I am not sure he can hear me as his left ear is to this side—particularly after a maiden speech that was remarkable for both its humaneness and its humility.

The tone he struck rings completely true for those who, like me, have known my noble friend in his previous incarnation as director of Conservative Friends of Israel and now as the organisation’s unsalaried honorary president. I have always been moved and touched by my noble friend’s consistent work in improving relations between Britain and Israel for the common good of each country. He will, I am sure, make a uniquely valuable contribution to the work of this House. We welcome him to us.

I am pleased that this important debate has also enticed other new Peers to make their voices heard in this Chamber. I congratulate my noble friends Lord Lansley and Lord Lupton on their impressive contributions. Given her important role in designing universal credit, I am particularly looking forward to hearing the contribution from my noble friend Lady Stroud, and I want to acknowledge how fitting it is for to make her maiden speech in this debate. What better occasion to express the compassionate and one-nation conservativism—and I believe it is—that is not a new-fangled device cynically constructed to sweeten the bitter pills of difficult decisions? Rather it has a deep seam of tradition and a valued history in our party that goes back to Disraeli, Baldwin, Chamberlain and Butler—and today reaches Iain Duncan Smith and the Prime Minister.

As my noble friend Lord Polak said, government must take responsibility and it is vital to remember what the coalition inherited in 2010: a welfare system run by 35 different IT systems and a monster of complexity that constantly had to be fed and kept satisfied by myriad accretions of former Conservative and Labour Administrations alike. As he entered the last days of the 2010 election campaign, Gordon Brown promised a tiny toddler tax credit of just £4 a week, threatening to add further confusion to a system of 51 different benefits even highly numerate people found extremely difficult to understand.

In 2005, the National Audit Office said:

“Simplification is not an easy option. Radical reform is a rare, costly, time-consuming, and potentially controversial act”.

So it is hugely to their credit that the coalition Government embarked on the costly and ambitious project of root-and-branch welfare reform, so that we did not repeat the mistakes of previous downturns, when it became pointless for claimants who fell on hard times to get back into work. We urgently needed a system with an internal dynamic that responded to extra effort and other kinds of behaviour we want to see across the whole working-age population—and in the rising generation for whom they are role models—so that they benefit from the better health, social networks and sense of achievement and self-esteem that comes from earned, but not benefits, income.

The starting point of universal credit was the need to tackle relative poverty effectively. In the boom years of the mid-2000s, the DWP’s households below average income statistics showed that someone who had spent five years in low income had no more than a 10% chance of escaping poverty the next year. Large tranches of our population, often concentrated in poorer communities, were locked out of the record growth this country had been enjoying to 2008.

In 2009, by the time the recession had well and truly begun to bite, 5.9 million people were claiming out-of-work benefits, but throughout the preceding decade of high growth that number was only 500,000 lower. This speaks of a structural problem: high-participation tax rates preventing people in precarious economic circumstances moving into work and high marginal tax rates deterring them from working longer hours and progressing. Now, however, the British jobless rate has decreased to 5.3% and is at the lowest level since April 2008, when employment was at a record high.

Yet getting people into work is not the only priority. My understanding is that the ambition of ongoing welfare reform is to help people secure more hours and progress to better rates of pay so that they eventually no longer need tax credits at all. The 2009 Family Resources Survey showed that one in seven households were dependent on benefits for more than half of their income, and this may still be the case. Could the Minister explain to what extent underemployment, particularly as a result of working part-time, is contributing to low earnings, and not just unacceptably low wages? Surely progression towards full employment must distinguish between full-time and part-time work so that the Government hold themselves fully to account.

There were also penalties in the system that discouraged people from activities that could decrease their dependency over the long term, such as forming a stable family unit. Couples who had previously claimed as single people stood to lose far more income from benefits by moving in together than they saved through the economies of scale of sharing a home. If they were simply cohabiting, many continued to claim as single parents. In 2013, ONS and DWP figures suggested that well over 200,000 couples were pretending to live apart, with the couple penalty in tax credits a likely prime mover in this particular form of benefit fraud.

Married couples cannot hide their status and this is surely a major contributor to the social gradient in marriage. Wave 3 of the Millennium Cohort Study found that around half of new parents on a low income are married, compared to nearly 90% of those earning an annual salary of more than £52,000. Given the far greater stability of marriage, this has a terrible knock-on effect. Sadly, only half of children in poor families are still living with both their parents when they start school, compared with over 90% of those from higher income families. Can the Minister explain what progress has been made in reducing the couple penalty in universal credit?

While on the subject of fraud, which is, after all, stealing from the taxpayer, your Lordships should also be aware that a tax credits system that pays for every child has created perverse incentives—for some migrants, for instance. Social workers in the borough of Westminster have made known to me that some are bringing in a large number of children, at least some of whom are very unlikely to be their own. If children are being treated as cash cows by exploitative adults, this is wholly unacceptable and must be exposed. It also puts the two-child limit for new claimants into a somewhat different light from what we have heard today.

To conclude, I was encouraged that, at earlier stages of welfare reform, noble Lords across the House acknowledged how complex, burdensome and inefficient our benefits system had become under successive previous Governments, and that universal credit offers a desperately needed runway out of poverty at a time when deficit reduction remains a pressing concern. The challenges predicted by the National Audit Office have been significant but surmountable. Universal credit is being relentlessly rolled out, and well below budget. I hope that the Bill will be similarly welcomed and given co-operative support, and that we can work together to ensure that this Government fulfil their elected mandate—for the common good.