My Lords, in the run up to this year’s Budget Statement, my message to the Chancellor was to be bold, and take action on universal credit. It was an opportunity to take a transformational step forward in restoring a robust approach to tackling levels of poverty faced by too many. Universal credit is a reform that began with universal cross-party support and which, through multiple decisions, had its potential eroded. This was the moment to correct this and the Chancellor is to be congratulated on taking that opportunity.
As we in this House know, universal credit was designed to make work pay and tackle poverty in a way that supports those who cannot work and rewards the move into work and progression in work. We all agreed that it was a better way forward, correcting many of the complexities, clawbacks and cliff edges of the benefit and tax credit system that it replaced.
The Social Metrics Commission’s new poverty measure—I refer to my entry in the Members’ register of interests—made clear the size of the poverty challenge facing policymakers today and would, I hope, have focused the Chancellor’s mind at the time of the Budget. It shows that 14.2 million people in the UK experience poverty at any one point in time: about 8.5 million working-age adults, 4.5 million children and 1.5 million pensioners. Of these, nearly 3 million people live in families where all adults work full time yet are still in poverty. These families are doing everything we could ask of them and yet they are still struggling.
However, part of the bigger picture for the Chancellor as he made his Budget decisions, is that Britain is also experiencing record high levels of employment, so as people are transitioning from no work to part-time and full- time work, they are themselves on a pathway out of poverty. This is by far the best way for a family to work themselves out of poverty. However, as the Social Metrics Commission demonstrates, for that pathway to be effective it really needs to be full-time work. Yet even then about 8% of families who work full time are still in poverty. This is a structural issue that needs to be corrected; it reveals the fragility of the lives of many of those on low incomes and the entrenched nature of poverty for some.
The situation is even more fragile than many realise. Close to one million people are living in families where someone works but they are only just above the poverty line. There are another one million people living in families where someone works who are less than 5% below the poverty line. This is why small changes in work allowances can be the difference between supporting many of these families out of poverty and tipping many of them below the poverty line. Therefore, although it has taken until 2018 to go even part of the way to restoring the investment in universal credit, I hugely welcome the Chancellor’s announcement of restoring £1.7 billion to the universal credit work allowances and investing £1 billion in smoothing the transition. This will help ensure that the situation of in-work poverty is stabilised, at least, for families with children.
This investment by the Chancellor is hugely welcome as it stops a cut in tax credits—which this House resisted—being applied to universal credit. I pause to pay tribute to Baroness Hollis for her work in preventing this cut impacting on the lives of tax credit claimants. I know that if she had been here on Budget Day she would have been relieved to hear the news about the reinvestment in universal credit. But she would also have reminded us, in the way she always did, that it does not take us forward; it prevents us going backwards.
What would it take to take us forward? The long-term ambition is, of course, to tackle poverty by helping families to a position where they are earning well above the poverty threshold. In this respect, there are a number of factors that are important in their potential impact on poverty. The Government could improve support for childcare in universal credit from 85% of costs for two children only, to all costs for multiple children. This would be one way of ensuring that, for those on low incomes, it always pays to work. The Government could also take steps towards tackling future debt problems: any action to further reduce the number of waiting days in universal credit would have the impact of reducing debt levels, as would ensuring that historic debt is not brought across from HMRC on to UC claimants. We need to consider taking action on tax credit legacy debt, to ensure that the move to universal credit does not leave people trapped in historic tax credit debt. These are some of the next challenges for the Chancellor to address in future fiscal events, along with much discussed issues such as ending the uprating freeze.
All these recommendations would ensure that the system rewards work and supports families when they need it most and when they are doing everything they can to change their family’s trajectory. By reinvesting in the work allowances, the Chancellor has taken a big step towards a comprehensive approach to tackling poverty and signalled his intent to protect living standards for those who are doing all they can to make ends meet, but who are still struggling. If the Government were going to ease austerity, this was the most impactful place to do so first, but we all know that, however much heavy lifting the Government can—and do—do, they cannot do it all themselves. People want to know that, when they go to work, it is their hard work that is supporting their family. They want to know that if they do everything right, take a job and work full time, they will not be in poverty.
There have been many debates on what constitutes an appropriate entry-level or basic wage. Some argue that if you raise wages you will create unemployment. I can even remember being part of a team at No. 10 which was concerned about whether raising the minimum wage by just 50p would cause job losses. This has not happened. Others argue that the market will set wages fairly. However, that simply is not the case when you factor in the impact of the welfare state on what should be a basic wage. Employers have no clear idea of what the real market wage is for employees who are also in receipt of tax credits, because their wages have been subsidised by the Government for so long.
The only way to fix this problem for good is for employers to be reconnected with their employees, not in a gimmicky way but by asking the very real question: can my staff actually live on the wage I am paying them? There is a solid business case for employers taking this seriously. Research has shown that companies that have moved their lowest paid on to a living wage reduce staff turnover and absenteeism and achieve greater productivity. However, this is also about businesses simply doing the right thing, investing in their people, and ensuring that nobody who goes out and works full time lives in poverty. I therefore welcome the Government’s commitment to raising the national living wage to 60% of median earnings by 2020 and to hearing from the Low Pay Commission on how it plans to exercise its ultimate remit of ending low pay.
Government is responsible for thinking through the economic systems and structures that would see all people flourish, but all companies can restore that very natural human connection between employers and employees by talking a hard look at where they could step up to make a real contribution to the lived experience of their workforce. Tackling poverty in this country will not be done by the Government alone—it will take all of us—but credit where it is due to the Chancellor for taking a big step forward to avoid any step backwards.