Clause 9 - Freeze of certain social security benefits for four tax years

Welfare Reform and Work Bill – in a Public Bill Committee at 4:45 pm on 17th September 2015.

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Photo of Albert Owen Albert Owen Labour, Ynys Môn 4:45 pm, 17th September 2015

The Committee has agreed to take all the amendments to this clause together.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

I beg to move amendment 15, in clause 9, page 11, line 32, leave out from “relevant sums” to end of subsection and insert

“are to be reviewed by the Secretary of State having given regard to—

(a) the rate of inflation, and

(b) the national economic situation.”

To subject the four year freeze in the social security payments set out in paragraph 1 of Schedule 1 to an annual review of the levels by the Secretary of State. This review will consider both the rate of inflation and the national economic situation.

Photo of Albert Owen Albert Owen Labour, Ynys Môn

With this it will be convenient to discuss the following:

Amendment 16, in clause 9, page 11, line 35, leave out from “child benefit” to end of subsection and insert

“are to be reviewed by the Secretary of State having given regard to—

(a) the rate of inflation, and

(b) the national economic situation.”

To subject the four year freeze in child benefit to an annual review of the levels by the Secretary of State. This review will consider both the rate of inflation and the national economic situation.

Amendment 17, in clause 10, page 12, line 21, leave out from “relevant amounts” to end of subsection and insert

“are to be reviewed by the Secretary of State having given regard to—

(a) the rate of inflation, and

(b) the national economic situation.”

To subject the four year freeze in the tax credits set out in paragraph 2 of Schedule 1 to an annual review of the levels by the Secretary of State. This review will consider both the rate of inflation and the national economic situation.

New clause 2—Local Housing Allowance—

‘(1) For each of the tax years ending with 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020, the amount paid to claimants of the Local Housing Allowance is be reviewed by the Secretary of State.

(2) In reviewing these sums the Secretary of State shall have regard to—

(a) the rate of inflation,

(b) the national economic situation, and

(c) the levels of market rent.”

This new clause requires the Secretary of State to review the level of the Local Housing Allowance annually, in light of the rate of inflation, levels of market rent and the national economic situation.

Amendment 39, in clause 9, page 11, line 32, leave out from “relevant sums” to end of subsection and insert

“is to increase in line with the consumer price index.”

This amendment would see relevant benefits increasing in line with the consumer price index.

Amendment 40, in clause 9, page 11, line 35, leave out from “child benefit” to end of subsection and insert

“are to increase in line with the consumer price index.”

This amendment would see child benefit increasing in line with the consumer price index.

Amendment 41, in clause 9, page 11, line 37, leave out subsections (3) and (4)

This amendment is consequential to the amendments 39 and 40.

Amendment 42, in clause 10, page 12, line 21, leave out from “relevant amounts” to end of subsection and insert

“is to increase in line with the consumer price index.”

This amendment would see tax credits increasing in line with the consumer price index.

Amendment 95, in clause 9, page 11, line 33, at end insert—

‘(1a) Notwithstanding subsection (1), for each of the tax years ending with 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020, the amount of each of the relevant sum claimable by persons with a disability, as defined by the Equality Act 2000, is to increase in line with inflation.”

This amendment exempts disabled people from the four year benefits freeze.

Amendment 96, in clause 10, page 12, line 22, at end insert—

‘(1a) Notwithstanding subsection (1), for each of the tax years ending with 5 April 2017, 5 April 2018, 5 April 2019 and 5 April 2020, the amount of each of the relevant amounts claimable by persons with a disability, as defined by the Equality Act 2000, is to increase in line with inflation.”

This amendment exempts disabled people from the four year tax credits freeze.

Clause stand part.

Clause 10 stand part.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

The principle that we have such difficulties with in relation to clauses 9 and 10 can be encapsulated quite simply. For years, benefits have gone in attendance with need. The idea is that the welfare state should be a safety net, that it should be there for those who need it and that we should look first at need. I am not saying that we should have limitless amounts of benefits, but is important that those who are the most vulnerable are assisted.

Much has been said about the popularity of the measures, but if we look at public opinion, in a recent poll 88% of people upheld this British value: it is important to have a benefits system to provide a safety net to anyone who needs it. The clauses not only freeze social security benefits for a year; they do it for four years and they do it from now. We do not know what the state of our economy will be like in four years’ time. We do not know to what extent there may be inflation and who will be affected in what way. I will be brief because I am going to rely on the good sense of the Joseph Rowntree Foundation, which stated:

“While this will make a significant contribution to progress with eliminating the deficit (assuming inflation returns to the target level), it is likely to have a serious detrimental impact upon working-age households reliant upon state support to top-up their income”.

It is serious, and the Joseph Rowntree Foundation recommends:

“Retention of the annual review of benefit levels to allow the Chancellor to link strong economic performance with the maintenance of living standards at the bottom end of the income spectrum”.

If the Government really mean that no one should be left behind and that we are all in it together, we should all be in it together. If the economy picks up, why would those on benefits be four years behind? It is a simple point. They talk about fairness. Here is an opportunity to do something about it. The Chancellor should continue to have a flexible approach to uprating benefits to offset increased costs, particularly for essential goods and services. There is great concern about that.

The argument is that the welfare spend has got out of control and that we need to get back to a more sustainable type of welfare spending. Again, I rely on the Child Poverty Action Group’s excellent briefing, which points out what we all know: that in 1980 working-age welfare spending accounted for 8% of national spending, whereas now it is 13%. However, analysis by the Office for Budget Responsibility questions whether spending on social security is in fact increasing at an unsustainable rate. As the evidence shows, spending on welfare as a percentage of GDP remained reasonably steady until 2008. The OBR finds that the largest contribution to the increase since them was the uprating of state pensions, rather than working-age welfare spending.

In case anybody did not know this, the poor are getting poorer. With this freezing of benefits for four years, they will continue to get poorer. We need to go into this with our eyes open. Government Members should not support the clause without allowing an annual review, so that we can see what is fair. Are we prepared to leave the poorest and most marginalised behind, while the rest of the economy does or does not do well? We are against these two clauses.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

Amendment 95 and 96 are in my name. In the interests of time, I will be as brief as possible. I hope there will be an opportunity to come back to these issues on Report if my questions are not answered. Fundamentally, this comes back to the same issue. Disabled people are directly affected by this measure—in particular, by ESA. This is about the full component, not just the £30 support group component. The full ESA payment needs to be taken into consideration, and we have concerns about those who are directly affected. The real question is about the Conservative manifesto commitment. Page 28 of the manifesto states:

“We will freeze working age benefits for two years from April 2016, with exemptions for disability and pensioner benefits”.

The amendments would help to ensure that that manifesto commitment is delivered. I hope to come back to this issue on Report if it is not dealt with sooner.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

Things have accelerated, Mr Owen.

It is a pleasure to respond to this concatenated set of amendments. As these are probably the last words that will be said in this Committee before we break for the  party conferences, I want to pay tribute to the hon. Member for Stretford and Urmston and the right hon. Member for East Ham, who is my cloakroom neighbour. They are both impassioned campaigners whose dedication and intentions can never be doubted. They will be very much missed from this Committee. Of course, we warmly welcome the hon. Member for Islington South and Finsbury to her new position.

This has been a full debate on a range of important issues. In responding to the amendments, I will reiterate the rationale behind our proposed changes and set out why we are not persuaded that the amendments should be accepted. However, before I do so, I want to recap the purpose of the Bill and in particular clauses 9 and 10.

The Bill seeks to move this country from a low-wage, high-tax and high-welfare society, to a higher-wage, lower-tax and less welfare-reliant one. That means ensuring that work always pays and focusing support on those on the very lowest incomes. Crucially, it means ensuring that the system is fair to those who pay for it, as well as those who benefit from it. Combined with the national living wage and the changes to the income tax personal allowance, the summer Budget ensured that a typical family working full time on the national living wage will be better off by the end of the Parliament, with eight out of 10 working households better off by 2017-18.

The Bill builds on this Government’s achievements in delivering for working people, whether that is the 1,000 jobs created every day—2 million since 2010—the 2.9% growth in wages this year, a 9% increase in total hours worked since 2010, or the fact that, according to the OBR, living standards are projected to be higher in 2015 than in any previous year. These clauses, which freeze the main rates of working-age benefits, child benefit and the majority of tax credits, are a central element of the Bill and are key to this Government’s ambition of putting welfare on a fairer and more sustainable footing. The exemptions for benefits, which help with the additional costs of disability, ensure that we continue to protect the most vulnerable.

Amendments 15 to 17 relate to the freezing of certain working-age benefits, child benefit and the relevant amounts of tax credits. They seek to remove the provision to freeze those benefits, instead making them subject to an annual mandatory review by the Secretary of State. Amendments 39 to 42 simply remove the freeze. Those changes would prevent the savings from being locked in for four years, which is a vital precondition to bringing the welfare bill under control. Accepting the amendments would mean rejecting the need to tackle the deficit through sensible reductions in welfare spending. In total, the measures to freeze benefits and tax credits stand to contribute £3.5 billion of savings by 2019-20. The Bill will lock those savings in, meaning that we will be making a significant and lasting reduction to the welfare bill.

Without the freeze, deeper cuts would be needed elsewhere. The Government have a clear mandate to reduce spending by £12 billion. The amendments would be a rejection of that mandate and of the will of the public. Those considering supporting the amendments would need to be clear on where those extra savings might come from, whether from departmental budgets  or from deeper cuts to other benefits. Those who support the amendments also need to consider fairness to those who pay for the system. Since the financial crisis began in 2008, average weekly earnings have risen by 12%, whereas most working-age, out-of-work benefits, such as jobseeker’s allowance, have risen by 21% or more.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark 5:00 pm, 17th September 2015

I have one quick point about those who contribute. Some of the benefits that we are discussing, employment support allowance in particular, are paid to those who contributed to the system when they have been able to work. It is deeply unfair and unjust to suggest that this is somehow about protecting those who work and do the right thing when the very people that we seek to support have contributed and have then developed health conditions.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

The hon. Gentleman is absolutely right that people in receipt of a number of benefits will have contributed to the system. It remains the case that we fund benefits out of current contributions. It remains the case that we have a budget deficit of 5% of national income. It remains the case that we need to get that down to start paying down the national debt. In order to do that, we need to find £12 billion of welfare savings.

The freeze has been extended to four years due to the current low-inflationary environment to ensure that it makes a significant contribution to the £12 billion reduction that I just mentioned. When originally announced as a two-year freeze, it was forecast to save £3 billion and to lead to a real-terms reduction in benefit rates of 4%. Due to the current environment, it would now save less than £1 billion. The Government have therefore extended the freeze to ensure that it generates at least the same level of savings, and more, than announced last autumn.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury

Just to be clear, the Minister is not attempting to put forward a moral case. It is simply about saving money. It is about saving money from the poorest.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

I am not quite sure how the hon. Lady managed to infer what she just said from what I just said. I was explaining—

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

I will be delighted to. I was explaining why what was originally a two-year freeze has been extended to a four-year freeze because of the current low-inflationary environment and the need to make the savings that form a substantial part of the £12 billion that we have been discussing.

While the Government have a clear mandate for the reforms, it is imperative that we protect the most vulnerable. We are protecting pensioners, with pension credit, the pension additions in other benefits, and the basic state pensions—they are all excluded from the freeze. We are also exempting benefits relating to the additional costs of disability, such as attendance allowance, disability living allowance, and personal independence payments. We have exempted the support group component of ESA, the limited capability for work and work-related activity component of universal credit, as well as additions  and premiums in JSA, ESA and tax credits related to disability. Statutory payments, including statutory maternity, paternity and adoption pay, statutory shared parental pay and statutory sick pay are also all exempt. Those exemptions ensure that the most vulnerable in society are protected from the benefit freeze.

Let me speak directly for a moment to amendments 95 and 96, which seek to exempt disabled people from the freeze by ensuring that any of the relevant sums of working-age benefits and tax credits are increased in line with inflation, if they are claimed by a person who is disabled. In bringing forward our policy to freeze benefits and tax credits, we have been extremely mindful of the protections that we believe it is right to put in place to support the most vulnerable.

We are exempting all the benefits relating to additional costs of disability, as I just listed. Similarly, we are protecting the disability premiums and additions in working-age benefits, tax credits and pension-age benefits. The support group component in employment and support allowance and the limited capability for work and work-related activity element of universal credit are also protected. Those elements are paid to those with the most severe work-limiting health conditions in recognition of the fact that they are less likely to be able to increase their income by moving into work and may have additional needs as a result. Those are vital protections alongside the very acute need to make savings.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

The Minister is accepting that the majority of the payment received by disabled people in the employment and support allowance group who are judged unfit to work—full stop—will not be protected. He is making the Prime Minister’s commitment to protect disabled people false. Of the payment of roughly £100 that those people would be expected to receive, £30 or so will be protected, whereas £70 will not. Will the Minister confirm that that is accurate?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

What we have said is that those in the support group will be exempt, but not those in the work-related activity group. The main rates of working-age benefits are there to provide basic support for claimants who are not in work. Those rates are common across all claimants who receive out-of-work benefits. Introducing new higher rates of payments specifically for disabled people has the potential to discourage claimants from taking steps to get back to work where they can and would introduce significant complication into the system, leading to possible confusion for claimants.

Photo of Hannah Bardell Hannah Bardell Shadow SNP Westminster Group Leader (Fair Work and Employment)

The Minister says he is going to be protecting disabled people. Will he explain why people on the severe disablement allowance will be included in the benefit cap? Surely that will make those most vulnerable people even poorer.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

The hon. Lady will forgive me, I know, if we do not talk again at length about the benefit cap. We had a big debate about that in the earlier group of amendments that referred to the benefit cap. I repeat all the exemptions that are being made in the freeze—well, I am not going to repeat them all, but she heard them.  There are all the exemptions that the Government are making for those specific benefits and elements of benefits that refer to the additional costs of disability.

The Government are committed to ensuring that disabled people are able to participate absolutely fully in society and have set out their ambition to halve the disability employment gap, which I think is something that Members on both sides of the Committee and the House would agree on.

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

Will the hon. Gentleman forgive me if I do not, just in the interests of time?

Most people with disabilities and health conditions want to work and we will support them to prepare them for work and to move closer to the labour market, and when they are ready, to move back into work. We believe that the freeze is a necessary and fair way of putting welfare spending on a more sustainable footing, but that it is vital to offer protection to the most vulnerable. The best way of doing that is by supporting people who can to move closer to the labour market and by continuing to protect those benefits relating to the additional costs of disability.

Photo of Neil Coyle Neil Coyle Labour, Bermondsey and Old Southwark

Let me try a different tack. Does the Minister expect this range of cuts to be as successful as the last set of cuts, which were projected to save billions on ESA and DLA but actually resulted in higher spending of £10 billion?

Photo of Damian Hinds Damian Hinds The Exchequer Secretary

We are debating a group of amendments about a four-year freeze to certain benefits. Do I expect that to be successful in delivering the £3.5 billion that it is projected to? Yes, I do, and it is clearly a mathematical point about the rate of inflation and so on. We have the independent forecasts of how the economy is going to grow and of inflation, and I believe that our measure will deliver.

The Scottish National party amendments replace the freeze and the duty to review with the removal of the freeze altogether. That would remove the certainty we have about legislating directly for a freeze, and move us from the position where we have a clear plan reflecting the electoral mandate of the Government to one where the taxpayer could not be sure, year on year, as to the level of benefits.

Certainty for individuals, to help them plan ahead, is a key feature of the Government’s economic policies. It is also why we have introduced a national living wage, and pre-announced the anticipation that it will rise to £9 an hour by 2020 and the ambition to increase the tax-free personal allowance to £12,500 by the end of the decade. Legislating now to freeze for four years, along with those other measures, provides clarity to benefits recipients, giving them fair notice and the opportunity to make positive changes. Anyone supporting the amendments before us would have to spell out how they would instead give the public that certainty about the level of spend and identify where else they would make cuts.

I turn briefly to new clause 2 on the local housing allowance. The measure announced in the summer Budget to freeze local housing allowance rates for four years will contribute savings of £1 billion towards the  Government’s commitment to reduce the welfare bill by the £12 billion I mentioned. It is not included in the Bill, as the Secretary of State already has the powers in primary legislation to change the way in which LHA rates are set. Those powers were included in the Welfare Reform Act 2012.

It may help, however, if I clarify how the freezing of LHA rates will work during the four-year period. The rates will still be reviewed each year and rent officers will calculate, as they have been doing previously, a rate calculated by reference to the 30th percentile value from a list of rents for properties of a given size in that area. Each list of rents must include achieved rental values from the distribution and range within each area. In line with the Government’s measure to freeze rates, they will then set the new LHA rates based on the lower of either the April 2015 rate or the 30th percentile of listed rents. The Government recognise that some areas will see particularly high increases in rents, so we have made specific provision for those areas.

Over the Parliament, 30% of the savings generated from this measure will be used to create more targeted affordability funding, building on the £140 million already distributed since 2014. Alongside that, local authorities are able to provide support to the most vulnerable claimants affected by housing benefit reform through an enhanced package of £800 million of discretionary housing payment funding, which is significantly more than was provided over the previous Parliament.

I reassure hon. Members that, alongside the LHA rates, we will continue to publish, as we have previously, the 30th percentile of market rents in each area. We believe that the freeze to the main rates of the majority of working-age benefits, child benefit and tax credits are a necessary and fair way of putting welfare spending on a more sustainable footing. I urge the hon. Member for Islington South and Finsbury to withdraw the amendment.

Photo of Hannah Bardell Hannah Bardell Shadow SNP Westminster Group Leader (Fair Work and Employment)

We will not press our amendments, on the basis that we will be voting against the clause. I would like to make some points on those amendments. The Minister made a point about reducing the deficit. We reject that wholeheartedly. There is a huge amount of academic research that says the austerity agenda is going to fail, and that investing in people and investing in benefits will stimulate the economy. For all those reasons, we categorically reject what he is saying. Our amendments speak to the fact that the benefits system has to keep up with the economic conditions of the country, otherwise we are letting the poorest people down.

The UK Government are proposing to extend the freeze on working-age benefits from two years to four years, which will end in 2020. That would end the link with prices and earnings, effectively cutting the benefits that support those people who are most in need, and ensure that the lowest-income households continue to  get poorer over the years between now and 2020. For example, child benefit is projected to lose 28% of its value, according to the Child Poverty Action Group. That will have a devastating impact on child poverty rates in Scotland.

Although the causes of child poverty are complex, the IFS has made it clear that projected increases in rates of child poverty are largely a result of changes to the UK social security system. Increasingly, the cost of many items that are required to provide the basic standard of living for children are rising faster than inflation. CPAG undertook research on how the cost of essentials has risen in comparison with benefits and found that, although the value of benefits was largely protected through the 1990s and early 2000s by relatively low rises in the cost of food, fuel and lighting, since 2008 the cost of those essentials has risen much faster than the uprating of benefits.

On clause 10, we feel very strongly that the impact of a freeze on child tax credits must be viewed alongside the Government’s threshold squeezes. It is going to make some of the poorest families throughout Scotland and the UK even poorer, which is why we will be voting against it.

Photo of Emily Thornberry Emily Thornberry Labour, Islington South and Finsbury 5:15 pm, 17th September 2015

We will not press the amendment to a vote this afternoon, but this matter will be revisited on Report. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Question proposed, That clauses 9 and 10 stand part of the Bill, and that the schedule be the schedule to the Bill.

The Committee divided: Ayes 9, Noes 2.

Division number 25 Decision Time — Clause 9 - Freeze of certain social security benefits for four tax years

Aye: 9 MPs

No: 2 MPs

Ayes: A-Z by last name

Nos: A-Z by last name

Question accordingly agreed to.

Clauses 9 and 10 ordered to stand part of the Bill, and schedule agreed to.

Ordered, That further consideration be now adjourned. —(Guy Opperman.)

Adjourned till Tuesday 13 October at twenty-five minutes past Nine o’clock.

 Written evidence reported to the House

WRW 34 Low Incomes Tax Reform Group

WRW 35 Shelter

WRW 36 Barnardo’s

WRW 37 Action for Children

WRW 38 Inclusion London

WRW 39 RNIB

WRW 40 The Children’s Society

WRW 41 Association of Retained Council Housing

WRW 42 4Children

WRW 43 National Federation of ALMOs