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Family Finances

Volume 498: debated on Tuesday 27 October 2009

I am grateful for the opportunity to debate this important subject, which goes to the heart of public concerns about the recession.

All of us know just how hard it is for hard-working families to cope in the recession, and adapting to the changing circumstances has produced some major changes in family life that I suspect will become permanent—more women as breadwinners and more men caring for children. These and other changes are set out in a research project that I ran in my constituency from March until September, which is written up in a report titled, “Northampton Families and the Recession 2009”.

I want to ask the Government what they are doing to meet those changing circumstances and family roles and how the welfare state and the different forms of support that the Government provide will adapt to them. Let us look at the stark statistics of the recession. Unemployment has risen to 7.9 per cent. nationally and to 7.2 per cent. in my constituency of Northampton, North—up by nearly 83 per cent. on the same period last year. It is not only unemployment that is hitting family incomes hard. Family budgets are squeezed because people are losing hours at work and overtime shifts and are sometimes also agreeing to wage cuts so that they can keep their jobs.

It did not take long for the effects of the recession to be seen in my advice surgeries, where constituents, many of them women, told me about what was happening to their families. They were fearful about how they would manage to weather the financial storm, about what was happening to their husbands and, particularly, about the future for their children. Due to the number of people who came to the surgeries, I commissioned research to investigate and chart the financial and social effect of the recession on the working families of Northampton, North and to look at the policy implications for the Government. The project included quantitative and qualitative research, through a survey and group discussions, to gain insight into the experiences and concerns of the community and to find out what Government action was helping and what else needed to be done.

Some of the results were surprising. More than 40 per cent. of the people who took part in the survey had experienced a change in their work status, in the form of reduced hours, going from full-time to part-time work or losing their job entirely. Many of those who had not faced job changes themselves spoke of changes in their partner’s employment. In Northampton there is a high track record of both partners working: both men and women work.

One of the most startling results was finding that more than 40 per cent. of women described themselves as the breadwinners for their families; this was nearly the same number as men. It is a change in the notion of the male—the man—as the primary breadwinner, which has been accepted as a social norm and on which many of our benefits and support systems have, to a great extent, been based.

Although there has been a shift in economic power in the family, the responsibility for caring for the children is not changing so fast. The survey demonstrated that, although caring responsibilities are certainly being shared by partners, the vast bulk of them are still being borne by women. This has meant that the women have carried a great burden in this recession.

A constituent told me that her husband had been made redundant, so she decided to go back to work, but was still expected to care for the children. Others spoke about the challenge of flexible working. Although the Labour Government have made enormous progress over the past 12 years in providing flexible working and family rights at work, many women spoke of the increased pressure that they faced as a result of the recession, which sometimes meant that they were not able to take up their entitlements. I was told by a constituent that the many redundancies at her company were pushing people to work ever longer hours and that there was a lack of understanding of those who needed to work part time to care for children. Another woman wrote about the juggle that she and her partner performed on a weekly basis after having their first child. She did a remarkable amount of work. She said:

“I had to go back to work full-time when my daughter was nine months old I work 6.30 to”

3.30 pm.

“My husband works”

from 4 pm to midnight.

“Both of us work Monday to Friday. We can’t afford to pay childcare and the mortgage. We don’t have a family life, just see each other 15 minutes each day. CHILDCARE IS TOO EXPENSIVE.”

It is clear that child care must meet the needs of families in which people are having to work extended and flexible hours. This means providing facilities for families out of hours—in irregular hours—and ensuring that it is affordable, so that work pays. It is no good if child care costs eat up most of the wages.

Pensions were raised over and over in the survey and in the group sessions. In fact, pensions came second only to children in the concerns raised by people who took part in the survey. Many people said that they had not considered how to pay for retirement until their children had grown up, but were now concerned about their pensions. Others expressed anxiety because they worked part time in different jobs and so did not qualify for a state pension. Of course, many of them work past pensionable age. In the past, the focus has been on ensuring that women get equal pension rights. Now and in the future, with men moving from full-time to part-time work or into unemployment, there will be concern over men and women losing their entitlement to a state pension.

Action is needed to protect the post-retirement income of households affected by the recession. With people losing hours at work, the Government need to ensure that they are not penalised in retirement for working fewer than 18 hours. Many of my constituents, particularly women, do a number of different part-time jobs but do not qualify for a state pension as they do not meet the threshold of 18 hours a week. Thus far it has not been possible to find a way for people to pool the hours that they have worked in a number of small part-time jobs to reach the threshold. The Government need to look again urgently at a pooling system, so that those working part time can pool the hours from their different jobs and couples can share credits towards their future pensions, effectively supporting incomes in retirement and enabling couples to plan together for their post-retirement income.

A further acute set of problems face people who are self-employed. The Government must ensure that those who opt for self-employed status because they are in the building industry or who are in another form of self-employment understand that their pension rights are different from those of people who are employed. We must ensure that pensions advice is included in all state-funded money advice services.

The outstanding finding of the research was that tax credits were vital in supporting family incomes. More than 50 per cent. of the families were in receipt of tax credits and this has been key in supporting families in the recession. Most people in Northampton are still in work, albeit sometimes on reduced hours, and tax credits are succeeding in keeping them afloat.

The findings of the research present some challenges for the Government to ensure that families can manage their way through the recession and beyond. I am sure that, for many people, the recession will be a temporary phase, because families in Northampton have long track records of working. The task is to support them so that they can get back into employment.

I should like to make a number of recommendations to ensure that the needs of families are met. Working families fall off a cliff edge if there are two earners and one loses their work. What happens then is that the unemployed person gets jobseeker’s allowance for six months, but after that the families can face real pressures, particularly if the other partner works but is not entitled to support. It might help if the contributions-based jobseeker’s allowance were extended from six months to a year.

Flexible working arrangements and affordable and flexible child care are paramount. It is easy to say, as the Opposition have often suggested, that the Government can ill afford that, but if women are breadwinners and fathers take on part-time work and more responsibility for child care, more flexible working is needed for men as well as women so that women can make the most of their careers and earning power and fathers are supported in caring for families. It is ironic that the recession could achieve what years of progressive social policy has not—a more equitable sharing of financial and caring responsibilities between parents.

Research has shown that tax credits are extremely effective in supporting family incomes, but the Opposition plan to cut them for 130,000 families. Any steps that can improve and build on tax credits would be greatly welcomed, particularly if the tax credit could be put at the heart of other benefits. That would be a simpler way for families who are already on tax credits to access the extra help that they need during the recession, particularly support for mortgage interest. Many families have benefited from support for mortgage interest, but many are excluded because of how it works.

I was a member of the Select Committee on the Treasury, which produced a report suggesting that the support for mortgage interest scheme should be linked to tax credits if it is to provide more effective help for families in my constituency. I urge the Government to reconsider the proposed link of the SMI to the tax credit system, and extend much needed support to more families.

I also urge the Government to change the education maintenance allowance to a real-time benefit. At present, it is assessed on parents’ income in previous years, but if one or both parents lose their job, they may no longer be able to provide any or as much support for their children’s schooling, so the children in turn may suffer. Assessing EMA on current income would ensure that children whose parents lost their jobs did not miss out on education and the qualifications necessary to succeed in future.

The recession has had a profound impact on families. It has aggravated some old inequalities, and created new pressures. That has affected working families, and some pensioners. Some people have had to defer their retirement because they need to support their families. One woman wrote:

“I am past the age of retirement. Still working, and looking after grandchildren and elderly parents. I have saved for my old age, but am unable to enjoy it as my savings have gone down…so I am still working. When will my time come after working for 42 years?”

Another woman wrote:

“I am a 61 year old working full-time, claiming state pension. I get taxed £5 a month which means I don’t benefit from having my pension.”

She had

“to continue in full-time employment to help my son and grandchildren who spend their days”

looking for work.

The Government have done exceptionally well over the past 12 years in introducing changes to employment rights, pensions and benefits that have helped families not just to make do, but to prosper and to juggle the combined pressures of work and families. However, the recession has set back some of that progress, and it has created a whole new set of pressures of its own. As we come out of the recession, society will have changed substantially and many of those changes will be permanent. Women who have become used to being the breadwinner will not want to return to the kitchen. People who have seen their pension contributions disrupted by unemployment or have had to work part time will want to maintain their living standards post-retirement age, and the changes to their pension rights will be permanent.

I very much hope that in moving forward, it will be possible for the Government to consider some of the experiences of families in my constituency, and to ensure that changes to the benefits system and the taxation system support families, so that people can continue to work to support their families and to enjoy a good quality of life.

I congratulate my hon. Friend the Member for Northampton, North (Ms Keeble) on securing this debate. The people of Northampton, North are exceptionally lucky to have a Member of Parliament who is so committed and so capable, and who combines the expertise that she has gained as a member of the Treasury Committee with passion for her constituents’ concerns. She has produced an excellent report on the recession’s impact on families, particularly women.

The Government have responded to the recession with a number of measures. First, we have cut VAT by 2.5 per cent. for one year to benefit households by an average of £275. Secondly, we have increased tax-free allowances above the inflation rate, so 22 million basic rate taxpayers are paying £145 less tax this year. We have brought forward the planned increase of £20 a week in child benefit by three months, which benefited another 7.5 million families, and we also brought forward by one year the increase in child tax credit, which benefited 4 million families. As my hon. Friend said, we made mortgage interest support, which is paid as part of income-related benefits, more generous. The changes, which are targeted at people of working age, demonstrate the Government's commitment to provide additional support to those facing financial difficulties and to help to protect them from repossession.

My hon. Friend raised some concerns about how the benefits system operates, and what more can be done. She referred to the difficulty during the recession of families with women who must go out to work and look after their families, and who may have to work longer hours. Ensuring that parents can balance work and family life is crucial at this time, and a win-win for business, individuals and children. That is why the Government have introduced significant reforms to encourage flexible, family-friendly working.

From April this year, the right to request flexible working was extended to working parents with caring responsibilities for children aged up to 16 years. The Government plan to help more people off benefits and into work in a way that supports families. We are not in any way using the recession as an excuse to put the matter on the back burner. Only yesterday, I issued a written statement dealing with lone parents’ entitlement to look for work that fits in with their children’s school day, so that when they move on to jobseeker’s allowance they can balance their work and family responsibilities.

My hon. Friend referred to the importance of child care. As I am sure she knows, the Government have invested more than £25 billion on early years and child care services since 1997 as part of an unprecedented expansion of provision for young children and families. In England, that has resulted in the number of child care places more than doubling since 1997. We now have more than 3,000 children's centres and more than 70 per cent. of schools offering extended services.

My hon. Friend referred to the needs of people in retirement. Overall, we do not anticipate that the current downturn will have a significant impact on future basic state pension entitlement because the rules will become much more generous from April next year. Both men and women will need only 30 years of national insurance contributions or credits to get a full basic state pension.

That change is part of the major reform that will make the state pension fairer and more generous and tackle the historical inequalities in entitlement, especially for women. As a result of the reform, about three quarters of women reaching state pension age are expected to be entitled to a full basic state pension by 2010, compared with less than half now.

My hon. Friend referred to women who work fewer than 18 hours a week, do not pay national insurance and therefore do not build up a state pension. If they earn less than the lower earnings limit and have children or are caring for someone who is ill or disabled, they should receive home responsibilities protection or, from next April, the new credits for parents and carers. Home responsibilities protection reduces the number of qualifying years that a person needs to receive the full basic state pension. Otherwise, people earning below the lower earnings limit have the option of paying voluntary NI contributions. A voluntary class 3 NI contribution costs £12 a week, but the actuarial value is £45 a week, so the contributions are good value for money for the people choosing to pay them.

My hon. Friend also referred to women with several jobs, each paying below £95 a week, who are not building up a state pension. If someone has more than one job, each job is treated separately for NI purposes. If the person earns less than £95 a week in each job, NI will not be deducted from their earnings, but they have the option of making voluntary NI contributions.

My hon. Friend made it clear why it is a serious concern that the Conservative party proposes to push back, on a very early timetable, the date at which women will be allowed to retire. That highlights the huge financial impact that there will be on many families.

Could my hon. Friend comment on the position of a husband and wife, or partners, who both work and who just fail to qualify? Might there be a way in which they could pool their entitlements so that the household qualifies for a pension?

We would have to consider that suggestion very thoroughly before going down that route, because obviously we do not want to move back from independent taxation of men and women.

I would like to deal with tax credits, because my hon. Friend pointed out the impact that they have. At the moment, tax credits are operating as a particularly flexible and responsive system, in that as people’s incomes fall, possibly because of fewer hours or less overtime, their tax credit entitlements ramp up. That means that tax credits are an even more effective fiscal stabiliser than the traditional tax and benefits system. They are obviously helping people to weather the recession.

In March, 355,000 households whose income had fallen were receiving on average £35 a week more in tax credits. That is 55,000 more households than were receiving extra tax credits at the same time last year. Take-up of tax credits is now the highest ever for an income-related system of financial support, ranging between 81 and 92 per cent.

In talking about tax credits, my hon. Friend referred to the timing of the changes in entitlements. She made the same point in respect of the education maintenance allowance. I am a Department for Work and Pensions Minister and I cannot speak for the Treasury or my colleagues in the Department for Children, Schools and Families, which is responsible for the EMA. This is an ironic situation to be in, obviously. When the economy was booming, everyone wanted us to stabilise people’s incomes by giving long-term fixed awards and not changing tax credits frequently. Now, of course, we are in a different phase of the economy and the pressures go the other way, but notwithstanding the points that came out of my hon. Friend’s research, it would not be right to return to a system of more frequent changes to tax credits entitlement, because the uncertainty that that produced for people was very problematic. I would be concerned that a more flexible approach would lead us into the administrative problems that we had in the early years of developing tax credits.

My hon. Friend referred to people who are entitled only to the contributory jobseeker’s allowance and she asked whether we could extend access to that benefit to 12 months as an effective way of tackling poverty. It is not clear that extending contributory jobseeker’s allowance to 12 months for one person in a couple if one or both are suffering unemployment is the most effective use of public money to reduce poverty. We can do other things that will have a better impact on that.

My hon. Friend made clear the important responsibilities that women have and are increasingly taking on in the recession. Indeed, they are often left to manage the family budget and debts, as well as to juggle work and child care, so the Government have provided impartial debt advice and money guidance in every major town and city throughout the country through an additional 500 debt advisers. We have increased access to affordable credit through the growth fund investment of nearly £100 million in credit unions. That is ensuring that nearly 200,000 people on low incomes have been able to obtain affordable loans, rather than paying the exorbitant interest rates charged by home credit companies and illegal lenders. Three quarters of the people taking those loans were women and many were mothers.

I am especially pleased to be able to announce today that the growth fund credit service is to be extended from Corby, Kettering and Wellingborough into Northampton as quickly as possible, with a further £250,000 available to ensure that the families in my hon. Friend’s constituency can benefit from the service that that provides.

My hon. Friend suggested linking support for mortgage interest to tax credits. Linking help in that way would clearly be a major change, with cross-Government implications. We would need to consider that long-term option as part of a more fundamental revamp of the benefits system. We have already taken steps to support home owners who are in work and do not qualify for help towards their mortgage through the benefits system. In April, my right hon. Friend the Prime Minister announced that home owners mortgage support was available to help home owners who suffered a temporary income shock. That means that eligible home owners will be able to make smaller mortgage repayments for up to two years, without the risk of losing their homes.

To conclude, I remind everyone of the measures that the Government have introduced to help people and families to survive the recession and to come out at the other end ready to benefit from the recovery that we hope to see shortly. We have introduced Sure Start children’s centres and child tax credits. We have enabled credit unions to serve another 300,000 people. We have made loans to 200,000 poorer families who could not obtain affordable credit elsewhere. We have reduced the number of people without bank accounts from nearly 3 million to under 1 million. We have increased the number of cash machines in poorer areas by nearly 600. We have introduced 500 more face-to-face debt advisers. We have introduced a money guidance service and we have started putting loan sharks in jail, where they belong. That shows a significant commitment to supporting families in the difficult economic situation at the moment.

Question put and agreed to.

Sitting adjourned.