Motion made, and Question proposed, That the sitting be now adjourned.—(Mr Newmark.)
It is a great pleasure to speak under your chairmanship, Mr Crausby. I am particularly pleased to have secured an opportunity to debate the effects of the comprehensive spending review on vulnerable people.
Some of the issues that I raise may well be raised in the more specific debate on housing benefit in the main Chamber this afternoon. For the purpose of this debate, I want to define the terms to which I have referred. The debate is, in effect, about the impact on vulnerable people of not just the CSR, but the Budget and the various departmental announcements that have been made and which underpin the context in which the CSR was announced on 20 October.
By “vulnerable people”, I mean not just those in need of specific state support who are unable, through a learning disability or other forms of disability, to manage alone, but those who may become vulnerable or find themselves in significant need, housing stress, homelessness, hardship or debt. The effects to which I refer cover a wide range of policy areas. Of course, I do not intend to cover all areas of government, although vulnerable people are likely to be affected by a wide range of policies, but I am keen to cover access to housing and housing benefit; welfare, including the support and benefits for unemployed and disabled people; care for adults and children; and public transport and access to it.
By way of background, it is worth noting that no self-respecting political party would have undertaken, in the lead-up to the last general election, the kind of measures that have been proposed since, because of how our political system works. However, we all knew as we went into the general election that Britain had the largest deficit in peacetime history, the largest structural deficit in Europe, that £120 million a day was needed to service the interest on that debt and that £1 in every £4 that the Government spent was borrowed money. We entirely understand the need to put right the public finances, which is the background to this debate and the CSR.
I would like to acknowledge a number of achievements. From the Liberal Democrat Benches, it is worth acknowledging that, despite the rather austere circumstances, we have secured outcomes from coalition agreements of which I believe the coalition can be proud. I am referring to the policies of taking the lowest earners out of tax altogether, which I know will be ratcheted up over the coming years until the figure is £10,000 before tax applies; restoring the earnings link for pensioners and a guarantee of uprating with a triple lock; the pupil premium and the early years premium, particularly for vulnerable children; the pay protection for low-paid public sector workers; capital gains tax for top earners; and the banking levy to help to pay for many of these measures. I was also pleased to hear of the Treasury’s intention to make a concerted effort to tackle tax evasion and fraud, which is essential to ensure that we get the balance right in where the finances are found.
Also by way of background, it is worth acknowledging that the Chancellor of the Exchequer repeated a theme throughout the CSR statement on 20 October—one that I entirely applaud. For example, he said at column 951 that
“those with the broadest shoulders will bear the greatest burden”.
Equally, he said at column 956:
“A civilised country… protects the most vulnerable”.—[Official Report, 20 October 2010; Vol. 516, c. 951-56.]
Protecting vulnerable people was a theme repeated throughout the statement, and I loudly applaud both those objectives.
The purpose of this debate is to ask whether that laudable and agreeable objective is achieved by the combined efforts of Government policy. If not, will the Government review their policies and make the necessary adjustments to ensure that those with the broadest shoulders do bear the greatest burden and that the vulnerable genuinely are protected? I doubt that, in the tribal warfare that often masquerades as debate in the House, we will do anything other than divide on pre-determined lines on the assessment behind those questions, but we can call on other commentators to contribute to the debate.
As we know, the Institute for Fiscal Studies disagreed with the Treasury’s claim. I am pleased to see the Minister in her place and I look forward to her response to the debate. I am sure that she will respond to the IFS assessment of the combined impacts of the CSR and the Budget. The IFS disagreed that the overall package of tax and benefit changes was progressive. Carl Emmerson, acting director of the IFS, said that
“our analysis continues to show that, with the notable exception of the richest 2%, the tax and benefit components of the fiscal consolidation are, overall, being implemented in a regressive way.”
The IFS emphasised the problems involved in estimating the distributional effect of changes in public services. It welcomed the Treasury’s attempts to model those, but noted its finding that the public service spending cuts announced in the spending review were regressive.
Equally, the Financial Times described the spending review as
“a gamble given the continuing weakness of the recovery”,
but supported the decision to cut spending, provided that growth in the economy returns. The Times said that, broadly speaking, the priorities chosen by the Chancellor were correct but that the changes could be “very painful” for the poor. The Guardian also commented that the spending review was “a major gamble”—I shall return to that concept—at a time when economic conditions have deteriorated. It said that, furthermore, the cuts would be focused on the sick, the poor and working parents. The IFS commented that the cuts in overall public spending over the spending review period would be the deepest in real terms since the second world war and that cuts in spending on services would be the largest since the four years beginning in 1975.
As I said, housing benefit measures will be debated this afternoon in the main Chamber. Two primary changes are being made next year. The first is the capping of local housing allowance for each property, which will be implemented in April 2011. That has been a primary focus of political debate and comment in the House and elsewhere, although it will impinge on a relatively small number of properties and households. For example, just 139, all in London, receive in excess of £50,000 per annum; 11,233 are in receipt of more than £20,000 per annum, some 10,000 of which are in the London area. In Cornwall, which, as hon. Members might expect, I will discuss in a moment, 40 households are in that category. The measure would save £65 million.
What concerns me most particularly is the impact on rural areas such as Cornwall—but not just Cornwall. A focus of my comments will be the reduction in the percentile market rates used to calculate local housing allowance rates from the 50th percentile—the median—to the 30th percentile of local rents, which will be implemented in October next year. The Department for Work and Pensions estimates that that will secure annual savings of £425 million.
The nature of the debate in the media gives the impression that housing benefit is paid mainly to people who are unemployed. Because of the “tabloidisation” of the debate, the implication is that the work-shy are in receipt of housing benefit and need to be encouraged by stick rather than carrot to find work. In fact, only one housing benefit claimant in eight is unemployed. I should add that, in future, the effect of the uprating of housing benefit according to the consumer prices index rather than local rents will place further significant downward pressure on housing benefit and may well result in shortfalls between rent and the housing allowance that people are given.
The Secretary of State has made it clear that the intention of the Department is to use housing benefit to force rents down, and I can understand the logic behind that, which is that housing benefit, because of the sheer volume of those who receive it, has an inflationary impact on the rental market, particularly the private rented market. However, not all areas will necessarily respond uniformly. The changes may well work in some rental market areas, but I am not convinced that they will work in them all.
For example, according to figures published in The Guardian on 30 October, outside London, Cornwall will be the hardest hit by the changes. Indeed, 11,180 households —one third of all households with employed people in receipt of the benefit—will be affected. There will be a significant shortfall between their housing benefit and the rent that they will pay.
In Cornwall, there is a significant shortfall right now between the median rent as assessed previously by the rent office—now by the Valuation Office Agency—and what housing benefit should be in Cornwall, and therefore between the housing allowance that will be available to tenants and what is available in the market on a week-by-week basis. It is very rare indeed that a new property comes on to the market that is actually within—either on or below—the median rent as assessed by the valuation office. Most rents fall above it, and therefore the shortfall has to be made up by the tenant, who may be on a low income or on benefits.
In Cornwall, 57,109 people claim housing benefit; 12,972 are of working age but not working—they include those in receipt of income support or jobseeker’s allowance—and about 12,000 are of working age and are working, or are on a non-passported benefit or employment support allowance, previously incapacity benefit, or contribution-based jobseeker’s allowance. A similar picture is painted by one of the larger social landlords. Penwith Housing Association tells me that about 60% of its tenants are on housing benefit. More than half of those who are of working age are indeed working, and are in receipt of either partial or full housing benefit support to cover their rent.
Yesterday, Cornwall council published some information on the likely impacts on the local community of the various changes to housing benefit. Its assessment is that the reduction of the market rental from the 50th percentile—the median—to the 30th percentile is likely to have the biggest impact. It says that 10,500 households are experiencing a shortfall between housing benefit and the rental, and it is unknown what the likely impact will be on them.
The council has not yet made a calculation, but it believes that a larger number of households will experience a significant shortfall between the rent and the housing benefit available. It anticipates that tenants who will ultimately be evicted because they can no longer meet their rent payments as a result of the shortfall will be found to be intentionally homeless, according to statutory interpretations, and therefore not eligible for assistance from the local authority. There will be an increase in demand for social housing in some areas, and the impacts on local people will be significant indeed.
We are very lucky in Cornwall to have the Cornwall Residential Landlords Association, which is a responsible and well-organised band of private landlords who, collectively and individually, provide an excellent service to the local population. They look for clear signals from the Government. I believe that the Government are looking at increasing the availability of direct payments to landlords in certain circumstances. Where that is done, preferably on a voluntary basis with the agreement of the tenant, it may help to lever rents down because the landlord will have a cushion of reassurance that the payments will come to them. However, the pressures and difficulties that will be experienced between landlords and tenants will intensify as a result of the cuts.
The problem in a market such as Cornwall’s—this applies to many other areas where there is also a vibrant tourism economy—is that landlords have alternatives that, frankly, on many occasions, will give them a far better income and greater certainty that they can recover the property. Many take up those alternatives. Many landlords will leave the marketplace and go for the much easier option of gleaning their income from the tourism sector.
The situation in Cornwall is not quite like the urban or suburban situation that I believe the Government have envisaged, whereby the alteration in the housing benefit arrangements and assessments will result in a levering down—a crow-barring—of the rentals in the private rented sector. It is not anticipated that that will happen in a place such as Cornwall, so I hope that the Government will look overall at this measure and consider that having a roof over one’s head is absolutely vital for many families. We are talking about working families who are simply seeking security in life from which to get to work, school their children and establish some kind of family security. This is about penalising people not because they are unwilling to work but simply because they are poorly paid, and I am sure the Government have no intention of doing that. I think they would like to ensure that work does pay.
Looking at the situation in Cornwall, which is, I understand, the same as in North Norfolk and other such rural settings, most analysts consider that there will be few new properties coming on to the market in the 30th percentile or below. Opportunities will be restricted, landlords will be given other options, and there will be instability, overcrowding and a possible cutting of corners, with families having to move and working families under greater stress. The problem with the proposal in the housing benefit reforms to extend the single room rent to people under the age of 35 is that there is little of that type of accommodation available in many rural areas, and planning policies seek to restrict what is often referred to as “bedsit land” in some smaller towns. On the one hand we have the Government, through their planning policies, giving local authorities the right to restrict the extent to which parts of small market towns are, as they see it, ghettoised by these bedsit arrangements, and on the other hand they have a policy that seeks to encourage that, through the housing benefit system.
My hon. Friend makes a very good point about one of the great difficulties that occur when there is family break-up. I fear that as a result of these kinds of measures we might get more family break-ups, because of the stress and pressure under which families might be placed. In our constituency surgeries, we all see families in that very sad situation. We see single parents “without care”, as they are sometimes rather unfairly described, who find themselves wanting to have contact with their child or children but being unable to do so because of their very constrained circumstances. This policy will only make that situation worse.
I wonder whether the hon. Gentleman could look at levels of pay. In Cornwall, and similarly on the Isle of Wight, there is a higher level of pay in the summer and a lower level in the winter. Is that catered for in his understanding?
Other than with people who live in uncertain accommodation—winter lets during the winter and very uncertain accommodation in the summer—I am not aware of any circumstance in which people have variations in their rents, with a landlord varying the rate of rent on the basis of the tenant’s income. My hon. Friend makes a very good point. I am afraid that the system does not allow or cater at all for seasonality in working families’ employment and income.
A further incongruous circumstance is the potential conflict between this policy and what the Minister’s colleagues in the Department for Communities and Local Government appear to be doing regarding the registered social landlord sector. The intention is to allow, and even encourage, registered social landlords to increase the rent on their properties up to a notional 80% of the market rate for a particular location. The net effect of that—it will apply, I understand, to future new dwellings and to re-lets—is to create a rather strange circumstance: on the one hand the Government appearing to want to get the housing benefit bill down, but on the other hand one of their Departments appearing to ratchet it up. Of course, a large proportion of people in social rented accommodation—60% of those living in the accommodation of one of my RSLs—are in receipt of housing benefit, and ratcheting up the benefit in those properties would result in an increase in the housing benefit bill.
There will be other strange circumstances. People who seek to downsize their properties—for example, an older person living alone who wants to move into a single-person bungalow to release a family house for a local family—will be discouraged from doing so because the re-letting situation will mean that their rent could go up significantly if they were to pursue that otherwise relatively selfless act. By pursuing a re-let—a transfer—their rental might go up and their housing benefit might not cover it.
Because of the time, I shall quickly canter through a few other issues. First, on the wider issues of welfare reform, many of us will have read in the newspapers and heard in the media over the weekend the comments of the Archbishop of Canterbury, the Chartered Institute of Housing, the National Housing Federation, the Child Poverty Action Group and Action for Children, all warning about the unintended consequences. I certainly exonerate the Minister and her colleagues from wishing to pursue an intentional policy of impoverishing vulnerable people; I think that it is entirely unintended.
I am sure that the hon. Gentleman is coming to this point, but will he talk a little about the impact on vulnerable people now and in the future of not dealing with the deficit? Will he also refer to the positive measures in the Budget for businesses in his constituency? There is the scrapping of the jobs tax, the national insurance holiday, tens of thousands taken out of tax altogether, the pupil premium and other initiatives. Surely, in any speech on this subject, all those factors have to be taken into account.
I am grateful for that intervention; I am sorry that the hon. Gentleman arrived late and therefore missed the part of my speech when I congratulated the Government on precisely those measures.
Clearly, we need to deal with the deficit, but the question of the speed and the extent is a debating point. I am not necessarily saying that the current speed and extent are wrong, but that judgment needs to be kept under review. Also, where do we find the money from? The hon. Member for Skipton and Ripon (Julian Smith) talked about the point that I am coming to; I will certainly come to a conclusion, which is that we need to question whether we have the balance right, so that those with the broadest shoulders bear the greatest burden. I am not certain we do have it right, which is why we should be taking a measured judgment on the impact of the proposals across all income ranges.
All the groups I mentioned, and many others, have been warning about the unintended consequences of some of the welfare reforms. The Chartered Institute of Housing anticipates that by 2025 most two-bedroom properties in the south will be unaffordable to those claiming housing benefit, whether or not they are working. That will force people into areas with less employment—in other words, an unintended consequence, not making work pay by forcing people into areas where they will find it much more difficult to get a job. It will also steepen the tapers, for example, by increasing the rents on social rented accommodation. As we all know, if someone takes a job or accepts higher pay, housing benefit is often withdrawn at a rate of sometimes 80p in the pound earned, and that is on top of other benefits that may be lost, such as council tax benefit. That places people in a poverty trap that discourages them from taking the very work they are keen to take up. All those factors will lead to social impacts on stability, family security, children’s education and other matters.
Other sanctions are proposed that have been mooted in the press over the weekend and will no doubt be part of the Secretary of State’s statement on Thursday. We have been presented with the prospect of unemployed people wearing tabards, picking up litter from our streets as a result of some kind of compulsion. Having worked in the voluntary sector, among others, for a while before coming to Parliament, I know that the one thing we do not need is to apply compulsion or humiliation to this matter.
It is clear that the many people I speak to in my constituency who are seeking a job are extremely keen to secure not only a job but work experience. The Government’s proposal to set up voluntary arrangements that enable people to undertake worthwhile voluntary work in their communities can only be a good thing. Unemployed people want well organised work and voluntary opportunities, and the voluntary sector want the willing, not the unwilling. At the weekend, the Disability Alliance argued that many people will be pushed into poverty by the changes to the employment and support allowance, previously called incapacity benefit. We await the outcome of that proposed change on Thursday.
Within the care sector, pressure on local authority budgets—26% cuts over three years—means that councils are routinely removing the discretion to give care support to those in moderate need. As costs, and no doubt charges, go up, the definition of “higher” and “severe” need could become more stringent. Budget pressures are likely to reduce early intervention for children, as Action for Children identified over the weekend, and the services available to the most vulnerable. There is a 20% cut in the bus operators’ grant and local authorities are already looking at cutting some services. The young and the old will be most affected by that—those without a car, and, therefore, the most vulnerable. Other cuts, such as in the education maintenance allowance, will also affect young people.
The questions remain: will those with the broadest shoulders bear the greatest burden, and will the vulnerable be protected? It is important not to forget that the gambling of the rich busted the banks, which did most to drop us in this situation. We must not allow them to get away with that while the poorest and public servants are made to pay the price; that is hardly justice. On the question of measures to get the balance right between cuts in services and benefits, and of where to obtain resources to maintain services, the banking levy, although welcome, is a relatively infinitesimal gnat bite on the banking sector, given the rate at which it is set.
I am glad my hon. Friend has spoken about the banking levy, because the previous Government did not do that, and I presume he will give credit to the coalition for taking aggressive action on the banks, and for the three reviews on banking reform taking place over the coming year.
I again remind the hon. Gentleman that, had he been here earlier, he would have heard me mention that. I welcome the banking levy and have congratulated the coalition on it; it is a move in the right direction. However, I fear that some of the most vulnerable in society may be pushed further to the margins, and we need to keep that situation under review. Equally, we need to keep under review the question of whether the banking levy has been set at a level that retrieves from the banks the resources that we believe they should be putting back into the economy, having dropped us “in it” in the first place.
The Minister is an excellent Minister and I know she is listening to these concerns. I fear that the reforms, although well intentioned, may well miss the target: they may not necessarily push rents down in the way anticipated or protect the vulnerable, and they may fail to meet the Chancellor’s stated objective as given in his 20 October statement. A strong and self-confident Government can listen, reconsider, gracefully accept the situation, adjust and move on when things are not going quite according to their plan. In her winding-up speech, I hope the Minister will address those issues and reassure me that the Government are listening to these concerns.
As ever, Mr Crausby, it is a pleasure to take part in a debate with you in the Chair.
I congratulate the hon. Member for St Ives (Andrew George) on raising this important strand of an exceptionally complex set of announcements, which have come thick and fast from the Government and are only now beginning to reveal themselves to MPs, never mind to the wider public, as the implications begin to hit home. A lot of implications will not hit home until the next financial year and then into the next few years of this Parliament, at which point I would expect growing discontent and increased shock and surprise at how harsh the Government chose to be on the most vulnerable in society through their spending policies.
The hon. Member for St Ives is being exceptionally honourable in this matter, and he genuinely feels strongly about trying to speak up on behalf of vulnerable people, but when he says that certain consequences of the Government measures are “perhaps unintentional”, I suspect that he is being more than generous. Part and parcel of the political strategy that goes alongside the Government’s supposed economic approach is ensuring that the welfare changes and reductions in expenditure hit the poorest in society who, on balance, tend not to vote for the Conservative party.
The hon. Gentleman will have greater insight than me into the Liberal Democrats’ approach, although I suspect that even he might not know what is going on with those at senior levels, as they assimilate ever more closely with the leadership of the Conservative party. I still regret the choice that his colleagues made to prop up and provide the scaffolding for this harshly strategic and deliberate set of decisions. Those in the Conservative party have been planning such decisions for many years, and attempts to scale back the role of public investment in our economy have been part and parcel of their approach throughout. They are now able to unwind that approach with a certain degree of alacrity under the guise of deficit reduction.
Nobody disagrees that we need a level of welfare reform, but the question of how we do that is at the centre of the debate. We could shut down the Department for Work and Pensions tomorrow and not spend an extra penny. That would be a degree of welfare reform, but it would be so ridiculous that it would be off this planet. We could have a level of reform that was too slow and did not really bite. I believe that the trajectory of reforms pursued by the previous Administration sought to strike a fair balance.
The extent to which Ministers are reducing what is known as “annually managed expenditure” within the welfare budget has been designed around a political strategy. By taking that amount from the welfare budget, the Chancellor tried to come within spitting distance, as he saw it, of Labour’s plans for deficit reduction within the departmental expenditure limits. That political strategy rapidly fell apart, particularly because the Opposition accepted the need for a certain level of welfare change.
Let us look at the points raised by the hon. Member for St Ives. If the welfare changes are not handled sensitively and their implementation is blind to the human costs involved, some of them will affect the real lives of real people. Such people will be increasingly frightened and unable to cope with some of the changes, and that will create great harm. That harm might not have the quantifiable economic or econometric measurements that we traditionally look at when monitoring fiscal and monitory policy, but it is real and will have an indirect effect on our economy.
I am following the hon. Gentleman’s narrative, but before he strays too far from his point about the intentionality—or otherwise—of the possible consequences of the reform package, let me make it clear that I do not associate myself with his analysis. I do not believe that it is the intention of the Government or the Minister to impoverish people deliberately.
The point that I was building towards concerns the balance of risk. Taking a risk with the poor needs to be balanced by taking a risk with the banking sector, which I do not think that we are doing at the moment. If we are to probe policy so as to get the balance right between those with broad shoulders and more vulnerable people, we must put pressure on the top end just as much, if not more.
As I said, the hon. Gentleman is being more than fair—perhaps a little too fair—in his analysis of the Government’s intentions. I hope that I am wrong in saying that a measure of deliberate choice is involved. However, the weekends at Chequers during which the Deputy Prime Minister and the Prime Minister pored over the political stratagems that they could devise, having linked some of the measures in the spending review together, suggest that a balancing act was going on in the Government to think about who they could hit and get away with it, rather than the human consequences. That is a difference of opinion that we will have to accept.
I am sorry if I have hurt the hon. Gentleman’s feelings; that would be a dreadful thing to do. However, it is far worse to hit the poorest and most vulnerable people in society through the measures that he will support by walking through the Lobby. The warm words that he espouses are all very well, although so far he has not said much about vulnerability and the impact of the reforms. He is doing his job and wants to progress through his party—I wish him luck with that—but the measures that he will be supporting will be harmful, and I am sorry if he feels that that is insulting.
Let us look at some of the changes to housing benefit. As I said, housing benefit needs to be reformed, but not necessarily at the pace and with the harshness espoused by the Minister. Some of the combined, compounding changes will come in quickly, with some starting on 1 October next year. According to the Government’s own figures, the reduction from the median 50th percentile to the 30th percentile for housing benefit will affect 642,000 people. Many hon. Members, including the Minister, will be getting letters from their constituents about that. Those reforms will leave some people £39 worse off per calendar month. Some landlords might be happy to say, “That’s all right; we will bear the loss”, but others will say, “Sorry, that is unacceptable. Out you go.” What will be the consequences for homelessness? What will the pressures be on the indebtedness of individuals who are already stretched with credit card debts and so on? Will we see even greater pain at that level?
The National Housing Federation said in the newspapers today that the reforms were “brutal cutbacks.” Those are not my words, so if the hon. Member for Skipton and Ripon (Julian Smith) feels that such words are insulting, he should speak to the National Housing Federation. It said that the reforms risk the prospect of people
“falling into debt or hardship or being forced to move out of their home and away from their local community.”
That sudden drop in income and the rushed nature of reform are what the Labour party fundamentally disagrees with. Of course we accept that the deficit needs to be tackled, but we take a different view of how to do that.
You do not know how to do it.
Given that we are talking about vulnerability, let us look at the impact of the spending review. The hon. Member for St Ives mentioned the banking levy but, as we debated last night, that is a puny and pathetic attempt by Ministers to let the banks off the hook while they are hitting families and children hardest of all—[Interruption.] I am sorry that Minister does not like my example, but she has made a choice and we would do things differently. It is important that the record shows that the Government have decided to let the banks off the hook lightly.
The Minister may well bleat and moan, but she should realise, for example, that cutting mortgage interest support for the most vulnerable will, as the Archbishop of Canterbury said, help to create a cycle of despair for many people. I do not think that the archbishop is a particularly partisan individual, and it would be a great pity if the remarks of those in civil society were dismissed.
I am interested in the Government’s approach to the universal credit, which they are looking to put in place as part of welfare reform. In many respects, it is a reasonable concept. However, I cannot understand why their approach is then to cut council tax benefit by 10% and to localise it, as has been announced. How is that consistent with the universal credit policy? Will the Minister elaborate on how the universal credit arrangement will come into place for the most vulnerable people when the council tax benefit is not part of it? I would like to understand the consistency, because that change will hit the poorest in society, as will many of the disability welfare changes.
We accept that disability welfare reforms are needed but, again, we must at least ask questions about the pace and harshness of some of those changes—as the hon. Member for St Ives has done. Taking out £2 billion by limiting the contributory employment and support allowance to the very disabled raises questions about how those who no longer have such support will cope. It is incumbent on those who are proposing the cut to explain where the support for those individuals will come from. Even pensioners will feel the impact of many of the changes, and they will lose out because of the four-year freeze in the savings credit element of the pension credit.
Public service reductions will have an indirect effect. This debate is not just about welfare, because the public service reductions announced in the spending review will also have a disproportionate impact on the very poorest in society. As the Institute for Fiscal Studies has said,
“modellable cuts to public services are regressive”.
There will also be a cut in health service spending. If we take away the social services element—it is being redefined as NHS spending, which it was not previously—and look at core NHS spending, it will fall by 0.5%. The IFS described that as the “worst settlement since 1951”. Again, those people using the health service are the most vulnerable and they will bear the brunt.
There will be local government reductions, in particular for support to the voluntary sector. For example, several welfare advice centres in my constituency will no longer be able to offer help and support to the very poorest in society because of the implementation of legal aid cuts. People will be left to fend for themselves, with far less advice—[Interruption.] The Minister is chuntering away, but she will get her opportunity to speak in a moment. I hope that she can give those people an explanation of the deficit reduction choices that she is making that deliberately addresses the speed of her measures. I understand that everyone in the House wants to ensure that deficit reduction is carried out sensitively, but I cannot quite understand the voracious speed at which the Minister thinks she has to do that. Her approach seems punitive and potentially risky.
There are education changes, too, and we have also talked about policing and crime. Those who tend to need the support of the policing services are those who are the victims of crime, and most of all the poorest and most vulnerable in society. The list goes on: reductions in the working neighbourhoods fund; no more future jobs fund; and, again, some of the welfare advice changes. Those things give rise to more worries and concerns.
The IFS was right to point out the regressive nature of the Budget. All the spin and warm words that the Minister will no doubt parrot again have been unravelled by the objective and independent analysis carried out by the institute, which the Conservatives were more than happy to cite in times past, but now seem keen to rubbish. The IFS says that the cuts are the
“deepest since the second world war”.
The Government have decided to hit families with children hardest, with the health in pregnancy grant going, the taxing and freezing of child benefit, the cuts to child care help through the working tax credit, and the scrapping of the education maintenance allowance. It is not necessarily those individual changes, but the compounding effect of them all happening simultaneously, with the speed of implementation chosen by the Minister, that makes them hit the most vulnerable very hard.
It was right that the hon. Member for St Ives raised the question of whether those with the broadest shoulders are bearing the greatest burden. The Chancellor keeps saying, “We’re all in this together,” but that is completely unbelievable and palpably not the case.
The puny nature of the banking levy is such that even the International Monetary Fund has said that it is a third of the size that it suggested. The banks will enjoy the corporation tax cuts, as well as their deferred tax benefits. There is also, of course, complete inaction by the Government on banker bonuses, which will be revealed when the bonus season starts in January or February.
All in all, the set of changes is exceptionally regressive and will hit the most vulnerable in society most of all. Perhaps the saddest fact is that many of those who will be affected do not yet realise it. The changes have not necessarily been reported in detail. People might well be completely oblivious to the changes that are coming but, for example, when the housing benefit change comes in on 1 October next year, they will be faced with great difficulties.
I have urged my local authority in Nottingham to find a way of communicating with recipients of housing benefit so that they can prepare themselves for the changes that are coming. Will the Minister at the very least—even if we disagree about the speed and nature of the policies—tell hon. Members how the Government intend to communicate with people and give them a bit of a heads-up so that they can prepare themselves for some of the changes? With a little preparation, the poorest in society might be able to try their best to brace themselves for what is around the corner.
I have set out my genuine concerns. There are political differences between us, but the story is a sad one that will unravel further in the years to come.
It is a pleasure, Mr Crausby, to serve under your chairmanship of this important Westminster Hall debate. I congratulate the hon. Member for St Ives (Andrew George) and pay tribute to him for securing the debate. I remember that during the spending review debate and the emergency Budget debate held earlier this year, his presence in the Chamber was constant, which shows his commitment to and concern about the issues—he is right to point out that we should all be deeply concerned about them. I shall start by setting out the background to some of the measures, and then talk in more detail about the housing benefit measures the hon. Gentleman mentioned in particular.
I listened to the response from the hon. Member for Nottingham East (Chris Leslie). He clearly holds a different view, but I found his speech deeply irresponsible in many ways. As an incoming coalition Government, we have picked up a fiscal deficit without precedent not just in our own country, but across the developed economies of the world. His party handed over that deficit, which we and the Liberal Democrats are working to address.
Certainly, the situation we took over was grave. The hon. Member for Nottingham East talked about the speed with which we are tackling the deficit, but that very much underscores just what a serious position our country was in when we came into government earlier this year. In fact, had we not taken the steps we are taking over the coming years, our debt would be £100 billion higher and we would be spending some £5 billion more as a nation on debt interest—money we want to put into supporting our public services. Had we not taken those steps, there would have been the real risk of being unable to have as a good a chance as we now do of keeping interest rates low, which is critical for companies investing and creating jobs and for households across the country with a mortgage.
Clearly, therefore, we needed to take action. One of the key pledges that we made as part of the spending review was that fairness would be at the heart of our decision making. The hon. Member for St Ives was right to say that despite the challenging backdrop against which the emergency Budget and the spending review took place, they included important measures such as increasing the personal allowance, which saw 880,000 people taken out of income tax altogether. Interestingly, he also mentioned that the Government’s aspiration was to go further on that, which is important. The distributional analysis and the IFS modelling do not take those aspirations into account, because we have not yet announced how we will carry them forward. Nor do they take into account the benefits of the universal credit or the stimulus and support that it will provide to people who are getting back into work. It is important to bear that in mind.
As I said, one of our key pledges in the spending review related to fairness. By fairness, I mean that, across the entire deficit-reduction plan, those with the broadest shoulders should bear the greatest burden. There has been a lot of debate about the IFS, and it is interesting that we have published more distributional analysis alongside our comprehensive spending review than any Government have ever done before. There is, of course, a debate about how to do that analysis in a more refined way, and the TUC, for example, took a view in its own analysis about how to spread defence spending across income deciles. Clearly, therefore, there are methodological questions that it is worth while looking at to see how we can improve things. Hon. Members will be aware that Robert Chote, who was the head of the IFS, now heads the Office for Budget Responsibility. He is precisely the kind of person who can help us to have a more transparent, independent assessment of our policy. That will help not only the Government, but people who look at our policy to understand what it means for our country and our communities.
Fairness has underpinned our approach. Critically, we have to move to a welfare system that helps and supports the vulnerable, but does not trap them in the way the system we have taken over too often did. We need a system that supports people back into work, and that is affordable. That is important because my great concern is that we need a system that people across our country buy into. That means that the system must be fair not only to the people in it, who need the support, but to those outside it, who perhaps work and pay their taxes. Those people might be happy to pay into a system to support the most vulnerable, but they might feel that it needs to be fair to them as well as to those who get the benefit payments. They need to feel that the system improves the lives of those who receive benefit payments and gives them the chance to be independent that, for various reasons, they do not have at the moment. I will say a little more shortly about how we can do that.
We have had a test on fairness, and there is no doubt that we have had to make some difficult decisions about how to spend the small amount of money we have following the Labour party’s profligacy in government. Today, in its debate on welfare on the Floor of the House, the Labour party will have another chance to set out how it would approach welfare reform. We have heard an awful lot about the fact that there is a better way of doing things, although we have occasionally heard from Labour Members that they do not oppose all our reforms. However, if we are to have a thoughtful and constructive debate about this important issue, it is time for the Opposition to engage more meaningfully, rather than simply setting out what they are against. They owe that to Parliament, which needs a proper debate from elected representatives, and to our country. They should set out exactly how an alternative, if there is one, would look.
I want now to look at the welfare state in a little more detail. Under the previous Government, benefit bills soared by 45%. In some cases, the benefit bill for a single out-of-work family amounted to the tax bills of 16 working families put together. To return to my earlier comments, everybody would say that that was not just unfair, but unsustainable. Given the financial position that we inherited, protecting the welfare budget was not an option. If we had done that, it would have forced more drastic front-line cuts on services elsewhere, which so many of us, including those on benefits, rely on so much. We therefore tried to focus our support on the people who need it most—the long-term unemployed, the very young, the very old, the disadvantaged and those who, through no fault of their own, are unable to work or find it hard to enter the labour market.
The spending review announced reforms to tackle welfare dependency by delivering a simplified system in which it always pays to work. The hon. Member for St Ives rightly mentioned impoverishment, and at its heart is the fact that people do not have a job. We need a welfare system that supports people back into work, and that applies particularly to people who have been on incapacity benefit and employment and support allowance. In one of my first roles as a new MP in Parliament, I sat on the Work and Pensions Committee, and I clearly remember that one of our first reports looked at incapacity benefit. It was a real scandal that although jobs had been created over the previous decade, the overwhelming majority of those on incapacity benefit were left wanting to work. On Thursday evening, I met visually impaired people in my constituency who were desperate to find work and to be financially independent. Those are the people we are keen to support back into work, but they were languishing on benefits in way that was bad for not just them, but our country and communities. It was also unaffordable.
The Minister is making an extremely important point; in fact, it was one of the many that I made. We need to establish a bridge between dependency and securing work. That applies to the housing benefit system, and I mentioned tapers, or the rate of withdrawal of housing benefit. The previous Government did nothing about the problem, which has been going on for decades. The point also applies to incapacity benefit. There is a cliff-face between benefit dependency and being able to get work. Perhaps the Government need to look a little more at ways of establishing a bridge to help people into work, rather than impoverishing them, putting them at risk or worrying them about making the transition into work.
The hon. Gentleman raises one of the key flaws that has existed in the welfare system, which is that it has trapped people. Going back to my time on the Work and Pensions Committee, I remember an inquiry that we did into Jobcentre Plus. The then Government had to introduce a better-off test to prove to people that they were better off going into work, because it was so complicated to work out what benefits people were receiving and what they would lose. It was not clear to people that moving into work would be the best thing for them financially.
The hon. Gentleman will be interested to read the White Paper that the Department for Work and Pensions will release in the next few days on the universal credit, which is intended absolutely to make sure that people who are currently on benefits know that they will be better off if they move back into work. We can move away from the situation faced by some of the worst-off people in our country, who have moved into work only to be penalised with some of the highest marginal rates of tax, which are simply eye-watering. We would not dream of putting even the highest earners on such rates, but the marginal rates of tax faced by some of the lowest-income people have been huge, and the universal credit is aimed at starting to tackle that situation.
For the benefit of hon. Members, will the Minister tell us what the marginal rate of tax will be for families that lose child benefit when they earn more than a certain amount? What will the percentage be? As I understand it, earning £1 could result in £2,000 of lost child benefit.
I am sure the hon. Gentleman will want to consider those calculations in detail, but that brings us back to my concern about the Opposition’s engagement with the subject, which was typified by his intervention. Unfortunately, it was not at all constructive but deeply negative. At the heart of my concern about the Opposition’s lack of thoughtful strategy is the fact that he argues for a policy that would maintain child benefit for higher rate taxpayers.
No; I want to make some progress.
The hon. Member for Nottingham East could have set out some better alternatives, but he failed to do so. That is a shame for our democracy. I assure him that we are tackling problems in the welfare system that the previous Government failed to tackle; I had hoped that he would welcome that. I know that the Opposition agree with some of our welfare reforms; it would help if we knew which ones, as we could then have a genuine political debate about areas of disagreement.
The universal credit will be a big step forward, and a good one. It will ensure that people are no longer trapped in welfare, as they have been. The hon. Member for St Ives said that one of our achievements as a coalition Government was to re-establish the earnings link. He is right; against the backdrop of a difficult fiscal deficit, we have maintained pensioner benefits on things such as free eye tests, free prescriptions, the free bus pass and free TV licences for the over-75s. We have also increased the cold weather payment award permanently to £25.
The hon. Gentleman also mentioned social care. Again, it is symptomatic of what we have in mind that we must protect the most vulnerable. That is why we have added £2 billion to the social care bill, with £1 billion from the NHS and £1 billion from the budget of the Department for Communities and Local Government. That is precisely to ensure that local authorities do not need to restrict access to social care. The fact that the money comes from the NHS and the Department shows that we need them to work more closely together. The reality is that health and social care are inextricably linked. Indeed, good social care can protect the vulnerable and help them maintain a healthy and independent life. As MPs, we have all seen people in our surgeries who are very keen to do that, and we have all worked to help people maintain the independence that so many want. We have therefore been particularly careful to ensure that funding for social care is supported.
I turn to the hon. Gentleman’s important comments on housing benefit. In the changes that we made to housing benefit, we tried to ensure that we tackle the underpinning of affordable housing and the lack of new affordable housing. One reason why housing has become so expensive is the gap between demand and supply, and the fact that housing starts over the last 10 years have generally been lower than in the past. That was so particularly for social housing, and especially for affordable homes in places such as London.
That is the backdrop and the key reason why rents have risen and housing has generally become more expensive. The previous model of affordable housing did not work. If Government money had been thrown at it during an economic boom, we would have seen the sorts of affordable housing that were needed, but it did not happen. We therefore had to think of different ways to do it. We are working far more effectively with housing associations and other investors that want to create housing, to ensure that we get back to creating the levels of social housing and affordable housing that are needed. That means investment—£4.5 billion for new affordable homes and £2 billion for the decent homes programme. We also need a more flexible system of affordable housing to help those who need to move for work and to protect the most vulnerable, and one that is also fair to the taxpayer.
I acknowledged earlier that £4.5 billion will be retained over the next three years for social housing. However, the Government intend funding the shortfall by allowing social landlords to increase their rents by up to 80% of the market value. That will result in more housing benefit. Within the Treasury’s modelling, to what extent does the Economic Secretary anticipate the increase in public-sector contribution resulting from the increase in the housing benefit to be paid to residential social landlords as a result of rent increases?
It is important to say that the change relates to new tenants rather than existing ones. Existing tenancies will not be affected by such measures. On the question of market rates and affordability, we will want to see landlords, the Homes and Communities Agency, and the regulator, in conjunction with local authorities, talking about ensuring affordability. The hon. Gentleman is right to point out that housing benefit will still be available to support people.
The challenge is to move to a more sustainable footing for housing, and particularly for social housing. That is most important for housing associations, and the need for them to keep reinvesting. We have tried to strike a balance that is broadly fair to those on existing tenancies and to ensure that the new stock that we seek to create—the £4.5 billion will create about 150,000 affordable homes—is used more effectively to support people. At the same time, we want to work with people to ensure that rents are affordable. Nevertheless, housing benefit will still be there.
The hon. Gentleman also spoke about the cap on the housing allowance and setting the local allowance at the 30th percentile rate. The reality is that people who are working must ensure that they can afford where they live. It will be difficult to ask them to pay into a system in which people on out-of-work benefits are living in areas that they simply cannot afford. The 30th percentile change is about trying to strike the right balance between what is affordable and what is fair and reasonable.
I thank the Economic Secretary for her earlier comments, which were helpful in setting the scene for reform. However, I share the concern of my hon. Friend the Member for St Ives (Andrew George) about the fact that housing benefit will impact differently in different areas. For instance, in my area I obviously have winter lets, and people seem to be concerned about the smaller one-bedroom or two-bedroom properties. I know that the transitional fund has been allocated, but will the Economic Secretary explain how the problems of each individual area, as they relate to vulnerable people, will be dealt with sensitively?
The hon. Lady is right: different parts of the country clearly have different housing needs and challenges. The Department for Work and Pensions will be working with local authorities through the transition period, and as she pointed out, we need funding in place for that as well. There will be £140 million of discretionary funding to support local authorities, £10 million of which is for London. It is worth pointing out that that is not the only support available for those affected.
For example, we still have many things such as the social fund, which includes budgeting loans, crisis loans and community care grants that are being maintained. We are considering how the social fund can be more localised, so we are working with the Department for Communities and Local Government and local authorities to see how we can best use the money we have to support people, in a way that works for them and at the local level. Interestingly, no London MPs are here, apart from me. Depending on where one represents in the country, there is a different group of constituents, facing a different series of challenges. Therefore, ensuring that the local aspect is fully part of how we work through the transition is vital. That is why the role of the Department for Work and Pensions, working with local authorities and the DCLG, is so critical. That is also why, as Liberal Democrats will recognise, localism is a theme that needs to run more broadly through our policy across Government. That is one reason why in this area it is important.
That is central to the point that I was making, and it has been repeated by my hon. Friend the Member for Mid Dorset and North Poole (Annette Brooke). I entirely understand that in a London setting, and perhaps in other parts of the country, this is a debate about the understandable sense of injustice among hard-working people, who feel that those who are not working have preferential, and indeed better, living circumstances than they themselves can afford. In my part of the country that does not apply. The key issue is that the rental properties coming on to the market are not getting close to even the median or below, which is the setting for housing benefit in my area. Understanding how the market works in our area, we know that the policy of ratcheting it down to 30% will not lever private rents downward. It will leave a large group of people—working and non-working—significantly impoverished.
The hon. Gentleman has set out his concerns for his area. I go back to my earlier comment about the 30th percentile change. That is the right thing to do to ensure that people feel the system is fair. As for rents, interestingly, if one looks at the changes around local housing allowance, about 32% of people affected by the changes will lose money, but will still get enough to cover their rent. Because of the way that local housing allowance worked in the past—it meant that people got more than they needed to pay their rent—a third of people will not be left with a shortfall.
We talked about the discretionary fund and working with local authorities. The concerns that the hon. Gentleman has raised are precisely why we want to ensure that as much of that support as possible can be localised. The reason is twofold. Local authorities might feel that the best way they can support people is to keep them in the homes they are already in—that is the decision they take. In other cases, they might feel that the best long-term sustainable situation is to help people to move to something that is more affordable to them.
The hon. Gentleman is absolutely right to raise those issues, which are precisely why we have set aside £140 million to ensure that the support is there to tackle some of those on-the-ground changes through the transition period, as we move to a housing benefit system that feels fairer and more affordable, and that does not trap people in poverty and out of work, as we have seen in the past.
I thank the hon. Member for St Ives for securing today’s debate, which has raised some very important points, and I am grateful to hon. Members for their contributions. There is no doubt that the spending review will have an impact across our society—not just for the next four years, but for many to come. The decisions we have made will help to shape Britain’s future. That is something of which I am very conscious. That is why we have put such an emphasis on fairness, protecting the vulnerable and supporting the most needy.
That fairness is rooted in not only supporting people today, but giving them the opportunity of a better quality of life tomorrow. We know that cuts to public expenditure have to be made—even the Opposition would agree with that—but that should not come at a cost of a more divided society, where the poorest and the most disadvantaged suffer as a result of mistakes that were never theirs. Our actions in the spending review reflect that: we have delivered a fair settlement, demonstrated that we are a progressive Government and supported the most vulnerable in our society. That was our promise when we came to power, and it is one that we fully intend to keep.