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Welfare Reform

Volume 575: debated on Tuesday 11 February 2014

It is a pleasure, Mr Sheridan, to have this debate under your chairmanship. I want to explore where we are with welfare reform and the options for the future. The coalition Government inherited a broken welfare system that was in desperate need of reform. We have started and are seeing through the most far-reaching reforms in more than half a century. The reforms are not about saving money; they are about saving lives. They are about replacing dependence with independence.

Let us look at what has been done to date. Labour left the biggest ever peacetime deficit, with £120 million a day in interest bills. Under Labour, welfare spending increased by 60%, taking inflation into account. That is £3,000 a year for every household in Britain. More than £170 billion was spent on tax credits, four and a half times the cost of the benefits they replaced. By the end, out-of-work benefits were increasing nearly twice as quickly as earnings. That was the toxic legacy left by the Labour party, and that is the out-of-control spending that the Government have fought to keep in check while protecting pensioners with the triple lock.

Welfare spending is now falling as a share of GDP. Savings of £25 billion will have been made by the end of this financial year, with £50 billion having been saved by the end of the Parliament. At every turn Labour has been unapologetic. Labour has opposed every single reform, including universal credit, and has provided no ideas. Labour has nothing to say. Indeed, the few policies developed so far are spending pledges, rather than savings. For example, the jobs guarantee will cost a staggering £1 billion. On my count, it is the 10th time that Labour’s bank bonus tax has been spent. To every problem, its answer is the same: more spending, more borrowing, more debt and more welfare. It is small wonder that the Labour party is increasingly known as the welfare party.

The Institute for Fiscal Studies says that we need to reduce the benefits bill by a third, but Labour has failed to name even one working age benefit it would cut. Government Members have given thought to the reforms that could be made to promote a greater sense of fairness: fairness to people on welfare, so that they might have independence in place of dependence; and fairness to hard-working people and their families, who expect their taxes to be used to help people escape poverty and welfare, rather than further to enchain them within it.

I have been giving thought to how work-based benefits could be reformed, particularly to improve the position of women in the workplace. In our system, industrial injuries benefits cost £907 million a year, while maternity pay costs £2.3 billion. The maternity pay system, however, too often hampers rather than safeguards the position of women in the workplace. There are still too many barriers to hiring women. Too often employers are scared of employing women who may go on maternity leave. Even the Labour peer, Lord Sugar, was moved to say:

“We have maternity laws where people are entitled to too much.”

He also said that the prospect of women becoming pregnant and taking maternity leave puts businesses off hiring women.

That attitude needs to change, as does the shocking complexity of the system, which involves complex reclaims though the tax system and leaves people at risk of their employer going bust or otherwise failing to pay. Women are increasingly self-employed, yet the self-employed are worse off with maternity allowance, and injury benefits are sparse indeed. Meanwhile, pay is not even at minimum wage levels. Pay is set at £137 a week, which is a far cry from the £220 received by a minimum wage earner for a 35-hour week. To my mind, the system is ripe for reform, to safeguard and improve the position of women in the workplace, to increase simplicity and security, to treat the employed and self-employed alike, and to pay parental leave more fairly.

How can that be done? We should think about a new system of workplace benefits, paid for by the workplaces of the nation. We should set up an at-work scheme—a compulsory pooled risk system along the lines of the Financial Services Compensation Scheme, backed up by the state but funded by business with reference to the total pay-as-you-earn income tax paid by each business. In return, businesses would see a corresponding cut in their net employers’ national insurance contributions. That way, the cost would not be affected by the number of injuries or the amount of maternity leave that might at any one time affect any one workplace. The at-work scheme would pay out regardless, whether there were no parental leave absences or many. In that way, the fear of the burden of maternity would be reduced, and so too would the barriers to women in the workplace. The self-employed would contribute on the same basis and be treated in the same way as employed people. Pay for leave could more easily be increased from the current £137 a week to the minimum wage level of £220, and that would ensure that the minimum basic standard would be the minimum wage.

We have seen the toxic legacy left by the Labour party and we have passed welfare reforms to save lives and promote independence in place of dependence.

The hon. Gentleman raises an important issue about the future of welfare reform. Will he join me in deploring the fact that the current welfare reform measures have still not been implemented in Northern Ireland, at a possible cost of more than £1 billion over the next five years? The Finance Minister there indicated that the Northern Ireland Executive have already lost £15 million. We have negotiated good tweaks to the system to suit the Northern Ireland situation, yet Sinn Fein holds up that reform, at a massive cost to the Northern Ireland block grant. Does the hon. Gentleman agree that it is time for Northern Ireland to move into line with what is happening elsewhere?

Yes, I would. It is about fairness to hard-working people and their families. They pay their taxes and want to see those taxes used to help people escape poverty, rather than to enchain them within it. They want their taxes to fund doctors, teachers and nurses, rather than those on welfare. It is also about fairness to people on welfare and their having a greater sense of independence, rather than being locked into a cycle of dependence. I hope that the Northern Ireland Executive will think more carefully about the future, and fairness for working people and those not in work.

In the absence of any positive ideas from the Labour party, I hope the Government will consider new reforms like the one I am suggesting. It would promote the role of women in the workplace, increase simplicity and security, treat employed and self-employed alike, and ensure that maternity and parental leave is paid fairly and that the system is funded by the workplaces of the nation on a long-term sustainable basis.

Order. Mr Kwarteng, I notice that you have not registered to speak in today’s debate. Protocol suggests that, with the agreement of the hon. Gentleman who introduced the debate and the Minister, you can speak. Do you have permission?

I am very grateful for being allowed to speak in the debate. I am also pleased to speak after my hon. Friend the Member for Dover (Charlie Elphicke), who is an innovative and creative thinker on these subjects. I want to say a few words on welfare reform, which is probably the single most important thing that the coalition Government are embarking upon, because the principal reason why the coalition came into being was to reduce the deficit. Everyone here knows that welfare spending, including pensions, is 28% of the entire budget. Surely it makes sense, if we are to reduce the deficit, to look at the biggest part of expenditure.

My hon. Friend is right when he says that there was a huge problem under the previous Government with welfare spending. Between 1997 and 2010, it rose by more than 60% in real terms. Even if pensions are excluded, the welfare bill went up by 55% in real terms. It is right for everyone in the House to realise that that is a real problem. I am grateful to my hon. Friend for bringing the matter up in such a timely fashion and for allowing others to contribute to this important debate. I do not have much time to speak, but I want to say that it is disappointing that so few Labour Members are present, given that they have said nothing constructive about welfare reform over the past four years. They have opposed all the coalition Government’s messages. [Interruption.] The hon. Member for Rhondda (Chris Bryant) looks at me quizzically, but it is true.

The convention for half-hour debates is that only two people—the Member who secured the debate and the Minister—speak. It is perfectly customary for there not to be anybody else, including the shadow Minister, present.

I am grateful for the hon. Gentleman’s contribution, but it is extraordinary to say that Members cannot contribute to debates simply because of convention. This is an important matter and I wanted to put something on the record. That is all I have to say.

Order. Mr Bryant, you also did not register to speak. Do you have the permission of the promoter and the Minister to speak?

I am grateful, Mr Sheridan. I also thank the hon. Member for Dover (Charlie Elphicke) for securing this debate. If it had been an hour-and-a-half debate, it would have been more conventional to have several people speaking. I say to the hon. Member for Spelthorne (Kwasi Kwarteng) that it is not only a convention, but a rule of the House that only two people are allowed to speak in these half-hour debates. We are therefore engaging in a rather unusual practice this afternoon, which is why things are slightly confusing. The hon. Member for Dover gave a rather short speech—the debate’s promoter normally takes 15 minutes—and he devoted quite a lot of it to saying nasty things about the Labour party. I understand why he wants to do that, but I want to correct some impressions.

The Labour party has been engaged in a process of welfare reform and was when in government. One of the key things that we wanted to achieve was ensuring that work pays. In my constituency, which has historically high levels of people on one form or other of sickness benefit, people have been trapped in a style of poverty that ends up being inherited from one generation to the next. Opposition Members are desperately keen to ensure that we have a system under which work always pays. That is why we supported the introduction of the national minimum wage, which we see as part of welfare reform, and why we introduced tax credits as another means of making it possible for people to get into work.

I do not accept the argument of the hon. Member for Spelthorne that Labour has never been in favour of welfare reform. Indeed, key elements of what the Government are doing now are right. The move towards universal credit is right. The Government have been too ambitious in the time scale that they have set themselves, and it would help the Government’s cause were they a bit more honest about the fact that the scheme is neither on time nor on budget and that a great amount of money has been wasted. Ministers have not yet made key decisions, such as when somebody goes on to universal credit, whether their children will be entitled to free school meals. At the moment, there is a difference between those on in-work benefits and those on out-of-work benefits. The latter’s children get free school meals, but the former’s do not. Universal credit does not recognise the difference between the two, which is a key policy issue that will have to be determined.

The Labour party initially voted against universal credit. Labour should be more supportive of the Government during a big, important reform, rather than too often appearing to throw rocks from the sidelines.

We are keen to try to help the Government make universal credit work, but it is difficult so to do if the Secretary of State is mouthing inanities and presenting such an optimistic version of events that some might construe it not to be entirely true, which is what the Labour party believe has happened. It is a convention that people receive absolution only after confessing, and the Government need to own up to a few more of the problems that they are experiencing with universal credit. We would then be more than happy to help them.

Another classic example is the bedroom tax. People have different views about whether it is right and proper, but my argument is that while it might be a legitimate thing if we knew that everyone had smaller properties to move to, in truth, when those smaller properties are not available, it is a fairly cruel and vindictive assault on some of the most vulnerable people in society, including hundreds of thousands of disabled people. Even more bizarrely, the Government managed to mess that up by not spotting the loophole in their legislation. On the same day, three different Ministers said different things: one said that only 3,000 to 5,000 would be affected; another said in the House of Lords that the number would be insignificant; and a third Minister said that she had no idea how many people would be affected. Through freedom of information requests, which the Government should have submitted, we already know that, from the third of local authorities who have replied, 16,000 households are affected. In other words, it is likely that some 48,000 to 50,000 people are affected.

The Labour party is engaged in a process of welfare reform. We always have been. We want to make welfare work, so that it both supports those who desperately need it at key times in their lives and gives people an opportunity to stand on their own two feet. In your constituency, Mr Sheridan, and in mine, the vast majority of people are not looking for handouts; they are looking to stand on their own feet, to put food on the table for their family and to provide a better future for their children.

I congratulate my hon. Friend the Member for Dover (Charlie Elphicke) on securing this wide-ranging debate, which has actually been quite refreshing, because we so often get caught up in the minutiae of a clause, amendment or fine detail and it is good to get back to first principles and the context of what the Government have done over the past four years. I also enjoyed his blue-skies thinking about workplace and maternity benefits and so on. I will try to address both those issues, while providing some reflections on his idea for workplace benefits.

The context that my hon. Friend described was one where, for every £3 that the Government received, they were spending £4. There is nothing progressive or fair about saying that we will pay for a higher standard of living for ourselves now and expect our children to meet the bill. The biggest task that we faced—as my hon. Friend the Member for Spelthorne (Kwasi Kwarteng) said, this was one of the reasons for forming the coalition— was to provide the country with a stable Government at a time of economic crisis and to try to get the nation’s finances on an even keel, which has required a series of difficult decisions, particularly because social security spending is the biggest area of Government spending, every one of which was opposed by Labour, but only one of which it now says that it will reverse. There is a distinct lack of consistency.

I am pretty sure that the record will show—the hon. Member for Rhondda (Chris Bryant) will correct me if I am wrong—that Labour voted against the Welfare Reform Act 2013 on Second Reading. He may not recall, but I am pretty sure that Labour did—it may have voted against it on Third Reading, which is even worse. The 2013 Act introduced universal credit, so it is a bit rich to say that Labour supports universal credit when it voted against the legislation that introduced it. That shows no credibility.

The hon. Gentleman may say that Labour has been engaged in welfare reform for the past four years, but it has only said what it is against. It is against our getting the books balanced by the measures that we have taken, but the positive agenda has largely been avoided. On the odd occasion that we get a positive suggestion, it often involves spending more money, not less. A humane welfare system during a time of austerity is a challenging task. One would have hoped that the party that paints itself as progressive would have engaged constructively over the past four years in how to design such a system, but we have essentially heard nothing on that front.

My hon. Friend the Member for Dover is right that the driver of the reforms that my right hon. Friend the Secretary of State for Work and Pensions and the ministerial team have brought forward has absolutely been fiscal rectitude, but it has also been about more than that. My right hon. Friend has said—I do not think that I am revealing any secrets here—that he did not come into his present role simply to cut, but rather to reform. During difficult times, we are reforming and bringing together a fractured system. Why should people have to go to Her Majesty’s Revenue and Customs for tax credits, to the local council for housing benefit and to the Department for Work and Pensions for income support? Why should there not be a single system? One of the fatal flaws of tax credits, which the hon. Member for Rhondda praised, is that, because the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown)—the previous Chancellor and then Prime Minister—wanted to pretend that it was not welfare, it was claimed that they were negative tax. They were nothing of the sort. They were social security benefits, but paid over the course of a year. People’s needs, however, arise on a weekly or monthly basis. They cannot wait for end-year reconciliation and a following-year clawback.

The beauty of universal credit is that it is real time. It meets people’s needs when they happen, rather than saying at the end of the year, “Oh, guess what? We underpaid you,” or, more often, “Guess what? We overpaid you three years ago by several thousand quid. Please may we have it back?” That shambles will be over as we introduce universal credit.

I will not, because it is the debate of my hon. Friend the Member for Dover. I want to respond to some of his specific ideas on workplace benefits. I agree with his goals. I absolutely agree that we need a system that is fair for women; that we need to think hard about anything in the system that makes an employer less likely to employ a woman of childbearing age; and that we clearly want the system to work for self-employed women. He has made some important points.

As the system currently works, however, 93% of the cost of statutory maternity pay is refunded to employers. In fact, more than 100% is refunded to small firms. Small firms that take on a woman who becomes pregnant and goes on maternity leave will get back all the maternity pay that they pay out, plus what is essentially a handling charge—another 3% on top. Even a large employer gets 92% or thereabouts of reimbursement.

If an employer is reluctant to take on a woman who might have a child, therefore, the pure finances should not make a huge difference. Clearly, there is a bureaucracy issue with the reclaiming and so on, and we are happy to look at whether that can be streamlined, but the basic principle is that the employers get the lion’s share of the money back. The thing that might put them off, as my hon. Friend said in his speech, is the thought, “Well, I employ this person. They might not be there in some months’ time. I might have to provide maternity cover, retraining and so on,” but however we reimburse maternity pay, that will still be a feature of the system.

I am not therefore sure that having a collectivised—I hesitate to use the word, but my hon. Friend knows what I mean—system of insurance is any different substantively for the employer. Either way, employers are getting reimbursed—the costs are being met and are not in essence falling on the employer.

My hon. Friend’s proposal is interesting and I am grateful to him for suggesting it, but one of my worries arises from something that I have learnt as a Minister. Whenever we set up a new scheme, we have new infrastructure, bureaucracy and sets of rules. If we had the levy—the at-work scheme that he described—we would have to define the new tax base, have a new levy collection mechanism, work out who was in and who was out, have appeals and all that kind of stuff. There is always a dead weight to such things. Simply setting up new infrastructure costs money. I would have to be convinced that we were getting something back for it.

In essence, my hon. Friend is proposing that, instead of the general taxpayer paying into the pot and employers handing out statutory maternity pay, which is reimbursed by the Government from the general taxpayer—the current system—we have a new levy on employers, although he recognises that he does not want a new jobs tax, so that it is offset by a reduction in something else that employers pay and the tax in that world is neutral overall. However, he then says that he wants the rate not to be some £130 a week, but to be £200 and something a week.

My hon. Friend was commendably brief, so I apologise if I misunderstood, but I was not clear where that extra money would come from. If we pay women on maternity leave double, someone must pay for it. If he does not want that to be an extra burden on firms, paying for it will simply be a tax increase. That might be the right thing to do—increasing taxes to pay for it—but it is an increase.

Part of the reason for raising the rate is to bring it into line with the self-employed position. Also, however, most work places have the extra maternity leave as well, yet a small number of less good employers do not top up the statutory amount. The idea is to raise the threshold, so that women on maternity leave are overall in a better position.

I appreciate that my hon. Friend would like to make the scheme more generous, but my sense is that that is potentially quite a substantial cost. If we spend £2 billion already and he wants to double the rate, is that another £2 billion? I do not know. Without more detail, I could not say, but it might be a substantial cost that we have to think through.

On the important issue of self-employed women, the dilemma is that if they have chosen to be self-employed, they are paying class 2 national insurance of about £2.70 a week, while their employed sisters are paying national insurance of 12%, or whatever the rate is, as an employee, while their employer is paying another 13.8%. The best part of 25% of wages is raised in national insurance from the employed earner, while £2.70 something a week comes from the self-employed—or at class 4, depending on how much she is earning. The amount going into the system from the self-employed is vastly lower; the maternity provision for the self-employed, however, is only a bit lower for some women.

In that first six weeks, when we are on 90% of earnings, the employed earner could get more, but some self-employed women get more than their employed counterparts, because of the detail of the rules. There is an issue about some women who pay voluntary class 2 at two or three quid a week for a period of time, but then become entitled to maternity allowance running into thousands, having only put in £50 or £100 into the system. There is a worry that the system is possibly too lax in that area and we might need to think about it.

It is absolutely right that self-employed women get proper maternity provision, which is what the maternity allowance is for. Relative to what they put into the system, however, what they get out of it is a fantastic rate of return compared with an employed earner. An employed earner is putting far more in, while the employer is also putting in.

On the tax base for my hon. Friend’s idea, he proposes that all firms should contribute. Unless the self-employed are also going to contribute, they will either benefit without contributing, or we are talking about another levy on the self-employed as well. Having chosen to be self-employed, people often change, because of the lack of burdens, costs and levies of being an employed earner. We would have to think about whether we are distorting the choice between becoming an employed earner or a self-employed person if we made those changes.

I do not want to end on a discouraging note, because my hon. Friend has raised an important challenge. We do not want to be in a situation in which employers, through prejudice or for other reasons, are disinclined to employ women of childbearing age. That is clearly an important issue. We must ensure, however, that the social security system reflects the labour market as it is now and not as it was after the second world war. We need to reflect on the fact that there are growing numbers of, first, women working and, secondly, self-employed women. The Department is not currently doing work in this area, because we have our hands full with reform, but it is always good to look at such things.

Part of my thinking is that we are about to have a revolution with the whole concept of shared parental leave, so that issue of men versus women in the workplace will tend to blur. That might be a good time to look at reworking the system in this way, to encourage and help parents in the workplace.

My hon. Friend is right, and the coalition can be proud of the shared parental leave approach and for rethinking the nature of what happens after a child is born and whether it is mum, dad or a combination of the two who take time off. My hon. Friend is also right to encourage us to think outside departmental silos: the Department for Business, Innovation and Skills does parental leave, but the Department for Work and Pensions does maternity pay, and so on. He makes a welcome link. I am not convinced that his scheme is necessarily affordable, because of the additional cost involved, but he makes an important link.

I have a final word of encouragement to employers, who may be listening to our proceedings. About 10 years ago, less than half of mothers who went on maternity leave came back and worked in the same job; that figure was about 40%, but it is now 80%. The norm now for an employer who takes on a woman who goes on maternity leave is that—four times out of five—she will come back to the job for which she was trained, in which she is experienced and to which she can contribute.

Likewise, we now find that three quarters of women return to work within 12 to 18 months of having their baby. There is a norm: if someone takes on a woman of childbearing age, the odds are that she will come back to the same job within 12 to 18 months. We need to educate employers about the fact that, if they do not employ women of childbearing age, they are depriving themselves of talented people who contribute to the work force. Not employing such women is clearly a bad thing, not only from a social point of view, but from an economic point of view.

I congratulate my hon. Friend on raising the issue and my hon. Friend the Member for Spelthorne, who serves on the Select Committee now and is thinking hard about such issues, on his contribution. We have done a huge amount of reform in this Parliament, and we want to see our reforms through and deliver them, because we want our legacy to be a system that, as my hon. Friend the Member for Dover said, encourages independence, not dependence, that is fiscally responsible, but that works with the grain of people, so that those who want to work hard and get on are encouraged and enabled to do so, rather than being trapped on benefit, which was the risk of the system that we inherited.