The Committee consisted of the following Members:
Chairs: Albert Owen, †Mr Gary Streeter
† Atkins, Victoria (Louth and Horncastle) (Con)
† Bardell, Hannah (Livingston) (SNP)
† Blenkinsop, Tom (Middlesbrough South and East Cleveland) (Lab)
† Churchill, Jo (Bury St Edmunds) (Con)
† Coyle, Neil (Bermondsey and Old Southwark) (Lab)
† Green, Kate (Stretford and Urmston) (Lab)
† Heaton-Jones, Peter (North Devon) (Con)
† Hinds, Damian (Exchequer Secretary to the Treasury)
Milling, Amanda (Cannock Chase) (Con)
† Opperman, Guy (Hexham) (Con)
† Patel, Priti (Minister for Employment)
† Phillips, Jess (Birmingham, Yardley) (Lab)
† Scully, Paul (Sutton and Cheam) (Con)
† Shelbrooke, Alec (Elmet and Rothwell) (Con)
† Thornberry, Emily (Islington South and Finsbury) (Lab)
† Timms, Stephen (East Ham) (Lab)
† Turley, Anna (Redcar) (Lab/Co-op)
† Vara, Mr Shailesh (Parliamentary Under-Secretary of State for Work and Pensions)
† Whately, Helen (Faversham and Mid Kent) (Con)
† Wilson, Corri (Ayr, Carrick and Cumnock) (SNP)
Marek Kubala, Ben Williams, Committee Clerks
† attended the Committee
David Orr, Chief Executive, National Housing Federation
Councillor Gary Porter, Chair, Local Government Association
Mike Donaldson, Group Director, Strategy and Operations, L&Q London Housing Association
Alastair Graham, Director of Golden Lane Housing (Housing arm of Mencap), Royal Mencap Society
Alison Garnham, Chief Executive, Child Poverty Action Group
Matt Padley, Centre for Research in Social Policy
Professor David Gordon, University of Bristol
Dr Samantha Callan, Associate Director, Centre for Social Justice
Dr Kristian Niemietz, Head of Health and Welfare, Institute of Economic Affairs
Julia Unwin, Chief Executive, Joseph Rowntree Foundation
Public Bill Committee
Tuesday 15 September 2015
[Mr Gary Streeter in the Chair]
Welfare Reform and Work Bill
The Committee deliberated in private.
Examination of Witnesses
David Orr, Gary Porter, Mike Donaldson and Alastair Graham gave evidence.
A warm welcome to our four witnesses. This is an evidence gathering session. It is not a debate about the Bill. You will be asked specific questions and we would like, if possible, concise answers. Please do not feel that you each have to answer every question, although it may be appropriate. If you have something fresh to say, please feel free to catch my eye. We welcome our experts from the National Housing Federation, the Local Government Association, L&Q London Housing Association, and the Royal Mencap Society. Would you kindly read yourselves into the record for Hansard? Mr Orr, perhaps you would like to go first.
David Orr: I am David Orr, chief executive of the National Housing Federation.
Mike Donaldson: I am Mike Donaldson, a director of London &Quadrant Housing Trust.
Gary Porter: I am Gary Porter, chairman of the Local Government Association.
Alastair Graham: I am Alastair Graham, director of Golden Lane Housing, which is part of the Royal Mencap Society group.
Thank you very much indeed. We have until five minutes to 11 for this sitting. There will be plenty of questions, starting with Kate Green.
Q 130130 Good morning. Thank you very much for coming. My first question is probably for all of you. Would you give the Committee your views on the proposal in the Bill to require a yearly 1% reduction in social housing rents?
Just before you answer, may I correct a mistake? We have until 10 o’clock, of course, not five to 11.
David Orr: I think the fundamental problem from our point of view is that rents are set, effectively, by the Government, and have been for a period of time. It is 16 or 17 years since Governments first started to be involved in rent setting in the housing association sector. The combined impact of Government intervention over that period of time has been to leave a suite of rents that make no sense at all. There is no consistency. In the evidence that we have provided I have called it a shambles, and I think that that is a fair description of it. You have neighbours living in identical homes, whose financial circumstances are broadly identical, paying vastly different rents. This is not of our making.
The specific proposal to cut rents by 1% per annum for four years, depending on the rate of inflation, means a difference to people’s legitimate business planning expectations of a reduction of around 13% or 14%, or £3.8 billion taken out of housing association business plans. This is because the rate settlement from May 2014 was 10 years at CPI plus 1%. It was a rent settlement agreed with Government and introduced by Government—not by us, but by Government.
As a result of that settlement, designed to give long-term certainty in business planning, a number of associations have organised long-term debt on an assumption of what would happen with rates. Large-scale voluntary transfer organisations entered into contracts to buy the stock, and contracts with the selling local authority, based on rental assumptions signed off by Government. The decision to reduce rents by 1% per annum breaks all of these commitments. Although inevitably sometimes Governments do things we like and sometimes they do things we dislike, we have always been able to rely on commitments made by Government. On this occasion, those commitments have been broken and are causing very considerable difficulty for some housing associations.
I have one further point. This is one of these occasions where a single measure imposed on everyone does not have the same impact on everyone, because of all of those rent changes and that rent thinking. I will give you one example. There is a housing association whose target rent is £86 a week. Their present rent is £48 a week, and this will take them back down to £46 a week. If your rent is already 25% above target rent, it means that you can do less, but it is a manageable proposition. For that housing association it is an existential crisis.
Q 131 Can I just pick up on one thing that Mr Orr said? You said that you had been living in a world where effectively rent has been set by Government, so is it wrong for the Chancellor to have suggested, therefore, that social rents have risen out of control?
David Orr: The extent to which social rents have risen is specifically and precisely because of a series of decisions made by Government. These decisions have been made in consultation and negotiation with the sector, unlike this present proposal, but these decisions are Government decisions, not decisions made by individual housing associations, which is why our evidence proposes that at the end of the four years Government should legislate to withdraw from rent setting altogether and relocate responsibility where it belongs—with the boards of housing associations.
Mike Donaldson: From our point of view, next year we will have £11 million less because of the decision to reduce rents by 1%. By year four that will be a £60 million gap, which we will have to plug to carry on with our plans to build homes. We based our business plans on the deal—it was described as a deal with Government, which was a 10-year deal—and of course, as David said, we have funding lines in place to build homes based upon that income. Now we are going to have to plug the gap, and we have to do that in short order because, obviously, we have building expectations; we have a plan to build 50,000 homes. As a result of this, that will be reduced by 18,000 homes, unless we can plug the gap. Our intention is to plug the gap. We want to get back to 50,000 homes, and the intention is to build as many social homes as possible.
Our concern is also that, although there is an expectation in the Bill that this is a four-year deal, there is no promise going forward. There is uncertainty about what the rent regime will be beyond 2020. For us, and for our funders, need a bit more certainty. We have already had one deal ripped up; we do not know what is going to happen in the future.
Gary Porter: The local government perspective is pretty much the same as David’s. Obviously, we fully support the Government’s aim to drive down the cost of the housing benefit bill. It has grown like Topsy over the last 10 years and is definitely unsustainable. The trouble is, this is probably the least sustainable way of bringing it down. It will cost—as we have heard from other people—a lot of new homes being built.
The only way of sustainably bringing down housing benefit is to build new homes. We do not have a sufficient supply of affordable homes; we are pushing more and more people into the private sector, where rents are considerably higher—about £50 a week more expensive than in the state sector—and we need to be able to build more homes. We think, across local government, that this is probably going to cost us about 19,000 homes, which is 19,000 times £50 extra a week on housing benefit. That will cost the country more money in the long run.
I can understand, in the short term, why it sounds like a good idea. The Treasury is right, rents have gone up considerably in the last few years but, as David said, that is as a direct result of Treasury policy. We were told how much we had to put our rents up, and we did it—most of us. You can’t blame us for it being that. As David said, people’s business plans are built on an assumption that rent will be at a certain level. Councils across the country that still retained their council houses were compelled by the Treasury to buy them back a few years ago, which we did, but that was based on a business model with rents being the way they were. We are now in danger, probably in four or five years, of most of those councils coming in with a big box of all the keys to their houses to give them back to the Treasury, because we will not be able to sustain the mortgage payments that we have on them.
The whole thing is counterproductive to what the aim needs to be. We have a vast disparity in rents. I think the average council rent is £82, registered social landlord rent is £90-something and the private sector is £137. It is no good just attacking one part of the problem; we need to tackle the cause of the problem, which is not enough housing. If I had a magic wand, or at least the ability to get the Treasury to do what we need it to do, I would take council houses off the public sector debt book. Let us borrow against the value of the stock that we have. We can build you more homes, which will bring down your housing benefit bill.
Alastair Graham: From our point of view, there are really two main areas where we are very anxious about this. We provide housing for people with a learning disability, and the fear is in respect of both existing tenants and potential new tenants.
Unless there is an exemption for supported housing, it will mean that for the several hundred of our properties that we currently lease from a head landlord, when those leases come up for renewal and the head landlord wants the same or an increase in the head landlord rent, we simply will not be able to afford to pay that, because our income will be reduced by the amount set out in the Bill unless we get that exemption. It means that these people will face a very uncertain future and may even have to be housed in very inappropriate, and probably much more expensive, accommodation elsewhere.
The second impact is in respect of new tenants. Some MPs will know that we have successfully launched two bonds over the past couple of years; they have raised £21 million, and we have invested all of that in new housing for people with a learning disability. It has not cost a penny of central Government grant. We had exciting proposals to expand and develop that to provide much more housing through private investment. It is going to be practically impossible to get that private investment with these proposals, because people are not going to want to invest in a business plan that shows the rental income going down year on year over the next few years.
What is really needed is an exemption for supported housing, which would not in any way detract from the Bill’s main thrust to reduce the housing benefit bill. In fact, it would almost certainly save money overall to the public sector, because it would enable us to house people in community-based settings, which is where they will typically want to live. It is usually where their parents want them to live—often just round the corner from them—rather than in expensive, remote institutional settings, far away, that cost the public purse more money. So we would really urge an exemption for supported housing.
Q 132 Could I ask for your comments on a suggestion made to me that if this legislation precedes as currently proposed, there should in fact be a choice for some housing associations to accelerate the increase and take it in the first year or two, rather than it being 1% per annum? Have you any comments on the pluses and minuses of that suggestion?
David Orr: That would be even more destabilising for most business plans, because what you do is bring forward the reduction in rent, and once that reduction is in, it is there in perpetuity. That would just add to the amount being taken out of business plans, so it is not a helpful proposal.
Q 133 Good morning, gentlemen. I just have a few brief questions. For those who are on low incomes, would you agree that the reduction will be beneficial?
Gary Porter: For those who are on low incomes but above housing benefit level, yes, by about 80p a week. For those who earn money but not enough to take them out of housing benefit, no, it will not make any odds. For council tenants, the biggest savers will save about 84p a week. Obviously, if you do not have a lot of money, that extra £1 a week will be a benefit, but there are better ways of doing it.
Mike Donaldson: In L&Q terms, 54% of our residents will not see any benefit at all, because the benefit is to the Treasury—the taxpayer.
Q 135 Yes. On a balance of probability, there will be a proportion that will benefit and a proportion that will not. It will be 84p this year, more next year, more in the summer of the following year and so on. Gradually, it will increase for those on low incomes.
Before you go on, can I follow this up?
I am coming back to you in a second, Emily.
Q 136 I note what you say about comparability, but you will be aware that between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Notwithstanding what you said, would you agree that the reduction in social rents will be able to bring some sort of parity between the private sector and the social sector?
Gary Porter: It is the complete reverse. If you force our rents down and allow private sector rents to go up—
Q 137 Hang on; you say “allow”, but the private sector operates independently. The disparity at the moment is that one has been going up a lot more and the other less so. As I say, look at the figures: between 2004 and 2014, average social rents rose by more than 60% compared with 23% in the private rented sector. Given that this has gone in a certain direction in the past 10 years, if it were to go in the same direction in the next 10 years, clearly one will go up less than the other.
Gary Porter: Private sector rents will go up as a result of this, because there will be less public sector houses built. That will push up the demand in the private sector, which will allow private sector landlords to push their rents up more. That is the way the market works.
David Orr: Sadly, we don’t live in a world that is that simple and straightforward. Social rents going up by 60% is a specific and direct consequence of Government policy to reduce the amount of capital investment in new supply through housing associations, while still wishing to see the same level of delivery.
In the 2010 comprehensive spending review, when capital investment in new supply through housing associations was reduced by 63%, the coalition Government set us a challenge to deliver the same number of new homes or more, specifically by introducing a new rent regime called the affordable rent regime, with much higher rents. That was a Government proposition; it was not asked for or particularly supported by the sector. Having created affordable rents that are designed to be set at 80% of market rates and therefore responsive to what is happening in the market, rebased every time there is a new letting, the Government now want to reduce the rates on those. It is not consistent; that is the problem.
Housing and housing investment is a long-term business. We borrow money and organise finance on a 30-year basis, and that kind of cavalier approach—up one year, down the next; capital subsidy and then changing it to revenue subsidy—plays havoc with the ability of organisations to make the commitments they have entered into.
Q 138 You have been asked a question about those on low incomes and the impact on them of rent going down, and I wanted to pick that up. I wonder perhaps if Councillor Porter particularly might be able to answer this. If rents go down by 1%, will that have an impact on the amount of money that local authorities have available to do repairs, and can you see that having a long-term impact on the service that is available to council tenants?
Gary Porter: Well, yes. Whatever money is taken out of the system will prevent us either, in some cases, from maintaining the homes in the way that we would like to maintain them, or—more importantly from a Government perspective, I would suggest—from building new homes to reduce the long-term housing benefit bill. It will in a few cases have an impact on the ability to maintain homes properly, but I hope that my members would find a way of prioritising making sure that people still live in fit, decent properties. We have a good track record over the past 10 years of improving the high quality of our housing stock, and I cannot see any council easily going back on that. They will make other decisions, other than reducing maintenance, but that will be investment in their value.
Q 139 I wonder—again, Councillor Porter and perhaps Mr Orr could answer this—to what extent we think that the cut in social rents will have an impact on the overall growth in spending on housing benefit, compared with a similar policy applied to private sector rents. I think, Councillor Porter, you touched on this. We are looking at the differences between social rent and the private sector, and if the Government want to cut back on the housing benefit bill, and therefore cut social housing rents by 1%, that might have one impact, but if a similar policy were to be applied to the private sector, how much more housing benefit would be saved?
Gary Porter: Yes, but you might then end up with people in the private sector deciding that they do not want to be letting to the people you need to house in those properties. Don’t get me wrong, I fully support the idea of not spending £20 billion-plus a year on housing benefit—it is a crazy system. We should not be wasting that money that way, but the only way of sustainably stopping that money being spent is to build more homes. We need, one way or another, to build more affordable homes for people on low incomes to live in. That is the cheapest solution for the country.
Q 141 I will choose one more question to ask. I think, Mr Orr, you touched on the effect of the cut to social rents—or the Government enforcing a cut—of 1%. You said that housing associations have been pushed into the 80% affordable rent bracket. I wondered what the effect of the 1% cut would be on housing associations’ ability to build, versus pushing your tenants into 80% affordable rent, or 80% rent, instead.
David Orr: Our initial calculation was that in the absence of other mitigating action, the impact of the 1% cut would be a minimum of 27,000 homes lost—
Q 142 So that is 15,000 with local authorities and 27,000 with housing associations per year.
David Orr: Yes. It could be more than that, but what is happening is that the housing associations are looking all the way through their business plans and making decisions, trying to prioritise how they deal with the cut. The truth is that some housing associations have already started the process of making members of staff redundant, and often these are people who are doing the work to support people’s tenancies, such as financial inclusion staff or neighbourhood support staff. So it is difficult at this stage to be absolutely clear, but certainly the options that people are exploring include doing more under the affordable rent regime, with more conversions to affordable rent, or more new homes for shared ownership, rather than for social rent. That will play out over the next year, while people come to terms with the impact and recalibrate their thinking about the future.
Some housing associations in high-value markets are increasingly building for market sale and market rent, partly because that is a useful product in the market and partly to generate profit so that they can create their own cross-subsidy for affordable and social rent, and for shared ownership. But that does not work in low-value markets in the north of England and elsewhere.
A very quick answer, please; we are moving on.
David Orr: Broadly speaking.
Q 144 You have touched on a few areas. In 2014, the housing association sector produced a surplus of £2.4 billion. The Government assessment is that the sector is financially robust. Do you agree with that, and are you well-placed to deliver efficiency savings to manage the reduction? If you agree, could you outline some of the ways you might look at doing that, beyond what you said?
David Orr: I think that, in truth, there is no sector anywhere that is not still capable of making further efficiency savings. That is as true in our sector as it is anywhere else. Specifically, Government direct investment in housing associations is at a very low level. Ten years ago, when the Government put in a pound of public money, housing associations were generating £1.60 of private investment. Now, the Government put in a pound of public money and housing associations generate £6 of private investment; I think that is a pretty impressive efficiency gain. To be able to do that, housing associations have to be financially robust and be able to generate surpluses that give confidence to the investors in our sector.
It is cause and effect. If you create an environment in which you require people to be social enterprises and behave in an entrepreneurial way, you need to be able to generate the surpluses. Most of it is not available cash. In our sector more than anywhere else, surpluses are not paid as dividends to shareholders; they are reinvested in building new homes and providing services. Yes, there is apparently an amount of surplus that could be squeezed, but if you squeeze the surplus you get fewer new homes.
Q 145 Can I ask Councillor Porter and Mike Donaldson whether there is a way beyond what we have already talked about for the Government, local authorities and housing associations to create further efficiency savings, with all three working together?
Gary Porter: All three working together? There are big tranches of other Government Departments that own land in areas that are controlled by councils that could be building more homes. If you could speak to the Ministry of Defence or the national health service—any of the big landholding Departments—about releasing that land to local authorities to add value by putting planning permission on them, we could use that for pushing out private sector rent and private sector buy to sell. We could put public sector cheaper rents on there; we could do whatever you wanted with it if you freed up the land. Trying to get Government Departments to do it is difficult—that has been the case for the 15 years since I became a councillor. It does not matter which party is in government it is, the one thing that whoever is in charge of a Government Department does not like doing is releasing land that they are sitting on. But we could all work together quite easily.
Q 146 Obviously, in London you got the London Land Commission to release some of the Greater London Authority land and Transport for London land.
Gary Porter: Yes, but the rate of the One Public Estate stuff is very slow. I still think that there are probably quite a few cases of underreporting of assets and things. There are some imaginative things. We have made a few suggestions to the Treasury, which I will not say in this room because it might scare the horses elsewhere. There are quite a few things we could do to work together to achieve a better outcome. It comes back to the same thing: we need more homes. That is the only way of sustainably bringing down the bill.
Shall we hear from the others—Mr Graham and Mr Donaldson?
Alastair Graham: The exemption needs to be couched in the widest terms possible to ensure that people with learning disabilities and other vulnerable groups are properly protected from the impact of the legislation. It is fairly widely recognised that legitimate extra costs are involved in housing people with learning disabilities and other vulnerable groups. However the exemption is phrased, we need to make absolutely sure that we protect those vulnerable groups in the years going forward.
Mike Donaldson: We support the exemption of supported housing or specialised housing, because it operates completely differently from general needs housing. If it is not exempt, it will put very vulnerable people at risk. Given that the objective here is to reduce the housing benefit bill, we also think that housing which has been provided to people who are not in receipt of benefits should be exempt too, particularly intermediate market rent. We credit-check these people to make sure that they can afford the rent from their own means and do not need to be supported by the state. We think that that should be exempt as well. There is a technicality around affordable rent. Affordable rent, which was introduced by the coalition Government, is a gross rent and it includes a large slice of service charge. The Bill talks about rent, not about rent and service charges. That is a confusion, and it needs to be looked at. It is a technicality, but it does need to be sorted out.
David Orr: I think the Bill identifies, broadly speaking, the right areas for considering exemption. The supported housing exemption as presently defined in the Bill is too narrow, and we would argue that it should be what is called specified housing. This is housing which is not covered by the universal credit arrangement. DWP has already accepted that this kind of housing should be exempt from those normal arrangements because of the amount of care and support that is provided.
A separate area that is not mentioned at all in the Bill is relatively recent new large-scale voluntary transfer organisations. Their business plans are very much under pressure, because they entered into 30-year contracts based on a series of assumptions about rent that were formally approved by the Government. They are not going to be able to meet their promises—or, in some cases, meet their contractual obligations—and they are under very, very severe pressure. We think that there should be exemptions there.
Q 148 Thank you all for coming, and for the GSCE economics refresher for the Minister, which was really useful. My question comes straight back to that issue of supported housing. The point was made that in the previous changes of universal credit and the benefit cap, there were specific exemptions for supported housing. Why do you think that the Government have failed to make the same exemptions applicable to this change? Were discussions held with any of you before the Government announced their plans? What impact do you think it would have on the services in the longer term if the full specified accommodation exemptions were not made?
Alastair Graham: No discussions were held with ourselves, and I think that that is the case across the sector more broadly as well. The impact, as I said earlier, will be felt by people who are some of the most vulnerable in our society. Most of them do not work. Only 7% of people with a learning disability currently work, and most of them would still fall within housing benefit. In relation to the answer to a previous question, they will not actually feel any benefit from the reduction of only 1% that would apply to them. Because there is no explicit exemption in the Bill, this is causing a lot of anxiety among individuals with learning disabilities and their families, because they simply do not know what is going to happen.
I understand that the Bill makes provision for the Secretary of State to make further exemptions down the road, but until we know what those exemptions are going to be and how they will be couched, there is an awful lot of uncertainty. This is causing anxiety which I think is largely unnecessary, because I do not really believe that the intention behind the Bill is to embrace supported housing. I urge clarification on this as soon as possible, so that people are not placed in that position. We are here in September, and we are only talking about April. It is not very far away. We will need to send out rent letters in the near future. We need to be able to give some reassurance, both to our existing tenants and their families and to potential investors if we want to carry on trying to get private investment at scale. As I said earlier, that is going to end up saving money for the public purse, not costing money.
David Orr: It feels to us as though there is little clear explanation as to why this more limited category is in the Bill. If the Government have already accepted that specified accommodation is different, then they ought to accept that across all of the arrangements that affect it. I think you would have to ask the Chancellor why this decision has been made, but there is a very strong case for ensuring that all specified accommodation is exempt from this measure.
Q 149 We are primarily talking about accommodation for people fleeing domestic violence, people with learning disabilities and mental health problems, and homeless accommodation. They are exempt elsewhere. You are suggesting that this would cause complexity rather than simplification, which is something that the Government are striving for. Do you think that this has come about by design or by accident? Do you think it was a drafting problem? I notice that the Minister was shaking her head, but I hope that there will be clarity that this was an accident rather than a deliberate omission.
That is not really a question for this panel.
Well, I am asking it. Do you think it was design or accident?
David Orr: I am not prepared to opine on the thinking of others, but it will not aid simplicity in a very complex rental environment. It is just another level of complexity. The long-term implication is that there will be less housing of this kind if this measure goes through. I think that will be problematic.
Q 150 I am terrible at parliamentary protocol, but I feel that I have to declare now. If you look in the Register of Members’ Financial Interests, you will see that I worked for Women’s Aid within the past six months; there it is, on the record.
I want to get some further answers on supported accommodation. It is my experience that, with the reduction of funding for Supporting People and other local authority supported housing schemes, housing benefit-plus, as we would call it in supported accommodation terms, has picked up the slack for keeping those places open. There are lots of refuges and lots of places like those you are describing for people with learning difficulties where funding for Supporting People was reduced. Organisations acted well to keep opening new beds for vulnerable people through housing benefit regulation. Will this have an effect on the supply of accommodation for, for example, victims of domestic violence, where there has already been a reduction due to the cuts in Supporting People? I ask you, Mr Graham.
Alastair Graham: I do think that the implication is that it will be more difficult to provide full supported housing and new supported housing for many types of vulnerable groups because—firstly, from a private investment point of view—it is difficult to lever in private investment on its own or in combination with capital grant, if you have to show a business model in which your rental income is reducing year on year for the next four years but there is profound uncertainty beyond year four.
As David mentioned earlier, we thought, in the sector, that we had some certainty on this for 10 years and it was much easier to have those conversations with private lenders on that basis. Any kind of new housing or new proposition that we want to make will be a lot more difficult if we have to have a business model that shows that reducing rental income.
Q 151 Will any excess charge that you charge the tenant—in almost all supported accommodation an excess is usually charged directly from the organisation to the tenant—have to increase, thus increasing the cost for vulnerable people?
Alastair Graham: We would need to look at all sources of income coming into the equation to see if we could still do something to make it possible to provide housing for vulnerable people. That is why we are in this business. We want to provide housing. We know that there is a huge, desperate need for this type of housing with the appropriate care and support. Unless there are the kind of exemptions that we have talked about, these reductions will just make it more difficult to provide this kind of housing.
Q 152 Finally, to clarify, do you think that this funding reduction could mean that, for example, victims of domestic violence will directly be charged more for their rent by third-party providers of this type of accommodation, because of a reduction in housing benefit?
Alastair Graham: I’m not sure, to be perfectly honest. I cannot say.
Q 153 I would like to go back to the points about the financial robustness of housing associations and surpluses and so on. David, could you tell us a bit more about the geographical disparity in that? It is my understanding that, particularly in terms of assets, housing associations in London will be substantially better off than housing associations in, say, Teesside in my area. Could you say something more about what that geographical picture looks like, and the different geographical implications of this policy?
David Orr: Yes, of course, you are quite right that the basic financial strength of organisations varies hugely. If they are in an area where assets are very high value, their business has a greater degree of financial robustness underpinning it than an organisation in an area where the asset value is very low. It is more possible in some parts of the country to trade assets, and therefore maintain financial stability, than it is in others.
The impact goes back to one of the things I was saying earlier. This is a measure that sounds simple, single and straightforward, but it has a profoundly different impact for organisations in different parts of the country. In my introductory remarks I said that for some organisations, not because they are inefficient but because of accidents of history and geography, this decision could mean that they will collapse.
Having an efficiency challenge is one thing, but imposing a new measure that has the direct effect of making it impossible for good, well-run, well-managed, efficient organisations to survive is not helpful.
Q 154 There are other measures in the Bill that will have an impact on housing associations and local authorities in relation to rent. I am thinking particularly of the four-year freeze and the reduction in the household benefit cap. Can I start by asking Councillor Porter your assessment of the overall effect of those measures in the Bill on local authorities and, in particular, pressure on discretionary housing payments?
Gary Porter: For the purposes of what we have been saying today, we have put the freeze and the reduction in the same space. So, all the numbers that we have used have been like the £2.6 billion that we are going to be light because of the freeze and the reduction. They are not different numbers; they are the same numbers.
In terms of the impact of discretionary payments, I am afraid that I cannot answer that at the moment, but I will ensure that one of the members of staff who are supposed to be minding me today has made a note of it, and we will give you that back in writing.
Q 155 What has been your experience of managing the household benefit cap since its introduction in the previous Welfare Reform Act?
Gary Porter: It has been a variable picture across the country. Some areas have been affected more than others, as you would expect. Any national measure applied equally across the whole country is bound to have a different effect, depending on where it lands.
Q 156 Do you think that what is introduced in this Bill, which has a different level of cap for London and for the rest of the country, is a useful measure? Do you feel that these levels are about right?
Gary Porter: I would leave London councils to argue the case for or against issues for London. I am not very well versed in the specific impact on London. Again, our office will give you an answer to that in writing.
Yes, it would be helpful. Mr Orr, I think you want to come in on this one as well.
David Orr: For me, there are two major challenges with the benefit cap. First, of course it is right that there should be a limit on how much the state is prepared to pay. You cannot have open chequebooks, and we do not argue with that, but the way that the cap is introduced does not reflect the reality of the costs that people have. For most people, the cost of feeding, clothing, transport is broadly similar across the country, but housing costs are hugely different. So a single cap, once again, is a single measure that has very different impacts in different parts of the country. I think I am right in saying that the cap has the biggest impact in the midlands.
The second thing, which we are very concerned about, is that the level of cap now means that for a household with three children or more, dependent on benefit for whatever reason, there is nowhere in the country that the rent will be covered within the cap. Nowhere. So, for any household that has three children or more, this is a particular and specific problem.
Q 157 And that, of course, will be exacerbated for those families by the child tax credit measures.
May I ask one final question on this point? What might be the impact on personal household housing debts? Will we see households going into debt to meet their rent as a result of the freeze and the cap?
David Orr: We already know that there are some households who have had to do that. I was in Cornwall yesterday, which is an area that has been particularly badly hit by the bedroom tax because there are very few alternative places with smaller accommodation for people to move to. We know that some people there have really struggled to pay the rent and some of them have gone into debt to pay the rent.
Q 158 I believe that 70% of households in social housing in some London boroughs are affected by the cap. The benefit cap has particular implications for London councils, so it would be interesting to have some additional evidence on that.
Can we also hear from housing associations about the benefit cap’s effect and what the future for housing associations in London is, given the level of the cap? Are we looking at a future where housing associations will only be able to risk renting out to young professionals without children and will not be able to build accommodation appropriate for families?
Mike Donaldson: We are already seeing the impact of the previous benefit cap in terms of the households we can house in larger accommodation, so it is obviously going to get worse as it reduces to £23,000. The other thing we are concerned about is that there is an assumption that rents drop dramatically once you leave the Greater London area, and that is not true. The area around London has equally high rents, because there is a lot of commuting and so on. So there is a real concern that the £20,000 cap also has a detrimental impact on our residents.
Although we do not know for sure, because obviously we have not got all the information from the DWP, we estimate that another 300 of our residents will be affected by the benefit cap when it is introduced. The history so far has been that we have had to engage heavily with those individuals to ensure that they do not face losing their homes. The extra costs that we incur to employ staff, to get people jobs—we employ staff to give financial advice—is money that we have had to find from elsewhere in the past four years. Going forward, of course we will not have so much money, because we will be facing reduced income from rents, so there is a bind. Most of these people have never worked or have not got an engagement with the jobs market—they are starting from scratch. You have to do an awful lot of work with them to get them into paid employment.
Q 159 Can I talk about another situation? Let’s say a family living in Berkshire might want to move into housing association accommodation. Under the benefit cap, would the housing associations want to take the risk of building accommodation for a family in case the family fell out of work and then needed to depend on benefits, because those benefits would not pay sufficiently high rent even to pay for building the property in the first place? How many housing associations are following the example of Moat, which says that it cannot afford to build two and three-bedroom houses any more because of fear of the benefit cap?
Mike Donaldson: Well, the original benefit cap mainly affected larger families and it was four-beds that were mainly affected, so we have had difficulty letting some of those properties because the people who we would normally house cannot afford the rents. It is not a significant issue, but it has begun to be an issue, and it will just get worse because we are now talking about the smaller bed sizes—not two-bedrooms, but three-bedrooms. In London, they are going to be much more difficult to let at the rents that we are talking about. So it will just get worse, and by year four of this regime I think we will have a substantial issue.
Q 160 I was talking not just about renting, but about housing associations not being prepared to build family accommodation in the south-east because of a fear of their tenants becoming unemployed.
Mike Donaldson: I think you will see people developing smaller homes, because people can afford them. I accept that it may lead to overcrowding down the line, but that is where the pressure is.
Q 161 Colleagues, we are approaching the end of this witness session. Does anyone have a final, burning question that they would like to put to our very expert and concise panel? David, would you like to add something for the record?
David Orr: May I say two things? One is a very specific plea on behalf of large-scale voluntary transfer organisations that have rents way below target. Under the existing arrangements, they are allowed to re-let at the target rent, rather than at their existing rent; as currently drafted, the Bill will not allow that to happen. Please could we put that back in? It would make a substantial difference to those organisations and would cost almost nothing.
Secondly, on the previous conversation, housing associations are trying to make sense of that issue. There is a huge commitment to continue to deliver the mission. Housing associations are mission-driven organisations and want to be able to provide good-quality accommodation for people right across the income spectrum. I think we will see some two, three and four-bedroom homes being built, although I also think the incidence will diminish, but we have to think strategically and long-term about the consequences. One of my profound anxieties about the change in the Bill is that it feels short-term and that the long-term consequences have not been properly calculated.
Thank you very much, that is extremely helpful to hear and has certainly been noted at this end of the room.
Thank you for giving us your time and expertise, gentlemen. It has been much appreciated.
Examination of Witnesses
Alison Garnham, Matt Padley, Professor David Gordon and Dr Samantha Callan gave evidence.
Colleagues, we will make a start. We have one witness yet to arrive, but we hope he is on his way.
It is wonderful to welcome witnesses from the Child Poverty Action Group, the Centre for Research in Social Policy and the Centre for Social Justice. Could you kindly read yourselves into the record?
Dr Callan: I am Samantha Callan, associate director for families and mental health at the Centre for Social Justice.
Alison Garnham: I am Alison Garnham, chief executive of the Child Poverty Action Group.
Matt Padley: I am Matt Padley, senior researcher at the Centre for Research in Social Policy at Loughborough University.
Thank you, Kate; that is good to know. I know that Stephen Timms has three questions for the panellists.
Q 162 Welcome to the witnesses.
Obviously, in the background to what this Bill does in relation to the Child Poverty Act is the controversy about how child poverty should be measured. Everyone recognises that it is quite a difficult subject. Indeed, the Prime Minister himself has argued both in favour of and, more recently, against the use of a relative poverty measure.
I wanted to ask each of the three witnesses to comment on three particular points. First, the Bill deletes all the targets around child poverty—there will be no targets left if the Bill is enacted in its current form—and I am interested to know whether each of you thinks that there should be some target around child poverty set by Government, or do you agree that removing every target entirely is appropriate?
Secondly, the Child Poverty Act requires tracking four measures, all of them related to poverty—relative poverty, absolute poverty, persistent child poverty and material deprivation—but this Bill replaces that with a requirement to publish data on children in workless households and educational attainment. I wonder what each of you thinks about the validity of those alternative indicators for assessing and measuring what is happening to children, compared with the measures in the Child Poverty Act. Thirdly—
Shall we come to the third one in a moment? Professor Gordon has just arrived. If we ask the first two questions first, then everyone can answer the third one—or are they so linked that they must be taken together?
Professor Gordon, welcome.
Professor Gordon: Thank you. Sorry, I went to the wrong Committee Room.
Well, you have come to the right place now, and we are very grateful. I think you will catch up on what the questions are, then you can give your answers and we can have the third question. Mr Padley first, please.
Matt Padley: Taking the first question—should there be a target—from my point of view, that relates to whether or not there is a strategy through which to reduce child poverty, and targets related to that. If targets prevent or get in the way of doing things that actually reduce child poverty, then they are not useful. What I am saying is that the targets have to be useful and have to measure the right things.
If I can answer the second question at the same time, the measures of related worklessness and educational attainment as proposed are not necessarily measures of child poverty. It is entirely possible for households to move from worklessness to work, for instance, without necessarily moving out of low income. It is important to stress that they are not necessarily measuring what they purport to measure. I think that that relates to the first question, so my view would be that if there are targets, they need to be part of a plan of how to tackle child poverty. That is missing from the Bill as proposed.
Q 163 I think the Government’s argument would be that if you want to measure the life chances of children, you are better looking at measures of worklessness and educational attainment at key stage 4 instead of the poverty indicators in the Child Poverty Act. If you want to get to life chances, do you think that that is the right approach?
Matt Padley: I do not see why it needs to be either/or—I think both in combination. What looking at educational achievement at the end of key stage 4 will tell you or what looking at the proportion of children who have grown up in workless households will tell you is useful information, but still there is so much evidence to suggest that children growing up in low-income households have poorer outcomes that measuring the incidence of low income remains important. I am not saying don’t measure worklessness or educational attainment at the end of key stage 4; I am saying, don’t wholesale abandon income measures, just because of the recent broader economic climate that has meant that relative income measures are showing some very perverse results.
Alison Garnham: What I would like to say is that the basket of measures that we currently have is an attempt to operationalise a definition of child poverty. The most well known one that we have is the one that Peter Townsend came up with back in the 1970s. He said:
“Individuals...in the population can be said to be in poverty when they lack resources to obtain the...diet, participate in the activities and have the living conditions and amenities which are customary, or...widely encouraged and approved, in the societies in which they belong.”
No indicator is perfect, which is why, in order to try and triangulate this problem, there are about five measures in the Child Poverty Act. Some of them relate to low income and some relate to deprivation—things you cannot afford because you lack resources. Some of them relate to the persistence of poverty. If all of those go, we do not know what we are tracking these other life chance events against. If you were to add all those life chance measures to the core set of indicators in the Child Poverty Act, that would be a good thing. In fact, we have always said, why not add more indicators? That is a perfectly sensible thing to do.
The problem with what has been proposed is that by taking away all the income measures, you are no longer really measuring child poverty; you are measuring something else. Also, you are completely missing out on one of the main causes of child poverty today, which is low-paid work. Two thirds of poor children live with working parents, so if all you measure is worklessness and educational attainment, you are completely sweeping aside that group.
Q 164 The other question is: do you think there should be a Government target around child poverty?
Alison Garnham: Yes, I do. It keeps the Government honest. I think it is really important. In fact, in 2010 there was a cross-party consensus that we needed to tackle and drive down child poverty, so it is very disappointing that we are now arriving at a point where we are not even going to track it any more. It should continue to be tracked, and there need to be targets, because in that way there is something to aim at. Child poverty was reduced by 1.1 million between the baseline year of 1998 and 2010, so we were on course. We were halfway towards the target of elimination, which was 10%, even though we were not halfway to zero, which was the target the Government had set itself. So we were actually doing rather well. The problem now is that policies are driving us away from reducing child poverty, rather than that the target should go.
Dr Callan: The problem with having income targets is that they will always drive effort towards tackling symptoms and not causes of child poverty, so I would be much more in favour of a more rounded set of measures. Currently, we have only got measures to tackle what we would call two of the five pathways to poverty: poor educational attainment in children and parents, and worklessness. We know that family breakdown drives poverty. We know that serious personal debt and addictions, including gambling addictions, drive poverty, so I think we need more measures. The only thing I would say about income is simply that we need to be measuring the numbers of children who live in households where parents are not earning a living wage, or where parents have not earned a living wage for the last two years. Again, that puts the focus on earnings.
My understanding of the Government’s welfare reforms is that they have a very dynamic approach, which is what the CSJ asked for in 2009, that will help drive people into behaviour that will mean they increase their income through earnings. In international development, our approach for a very long time has been to not just give people money, but to give them the tools to increase their own life chances.
Professor Gordon, have you picked up on what the questions are?
Professor Gordon: I think I have.
I thought you might have done. Your answers, please.
Professor Gordon: There has been 400 years of research into the measurement of poverty in general, and child poverty in particular. The UK is arguably one of the world’s leading experts in these kinds of measures, which have been developed and have, over the years, spread across the world. They have been adopted by the European Union, by the OECD, and even by the World Bank. So we have a lot of expertise in the measurement of child poverty. The targets are very useful in terms of seeing whether resources are being allocated efficiently and effectively, and in seeing if the policies are working. So targets can be useful from that point of view.
The low income measures were originally introduced by Margaret Thatcher’s Government. The measures proposed in this Bill were originally introduced by the last Labour Government, although they were abandoned in 2007. They are all good measures, but the worklessness and education measures are not direct measures of child poverty. Child poverty is important because it is very expensive; it is not cost-neutral. Conservative econometric models have shown that the long-term consequences of child poverty cost about £25 billion, about 2% of GDP. Eradicating child poverty would be a boost to the economy and would, of course, create a much better society and much better life chances for children.
As I say, the measures of worklessness have been used before. They are part of a package of measures to which I have no objection. I support them and I always have, but they are not very specific measures of child poverty. Approximately two thirds of children in workless households are not poor: they do not live on a low income and the worklessness is temporary.
Q 165 I have one more question. You may not all be in a position to comment, but I would be interested to hear any of your opinions. One element of the Child Poverty Act was the requirement on local authorities to work with others in their area to develop a child poverty strategy for that area. There is no similar proposal in the Bill—for example, there is no requirement for a life chances strategy. In practice, were those strategies useful? Or do you think that the fact we are not going to have them in future is not a problem?
Alison Garnham: I think they were incredibly useful. They drove a lot of action and activity locally. Many local authorities set up their own local child poverty commissions and worked out what they could do to address child poverty. One of the biggest losses in losing the Child Poverty Act is that there will no longer be anything driving action at a local level. It would be a big improvement if something like that was introduced into the Bill to require local authorities to have local child poverty or life chances strategies.
Q 166 Can you give us any examples of where particularly good work was done in developing a strategy?
Alison Garnham: There were a number of local authorities, such as Leicester, Birmingham, Milton Keynes and so on. They tended to take on different characteristics in different areas. For example, in Liverpool they focused on early years strategies to improve early childhood education and care. In other areas they looked at things such as how they could manage their own benefits authority for discretionary housing payments and ameliorations of the council tax benefit scheme. In other areas, they looked at other kinds of projects and services. There was a wide variety of activity, which was very positive.
Dr Callan: Again, if we had something in the Bill that recognised that, alongside work and education, family breakdown—or boosting family stability, if you want to put it more positively—is such an important area for Government activity, then local authorities would have a lot more to get their teeth into at a local level. The use of children’s centre stock is very important. The opportunity would be created for children’s centres to do far more around a whole-family package of support, which is something the Prime Minister has talked about. The Bill could help to put some teeth on to that.
Q 167 Are you suggesting that there ought to be a requirement for local strategies to be in place, albeit perhaps that they would look rather different from the ones we have had in the past?
Dr Callan: Local strategies around life chances. As I say, if it is just education and worklessness, there are not necessarily enough levers at a local level to get local authorities working together more than they are already. Obviously a lot of local authorities already work very closely with the whole school estate in their areas, going right up to further education and universities.
I do not think that family support is a niche issue. It should be universal, in the same way that we have universal health and universal education. That is why it has to be in the Bill. I do not think it is beyond the wit of well intentioned people to come up with a measure for family stability, which would really strengthen the Bill.
Eight colleagues have caught my eye, so we will have concise questions and concise answers, please, although it is all good stuff.
Q 168 Will the panel please discuss the mechanisms by which children move out of poverty? I am particularly interested in the connection between work and children moving out of poverty, with reference to the recent Department for Work and Pensions report that showed a strong connection between families moving into employment and children exiting poverty.
Professor Gordon: Child poverty is highly dynamic. Virtually nobody is born in poverty, grows up in poverty, lives in poverty all their life and then has children who live in poverty. That is anecdotal—it does not happen. The welfare state has been very effective in catching people just below the poverty line and giving them a chance to move up above it. The causes of poverty have been known for a long time, and they are largely structural. The reason people do not have jobs is often that there are no jobs, rather than because they are lazy. People get sick and cannot work. Their relationships break up and so on. The reverse happens to get children out of poverty. Poverty is a cycle. Local authorities have often been the first line of defence against poverty, and they are right at the forefront of the battle.
To answer the last question, it would be very helpful if there were some requirement on local authorities, as I suspect there will be in the devolved Assemblies. I do not think Wales is likely to change its legislation, which has a requirement on local authorities. Scotland and Northern Ireland are also unlikely to ignore local authorities in their attempts to reduce child poverty and improve life chances. You have to make sure you do not mistake cause and effect. A lot of family breakdowns are a result of poverty, not necessarily a cause of it.
Alison Garnham: I agree with what David said about the general routes into poverty—unemployment, low pay, becoming sick or disabled, relationship breakdown and so on. Obviously, if you reverse that, people move in the opposite direction.
We also have very good evidence, if we just look straightforwardly at the poverty statistics, for the difference made by people getting a job. Worklessness is a really strong indicator. If everybody in a household is unemployed, the poverty rate is about 70%. If one person gets a job, the poverty rate drops to about 20%. If both do, it drops to about 8%, so the impact of getting paid work is quite significant.
We also know that two thirds of children live in a working family. The issue of low pay is hugely important today in terms of child poverty. We also have very good evidence about the impact on children’s outcomes of living on these kinds of low income. Kitty Stewart did a meta-analysis of all the studies into the causal links between what happens to children and their outcomes, and the most powerful indicator of all is low income. It is most strongly related to children doing less well later in life, which is one of the key reasons why income is such an important indicator.
Dr Callan: Simply, we cannot forget how important a message it is to children when they see their parents really striving—don’t misunderstand the word—to increase their family’s living standards. Previously, there were cliff edges in tax credits. The Government were well intentioned and wanted to get people over a certain line, but it was kind of, “Once you’re in work, we’ll leave you alone. We won’t necessarily give you all that much support.” What is important about what I understand of the Government’s agenda, and which has to go alongside life chances measures, is that they will say, “We’ll hassle you, but helpfully, to make sure you are earning more and upping your skills and that you, as parents, are taking in hand the job of increasing the life chances of your children,” and showing them a really great example.
I do not want to over-simplify the root causes of mental ill health, but feeling powerless and feeling that efforts at self-improvement are not going to be rewarded can make people feel very depressed and anxious if they want to do better for their children. The Government should absolutely push towards saying, “In the efforts you make, we will be alongside you. We will help you,” rather than, “When you get over a certain level, you’re going to lose punishing amounts of tax credits.”
Matt Padley: I would echo the comments of Alison and David. It states explicitly in the Bill that rewarding work is one of the aims of this. That is fundamentally important. The introduction of the national living wage, for instance, may go some way towards that, but it still puts some people in situations where they are not necessarily better off. Certainly, making work pay is fundamentally important.
Q 169 I have a few follow-up questions. That was very helpful. You described multiple factors and particularly focused on the value of work in helping children out of poverty. Well-paid work and the national living wage are connected to this. Samantha talked about the importance of supporting families’ efforts to improve their living standards. Given that, as I say, there are multiple factors, does the panel agree that measuring the range of factors is helpful in understanding poverty? Is it helpful in measuring the root causes, not just the symptoms, of poverty?
Brief answers, please.
Alison Garnham: The root causes include income, and that is the problem: we no longer have an income measure. In fact, you will be looking just as much at effects, if you are looking at things such as educational attainment, as causes. That is why you need a core set of income measures, plus all the other things we are talking about. They are also important things to track, and they would be welcome.
Matt Padley: I agree. In terms of the causes of poverty, income needs to be measured.
Q 170 Does anyone disagree?
Professor Gordon: Income is crucial. The last consultation on measuring child poverty received 104 responses, 103 of which wanted to keep all or at least one of the low income measures, because it is a root cause of poverty. Two thirds of children in poverty are in households in which at least someone works. Low pay and poor working conditions are a root cause. The low income is the cause of the poverty, not the workers.
Q 171 I am hearing a lot of you referring to the income measure, but what are the panel’s thoughts on the way that a relative income measure means that reported child poverty falls during a period of recession, when median income falls, and rises in a period of economic growth, when incomes rise?
Professor Gordon: That is one of the major objections to that one measure. The Child Poverty Act 2010 had a series of tiered measures so you could get an overall picture. If you have just one measure, you get an artefact, but the other measures pick up on that. The relative falls, the absolute rises, the combined low income and material deprivation rises, and probably so does the persistent poverty measure. By looking at all four measures, you get a full picture of what is happening.
Matt Padley: The line is not necessarily always helpful. Just getting people over a line does not solve poverty. The bundle together indicates a direction of travel, which is fundamentally important. Without that, you cannot track the direction of travel. When all those things are moving in the same direction, you know that things are getting worse or better.
Alison Garnham: The fact that we had four measures enabled us to explain what was happening to the headline indicator. Basically, everybody was doing badly, so people at the bottom were not doing so badly in relation to the middle, but the absolute poverty indicator was going up so we knew that people at the bottom were losing income. The group of indicators together gives you a powerful explanatory tool.
Dr Callan: The only thing is that if you have a legally binding income target, we are right back to where we were before. The Government could be subject to judicial review for, frankly, doing the right thing: taking a more effective approach to poverty and tackling life chances.
Q 172 I thank the panel for joining us. I would like to pick up on the removal of the targets. It seems to me that the targets are being removed because the Government had no chance of meeting them. That in itself is a very dangerous move. I also want to pick up on some of the observations that have been made about the rise in the national wage, which as we all know is not a living wage, because the living wage has been set independently at £7.85 outside London and £9.20 within London. Even the Institute for Fiscal Studies said that the welfare cuts, coupled with the moderate increase, will lead to only a 13% benefit, and the vast majority will have their income reduced significantly. The Scottish National party believes that we should not remove the targets. Do you agree with that? At the very least, should we delay any removal so we can properly consider and review what impact it will have?
Alison Garnham: Yes, I would support that. I have said that I am in favour of keeping the targets. It is worth pointing out the kind of change that was driven while child poverty was falling. We know that as people’s income was improving and child poverty was falling there was more spending on fruit, vegetables and children’s books, and less spending on tobacco and alcohol. We saw improvements in child wellbeing in 36 out of 48 OECD indicators. It was not just about people simply getting more money; there were big impacts on what was happening to families, too. That is one of the reasons why we need to continue to track it. One of the important things about the indicators we have is that we have an income series that goes back to 1961, so we can compare historically. We can also compare internationally, because these are the measures used in the EU, the OECD and the International Monetary Fund, so we are able to see how we are doing in relation to other countries.
Dr Callan: May I point out some other drawbacks? It has already been mentioned that in the recession it looks like child poverty is falling, which does not make sense. There are other reasons why the targets were unhelpful. There is no sense of how families’ circumstances change when they move in and out of poverty across a certain line, and there is no distinguishing between those a long way from the line and those just below it. Obviously it is nuanced—you do very careful analysis, I appreciate that—but we get into this poverty-plus-a-pound issue, where somebody is just over the line but their life circumstances may not have changed one bit. It is misleading, really—
Please continue, don’t be put off.
Q 173 If I might come in, you have some specific things that you are talking about that you think should be measured. Would it not make sense to add those and not remove the other ones? Should it be one in place of the other? To me, it should be additional.
Dr Callan: I could go through more reasons. Compared with other countries I do not think we are doing brilliantly in Britain in terms of life chances yet, but if we compared ourselves Europe-wide, we are not doing too badly. Yet do we want to just say, “Oh, we’re not doing too badly compared with the rest of Europe”? No, not at all. I am just trying to build a picture of how inadequate these are. I have already talked about the Government activity that will be driven by anything, frankly, to do with income.
One more thing on what you were saying about the IFS figures. What tends to be lacking is that, first, you cannot forecast child poverty—the IFS knows that, it has tried and gets it wrong quite a lot of times. The dynamic effects are what very few projections ever really bring into play. I know people who say, “I can see the day when I’m not going to be able to have child tax credits any more, so I am planning for it—I want to up my skills, I want to up my game”. If these are people who can do that, then good, but if people know they need to but need help, that is where we need to put Government effort. We will not put the Government effort into that if we are just thinking about how much income there is in a family and are not even disaggregating that and thinking how much is earned income, which is also very important.
Q 174 On the point about the IFS, I understand that it cannot measure child poverty, but what you are talking about is income and the effect that the cuts, versus the lift in the minimum wage, is going to have on people, which is significant. Surely a measure of income against child poverty is very important in that instance—we recognise that.
Dr Callan: If the Government activity is in raising people’s skills and raising people’s expectations of what they can do and that is where the effort is directed, with people getting help to move up and out of tax credits, it is a completely different way of seeing it.
One final thing. I do not think that we are doing this too quickly. The Centre for Social Justice has been writing about this and provoking a debate since 2007 on whether we should be simply looking at income levels or whether we should be tackling root causes. Eight years have already passed; I think we need to do something about it with the political will that is there.
Professor Gordon: Improving skills and improving the quality of services such as education and health are very important, but the scientific evidence shows that money matters. If you raise the income of children in poor families, child wellbeing increases across the whole range of measures. The targets were not met in 2010, although they were reasonably close—they are on track, possibly. When those targets were first introduced, Britain was ranked at the bottom of the UNICEF league table for child wellbeing. By 2010, as things had improved, there were fewer poor children in terms of low income and Britain had moved up to the middle of the ranking for rich countries. That is across a broad range of measures, in independent research by UNICEF.
There is, of course, also a whole lot of UK research that shows, as Alison said, that there was more money spent on better-quality food, on education equipment for children and a whole range of positive things that improved child wellbeing. Attainment among poor children also increased, in terms of education.
Matt Padley: We looked at research recently that points out that those who are most likely to gain from the national living wage are those without children, which I think adds some context. Increasing wages at the bottom is not necessarily going to have an impact on households with children.
Q 175 I have been harrumphing all the way through because so many of the questions I was going to ask have basically been answered. I was going to ask the panel a very simple question. Do you think it is possible to measure child poverty and life chances, without taking financial income into account? I think we have heard a very emphatic “No”, “No”, and “No”, although I am not sure about Dr Callan. I was really shocked to hear you say in your introductory comments that financial income is a symptom, but that families and things such as addiction are drivers of poverty. I find that a very simplistic and narrow view. The rest of the panel said quite emphatically that income is a driver of a lot of the other outcomes that we see in life chances.
Dr Callan: If you look at why people have low earnings, it is not—that is why the living wage is so important, that is why doing more hours is important and people upping their skills, so that they can earn more is important, rather than just, “The Government’s going to sort it all out.” That is what I am trying to get at. We do not want to take all agency out of the hands of people and say, “Whatever you do, don’t worry. We’ll look after you; we’ll top you up.”
We should not be subsiding firms. Firms should be paying enough so that people can work their way out of poverty. Just now people have told me that it is laughable to talk about working your way out of poverty. I agree when wages are so low. That is why we need a whole package of things, but not necessarily setting targets around income levels, for all the reasons I have said.
Matt Padley: But if the living wage, for instance, is a way out of poverty, then surely it is important to measure those who have low incomes. Without a low-income measure, knowing who is above or below the living wage—
This is not a debate among the panel. Thank you for that. Professor Gordon and then Alison.
Professor Gordon: We have just completed the largest and most comprehensive study of poverty that has ever occurred in the UK.
Who is “we” in this context?
Professor Gordon: The University of Bristol and a consortium of eight other universities: about 120 academics were involved, funded by the Economic and Social Research Council. We looked at employment in terms of stress, control, physical conditions, security and satisfaction. We looked at the bottom 20%, the worst conditions of employment, and we found that there were very high rates of child poverty, that the health and wellbeing of children and adults where parents worked in those conditions was no better than for the unemployed.
Although it is often argued that it is a stepping stone to better employment if you go into one of these bad low-paid jobs with bad conditions, about a third of people in those jobs have been stuck there with no prospect of improvement. So it is not just about low pay in those jobs; it is also about regulation to ensure that the physical working environment is safe and that people have some control and flexibility over their jobs, and to ensure that they have some kind of security in those jobs. Those bad working conditions harm the children, as well as the adults, in those households.
Alison Garnham: I just wanted to point out briefly, in answer to what Samantha was saying, that when child poverty was falling, it was not just about raising people’s incomes. Tax credits and child benefit were important, but there were also other things going on. There was the first childcare strategy, there was welfare to work and there was a big increase in lone parent employment. In fact, the increase in lone parent employment from 45% to 57% accounts for a third of the falls in child poverty between 1998 and 2010. All of things that Samantha is talking about are still all of the things that you need to do. It is not just about improving income, but they then have an impact on the poverty figures, and that is what we are looking for.
Q 176 I want to look specifically at the troubled families programme, which is helping to tackle deep-rooted problems in families. What effect is that programme having on child poverty? That question is for all the panel.
Professor Gordon: The troubled families idea came out of some work that was done for the Cabinet Office on multiple social exclusion by ourselves at Bristol, York, the National Centre for Social Research and the Cabinet Office itself. It looked at some families that had multiple difficulties—five or more problems. They were about 2%, on a guesstimate, although there is quite a lot of uncertainty and we had data only for England. It only looks at people who have multiple problems, of which poverty may or may not have been one of those problems. It can only have quite a small effect on poverty overall. Although, for those families, high quality social work, and combined and improving services are obviously very good things, it will not affect child poverty overall.
Q 177 Well, it will for those children.
Professor Gordon: For a small number of children.
Dr Callan: I was in the Isle of Wight recently, looking at the family hubs that I mentioned a bit earlier. They are putting their troubled families programme very much at the heart of how they are helping families right across the Isle of Wight. It does not mean that they are treating all the families as troubled families. The fairly narrow criteria have been broadened. It is enabling that transformation and reorganisation of services, so that you do not have families with multiple problems having multiple professionals trying to help them and further complicating things.
In terms of how the programme is affecting children growing up in poor life circumstances, if it is driving more effective local government working and ensuring that far more people are getting family support than they were, it can be a really a good thing, for all the reasons that I have said. It is about getting underneath the life chances—things such as why children are not going to school, why the parents are not getting into work and so on. Health is also hugely important—the mental health and addiction issues that many families face.
Q 178 Just touching on that—I know that Anna raised this as well, and this is a very specific example—if a parent has an addiction of some sort, it can mean that the family income, sadly, is being spent to support that addiction, rather than to help the child grow up and so on. My broader question to the panel is that we have heard a lot about income, but is it not just as vital to focus on how that income is spent, as Alison said, on fresh fruit and vegetables and so on, rather than—I think you gave this example—on tobacco and alcohol?
Dr Callan: That is really important. CSJ works with several hundred organisations that are working in the community to help tackle these root causes. I have gone and visited a lot. I have talked to a lot of people who have used the services they offer. One thing that people say is, “I feel so bad about how my addiction is affecting my kids that when I get a dollop of cash I just want to treat them.” It is so understandable; it is kind of spending out of guilt. They may be buying them fantastic food, but—I am not saying this is everybody—there is a sense of “If I have money, I will buy them expensive luxuries because I had to make up for the fact that I haven’t been emotionally available as a parent.” You may think that is just an anecdote, but if it is happening in lots of families where there are addictions—that is what we are hearing from people working at the grassroots level—we have to pay attention because there may be money going to that family, but it is not, as you say, necessarily improving the future life chances for the children.
Professor Gordon: Alcohol and drug dependency are devastating for families and obviously a key issue in child protection services, but it has to be remembered that the overwhelming majority of families where someone has an alcohol dependency or even a drug dependency are not poor. They have higher incomes—sometimes very high incomes. It is a very important issue for child wellbeing and life chances, but tackling that will not necessarily reduce child poverty. There are very few households in which alcohol and drug dependency is causing child poverty.
Alison Garnham: I agree with that. Alcohol and drug dependency are not a good indicator of poverty. Troubled families is allowing and funding a lot of local authorities to do a lot of admirable work with very disadvantaged families. Part of the problem is tracking it. We do not actually have much evidence yet about how it is doing, partly because the schemes are different in different areas, so the data is not comparable. It will be a while before we are able to tell what impact it has actually had.
Q 179 Drawing on that, the other indicator the legislation allows for focuses on children’s attainment at key stage 4. How important is that key stage to helping us to understand a child’s life chances?
Professor Gordon: The indicator will be only for England; it will not be for the whole of the UK. Also, I would have thought that was an indicator that the Education Minister should report rather than the DWP Minister. It will also change, because the grading system will change, so it will be reported and then the next set of reports will not be comparable with the previous set, so you will not know whether things have got worse or better for either of the two indicators suggested. So although it is important, it has not been very well thought through as an indicator, because it will not mean anything for at least a few years. There is also no target attached, as there is in Wales, for example.
Q 180 You have been talking about income a lot, and the point I am trying to make is that there is an holistic approach in this Bill and the Finance Bill. We have discussed the national living wage, the higher personal allowance in tax, free childcare and so on, which are factors against which the Government will be judged on child poverty and how the low-paid are faring generally. Do you accept that these factors in the Bill are part of a general package?
Professor Gordon: The indicator will not be meaningful. It will be only for England and it will not be comparable. Because of the grading changes from A to E to 1 to 9 and because the boundaries are changing, you will not know whether it has got better or worse.
Dr Callan: I think we absolutely have to look at educational attainment. Children doing well, perhaps against all the odds, boosts their self-esteem. A really quick point: if we are saying that we are not interested in the kids of people who have addictions or high incomes, actually that high income can be drained away completely almost overnight by addictions. That is exactly the reason why we need to look at the lives of all children across our country rather than just the ones that seem to be under those financial circumstances.
A quick response from the next two panel members.
Alison Garnham: Everybody wants a multidimensional approach to child poverty. Everybody wants to look at housing, health, education. All of these things are relevant factors and they should all be tracked, but you will not know whether you have made any progress unless you have got some indicators that show if that has improved the family’s circumstances.
Matt Padley: Many of the things you are talking about may indeed have an impact on child poverty levels and may have an impact on income. Generally, what we have all been saying is that you need something that is multidimensional, not something that just measures income.
Q 181 Just a brief question. Alison, you touched on OECD targets. I am concerned more fundamentally that we will not be able to measure impact, but from an international perspective, will how we report our poverty levels damage the world’s view of us? Will the international bodies still be able to measure us as they do at the moment, given that we will not report in the same way?
Alison Garnham: Well, they will have to continue to do it, because of course the data still exists and the Government will continue to produce it, so they will still be able to make those comparisons.
Professor Gordon, are those figures going to be skewed? We need to know.
Professor Gordon: As I said, the UK has been a world leader and the OECD and European Union have adopted our measures. So, if we abandon our measures, there is a danger that we become an international laughing stock. They will still report those measures if the HBAI—households below average income—is still collected and reported. I suspect it will be, because, as we are a part of the European Union at the moment, it is a requirement to report. So, at least for the time being, it will be reported. If it stops being reported, Britain will go from being a leader in the world to being—
Thank you. We are moving on.
Q 183 Much of the proposed legislation is born out of the assumption that those on benefits face the same choices as those in work. Does the panel agree?
Matt Padley: No. There is lots of evidence to suggest that people living on benefits, or with very low incomes, have very restricted choices across the board. Some of the language in the Bill does nothing to encourage integration across society; a lot of it is divisive.
Alison Garnham: I did not quite understand the question. What is the thing you think will be affected?
Q 184 Much of the proposed legislation is based on an assumption that people in work and people out of work are able to make the same choices.
Alison Garnham: Right. So you are thinking in terms of cutting different benefits? Is that what you are thinking?
Q 185 Is somebody who is out of work and relying on benefits able to make the same choices as someone who is in work and who has all the trimmings of being in work?
Alison Garnham: There are big differences between people in work and people out of work in terms of the choices they can make; that is absolutely evident. We know that children living in poverty, including those in working families—part of the problem we are talking about today is that two thirds of poor children live in working families—face constraints on what their families are able to afford. Children are not able to take gifts to birthday parties, they do not have adequate clothing and so on. That affects all low-income families.
Dr Callan: My understanding is that what the Bill is trying to achieve is to equivalise the choices—not to say, “You already have them,” but to say, “We need to make the benefit system work in such a way that you have the same choices around things like the numbers of children you have and being able to afford the number of children you have.” So I read it in a slightly different way.
In terms of us leading the world, our UNICEF reports on child wellbeing, very sadly, do not tell a good story about how well Britain has been doing, despite having leading child poverty indicators. I think we need to be very realistic about how our children are faring.
Professor Gordon: People do not choose to go on to benefits. The DWP’s own research shows that. They go on to benefits because they have little or no choice. Most people—the overwhelming majority—would choose not to be on benefits if they were able to get off them. So the idea that people on benefits have the same choices as people in work is just not supported by any evidence.
Q 186 Following on from that, Dr Callan, you talked about helping and supporting people to get off benefits. Surely that works only when there are decent work opportunities out there, and not things like zero-hours contracts. Does the cap on child tax credit not cause a bigger disconnect, making it even harder to get off benefits?
Dr Callan: There are more jobs out there than people realise, often not at the skill level they currently have. We have a massive skill shortage in this country. You are absolutely right: people have been stuck in very poor jobs, very poor working conditions. If the Government is doing what it said it would, and helping people at every stage to go through the income levels and to up their skills, and there is a culture that says, “That’s what’s expected,” that is where we will begin to see similar choices. A lot of people in work—certain professional people—think, “I want to improve myself.” Well, everybody in this country wants to improve themselves, and that is why we need to create a benefits culture to encourage, rather than dampen, people’s feeling that they can change their life circumstances.
We have 12 minutes left for this session, colleagues. Three colleagues wish to ask questions, so can I ask, please, for brief questions and brief answers? I will call Peter Heaton-Jones, followed by Neil Coyle, followed by Emily Thornberry, who will ask the final questions.
Q 187 I will be very brief. I seek just one point of clarification from Professor Gordon. In your opening answer, you made a reference I want to clarify. You said certain measures in the Bill had previously been proposed in 2007, I think—
Professor Gordon: Between 1999 and 2007, under the last Labour Government.
Q 188 And what were the measures that that Government proposed?
Professor Gordon: They were part of the opportunities rule, which had a whole suite of measures of child wellbeing. There were effectively identical to the measures proposed in the Bill.
Q 189 Alison, you mentioned your disappointment at the abandonment of the consensus on tackling child poverty. What does the panel think is behind the Government’s poverty of ambition on measuring in-work poverty? Is it about the costs of measuring, or is it about a lack of faith in the living wage to tackle in-work poverty? Is it perhaps that the impact of changes to tax credits or other benefits will undermine the national living wage? In the context of the discussion about tackling the symptoms and the cause, what are the costs of getting this measurement wrong?
Matt Padley: We have already heard that the estimated cost to the country of child poverty is between £25 billion and £29 billion a year. If you are not tackling and addressing child poverty, there is a significant cost to the country. There are also costs to those children who grow up in households without access to lots of the things that the rest of society see as providing a minimum standard of living, so there are individual costs as well as national costs. Is there a poverty of ambition? Given the broader economic context and, as I said earlier, the perverse results you get from a relative income measure, it has become easier over the past few years to dismiss that measure as not telling you anything particularly useful. However, I think that in combination with all the other measures that are currently in the Child Poverty Act 2010, it does tell us something useful and it does enable us to track low income. We know that money matters.
Professor Gordon: On the subject of costs, I emphasise that we know from good evidence that growing up in poverty has long-term health consequences in terms of type 2 diabetes and coronary heart disease, which are then expensive to treat. Poor children tend to have worse educational outcomes and get worse jobs, and therefore pay less tax. So the economic costs of child poverty are quite high, particularly in the long term. Getting it wrong means that you have a worse society and less money to spend.
Alison Garnham: I agree with that. It leads to a health divide. Children who are far behind are more likely to have lifelong limiting illnesses, to die younger or even to die on the road, to be nine months behind in education and to have low self-esteem. In terms of poverty of ambition, one of the problems is that many of the current policies fall most heavily on low-income working families. For example, 60% of the cuts to benefits and tax credits have affected low-income working families. So that is definitely something that needs to be tracked to see what its impact is.
Rather than get rid of the targets, another approach would have been to say, “Well, let’s lengthen the target. We have gone through a recession and it has been particularly difficult to reach the target, so let’s lengthen the period of time that we have to actually achieve it”. As David said earlier, child poverty is very expensive. Donald Hirsch modelled this for us. The impact of high child poverty in terms of the cost of services and the cost of benefits is now about £29 billion. If child poverty rises by nearly another million, as predicted, that cost rises to about £35 billion a year.
Dr Callan: I am not convinced that there was a great political consensus about this issue before 2010. In the debates on the Child Poverty Bill, serious people— Lord Freud in the House of Lords and Andrew Selous in the Commons—raised issues such as the £170 billion that we poured into tax credits over a six-year period.
A quick question from Mr Hinds, and then we will move to Emily Thornberry.
Q 191 All the panel have talked about low income as a driver of poverty, and that is for obvious reasons. It is almost a truism. First, could you confirm whether it is your understanding that those measures of income will of course still be measured? Secondly and more importantly, when trying to tackle child poverty, should the Government have not just a target but a relentless focus on maximising employment, supporting parents as they increase their hours, particularly through childcare, and making a very significant increase in the legal minimum that people can be paid, ultimately tied perhaps to 40% below median income?
Professor Gordon: The Minister has said that they will still publish the HBAI, and that the Family Resources Survey on which it is based will still go ahead. I do not know whether that will change in the future. Alternative survey data that the UK has to collect as part of the national accounts on expenditure and income have been used in the past. So you will be able to cobble together something, even if the Minister changes his mind about the HBAI, but the UK would become an international joke if it stopped measuring income and low income.
Q 192 And what else should the Government be doing?
Dr Callan: We have to hit this in every way, not just education and worklessness, terribly important though they are. I have already mentioned addressing family breakdown, addiction, serious personal debt, mental health and poor housing— anything that is driving children’s poor life chances. So, more.
Alison Garnham: It is a no-brainer. As you said, it is a no-brainer; we need to look at low income, because that is everyone’s common understanding of what poverty is. It is also a no-brainer that we need to look at maximising employment, supporting parents and so on. We used to have to write strategies, and that is what we will lose with the Child Poverty Act—
I am sorry. You’re nodding, you’re happy, I have to conclude this in five minutes’ time under Standing Orders and I must give Emily Thornberry the last couple of questions.
Q 193 I only have one question. In my opinion, we cannot have the chief executive of the Child Poverty Action Group and others in front of us on such major changes to the welfare Bill without asking not only about measuring child poverty but about whether the Bill will increase child poverty. If it does increase child poverty, how will we know and how will we hold the Government to account if they stop measuring it?
Professor Gordon: Since two thirds of children who are poor are in working families, and a lot of those families are dependent on child tax credits, if there is a large cut to that and other tax credits, other things being equal it will inevitably increase child poverty. I do not think that there is the slightest doubt about that.
Dr Callan: If we are talking about “ambition”—someone mentioned it earlier, but I think they have walked out—if we have an ambition to do all that we can to tackle the root causes of poverty, my hope is that the Bill would lay the foundations for reducing the number of children growing up in poor circumstances, which includes low income.
Alison Garnham: The Institute for Fiscal Studies has projected what existing policies will mean for child poverty. It projected that child poverty would rise by 700,000 by 2020. That did not take into account the recent announcements, so obviously that is an underestimate, and there will be more. We do not know the extent yet, but we know that some of the proposals modelled by the IFS would increase child poverty by 300,000, for example. So we are looking at something over 1 million.
Matt Padley: As David has said, there is little doubt that much in the Bill will increase child poverty. Going back to the importance of measuring it, it is really important that we know what is happening, so that we can hold the Government to account and ensure that we do not have such a high proportion of children growing up in income poverty, which has damaging consequences on their lives.
Thank you very much indeed. I am so sorry, we could have gone on longer; it has been a fascinating session. Thank you for your helpful expertise. Professor Gordon, Dr Callan, Alison Garnham and Matt Padley, thank you so much for coming and being with us this morning.
Examination of Witnesses
Dr Kristian Niemietz and Julia Unwin gave evidence.
We now welcome colleagues from the Institute of Economic Affairs and the Joseph Rowntree Foundation. Will you kindly read yourselves into the record, so that we know who you are for Hansard? Then Mr Stephen Timms will ask a series of questions.
Julia Unwin: I am Julia Unwin, chief executive of the Joseph Rowntree Foundation.
Dr Niemietz: I am Kristian Niemietz, head of health and welfare at the Institute of Economic Affairs.
Q 194 First of all, may I ask you both whether you think that the Government ought to have some target on child poverty, or whether that is not an appropriate thing for the Government to have?
Julia Unwin: I run an evidence-based organisation. I find it very hard to understand how you can receive evidence, measure things and then not establish some sort of target. Across government, we have stretch targets for a whole range of issues. Given the importance of this for our growing economy, I do not understand how the Government can receive the information without having at least a stretch target in mind.
Dr Niemietz: I think there should be a target. There is a problem if you use a bundle of measures that can move in opposite directions. That undermines the idea of using a target to strengthen accountability. With the four measures that we had, that did happen for a while—one indicator showed that poverty was rising, another showed that poverty was falling, and another showed that poverty was flatlining. So I think there should be a single measure and a single target, and that should be a sensible one, maybe close to the Joseph Rowntree Foundation’s minimum income standard. You can debate the technicalities—how exactly this basket is assembled—but a target can be built around a measure that reflects the living standards of people on low incomes .
Q 195 Can you develop that idea a little bit further? The thinking in the Child Poverty Act was that you had four different indicators. As you say, sometimes they move in different directions, but that means that you end up with a rounded understanding of what is going on. You are suggesting that one could devise a single figure that told you everything you needed. Can you tell us a little bit more about how you think that should look?
Dr Niemietz: Well, I wrote a paper a while ago in which the poverty line was based on the poverty and social exclusion survey. People were asked to identify what they thought were the necessities of life in a modern developed country, and it turned out there was a fairly stable consensus on that. If you convert that list into a consumption basket, and collect the prices of those goods at a regional level, then you have a poverty line that reflects a consensual understanding of what poverty means. You can still use complementary measures—say plus or minus a few items for sensitivity analysis—but you have one central measure that is internally consistent, and you do not get these contradictions.
If you use a bundle of measures, and if they can give you contradictory information, you have to have a way of trading them off against each other. It would not be a problem if you could say, “I don’t mind an increase in relative poverty as long as it is accompanied by an x% reduction in absolute poverty, or something else”, but we did not have that kind of trade-off with the four measures that were previously used.
Julia Unwin: I am very pleased to hear Kristian talk about the minimum income standard, on which we have done some joint work in the past. I would still argue for a number of different measures, because of the complexity of what we are dealing with; and I think in our modern, more complicated, world we are dealing with poverty that looks rather different from the way it looked in the past. Clearly the disposable income of any household is a very important measure, and how we understand that and determine what that is matters; but so, too, do the other measures, and I believe that the old income measure mattered alongside the others. The fact that they are contradictory, I think, does not give you a binary response; it amplifies what the Government need to do, because the tools are not all with Government. They are with local authorities; they are within the market; they are with employers, and actually we need a public discourse about that. That is what a complex target allowed us to have.
Q 196 May I ask one more question? This is really to Julia. In your written evidence to us you have commented on and welcomed both the full employment report that is proposed in the Bill and the apprenticeships reporting obligation; but you have argued for some more detailed information to be provided. Could you just tell us a little bit about what you think should be in those reports?
Julia Unwin: I think we have to understand that the world of employment has changed in the last decade. Since the global financial crisis, employment at the bottom end of the labour market, which is what we are talking about, is more precarious than it was when some of the legislation was drafted in previous decades. People are in and out of work and rarely out of poverty, and our indicators are that four out of five people who get into work are still in low-paid work 10 years on. There is very little progression; so an employment report needs to look at progression, certainty, security. Those are the measures that really matter when you are looking at the nature of employment. It is no longer simply a good thing in itself to be in work, although that may be right for all sorts of other reasons.
Q 197 You had some comments, I think, about what the apprenticeships report should tell us. Could you say a few words about that?
Julia Unwin: Apprenticeships clearly matter. We can learn from other countries about how to do them so much better, but we need to understand in fairly fine-grained detail the impact of apprenticeships and what they do for people’s life chances, as opposed to thinking that they are a process through which people go and that there are automatically positive outcomes.
Q 198 I want to move on to discuss clauses 9 and 10, which put in place measures to freeze certain elements of benefits and tax credits over a four-year period. I am keen to get your knowledge and experience on how, since roughly 2008, average earnings have risen by about 11% while average benefits have risen by—depending slightly on how it is measured; I agree that there is a grey area—about 21%. Do you think that the measures in the Bill to freeze certain elements are welcome in that they would get a bit of equalisation in the system? We should bear in mind the Government’s stated intention that they are trying to bring more people closer to work, and to make work pay—to use the slogan.
Dr Niemietz: The problem with an across-the-board freeze is that you do not really incentivise work, because you freeze out-of-work incomes and also in-work incomes, or at least that part of the transfer that is supposed to top up low incomes and thereby incentivise people to enter the workforce. If you freeze both, you lose that effect because the gap remains the same. It would have made more sense to freeze only out-of-work benefits, or even to uprate them at a rate below inflation, but not to touch the work-related top-ups, especially the 30-hours element of working tax credit, which was meant to give people an incentive not only to move into some work but, once they were in work, to move further—to move from minor employment towards something closer to full-time employment.
Julia Unwin: The benefits freeze is a huge risk for the Government to be taking, and to have taken in advance in this way. The basket of goods on which poorer households spend their income has been subject to more inflation than the rest because the cost of essentials has gone up. We are currently in a period of lower inflation, but we cannot predict what will happen. I would recommend, as we did in our submission, that the Government review the rate of inflation annually. The outcome might well be a freeze, but actually, what the Government are doing is removing the one buffer that the poorest households, both in and out of work, have against inflation. That is hugely risky.
Q 199 What is the panel’s view on taking the measures in the Bill alongside the wider approach of some of the measures proposed in the Finance Bill—for example, the national living wage and the uprating of income tax thresholds? If you take them all as a bundle, is there not—well, I do not want to lead you. What is your view on whether that package of measures would be welcome in moving people closer to work and making work more attractive?
Julia Unwin: There is no question but that we need to move people closer to work or that people’s best route out of poverty is work—that is, work that gives them security, confidence and some progression. We have done some analysis of the package of measures, as you described it, and some are welcome. All the measures are welcome in their own right, but their impact is different on different groups of people. As you heard in the previous session, the better impact is on couples without children who are both working. That is welcome, but for child poverty, particularly for single parents, there are some very real losses. This freeze only compounds those losses.
Dr Niemietz: I would have started from a very different angle. One of the transfers that most undermines work incentives is housing benefit, because in a lot of areas—particularly London, but other cities as well—a lot of low earners could not realistically earn an income that gets them off the housing benefit taper. That means they will always have this taper rate of 65% of net income, which is a huge disincentive against work. That cannot be addressed within the remit of the Bill, but it is always worth bearing in mind that the only reason why housing benefit dependency has risen so much is that rents have increased at a faster rate than incomes for a very long time. The reason for that is simply that we are not building enough houses to keep up with demand. Once you get that right—once you allow the construction of sufficient numbers of homes—rents will fall and housing benefit dependency will automatically fall with it, meaning that far fewer people are exposed to that 65% taper rate. You would massively increase work incentives while saving a lot of public money.
The UK has a higher proportion of its population depending on housing benefit than any other developed country. It is about one in five households. That is the highest proportion in the developed world. I would have started from that angle.
Q 200 Julia, your recent report suggested that the Bill will have a major impact on lone parents. What protections should be included in the Bill to ensure that children of lone-parent families are not unfairly impacted?
Julia Unwin: All the evidence we have gathered over many decades makes it very clear that lone parents suffer a huge penalty for being widowed, divorced or single in the first place. That creates a very high incidence of women in poverty and therefore their children being raised in poverty.
Legislation argues or recommends that all parents—lone parents or two parents—go to work when their child is three. That takes you directly to the quality and quantum of childcare available. While the childcare allowance is hugely welcome, if it is also captured in the freeze, childcare in London will remain unaffordable. Investment in childcare—both the provision and purchase of it—matters enormously, but I believe there will always be a need for tax credits for people at the bottom end of the income distribution while they are raising their children, because raising children is such an important aspect of the next generation’s wellbeing.
Q 201 I would like to ask you the same question that I asked the last panel. Much of the proposed legislation is borne out of an assumption that those on benefits face the same choices as those in work. Do you agree with that?
Julia Unwin: I do not agree that there is a huge distinction between those on benefits and those in work, because we know that a significant proportion of people in work are on benefits and tax credits—there was an earlier discussion about housing benefits, for example. People are moving around the labour market in a very dynamic and frequently very damaging way, but once you are on benefits and out of work, it is very hard to make the sorts of choice that better-off people are able to make. We ask people on benefits to take enormous personal risks, and I think that point is very well made.
Dr Niemietz: Ideally, they should be in a situation where they broadly make the same choices and the same trade-off. That is not the way the benefits system is currently structured, because you have ring-fenced elements for particular expenses—you get an amount for childcare, an amount for housing and an amount for something else. If that were somehow wrapped up in a single payment and it was then left to people to make their choices, their everyday lives and the trade-offs they make would become more similar to those of working people.
Q 202 What are your views on—this is one of the most controversial aspects of the Bill—limiting tax credits to two children? What do you think the impact of that will be, particularly for the most disadvantaged and larger families?
Julia Unwin: One thing we know is that tax credits do not influence behaviour in the linear way that many people expect. Given my description of people coming in and out of dependency on benefits and tax credits, there is no way of knowing at what stage in someone’s life they will require those tax credits. I simply do not believe that people choose to have more children in the sure and certain knowledge that tax credits will bail them out. That is not how decision making works in most households that I have come across.
I think the impact could be very damaging for larger households. I would go back to the even more substantive issue, which is the concern about where families on benefits with more than three children will live and how they will afford to live. That strikes me as deeply problematic for families who have been on benefits for some time, and particularly those who find themselves on benefits.
Dr Niemietz: This links back to the earlier question about whether people on benefits make the same choices in the same way as people who are not on benefits. If you do not qualify for child tax credits, your income does not automatically go up because you have a third child. I do not see anything wrong with replicating that situation for people whose income mostly consists of state transfers.
Q 203 Thank you both for coming today. Julia, in your recent report you said that the new legislation is, at best, a sideways step. I would argue that it is a retrograde step. In the light of what you said, which is very interesting, do you welcome the fact that Scotland and Wales will retain their own targets and will try their best under the current framework to do things in their own way? I would welcome comments from both of you on conditionality. In particular, you mentioned the years of research that you have done on parents with young children, who are not required to work not until their children are three. We know that the new legislation will suggest that parents of one-year-old children are going to have to start looking for work. What kind of impact will that have on children and, in particular, single parents with very young children, who will have to go back into the workplace?
Julia Unwin: We said it is a sideways move, and I think it is, although we debated long and hard about whether it is a sideways or backwards move. It takes away the real opportunity that the Bill presented to have a life chances strategy and look at all the different drivers across the Government. The Government do not hold the levers. For too many years we have assumed that the Government can fix the issue of poverty. Welfare and credits really matter, but so too do the nature of the labour market and what happens at a local and regional level. They are all different drivers. What matters is that we work together to improve life chances. Nobody can look at the UK at the moment without recognising that the different parts of the UK will be going in very different ways on this. As a member of a research organisation, I welcome it because it is interesting. From the point of view of children in Scotland, it is welcome that the Scottish Government have decided to keep the target and the focus on this issue. I hope the rest of the UK will take note that this is an opportunity to look at life chances and to protect something for the next generation.
Dr Niemietz: I am very much in favour of the conditionality of benefits. We have seen in places such as Wisconsin in the US that making welfare more conditional can work and can help get people back into work. It also helps to restore public confidence in the benefit system. Increasing conditionality is an alternative to simply cutting benefits. It is not about saying, “We are taking money away from you,” but saying, “We are attaching strings to those payments.” That is a way to increase public confidence. The perception that it is being overused largely comes from the fact that, so far, conditionality has not played the role that it could play.
Q 204 Do you really, truly believe that if we have more people and children in poverty —let us not forget that the research suggests that we are going to have 200,000 children in poverty, versus 80,000 adults—the public are going to welcome that?
Dr Niemietz: Not if conditionality works properly. If it gives incentives—a carrot and stick approach—to getting back into work, why would it increase poverty? It has not done that in Wisconsin.
Julia Unwin: The evidence shows that conditionality can work for some people and the global evidence suggests that, for some people, it provides the spur back into work, but far more often it drives people into making the wrong work choice, accepting a job they cannot possibly fulfil and therefore falling back into benefits. In Wisconsin and other parts of the United States, there is clear evidence that people are coming off benefits completely but not going into work. We are concerned about what the implications of that will be, because you end up with people making short-term choices that keep them going in the short term but can cost the state very much more in the longer term. Conditionality applies to all public services and all people. There is a contract in place, and we need to understand how it works. But if the current method of sanctioning creates destitution by design, we have created a real, expensive problem for the long term.
Q 205 The four-year freeze on working-age benefits, the limit of tax credits to two children and, in particular, the lowering of the benefit cap continue the disconnect between the amount of benefit that is paid to people because of their need and the simple sum they are given. It is not done on the basis of needing more; it seems to be that people will be given an absolute sum, and that is that. Clearly, that will have an impact on poverty and on particular groups—I wonder which groups. Is it right that the group affected most might be single parents, when it comes to child poverty?
Julia Unwin: Is it correct? Yes. Is it right? No. Single parents and disabled people in different categories will be particularly affected, but in terms of this Committee’s concerns, single parents will be affected most.
Q 206 So, in your view, is the Bill likely to increase child poverty or help tackle it?
Julia Unwin: We were talking earlier today, and certainly earlier in this session, about looking at the package changes together. I agree with the Institute for Fiscal Studies, with which we work closely, as we do with the IEA. The IFS has predicted an increase in child poverty as a result of this suite of measures, not just the ones in this Bill.
Dr Niemietz: On relative poverty, probably yes. On the others, it remains to be seen how other factors, especially wage rates at the lower end of the distribution, will work out over the coming years.
Julia Unwin: That is why I describe it as a risk and a gamble. Clearly, the health of the economy and what that does to the labour market will make an enormous difference to the outcomes that we could predict.
Q 207 But employment within the Bill is defined as 20 minutes every three weeks, as far as I can see. That is not necessarily going to help tackle child poverty.
Julia Unwin: High levels of underemployment, which is what we witness now at this end of the labour market, will do nothing to help child poverty or to reduce the benefits bill in the way that the Government intend.
In the way that it is being introduced.
Julia Unwin: The way that the benefit cap is being introduced has huge implications for childcare costs, and we know that reliable childcare is the only way for parents to get back into sustainable work. It also has huge implications for housing costs, which will make some parts of the country uninhabitable for people on benefits.
Dr Niemietz: This links back to what I said earlier. It seems to me that the benefit cap is really just a clumsy way of capping housing benefit. There is actually no way in which someone could substantially exceed that cap unless they are in receipt of housing benefit, and probably in receipt of fairly large sums. This is a roundabout way of capping housing benefit, whereas, as I said before, I would have started at the other end. Build enough houses, and you will not need a cap of that kind any more, because rents will fall automatically and housing benefit rates will fall with them.
Q 209 I want to ask Julia a quick question for clarification. We were talking earlier about single parents, and we have talked about the importance to tackling poverty of being in work and having access to enough hours. Obviously, a big part of that is ensuring that childcare support is there. You talked about the childcare allowance in tax credits. Can you talk us through your understanding of the full set of childcare changes to come?
Julia Unwin: As I understand it, by introducing a childcare allowance, the Government made big steps to enable people to go back into work. However, by making that part of the cap, we have reduced its value. In some parts of the country, and in London specifically, the costs of childcare have gone way above what can be covered by that allowance.
Q 210 Sorry, I was asking about the full set of childcare changes to come: the 30 hours offer in universal credit and so on.
Julia Unwin: The 30 hours offer, on its own, does not provide enough time to enable a parent to work full-time, and the evidence is that that is what you are required to do.
Q 211 I am not trying to put words in your mouth, but it is clearly 15 hours more than 15 hours. The subsidised 70% can therefore come on top of that. Is there also a change coming, to the best of your knowledge, in terms of the proportion of reimbursement under universal credit?
Julia Unwin: I am showing my ignorance on the third part of your question. On the first two bits, yes, absolutely. We see those as steps in the right direction and a serious intent about childcare. I am posing a warning about what it might mean in practice.
I am sure we will be hearing more about that over the next few weeks. Dr Niemietz, did you want to comment on that?
Dr Niemietz: That is an issue where I would have started from a different angle by asking why childcare is so expensive in the first place. For a long time the argument has been that we have to raise childcare subsidies to Swedish or Danish levels and the problem will go away but, in terms of total tax spending on childcare subsidies, we are already at Swedish and Danish levels. The difference is in unit costs. Here, it is not just the taxpayer who spends a lot on childcare. It is also the actual user. People pay twice: first in their role as taxpayers and then again in their role as childcare consumers. I would start by looking at the structural drivers of costs in that sector—which those are, I cannot tell in detail, but there has to be something. There has to be a reason that the UK spends more on childcare subsidies than almost all of continental Europe and without having higher usage rates.
Julia Unwin: Part of the reason is that ours is a purchase system, not a provided system. We have a patchwork of childcare benefits and a patchwork of childcare provision. That has turned out to be expensive. To drive high quality will cost in different ways.
Q 212 I think you were both in the room when I asked this to the previous panel. How will these changes and the removal of reporting affect us from an international perspective? Will it potentially do any damage if we are not reporting in the same way and we are not able to tell the world whether we are doing better or worse in terms of child poverty?
Julia Unwin: I only know from my own organisation that JRF research is received, viewed and analysed across the world and we get an enormous amount of international interest in that. Part of that has been because the UK Government have set the path in indicating how serious leadership and serious focus can make a difference. I believe that there is still a focus but we need to retain that international leadership because, over decades, we have learnt things that we need to be able to transmit. I fear that not having that clarity will make that more difficult.
Dr Niemietz: That has been the problem with most of those child poverty measures—they were not internationally comparable. That is not just because they set the poverty lines at different levels but because you have big differences between countries in terms of relative prices and the structure of prices. You cannot compare a country where the basics of life are very much inflated, as they are here—housing costs, childcare costs and other things are unnecessarily expensive—with countries where that is not the case, because the same amount of money can stretch a lot further in the second set of countries.
The one indicator that was fairly robust for international comparisons was the material deprivation measure because that is an outcome-based measure where you simply give people a list of goods and services, and ask them how much of that they can afford and not afford. You do not have to know exactly why that is—you are just looking at the outcome. Do people have everything on that list or most of the things on the list? If they do not, you do not have to know exactly why that is. That is what made it internationally comparable.
Thank you very much indeed. Our time has flown by. Thank you for your expertise and wisdom. We deeply appreciate it. Thank you for coming today. Committee, we will meet again at 4.30 pm this afternoon in Committee Room 12 to begin our line-by-line consideration of the Bill. I know that we are all looking forward to that.
Ordered, That further consideration be now adjourned. —(Guy Opperman.)
Adjourned till this day at half-past Four o’clock.