Skip to main content

Welfare Cap

Volume 603: debated on Wednesday 16 December 2015

I beg to move,

That, pursuant to the Charter for Budget Responsibility: Summer Budget 2015 update, which was approved by this House on 14 October 2015, under Section 1 of the Budget Responsibility and National Audit Act 2011, this House agrees that the breach of the Welfare Cap in 2016-17, 2017-18, and 2018-19 resulting from the decision not to pursue proposed changes to tax credits, as laid out in the Autumn Statement 2015, is justified and that no further debate will be required in relation to this specific breach.

The motion is about the Government accounting to Parliament and the public for decisions about welfare spending. It is something we on this side of the House take very seriously. That is why in 2013 the Chancellor announced we would be bringing forward a welfare cap to control welfare spending in a way that has never been done before. The cap would be set shortly after each new Parliament and assessed each year by the independent Office for Budget Responsibility. Any breach of the cap requires my Department to come to the House to set out one of three courses of action. The first would be to propose measures to reduce welfare spending to within the level of the cap. The second would be to seek the approval of the House to increase the level of the cap. The third would be to explain why a breach of the cap was justified. The House will be aware that, following the Chancellor’s autumn statement, the cap is forecast not to be met in the short term. The motion seeks agreement that this is justified.

Even this early in the debate, the Minister is saying that he is going to justify breaching the cap. Is he not somewhat embarrassed about that?

Not at all. If the hon. Gentleman will give me time, I will explain the justification. He will be aware that there has been a huge amount of debate on this issue, and that the Chancellor has listened.

The hon. Gentleman obviously did.

In making our case, I want to set out the circumstances that have led to this forecast. The cap was initially set in line with the OBR’s March 2014 forecast. In the summer Budget, the Chancellor set a lower welfare cap to help to reflect our move to a lower tax, lower welfare and higher-wage economy. Since then, as part of the autumn statement, the Chancellor took the decision not to pursue proposed changes to tax credits. This will give families longer to adjust as we make work pay and provide better support for people in work.

This change has been possible partly because of improvements in the nation’s finances, including improved tax receipts and lower debt interest payments. These are not free choices, however, and as a result of this change, we will be spending more in the shorter term than had been forecast in the summer Budget. That means that, based on current forecasts, the cap will not be met for the next three years: 2016-17, 2017-18 and 2018-19.

The Chancellor stood up and said that he was proud to have these targets set in stone. He tried to set a trap for the Labour party on this issue, but he wanted the benefits cap set in stone. The Minister is now explaining that, for the next two or three years, there is no chance of meeting those targets. Please tell us that you are slightly embarrassed or concerned.

If we are talking about embarrassment, perhaps it is the hon. Member for Wansbeck (Ian Lavery), along with those on the Opposition Front Bench, who ought to be embarrassed. They ought to be embarrassed about the millions of people who lived in misery because they were forced to become unemployed. They ought to be embarrassed because, under Labour, the welfare cap was out of control. They ought to be pleased that this Government have the guts to take the difficult decisions to bring the welfare cap back under control.

It is Christmas, and I think the Minister would like to know that his Government have won first prize for being the first Government ever to breach £1 trillion in welfare spending over five years. That is £130 billion more than the Labour Government spent in their last five years. You have won the prize!

The hon. Gentleman speaks of Christmas spirit. In that spirit, perhaps he would like to apologise to the House on behalf of his party for the mess that it left us. Perhaps he would like to apologise to the people out there—yes, the public—who endured misery and ended up being unemployed under Labour’s policies. Perhaps he would like to apologise to the taxpayers for letting the welfare budget get completely out of control. As a result, we are having to take the tough decisions. [Interruption.] I am happy to give way to the hon. Member for Pontypridd (Owen Smith) if he would like to apologise. [Interruption.] I have given him the opportunity to apologise but he would rather not do so.

On the subject of Christmas, I would just encourage all of us, please, to remember that there are people at the heart of these decisions, and this should not be the moment for political footballs. We are here to say that things have changed and that our view, policies and outlook have changed. I implore every Member in this House to remember that we are speaking on behalf of people, not our own personal political agendas.

My hon. Friend makes a very good point, and let me put on the record the fact that it is our welfare programme that is improving people’s lives. It is no bad thing occasionally to ask the people who created the mess to apologise. I think the public outside would welcome an apology, because they have had to endure quite a lot of misery as a consequence of the people who took the decisions earlier on. She makes a good point when she says that people are watching, but I would also say to her that those people want an apology. I make no apology to the House for requesting that apology from the Opposition.

I will give the hon. Gentleman an opportunity to apologise. He needs to apologise and I will give him that opportunity.

I rise in the spirit of the intervention made by the hon. Member for South Cambridgeshire (Heidi Allen) and to say that I absolutely welcome the decision by the Government today to breach the welfare cap in order to reverse-ferret on the cut for 3 million recipients of tax credits—low-wage workers right across Britain. It is an excellent thing the Government have done and we will be fully supportive of it. I hope that she will be supportive of us when we call for a similar reversal on universal credit work allowances.

The House will have noted, as will the people who are watching at home, that still we have no apology.

The Government are determined to continue the work that we have done to date and to honour the mandate from the British people at the general election, so that we can tackle welfare dependency and fix the nation’s finances. Despite this short-term additional spending, we have made sure that, through our welfare reforms, the cap will be met later in this Parliament—by 2019-20. Let me be clear: the Government are committed to the welfare cap, and the Office for Budget Responsibility has confirmed that the cap is met in the medium term. The OBR also forecasts that welfare spending within the cap will fall as a proportion of GDP from 6% to 5% over the welfare cap period. That is a fall of 1%, in line with the 1% fall forecast at the summer Budget. By 2019-20, therefore, we will still achieve the £12 billion a year welfare savings that we said we would achieve—

I will not give way to the hon. Gentleman. I have given him plenty of opportunity to apologise, and he is not doing what the nation wants. If he is not going to do that, he needs to sit quietly and contemplate what policies his party is going to produce. On policies, it is worth noting that he, along with the hon. Member for Islington South and Finsbury (Emily Thornberry), actually supported the measure that introduced this cap, as did several other welfare Cabinet Ministers when Labour was in government, so it is ironic that they now seek to make cheap political points. As I say, by 2019-20 we will have achieved our £12 billion welfare savings. That is what we pledged at the election, that is what the public gave us a mandate for and that is exactly what we will deliver. We can do this because of the permanent savings that we have already made and the long-term reforms that we are making.

The simple fact is that Labour completely overspent on welfare during its 13 years in power. Under Labour, welfare spending went up by almost 60% and the benefits system cost every household an extra £3,000 a year. Spending on tax credits increased by 330%. That is £24 billion—

The Labour party is a little slow in hearing, so I will repeat the figure for the Opposition’s benefit: £24 billion. We had a welfare system that did not incentivise work and left some people getting more in benefits than they would in work. That was not fair to the hard-working taxpayers who paid for it and it certainly was not fair to those who had become dependent on the state, with no hope for a brighter future. What did Labour have to show after all that spending? Nearly one in five households had no one working. The number of households in which no one had ever worked had nearly doubled. Some 1.4 million people had been on benefits for most of the previous decade, and close to half of all households in the social rented sector had no one in work. Ever more spending on welfare just is not the answer.

We were right to bear down and get a grip on a welfare bill that was simply out of control. The introduction of the cap has brought greater scrutiny and challenge around welfare spending, and that is the way forward. The Chancellor said that he would listen on tax credits, and he has. This one-nation Government are determined to move to a lower tax, lower welfare and higher wage economy. We are doing so in a way that ensures families have more time to adjust to the changes. I commend the motion to the House.

Let me start by wishing a very merry Christmas to you, Madam Deputy Speaker, and to the Under-Secretary of State for Work and Pensions, the hon. Member for North West Cambridgeshire (Mr Vara) and all the Ministers on the replete Front Bench, especially the Secretary of State who I had hoped would lead the debate today. Indeed, I had hoped that it might be the Chancellor, because I seem to recall—

For the record, the reason I am addressing this debate is that my right hon. Friend the Secretary of State was chairing a Cabinet meeting, and he arrived after I had started speaking, and the record will show that.

I was here in the Chamber, and I saw the Secretary of State arrive just before the Minister rose to speak. While we are on the subject, perhaps the Minister can clear up this matter. He said to us on Monday at Department for Work and Pensions questions that the Secretary of State had visited a food bank. We submitted a parliamentary question to the Minister asking when that had taken place. The interesting answer—in truth it was a slightly slippery answer—was that Ministers, not the Secretary of State, have attended lots of things, including food banks. I gather there is another question. Perhaps he could tell us when the Secretary of State went to a food bank. [Interruption.] Clearly, he does not want to say.

As I was saying before the Minister intervened on me, it was a year ago when, to a packed House, the Chancellor unveiled his latest wheeze, the welfare cap. He had a mile-wide smirk on his face like one of the famous cats from his Cheshire constituency. He was positively purring as he laid down what he thought would be a trap for a future Labour Chancellor. He said:

“The welfare cap marks an important moment in the development of the British welfare state…and ensures that never again can the costs spiral out of control”.—[Official Report, 26 March 2014; Vol. 578, c. 374 and 381.]

He wanted Labour Members to stand up

“and say exactly what they think of the welfare cap, and tell us that they support it, and that they should have introduced it when they were in office. They look such a cheery bunch.”—[Official Report, 26 March 2014; Vol. 578, c. 380.]

Well, we are cheery this afternoon, as we look for the soles of the feet of the Cheshire cat Chancellor who has carelessly and ignominiously fallen into his own welfare cat trap. It is less a case of being hoist by his own petard, as slipping on his own smirk. Where is he today to answer these questions? A year ago, he was insistent that it would be he who would be called to account in this House for the breach in the welfare cap. He said in the same debate:

“The charter makes clear what will happen if the welfare cap is breached. The Chancellor—

not the Secretary of State for Work and Pensions or one of his Ministers, but the Chancellor—

“must come to Parliament, account for the failure of public expenditure control, and set out the action that will be taken to address the breach.” —[Official Report, 26 March 2014; Vol. 578, c. 380.]

But cometh the hour, there is no sign of the cat. He has disappeared. Even the smirk has disappeared.

I am sure that the shadow Chancellor is up to some extremely important business. Ostensibly, the Secretary of State for Work and Pensions is meant to account for this on behalf of the Chancellor—talk about adding insult to injury or rubbing salt in the wounds, not only has his budget been raided to pay for the embarrassing reversal on tax credits and the breach of the welfare cap, but he was asked to come here to explain it to the House. I do not blame him for one minute for deciding to attend a really important Cabinet Committee instead of coming to the House to explain about the welfare cap.

As it is Christmas and I want to help the hon. Gentleman out as much as I can, because he is clearly floundering—[Interruption.] Well, he is floundering, and I do not want him to, because it would be bad for his reputation. I actually trust and support my Ministers. I believe that every one of them is capable of doing the debate better than the hon. Gentleman. Perhaps he would like to trust his shadow Ministers as well sometime.

I would trust my shadow Ministers with my life. However, I thought that this was a very important subject. I thought that the welfare cap was one of those things that—what did I say earlier on?—was a great step forward in the British welfare state. I thought that the shadow Secretary of State for Work and Pensions should respond, and I cannot understand for a minute why the right hon. Gentleman wanted his junior Minister to do this belittling debate. The shadow Chancellor is not here. He has disappeared, much like the Cheshire cat—better than that, like Macavity the cat.

I know, okay, the Chancellor: the right hon. Member for Tatton (Mr Osborne), in Cheshire—the Cheshire cat—and given that he is rather like Macavity, rather than the Cheshire cat, I thought that I would give the House a treat. I read that there were no Etonians on the Front Bench among the new intake, and I was worried that the lack of classical education from which the Treasury Bench normally benefits might mean that the Macavity reference went over Ministers’ heads, so I brought a little book with me, and I shall read a section from it. [Interruption.] It is not Mao; it is T.S. Eliot’s collected poems. It gives us Macavity the mystery cat, who is, of course, the Chancellor:

there’s no one like Macavity…

he’s very tall and thin;

You would know him if you saw him, for his eyes are sunken in—

I think that is the 5:2 diet—

He’s outwardly respectable


(They say he cheats at cards.)—

I bet he does—

And when the larder’s looted, or the jewel-case is rifled…

He always has an alibi, and one or two to spare:

At whatever time the deed took place—MACAVITY WASN’T THERE!

Macavity is not here today, is he? And the deed that he is ducking, of course, is this embarrassing, humiliating U-turn. The cap has been breached, and the Government have done it, of course, because of the spectacular, screeching U-turn on tax credits.

If my hon. Friend—he is a really good friend of mine—had done what the Chancellor has done in promising that the welfare cap would not be breached, would he have sat there and done nothing? I am sure that he would have been prepared to stand at the Dispatch Box, have the courage of his convictions and perhaps apologise.

I would have been mortified had I been the Chancellor responsible for such a terrible U-turn and such an extraordinary, humiliating, screeching U-turn.

Again, in this great spirit of festive tidings, let me say that if that is really the best that the Opposition Front-Bench spokesman can do on such an important issue, he and his party really have not got a cat in hell’s chance of ever being back in government.

I thought I was doing rather better than that. I thought the House might enjoy a bit of Christmas spirit.

The real crime that Macavity is hiding from today is not the breach of the welfare cap, however embarrassing that may be. The real larder that has been looted is universal credit. Opening the debate, the Minister said several times that the Government would meet the welfare cap in 2019-20 and he is right that the OBR confirms that, but he signally failed to tell the House how they would do it. I suspect that that is because of the other reason that the Secretary of State did not wish to address the House today. We know precisely how he will meet the cap: through the £10 billion cut to the work allowance that we will see by 2020; a cut of £3 billion a year, nearly making up for the £3 billion that was to be taken away in tax credits, butchering the work incentives that are supposed to make universal credit worth while.

Who are the victims of this crime? The Secretary of State is for one, because he has had his budget raided once more—the seventh time, I believe. However, the true victims are the millions of constituents in Labour and Tory seats who will still lose thousands of pounds as a result of the Chancellor’s cut to universal credit. Some 500,000 people will be on UC by next April, and according to the independent Institute for Fiscal Studies, 2.6 million households will lose £1,600 by 2020. They are the victims of this crime, the people who are paying for the Chancellor’s hubris with £3 billion of their own money in 2020 and every year thereafter. They are the people being fleeced by the postcode lottery that is being created in support for low-wage workers, whereby those lucky enough to stay on tax credits will be massively better off than their neighbours on universal credit.

A single mother working full-time on the new national minimum wage with two children will be £2,981 worse off than another mother, perhaps living next door in precisely the same circumstances but still on tax credits. [Interruption.] The Secretary of State says from a sedentary position, “What about child care?” Yes, if that mother has children who are three or four, she may be better off, but if her children are one, five, seven or 12, they will not be. That is the reality and we should not be misleading the House, from a sedentary position or otherwise.

That disparity cannot be fair and cannot be right. It may not even be legal. We are seeking advice as to the legality of that move. I suspect that is not what the Chancellor told the hon. Member for South Cambridgeshire (Heidi Allen) or other Tory Back Benchers when he reassured them that he was making good the tax credit cut, even if it meant breaching the welfare cap.

My hon. Friend is making some important points. Is it the case—I have seen the suggestion that it may well be—that the small number of people who are currently receiving universal credit will see the enormous reductions in their income that were to have been imposed on tax credit recipients? There has been a U-turn on tax credits, but is it the case that those who are getting universal credit will be hit?

I think that is precisely the case. My right hon. Friend is right. There are currently around 140,000 recipients of tax credits, not all of whom get the work component; we do not know that precise number—it may be around 40,000. There are predicted to be 500,000 people, on the Government’s own numbers, in that circumstance by next April. When I put it to the Secretary of State at Work and Pensions questions last week that those people would lose out precisely as my right hon. Friend suggested, he said that the flexible support grant would more than make up for those losses.

I have looked at the flexible support grant and, as far as I can see, it is a £69 million grant that is available to local Jobcentre Plus managers to help people who are close to the workplace, perhaps for a new suit or a ticket to get on the bus to the interview. Even if it were permissible to use the money in that way, £69 million would in no way make up for the £100 million shortfall next year, the £1.2 billion shortfall the year after, and certainly not the £3.2 billion shortfall in 2020. It is impossible, and I fear it is also misleading for the public.

I will bet a pound to a penny that the Secretary of State and the Chancellor did not also mention that offsetting the cuts to universal credit will hit precisely the same Tory and Labour constituents just before the next election, in 2019-20. I would also wager that they still do not appreciate that the Chancellor cannot U-turn on this issue. The reverse-ferret is not available any longer, because if he does not make good his promise to make those cuts to universal credit, he will not be able to keep the promise that the Minister just made again on maintaining the welfare cap in 2020, and he will certainly not be able to deliver his other promise of a £10 billion budget surplus in the same year.

Perhaps the lesson we should all take from today’s U-turn on the welfare cap, snuck in shamefacedly at the fag end of the Parliament, is that no one should take this Chancellor’s traps and tricks, his games and gimmicks, terribly seriously any more. He can meet them or breach them—he does not mind which, because what he is really about is not sound management of the public finances but the political games of public schoolboys. That is why he cut universal credit seven times before it had even started, making a mockery of any claims to make work pay or support for the low-paid. That is why he continues with his fantastical claims, repeated by the Minister, that welfare spending is under control, even as the housing benefit bill went up by £30 billion in the previous Parliament, and even as Ministers breached £1 trillion on welfare spending for the first time.

We will back the Government in voting to secure Labour’s demand to reverse the tax credit cuts, and we will continue to press them for the same reversal for the victims of universal credit. But we should not pay too much attention to the Chancellor’s tricks and traps in future, because his flagrant breach of the welfare cap, deemed so essential just a few months ago, has exposed the true extent of his stunts. The welfare trap has caught him. Eliot’s detectives could not catch Macavity, but he has been rumbled.

In the spirit of the season, let me congratulate Tory Front Benchers on recognising the futility of having passed legislation a year ago and now agreeing with the SNP’s position that the benefits cap was wrong.

The breach of the welfare cap prompts the question of what is the point of it if it can be exceeded within its first year. I remind the House that in 2014 the Chancellor of the Exchequer said:

“The welfare cap brings responsibility, accountability and fairness…From now on, any Government who want to spend more on welfare will have to be honest with the public—honest about the costs—and secure the approval of Parliament in order to breach the cap.”—[Official Report, 26 March 2014; Vol. 578, c. 381.]

He will have to eat his own words. To save his blushes, he should abandon this inflexible, unworkable, draconian policy and focus on tackling the root causes of welfare dependency at source.

The hon. Gentleman knows full well that this is an example of the cap working. The Government have had to explain why they have had to do this, and explain the context of the changes announced in the autumn statement. That is absolutely right and proper, and he should support the Government.

I am grateful for the hon. Gentleman’s intervention. Of course we will support the Government tonight, but the fact remains that we should not be having this debate because the cap should not have existed in the first place.

We have to recognise that social security protects the poorest and the vulnerable in our society, but we do not do that through these false measures, which is exactly what this is.

In his festive mood, the hon. Gentleman has perhaps forgotten what the good people of Scotland said earlier this year, so it is worth reminding him. A Survation poll in Scotland said that a majority of its people, just like those in my constituency and across the UK, support efforts to reduce the cost of welfare, so are not he and his party out of touch with the people of Scotland?

I am truly grateful to the hon. Gentleman for asking that question. Of course the Scottish National party wants to reduce the cost of welfare, but we will do that by fixing the economy, driving up productivity and creating jobs. What we should not do is punish people. While we are on the subject of the election, let me take this opportunity to remind the House that we won 56 of the 59 seats in Scotland, and we did that while standing on a platform of investing in our communities and in job creation, making sure that we did not punish people with a failed austerity programme, and arguing for investment of an additional £140 billion throughout the whole of the UK over the next five years. That responsible position would have led to the financial deficit coming down to 2% of net national income by the end of this Parliament. The people of Scotland were very happy to support that much more responsible approach, and I commend it to this House.

Although we welcome today’s decision to breach the cap, it is apparent that the Chancellor cannot even stick to his own targets. When will this Conservative Government realise that the inflexibility of the welfare cap is unworkable and that the fact that they will breach the cap illustrates the need to abandon the policy?

We are calling on the Chancellor to abandon the cap and instead to focus on welfare dependency by tackling the structural drivers of higher welfare spending, such as rising rents, low pay and worklessness, as well as the barriers to work. That is a much more progressive way of dealing with the problems we face in the United Kingdom. We agree that it is sensible to control welfare spending, but the Government are simply not doing that with their continued focus on the austerity agenda. The welfare cap is simply not the correct approach.

The Chancellor of the Exchequer has chosen not to be here today. I am grateful to the Minister for speaking earlier, but he is here, cap in hand, to seek our support for the Government breaching their own rules and missing yet another target.

Does my hon. Friend agree that, given that the Chancellor is absent and the Work and Pensions Secretary was late, perhaps they ought to be sanctioned?

Indeed. Perhaps Opposition Members could handle the appeal—let us see how they would get on in such circumstances. I have some sympathy for the Minister, though, because it is the Chancellor of the Exchequer who ought to be answerable to the House on this issue.

Of course, the Chancellor has form when it comes to missing targets. Let us remind ourselves that the Government have spectacularly missed their targets for the budget deficit and for net debt. We were supposed to be in the black by now, but with growth and tax receipts in particular consistently coming in below target, the deficit and debt have remained above target. We must pose the question: when will the Government learn that their false optimism has a price, and that price is the cuts to budgets as they seek to balance the books?

On the autumn statement, the Office for Budget Responsibility managed to magic up an additional £27 billion of forecast revenues—talk about a sleight of hand to dig the Chancellor out of another hole of his own making. We know that the OBR has a history of over-estimating tax receipts. The respected Paul Johnson, director of the Institute for Fiscal Studies, said of the Chancellor’s plans:

“If he is unlucky—and that’s almost a 50-50 shot—he will have either to revisit these spending decisions, raise taxes, or abandon the surplus target.”

Talk about having form. If I may use some football terminology, I would not want the Chancellor to take a last-minute penalty for my team in a cup final—he would only miss the target. Own goals are much more the Chancellor’s speciality.

Why am I raising these matters? It is because social security spending is linked to the failure to deliver a robust economy, drive up tax receipts and limit the need for the safety net that social security provides. That is why the welfare cap is wrong: it does not deal with the cause of, or the need for, welfare.

The disastrous policy—made in No. 11 Downing Street—of punishing millions of hard-working families by reducing tax credits and thereby dramatically cutting the income of lower-paid workers has, thankfully, been reversed. If the benefit cap is breached as a consequence of sense prevailing, we should be grateful. We are mindful, however, of the fact that although the vindictive impact of the tax credit cuts has been avoided, there will be pain in years to come because the Government are still wedded to reducing the social security budget by £12 billion, with universal credit bearing the brunt.

We are not fooled by the Chancellor’s words that this is a reversal of the Tory ideological assault on the most disadvantaged. He announced that he would, in effect, spend £3.4 billion in 2016-17 to reverse the changes to the threshold and the taper rate, but it is important to note that the planned reductions in tax credits for families with more than two children will still apply. Ian Mulheirn of Oxford Economics said that

“this may be a U-turn in April 2016, but it doesn’t look like a U-turn by 2020.”

I want to point out that the IFS estimates that cuts in universal credit will mean that 2.6 million working families will be an average of £1,600 a year worse off.

The continued lack of ambition by the Tory Government to take fiscal responsibility means that alternative action must be taken in Scotland to put off the impact of the austerity we are now facing. I am glad that the Scottish Government have taken measures, as they have in their budget today, to protect the people of Scotland. The Institute for Public Policy Research, an independent think-tank, has found that low-income families in Scotland will face a reduction in income of more than £800 by 2020 as a result of UK Government cuts, but the richest 40% will see an increase in income as a result of the tax cuts.

We are in this situation not because of structural issues with social security, but simply because we have not been able to drive sustainable growth to a level that would drive job creation and, crucially, raise real wages, which is the best way of curtailing the demand for social security. We cannot fix the problem of poverty in our country by cutting social security, particularly in-work benefits, but we can do so by creating the circumstances that allow people to find meaningful employment, and in doing so work the hours that will assist them to put food on the table and to heat their homes.

Will the hon. Gentleman reflect on one of the elements of universal credit, which is that it is not just an IT system but an entire way for people to work with a mentor and somebody in the jobcentre who will assist them to build a life of better employment and higher wages? That is what he should be talking about if he wants to get people out of poverty.

Absolutely. We fully support that: we want people to be able to move out of poverty and into meaningful work that is well paid, where the social security system will support them. We would happily support some reforms, but problems remain in relation to the level of sanctions and the cuts to universal credit that will happen over the next few years.

The real issue concerns in-work benefits and people who are in work. The Sports Direct model is failing, but the Conservatives are not prepared to get stuck into the likes of Sports Direct and of Mike Ashley. They believe that that is a fantastic model of employment, but it is not acceptable.

I fully agree with the hon. Gentleman. We need to deal with low pay in our economy. The only way to do so is to have a real debate about how to drive up productivity in this country, and about how to tackle companies that are abusing the minimum wage. Such companies must be held to account for what has happened.

We often hear from the Government and their myriad Back Benchers about a mythical long-term economic plan. I say “mythical” because it is a meaningless soundbite, and we are left asking, “Where is the detail? Where is the substance?” If there is a long-term economic plan to benefit workers, a core theme must be a rise in productivity that will help to drive up wages and living standards sustainably. The hon. Gentleman has just made that point.

Let us look at what the OBR said in its publication on the day of the autumn statement:

“Although actual productivity growth has picked up in the latest two quarters, some of this has been cyclical or reflects broader temporary factors… But since it is difficult to explain the abrupt fall and persistent weakness of productivity in recent years, it is also hard to judge when or if productivity growth will sustainably return to its historical average.”

It is well worth dwelling on that. It can be paraphrased as the OBR saying that it has not got a clue why productivity in the UK has been so weak in the past few years. It is certainly the case that the Government do not have a clue. I would suggest that they have no clue and no strategy for driving up productivity in the UK economy and for dealing with our social security bill.

The hon. Member for Hayes and Harlington (John McDonnell) famously quoted from his little red book and then tossed it at the Chancellor during the autumn statement. However, it is not that red book that should concern us, but the stark reality of what is contained in the OBR Blue Book that offers little comfort for many in this country. We will support this motion, but we should not be having this debate because we should not have a benefits cap. We need a meaningful long-term economic plan, not Government gimmicks and soundbites.

I welcome this U-turn. Sometimes, it is right to accept that one is wrong and has made a mistake. I commend the Government for doing so on this issue.

I also commend all those who took part in what was very much a cross-party campaign, in which all the Opposition parties and some Government Back Benchers worked together. I pay tribute to the hon. Member for South Cambridgeshire (Heidi Allen) for the courageous way in which she spoke out, which was noticed around the country and did this place a real service.

I also pay tribute to the other place. Although I will always campaign for that House to be abolished in its current form and replaced, finally, with a wholly elected Chamber, which is what we should have in this country and is the only justifiable way to run a modern democracy, it did show that it has a role to play in this Parliament. I commend my Liberal Democrat colleagues in the other place, who made it clear that they would speak and vote against the tax credit cut. That was crucial in leading to the U-turn.

As a liberal as well as a Liberal Democrat, I will always be extremely proud that it was the great, reforming Liberal Government of 1906 to 1914 that brought in the very welfare state that we are discussing. That is a great achievement of my party.

However, we accepted in our five years in coalition, in difficult financial circumstances, that the welfare state had got out of control and was no longer sufficiently focused on those who needed it. I was a member of the Work and Pensions Committee for five years and that Committee, which had members from all parties, was entirely clear that there was a disincentive to work and that too many people were incentivised to be on benefits, rather than to work. I am very proud that, in the five years of the coalition, we did a lot to tackle that.

Will the hon. Gentleman remind us how the Liberal Democrats voted when the welfare cap came before Parliament last year?

I am very happy to. As usual, the contribution from the SNP Benches contained the usual milk and honey, promising everything to everyone and not taking any difficult decisions. In the end, even in Scotland, the shine will come off and people will start to see the reality of the false veneer of the Scottish National party. That is something that the rest of us will welcome.

I am not even sure that the hon. Gentleman knows what he is talking about. There are two different issues: the household benefit cap and the welfare cap. He seemed to confuse and conflate the two things. We absolutely supported the household benefit cap, which was brought in under the coalition, because it is entirely right and all our constituents support not having a situation in which a single household can take an unlimited amount in benefits, when hard-working families are unable to raise the same amount. The welfare cap is an entirely different thing. It seeks to control the amount of money that the Treasury allocates to welfare as a whole. He does not seem to understand the distinction, which is worrying, given his position.

I am absolutely clear that there have been changes to the benefits system that were mistaken, including under the last Government, and I said so at the time. However, I absolutely support the household benefit cap. I do agree, however, that we need a sensible approach, and we must incentivise work and focus social security on those who need it. Those of us who believe passionately in the welfare state—I am sure the hon. Lady does, as do I—must be able to justify it and show that it is helping people who cannot work or are unable to find work. That must be the focus, but it has not been previously.

I am sure the hon. Lady will agree that some of the changes brought in by this Conservative majority Government, without the Liberal Democrats to restrain them, have been mistaken and ideological, particularly the cap on child benefit on the basis of the number of children that someone has, regardless of circumstance. We opposed and stopped such measures, but now people are seeing what a Conservative majority Government with an ideological policy, as opposed to a pragmatic one, will do.

We welcome the fact that the right decision was made on tax credits, and on this occasion it is right to be prepared to breach the welfare cap. In other years we would like that cap to be adhered to, but given current circumstances and the projections for what the change to tax credits will do, this is the right decision, and those on the Treasury Bench should not be criticised for being prepared to breach the welfare cap for that reason in this financial year. That would be playing politics with this issue in the way that the Chancellor did with his ideological nonsense of the fiscal charter, when he sought to stop the Treasury having the flexibility that any Chancellor—and in this case the Secretary of State—must have.

We welcome this U-turn and fully accept the need to breach the welfare cap this year. We hope that the Government will live within their means in future years, but not by balancing the budget on the backs of the poor. We will continue to take a pragmatic approach and oppose anything that we believe is draconian, ideologically driven and unfair. At the same, we hope that the Government will continue in the same vein as the coalition Government, by incentivising people to work, and by getting more people into work with fewer people on benefits. As a civilised society we must ensure that our welfare state continues to help people who are unable to work or who genuinely cannot find it. That is our position and we will continue to make that case.

As someone who voted against the welfare cap when it was introduced and whenever it was reset, I am happy that the Government are trying to relax the original level of that cap. During the Budget statement in July, the Chancellor revised the welfare cap figures that he announced in the spring. He reduced that cap over four financial years by £46 billion, to include changes to tax credits and some of the other changes to universal credit that have been mentioned, and for that reason we would have opposed the measure.

As we have heard, the welfare cap is a fairly political argument. It has its origin in the opposition of Labour Members to the benefit cap in the Welfare Reform Act 2012, and they came under some pressure for that. At one point, the then Leader of the Opposition, the right hon. Member for Doncaster North (Edward Miliband), announced that he would do better than a benefits cap and introduce a welfare cap on the overall budget. We could see the lights go on for the Chancellor of the Exchequer, who decided, “That will do nicely. We’ll go for a welfare cap as well.” He proceeded to set up his working group to consider that, on the basis, he said, that annually managed expenditure is not managed but needs to be in future. That is how the welfare cap was introduced, and that is why the then Opposition were trapped into voting for it, whereas some of the smaller parties—and some Labour Back Benchers—felt free to vote against it.

When the welfare cap was introduced it was bubble-wrapped as a neutral budgetary tool, but many of us recognised that it would end up being brandished as a weapon for cuts, and that is exactly how the Chancellor used it this year in the July Budget. Of course, he was forced to revise his propositions on tax credits by a combination of opposition from right hon. and hon. Members right across the House. In fairness, some Government Members did not just vote against the measures but spoke against them too, making valid and pointed arguments about just some of the difficulties caused by the Chancellor’s plans. It is good that, with the range of consideration and argument outside and inside this House and in the other place, that the Chancellor had to revise his position. That is now reflected in the adjusted proposals for the welfare cap.

The Chancellor, in his autumn statement, made it clear that he will still get to the quantum of cuts he wants to achieve. The issue is how far the welfare cap will, in itself, be used as an instrument for forcing some of those cuts. We have also yet to hear from Ministers exactly how they are going to get to that quantum. Will they need to table amendments to the Welfare Reform and Work Bill currently going through Parliament to deliver the cuts within the time the Chancellor has projected, or do they feel that they will be able to arrive at the same cuts using existing legislation? There are powers of regulation under the 2012 Act and provisions in the Bill, not least the sweeping provisions in clauses 13 and 14 that could see significant benefits—universal credit, employment and support allowance, and the work-related activity group—disappear or be very heavily eroded. If the Government still intend to arrive at the quantum of £12 billion of cuts in terms of the welfare cap, how do they propose to deliver it?

That matters in the context of Northern Ireland. If the cuts are to be delivered under existing legislation or the Bill, the fact that direct rule powers are in the hands of Department for Work and Pensions and Northern Ireland Office Ministers means that the cuts will be put through under the sunset clause which will be exercised here up until the end of the next calendar year. We have the right to ask: what future cuts will go through under existing legislation and the Bill, and what would require further reductions in future?

We did not get clarification on welfare measures during the passage of the Scotland Bill, or on other occasions when we have asked Ministers about this more informally. Will the Minister clarify whether the welfare spending that can be undertaken by the Scottish Government of £2.7 billion—the last figure I heard—will count as part of the UK welfare cap, or is that absolutely outside the UK welfare cap? Is that a precedent for other factors? Ministers have been unable to address that point.

In welcoming the Government’s position today, I take no comfort from it. Their original intent to use the welfare cap as a cuts weapon is still there. I want clarification on their plans for the Bill. Will they table amendments to achieve further cuts, or do they believe that they can achieve the full £12 billion as the clauses currently stand?

The 1997 to 2010 Labour Government paid off more debt than any previous Government on record—debt left by the Conservative Government. We always know when Conservative Members’ arguments are weak, because they come out with the mantra about the financial mess left by the Labour Government. The financial mess was created and started in America with Lehman Brothers. They use that—[Interruption.] This really doesn’t bother me, because I don’t hear what they’ve got to say.—[Interruption.]

Order. It would appear that it is Christmas. I hope the House has not been attending too many Christmas parties. We behave in a reasonable and polite fashion. If anybody needs to be told to be quiet, I can do that.

No. The hon. Gentleman will wait until I have had my say.

The financial crisis was caused by Lehman Brothers in America and started in 2008. Had Labour been returned to power—had someone not been greedy for power—we would not be in this mess today because the Conservatives would not be in power. Our strategy was actually working. [Interruption.] I am sorry that Conservative Members do not like the truth.

Sit down! I am sorry, Madam Deputy Speaker.

We always know when the Government are at their weakest, because they go on and on about the financial crisis. But let us get to the welfare cap. Of the two major cuts to in-work support in the summer Budget—to tax credits and its replacement, universal credit—only the tax credits element has been reversed. The reason we are in this state is that the Chancellor originally set the cap at a level that, in the first instance, simply tracked the Office for Budget Responsibility’s projections for spending on those benefits and tax credits that were in scope—as one of my colleagues mentioned, tax credits are in scope, which is unacceptable. The cap started in 2015-16 and extends for the next five years, meaning that, for now, the cap has no policy effect whatsoever. The Government are simply committed to operating future policy on the basis of not overshooting the current estimate of financial spending over the coming years. We could be in this position next year and the year after, because there are no real policy decisions. It is short term. It is nothing else.

As predicted, that led to the announcement of emergency cuts, including those to tax credits, but they were resoundingly kicked out by the Lords—the Conservatives at prayer, as someone described them. Although I am not in favour of an unelected second Chamber, I applaud them for taking that action. Only the tax credits element was reversed, however, and working families remain on the front line of further assaults, such as the cap and the universal credit cuts. The latter will affect many people—more than 200,000, I think—from April 2016, and the majority of those on universal credit are in the north-west. They are the ones who suffer the most from unemployment and financial deprivation—much of which is caused by zero-hours contracts, insecure employment, low pay and part-time work—which is why they are on benefits.

Not at the moment. Hon. Members will hear what I have to say.

We need reforms that address the structural drivers of social security spending. We need good, secure employment; we need to get rid of zero-hours contracts and low pay; and we need to ensure an adequate supply of affordable homes.

No. Hon. Members need to learn that I will not give way until I have had my say. [Interruption.] Yes, the House needs to know what type of woman I am.

We need to shift the balance of expenditure from the cost of failure towards investment. As my hon. Friend the Member for Pontypridd (Owen Smith) has said, the large rise in housing benefit expenditure in the 20 years before the financial crisis came at a time when the number of households receiving help to pay their rent stayed broadly flat. That should have triggered a major focus on those trends and led to serious reform of policy and spending, but it did not. As a consequence, the benefits system was extremely vulnerable to economic shocks, as large numbers of people were in more expensive private rented accommodation. When the crisis really hit in 2010-11—it came a couple of years later—housing benefit shot up, and in response we have seen a series of arbitrary attempts to hack back the costs. We have seen 14 changes to housing benefit, including the bedroom tax, which was entirely unrelated to the causes of the rising expenditure. We need to get down to the policy and the causes.

Ministers are leaning too heavily on the political dividing-line and not enough on designing a cap that would advance structural reforms. Although it is set over five years on a rolling basis, the Government’s cap will bite on an annual basis. With the Office for Budget Responsibility warning about the overshooting of the autumn statement, we call today for compensating action in the next Budget.

We have had emergency cuts, not long-term saving. The cap has been set in nominal cash terms. Higher expenditure, driven by inflation, will trigger policy action, which risks locking in lower living standards for those reliant on benefits. General price rises feeding through into uprating decisions do not count as a structural divide in spending. In line with consumer prices index forecasts for the coming years, the Chancellor set out a margin of error of 2%, which will not trigger action.

The cap makes no distinction between contribution-based and income-based benefit spending, consistent with the drift of social security policy over decades, but they are different, and should be treated as such. Entitlement to contributory benefits, which are financed by national insurance contributions, should stand outside the mainstream of Government revenue and be taken out of the cap, strengthening the integrity of the national insurance fund.

I urge the Government to backtrack on the political ideology-driven trajectory that they are on, with 80% of cuts coming from public spending and welfare and 20% from tax, and with tax cuts being provided to people who do not need them and will not spend the extra money, so it will not go into the economy and will not feature in the drive for more jobs. The Government should invest in proper affordable housing for those who need it. Never mind all these dressed-up schemes—let us have some honesty in this place and address the issues for the public out there. I think the Government are living in a virtual world; it is certainly not the world that I move in.

Question put and agreed to.


That, pursuant to the Charter for Budget Responsibility: Summer Budget 2015 update, which was approved by this House on 14 October 2015, under Section 1 of the Budget Responsibility and National Audit Act 2011, this House agrees that the breach of the Welfare Cap in 2016-17, 2017-18, and 2018-19 resulting from the decision not to pursue proposed changes to tax credits, as laid out in the Autumn Statement 2015, is justified and that no further debate will be required in relation to this specific breach.

Riot Compensation Bill (Money)

Queen’s recommendation signified.

Motion made, and Question proposed,

That, for the purposes of any Act resulting from the Riot Compensation Bill, it is expedient to authorise the payment out of money provided by Parliament of any increase attributable to the Act in the sums payable under any other Act by local policing bodies, by way of compensation for damage, destruction or theft occurring in the course of riots, out of money so provided.—(Mike Penning.)

I want to raise the modest question of why this Bill has not been introduced under Standing Order No. 50, as it seems to me that the primary purpose is a charge. For a Bill of this kind, Standing Order No. 50 is the usual process. I know it has the Government’s support, but I am puzzled that that approach has not been taken.

The hon. Gentleman raises an excellent point, which I am sure has been taken on board by those on the Treasury Bench.

Question put and agreed to.