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Employment and Support Allowance Regulations 2008

Volume 701: debated on Thursday 22 May 2008

rose to move, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 27 March, be annulled (SI 2008/794).

The noble Lord said: My Lords, this is an important area of public policy, which has developed apace in the past few years. I am grateful to colleagues for postponing their retirement to the well earned respite of the Whitsun Recess to consider some of the background to this policy, particularly that contained in the regulations.

I am particularly grateful, as I am sure that we all are, to the Merits of Statutory Instruments Committee, which did the House a service in drawing special attention to the regulations and made some quite perceptive comments. The committee thought that the Government needed to address some concerns that it identified when it solicited evidence. I am grateful to colleagues who served on that committee, such as my noble friend Lady Thomas of Winchester, for drawing some of the issues to my attention and to the attention of the House.

Perhaps I may say a word about process. The regulations are serious statutory instruments. They comprise 169 paragraphs and nine schedules. They are subject to the negative resolution procedure, so Members of your Lordships' House have to take special care to ensure that they are debated. They contain far-reaching provision for conditions and procedures that govern what will be a very important replacement benefit for incapacity benefit, disability allowance and income-related income support disability benefits.

There should be better provision for detailed consideration of legislation of this importance and scale than the mere negative procedure that we have. Your Lordships could spend many happy hours—not wasting time or indulging in hesitation, deviation or repetition—considering all of it thoroughly. Suffice it to say that the regulations are of crucial importance to a particularly disadvantaged cohort of our communities. Literally thousands, if not millions, of households are dependent on the regulations.

It is not merely a question of rates and procedures. There is an underlying element of insecurity and uncertainty that is corrosive of stability to family life if you are subject to the mental or physical illness or disability that the regulations seek to ameliorate. If you are subject to the conditions and domestic circumstances that they seek to address, there is always the fear that benefit will be withdrawn or changed. That is a real worry and it makes people's lives that much harder if that uncertainty is increased. I fear—I shall seek to make the case in the next few moments—that that may be the effect of the regulations.

I do not want to found my case this afternoon on the merits or otherwise of age additions being withdrawn. I absolutely acknowledge that the department and the Bill team did everything that they could to consult during the passage of the Welfare Reform Act. That was an extremely positive experience for me. I have been doing this man and boy for more than 20 years and have been especially concerned about this aspect of policy. Until the Welfare Reform Act 2007 and the process that preceded it, it was always about cuts and getting people off benefits because they were costing the taxpayer too much money. That is a corrosive background against which to formulate policy.

We need to get people to contemplate a huge change in their lives from the security of a regular income from whatever benefit they receive to the world of work or to take them nearer to the labour market, which is a very demanding place if you have the disabilities that these benefits seek to redress. To do that, we need to win the confidence not just of the disability organisations which are spokespeople for their client groups but the people with disabilities themselves. The profile of the kind of disabilities faced by households in the United Kingdom has dramatically changed during the past 10 years.

The worry now is not that the rates are not right, or that the detail is wrong, though there are arguments about that. My real worry is that these regulations do not deliver on the promises that people perceive were made to them by Ministers as the Welfare Reform Act 2007 went through all its legislative stages. The disability organisations have helpfully provided all of us with reminders of the kind of thing that Mr Murphy, in another place—although he has now moved on to another ministerial responsibility—and the Minister said in the course of the Commons and Lords stages.

If we get into a debate about good faith, and the Government lose the trust of those organisations that were happy to work with them in the context of the 2007 legislation, it will destroy the possibility of deploying this policy sensibly and getting to where the Government want to be. They must win and develop the idea that they are acting in good faith; otherwise there is a risk of failure. I do not for a moment mean that Ministers, particularly the noble Lord, Lord McKenzie, were deliberately lying. I understand the argument perfectly well. The department does its best in framing primary legislation, and then engages in a tough contest for the resources to promote and develop it, and to roll it out. Sadly, I think the department did not get the settlement that it needs—and deserved—from the Treasury to roll out this policy properly. There is some substance in the argument that the regulations do not deliver what was promised.

The tone of the debate is in danger of changing. We have new political direction and leadership in the department from Mr James Purnell, the new Secretary of State. I have a high regard for Mr Purnell, but he is starting to use language that is quite tough, and the tone of which is substantially different from that of two Secretaries of State ago, when this legislation was at its primary stage. We are now talking about taking 1 million people off incapacity benefit by 2015. That is a long-term forecast; 2015 is difficult to anticipate because it is some way off. To take 1 million people off incapacity benefit by 2015 sensitively and properly is a tall order.

I am grateful to the department for producing the Explanatory Memorandum, which is very informative. I entirely applaud the fact that Parliament now has access to that level of information. Page 9 refers to savings of £1.1 billion over the next 10 years. Ten years is a long time and £1.1 billion sounds like a lot of money; maybe in public expenditure terms it is not. It begins to sound a little frightening if you read this as somebody dependent on the benefits that we are talking about. It is a reduction of the IB case load by 10 per cent. Ten per cent of the current case load is 250,000 households, which is a large number of vulnerable households.

The other change that I detect is that we are now talking, in a way that we were not during the 2007 discussions, about a tighter gateway being the way to reduce the case load. Intellectually, that was always going to be the case, but the way that this is now being argued is beginning to suggest something else. That is not only because the rates have changed in the regulations that were produced in March, and which we are discussing this afternoon. The provenance of the policy is beginning to sound a lot tougher, to the extent that—and I am not quite saying that we are there yet—we are almost back in the bad old days, with people starting to ask whether the Government, at the back of their minds, are thinking more about saving money than anything else. If we get into that situation, with people back in those bunkers of previous years, it will be a very bad thing.

In its consideration of these regulations, the Merits Committee captured very well and crystallised on six areas of concern, which the disability organisations submitted as evidence of things it thinks constitute cuts. There is no other way of describing it. That is its language, what it believes and its perception. I am pleased to see that the Merits Committee confirmed, as I said at the beginning, that these six areas still need to be addressed.

That is bad enough, but two issues have made things even worse. The economy—the context in which this policy is being rolled out—will get tougher, which is self-evident. You do not need to be an economist to work that out. The rates at which the benefits are set, being lower than those that were expected, are causing concern. On top of that, we suddenly, as if by magic and out of the blue, get £2.7 billion of tax cuts. You can have an argument about whether that is right or not, but the disability organisations imply that if money of that order were to be applied to this area of policy they would have fewer underlying concerns.

In his work on the net present value of what you would save by taking someone off benefit for eight years, David Freud came to a saving, I think, of £62,000. If the Treasury has any sense, long and middle-term investment of the kind that everyone thought would be poured into this policy area would have significant long-term effects by providing absolutely cast-iron security for those who could not work. It would take away all the uncertainty and difficulties, and would make sure that they could be accommodated comfortably because they would not be expected to approach the labour market in the future. Alternatively, the Treasury could put not just £2,500 per head into the New Deal programme, welcome as it is, to encourage people back into the labour market; it could put £6,000 annually into serious training for people with multiple hurdles and who are a long way from getting close to the labour market. The David Freud agenda looked at that and it was the background against which primary legislation was introduced.

We have received encouragement. I have here an uncorrected proof of evidence. Recently, Adam Sharples, director of the work, welfare and equality group at the DWP, gave evidence to the Commons Select Committee. He said:

“We have been having some very productive discussions and we do have agreement with the Treasury that the savings from the Pathways to Work programme, that is, the benefit savings, should be ploughed back into further employment programmes. We will be finalising the details of that arrangement shortly but it is a good example of the Department and the Treasury working pretty closely together to make sure that we see the costs and the benefits of welfare to work activity in the round”.

That is where the disability organisations and the rest of us thought we were when the 2007 primary legislation was put through both Houses. There is evidence in the submissions of the disability organisations to the Merits Committee that we are heading off that back into the bad old days that we remember with regret as a lost opportunity.

This policy, if it is to succeed, will involve a huge cultural change, not just in the department and in its procedures, but for claimants—existing and new—and for employers in order that they may play their part and make available positions for people so that they can find work after they have been through their training, if that is what the work capacity assessment finds that they have to do.

If the Government do not win back the trust of the disability organisations, the whole thing will become harder. For example, the number of appeals is estimated to increase by something like one-third as this benefit is introduced, which of course will apply to everyone after 2010, including existing clients on invalidity benefit. That is a massive underestimate. If we get this wrong and disability organisations take against how the Government are doing this and start to believe—the perception may be real for them; whether it is true, we have to deal with their perception—that the Government are not acting in good faith, then any welfare rights adviser in his or her right mind would obviously suggest an appeal if claimants were knocked back for ESA when they had just been on invalidity benefit. It is a no-brainer. The Government’s estimate of appeals increasing by a third could be massively underestimated.

On the other hand, if we get welfare rights advisers who say, “We think that the Government are trying their best in a difficult situation to obtain the culture change and improvements in lifestyles that we are all aspiring towards”, then we have a different situation altogether. We may be able to get away with an increase in appeals and it may be one-third, but if we get the background and the context wrong then that will be to no one’s benefit.

I want to make three quick suggestions before I sit down. First, the rates need to be addressed in the future. If the Minister said that he would be prepared to deal with some of this in an uprating, we go through an uprating process every year. Every year, people on benefits slip one or two percentage points behind average earnings, because benefits are only price protected and every year, year on year, 2 per cent fall behind in terms of the benefit compared to the average earnings. They are already falling behind before any of this starts to impact on them. Benefit uprating in future has to take account of the fact that these rates need to be addressed.

Secondly, some of these other contentious issues need to be referred back to the Social Security Advisory Committee. It was denied the ability to carry out a full formal report on the regulations, simply because they were under the rules that exist. The statutory instruments came out within a six-month period of the primary legislation. There is some tricky stuff here: it is very technically complicated. The SSAC knows what it is doing. If it wrote a report and came to some conclusions and made some recommendations it would give the disability organisations some comfort. I strongly recommend that the Government think about doing that.

Finally, Mr Sharples mentioned AME-DEL—annual managed expenditure: departmental expenditure limits— the acronym for a deal that has been struck with the Treasury. It makes perfect sense, as David Freud set out earlier, that one spends to save; we can invest some of the savings from the benefit spend and put it back into the training and the ESA support rates and allowances. That makes perfect sense to me but there is a lot of opacity about what is being discussed and when we might see its fruits.

The Minister should contemplate whenever the moment is right trying to explain to the outside world what is going on and what is available to the department through its new arrangements for the Treasury. I conclude by saying that if we forfeit the goodwill of the claimants and the disability organisations, this policy area, which is so important to so many people, will be much harder to roll out in the longer term. I beg to move.

Moved, That an humble Address be presented to Her Majesty praying that the regulations, laid before the House on 27 March, be annulled (SI 2008/794).—(Lord Kirkwood of Kirkhope.)

My Lords, I am sorry to find myself debating the regulations today because, at the end of our lengthy debates on what is now the Welfare Reform Act, I thought that we had reached a balance between the Government’s policy aims of moving more people off benefit and into work and the concerns of disabled people and their organisations about the changes that would be made to their entitlement to benefit. I have to say that significant concerns have been raised about numerous aspects of the regulations. The Disability Benefits Consortium, the Child Poverty Action Group, the Disability Alliance and Leonard Cheshire Disability have all written to the Select Committee on the Merits of Statutory Instruments about them. In case noble Lords think that these are just the usual suspects where disability benefits are concerned, the list also includes Citizens Advice and the Chartered Institute of Taxation, both eminently reputable and objective organisations—not to say that the others are not, but noble Lords know what I mean.

I cannot help but feel that this situation could have been avoided. During the passage of the Welfare Reform Bill, to their credit, Ministers were responsive to the criticisms made and gave reassurances both in your Lordships’ House and the other place that met the concerns of disabled people and their organisations. It is greatly to be regretted, therefore, that disabled people now feel that in these regulations the Government have gone back on those assurances. In particular, I say that with regard to the rates of the two components of the new benefit. Ministers in both Houses gave clear assurances that the rates of benefit for both components would be above the current long-term rate for incapacity benefit. When questioned about the rates at which ESA would be paid, the noble Lord, Lord McKenzie, who is with us today, said that,

“the basic allowance for someone on the contributory benefit or for a single person on the income-related benefit plus the work-related activity component will be higher than the current long-term rate of incapacity benefit, and those in the support group will receive a higher amount”.—[Official Report, 20/2/07; col. GC5.]

Yet from the regulations it is clear that the basic main phase rate of ESA for single claimants in the work-related activity group, at £84.50 per week, is exactly the same as the current long-term rate of incapacity benefit, not higher. If that is compared to the equivalent rates of benefit currently payable with income support with a disability premium, the rate is in fact £1.85 per week less for a single person on income-related ESA.

The DWP told the Merits Committee that the Government did not accept that the rates that had been announced were incompatible with statements made to Parliament. It said:

“The rate of £84.50 for those in the work-related activity component is above the rate of long-term incapacity benefit, £81.35 per week, at the time the statements were made”.

That is casuistry of the worst order. The operative words in that sentence are “at the time the statements were made”. The important point to note is that the long-term incapacity benefit rate will have risen to £84.50 at the time the new allowance is introduced, and then there is the possibility of £1.85 on top. It is conservatively estimated that this will adversely affect 1 million people out of the 1.65 million currently receiving incapacity benefit. Those on contributory ESA will lose entitlement to age additions and additions for spouses. For example, under the current system, someone who became sick under the age of 35 on the long-term rate of incapacity benefit would receive £102.25. Under the new system, they will receive £89.50, a drop of £12.75.

The losses for couples are even greater. A couple where the claimant became sick under the age of 45 on long-term incapacity benefit would receive £143.95. Contributory ESA will pay the same couple a maximum of £123.95, if the claimant is in the support group. But the vast majority will be in the work-related activity group and receive only £118.95. For the most severely disabled claimants, therefore, who have worked and paid NI contributions, the maximum payable under ESA is a good £20 or £25 a week less than under incapacity benefit.

As the noble Lord, Lord Kirkwood, has told us, the Explanatory Notes to the regulations clearly state on page 9 that the new work capability assessment will be a tighter gateway than the present personal capability assessment, so that fewer people will become eligible for ESA, and the Government estimate that more than 90 per cent of ESA claimants will be in the work-related activity group. That will represent a significant saving to the benefits bill. Yet Ministers gave repeated assurances that the introduction of the ESA was not about saving money from the benefits budget.

There are other serious concerns about related benefit entitlements for claimants on the contributory benefit. Citizens Advice has set out in great detail how claimants on a contribution-based ESA with no other income will lose out in terms of being passported to housing benefit, council tax benefit, free prescriptions and other health benefits, free school meals and much more. That is of great concern.

Many organisations, including the RNIB—I declare an interest in that I am its chairman—welcomed the changes to incapacity benefit. Indeed, the RNIB welcomed the ending of registered blind people’s automatic entitlement to incapacity benefit. We welcomed it because we believe that, with the right help and support, blind people are eminently capable of working. However, we adopted that position on the basis that the Government would ensure that new claimants and current claimants in future moving from incapacity benefit to employment and support allowance would not be financially disadvantaged.

I am now greatly concerned that blind and other disabled people will face a reduction in their income, even though they will be expected to take part in work-related activity. Again on this issue, I quote Jim Murphy MP, the then Minister of State for Employment and Welfare Reform in the other place, who responded to a Written Question from the honourable Member for Inverness, Nairn, Badenoch and Strathspey. That sounds like a row of old malt whiskies. He said:

“In the main phase of the benefit, the rate will be higher than the current rate of long-term incapacity benefit and the most severely disabled people will receive a higher rate still”.—[Official Report, Commons, 30/11/06; col. 863W.]

The Government speak of rights and responsibilities and of striking the right balance between duties on claimants and their right to a secure income that means they are free from poverty and able to meet their needs, but in these regulations the Government have failed to meet their responsibilities to provide claimants with a realistic income in return for new obligations to engage in work-related activity. They have a good record in extending the civil rights of disabled people, so it is a great shame that this record could now be damaged by regulations that will lower the income of disabled people who face significant extra costs because of their impairment, as well as some of the greatest challenges to gaining and retaining work.

The income drop for some may appear small at around £1.85 per week, but for disabled people on fixed incomes, who face rapidly increasing food and energy costs, even a small drop in income can have a profound and serious impact and lead to poverty. I do not see how such a move can be compatible with the Government’s public service agreement targets, particularly Agreement 15, which covers disadvantage experienced by disabled people. I am also concerned that there will be a significant impact in relation to Agreement 9 on halving child poverty. It is known that, before housing costs are taken into account, 25 per cent of all children living in poverty are living with disabled parents. Removing income, however small, from disabled parents cannot make sense if the Government wish to meet their poverty targets.

Lastly, I am concerned about the treatment of disabled students. The regulations stipulate that only students claiming the income-related ESA who also receive disability living allowance will be able to study full time. Again, this goes counter to assurances given during the passage of the Bill that current income support rules would continue to apply, with no additional requirement to be in receipt of the DLA.

I hope that the Government will listen to concerns about these important issues and take the opportunity to reconsider the serious and justified concerns that have been expressed in many quarters. As the Select Committee on the Merits of Statutory Instruments says:

“The Regulations are complex and claimants may find it difficult to understand the operation of this allowance. The Government need to do more to explain how this system will work and to address the concerns of interest groups that are in a position to offer significant assistance in helping claimants understand the new system”.

My Lords, I, too, am grateful to my noble friend Lord Kirkwood for tabling this Prayer this evening. No one would think from the sparse attendance in this Chamber that these regulations will play an important part in the lives of thousands of people throughout the country, as has been said. However, the groups which lobby for those on benefits know just that, and many of them have expressed grave misgivings about how the regulations will impact on their client group, some stating categorically—as the noble Lord, Lord Low, has said—that Parliament was misled by Ministers into believing that more money would be available than now, not just by uprating but in real terms, for the support group; that is, those furthest from the labour market. They, and we on these Benches, are very disappointed that this does not appear to be the case.

The laudable aim of the parent Act—the Welfare Reform Act 2007—is, of course, to try to stop new claimants from leaving the paid workforce and subsisting on health-related benefits when, with the right help and support, they could perfectly well do some job. Thereafter, from April 2010, the case list of those already on these benefits will be tackled.

The main concerns of the voluntary organisations in this field include, first, that a reduction in the number of people moving on to the new benefit, ESA, was to be achieved, according to the Green Paper A New Deal for Welfare, by “prevention and proactive intervention”, and not simply through a “narrowing of the gateway” by means of the new, tougher, work capability assessment. This will result in many more people being thrown back, largely unsupported, on to jobseeker’s allowance, with as many as 40,000 more children affected by a family’s fall in income—which, as the noble Lord, Lord Low, has pointed out, will do nothing for one of the Government’s main aims of eradicating child poverty.

It should be said here and now that no one can or should tolerate those who try to cheat the benefits system by feigning or exaggerating illness or disability in order to receive benefits. Whenever such a case is reported in the newspapers, it must make the many thousands of people legitimately on these benefits particularly angry. It must be stressed that those who are the keenest to keep working or get back into some sort of work are often the most afflicted—particularly people with some form of mental illness, whether it be a short episode of clinical depression or a longer term illness.

The charity Mind does not mince its words. It says:

“We believe the Government is attempting to design people with so-called mild to moderate mental health issues out of the ESA system. In doing so, the Government is dumping them on to the much more stringent and far less supportive Jobseekers Allowance regime".

It is entirely reasonable to ask the Government to look again at the mental health element of the WCA, perhaps doing what Mind has called for by commissioning independent specialists to assess each criterion of this element of the WCA and the weighting attached to it to determine if it is as fair as the Government say it is. Will the Minister give an undertaking to monitor this aspect of the work capability assessment as soon as it is operating nationwide?

The second main concern of the voluntary bodies is the injustice of how the two different groups of claimants are being treated, namely those on income-based ESA and those on contributory-based ESA. When I moved an amendment on Report during the passage of the Welfare Reform Bill in March 2007 about service users in receipt of benefits being able to receive the modest remuneration offered for meetings without compromising those benefits, the Minister announced that, in future, those on income-based ESA would be allowed to earn £88.50 per week under the permitted work rules for 52 weeks without losing benefits, to align them with those on contributory-based ESA. This was very welcome. That, however, meant that the income-based claimants had two distinct advantages over contribution-based claimants with no other source of income, namely the disregarding of the permitted work rules for full housing benefit and council tax benefit and the automatic passporting to other benefits such as free school meals. Contribution-based claimants will have a large part of their permitted earnings taken through the housing benefit and council tax benefit tapers which are set at 65 per cent and 20 per cent respectively. Those contribution-based claimants with no other income who are therefore receiving the same rate of benefit as the income-related claimants will have to apply separately for other benefits. This is manifestly unfair. Why should those who have a contributions record but no other income be much worse off than those who do not?

Citizens Advice characteristically offers several practical solutions to this problem. It suggests that contribution-based claimants could still be offered a means test and, if they fulfilled the requirements, would have a marker on their benefit showing they were entitled to passporting, or, alternatively, be offered ESA income-based with the option of switching to ESA contribution-based if their circumstances changed. In any case, it calls for the housing and council tax benefit regulations to be changed to disregard earnings from permitted work.

There is another important question about permitted work. Currently there are two categories of permitted work, which allow earnings of up to £88.50 a week without the 52-week time limit. These categories are supported permitted work—where people have a support worker whose job it is to help people with disabilities find work—and permitted work PCA—personal capability assessment—exempt. Perhaps the Minister could say whether supported permitted work under ESA will be non-time-limited as at present.

Turning back briefly to the issue I mentioned earlier of barriers to service-users on benefit being allowed to keep any small remuneration they are offered for helping to design and plan health and social care services, there may be a glimmer of light at the end of this particular tunnel—although I am not holding my breath, to mix a metaphor. Regulation 91 in the ESA Regulations No. 794 sets out the treatment of earnings in such a way that earnings are averaged over a pay period, whether this is monthly, quarterly or longer. I understand that this regulation came about as a result of the commissioner’s decision in a very complex case about supply teaching in 2004. This judgment should mean that service users on benefits can have any money they earn for infrequent meetings “averaged” so that they do not lose benefit by earning too much in a short period of time. Is this the case, I wonder? Does the decision also apply to incapacity benefit, jobseeker’s allowance, housing benefit, council tax benefit or local housing allowance? If so, have Jobcentre Plus staff been advised to treat earnings in this way?

These regulations are being rolled out, as my noble friend Lord Kirkwood said, at a time of extreme uncertainty in the economy. Those at the margins of the tougher medical tests are going to have to compete for jobs with many in the existing workforce who have lost their jobs in the credit crunch. The knock-on effects could be severe. The last thing that people with any kind of disability need is to find themselves even more poverty-stricken than they were before. Are there really enough jobs in the workplace for a lot of extra and quite vulnerable workers? How many more job vacancies are there now compared to the number of people looking for work?

Finally, I must say a word about the complexity of these benefits. The Merits of Statutory Instruments Committee, of which I am a member, says in its summary:

“The Regulations are complex and claimants may find it difficult to understand the operation of this allowance. The Government need to do more to explain how this system will work and to address the concerns of interest groups that are in a position to offer significant assistance in helping claimants understand the new system”.

It repeats that advice later on, saying that it is difficult to work out the interactions between the different components of the regulations. Hear, hear, is all I say. Are the Government confident that Jobcentre Plus staff will be sufficiently familiar with the new rules by the autumn to operate the system?

My Lords, I thank the noble Lord, Lord Kirkwood, for laying these Prayers and initiating a necessary revisit to this important government programme. As has been said, the written evidence to the Merits Committee on these regulations covers some 22 pages of report. Notwithstanding the memorandums from the Department for Work and Pensions, as the noble Lord, Lord Low, has said, evidence has come from the Disability Benefits Consortium, Citizens Advice, the Chartered Institute of Taxation, the Child Poverty Action Group, the Disability Alliance and Leonard Cheshire Disability. They draw attention to the gap between the Government’s originally declared intentions and the consequences of the regulations. There is a powerful sense of bad faith.

The new employment and support allowance will be paid to those whose health or disability affects their ability to work and is designed to replace incapacity benefit, the severe disablement allowance and sickness-related income support. We have supported the Government’s strategy to reduce the number claiming benefit and at the same time to help people back to work. So far, so good. However, it is clear from the submissions that while there has been an extensive consultation with stakeholders, the regulations do not match with the Government’s undertakings. Above all, their very complexity means that claimants will find it difficult to understand how they operate, as the noble Baroness, Lady Thomas, has pointed out. Whatever happens, the Government will need to do more to explain how it will all work and address the concerns of interest groups if they are to enlist their active partnership in helping claimants to understand the new system.

In particular, there is a widespread view that the rate of allowance for single people—£89.50—does not exceed the current rate of incapacity benefit. That is contrary to undertakings given during the course of the Bill. The noble Lord, Lord Low, made that point powerfully. Does the Minister accept that criticism? There are also considerable consequences following on from the interaction of the allowances with the income tax system. These may well work, in a way, to reduce the incentive to return to work. What is the impact on claimants of the abolition of the 10p tax rate? Has the department modelled the likely changes in the annual cost of the scheme as a result of the latest announcements on tax allowances? As the Minister will know, those are but for one year. What will be the consequences for many claimants if the tax allowance changes are not continued?

There are further anomalies between those who come to the ESA based on national insurance contributions and those who do not, as the noble Baroness, Lady Thomas, has pointed out. How does the Minister justify the different income that claimants will receive? In the same way, there are different treatments of access to passported benefits such as prescription charges, free school meals, legal aid and so on. If the ESA is income-related then the right to those benefits will be automatic, but for those on a contribution-based ESA, each of those benefits will be subject to a separate means test. I note that housing benefit and council tax benefit are an automatic entitlement either way, but how does the Minister justify the discrepancy in entitlement elsewhere? Does he feel at ease that this accords with the spirit in which he introduced the Bill? Furthermore, does the Minister feel that the way these regulations are drawn will attain the Government’s objectives in providing support for those with disability on a fair basis and help such people back to work?

Finally, can the Minister put various figures on the record? What is the annual cost of the programme? What assumptions are made about the number of people who will be successfully back in work? Are savings to the Treasury envisaged and, if so, what are they? The Minister will deny that cuts are the objective. Can he tell us, therefore, what percentage of savings will emerge as reinvestment in that programme? I suspect that for the Minister the lesson is: get your deal with the Treasury before introducing legislation.

My Lords, I start by thanking the noble Lord, Lord Kirkwood, for initiating this debate. I hope that at the end of it he will feel able not to press his Prayer against these regulations because they are very important. A lot of individual points have been raised and I will try to deal with as many as I can in the time allotted, but I reject absolutely suggestions that the Government have not acted in good faith on these matters. I will explain why over the next 10 or 15 minutes.

The three sets of regulations before us are an integral and essential part of a comprehensive package of wide-ranging welfare reforms. The Government have undertaken a series of reforms to address the issue of unemployment. While these have had considerable success, those on incapacity benefits have not shared in that success to the extent that we would wish. This House will be aware of the scale of the problem we need to address. In 2003, after an inexorable rise over the previous three decades, the number of working-age people on incapacity benefits reached a peak of more than 2.7 million. This neglected group of people represented an unacceptable waste—lost opportunities for the individuals concerned, damage to families and local communities and a loss to the wider economy.

Also in 2003 the Government introduced their first Pathways to Work pilots, demonstrating our commitment to help those on benefits because of a health condition or disability. We wanted to give those who could work a chance to regain employment and become independent. Pathways to Work provides a holistic package of support, combined with a reasonable measure of conditionality to ensure engagement with that support to make a return to work. The pathways measures have been successful with more than 64,000 people helped into work to date. That is why pathways has now been made available to people on incapacity benefits throughout the country, representing an investment of £1.1 billion over the next three years. To listen to most noble Lords tonight, you would think the Government were cutting back on their programme rather than investing £1.1 billion as part of the current Comprehensive Spending Review for Pathways to Work.

Implementation of the employment and support allowance later this year will provide the legislative framework to allow us to build further on the success of pathways, and together with the cross-government health, work and well-being strategy engaging with employers and healthcare professionals, ESA will be a key part of the next steps towards our aim to reduce the number on incapacity benefits by 1 million. There is nothing sinister about trying to reduce the number of people on incapacity benefits. It is a question of making sure that people have the opportunity to realise their potential. That may be characterised as trying to get cuts in benefit expenditure but it has the positive attribute of helping people to have a more fulfilled life, and we are proud of that.

I acknowledge the concerns expressed during debates last year, particularly on ensuring fair treatment for the most severely disabled and the most vulnerable people on the benefit. I believe that these regulations provide a reasonable balance. They place proportionate requirements on those best able to meet them with appropriate help, while giving greater financial security to those who need it most and providing the support to participate voluntarily to ensure that we do not exclude the most vulnerable. Some of the key regulations will be familiar to the House from the draft regulations we made available last year. Noble Lords will know that we are able to look in some detail at the regulations dealing with the work capability assessment, the work-focused interviews and the related conditionality requirements.

We have also taken forward into the ESA Regulations many aspects of the regulations that apply to incapacity benefit and income support, but only where they clearly fit with our aims for the new benefit; for example, those dealing with income and capital linking rules, help with housing costs and urgent cases. We have also taken the opportunity to introduce flexibility where it will help people return to work; for example, in relation to permitted work, advance awards and payments for less than a week.

At the heart of these reforms is a determination to change the attitude that people on incapacity benefits are effectively written off. Instead of the concept of incapacity for work, ESA entitlement will be based on limited capability for work. Most claimants of ESA will be expected to engage with a personal adviser to discuss possible steps towards their eventual return to work.

These regulations give effect to the new work capability assessment for ESA claimants resulting from the review of the personal capability assessment that applied to claimants of incapacity benefits. Noble Lords, including the noble Baroness, Lady Thomas of Winchester, and the noble Lords, Lord Kirkwood and Lord Low, said that this was a tightening of the gateway. The new work capability assessment is a fairer and more accurate test of capability. Therefore, it is right and proper that we apply it across the board. We must have an assessment that is transparent and used universally. I remind noble Lords that in 2005 there was absolute consensus that the old PCA needed updating and as a Government we launched a review of the assessment using experts and stakeholders from the disability community. We accepted the findings of that review and we have committed to Parliament that we will report on the new assessment in the first five years of its operation.

The noble Baroness, Lady Thomas, asked about those with mental health conditions. The new medical assessment will deal more effectively with the types of conditions that are prevalent today and lead to assessments that are more equitable for groups with different impairments. The changes to the mental function assessment will address a current gap in the assessment of cognitive and intellectual function in conditions such as learning disability, autistic spectrum disorder and acquired brain injury.

The noble Lord, Lord Kirkwood, talked about fear and uncertainty around all these regulations, and the noble Lord, Lord Taylor, addressed the same point. We have already begun communicating with staff, customer representative organisations and other stakeholders to raise awareness about the ESA regime and create understanding about what it will achieve and how it will work. Our communication with customer representative groups and other key external stakeholders is based on the long-running and fruitful engagement led by Ministers and officials during consultation. This has been supplemented by ESA regional briefings and slots within national forums for key stakeholder groups.

There is recognition that it would not be reasonable to expect those with the most severe conditions to be required to attend meetings with advisers as a condition of receiving benefit. Part of the new assessment will determine whether a claimant also has limited capability for work-related activity and will therefore be in the support group. ESA simplifies benefits for people with health conditions and disabilities by combining contributory and income-related strands within one overall benefit. As indicated in the drafts provided for debate last year, the ESA regulations make provision for us to require customers to engage with us. In the case of the work-focused, health-related assessment, the aim is to ensure that customers have the opportunity to discuss with a health professional the sort of health-related interventions that could help support a return to work.

The work-focused interview arrangements will be broadly similar to those applying in the Pathways to Work provision. A failure to attend either a work-focused health-related assessment or a work-focused interview without good cause will lead to a sanction. Again, this will work in a broadly similar way to the sanction regime in pathways, although the maximum sanction will not exceed the amount of the work-related activity component, which is £24. Again, as with pathways, there will be safeguards to ensure that vulnerable customers are treated fairly. Where a customer has a mental health problem, or there is a likelihood of a problem with communication, contact will be made with them or their carer or healthcare professional. The purpose of sanctions is not to be punitive but to encourage engagement. The experience of sanctions in pathways shows that they are applied to very few people.

The regulations set out the structure and components of both the income-related and contributory strands of ESA. The rates of benefit need to be seen in the context of a new benefit that has a different focus from the benefit that it replaces, so the read-across cannot be absolute. ESA will cost £400 million more than keeping people on IB over the next five years. This will mean that more people will be getting money sooner than is currently the case and more money will be directed to those who are most likely to need it most. That seems to me entirely inconsistent with challenges that this is going to damage our focus on child poverty. More money is going into benefits over the next five years; £1.1 billion is going into Pathways to Work.

My Lords, that £400 million net cost to ESA is a new figure to me, though perhaps the noble Lord cannot discuss it this afternoon in detail. Is he saying that steady-state ESA will cost £400 million each year, every year, once it is up and running? I would like to see chapter and verse on that, if it is available.

My Lords, I am more than happy to write to the noble Lord to expand on that figure. This is £400 million over the next five years, in comparison to what the position would have been had we continued with the IB situation.

I shall now deal with the point made by the noble Lords, Lord Low and Lord Taylor. We have not broken our commitment about the main phase rate for the work-related activity group. It is £84.50 and this is higher than the long-term rate of incapacity benefit at the time the statements were made. I reject the assertion that we have not fulfilled that commitment. I also say to the noble Lord, Lord Low, that no existing customer will get less than their current rate of benefit. They will continue to get the same rate. There is no question of a million customers losing benefit. The rates are, in context, £400 million in total to be spent on ESA over the next five years—in comparison to what we would have done on incapacity benefit added to the £1.1 billion invested in Pathways to Work. Typically, in the first year a claimant will be £936 better off in the ESA work-related activity, the non-incapacity benefit. More than two-thirds of people are expected to flow off that within a year of starting their claim. In the support group, claimants gain at least £29 a week and £1,131 in their first year. The ESA does focus additional resources on the most severely disabled with a higher rate of benefit for those in the support group. Among the most severely disabled, the poorest will be nearly £16 a week better off under ESA than on incapacity benefits. Although the starting rates of benefit are very similar for ESA and IB, people get more money much sooner under ESA, with most people gaining £24 a week from the fourteenth week of their claim. We believe that around £200,000 will be better off under ESA because they get more money sooner.

I acknowledge that there are issues around the structure of the benefit, certainly in relation to the age addition. We believe that this is an outmoded concept and should have no place in the ESA. The age addition accepts that people go on incapacity benefit and are not going to return to employment. Therefore, we would need to pay them more, the longer they are on it. This is quite the wrong approach, which is why it does not feature in the ESA. There are issues around the lack of couples components in the work-related and support group components, but that is because we are focusing these components on individuals’ functionality. We cannot do that by having a couple’s rate to it. Overall, you will see that there is the prospect of many people gaining from this, particularly over that first year, given that we want to encourage people and help people back into the labour market as quickly as possible. There is less relevance for most in what might happen in year two or three.

The noble Lord, Lord Kirkwood, made reference to the increased number of appeals. There are more decisions in ESA than on IB which are subject to appeal; for example, whether someone should be in the support group. That is, in part, why we expect an increase in the number of appeals. The noble Baroness, Lady Thomas, raised issues around permitted work rules. We have ensured that supported permitted work rules are aligned across both strands of the benefit. A person who satisfies the conditions can undertake supported permitted work for an indefinite period. The noble Baroness was kind enough to give me a preview of what she was going to say. I have already indicated to her that, with regard to the permitted work rules, we acknowledge the issues with housing benefit and council tax benefit for those on a contributory strand. That is one of the matters that will be looked at in the review of housing benefit, announced in the Budget.

The noble Baroness, Lady Thomas, also mentioned service users. The treatment of their earnings is a complicated and sensitive area which we are currently considering. I am not in a position to give a definitive answer today, but I will write to the noble Baroness with our conclusion. We are reviewing the rules around the treatment of reimbursed expenses being treated as earnings, and expect to be able to make an announcement later this year.

The noble Lord, Lord Kirkwood, asked about uprating. We review all social security rates every year as part of the annual uprating exercise. Furthermore, we consulted the SSAC informally about the ESA regulations, even though we were not required to do so. The noble Lord also asked about the Budget settlement. We are investing hugely in Pathways to Work—I have mentioned the £1 billion over the next three years—and we are moving towards an agreement with the Treasury to reinvest savings, as Adam Sharples, who was quoted, has indicated.

The noble Lord, Lord Low, asked about disabled students losing out under ESA. The changes under ESA will simplify the existing complex rules for qualification for customers and staff and will ensure that disabled students can continue to claim income-related incapacity benefits where they receive any component of disability living allowance. We believe that receipt of disability living allowance is the correct way of qualifying for education, with income-related employment and support allowances. As DLA is based on how a disability impacts on an individual’s life, it will ensure that the most vulnerable customers will be able to study and receive income-related ESA.

The noble Lord, Lord Taylor, asked about income tax, particularly for people on the contributory strand. Contributory ESA is taxable in broadly the same way as incapacity benefit, and income-related ESA is not taxable. That therefore mirrors the current system. Customers on contributory benefits do not, as a general rule, have their income or capital taken into account in assessing benefit entitlement, and so may have additional income as well as their benefits. But a person whose only taxable income is contributory benefit is unlikely to have an income which results in a tax liability, made more certain by the increases in personal allowances which have just been announced. If you are on only the contributory strand with no other income, you are unlikely to be in the income tax system. Of course, income-related benefit is not taxable because it is withdrawn at one-for-one if the claimant has other income.

I have tried to deal with as many of the questions as I can in the time available. I hope that my answers have dealt adequately with the concerns expressed today. I will review the record and follow up with further correspondence in so far as I have not had time to deal with the multiplicity of points that have been raised.

The regulations are a vital part of our ambition to create a fairer and more inclusive society where people with health problems and disabilities are better able to fulfil their aspirations. I therefore hope that the noble Lord will not press his Prayer.

My Lords, I am grateful to the Minister for that characteristically thorough reply. I am also grateful to all noble Lords who have contributed to this important debate, which will continue.

I am sorry that the Minister, in his response, sounded slightly hurt. We are not against him, but are encouraging him because we are all trying to get to the same place. It is just a shame that some important areas of contention have occurred. Like him, I am sure that the record will repay careful study. I wish the Minister well in getting to where he wants to be, but I hope that he will not mind us pressing the issue from time to time to ensure that he keeps up to the mark. I hope that we have not delayed him too much from his welcome respite over the Whitsun Recess.

On that basis, I am happy to withdraw the Motion.

Motion, by leave, withdrawn.