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Welfare Reform Bill

Volume 731: debated on Tuesday 1 November 2011

Committee (9th Day)

Relevant document: 17th Report from the Delegated Powers Committee.

Clause 22 : Claimants subject to all work-related requirements

Amendment 51EA

Moved by

51EA: Clause 22, page 10, line 32, at end insert—

“(4) Prescribed circumstances should include a claimant who is—

(a) a responsible carer for a youngest child aged 5 and 6, and(b) is undertaking further education and training up to and including level 3 until—(i) their youngest child reaches the age of 7, or(ii) their further education or training course ends.”

My Lords, I shall speak also to Amendment 71JA. These amendments have been tabled with the assistance of Gingerbread. The aim is to protect the opportunity for responsible carers to access further education and training up to and including level 3 when their children start school without facing the risk of sanctions. This means that responsible carers would be deemed to be fulfilling work search and availability requirements while studying until their youngest child reached the age of seven or the course ended. These amendments strike me as eminently reasonable, and indeed should be seen as totally consistent with the Government’s own anti-child poverty and social mobility strategy which emphasises the importance of education and training and the contribution they can make to ensuring that paid work represents a genuine path out of poverty.

The level to which a person is educated has a significant influence on how much they can earn and their ability to move up the earnings ladder. As Gingerbread points out, it is well established that holding a level 3 qualification can provide substantial economic value, particularly in relation to marginal wage returns. For example, only 25 per cent of people aged 25 to 29 holding a level 3 qualification are earning less than £7 per hour compared with 55 per cent of those with a level 1 qualification, and 37 per cent of those at level 2. Level 3 qualifications include access courses to HE as well as vocational courses. It makes long-term sense to enable lone parents in particular to improve their educational qualifications so as to maximise their labour market opportunities.

Until recently, lone parents on income support could complete a full-time further education course up to and including level 3 in preparation for entering the labour market or higher education. This meant that lone parents on income support had a two-year window of opportunity to access training with a fee remission when their children started school and before moving on to jobseeker’s allowance when their youngest child turned seven. As of September 2011, lone parents claiming income support are no longer eligible for fee remissions when accessing further education. Lone parents on income support will now have to self-fund as well as pay for any necessary childcare if they want to improve their chances of employment by undertaking training. Instead, fee remissions are available for individuals in receipt of JSA, but claimants will be required to continue actively seeking work while training, and if offered a job, be prepared to drop out of a training course or face a payment sanction. JSA work search and work availability requirements severely limit lone parents’ ability to train and gain skills that could help them find higher paid employment that is sustainable, and to make the most of opportunities to progress once working.

This modest amendment raises larger questions about some inconsistencies in government policy. On the one hand, as I have said, education and training are key elements in their child poverty and social mobility strategies. On the other hand, they are pursuing what in the jargon is called a “work first” rather than a “human capital development” approach to moving people from benefits into paid work. One of the risks of such an approach, identified by, for example, Dr Sharon Wright of the University of Stirling in a recent article, is that it can mean that large numbers of benefit recipients end up cycling or churning between unemployment and temporary low-paid jobs without advancement. Without the opportunity to train, lone parents face just such a future of low paid, insecure employment, cycling between in-work poverty and out-of-work benefits with little prospect of their financial or social circumstances improving. In our last session, we heard how they might then face in-work conditionality if they do not manage to improve their position to get themselves above the threshold which applies to them.

This amendment would go a small way to addressing the issue by ensuring that responsible parents, in particular lone parents, are better placed to advance in the jobs market and thereby lift themselves and their families out of poverty. I beg to move.

My Lords, I support Amendment 51EA moved by the noble Baroness, Lady Lister. I was impressed when the Minister mentioned in an earlier debate that providers of support to claimants will be rewarded financially if their clients find a job and remain in it for two years. That claimants should achieve long-term employment is clearly the objective of the Minister and the Government. I have no doubt that it is a fine objective. Certainly it is supported by me and, I am sure, by other noble Lords around the table. However, this clause seems to run absolutely in the opposite direction. It encourages claimants with young children to rush into a low-paid and probably insecure job rather than taking the opportunity to train and prepare themselves for long-term work.

Will the Minister explain the rationale behind the lack of protection for carers responsible for very young children aged five or six while they complete a training course up to level 3? Does he see the apparent inconsistency between the aim of placing people in long-term employment, which we all support, and incentivising them to take low-paid work rather than educate and train themselves in order to better their future? I will be interested to hear what he says about that.

My second point is about the unreliability as an employee of a primary carer of children who are in the first two years of school. Having had four children, I have strong recollections of the childhood illnesses they pick up in the early years: for example, a cold, an infection or German measles. If you have four children, it is not one lot of German measles but four, one after the other. Employment? Forget it. This is a serious point. The strain of working when your young children are starting school and picking up all those bugs has to be experienced to be fully understood. In education and training, one can catch up when life settles down and the kids go back to school. I know because I did it. I did an economics degree when I had three children under seven.

We know that the Minister is under enormous pressure to deliver cuts through Parliament, but perhaps this issue is worth fighting for in terms of the Government's own admirable priorities of encouraging claimants to undertake training in order to improve their long-term employment prospects for the future.

My Lords, I will speak briefly in support of the thrust of the amendment. It raises issues about the right age at which full conditionality should apply, and perhaps takes us back to debates we had on another Bill. Perhaps today is not the occasion to revisit them. However, I am not sure that we have debated thus far in the Bill the basic conditions for accessing universal credit. This is predicated on the fact that somebody is within the system and subject to full conditionality. This is what the amendment seeks to ameliorate. One basic condition for accessing universal credit is that somebody should not be receiving education. I presume that that is meant to cover broadly the same arrangements as exist under JSA. Perhaps the Minister will clarify that.

My Lords, we recognise the value of further education and training. In England, the Department for Education is committed to fully funding education and training for all young people up to the age of 19. Everyone aged 19 and over is eligible for fully funded provision to achieve basic literacy and numeracy as a minimum to the equivalent of five GCSEs at grades A* to C. This is funded by the Department for Business, Innovation and Skills.

Higher education, as noble Lords will be well aware, is funded through a system of loans and grants intended to cover the cost not just of courses but of living expenses. Typically, the benefit system does not allow students in full-time education to claim benefits. That is in recognition that such individuals have access to other forms of financial support, either through the education system itself or because they are living at home with their parents. However, the existing system recognises that there are some circumstances where additional financial support is necessary. In particular, in income support, certain young people, for example, those who are estranged from their parents or lone parents with a child under seven, may be entitled to benefit while studying. Students who are themselves parents can also claim child tax credits.

Under universal credit, we are looking to maintain the status quo. I hope that that gives some reassurance to the noble Lord.

I am sorry to intervene so early, but unless I am badly out of date, there are two further circumstances in which you can continue to be on benefit while having education which have not been enumerated by the noble Lord. One of these is if you are a young person in FE and your FE contact hours are less than 16 hours a week and that is therefore thought not to impede your search for work, although your study time at home may be a multiple of that time. That is a key group, because most FE courses do not involve more than 16 hours a week of face-to-face contact, which therefore exempts quite a lot of the people my noble friend was talking about. The second exemption, as I recall, is that if you are more than halfway through a period of training—if it is an 18-week period of training and you have done at least nine sessions—you are allowed to continue even if you still receive JSA. Will the Minister confirm that those other two exemptions also apply to people on JSA or IS?

Yes, I am trying to drive to that point, if I am allowed to give the full picture. I was trying to do so formally so that it was on the record. I am trying to give a general level of reassurance. I am very sympathetic to the points that the noble Baronesses, Lady Lister and Lady Meacher, are making. I am not a “work first” devotee; I think that human capital is of value. In the work programme and the design of universal credit, we are trying to pull those two things, which have been very far apart in the system, back together. I understand the points being made and I am trying to describe how, in what is a difficult balancing act, we are trying to optimise the position.

Let me continue. As I was, I hope, reassuring noble Lords, we are aiming to maintain the status quo, and that includes carefully considering transitional protection for students currently entitled to claim income support as the age of the youngest child is brought down to five. Exceptions to the general rule will be set out in regulations in due course. Where a claimant is in full-time education and entitled to universal credit, they will fall into the group subject to no work-related requirements and, of course, not be required to search for or be available for work.

Beyond that group, we have made it clear that, in the absence of any other barriers, claimants with youngest children aged over five are expected to search for and be available for work. They can access any of the free training to which they may be eligible, but will need to fit that around compliance with the work-related requirements, so, typically, any training will be done part-time or through evening classes. I emphasise that they may be eligible for support with their childcare costs, because work and training are not mutually exclusive activities.

On the human capital point made by the noble Baroness, Lady Meacher, we are committed to improving skills at all levels. The new next steps service, the careers advice service and Jobcentre Plus are there to help people both in and out of work with their choices of jobs, careers and training. Funding for workplace training in England will be prioritised on small to medium-sized enterprises, to help employers with small workforces train lower-skilled staff.

Where training is required to address a skills gap that prevents an individual from entering work, work-related requirements will be adjusted or lifted as appropriate. This matches the current system in JSA, where claimants can be referred to qualifying full-time training to help them move into work, and are treated as having met work search and availability requirements. I hope that this makes our position clear, and on that basis I urge the noble Baroness to withdraw her amendment.

May I interrupt the Minister for a second? He says that this will enable these people to get into work. Let us suppose that someone could take a job at a check-out in a Tesco store but was actually interested in trying to do better than that. Would that be acceptable or would they be expected to take the check-out job at Tesco? That is one of the issues.

I will focus on another point. Would the Minister mind answering the two points together? I am interested in trying to understand this. I have worked in the past with girls who got pregnant while they were in education, dropped out of school and were then eventually encouraged to get back to the stage where they could again get an education. The Minister has made clear his position on those who did not have basic literacy and those who might want to go to university or higher education. As I understood it from the amendment of my noble friend Lady Lister, we are talking about level 3: that is, A-levels or an international baccalaureate. I am not completely sure whether a young woman in that situation, who wanted to go back and get herself up to A-levels, would be allowed to do that or have to fit that around looking after children and a job as well.

Further to that intervention, will the Minister also comment on the thought that occurs to me? It is that the test should be the value added from the education sought, at whatever level that happens to be.

There is a lot of change going on in this area, as noble Lords will know. We are committed to picking up the recommendations of Professor Wolf, who wrote a stunningly important report—one of the best reports in this area that I have ever read. There are some principles in there about funding following the individual which have not been fully worked out. I am not discussing a static situation here. On the question of the check-out counter and fitting it around A-levels, as things currently stand the position is that the person would have to take the check-out job and fit the A-level around that. However—I hope that noble Lords can read between the lines—this situation has movement in it in the years to come, given what the Department for Education is determining to do around the Wolf report. I do not think that this is the last word on the matter but it is the last word as far as this Bill is concerned at this particular time.

Would the Minister take this away and think about how to word the legislation here and at DWP in order to allow for flexibility in, one hopes, not too many years’ time in response to the education ministry?

I will take that on board. This is a very important point. It is not one that I would cavalierly dismiss at all. How we raise human capital among people who have perhaps not had as good a start in life as we would want them to have is a central point. I will think about it and try to make sure that the way we design the structure will allow the flexibility to incorporate future developments. I am grateful for this particular amendment.

My Lords, I would like to add a further comment to the noble Lord’s open-mindedness on this, which is appreciated very much. A lot of research shows that work is the best form of training in the first 12 months or so at an entry point. If you roll forward, six or seven years down the line, those who have invested earlier in education at the expense of early access to work find they are able to float themselves off the bottom and get off universal credit. The key question is not whether the best education or training either follows or precedes work but over what time scale this is judged. All the research shows that, if you are patient enough and give it about six years, it is the amount of education you have had, rather than work-based training, that allows you to lift yourself off the benefit track.

My Lords, we are getting into philosophy here. I accept the point and have always been uncomfortable with the “work first” philosophy. It worked in the short term, as the noble Baroness has said, but the evidence is that, in relative terms, we have a poor workforce because we have too many people with no skills and too few with intermediate skills by comparison with our main competitors. We have to think about the balance between “work first”—which does get people a job—and the risk that training is sometimes used as an excuse to do nothing. There is a difficult balance here. We have not got it right. We had a welfare-to-work system that got it completely wrong. We are trying to pull it together. I do not think that this is going to be a rapid process but everyone in this room knows that it is very important to get this right. It will take some years to get it right but we are beginning to travel in the right direction.

My Lords, I thank all the noble Lords who have spoken in support of this amendment and who have helped to push the Minister slightly further than he had intended to go when originally reading from his brief. I am pleased to know the Minister is not a “work first” devotee. I was going to say, “You could have fooled me”, but his response to the noble Baroness, Lady Meacher, has confirmed that is the case and I welcome the spirit in which the Minister has responded. Even I am beginning to pick up the ministerial nuances to understand that was a helpful response.

My noble friend Lady Hollis helpfully reminded the Committee of some of the exemptions that exist and it is helpful to have on record that those exemptions will continue. The noble Lord said that it is always possible to do training in the evening. If you are a lone mother, trying to bring up children, trying to do your job and support them in their education, and to keep them off the streets, is it realistic to think that you are also going to do training as well? It is asking too much of lone mothers when we already ask too much of them. We expect them to be responsible, in paid work, in education, keeping their kids off the street and so forth. I hope the noble Lord will come back at Report with some response to what the noble Baroness, Lady Meacher, suggested in terms of opening up the potential for the future in the flexibility of this clause.

The noble Baroness also raised a question about the context of government expenditure cuts. It is not clear that this is going to cost very much to extend beyond the exemptions that already exist for this group. It would be helpful to know what the cost would be of doing it now rather than at some future date. Perhaps the noble Lord could let the Committee know. I suspect it would not be very much at all. In the spirit of the human capital approach, I am not sure what the stumbling block is to doing it sooner rather than later. I beg leave to withdraw the amendment.

Amendment 51EA withdrawn.

Amendments 51EB and 51EC not moved.

Clause 22 agreed.

Clause 23 agreed.

Clause 24 : Imposition of requirements

Amendments 51F and 51FZZA not moved.

Clause 24 agreed.

Clause 25 agreed.

Clause 26 : Higher-level sanctions

Amendment 51FZA not moved.

Amendment 51FZB

Moved by

51FZB: Clause 26, page 12, line 12, at end insert—

“( ) With respect to claimants who have disabilities, the Secretary of State shall not impose any sanctions without first consulting a disability employment adviser.”

My Lords, I beg to move Amendment 51FZB and speak to the other amendments in this group standing in my name and that of my noble friend Lady Hayter. I make it clear from the start that we accept the need for a sanctions regime to reinforce conditionality, but the issue, as ever, is the detail. These amendments cover four issues: the sanctions where a claimant is disabled; the amount of the sanction; the maximum length of a higher-level sanction; and targets. I wish to set this in context and seek to understand what is happening with regard to sanctions.

The Minister will be aware of earlier press reports which suggested that there had been a culture change in Jobcentre Plus, with a particular focus on tougher action on sanctions. Despite earlier denials by the Secretary of State, it was acknowledged by the DWP that instructions had been misinterpreted—a marvellous euphemism—and that there were no targets for staff to refer claimants for sanctions. A parliamentary Answer in May of this year elicited that from July to September 2010 there was a 42 per cent increase in the number of people sanctioned when compared with January to March 2010. Clearly, this is way in excess of any increase in the client caseload. Can the Minister please provide us with any more current data on what has happened since? If he cannot do that today, perhaps he will undertake to write to us. Will he give us an absolute assurance that targets for sanctions are not in operation, and that they will never feature in the world of the universal credit?

Moreover, what the earlier press report suggested, and, indeed, the DWP acknowledged, seemed to confirm that there may well be the prospect of creating a culture in which the emphasis on sanctions could prevail. So I ask, what is being done to ensure that this is not the case? Has the internal management reporting on sanctions changed in any way over this period? Although we should be cautious about interpreting press articles, a suggestion that vulnerable claimants could be tricked into falling foul of conditionality requirements, rather than supported in their work-related requirements, is at least cause for thought. I am aware that lots of training is undertaken in Jobcentre Plus but I am sure that the Minister will see the need to address these concerns. Perhaps he can summarise for us—I am sure that we have the data somewhere in the volumes of information that we have—the obligation on claimants to comply with conditionality requirements on an ongoing basis during the course of a sanction, whether it be higher, medium or lower level, and when such compliance mitigates the sanction. Is it only the lower level sanctions which can be terminated by re-engagement?

On the specifics of the amendment, the note circulated yesterday helpfully set out the answer to the question about the limit on sanctionable amounts. I thank the noble Lord for that. For claimants in receipt of the maximum amount, it will be fixed at the standard allowance amount. However, as set out in the note, for someone in receipt of income, that income has to be applied to support the housing and other elements before the standard allowance. The three-year sanction seems to be too long. It could mean that an individual is left only with their housing amount, and with housing benefit restrictions that might not meet even the rent level. That is not sustainable over a three-year period. The individual might have brought it on themselves, but how are they possibly to live? “Get a job” is not the answer if there are no jobs. With a one-year provision, as suggested in our amendment, we would be doubling the current JSA maximum in any event.

I acknowledge that our amendment requiring reference to a disability employment adviser before a disabled person is sanctioned might be more suited to Clause 27 than Clause 26 because the high-level sanctions are to apply only to those subjected to all work-related requirements. However, the points remain valid. If individuals are to have a big slice of their benefit removed for a period, it is important that they understand why; know what they have to do to comply with requirements; and be confident that the decision-makers understand the challenges they face continually or from time to time.

Finally, can the Minister confirm that the ability to sanction will not be contracted out to providers or to anyone else?

I want to speak briefly to the amendments in the order in which the noble Lord, Lord McKenzie, raised them. First, I enter a note of reservation about Amendment 51FZB. I do so not out of a lack of concern for disable people but out of a concern not to red-line, identify them, or subject them to special treatment unless that is appropriate. We all understand that many jobseekers who are put on to the work search programmes may find life more difficult because they are disabled—that is not in question. The issue is whether the sanction, or the potential for one, in the event of misconduct—I refer to the high-level sanctions in Clause 26 rather than those in Clause 27—should ever be neglected. If a disabled participant on this programme were to reply to the department, “You can think again Charlie if you think I’m going to take that … job”, I am not sure that they should be treated differently from anyone in that position who happened not to have a disability.

On the other hand, if the disability were germane or material to explanations offered as to his inability to comply with the requirements in the section, it would be entirely unreasonable of the Minister or his decision-maker not to have regard to that. It might well be sensible to take the advice of a disability employment adviser, but I do not believe that we should create an artificial distinction about disabled people if the nature of their conduct is not related, or could be said not to be related, to their disability.

As regards Amendments 51ZC and 51FZD, I will rest on the Minister’s explanation for the periods he has chosen. As regards Amendment 51FB, I shall share with the Committee my view, expressed not for the first time, that I am not a particular fan of sanctions regimes. However, I am grateful to the noble Lord, Lord McKenzie, for admitting that there is a case for them and that they are necessary to support a conditionality regime, particularly where people are disinclined to undertake work, work experience or work preparation. We should not put too much by it and it will be interesting to hear the Minister’s response on how much this should be conditioned or targeted. At the back of my mind is the awful memory of the press reports in the first days of the Child Support Agency, alleging that the staff cheered when some delinquent absent parent had been identified. I am not sure that that is the right way to approach this issue; I believe that sanctions are better conducted more in sorrow than in anger, if I may put it that way.

I have one further question for the Minister. Before I ask it, though, perhaps I should say that, with respect to the noble Lord, Lord McKenzie, there might be a slight technical defect in the way that he has presented his Amendment 51FB; it bears on Clause 27 but it should bear also on Clause 26, unless there is some distinction in principle, and I shall comment on that. It would be helpful, for the benefit of those of us who have not been quite as assiduous as we should have been in attending the Committee, if the Minister could explain the difference between the two sanctions regimes in Clauses 26 and 27.

One further point is prompted by the fact that I know that, as I speak, our right honourable friend the Home Secretary is making a Statement and answering questions in another place on gangs and youth violence. We have recently had some press reports that there are to be further sanctions by way of withdrawing benefit from people who are behaving delinquently, whether by rioting or otherwise. I do not want to raise the question on that matter; I just seek this in clarification. I take it from my reading of these sanctions that these are specifically about the work programme and the conditionality thereon, and any such sanctions that the Government may decide upon would have to be delivered through another vehicle and either by additions to the Bill at some stage or by a separate piece of legislation. I would be grateful if the Minister could confirm that.

Essentially I am seeking clarification on some of the issues, expressing concern—as we feel our way through this Committee, which is our duty—about exactly how they would operate and a wish that we should at least not be unaware of any bigger and more major initiatives that may be coming down the track, although perhaps not on this particular set of clauses.

Is there a disability employment adviser in every Jobcentre Plus office? What training do disability employment advisers have? If the Minister does not know the answer now, which I am sure he does not—it is rather a detailed question—could he possibly write to me? A lot of us are concerned that disability employment advisers may not be quite as boned up as we think they should be on all sorts of conditions. I say that having been at a Jobcentre Plus office where I had to tell a disability employment adviser that the person in front of him had rheumatoid arthritis, when they were not an English speaker and they were describing their symptoms, and he had never heard of the condition. That rather shocked me, so I would be grateful for that information.

My Lords, I enter the debate with a little trepidation. Like other Members of this Committee, I am sure, a number of letters have been sent to me and various cases put. I have had a particularly heart-rending one, running to several pages as so often these letters do, from someone who has fairly severe mental disabilities, according to the letter, and who has responsibilities at the same time, it seems, for a disabled mother. My understanding of the principle of conditionality at the moment in relation to unemployment benefit is that she could be penalised under this process. I would like some assurance that where severe disability is in place, as it were, we will be sure to safeguard the well-being of such people and that they should not be penalised in these circumstances.

My Lords, currently when a single JSA claimant is sanctioned we stop payment of the entire benefit, which is usually around £67 a week. Under the universal credit, sanctions will reduce the award rather than stop payment. The amount of the reduction will be set with reference to the standard allowance.

If the Minister will permit me, is that not simply because the housing component is added in as part of the universal credit? The sanction would not apply to housing benefit currently, it is the core standard amount which is equivalent to the JSA amount.

Yes, the noble Lord has got it precisely right and I am grateful to him for summarising it for me. Where a claimant is in receipt of the maximum amount of universal credit, that universal credit will not be reduced below any amount included in their maximum amount for housing, children, disability and so forth. However, where a claimant is earning money and has other earnings over the disregard levels, the sanctionable amount will be a fixed amount not dependent on the level of the award. In circumstances where a claimant’s award is less than their maximum amount because of earnings, a sanction could reduce universal credit to less than the additional amounts for children and housing included in it. That, I hope, is obvious from the numerical examples I shared with noble Lords yesterday. Claimants’ other income will offset such reductions.

Fundamentally, the sanctions regime is designed to do what it does currently, albeit within the universal credit structure. We want to create a clearer and stronger system which provides clarity about the consequences of non-compliance and a more effective deterrent against repeated non-compliance. I can confirm to the noble Lord, Lord McKenzie, that the sanction regime and a sanction decision will not be contracted out. Clause 29, headed, “Delegation and contracting out”, does not include sanctions.

Clause 26 provides for higher-level sanctions of up to three years for claimants subject to all work-related requirements who fail to meet their most important requirements such as accepting a job offer. Failures sanctionable under Clause 26 clearly damage a claimant’s employment prospects and it is right that we have strong sanctions in place to deter such behaviour. Amendment 51FZD seeks to limit the duration of higher-level sanctions to one year. I can assure the Committee that we expect that three-year sanctions will apply only to a very small proportion of claimants who have repeatedly breached their most important requirements and where earlier sanctions have not worked to change behaviour.

If there is repeat offending and therefore a series of sanctions is imposed, can that extend beyond the three-year period as one shades into another or is there a maximum term of three years?

In the way it is structured, there is a maximum if you are on a particular level. It absorbs the other sanctions, if you like. As to why we have an escalating sanctions regime, the reason is very simple. The current sanctions regime is difficult for claimants to understand. It is important that there is a real escalation so that behaviour is changed. That is why we have created this structure, and why it is different. Also, as people see very evidently what the repercussions of not complying are, as they start to see the costs quite plainly, we do see a change in behaviour. That is why we expect only a small number of people actually to hit the higher level of sanctions.

I hope that the Minister will forgive me for interrupting. He has painted a very clear picture whereby only a handful of people are likely to be affected by this measure as they will learn the relevant lessons. However, will he make clear a route, as it were, to those administering the regulations or whatever, so that they do not push to impose higher sanctions too quickly and for a longer number of years?

May I add to that? I was going to wait until the Minister finished, but I wish to add two points which are germane to this discussion. First, the noble Lord is assuming—I absolutely understand why he would—that people respond rationally to sanctions. However, the group with whom he may well be dealing are those whose lives are feckless, chaotic and without much shape. In my experience, those people are semi-literate and probably do not understand what is going on when the sanction is imposed. It is just one of those things that happen to them in a passive way, which means that a high obligation is placed on staff, with the aid of easy-to-read literature and all the rest of it, to make very clear what is going on and what the nature of those sanctions are. My experience of people who have been sanctioned is that they do not know why they have been sanctioned.

Secondly—I was waiting to hear the noble Lord refer to this but he has not done so, so perhaps he will go on to do so, in which case I apologise for anticipating him—we have always had a hardship category in relation to sanctions. For example, if you have dependent children the level of sanctions is limited so that, because of your hardship, you are not sanctioned all the way. Disabled people and those with a mental health problem would in my view come into the category of vulnerable people entitled to a hardship adjustment so that their benefit is not completely wiped out. Again, this requires high levels of training and support from the very people who the noble Baroness, Lady Thomas, identified; namely, the disability employment advisers in Jobcentre Plus offices. Perhaps the noble Lord can reassure us on those two points. First, can he assume that people with such chaotic lives will understand the rationality of a sanctions system? Secondly, will the hardship regime apply to some of the people who were identified by previous contributors to this debate?

My Lords, let me deal with the questions asked by the noble Baroness, Lady Hollis, straight away. Claimants who fail to meet their responsibilities will have an opportunity to explain why they have done so and show good reason before a decision to sanction is made. After a decision to reduce the claimant’s award amount is made and processed we expect that, as now, a letter will automatically be sent to claimants setting out their appeal rights and details of how to request information on why they have been sanctioned. We will also communicate the amount and duration of the award reduction and, in the case of lower-level failures, what the claimant can do to re-engage and bring the open-ended part of the sanction to an end. We will not sanction claimants with limited capability for work, or those who have learning difficulties or mental health conditions, without first making every effort to contact them, their carer or healthcare professional to ensure that they have fully understood the requirement placed on them and had no good reason for failing to meet it.

On hardship, we are addressing the hardship arrangements in a later group but we are looking to maintain a hardship regime which will act in a similar way, although we will probably make some adjustments to it. However, we can discuss that a little later. I should clarify the point about the overlapping of different sanctions. Where a claimant subject to one sanction receives another, both sanctions run concurrently with one reduction suppressed. This means that for the period in which two sanctions overlap, the second sanction has no impact, as I said earlier. Under universal credit, where a claimant subject to one sanction receives another, the period of the second sanction would be added to the total outstanding reduction period. A claimant’s award amounts would be reduced for the entire duration of both sanctions. This ensures that claimants will always face the full consequences of failing to meet their responsibilities. There will be a change from the current system to the universal credit system. I apologise if I slightly misled the Committee on that.

Amendment 51FZZA seeks to prevent the imposition of higher-level sanctions on disabled claimants until such time as a disability employment adviser has been consulted. First, I assure noble Lords that we recognise that high-level sanctions of up to three years are not appropriate for all failures. Disabled claimants with limited capability for work will not be subject to requirements that are sanctionable at the higher level. Clause 27 provides for appropriate sanctions for failures that should not be subject to high-level sanctions, such as failures to attend a work-focus interview or a training course.

Disability employment advisers play an important role. I will pick up on the point made by my noble friend Lady Thomas. I hope that my answer will get to the nub of her acute question. The role of disability employment advisers is to assist claimants with a disability or health condition who need extra support to gain or retain employment. It is decision-makers who will look at all the available evidence and consider whether a sanction should be imposed. It is right that we should retain the clarity of roles in the system. I will not talk about the training of disability employment advisers because it is not strictly relevant in this context. If the noble Baroness would like a letter describing it, I will write to her, but it is not the point here. What matters is the training of the decision-makers. They will receive in-depth training. This will include how to assess evidence and determine whether a claimant has demonstrated good reason. Where necessary, decision-makers may seek additional advice from specialists, including medical professionals, with the consent of claimants.

As I read my noble friend, he is saying that if a decision-maker were considering the case of a person subject to a sanction, the representations made by that person about the problems they had in complying with their programme would automatically be taken into account, even if they were rejected on their merits by the decision-maker.

I thank my noble friend for looking for clarity. There is a layer of protections here. We have a highly trained decision-maker with a specific job of making the decision. Also, the claimant can look for reconsideration within that office. Beyond that, they can look to reduce a sanction by going to an independent tribunal. There are layers of protection. The objective is that claimants who demonstrate good reason will not be sanctioned.

We will also maintain other protections. One is that we will continue to visit the homes of claimants with limited capability for work and a mental health condition or learning disability, to help us understand why they did not meet their requirement.

My Lords, I remain worried by the point that was raised about a basic understanding of what I call the coalface: in other words, when you are in a face-to-face situation. It is important to have some training and understanding, not least in the example that the Minister gave of a well known and common complaint. It worries me that this will be dealt with by experts at various levels of appeal rather than being sorted out much earlier in the process.

My Lords, it is important that the coalface does not do the sanctioning. It is important that there are really well trained people doing this. This is a complicated area that needs to be got right. These are some of the most highly skilled people in Jobcentre Plus aiming to do that with all these supports.

In response to the concerns raised by the noble Lord, Lord McKenzie, on Amendment 51FB, I want to make it absolutely clear that there are no benchmarks and no targets for sanctions referrals. Jobcentre Plus gathers a range of management information to support its work, as you would expect us to do. On the issue of numbers, over the last year, the number of sanctions and disentitlements rose by around 270,000 from approximately 490,000 in 2009-10 to around 760,000 in 2010-11. There are a complex range of reasons for this increase, including the introduction of new requirements, a slight increase in the average claim duration and a refreshed approach to monitoring compliance with requirements designed to maximise claimants’ chances of finding work. A particular reason is due to the 2010 rule change that led to a sanction rather than disentitlement for failing to attend an employment interview. The number of sanction referrals to decision-makers is a key piece of management information. It helps local mangers assess how consistently JSA conditionality and sanctions are being administered in their area. Managers may compare rates of referrals across different areas when analysing the data, but there is no benchmark and certainly no right or wrong level of referrals. The collection of management information also allows the department to monitor and evaluate the impact of sanctions. I urge the noble Lord, Lord McKenzie, to withdraw the amendments.

My Lords, my attention may have strayed, but did the Minister answer the question of the noble Lord, Lord Boswell, about the reports over the weekend that fines deducted from benefits are going up to £25, which seems to be a draconian response in the context of the riots in which we read about it? Is this something that can be done by regulation, or will it be an amendment to this piece of legislation? It is an issue about which some of us are very concerned.

My Lords, the press reports were about the level of deductions to pay fines and whether the current limit was right for people who had committed a crime and been fined. Although this is breaking news, this is not an area I am confident we will consider in this particular Bill because it is about fines. It is not a matter today that we will need to consider.

My Lords, I want to ask the Minister two questions. The first is related to the questions asked by my noble friend Lady Lister and the noble Lord, Lord Boswell. I remind the Committee that I am a member of the Communities and Victims Panel looking at the impact of the riots, although my question is not specifically about the riots.

On the question of fines, what account can be taken of any fines the claimant may be committed to paying when making a decision to sanction the benefit. For example, it may be the intention to only sanction or remove the standard element but if the household is already committed to paying fines, inevitably that is going to be taken out of elements that are intended for children or housing, so the effect will be to eat into those. Could the Minister explain how that will be taken into account?

The second question returns to what I think I heard him saying in response to my noble friend Lord McKenzie in relation to the final amendment in this group. I believe that he said there would be no targets or benchmarks for sanctions. Could he reassure the Committee a little further? Are there any targets, performance indicators, measures or benchmarks that would have the effect of incentivising an increase in the number of sanctions? I would be happy to repeat that if it would be helpful.

I am not sure I can, frankly, but maybe Hansard can. I talk too quickly even for myself sometimes.

The Minister was kind enough to say in response to my noble friend that there were no targets that were designed to incentivise an increase in the number of sanctions. Are there any targets, performance indicators, measures or benchmarks—he will know the language better—that would have the effect of creating an incentive to increase the number of sanctions? The Minister probably knows what I am getting at; one does not have to be directly incentivised to sanction people. If, for example, there were pressure on the department to reduce either the number of people claiming certain benefits or the cost of the programme element of the budget and therefore the cost of those benefits, one way to achieve that might be sanctions. I am not suggesting that they would do so but inevitably, once there are measures, someone responds. There might be other ways of doing that. Could he answer that for us?

I shall deal with the second point from the noble Baroness, Lady Sherlock, first. The point that noble Lords are concerned about is whether we are going to have any more private traffic-warden incentive systems—that is the issue. That is why noble Lords are concerned that we do not incentivise people to “clamp” claimants. I make an absolute assurance that we understand how unacceptable that is or would be, and we are determined that there will be no incentivisation in Jobcentre Plus to sanction. We have trained our advisers—the decision-makers, rather—to make these decisions in as neutral and considered a way as possible, in the interests of changing the behaviour of the individuals to make them do something that in the end will be of benefit to them. Getting them into a job is vital, and we are keeping the regime of conditionality. I make that assurance to noble Lords.

On the noble Baroness’s second question—or rather the first one, if I learn to count—we are able to vary the rate of recovery depending on personal circumstances so we would be able to take that into account and, conversely, courts would be able to take that into account.

My Lords, I thank the Minister for his detailed response. I am comforted—indeed, I recognise some of the script—about the protections that are in the system to support disabled people, people with mental health problems and particularly those with fluctuating conditions; that has been a long-running theme in our debates over a number of years. I accept that the disability employment advisers are not necessarily the right people to do this, for so long as there is capacity in the system, it is part of the process.

I also accept what the Minister says about no targets or any other incentives to encourage sanctions, but we are entitled to a better explanation of what I understood the figures to be: last year the number of people sanctioned was 490,000, while now it is 760,000. Something is happening out there, is it not? The schedule that I have, which was a Parliamentary Answer that looked at the 40 per cent increase over that period—March 2010 to September 2010—is headed “Sanctions and Disallowance Decisions”, so the switch between sanctions and disallowance that the Minister prayed in aid does not seem to have affected that outcome. It is, in anyone’s language, quite a dramatic increase. We should remain very worried about that. I accept the point that my amendment in relation to people with disabilities was focused on Clause 26 but it is within Clause 27 that their work-related activity falls.

Could the Minister also take us through the various sanctions and say in respect of each what happens to conditionality while the sanction is being applied? Is there an ongoing obligation to comply? What is the sanction if you do not? In what circumstances can those sanctions be switched off—and which of them can be—by re-engagement and rejoining conditionality by individuals? Particularly for the longer sanctions, if there were no obligation to engage in conditionality over that period, what ramifications would that have for, for example, on the job programme? Could the Minister let us have his views on that?

I was going to raise the issue of the £25 additional possible deduction in relation to the next amendment on hardship payments and may revisit that. The Minister made reference to people’s rights of reconsideration and appeal. How would he judge the impact of the impending changes to legal aid cuts, where there will no support to go to an independent tribunal because legal aid for help in welfare benefits is being removed entirely? What compensating arrangements are proposed to address that quite vital withdrawal?

First, one of the drivers of the increase in sanctions was the introduction and phased roll-out first of the jobseeker’s regime and then of flexible New Deal. In one way, we are looking at the history of some of the changes made by the last Government. Secondly, conditionality still applies through the sanctions regime.

Next, the noble Lord asked for a breakdown of the different sanctions regimes. That is rather complicated. I can send him a table of that, rather than going through it in great detail. The summary is that the lower-level sanctions switch off on compliance. Those are one-week to three-week sanctions—rather short by comparison with the higher-level sanctions. Those are essentially grouped around the more vulnerable people. They take those and when they start to comply the sanction comes off and there is a short period. I should remind your Lordships that the table I suggested is sitting there in front of the noble Lord. It is beautiful that he is so far ahead of me. I will not go through that in entire detail. I remember that it took a long time to assemble that table. I spent a lot of time on it.

On legal aid, the point is that one does not need legal issues to be debated here with all the paraphernalia of a legal case. These are practical, fact-finding tribunals where, in our view, one does not need that paraphernalia. It is not particularly helpful.

Will the noble Lord accept that people in those circumstances may need advocacy, which is being withdrawn?

My Lords, they may need advocacy but they can find supporters and bring them along. However, it is not a legal process; it is a fact-finding process.

Did the noble Lord say that for somebody who was sanctioned, for example by the removal of benefit for three years, conditionality will still apply while the sanction operates? How will it apply if there are no benefits left to sanction?

This is an extraordinarily small group. In extremes, we would look to run to more sanctions on top. I described how sanctions would work concurrently. We are looking at a sanctions regime that will replace the current regime, which states that people are not entitled to JSA because they are not complying at all with their conditions. In some ways it is a rather lighter regime than the current one.

Perhaps I could suggest to the Minister that the most successful use of sanctions is when there is a very close connection between behaviour, the sanction and the ability to lift the sanction by changing behaviour. I urge him to think again about running sanctions for very long periods and still expecting conditionality to apply. Frankly, that is in the clouds. If you are going to change behaviour, you need sanctions that will get switched off if there is compliance for a certain period of time. That is the way to get changes in behaviour to stick, which is what we all want. If it seems that nothing you can do can make any difference for at least two years, nothing will happen.

My Lords, we are talking about a sanction that, to put it bluntly, is there as a deterrent. We are not anticipating that more than a handful of people will move into that position. One can get overinvolved in what it means. The point of having a regime that builds up is to act as a very powerful deterrent.

Will the noble Lord not accept the principle that if you want to change behaviour, you want that behaviour to have some positive effect—namely, to switch off the sanction?

Clearly, I am interested in behaviour change. However, I would hope that before we get into these regions we will have had the behaviour change. There will have to have been a very bad failure in circumstances where we impose a three-year sanction.

Perhaps I may try to understand this. I apologise if I have not grasped it until now. Let us assume that someone has refused to co-operate and perhaps has a drug problem that has not been identified until this point. Something happens, possibly even as a result of the shock of the sanction, and they get themselves into a position where they are enabled finally to begin the process of engaging and searching. At that point, will the adviser simply stop the sanction and put them back into compliance? Even at its simplest, if somebody has no income they cannot look for a job, unless it is next door.

My Lords, we are moving now into the area of ill health. That is where decision-makers come in and look very hard at what is happening. This is aimed at the person who has not got a mental health problem or a chronic illness. We are looking at someone who simply refuses to become part of the regime.

This is the last time that I shall intervene; I shall stop. I want to come back to a point raised initially by the right reverend Prelate: one of the problems, as I know the Minister understands, is that in areas of mental health a lot of problems are not diagnosed and are not necessarily known to be such problems. They can present as behavioural problems but in fact these have underlying causes that may, complete rationally, be wholly unknown to decision-makers and the person themselves may not be willing to disclose them. I am not expecting decision-makers to be able to know that in advance; I am more interested in how the system can deal with that if at some point this information surfaces. It may be that I have simply misunderstood the explanation that the Minister has given. I would be grateful if he could clarify it for me.

Is my noble friend’s point not that it is at the point where someone has said they will engage with the regime that you are more likely to achieve that outcome if you then withdraw the sanction? You have achieved your end but there is still a sanction. I do not think that the Minister has addressed that point.

I am sorry for the Minister being put under, I think, unreasonable sanctions or pressure himself, but I suggest that it might be unwise to get into a situation either where we were softies and were not prepared to take these things seriously or where, in circumstances where someone had been sanctioned, if they were to get into the frame of mind of saying, “There is nothing to be lost; I shall carry on because it’s going to happen to me anyway”. There ought to be at least an opportunity for at least a negotiation on a restart of compliance.

I think that I can give good news and bad news. There are two issues here. The first is the person who had a disguised problem which then emerges. We have a solution to that: if it emerges that there was good reason, the decision-maker can reverse the position. The bad news is that we do not have a position where, once someone recants, they are forgiven instantly.

I thank my noble friends for raising additional issues, following on from our earlier debate. My noble friend Lady Hollis seems to have posed a fundamental question which, with respect, the Minister has not fully dealt with. The question was posed to be helpful to the Government, not to try to undermine what they are seeking to achieve.

To the noble Lord, Lord Boswell, I say that no one is talking about being a “softie” in all this. We are upfront; we recognise that sanctions have a role to play in reinforcing conditionality.

The issue about a small group of people who might be sanctioned for three years, with the withdrawal of their benefit unaffected whatever they do in terms of recanting, puts them in a desperate situation. It means that they will be further away from the workplace. I do not know whether they can volunteer or would be involved in the work programme—these are issues that we can pick up in due course—but I urge the Minister to reconsider around this issue because there is something that could benefit the Government in what they are trying to achieve.

Having said that to the Minister and suggested that he might frame his diagram and put it alongside the Pensions Bill that he got last night, I beg leave to withdraw the amendment.

Amendment 51FZB withdrawn.

Amendments 51FZC to 51FA not moved.

Clause 26 agreed.

Clause 27 : Other sanctions

Amendment 51FB not moved.

Clause 27 agreed.

Clause 28 : Hardship payments

Amendment 51FC

Moved by

51FC: Clause 28, page 14, line 20, leave out paragraph (f)

My Lords, this is a probing amendment in respect of hardship payments generally and issues around recoverability in particular. The draft regulations that have been provided to us indicate that hardship payments will be made where a universal credit payment has been sanctioned but where the award has been reduced below a certain level and the claimant can demonstrate that they are or will be in hardship as a consequence of the sanction. It is understood that the regulations will broadly replicate existing JSA regulations. Claimants will be required to continue to meet work-related requirements.

Under existing JSA arrangements, a person can qualify for hardship payments at the beginning of a period of a claim if a decision about eligibility is awaited. Will similar arrangements operate for universal credit? What happens where there is a couple claim but the couple splits up? Does the unrecovered amount attach to the claimant who was sanctioned? Further, when will recovery actually start?

I should have said that there is a key difference between the arrangements proposed for universal credit and the existing JSA regime in the plan to recover hardship payments from some claimants. The notes suggest that this will include everyone who is not in the “vulnerable” category. Is this still the intention? The Minister will be aware of the deep concern that this prospect has raised. It is planned that recovery will be based on existing legislation relating to the recovery of overpayments and payments on account. Will the Minister explain what these are? Using the model for recovery for those who have been overpaid for those who have been in receipt of just 60 per cent of the amount of the sanction reduction does not seem innately to fit well. Over what period or at what rate will the hardship payments be recovered? What if the recoveries themselves push claimants into hardship?

I shall repeat a question I put a moment ago. What happens where there is a couple-claim and the couple split up? Does the unrecovered amount attach to the claimant who was sanctioned? When will recoveries actually start—while the claimant is still in receipt of the hardship payment or after benefit is restored?

The Minister will recognise that to qualify for hardship payments, claimants have to be just that: in hardship, a few steps away from destitution. The Minister may well say that that would be of their own making, but we should not overlook the chaotic lives some people live, compounded for some by mental health and other fluctuating conditions. Too many claimants exist at the very margins of financial solvency, and recovering hardship payments could tip them over the edge.

I want to pick up on a point made by my noble friend Lady Sherlock a moment ago about the announcement of the increase in the amounts which can be recovered for fines to £25. What will be the relative claim in respect of these payments? Will the hardship payment recovery take precedence over these other amounts, and how will that be sorted out? Will the recovery of hardship payments reflect other deductions which are already being taken from benefits? I beg to move.

My Lords, I am trying hard to say nothing from this end of the table because it is important to make progress. However, I too am very worried about the press reports that have coming since the summer. I said at the beginning of our first session in Committee that some of the language that was being used in relation to these issues and to benefit deductions was extremely worrying. It is getting more acute and more refined. I do not think the Minister can hide behind the defence that he tried to use, although it is absolutely accurate. Changes of this kind would come under the powers given to the courts because these things will be decided in court. But the latest BBC newswire I have seen on this issue described the Prime Minister, David Cameron, talking about benefit reductions for fines up to a maximum of £25 under universal credit. That came from a BBC report. If the Prime Minister has it in his heart and head that universal credit is going to be subject to what I calculate to be a 37 per cent reduction in the standard allowance, I do not think it is fair for this Committee, or indeed the House, to go through all these legislative proceedings, pass this Bill and give it Royal Assent, without some consideration of exactly what that means.

Now I have two complaints. First, as I said in the first day in Committee, a particular language is being used. The Prime Minister talked about the current maximum deduction of £5 as “much too soft”. Indeed, the Secretary of State is not absolved from some of these phrases which really target people on benefits. Of course, we are talking about people in the courts and who have committed crimes. We may even be talking about people who took part in riots—I am not sure about that. That has to be borne in mind and taken into consideration, but to remove up to 25 per cent of £67.50—the level that I understand is being set for the introduction of universal credit in 2013—is a massive reduction for anyone to contemplate. It will simply push people to the margins.

Secondly, what kind of benefits are we talking about? Are claimants to include state retirement pensioners who may find themselves in the courts? Are they contributory benefit claimants who may well have been paying in for all their lives to get that access? Under this new regime, are they likely to be subjected to a £25 benefit deduction? It is not sensible for the Committee or House to contemplate going into universal credit against the background of this being possible without serious consideration of what it is, in detail, that is in the mind of the Prime Minister or Secretary of State. I completely absolve the Minister of any of this stuff, but he must understand that it causes serious concern to people. I guess that this could be introduced by a change in regulations, late at night on a wet Thursday. Unless I get some pretty compelling, better evidence about the provenance of this idea, I will be there, wet on a Thursday, waiting for him. It is unimaginable that we should just pass these things willy-nilly because these benefit claimants riot and need 37 per cent of their entitlement reduced. It is unconscionable and we need a better explanation than the one we have at the moment.

I rise very briefly to add my support to this. Many years ago, I wrote a book about the withdrawal of benefits after four weeks from people who had been in difficulty. The book clearly showed that 90 per cent of them or more went straight into more crime. This is just another obvious, simple situation where that is all that the Government will do. I know that the Minister will not wish that to happen. I plead for him to take this away and think about it.

We are looking carefully at the system of hardship payments we want to put in place under universal credit. We want to ensure that there remains a financial safety net for claimants who have been sanctioned—that is what hardship payments are about. However, we want to avoid the existence of such a safety net undermining the deterrent effect of sanctions. It is clearly a rather delicate balancing act. I should make the point that, under universal credit, hardship is only available following a sanction, not at the start of a claim. It will no longer be necessary within the structure of universal credit. We are looking at a payment for people who have been sanctioned.

We are still considering how best to achieve this but believe that the ability to make some payments recoverable is one way of continuing to support those most in need while ensuring hardship payments are not seen as a simple replacement for sanctioned benefit. In other words, we want to make sure that sanctions continue to keep having an impact. We are still considering our approach to recovery that will ensure adequate safeguards are in place. This includes the arrangements in more complex situations of the kind the noble Lord, Lord McKenzie, pointed out, such as when a couple has separated. Regrettably, I can not give hard answers to his, as usual, specific and beautifully placed questions. Those are issues that we need to address and are addressing.

Recoverability may not be something we decide to introduce immediately, but if we decide to make payments on a recoverable basis then we will ensure claimants fully understand this when they apply. Similarly, any future recovery of those payments will be sensitive to the circumstances of claimants and we will ensure it is set at a manageable level. The Secretary of State will have powers to either suspend recovery or not recover at all. We expect that any repayments will be in line with existing recovery arrangements. Without making an absolute hard commitment on the question raised by the noble Lord about when it starts, my instinct is that it would be when the claimant moved back into the formal universal credit system.

In response to the questions raised by my noble friend Lord Kirkwood, I am dreading that late Thursday night particularly as we are meant to leave at 7 pm on Thursday. We will need to address any such regulations to the extent that they come here. These are people who have been found guilty of committing crimes. It is up to judges to decide how they should be punished. The debate on how you make a financial penalty bite is one that the legal system will take account of and deal with. This is an area where the bulk of the decisions are taken within a legal context rather than in the context of the universal credit. There may be some enabling moves we need to make within universal credit and the late Thursday night regulations will be a time of horror for me. I hope I have clarified why recovery might be appropriate, that the process of any recovery would be managed appropriately. I urge the noble Lord, Lord McKenzie, to withdraw the amendment.

My Lords, could I press the Minister on this? I was struck by his version of what a hardship payment was for and his concern that it should not moderate the effect of sanctions. He thought this was a tightrope to walk. That is not my understanding of what hardship payments are about at all. What hardship payments are about, certainly when dealing with lone parents with children, is to ensure that the sanction does not fall on the innocent—children for example.

I am sorry to interrupt the noble Baroness. There is a Division in the House. I suggest that those who have not said they are unable to go downstairs return at 5.14 pm precisely.

Sitting suspended for a Division in the House.

My Lords, I think that the principals are here, so can we return to the Bill? Does the noble Baroness, Lady Hollis, wish to continue?

At the risk of being a little repetitious, I will try to summarise. Obviously, hardship payments are there to ensure that claimants and their dependants are not left in hardship as a consequence of a sanction. We do not want the existence of those payments to make people feel that they can ignore their responsibilities. That is why we are looking at what reform we can make to the current system. We will continue to provide the safety net for claimants and their children.

My Lords, I welcome the Minister's response. I think it indicates some going slow on the issue, and that is the right course of action. The Minister said that there had to be a financial safety net for individuals. I certainly agree with that. If the financial safety net is 60 per cent of the basic amount, just under £40, I suggest that there is really no room to pursue any repayments of the hardship payment. The noble Lord's assertion that they would not start until after the sanction period had ended is to be welcomed, but that rather reinforces the point made by the noble Lord, Lord Kirkwood. It is all very well for the Prime Minister out in Australia to make great pronouncements about docking £25 from people's benefits. That is another example—we see too much of it from some members of this Government; although I certainly do not include the noble Lord in this—of using those sort of issues to get headlines and to berate people on benefits. That is deeply unpalatable.

I cannot let the Prime Minister go undefended. He was emphasising the fact that unless a financial penalty for a crime actually hurts the person and has the impact of a punishment, it is not doing its job. He is concerned that the very modest rate of £5 a week is hardly an impact. Although I glow with delight at the separation that the noble Lord is trying to put between me and notional hard statements, I must say that the Prime Minister is clearly right in this matter.

The noble Lord is secure in his position but, to be honest, he is anyway, given all the good work that he has done on the universal credit. Five pounds may not seem very much, but if, because you have been sanctioned, you are down to 40 quid a week or less, £5 will be very difficult to find; £25 impossible. We ought to have this debate at a much more mature level. Having said that, I beg leave to withdraw the amendment.

Amendment 51FC withdrawn.

Clause 28 agreed.

Clause 29 agreed.

Clause 30: Regulations: piloting

Amendment 51G

Moved by

51G: Clause 30, page 15, line 15, after “sections” insert “11 and”

My Lords, when I spoke at Second Reading, one point that I made was my deep concern that there could be considerable problems, considerable hardship caused to people if changes were made that were not thought through properly. Many noble Lords who spoke at Second Reading and who have spoken during Grand Committee have been clear about their support for the principle of universal credit, and I am one of them.

The noble Lord, Lord Freud, will be aware that I have asked a number of Written Questions on these matters. My amendments in this group are intended to ensure that there is some form of piloting of the proposals, so that we can assess their effect and make informed decisions having looked at the reality of what is happening on the ground.

I still have considerable concerns, but I was very pleased to see, first, the Minister himself opposing the question that Clause 30 stand part of the Bill and then the amendments he has tabled; Amendments 56A and 69A. It would be very sensible if we moved on to consider those and probed the Minister's proposals in this group. They are a welcome step in the right direction. I thank him for that and I am very pleased. They may need further refinement, and I am sure that we will have more to say about that in Grand Committee and at Report on the Floor of the House.

I leave it there with a view to quickly getting on to the Minister’s proposals. I am sure that that is what the Grand Committee wants. I beg to move.

My Lords, we will ensure that the full universal credit system is extensively tested with claimants before the new benefit is introduced. However, this will not take the form of a pilot scheme as this would add extra costs and delays to the introduction of universal credit. It is vital that we are able continuously to test, improve and evolve the universal credit system after it is introduced. It is key element that we should have the flexibility to respond to change and ensure that the system does not stagnate while the world develops around it. The amendments I tabled will achieve this constant evolution.

The original wording of Clause 30 provided for piloting measures only to see if they would improve a claimant's chances of entering work, or of finding more or better-paid work. While this is a key objective, universal credit will also simplify the benefits system, improve work incentives and change behaviour. Amendments 56A and 69A will ensure that we are able to test approaches that cover these wider principles.

If we are to ensure that we have the flexibility to develop and continuously improve universal credit, we must ensure that piloting can also include the testing of changes to the structure, design and delivery of the benefit. The ability to run controlled pilots of tests—for example, of whether advances in technology could improve the structure or delivery of universal credit—will be a fundamental part of the evolution of the benefit and of its ability to remain responsive to claimants' needs.

I will add that the inspiration for this measure came from thinking about what happened to NHS hospitals when they were brought into state control in 1948. Their service levels were almost frozen. It is vital, with a big state system, constantly to move, change and evolve it. This is the mechanism to ensure that we have a responsive system. If we do not have this kind of power, we could find ourselves with a system that is perfectly in tune with what we require in 2011 but by 2030 is absolutely out of touch with what society needs.

I recognise that any pilot must be transparent and timely, which is why the clause includes a number of safeguards. For example, we have time-limited each future pilot scheme to three years. Through Amendment 69A we will ensure that any pilot regulations will be subject to the affirmative resolution procedure. I hope that noble Lords on all sides will support this enthusiastically, and I urge the noble Lord to withdraw his amendment.

My Lords, I warmly support the arguments of the Minister. Might I have an assurance from him that as the past record of the department—no names, no pack drill: I suspect that it is a political sharing of honours, or dishonours—shows that it has sometimes anticipated the results of pilots by introducing substantive schemes before their conclusion, he will at least start with the working assumption that the pilot will come first, then the evidence, and the decision thereafter?

Like other noble Lords, I very much welcome this. The problem in the past has always been the length of time to get a learning loop into systems. By the time there has been a pilot and the evidence has been assessed and reported back, three years have passed—by which time, alas, usually incumbents have moved on and questions have changed. I am delighted that we will get pilots. Will the Minister give an undertaking that the results of the pilots will be published and made available to Members of both Houses as soon as is practicable? Sometimes they will not be supportive of positions that the Government wish to develop. However, at the core of research must be the integrity of publication.

My Lords, the Committee will know that my noble friend Lord McKenzie and I have added our names to this amendment, but we are delighted that it has been overtaken by the Minister’s own amendments. I am getting a bit of a record for doing this. Last night I commended the Government on their move on the Housing Ombudsman, and I am doing the same today. However, I have a couple of questions. Whether this is to be piloting or testing throws up exactly what I wanted to ask: what is the purpose of each of these pilots? Are they to test whether the principle of a particular part of the Bill is right—in other words, that the aim of each part of the Bill is being met—or are they simply to determine how best to implement each proposal?

We always welcome piloting and testing of whatever it may be, but the exact purpose of a pilot needs to be absolutely clear at the start, particularly for those who have to design and implement it, as well as for all the participants and evaluators. What is the pilot meant to achieve, and therefore how should it be monitored and evaluated? That is because whether it is simply to find the best way of making something happen or to see if the idea behind it is right is quite an important distinction.

We hope that the Government will be confident enough not to assume automatically that what they think will work, will work—whether to incentivise people or to simplify systems—and that they will use these pilots in order to test the assumptions underpinning particular proposals in the Bill. That means being confident enough to design the pilots accordingly to see whether the particular objectives behind the proposals in what will by then be the Act are being met. That is asking quite a lot of a Government. We are saying, “Are you confident enough and in a sense big enough to be able to call it a day if the end results of any particular pilot call for a big re-engineering?”. I believe that pilots of this sort will be worth their weight in gold to the Government in financial and administrative terms and to claimants, landlords, employers, carers and providers, all of whom are going to be affected by different parts of the legislation. The pilots can play a role in creating the sort of welfare system that is able to meet the demands made of it. We would ask the Government to be as adventurous as they can with these pilots by putting the difficult questions. Also, following up on what my noble friend Lady Hollis said, the results should be transparent.

Who is going to oversee the design and delivery of the pilots? Who will decide, under subsection (5)(b) of the proposed new clause, that pilots may be replaced or extended, and on what grounds? To whom will the evaluators report? That is more or less the same question as that posed by my noble friend Lady Hollis. How will Parliament be able to ensure that the lessons from such pilots are learnt?

I thank noble Lords for their support. At this stage we are taking legislative powers in order to be able to do this. How it is done is something that we will actively develop. I will tell noble Lords what I think we should be doing without necessarily locking down that that is to be the process, because we have not developed it.

Universal credit is the most amazing social science laboratory that I suspect we have ever seen, and I wonder how many other people will see it. Under universal credit you can change different aspects of people’s support.

As such, it needs a unit built in which is constantly looking at how to improve it and optimise it or to adapt it to different circumstances. I anticipate, in answer to the question from the noble Baroness, Lady Hayter, that we would have a series of real questions. Many of the questions raised by noble Lords in the Committee—should we have a second earner disregard; should we have a lower taper; what happens when you move disregards up or down?—are real, basic questions. They are all being put in the form of amendments, but here, we can have a series of tests of different aspects, or tests in combination, to find out what really optimises the system. Clearly, it is impossible to get it absolutely right first time. No one would claim to do that, but this is an architecture which would allow us to optimise it.

Transparency is important. One provision in the amendment is that we go to Parliament to ask for permission to pass the regulations. That is a transparent process; it is not hidden. We would have to explain what we are doing and why. I cannot imagine that that information would not keep coming back to Parliament; I do not know in exactly what forum. To that extent, I am sure that there would be a real process. On the question raised by the noble Baroness, Lady Hayter, about “replace and extend”, there is a catchphrase that the DWP has more pilots than Pan Am, it used to be; it is now probably Ryanair. One reason for that is that when you have run a pilot and then want to introduce it universally because it worked, you have to pretend, rather than stopping a pilot and starting again, that you were continuing to pilot it.

Sitting suspended for a Division in the House.

I think that I had completed everything I need to say about these piloting powers and ask the noble Lord to withdraw his amendment.

I thank the Minister for his response. As he says, it is important that we are able to respond to changed situations—that certainly is progress—but we still have some way to go. I agree with the comments made by my noble friends Lady Hollis and Lady Hayter, and by the noble Lord, Lord Boswell. The integrity and transparency of the process is paramount. As noble Lords have said, it is possible that what comes back will not support the aims or proposals of the Government. With that, I beg leave to withdraw the amendment.

Amendment 51G withdrawn.

Amendment 51H not moved.

Clause 30 disagreed.

Amendment 52 had been withdrawn from the Marshalled List.

Clause 31 agreed.

Schedule 1: Universal credit: supplementary regulation-making powers

Amendment 52A not moved.

Perhaps we can ask the Deputy Chairman of Committees to inform the usual channels that it is not possible for us to get down to vote and back up again given the queues of people voting, as well as make oneself comfortable, in 10 minutes. I wonder whether we could ask, through the usual channels, whether 15 minutes might be more acceptable.

Amendment 52B

Moved by

52B: Schedule 1, page 107, line 20, at end insert “and this will include an additional prescribed minimum level of earned income for claimants in receipt of the universal credit additional amount for caring responsibilities, and will be paid in addition to any other prescribed minimum level”

My Lords, I am delighted to have actually made it. With regard to the previous amendment and the proposal for pilots, it may well be that pilots are relevant here, too.

This amendment would introduce a specific earnings disregard within the universal credit to ensure that carers juggling work and care are not left worse off as a result of the new system of disregards. Approximately 250,000 carers currently in receipt of the carer premium to means-tested benefits such as income support, will be moved to universal credit. Under that, the earnings taper will be more generous than the withdrawal rate of existing benefits. Many claimants who are in work, including many carers able to juggle work and care, will be able to keep more of their benefits as they earn. However, this will depend on which earnings disregard they have access to and their level of earning.

Under existing plans, it appears that certain groups of carers would see the size of their earnings disregard in universal credit reduced, compared to their existing income support disregard. Currently, individuals in receipt of income support are eligible for a £20 a week earnings disregard, that is £1,040 a year, which allows them to earn £20 a week before their benefits start to be withdrawn. The Government have announced the following disregard groups for universal credit claimants, with approximate disregard levels: for a single person without children it is £700, about £13.50 a week; for a couple it is £1,920; for a lone parent £2,260 plus £520 for the first child and £260 for the second and third children; and for single disabled people or a couple where at least one person is disabled it is £2,080.

The Government have said that, taken together with the taper, this would leave couples, singles, lone parents and disabled people significantly better off in low-paying jobs. That is good as far as it goes. However, it does not apply to single carers, who currently have access to £20 income support through receipt of the carer premium, but who would be able to access only a basic single person disregard of about £13.50 a week under universal credit. Although £13.50 would be an improvement for unemployed single people being moved onto universal credit from jobseeker’s allowance, where they currently receive only £5 a week disregard, it would see the earnings disregard for single carers on income support drop from £20 a week, that is £1,040 a year, to £13.50 a week, or £700 a year.

Those carers who would see their disregard reduced would be those unable to access the higher disregards for couples, lone parents and those with children or covered by a disability disregard. Carers losing out would be those living on their own, who do not have children and who are caring for a disabled person who does not fall within their universal credit household. This latter group includes carers looking after a disabled or elderly friend or relative living elsewhere and carers looking after an adult disabled child, a parent or other elderly relative living with them but who is not considered to be within the same household for the purpose of universal credit.

The Government have estimated that around 20 per cent of households that receive means-tested benefits and include a carer would not have access to any of the higher disregards for couples, lone parents or households that include a disabled person. With approximately 250,000 carers on means-tested benefits, this would leave approximately 50,000 carers able to access only the lowest earnings disregard if they were able to juggle work and care.

I end with a case study to put this in perspective. Sheila is on income support and cares for her mother, who is 58, has early-onset dementia and receives disability living allowance. Sheila is single and has reduced her working hours as a librarian to just two hours a week. She currently earns £20 a week and, because of the existing £20 disregard, her benefits are unaffected. Under universal credit she would be eligible only for a single person's earnings disregard of £700 a year—around £13.50 a week. Sheila's earnings above £13.50 would be subject to the universal credit taper, which would mean that she would be £15.75 better off from her £20 earnings. She would be £4.25 a week—£221 a year—worse off than under the current system even though she would be earning the same amount.

I will not go on to outline the full impact because I have given an impression of what it would be. I look forward to hearing how this unfairness can be tackled. I beg to move.

My Lords, I am pleased to support the amendment moved by the noble Baroness, Lady Howe of Idlicote. I am glad that she was able to get to her place in time. I welcome the fact that a single person's disregard was included in the latest round of announcements about universal credit. I also welcome the more generous disregards being made available for most recipients.

I have banged on for many years about the importance of disregards. For me, this is one of the plus signs of universal credit. However, the interaction with housing costs and the complexities that will be created have qualified my enthusiasm for the new disregard regime. It sullies the supposed simplicity of universal credit. I came across some of my noble friends one evening last week wandering around in a state of utter confusion, trying to understand various calculations that we had been given on disregards. I should add that these noble friends are extremely expert.

Just how complex the calculations are was brought home to me by Sue Royston of Citizens Advice, who kindly e-mailed me to point out the implications for carers. I will read out what she said because if I try to paraphrase it I could get in a hopeless mess and get it all wrong. She wrote:

“The proposed levels of disregards have added a whole new area of complexity ... The new disregards have given single adults a disregard floor of £13.50. I have assumed in the calculations that CTB will pay council tax in full for those on JSA or ESA levels and that any excess earnings will be clawed back at a 65% taper as I would be very surprised if any Local Authorities were more generous than this. For the first £13.50 a single claimant will not be subject to a taper of UC but will be subject to a CTB taper so will gain 35% of their earnings. However, every £10 they earn beyond that will be subject to a taper of 35 per cent from universal credit and will then be subject to a further taper in council tax benefit, leaving them with a gain of £1.22 for every £10 they earn … a single carer who at the moment can simply earn £20 and keep all £20 as well as their benefits in full will now have to earn over £55 even to get a £10 gain if they pay council tax at £18. When someone is no longer subject to the combined taper will depend on the amount of council tax they are responsible for paying”.

She goes on to observe that:

“People will have to go through complex calculations to work out given extra costs of working, what level of hours they can afford to work and how much they will gain at different levels of income”.

I hope that I have not lost noble Lords in that, but if I have, it makes the point that this is extremely complicated. If we cannot understand it, how do we expect recipients and carers who are trying to juggle work and care to do so?

Juggling work and care is no easy matter. I have not had to do it myself, but anyone who has done so or with relatives who have knows that it is difficult and stressful. According to Ipsos MORI research commissioned by Carers UK and the DWP for Carers Rights Day 2009, about one in six carers had given up work or reduced their working hours in order to care. A major barrier is the availability of suitable replacement care. In a separate survey and research by Carers UK and the University of Leeds, over 40 per cent of carers who gave up work did so due to a lack of sufficiently reliable or flexible services. A similar percentage, 41 per cent of those surveyed, said that they would rather be in paid work, but that the services available do not make a job possible. I am not saying that a disregard will magically create these services, but it would certainly help to pay for the things needed to support the combining of paid work and care. We know the arguments around childcare, but we seem to forget them when we talk about other forms of care.

There is evidence about the stress and ill-health suffered by carers who do this juggling act, and of course we are talking about more women than men here. That is because while,

“women represent 58% of all carers, they make up 73% of carers on benefits. They are substantially less likely to be in work. One third of heavy-end male carers are in full-time work, but only 13% of heavy-end female carers are working full time”.

I, too, will end with a case study which I have been given by Carers UK, and I have a couple of questions.

“Cheryl is 45 and lives in Stoke on Trent—she has been her elderly father’s full time carer since her mother died in 2008. Spinal problems, a heart condition and arthritis mean her father needs full time care so he has come to live with Cheryl, her husband and their 5 year old son. Alongside providing childcare and supporting her father with everything including eating and personal care, Cheryl works for an hour on three evenings each week as an NHS cleaner, once her husband is home from work and can support her Dad and son. The only social care support she gets is six hours of respite care each Monday—time she uses to do food shopping and spend some time with her son who she hardly sees in the evenings. She wants to work more”—

clearly she has the same philosophy as the Government in that she believes in paid work—

“but has no one else to look after her Dad, can’t afford replacement childcare and would have to find a different or second job as her current employer is not able to give her more hours. Any work has to fit around her son’s school hours, school holidays, her husband’s working hours and his ability to provide childcare and her father frequent doctors, physio and hospital appointments during the day”.

That gives a flavour of how difficult life can be for carers. As I have said, a more generous disregard is not a magic wand, but it could ease that life and it is a way for the Government to say, “We recognise that the position of carers is different from that of other single adults”. It has been recognised in the past that there is a case for a higher disregard for carers.

Can the Minister explain why carers appear to be the only group whose earnings disregard will be reduced as they move on to universal credit? Not surprisingly, there is a feeling that that is discriminating against carers. Secondly, what assessment has been made of the impact on carers and particularly on their work incentives?

I would like to add to the questions that we will be showering the Minister with on this issue. We are dealing with the issues of caring and what recognition there is in the benefits system for that, of work conditionality—which, from what I have heard, worries me very much, so we will certainly be returning to that—and of disregard.

As the Minister will be more aware than all of us, at the moment if you do not care for one single person for more than 36 hours a week you do not get carer’s allowance. This could mean that you are caring for two people, each for 25 hours a week—his mum and your dad, for example—making 50 hours a week, but you are not entitled to carer’s allowance. At the moment, therefore, if you do not have a husband’s income to float you off it, you are probably on income support and you will indeed get the £20 disregard. As I understand it, and perhaps the Minister can confirm my worst fears, that person, who might be in their 50s and caring for 50 hours a week as a single person, would have full conditionality applied to them because they were not getting the carer’s allowance so they would be expected to work 30 hours plus, on top of the 50 hours’ care. On top of that, they would not get any earnings disregard. Will the Minister confirm that that scenario is possible?

My Lords, I shall speak to Amendment 52BD in this group, about disabled claimants. If the noble Baroness, Lady Lister, thought that her brief was complex, this is pretty complex too. At the moment, if a disabled person is in work they can claim the disability element of working tax credit if they fulfil two tests: a work disadvantage test and the benefit test. The work disadvantage test includes many criteria, but one of the most common ways to qualify is if you are unable to work full-time because of a health condition or impairment. You also have to fulfil the benefit test if you receive DLA or attendance allowance or you have been receiving sickness benefit for at least the previous six months.

There are other qualifying criteria that would take all afternoon to go through for both the work disadvantage test and the benefit test. An example of the work disadvantage test criteria is that you cannot extend your arm sufficiently to shake hands with another person without difficulty, which sounded rather French to me. Suffice to say that the criteria for qualifying for the disability element can be complex but probably covers a lot of disabled working people.

Under the universal credit, many disabled people will not receive extra help because the gateway to extra support is through the work capability assessment. So someone will not qualify for the disability disregard if they have been found fit for work. For disabled people who are already in work, a new test will be designed and we are hoping that that new test will have some lower criteria in it.

Some of the criteria for the work disadvantage test look similar to the criteria for the WCA, but it is unclear what the qualifying criteria will be for this test for disablement under the universal credit, as I have said. If everyone else is giving examples, I might give the example of someone who might benefit now from extra help but might not qualify in future. I am afraid I have not given her a name but she is a person with MS who can walk up to 100 metres but gets tired very quickly and is unable to cook a meal for herself. She may now qualify for DLA lower-rate care and might also receive the disability element of working tax credit, if she were able to work only part-time because of fatigue levels. This person probably will not qualify for the personal independence payment, although until we see the new criteria, which we were told would be available at the end of October, we cannot tell. This person probably will not qualify for any more help under the universal credit than a person who is not disabled.

Another of the worrying things about the loss of this extra help for many disabled people under universal credit is the passporting factor used by local authorities for travel passes, leisure passes and so on, so disabled people may lose out on a much wider scale than may at first seem apparent. I look forward to hearing what my noble friend has to tell us about that.

My Lords, I support some of the concerns that have already been raised by other noble Lords. I am not clear about the logic of ending the provision for adding disregards if a claimant falls within two categories, both of which qualify for a disregard. As I have always understood disregards, the idea is that they compensate for the costs that a claimant faces, whether those costs arise from being a lone parent, being disabled or whatever. I am sure that the Minister has a rationale for the measure but it is difficult to think what it could be. Is he going to provide a disregard for the disability side, the lone parent side or some other side? Why provide it for this bit rather than that bit? Why not provide the disregard for both sets of additional costs? It would be interesting to hear his rationale for this measure.

Given that the Government want to make swingeing cuts to the welfare bill, I completely understand that two-earner households are not a priority from that perspective. However, going back to the Government’s commitment to having incentives to work, this is another example of a part of this legislation running completely counter to that aim. I know that the Minister will correct me if I am wrong, but as I understand it the second earner will have almost no incentive to work, particularly if they have children, as they will not have the earnings disregard but they will have to pay the 30 per cent or so costs of childcare. This will almost certainly be the case if they have children. Therefore, it would be helpful if the Minister agreed with me that this is a bit of a problem in terms of incentives to work or explained the rationale behind the measure.

Regarding people with mental health problems, I envisage—I think that the Minister agrees with this—that this group will lose overwhelmingly from the shift to the new system and the reassessments for ESA. Rafts of these people will come off ESA and on to JSA with the result that, even with a disability, they will not receive any disability support because they will be on JSA. Yet people with mental health problems can have additional costs in order to go to work that others might not have. For example, somebody with severe anxiety might have to have someone accompany them on their journey to and from work, although they may be able to sit there and do the job when they get there. However, if they get no financial support at all for their disability—I understand that that is what the system sets out—how will these people have an incentive to work? They will have to pay for this support out of their tiny pockets.

The other point about people with mental health problems is that many of them can manage only a limited number of hours of work and need to build up their hours slowly. I do not know how this will work. The structure of the universal benefit is very good in this regard and should make life easier for people—at least in theory, if the two computer systems of the DWP and HMRC manage to bond together as they are supposed to do. However, the loss of disability support will cause problems in terms of incentives to work.

Sue Royston of Citizens Advice also provided me with the facts that were read out by the noble Baroness, Lady Lister. I will certainly not repeat them but I would find it helpful if the Minister could confirm for me how the two tapers of the universal credit on the one hand and the council tax benefit on the other will work together. Perhaps he has already done that when I was not here, as I have not always been here due to other commitments. I still hope that he will ultimately find a way to bring council tax benefit within universal credit, as it is such an important issue.

I am sorry to be a bore and raise this again, but it would make such a difference for so many people. If not, it seems to me that claimants working a few hours and building their employment up slowly will be dogged by a terrible complexity and lack of clarity not that dissimilar to what they have suffered in the past. That would be a great pity.

My Lords, the explanation that I am most looking forward to from the Minister, having taught us the difference between soon and very soon and that spring comes between winter and summer, is where on earth is the end of October if not yesterday, on Halloween night. We await that answer.

Under universal credit, the support currently obtained by a tax credit will be obtained via disregards, hence their importance. The disregards will allow some groups to earn higher amounts before benefit starts to be withdrawn, thus household income will be held to similar levels as now via tax credits. However, as has been mentioned, at present there seems to be no mention of disability in such disregards. Amendment 52B would provide an additional disregard for one aspect—carers who are currently not set to receive any disregard. We support that amendment and I shall speak to Amendment 52DB, which stands in my name and that of my noble friend Lord McKenzie. It would include a disregard for a second earner, but we will cover that issue in Amendment 52C. It is also intended to ensure that there are earnings disregards for claimants who are disabled, lone parents or the second earner—often a woman. Further to the comments just made, as each disregard recognises the impact of the particular circumstance on the earning potential of the individual, and as such impacts are cumulative, it is proposed in the amendment that the disregards should also be cumulative, as each circumstance—whether being disabled or being a lone parent—makes earning that much harder to achieve and, perhaps, more costly, with extra travel times or other expenses.

At least initially, it is foreseen that under universal credit we will have a 65 per cent taper for earned income, so a disregard improves the incentives to move into work by not applying the taper for the amount earned for the first disregard. That means that the value of the disregard for the claimant is 65 per cent of the actual amount written on paper, if you like. Someone with a £40 disregard who earns £40 can keep all their universal credit and will thus be better off by £40. Without the disregard, they would keep only 35 per cent of the £40 and so be only £14 better off. The figure of £40 that we use as the disregard is actually worth £26 in hard cash, which is the only way that I can think about these things.

There is a little complication, of course. There will be a maximum disregard for each group. Those not receiving support for housing costs will receive the maximum disregard and those getting support for their housing costs will see the maximum level of their disregard reduced by one and a half times the amount of their housing support. I trust that noble Lords are all with me. Good. Most claimants in rented accommodation will receive the minimum disregard. We know that universal credit aims to,

“allow people in work to see clearly how much support they can get”.

I just hope that they are better at doing that than I am.

The 14 October briefing note referred to by my noble friend Lady Lister on disregards set out the new higher disregard levels to try to deal with the localisation of council tax benefit. It aims to ensure that income support for council tax is effectively disregarded. Whereas single people previously would not receive any disregard, they will now get the amount mentioned, £13.50, as a disregard. Similarly, the disregards for lone parents and couples have been increased. However, as has been mentioned, Citizens Advice points out two problems. The first, elaborated by my noble friend Baroness Lister, is that those earning more than the amount will still be subject to two earnings tapers until no longer eligible for help with council tax. What plans does the Minister have to deal with this two-taper issue caused by the localisation of council tax benefit? Secondly, although the level of disregard has been increased to reflect council tax changes for single parents and couples, no such addition has been given to disabled people. Perhaps the Minister could also explain in his answer why they have been overlooked.

We note that in the Statement that came out this morning in the other place, the migration is going to be done in waves. The last of the three waves is going to be done by borough. I wish the Minister luck in rolling out a national benefit by borough. That is partly, I would think, because of the high complication of localising council tax, and we look forward to some piloting in those areas.

We welcome the Government’s decision not to introduce a means test for the carer’s allowance, but we still feel some additional help is needed, especially for those 50,000 carers who would otherwise be worse off in work under universal credit than they are under income support. It has been mentioned that there are over 6 million carers and these are some of our unsung heroes. Nearly three-quarters of them are worse off financially as a result of caring, partly due to low benefits and reduced earning power and other higher costs. Many carers rely not just on carer’s benefits for actual living expenses but on the disability benefits going to the people for whom they care. Any reduction could have a serious impact on their capacity to carry on with their heroic work. I was not going to mention any case studies but, having heard of a dual couple, I remember my own aunt, who at one point had two elderly people to look after: her mother-in-law and her mother—and later her husband. She was a carer for three different people. She supplemented her earnings in Ystradgynlais by working in the “Con”, the Conservative Association Club. We are very grateful to the Ystradgynlais Conservative Association, which kept her going and enabled her to top up her caring. It is the only time I feel lucky that she is not with us any longer to hear me telling the tale.

Despite contributing care that, if it were paid, is estimated to be worth about £119 billion a year, carers unfortunately receive the lowest benefit and are often in financially precarious situations. They struggle to pay bills, cut back on food and use their own income, and probably about half of them are in debt as a result of what they do. The existing proposals would see some carers have their earnings disregard reduced. Currently, as mentioned by the noble Baroness, Lady Howe, those in receipt of income support are eligible for an income disregard so they can earn £20 a week before their benefits start to be withdrawn, but that disregard is to go. There are new disregards for some people, as set out by the noble Baroness, but, as she explained, this does not apply to single carers who would only be able to access the basic disregard of £13.50 a week under the universal credit, as well as now being subject to the council tax disregard. This could leave carers juggling work and care while being more than £200 worse off because their benefits would be withdrawn earlier. As the noble Baroness, Lady Howe, said, that means that 50,000 carers on means-tested benefits would be able to take advantage of only the lowest disregard and thus probably be worse off in work.

I turn to Amendment 52DB. As I said, if we may, we will deal with the issue of second earners under a later amendment. The amendment is intended to ensure that claimants who have more than one barrier to employment see that reflected in their level of disregard. At present, barriers to work such as being a lone parent or having a disability are reflected in the relevant elements of the working tax credit—the lone parent element and the disability element. Any lone parent with a disability receives both of those, recognising her dual situation. Under universal credit, without our amendment, each household will be entitled to only one earnings disregard. Although, under working tax credit, a disabled single parent receives an additional £54 in support in respect of her disability, under universal credit she would receive only £27 extra through the work-related element of universal credit rather than through a disregard. Given the extra costs that a lone parent with a disability is bound to face in going to work, whether in transport costs or longer childcare because getting to work takes longer, the additional disregard is likely to make the difference in determining whether work pays.

I am sure that the Minister will have been persuaded about the merits of the case of an additional disregard for carers by what other noble Lords have already said. Those issues apply also to carers who are themselves disabled or a lone parent. We welcome incentives to work, but the greatest incentive to those groups is the ability to retain more of what they earn as they gradually move off benefits and into work. We still keep hearing so much about the disincentives of a 50 per cent tax rate, so I am sure that we do not need to convince the Minister that high rates affect the poor just as much as they allegedly affect the rich. The disregards are vital to ensure that work pays for everyone.

My Lords, we learn more every Sitting. We learn that the mother of the noble Baroness, Lady Hayter, is really a Conservative, and therefore that she is. We had the admission the other day from the noble Baroness, Lady Lister, that she actually was a Conservative. I can only say: “You are very welcome back any time; I would prefer you to come back very soon”.

I know that the noble Baroness was mathematically challenged over the past week. I can offer only my noble friend Lord German, whose ability to sort out the sums of Labour politicians is now famous; I am sure that he will help her sort everything out.

I have to be absolutely clear about the date when October happens. October happens when the Committee gets towards the PIP clauses. That is the definition. The fact that that has moved is due only to the extraordinary assiduity of Members of the Committee, for which I know that we are all grateful.

I should just deal with the council tax, which strayed into this. It is not possible to analyse how different tapers will work because we do not know how the council tax will work. We will find that out. One issue behind any restructuring is that we are determined that it will not undermine work incentives; in the universal credit, we are dealing with that by enlarging the disregards.

I must pay tribute to carers. I want to put on the record that they do a terrific job. We know that, and we have been very conscious of it as we develop the universal credit. Taking Amendment 52B first, we have looked at how we support carers. Rather than going through the complexity of the separate disregard route, we have provided an additional element that is included in the gross amount of the universal credit for carers. That is a change from carer’s allowance. This additional element will not be withdrawn when the claimant’s working hours pass a particular threshold, which is what happens now. Instead, the claimant’s award will reduce gradually as earnings increase due to the effect of the single earnings taper.

The structure of earnings disregards in universal credit is not the same as that in current out-of-work benefits. We do not propose to carry forward the weekly £20 disregard that applies to carers in income support currently. In practice, many carers will receive an earnings disregard that is higher than £20 because they are lone parents or members of couples or if they or their partner are disabled. All carers will have the earnings taper applied to earnings beyond the relevant disregard. These measures will significantly enhance work incentives for carers in the vast majority of circumstances. We have taken the decision to standardise the provision for single non-disabled people in universal credit so that all claimants in this group will have £700 of their annual earnings disregarded. Simplifying measures such as this are essential if universal credit is not to replicate the complications of the current system, which breeds confusion and error for both claimants and administrators.

My Lords, I am following the Minister with as much attention as I can muster on a very complex subject. We share and appreciate his remarks about carers, of course, but does he not recognise the difference between a single person who may, for example, be a young man going into the labour market with an earnings disregard on his universal credit and the situation of a carer who may be caring for 40 hours a week and therefore has limited opportunities for work? If she does not have a disregard, it will actually not be worth her working at all, but the level of her caring responsibilities, although they do not qualify her for CA, will mean that she is unable to meet the work conditions and earn a living. What would the Minister have her do?

My Lords, I turn to the example raised by the noble Baroness, Lady Lister. With great skill she has found precisely an area of loss within a general position of substantial improvement. Let us take a single non-disabled carer. If they work between roughly two and five hours at the national minimum wage, they may have a marginally lower net income as a result of this structure. The maximum possible reduction in those circumstances is around £4.25 a week, which is in line with the noble Baroness’s example. But at only marginally higher earnings, work incentives increase significantly under universal credit. For example, at only eight hours a week, such carers would be over £5 a week better off, and at 12 hours a week they would gain nearly £15. So there is a stronger incentive to get back into work than the flat £20 flat disregard in income support.

I shall pick up the point made by the noble Baroness, Lady Hayter—

I still do not understand how she could be expected to add those hours of work to her hours of caring, even though the hours of caring do not qualify her for CA. Therefore you invoke not just four, six or eight hours, but full conditionality.

You do not when there are caring responsibilities. We have discussed this. There is a responsive set of conditionalities for people who have other obligations. If you exclude people with very few hours—many will do those few hours for rather more than the minimum wage—they are actually much better off than under the current circumstances because we have done it through addition rather than as an extra disregard.

The noble Baroness, Lady Hayter, said that an estimated 50,000 carers will be worse off under the universal credit. That is not correct. That figure was an estimate of the number of single and non-disabled benefit claimants who are carers. Only those whose earnings fall within the very narrow band of two to five hours at the national minimum wage could experience a very slightly lower income under universal credit.

I turn to Amendment 52DB. The universal credit is designed to help improve work incentives to break cycles of worklessness. A couple will jointly benefit from a single earnings disregard set at the highest amount to which either person is entitled. In practice, this may mean that only the earnings of the first earner are disregarded. Given the financial constraints within which we are delivering universal credit, it is best to focus on the clear aim of reducing worklessness for the household as a whole rather than spreading the available resources among different earners in one household.

To revert back to an earlier amendment on piloting, this is clearly something that we can test. If that gets a better result, it can be changed when a Government have adequate money. This is not a matter of principle but of affordability. We estimate that if couples who were both in work were entitled to—

Again, will there be flexibility within the legislation? As the Minister said, if the Government pilot this and find that the taxpayer is losing more money because fewer of these second earners go out to work, he will want to introduce a second disregard. Will there be the flexibility within the legislation to enable the Government to do that?

Absolutely. We are discussing a framework piece of legislation that will allow us to bring in the regulations. I am sure that next year many of us will discuss the detail of this for many months. It is an introductory, not a locked-in proposition. I have tried to explain, and hope that I have explained, that this system is an architecture and it can roll and improve. We may find in many areas that a change will pay for itself in its own terms, both in what the benefit system costs and the benefit to the economy. We will be able to test those propositions. A lot of what I talk about when we lay out the structures is simply what is affordable within a very difficult financial environment where we have had to put a proposition that we can float and that works. I have made the point before that that is within a context where we are injecting £4 billion into the pockets of the poorest people. Every time someone says, “Do that” or “Do the next thing”, they are adding to that figure. We can either take something else away or provide that. That is where we have come out. Later on, when the financial situation is more suitable or we establish that changing something pays for itself in its own terms, we can make changes and improvements. I labour the point only because we can spend a lot of time arguing whether this is better than a disregard or addition. The answer is that none of us knows but I hope that in the medium term we will.

In the example, we estimate that if couples who are both in work were entitled to an additional disregard of £700 a year, the cost would be £240 million. If the disregard was £1,000 a year, the cost would be £350 million. This is real money. We took the decision that it would be better spent, for instance, on childcare, where we had to find an extra £300 million. In current out-of-work benefits, there are no additional disregards for second earners. Similarly, working tax credit makes no additional provision for second earners. It is true that members of a couple may qualify for the disability elements of working tax credit if both are working and disabled. Equally, when a disabled person is not in work, no disability element can be paid. Indeed, working tax credit may not be payable at all.

I turn to the proposal that lone parents, disabled people and second earners should receive the sum of two earnings disregards if their circumstances entitle them to each, rather than the higher of the two as we propose. Many people on low incomes will have substantially more support under universal credit because of the earnings disregards that we propose. The standard weekly disregard in current out-of-work benefits for these groups is only £20, after which benefit is withdrawn pound for pound. Some people on employment and support allowance may benefit from the permitted work rule with a disregard of up to £95 per week. However, this provision is available only for one year, after which the disregard returns to £20 for most claimants. Crucially, earnings disregards are not added together in current out-of-work benefits.

In working tax credits, various elements can be added together. However, that does not differ from the way elements in universal credit build up to a total award. The earnings disregards in universal credit are more generous than those in the current system for lone parents and disabled people, helping in particular those working a small number of hours. For instance, a disabled person working 12 hours a week at the national minimum wage will be more than £50 a week better off, and a lone parent will be more than £60 a week better off in work because of the disregards in universal credit. This will provide a stronger incentive to work than exists in the current system.

For most people claiming universal credit, the main financial incentive to work will be provided by the taper. Our proposals for a structure of disregards are intended to provide an additional incentive for those who need it most. If additional funding were available, we would need to consider the taper as well as the disregards. Adding together two or more disregards simply because the claimant falls into a number of categories would be inconsistent with the approach that we have adopted. If the earnings disregards worked in this way, we would not have the funding to set each at the level that we have. Universal credit must be delivered within the financial envelope we have available. I hope that this explanation will persuade the noble Baroness to withdraw her amendment.

My Lords, I will raise a couple of points—and not simply to defend my aunt. I said that she worked at the Conservative club. She was the barmaid and cleaner. The noble Lord is very lucky that she is no longer with us.

I have been mulling over this point. Is the noble Baroness sure that she is not inadvertently misleading the Committee? Surely there is no such thing as a Conservative club in Ystradgynlais.

Perhaps I may ask a couple more questions. I think that the Minister said that the figure I used of 50,000 was wrong because the only people who would lose out are those working between two and five hours at the national minimum wage. However, it is exactly those sorts of people who are carers and who will be doing quite small numbers of hours: the six-to-eight shift, if you like. Even though it is a small number of people, it would be interesting to know whether there was an impact assessment of the effect on carers and whether it showed how they would be affected.

I have two other points. One is about the figure of £4 billion, which gets used a lot. The disregards will not necessarily cost the Government money; if they are encouraging people into work, those people will quite quickly start paying tax and NI—not immediately but fairly quickly—and they will quickly pay for themselves. I realise that that will not happen at the moment as there is rather a lot of unemployment because of the Government’s policies, but we will not go there. Normally, though, the incentive is to get people into work, so that will soon begin to pay itself off.

May I interrupt the noble Baroness at this point? I would like to ask my noble friend about the new test that is going to be devised for those disabled people in work. I do not think that he answered that. I apologise for interrupting the noble Baroness, but before she withdraws the amendment I would like to know whether he has any news or wants to write to me afterwards.

My second point is that the question that was not asked is why there is no additional amount of disregard for disabled people to take account of the council tax issues. I presume that the noble Baroness, Lady Howe, will speak, but if those extra points could be referred to it would be helpful.

I shall try to answer the questions. To pick up the point from the noble Baroness, Lady Hayter, there is not an impact assessment on carers, but if we are talking about an entire universe of 50,000 and then we have to narrow it down to this very small group who are working two to five hours at national minimum wage, we are talking about a very small number. Do not forget that there is an element of the system that people change behaviour to fit around. You can see the encouragement here, as I was showing noble Lords, to start earning a little more than the five hours. The reality is that this is a very small impact. There are winners and losers all the way through the universal credit because we are putting in a new system.

To pick up the question from my noble friend Lady Thomas, the tax credits will no longer exist once the universal credit is introduced. As we stated in the revised policy briefing note—she has spotted this with her eagle eye—we aim to have a single assessment as the gateway to limited capability for work elements and the earnings disregard for disabled people. This assessment will be based on the work capability assessment and we are considering that this process may need to be modified in the context of the universal credit. We will have a chance at a later stage of the Bill to discuss the WCA in a little more detail.

The Minister has been very full in his efforts to answer our questions. Could he have his staff prepare for us one of the very helpful briefing notes that we have had on the situation of carers in the various scenarios that have been outlined over the past few Committee days—carers who are one of a couple, single carers, carers who may be able to work a few hours, carers who are not on CA and are therefore exposed to work conditionality, and carers who are on CA? That is eight or 10 possible permutations, and that would be helpful. This is before we get to council tax benefit and its screwy effects on the whole system. It would be very helpful if the Minister did us a briefing paper as soon as was practicable on the situations that carers could find themselves in.

I cannot absolutely commit to that, mainly because I have a department working at full tilt. However, I will look at whether that is the kind of work we can do without disturbing all the other demands on people’s time.

My Lords, I have been fascinated by the wide range of issues and figures that we have had to digest. It is clear that we will have to wait for the information on PIP with increased enthusiasm. However, I suspect that we will have to wait a day or two yet. I thank everybody who has contributed to the debate—a considerable number did so—particularly my noble friend Lady Lister, who supported my specific point but raised a lot of other fascinating issues.

I am afraid that I failed to say at the beginning that I owe my briefing to Carers UK, which produced an amazing range of facts and figures. The number of women carers must not be overlooked. It constitutes a huge percentage. It is well and truly worth taking into account what the state would have to pay if it were the carer in all the instances that we have talked about. The present system costs comparatively little. We will have a lot to read in Hansard tomorrow, quite apart from studying the table that we have asked for. In the mean time, I beg leave to withdraw the amendment.

Amendment 52B withdrawn.

Amendment 52BA

Moved by

52BA: Schedule 1, page 107, line 20, at end insert “where the Secretary of State has reason to believe that a claimant has deprived himself of income for the purpose of securing entitlement to universal credit”

My Lords, the purpose of this amendment is to recognise the particular needs of the self-employed. It would ensure that the power to prescribe a minimum level of income applies only to those self-employed claimants who under-declare their earned income with a view to maximising their entitlement to universal credit.

While it is important to prevent abuse of the system, it is equally important not to discourage the genuine self-employed claimant with a potentially viable business in the early stages of development or one that is in financial difficulty. The White Paper acknowledges that,

“in starting up a business … it can take some time before it becomes profitable”.

It proposes that the minimum income floor should be applied only when a business has become “established”.

There is at present no indication of how that is to be interpreted or what guidelines or regulations will be issued, so I ask the Minister: when will this information become available?

As I said at Second Reading, there are some 4 million self-employed people in the UK, and that number is likely to grow as employment becomes more difficult. It represents an enormously varied group which faces a greater degree of risk than is faced by those in traditional employment. Profits are affected by any number of events such as the loss of a key customer, the sickness of the sole proprietor, a bad debt or accumulation of slow payers, or even by taking on a new employee. The measurement of self-employment income for universal credit purposes should follow generally accepted accountancy principles and aim at a true and fair view of a business’s profit. The welfare system needs to support businesses through such periods, not discourage them by imposing unrealistic levels of deemed income such as the minimum income floor.

My amendment recognises that real abuse should be directly targeted, but that if you impose a minimum income floor for each hour worked, that in itself will open the floodgates for abuse. This view is supported by the National Farmers’ Union, the Tenant Farmers Association and the Federation of Small Businesses, as well as by Community Link, Citizens Advice and the Child Poverty Action Group. There are those with disability or a medical condition that makes it difficult for them to take traditional employment. We have already heard from the noble Baronesses, Lady Grey-Thompson, Lady Thomas of Winchester and Lady Wilkins, about how difficult it is for the disabled to find employment. Being self-employed often allows the disabled to work at their own pace and according to a pattern that suits their circumstances.

I have another question. What steps are the Government taking to minimise the compliance burden on the self-employed? The current system requires only one set of accounts to be prepared, which is accepted for both tax and tax credits. This allows the individual to get on with running their business. If a different measure of self-employed income were to apply for universal credit, the burden would increase because individuals would have to assess profits for tax purposes according to one measure and income for universal credit purposes according to another, quite different, measure.

If income is to be based upon reported hours, the harder a self-employed person works to get their business on its feet, the more they could lose from their universal credit entitlement. Some might spend as much time seeking paid work as actually doing it, such as taxi drivers who may work 50 to 60 hours per week or more. It would be unfortunate if this measure were to deter genuine claimants from taking the risks inherent in self-employment when its purpose is to prevent a minority under-declaring their profits.

Perhaps I may give a real example sent by the Royal Agricultural Benevolent Institution. I hope that it is not one of those examples that the Minister will say is a unique and very special man. He is a single man aged 53 on a rented 160-acre farm, farming arable/field vegetables only. He has had a disastrous winter and lost the whole crop due to bad weather and flooding. Consequently, he has made a loss this year and is very distressed. As this would be calculated by HMRC to be nil earnings, he is currently eligible for a full working tax credit of £51.87 per week. Under the proposed changes in the universal credit, he will no longer be entitled to any help. The circumstances were beyond his control, and without the safety net of the tax credits he will be unable to get back on his feet and carry on farming. What will he do? Is this an example of someone where savings are to be made? Is he to face the humiliation of getting advice from Jobcentre Plus about diversifying or going to work for the farm next door?

There are already regulatory powers to counteract moves by claimants to under-declare their income for tax credit and benefit purposes. Under the income deprivation rules, a person is deemed still to have income of which they have divested themselves in order to maximise their claim to benefit or tax credit. Where the Government perceive this abuse, surely the right course is to enforce existing powers rather than invent new ones that will discourage genuine cases.

This brings me a group of individuals who in practically every sense of the word are employees but who are treated as self-employed because the alternative is no job at all. When I was a member of the Low Pay Commission, a situation where economic circumstances took away choice was called monopsony—which is not a word that is used very often. I have met home workers who were forced to accept self-employed status in order to earn money. If they asked questions, they would be replaced with one of the hundreds of women in the area who were confined to their homes for domestic or cultural reasons and were equally desperate for work.

In the construction industry up to 90 per cent of workers in London are self-employed, and yet they are told when to turn up for work and what to do when they are at work. HMRC is responsible for the construction industry tax scheme, the CIS, where contractors submit monthly returns detailing their subcontractors and certifying that none of them is in fact an employee. However, the questions asked of a contractor to establish whether any of their subcontractors are self-employed are remarkably similar to the criteria used for identifying direct employment. Successive Governments have tried to deal with the issue of bogus self-employment with little measurable success. In my report on the construction industry I wrote that:

“It may be that successive Governments see the various schemes they have adopted as a buttress against the huge informal economy in construction—a compromise so that at least some tax is collected”.

I raise these two examples of bogus self-employment—some home workers and some construction workers—to emphasise that the Government’s proposals could penalise the genuine self-employed and fail to tackle some of the gross abuses that happen now. These abuses could be alleviated by the proper enforcement of our tax laws by HMRC and of our employment laws by the Department for Business, Innovation and Skills in conjunction with the Department for Work and Pensions—with all the resources that that implies. It would also mean a level of interdepartmental co-operation in Whitehall that would make even the Minister with his acknowledged abilities blench in terror.

In conclusion, there is a clear distinction between profits on the one hand and drawings on the other, and welfare policy must reflect that distinction if in-work support is to succeed in promoting work through self-employment. The success of working tax credits in encouraging work, in particular self-employment, rests on a recognition, in alignment with the tax system, of the economic reality of how a business is doing, particularly with regard to investment in business equipment and trading losses. How is the Minister going to treat the self-employed, and does he think that my amendment would help to emphasise the real target rather than those struggling to survive in deeply difficult financial circumstances? I beg to move.

My Lords, I give enthusiastic support not only to the amendment but also to the direction in which the noble Baroness is taking the Committee. The need to ensure that disabled people do not feel that they are being debarred by the system from becoming self-employed is very important indeed. Possibly it has been a greater problem in the past and I hope that it will become even less of one with the changes we are getting. However, we need certain assurances if that is to be the case. I believe not only that this is in their own interests, given that self-employment can offer a flexibility which can be very useful, but also that they have a massive contribution to make. Given support, disabled people can also become the employers of other people. Therefore I hope that it will be possible to give the assurances that have been sought in the amendment in order to move things forward on this agenda.

My Lords, I support the very powerful case that my noble friend Lady Donaghy made, and what the noble Lord, Lord Wigley, said. The case of self-employment is clearly very substantial. My noble friend Lady Donaghy spoke about two issues: how the self-employed should be treated, and the problems of those who are not technically self-employed but who are treated as such. I confirm that my noble friend wrote a very important and powerful report that she presented to the DWP. It gave the Minister at the time a lot of food for thought, from which he has not totally recovered.

I will press the Minister on a couple of points that my noble friend raised. What will the process be for self-employment? Will it be based on the accounting profits of the business or on the tax profits? The noble Lord will be aware that they do not necessarily amount to the same thing in the same time period: for example, because of depreciation allowances for plant and machinery. How will that work? For example, if a start-up records a loss in year 1, that will be a zero rather than a minus for universal credit purposes—but does the minus get carried forward to year 2 to reduce year 2 profits? Generally it would be for tax purposes, but will it for universal credit purposes?

The period of assessment that will be taken into account—the reporting process for self-employment—clearly is a significant issue. I am very unclear about the plans, and in particular whether they will specify tax profits or profits computed for tax purposes. Obviously over time the two ought to align, but they will not necessarily align in the same period. How they are treated for universal credit purposes will be of significance.

My Lords, after spending four years writing the Lex column, I am absolutely aware that I cannot answer the question of the noble Lord, Lord McKenzie, off the top of my head. The definition of profits is a knotty and complicated issue that he is absolutely right to focus on. We need to get it right after detailed consideration. Of course it is a long-standing policy that people should be treated as having income or capital in cases of deliberate deprivation. This will continue under universal credit. However, we also think that it is right in principle to apply a minimum income floor to claimants who choose to be self-employed but whose earnings do not make them financially self-sufficient. Because universal credit is a benefit for people in and out of work, the issues around self-employment are different from the issues faced in the current system.

Sitting was suspended for a Division in the House.

My Lords, because universal credit is a benefit for people in and out of work, the issues of self-employment are different from those faced under the current system. We need to have clear rules—in particular, on when conditionality requirements do or do not apply to people who are working for themselves and so have a degree of control over their hours and earnings.

Clearly, we need to avoid requirements that will add unnecessary burdens, especially for people who are starting out in business, but we cannot have a situation where people can be treated as being in full-time work for the conditionality purpose but, because they declare no earnings, receive as much benefit as if they were not working at all.

I appreciate that noble Lords have many questions about the detailed rules on the treatment of self-employment income. This is a complex area and we are still working through all the details. The experts in this field are in HMRC and we are working closely with them to develop our proposals. I can confirm that the level of assumed earnings will not be based on the number of hours that the claimant works. Instead, we would assume that a claimant’s earnings are at the level we would expect of claimants with similar circumstances in employed work. In response to the question by the noble Baroness, Lady Donaghy, and the observation of the noble Lord, Lord Wigley, this includes whether they are disabled. As part of our work with HMRC we are considering the assessment of self-employed earnings. It will be important to determine which rules from the current benefit and tax credit systems give the most appropriate framework for universal credit.

The rules on the treatment of self-employed claimants will be set out in regulations and the Bill provides expressly that the regulations on the minimum income floor will be subject to the affirmative procedure in the first instance. The House will have the opportunity to scrutinise the details in this area at a future date.

With regard to the noble Baroness’s amendment, the wider application of notional income capital rules rightly considers whether the claimant has manipulated their income in order to become eligible for universal credit. We believe that different issues arise in relation to self-employment and it would not be right to limit the scope to assume a minimum income in this way. I hope this explanation will allow the noble Baroness to withdraw the amendment.

My Lords, I wonder if the Minister can help us further. In a situation where you have a start-up, where an individual sole trader is working all the hours there are to make a success of the business, doing all sorts of groundwork that often needs to be done, how is an assessment going to be made by the department that this is insufficient? What judgments are going to be made and how is that going to proceed?

My Lords, the noble Lord makes a very important point and it is related to the point of the noble Baroness, Lady Donaghy. There are two areas where we will have to have specific rules. First, in the start-up phase, what are the rules for that and how long does one allow for it? Secondly, in the period when something goes badly wrong, when you have had a business going very well with profits and then you have a sudden collapse, what do you do about that period? That was the example that the noble Baroness, Lady Donaghy, raised. Those are two of the issues that we are looking at very closely and how to get that right.

One of the things we want to get out of this is the most business-friendly suite of support that we can put together. In this sense, working tax credit for the self-employed does become a support for entrepreneurial endeavour, tied with other support for new business such as the new enterprise allowance.

My Lords, on the small businesses aspect—and I declare an interest as I am “lucky” to own a public house although I am a teetotaller and they are closing down all over the place in Scotland—

Most are tight-fisted so do not think you will get a free drink. What information is needed, and where would you get the information, to make that sort of calculation and deliberation? The feeling among small businesses is that nobody listens.

My Lords, I am looking forward to my invitation to the McAvoy public house. I hope that it is called “The Lord McAvoy” with a nice—

The basic way to get information from the self-employed is this: they will put in the information in the universal credit system, or an equivalent system, which will potentially match up later with the information that they provide either to the VAT authorities or to HMRC. There is a process of reporting.

To get back to the point, there is an opportunity to provide real support for entrepreneurial business, but as the noble Baroness, Lady Donaghy, so shrewdly said, we must not be an open cheque book for people who are not running genuine businesses. We need to get that right.

Something has been puzzling me. We are talking about self-employed as if it were a self-employed single person. What happens if you have a small family business—not quite the corner shop—where the income from that self-employed business in which the partner, say the wife, is doing some part-time book-keeping, answering the telephone, and so on and contributing to fairly low profits? How will you assess whether conditionality applies to her?

My Lords, universal credit is particularly well suited to that situation because it is a household income. We will have rules on the two benefit recipients in a two-person household, so we should be able to adapt to that reasonably straightforwardly. Clearly there will be circumstances when one person is in paid employment and the other is self-employed, and we need to mix that. We are working on defining all those situations so that we can make universal credit work appropriately.

To follow that point through a little, I understood that the intention was not to take the circumstances when one was in paid employment, but when both might be employed or self-employed in their business and both getting their income. Presumably there would need to be some attention to those rules as well.

My Lords, I am sorry. I probably broadened the point that should have remained narrow. When two people are working on one endeavour, because universal credit is a household payment, it can accommodate that without any distortion.

I do not usually come to the Minister’s aid but if you have two people in business together, that would be a partnership and you would typically look at each person’s share of the profits and presumably aggregate those if they are part of the same household, not if they are in different households.

My Lords, this is one area where a single earner disregard makes life rather easy. I hope that we will be congratulated on that structure.

Can I just make one other point? It is wrong of us to press the Minister as I know that this is embryonic and a lot of work is going on. If the process is to be some early report in that has to be assessed against what is eventually a tax assessment or consistent with VAT accounts, that sort of presupposes that there has to be some look-back or process of adjustment—in a sense the tax credit-type arrangement, which is quite different from the real-time earnings for employed people. Does the noble Lord envisage that as part of the system?

It is clear that we cannot use real-time information for the self-employed. It is another system. It will be much closer to the kind of reporting systems for tax credits in this area—and for that reason.

A disabled person might have feared going self-employed in the past because of the possibility of losing benefits and not being able to get them back at some future date. That would have been a psychological barrier. Could the Minister confirm—I am sure that he can and will be eager to—that that problem should be overcome by this system? It should be sympathetic to, and encouraging of, people becoming self-employed.

Yes, the system is absolutely straightforward for a disabled person who goes into employment, where it is unequivocally much safer. There is a difference in self-employment in that, in cases of low earnings, we will look for an element of potential conditionality and a relationship with that person when they do not want to observe the minimum income floor. You have a choice: either have a minimum income floor and then there is not conditionality; or you come below it and there is a conditionality regime. That does not mean there is an instruction saying, “It is out to work. Stop what you are doing”. It absolutely does not mean that. It means that we know what people are doing and, after discussing it with them, can reach an assessment of what they should be doing. In many cases we will be absolutely happy for them to continue that regime. It offers us an opportunity to know what is really happening out there—I suspect in a way that we do not know now.

I am extremely grateful to the noble Lords who took part in this discussion—the noble Lord, Lord Wigley, and my noble friends Lord McKenzie, Lord McAvoy and Lady Hollis. I have learnt something today. I did not know that my noble friend Lord McAvoy owned a pub. I do not know if that makes him a licensee. I thought that I was the only licensee in the House of Lords. I was one for 16 years. We must obviously now compare notes.

I am also extremely grateful to the Minister. I take assurances from some of the things that he said. He accepted that the self-employed are different and that their situation is complex in relation to this subject. He is determined to produce clear rules—I have written that down: “clear rules”. I do not know if those rules will be as clear as those in Amendment 52B from the noble Baroness, Lady Howe, and my noble friend Lady Lister, which was just debated. Let us hope that they are really clear.

I take assurance from the Minister saying that we cannot use real-time information. I am aware that this is work in progress. I have some worries about the when. In my contribution I asked when this information was going to be available. I am pleased that we will have the opportunity to look at this in terms of the affirmative situation to which he referred. We will have another chance to look at the regulations. He acknowledged that specific rules will try to cope with things like the start dates and what happens when things go badly wrong. Again, I welcome the fact that he has tried to cover the entire patch.

I understand why he baulked at mentioning the issue of bogus self-employment. It is a big subject but I must come back to the comment that some of the real abuses are around the edges of the twilight zone of informal economy, bogus self-employment and people who abuse the system—sometimes all three. The sooner we can get some co-ordination in our systems, the better for everyone. I may come back to haunt the Minister about this whole area on another occasion but in the light of those positions, although still with some question marks, I beg leave to withdraw the amendment.

Amendment 52BA withdrawn.

I hope noble Lords would agree that this might be a convenient moment for the Committee to adjourn until 2 pm on Thursday.

Committee adjourned at 7.31 pm.