Committee (1st Day)
Relevant document: 14th Report from the Delegated Powers Committee.
Clause 1 : Up-rating of certain social security benefits for tax years 2014-15 and 2015-16
1: Clause 1, page 1, line 4, leave out “by 1%”
My Lords, I support Amendment 1, which seeks to ensure that the Government have flexibility to increase benefits in 2014-15 and 2015-16 taking account of the level of inflation at the time. The amendment does not seek to impose a particular percentage increase in benefits in any year. It simply seeks to avoid the straitjacket imposed by the Bill as it stands.
Amendment 1 covers all the benefits and claimant groups referred to in Schedule 1. It would therefore leave open the possibility of a Government deciding to protect a particular group, perhaps disabled people or children. This amendment has become particularly pertinent in the light of the downgrading of the British economy by the ratings agency Moody’s at the end of last week, along with the anticipation of yet more quantitative easing and the expectation that in these circumstances we will have more inflation year by year. That inflation comes on top of a level of inflation which is already above 1%, which is vital to this set of amendments and, indeed, to the Bill.
This Bill has to be considered in context. As noble Lords know very well, last year’s Welfare Reform Act has already capped benefits and imposed the bedroom tax so that an increasing percentage of everyone’s rent will be paid out of their personal allowance, leaving them with the most pathetically small amount of money to cover food, heating, clothing and other necessities. Also, the Government have already changed the basis of annual welfare benefit increases from the RPI to the CPI. This is absolutely crucial because that measure alone, before this Bill, is expected to save £5.8 billion a year. Such savings can be achieved only through imposing the most incredible hardship on many of the most vulnerable people in this country. The proposed limiting of upratings to an increase of 1% will be an increase in the consumer prices index, not the retail prices index, so it is not even going to cover an inflation rate of 1%. That is how bad it is. It is the compounding of the previous Welfare Reform Act with this Bill that is so deeply shocking to many of us.
The cumulative impact of all these changes and the proposed 1% uprating limit is not yet fully understood even by the experts in the field, let alone by its victims. But it is not surprising that there is deep concern in those organisations which have to work with vulnerable people, including the CAB service. It is worried stiff about its clients and the capacity of the bureaux to cope with what is going to be an unimaginable flood of people in desperate circumstances. The Government are breaking the long-standing link between annual incremental increases in benefits and prices. Once lost, it will be very difficult to restore it. Indeed, it is difficult to imagine that happening for decades. That is how serious this is. It is not just one little part of a Bill; it is actually historic because it changes the whole way we look at increases in welfare benefits.
Has the Minister undertaken an impact assessment on this Bill, including an estimate of the likely cost of increased mental breakdowns and the resulting impact on mental health services? Has the Minister assessed the costs arising from the result of increased crime rates and the impact on the criminal justice system, and from the impact of increased homelessness on local authorities? Also, I refer to the overall impact on communities of what I fear we will see in terms of increased unrest. It is very difficult to believe that we will not experience unrest in communities that are profoundly hit by the combination of all these changes—not just arising from this Bill, but from a combination of everything that is being done. I would be grateful if the Minister would reply to this question: has the impact of this Bill, combined with the previous Bill, been fully assessed in terms of services and costs? If these implications have not yet been estimated, does the Minister agree that that must be done before implementation of this Bill?
I want to challenge the Government’s rationale for this uprating Bill—that welfare benefit increases must take account of the public sector pay freeze and the low level of pay increases across the economy in recent years. Citizens Advice is right to argue that a 1% increase means something very different to somebody on an average wage from what it means to somebody on welfare benefits. A 20% increase in out-of-work benefits in the period 2007-12 resulted in an average annual increase in income of only £2.37 per week. A lower percentage increase, of 15%, in public sector pay during the same period provided an average increase in income for public sector workers more than five times greater. It was a lower percentage but a much greater increase in actual terms.
What matters for families is how many pounds’ increase they have, not some airy-fairy percentage; they want the pounds. Public sector workers had on average an increase of £12.40, compared with the benefits average of £2.37. I accept that it would not be fair to enable those on benefits to leap ahead of those on low public sector wages in absolute terms, but there is no danger of that happening. Does the Minister agree?
My final point takes us back to the debates we had about direct payments of rent to landlords and the payment of benefits weekly rather than monthly. You could say that that is irrelevant to this Bill; I do not think that it is. I am grateful to the noble Lord, Lord Freud, for explaining to me that he has done a lot of work since the previous Act and those earlier debates, and that built into the system now are exceptions to try to protect particularly vulnerable people; in other words, by enabling some peculiarly vulnerable people to be paid more regularly and to have their rent paid direct to landlords. I am referring to the noble Lord, Lord Freud, because I had a meeting with him recently, and I know he has real concerns about some groups, particularly those with mental health problems, and how on earth they are going to cope with these reforms.
Perhaps the Minister will spell out the exceptions for the benefit of this House. It would be helpful to know how broad or narrow these exceptions are going to be. Undoubtedly, exceptions to the requirement for monthly payments and ending the direct payment of rent to landlords will help but, whatever amendments may be agreed to this Bill, would it not be wise to put on hold altogether, for a period of perhaps three years, the changes to the frequency of welfare payments and the direct payments to landlords? Such concessions would be relatively cost-free but would make a very big difference to people’s capacity to cope as they find their tiny incomes declining in real terms month by month.
In two years’ time the Government can measure the extent of the inevitable increases in rent and council tax arrears, homelessness and other social consequences. When that evaluation has taken place, a decision could then be made on a rational basis about whether it is remotely sensible to implement the other provisions of the previous Welfare Reform Act. I do not expect the Minister to respond to these points today but would be grateful if she could write to me with the response before Report.
My Lords, somewhat to my surprise, I find my name on this amendment, so perhaps I should say a few words. I do not want to repeat all the arguments that were advanced at Second Reading and I do not have a lot to add to the very eloquent speech that we have just heard from the noble Baroness, Lady Meacher, but there are a couple of points I would like to make.
The first is the economic argument. I said at Second Reading that it did not really make any sense, at a time when the economy was flat-lining, to withdraw additional purchasing power from a section of the community that was most likely to spend it: those on welfare benefits. With every day that goes by and the economic news piles up about the dire condition of the British economy, the stronger this argument gets. The Minister did not respond adequately to that argument at Second Reading. I would be grateful if the Government gave further serious consideration to the force of that argument, which is genuine and considerable.
The Bill will cause real hardship for disabled people, carers and children. Disabled people are said to be protected but, as we showed at Second Reading, the protection accorded disabled people is partial. There is some protection for those in the support group receiving employment and support allowance, and disability living allowance is exempted from the 1% cap, but those receiving employment and support allowance in the work-related activity group and other disabled people receiving other benefits do not receive protection from the 1% cap. It cannot therefore be said that disabled people are fully protected, nor are carers.
Above all, children are not protected. Disabled children in this country are already disproportionately likely to live in poverty. Approximately 40% of all disabled children—about 320,000—live in poverty, compared with a poverty rate of 30% across all children. Nearly a third live in severe poverty—where a family’s income is less than 40% of the national average. Under universal credit, which will begin to come into effect later this year, parents of disabled children can receive a benefit called the disabled child addition. This will replace the current disabled child tax credit, but, under universal credit, the support available for disabled children who do not receive the high rate of DLA care component will be cut by half, from £57 a week under the disabled child tax credit to £28.52. The Bill will mean that the value of this benefit will increase at a significantly slower rate, by just 1% as opposed to in line with the CPI, which is currently running at 2.7%. As a result of the Bill, parents of disabled children receiving the lower disabled child addition of universal credit will lose £25.21 a year, or £75.63 over the three years during which the 1% cap is intended to operate. I would be grateful if the Minister could reflect further on the hardship that will be caused to all these groups and have second thoughts about the universal application of the 1% cap.
My Lords, I shall speak to Amendment 1 in this group and to the other amendments that we have in it: Amendments 6A, 9 and 10A. I am grateful to my noble friend Lady Hayter for moving the amendment in my absence and apologise to the noble Baroness, Lady Meacher, for missing the very start of what was a powerful presentation.
Amendments 1 and 9 would remove the reference to 1% in Clauses 1 and 2 and hence remove the 1% cap on the uprating of relevant sums and amounts. Amendments 6A and 10A would delete the prohibition on uprating such sums and amounts under the annual uprating of benefits and tax credits. We fully intend these amendments to undermine and negate the purpose of the Bill, which we consider to be unnecessary, misdirected and contributing to the continuing economic failure of this Government, a failure all too evident from last week’s downgrading of our AAA credit rating by Moody’s.
Let me be clear from the outset on Labour’s position: we will make no commitment now on spending or tax for the next Parliament and will set out our spending plans at the time of the next election. However, right now we would uprate in line with inflation—I shall come on in a moment to how the Government can plug the hole in their increasingly fragile finances.
This Bill is unnecessary because if this Government misguidedly wish to plough on with this capping on uprating, they could simply use the annual uprating process. The Bill provides no certainty for taxpayers because there is no certainty on claimant numbers, except perhaps the prospect of them increasing, given the Government’s economic failure. As for the markets, it is frankly untenable to suggest that by locking those amounts, which account for less than 0.1% of government spending, into legislation they will be assured and comforted. It does not seem to have cut any ice with the rating agencies. The certainty of a real terms cut in support cannot be welcomed by claimants, especially when they have no certainty about the level of the real cut.
We all know why the Bill was brought forward. We made our position clear at Second Reading and I do not propose to revisit the issue in Committee. The Bill is misdirected on several counts. It does nothing for jobs. Indeed, by withdrawing real resources from low-income families, which of necessity have the highest marginal consumption rates, it is damaging demand. It ignores the IMF warning that the fiscal stabilisers should be allowed to operate. Its justification is supposed to be that there needs to be some correction for the fact that benefits have been uprated at a faster rate than earnings over the past five years—essentially, that those out of work have done better than those in work. It is perverse, therefore, that two-thirds of those hurt by the Bill are in work, taxing the very strivers whom the Government claim to be supporting. Indeed, specifically included in the cuts is in-work support, such as working tax credit, SSP, SMP and paternity pay, as well as in and out of work benefits such as housing benefit, the very support that enables individuals to sustain employment and manage work and family responsibilities.
It is not only those in work who are having their living standards cut. The Government are failing to honour their pledge to protect the most severely disabled. If they still hold to their obligations under the Child Poverty Act, they are drifting further away by pushing a further 200,000 children into poverty. Worst of all, at a time when the Bill will reduce the living standards of the very poorest, they are rewarding those with the highest incomes, including 8,000 millionaires, with a generous tax cut. The contrast could not be greater: a £2,000 a week tax cut for some, 71p a week if you claim JSA.
By leaving the inflation risk with claimants, the Bill creates greater risk for the poor and uncertainty about their real incomes. The 2012 Autumn Statement cites energy and fuel prices as remaining a potential source of risk over the coming years. It estimates that inflation will be higher in 2013 and 2014 than originally announced due to rises in domestic energy prices and food commodity prices—the very costs that hit the poorest hardest. We see today the reaction of the currency markets to our credit rating downgrade: a weakened sterling, which will put further pressure on prices.
Uncertainty is compounded by there still being no cumulative impact assessment for the raft of benefit and tax credit changes that have been introduced so far by the Government. The IFS, in its 2013 green budget, analysed the effect of the 2013-14 tax and benefit changes. It concludes:
“This broad pattern of tax giveaways and welfare takeaways”—
its own terminology—
“means that the changes, on average, reduce net incomes towards the bottom of the income distribution and increase net incomes in the middle and upper parts of the distribution”.
It states that the below-inflation uprating is the predominant cause of losses in the bottom half of the income distribution and that the reduction of the top rate of tax from 50% to 45% produces the gain for the richest.
That juxtaposition speaks volumes about the priorities of this Government: the rich need more to motivate them; the poor need to feel the lash of cuts to inspire them. This pattern is not new. Looking at the overall position since 2010, apart from the richest decile it is a fact that the poorest have lost the greatest percentage share of their income in the cause of fiscal consolidation. This analysis is consistent with the detailed briefings that we have all received from a range of authoritative sources. They tell us that 68% of those affected by the Bill are actually in work, 30% of all households that will be hit will lose on average £156 a year, two-thirds of those households are families with children, 71% of households affected are at or below average income, and two-thirds of those affected are women.
Our opposition to the Bill is clear: the Bill locks in cuts to real incomes through to April 2016. We argue that the normal uprating process should operate, with annual Statements laid before and debated by Parliament. We will hear the cries from the Minister asking what we would do. Clearly, one matter that should be addressed to get the social security budget down is getting more people into work. Despite claims to the contrary, the Government are failing on jobs. Long-term unemployment and long-term youth unemployment are up on the year. The Work Programme is little short of a disaster and continues to fail the hardest to help. Some 1.4 million part-time workers would like to be working full time. This is why we have proposed a new initiative to get people into work and a compulsory job guarantee for the long-term unemployed, and we have costed a scheme that over the course of a year would help more than a quarter of a million people into work, paid for by restricting on a tapered basis pension tax relief for those earning more than £150,000.
We will continue to argue for the reversal of the proposed tax handout to the very rich. We heard the Minister at Second Reading suggest that the saving that this would produce would be “illusory” because the rich would order their affairs to make sure that the will of the Government was defeated. Indeed, the HMRC analysis suggests that some would do this by forestalling and deferring, whereby income fell into a lower tax period, converting income into more favourably taxed capital. Have we not already had reports about income being deferred into next year? However, the Government do not have to acquiesce in this and accept the Starbucks approach to tax compliance. If they believed in tackling tax avoidance, they could secure the revenues that reversing this tax cut could generate.
There are alternatives. The country does not need the Bill. It needs growth, jobs and fairness in sharing the burden of fiscal consolidation. This Bill will contribute none of this.
My Lords, I speak on behalf of the minorities and the moral economy of kin. For minorities who have been in this country for a very long time, it is the family who has given support and sustenance to those who are unemployed and suffering. That is normally done by people who are employed but in marginal jobs—hand-based employment such as catering—essentially by stretching the resources of the family unit in order to include the extended family.
Unfortunately, with the kind of cuts proposed at this stage, the extended resources of the family will no longer be able to help. My fear is that those of the younger generation who are likely to be serving in the restaurant with their dads or working with their mums by knitting or producing shirts and so on will now join the ranks of disaffected young people, and then be branded as home-made terrorists. It is a dangerous precedent. We really need to nurture the moral economy of kin because it is these families who offer support, but on this kind of income and with these kinds of cuts they will simply be unable to do so.
My Lords, perhaps I may pick up on some points made by the noble Lord, Lord McKenzie. I have the highest respect for the noble Lord, Lord Low, and nothing would give me greater pleasure than to vote for the amendment. There is a problem, however, in that we cannot afford to vote for the amendment. The noble Baroness who has just spoken talked about cuts. We are not talking about cuts but about not having increases. It is true that there might be cuts because of inflation, but if we go down the road proposed by the noble Lord, Lord McKenzie, inflation will be even higher and the cuts will be more severe. It was Lord Callaghan who pointed out, as a Labour Prime Minister in the 1970s—sometimes I feel that we have gone back to the 1970s; even the Daleks made an appearance in Westminster last week—that inflation is the father and mother of unemployment.
It is really quite extraordinary for the noble Lord, Lord McKenzie, to make so much of the rating agency’s downrating of the UK from AAA status. I do not know whether he has read what the rating agency had to say about why that downrating was being made. It was because the agency believed that the Government would not be able to meet the targets that they had set, and which the Opposition are constantly urging us to abandon. The noble Lord talked about the impact of the sliding pound and of inflation, which is a consequence of not meeting these targets. On the idea that finding money out of thin air will not hurt the poorest hardest in the long term, because of the inflation that would be created and the impact it would have on the pound, the hard reality is that we simply cannot afford to do what the noble Lord, Lord Low, would ask of us.
It is the cheapest of cheap politics to keep going on about millionaires being given a subsidy. First, that assumes that the state is entitled to their money and that it can spend that money better than they can; and, secondly, that if they spend it by investing or buying goods it will not generate wealth and prosperity in the economy, while somehow a state bureaucracy involved in spending money and taking it by force through an Administration will get better value and growth. That is a delusion which we happily abandoned in the 1970s when we abandoned rates of income tax at 98% and discovered that the consequence of cutting taxes to 40% was that the rich ended up paying a higher proportion of tax than in the past. Already we are seeing that the proportion of tax paid by the very rich is falling and the proportion paid by the poorest is rising. That is not as a consequence of the recent measures made by my right honourable friend the Chancellor in his Budget but as a consequence of the politically inspired 50% tax, which the previous Government introduced as some kind of political gesture to try to create division between the parties.
We can all make speeches saying that we would like to have more money available for those who are poorest but if we were to follow the prescriptions of the noble Lord, Lord McKenzie, and his party—in so far as we can work out what their prescriptions are—the effect would be higher inflation, higher interest rates and higher unemployment, with those who are poorest in our country being the most disadvantaged. It would not be the rich or the people in the public sector but those who are unemployed, while the prospects for new jobs would be reduced.
I say to my noble friend that she is right to press ahead and, I hope, to reject this amendment. It is not because we do not care about those who are most vulnerable in our society but precisely because we do that we want an economic policy that will deliver the wealth that is necessary to pay the bills. The truth is that we are in this mess because the previous Labour Government spent money on welfare that was based on an unsustainable bubble. That is why we now have the problem. It is very regrettable that noble Lords opposite should seek to make party politics out of this issue while not acknowledging the very heavy burden of responsibility they carry for having brought this situation about and the real courage being shown by my right honourable friend the Secretary of State in bringing forward this Bill. It is trying to bring into effect a welfare system that will be within our means and will recognise the need to encourage those who have the greatest need.
It is very fashionable to blame the previous Government for our predicament but does the noble Lord accept that the banks have to carry perhaps 90% of the burden of responsibility, and that the banking crisis started in the United States—not even in this country? In fact, if there was a weakness, it was in the degree of regulation. My understanding is that the previous Conservative Administration opposed even the level of regulation that this country had. This is therefore not a party political issue; it is about banking, and this country has been deeply wounded by the banking crisis.
The other question for the noble Lord is whether he accepts, as Lord Maynard Keynes argued rather powerfully, that if you are in a terrible state of recession the best way to get yourself out of it is to generate growth. That means that you should not be withdrawing demand from the economy in this incredibly irresponsible way. What the Government are doing is very worrying.
I am most grateful to the noble Baroness. I disagree with the idea that leaving money, as Gladstone would have put it, to fructify in the pockets of the people is withdrawing money from the economy, and that somehow the state would spend that money more effectively.
As to her particular question about whether I accept that all this difficulty was caused by the banking crisis, no, I do not. I think that the banking crisis was caused by the monetary policy being pursued by the previous Government by targeting inflation. The noble Baroness seems surprised by this, but the fundamental causes of the financial crisis were the huge financial surpluses that were being built up—I hesitate to stray too far from the amendment—in China and the Middle East, which kept interest rates low, and an inflation-targeting policy being pursued by the Bank of England that meant that they were very low interest rates. As a result, the banks tried to go for yield. The banks were certainly at fault in devising packages that they thought would reduce risk and give a higher return, and it is certainly true that regulators such as the FSA should have been on to this.
However, the fundamental point is that while Labour were in charge they did nothing about that; indeed, they revelled in it. We were told that they had abolished boom and bust, and that they had come up with a new paradigm. That is why that Labour Government, even at the height of the boom, with huge revenues coming in and house prices and asset prices going through the roof, did nothing except collect the tax. Instead of putting the tax away for a rainy day, what did they do? They spent it on welfare that they could not afford, and when the boom collapsed there was a sudden gap in the market that my right honourable friend is now having to deal with. So let us not rewrite history here; let the Labour Party take responsibility for what it did in government.
The fact is that under both Governments we have been living beyond our means. We have been spending about 10% more than we earn, and we have been saving nothing. We need to save 10%. The consequence of that is that our living standards will fall unless we are able to create growth, and you do not create growth with the state taking more and more from the productive part of the private sector. According to the OECD, close to 50% of our GDP is being spent by the Government. We used to define communist countries as those where more than 50% of the state’s production was spent by the Government.
I say to my noble friend on the Front Bench that this is not an easy amendment to oppose—of course it is not—but she is absolutely right to do so because it is in the long-term interests of the most vulnerable people in our country that we stick to this policy and do not go further down the road that has brought us to this mess. If we travel down that road, it will mean that the hardship endured by the most vulnerable will be all the greater.
My Lords, I had not planned to speak to these amendments but I have been stung into doing so by the remarks of the noble Lord, Lord Forsyth. I am going to keep my powder dry for later amendments. First, he started by saying that this is not a cut. Of course it is. He then had to concede that if you do not uprate benefits in line with inflation, you are cutting benefits. Do not tell the mother who has to struggle that this is not a cut—it is.
Secondly, the noble Lord said that we cannot afford to uprate benefits in line with inflation. This is about choices—particularly, as the right reverend Prelate the Bishop of Leicester made clear at Second Reading, moral choices. We can afford to protect people living in poverty from inflation.
I will not make the contrast with millionaires because the noble Lord said that it was a cheap contrast. I will simply make the contrast with a policy of which the coalition Government are very proud—that of uprating tax allowances by more than inflation. As Gingerbread, I think, pointed out to us, this is the least effective way of targeting resources on people in poverty. A much more effective way of helping them is by inflation-proofing their benefits. There is a choice. The choice was made to increase tax allowances by more than inflation, which is of no help to people too poor to pay tax, including people in work too poor to pay tax; of minimal help to people on means-tested benefits, because they lose some of it; and of greatest help to higher-rate taxpayers. That was a choice. It was believed to be all right because we could afford it, but we cannot afford this.
Is the noble Baroness not leaving out an important ingredient? The reason why that choice is made is because by cutting the tax burden and encouraging people to save to invest and to work harder you create the wealth that is needed to create the welfare state. That is the difference. The noble Baroness seems to think that it is a fixed cake and that whatever happens it is impossible to increase the size of the cake and thereby make more money available for those in greatest need.
I do not want to get into a great debate about the economics of this, but are people in low-paid work who are getting tax credits not contributing to the wealth of the country in the same way? They are affected just as much as people on so-called welfare, which I prefer to call social security. The economic case was made by the noble Lord, Lord Low, and the noble Baroness, Lady Meacher. This is not about the state taking money out of the productive economy and somehow filing it away somewhere; this is about the state redistributing money to people who are more likely to spend it and to spend it in local communities, thereby helping to boost economic growth at the time we need it. I do not believe there is an economic case. I do not accept the crocodile tears that are being shed by someone who is prepared to support a Bill that will hurt people in poverty the most.
I, too, was not intending to speak on this amendment, but I was spurred to by my noble friend Lord Forsyth of Drumlean. I rise to add to some of the points and to reinforce some of the questions that he has about this. I followed this debate quite closely at Second Reading, and I thought that the position then argued by the noble Lord, Lord McKenzie of Luton, was that the Opposition opposed the 2013-14 and 2014-15 limits but had not yet reached a position on 2015-16. Presumably by supporting this amendment, they are now making the position that they do not agree and would therefore reverse the policy as it affects 2015-16, which is £1.9 billion. I may have got that wrong, and I am very happy to sit down if the noble Lord wants to intervene to correct me.
I shall clarify for the noble Lord that we made our position clear in respect of 2013-14, which is not in the Bill but is dealt with by regulations in the normal way. We made it clear that we will make no tax or spending commitments in respect of the next Parliament, which would include the latter part of 2015-16. As for 2014-15, we think that removing this cap would enable the normal process to take place so that there can be an assessment in the normal course about what is happening to inflation and the state of the economy in that year. I hope that has clarified the position. That has not changed since we debated this at Second Reading.
The noble Lord is saying that the Official Opposition do not intend to make any pledges, which is interesting because I thought I heard last week that there was a proposal for a mansion tax and that that would be funded by other means. I thought that was a specific spending commitment beyond 2015-16.
My second point picks up on one from the noble Baroness, Lady Meacher, who made a thoughtful contribution. We overwhelmingly agree that the most effective way to alleviate poverty and raise standards is to create jobs. I would have thought that there would be some recognition that the Government’s record on that has been quite reasonable. We would of course like it to be very much better, but contrary to some other countries that are wrestling with the same problems our unemployment rate continues to fall. We now have the highest level of private sector employment in our history and a million new private sector jobs since the last election. That suggests that moves to reform taxation and stimulate the economy are beginning to have some effect, and that they are the best way of tackling this.
We have an Urgent Question coming up on the rating agency decision: the noble Lord, Lord McKenzie, and the noble Baroness, Lady Meacher, referred to this. I was reading through the decision and thinking of making a contribution to the Urgent Question, which I will not now do having secured the Floor in this debate. Moody’s statement,
“explains that the UK’s creditworthiness remains extremely high … because of the country’s significant credit strengths”,
chief among which are,
“a strong track record of fiscal consolidation and a robust institutional structure”.
That is quite interesting. In fact, going beyond that, we are again warned about what could happen to the country’s inflation and the cost of borrowing if the country were to be downgraded again.
Further down, on what could move the rating up or down, Moody’s statement says that,
“downward pressure on the rating could arise if government policies were unable to stabilise and begin to ease the UK’s debt burden during the multi-year fiscal consolidation programme”.
So there is a case for fiscal consolidation. There needs to be a recognition that the Government’s policies of raising tax thresholds and increasing employment are beginning to have some effect.
Notwithstanding that, I come to a point of agreement, which I made at Second Reading: no one on any side of the House is cheering on this measure. It is an economic necessity. It is certainly not something that anyone takes pleasure in.
My Lords, although I am delighted to support these amendments, believing the Bill to be yet another attack by the coalition on the poorest and those in the squeezed middle, I confess to feeling more than a little hard done by being obliged to speak at all to the amendments in this group. The reason for this is that a draft amendment in my name was refused as not being in scope. The draft amendment was to the commencement part of the Bill, on page 2 at line 38, and says:
“Except that no commencement shall take effect until the Secretary of State is satisfied that legal help is available for all claimants who seek legal advice on the validity of the decision on their benefit entitlement”.
At first sight, it sounds as relevant to the Bill as other amendments that grace this Marshalled List, but there it is. My amendment has for some reason ended up on the wrong side of the line. It is not for me to speculate on whether any part of government was asked its view as to the status of my amendment, but I venture the opinion that it may be something of a relief to the Government that my amendment does not stand to be debated or to be voted on at a later stage.
However, I would argue that the principle behind it clearly is relevant to this group of amendments. It could be called a pursuit of justice or, to put it the other way around, the avoidance of unfairness. Because the concentration is rightly on the measures themselves, what is so often left out of the arguments about welfare reform, whether in relation to this Bill or the regulations that we were debating before our half-term break—in this case, the 1% uprating—is what potential real remedy the citizen will be left with if the department’s decision is wrong. Surely the fact that it is wrong in many cases is not in question. We all know that, with the best will in the world, decisions made by the department are often wrong and very much to the disadvantage of those who want to claim them.
For a long time, this has not been a pressing problem. For those requiring legal advice on their benefit entitlements, legal aid has been available—if, of course, these people came within the criteria for legal aid, and many did. For a small amount of legal aid, quality advice has been available, having the effect of both stopping—this is important in cost terms—hopeless claims and establishing good claims where appropriate. It is a system that worked. Putting it at its highest, it has allowed access to justice for all. At a slightly lower level, it has meant that tribunals have not been faced with an impossibly large number of cases, many of which should never have been brought in the first place. It has cost a fraction of the total legal aid budget and is paid to lawyers who are not by any standards well paid. Yet from 1 April, as a deliberate act of government policy, this legal help will no longer be available for anyone in cases relating to welfare benefit entitlements, whether under this Bill or under the regulations and the larger Act passed by Parliament last year.
Thus, people will not be able to get the advice to which they are entitled. Their access to justice will be gone. The department will get away with wrong decisions and tribunals will be overburdened with what I can only describe as rubbish cases—all to save £25 million per year on welfare benefit advice. Perhaps I may remind the House and this Committee that that is one-tenth—I repeat, one-tenth—of the amount set aside by the Department for Communities and Local Government so that there can be weekly rather than fortnightly collections of rubbish. Is this really a proper sense of priorities for a time of austerity?
Further, everyone who knows anything about this agrees that this is not likely to be a saving at all in the end. The state—I fear that it will be the department as much as any other department and perhaps the Treasury—will eventually have to pick up the pieces when things get much worse than they need to. What does the Minister, for whom I have a high regard, have to say about this? What does he say to those who under this Act will not be able to query a wrong decision about their entitlement? They will not be able to do that because they will not be entitled to legal aid for legal advice as to whether a mistake has been made. How can the Minister or any Government justify this either in terms of common decency, which should appeal to this House and normally does, or even under the rule of law?
I support the non-existent amendment of my noble friend Lord Bach as it is key to the changes that we are having. We should not be discussing this Bill in isolation from the Welfare Reform Act that preceded it. They represent a package of cuts and changes that will bear very heavily on 5 million to 7 million people in this country—no light measure.
To follow my noble friend, it is worth reminding the House of what we discussed at Second Reading about the number of changes that will affect people who are receiving benefits, even though many of them are in work. Those changes will happen to them all at once. We will see a new structure of benefits, brought together in universal credit—that is a structure that I welcome—but it will be accompanied, as in this Bill, and in reducing benefit inflation to CPI, by serious cuts, which many benefit claimants will think is simply an error by the department. They will go frantic with concern in trying to rectify them. That is the second change.
The third change that we are going to see is to the new patterns of payment. For example, tenants of social housing who currently have their housing benefit paid directly to the landlord will now have it paid to themselves, looped through a bank account. Very often, given other pressures of finance, debts and so on, they may be in real difficulties in making that money over to the landlord at the end of the month. So there is a new pattern of payment, with which tenants must become familiar. They will also have monthly payment of benefit, when many of them have been used to weekly or fortnightly payments, and the payment will go to a single earner or person in the household and not split. Again, that is a major change.
All those changes—the new structure, the cuts, the new method of payment direct to tenants, and the monthly payments—will be handled by an IT system, when we know that 20% to 30% of the tenants wishing to claim benefit have no familiarity with IT at all. So what will they do? What they have always done is to seek legal advice from Citizens Advice, which in the past has been funded very substantially by the Lord Chancellor’s Department. CABs have received some 40% of their funding from the Lord Chancellor’s Department, but that has been cut, and they are now 40% short. As a result, those same people facing this sequence of changes, some of which I support, like universal credit, and some of which I deplore, will make their bids for benefit on the basis of an IT system, with which they are not familiar, instead of a paper trail. Where do they go? They cannot go to the traditional advice centres because the legal aid money that sustained them has been withdrawn in the worst, most foolish and most indecent economy of which I can conceive. I declare my interest as a chair of a housing association. I am having to appoint paid professionals to do the welfare advice, to be paid for out of increased tenants’ rents, which hitherto was provided by the skilled but unpaid volunteers of the CABs, which represented a real commitment to the big society to which we all give lip service and which, I fear, is too seldom observed in this House.
My noble friend is absolutely right that this is a foolish way to proceed and I regret very much that we were not allowed to debate this properly. I speak with some concern because, as a departmental Minister for eight years, I was responsible for tribunals before they went over, via Leggatt, to a generalised tribunal system. I sat in on those tribunals for DLA and other benefits. My noble friend is exactly right—I could see within five minutes whether the person coming before the tribunal had or had not received prior legal advice. If they had not, the appeal or discussion at tribunal took five times as long, with the chairman, as they were then called—now judge—trying to tease out the issues and establish whether it was a bona fide case, whether they could take it further and even whether the person was claiming against the right benefit. In some cases, they were complaining about an incapacity benefit when it should have been DLA, and I felt like jumping up and saying, “You’ve got the wrong benefit here—let’s start again”.
That is the situation here. We are transferring the pressure of the problem away from the point that is most approachable, accessible and value for money—local services in the community funded by legal aid—to the tribunal process itself and merely distributing the pressure over a longer time, at greater cost, with greater inaccessibility and greater difficulty for everyone to understand. That is a huge folly and, like my noble friend, I beg the Government, even at this late stage, to reconsider.
My Lords, at the risk of repeating arguments made in earlier debates, I remind the Committee of the context of the Bill. This country is still recovering from the most damaging financial crisis for generations. When this Government came to power, the state was borrowing £1 in every £4 that it spent. Even before the recession, the UK had the highest structural deficit in the G7 and between 1997 and 2010 welfare spending increased by some 60% in real terms. Welfare spending now accounts for more than a quarter of government spending: that is, more than £200 billion. The £1.9 billion of savings enabled by this Bill in 2015-16 is a necessary part of helping to reduce public spending, tackle the deficit and secure the economic recovery.
Amendments 1 and 9, spoken to by the noble Lord, Lord McKenzie, would remove the 1% uprating figure in the Bill in Clause 1 and Clause 2. The effect of these amendments would be to give the Government discretion over benefit levels on an annual basis in much the same way as under existing legislation. As I have already explained, we believe it is vital that we set out credible plans for the longer term. The Bill is needed to enable us to set out our uprating policy over several years so that we can be sure we will deliver those £1.9 billion worth of savings.
My speaking notes at this point said that this amendment would completely undermine that core purpose of the Bill. I was relieved, but not surprised, that the noble Lord, Lord McKenzie, used that very word to define the effect of these amendments. He said that the amendments would undermine and, indeed, negate the core purpose of the Bill. They would, and so a vote for these amendments would be equivalent to a vote against the Bill at Second Reading. I note that the amendments, while removing the 1% figure, do not suggest an alternative uprating metric. If we assume that the noble Lord’s intention is that we operate in line with the CPI, this would obviously not deliver the savings we are talking about. I remind the Committee that the £1.9 billion worth of savings that this Bill will generate in 2015-16 are equivalent to the salaries of about 45,000 nurses and about 40,000 teachers, so these are not negligible amounts, as some noble Lords have suggested, and the savings would have to be found somewhere else.
As I say, the amendments undermine the purpose of the Bill and, frankly, demonstrate a fundamental difference of opinion between the two sides of the House on how we deal with the current economic situation. The Government believe that the main priority is to get spending under control, reduce the deficit and restore growth. The Bill helps us to achieve that. At the same time, we are implementing policies that make a real difference to people’s lives—people of the most modest means. Let me name just a few of them: universal credit; the pupil premium; reform of early years education; tackling problem debt; and lifting people out of paying income tax through raising the personal allowance. We believe that these policies are vital if we are to have a real and sustainable impact on poverty over the medium to longer term. We cannot simply focus on increasing incomes through welfare payments, lifting people just above the poverty line.
The noble Baroness, Lady Meacher, asked me a number of questions about the impact assessment. I remind the Committee that we published a detailed impact assessment for the Bill, which includes details of the impact by family type, and have made public details of the impacts on relative child poverty. She asked whether we could delay the changes until we had a broader impact assessment that covered the impact on mental health, crime and, I think she said, social unrest. As regards the impact on crime, it seems to me that the noble Baroness is being completely unrealistic to believe that such an impact can be measured with any degree of precision. At the start of the downturn, most commentators believed that crime rates would rise substantially. If one had taken the average view of people in the know, that is what one would have put in an impact assessment. The truth is that crime rates have not risen substantially. They have fallen. I obviously welcome that. I make that point only to make the more general point that, while one can make an impact assessment that covers some things with a reasonable degree of precision, on other things—on crime, for example—it is impossible to do what the noble Baroness wants. That is why the impact assessment is couched in the terms that it is.
The noble Baroness asked about exceptions or exemptions from direct payment. We are not setting out the exemptions in the regulations because they will be based on individual needs and assessments. Individuals will work with an adviser via Jobcentre Plus. There will be personal budgeting support, which will contain two elements: money advice, to help people who cannot manage monthly payments, and alternative payment arrangements, which include rent paid direct to landlords, more frequent payments and payments split between partners. These will be undertaken on an individual basis.
I do not really want to get involved in a long macroeconomic discussion. I would like to get involved in one, but perhaps I might simply refer the noble Baroness to the letter from the noble Lord, Lord Desai, in the Financial Times last week. It seemed to explain extremely carefully and clearly why this downturn is not like the typical Keynesian downturn that we have seen in the past. I would commend that letter to all noble Lords who are looking for a primer on why the Government are following the line that they are.
I thank the Minister for attempting to respond to some of my questions. Perhaps I may return to the one on the impact assessment. The Minister referred to the crime issue and I accept that we have had a long-term decline in crime. However, I am not sure that that makes it impossible to look at the increase in the amount of crime among benefit recipients; that is something precise worth looking at. Moreover, I do not think that that negates the possibility of looking at the amount of mental breakdown among benefit recipients. Again, that is one of my main concerns, having been involved in mental health services for 25 years. I fear that there will be quite a dramatic increase in mental breakdown and an incredible impact on a very tight psychiatric service. In particular, in-patient beds have been cut over many, many years. It would be helpful if he could look at that.
I think that the difficulty—and I may be wrong—in terms of mental health is that the noble Baroness is very worried about what might happen. She may be right and she may not be right, but it is difficult to model—in the way required in an impact assessment—that kind of change which has not happened. As far as I am aware—she will know much more than I do—you cannot go back and say, “This is what happened in the past”, which would give us the kind of experience that would enable us to say in an impact assessment, which is a very specific thing, that these outcomes are predicted with any degree of certainty.
I will talk to officials about this. I realise it is a potential problem. However, I still maintain that while there are some things that can be relatively clearly enumerated in an impact assessment, some other things are very difficult to the point that the value of attempting the exercise is relatively low.
I am sorry for standing up again but I want to clarify the point; otherwise we will be left with a misunderstanding. I was saying in my speech that it would be helpful to have an impact assessment of what has happened in, say, two years’ time. I agree that we cannot look at these things prospectively, so I want to clarify that. I am suggesting postponing implementation until an impact assessment can be undertaken in real terms.
Will the Minister acknowledge that there is abundant evidence that incidences of crime and mental illness are significantly higher in more unequal societies? Given that the tendency of the policies in the Bill will be to exacerbate inequality, is not the noble Baroness, Lady Meacher, well justified in her anxiety, and should not the Government be taking great care to examine the potential impact of these policies?
My Lords, I have read The Spirit Level as well, but one of the best ways of dealing with inequality in society is to increase the proportion of people in work and to increase opportunities for people to get into work. I will come on to that later.
The noble Lord, Lord Forsyth, in a way answered the point of the noble Lord, Lord Low, about spending more money now. That is the argument. We get back to a macroeconomic point that if one spends a lot of borrowed money now, it will generate the kind of growth that will get us out of our difficulties. The Government reject the argument that we are in a position where we can spend our way out of recession, and it is as simple as that.
My Lords, I just want to clarify that I am not arguing for a splurge in spending. I am not advocating that the Government should spend more. My point is rather that the Government—I am sure that the noble Lord, Lord Forsyth, for whom I also have great respect, would not agree with me—should not pursue an economically counterproductive policy of withdrawing purchasing power from the economy.
My Lords, we and the noble Lord will simply have to agree to differ on that. The noble Lord, Lord McKenzie, repeated some of the arguments made about millionaires and the huge tax boost that they allegedly got. He did not mention that the Budget changes announced last year affecting millionaires and those on very substantial means would generate five times as much income as the 45p tax rate. It is simply untrue to claim that the Budget measures last year mean that millionaires as a group are paying, and will be paying, less tax this year and next than they have in the past. Equally, it is simplistic and false to argue that there is a sort of mechanical problem with HMRC, or an inability of HMRC to collect money from millionaires. Millionaires are extremely clever at avoiding tax. All the evidence from the Office for Budget Responsibility and the work that it did demonstrates why the 50p tax rate simply would not generate anything like the amount of money that was originally envisaged. Indeed, it said that it was quite possible that the 50p tax rate would mean less money being collected than would otherwise be the case.
I am most grateful to my noble friend. Have we not had a spectacular example this very day of how cutting taxes can result in huge increases in revenue? The Chancellor’s decision to reverse his plan to increase the tax on the oil industry has resulted in the £25 billion of investment reported today, with huge implications for future revenue and employment.
My Lords, that is an extremely good point. It demonstrates that there is no simplistic relationship between tax rates and the amount of tax collected. In some cases there is and in some there is not. The trick of government is to understand the difference between the two. Frankly, I do not believe that the Opposition have reached that point.
The noble Lord also talked about tax avoidance and conflated wealthy people avoiding tax and the situation relating to Starbucks. On the question of Starbucks and profit shifting, the Government, along with the French and Germans, have started a process with the OECD—something that the previous Government never did—to change the basic global accounting rules so that we can get to the bottom of corporations that are shifting their profits to low-tax jurisdictions. This holds the prospect of being successful in the medium term, but whatever it does it will have no impact on the effectiveness of the Government’s treatment of individuals. As we have debated many times in recent months at Question Time, the new focus that HMRC is putting on going after people who are avoiding and evading tax is generating many billions of pounds more in income. While the previous Government cut the number of HMRC people working on compliance by 10,000, this Government have already increased it by 2,500 and will increase it further.
I was very taken by the comments of the noble Baroness, Lady Afshar, on extended families. In the past year, employment has increased by more than 500,000 and I am unaware of any differential effect on the minority ethnic communities such that small firms in those communities have been shedding jobs disproportionately. Perhaps they have, but I have not seen any evidence. One of the more welcome developments of the past year, which has surprised a lot of commentators, is that hundreds of thousands more people are in work, and this increase in employment has taken place disproportionately in regions other than London and the south-east. There has been a slight rebalancing of employment prospects, and regions such as Yorkshire and the Humber, which I know, have done remarkably well in difficult economic times. I completely support the noble Baroness’s view about the moral economy of kin, but I question whether what has happened in recent months has undermined it to the extent that she suggested.
Finally, the noble Lord, Lord Bach, implied—very gently; I know that he did not really mean it—that the Government might have influenced what amendments were considered to be in scope of the Bill. He knows, as we all know, that the Government have no power to determine what is in scope of the Bill.
Of course I did not imply that for a moment—and I think that the Minister knows that. However, when there is some doubt about whether an amendment is in scope, there would be nothing wrong in the authorities asking both the Government and the person who might be tabling the amendment for their thinking on the issue. The decision is of course for the authorities and nobody else, but there would be nothing wrong in inviting the views of, for example, an experienced Bill team, as I am sure the Minister has backing him. I was not suggesting for a moment that the Government could use their influence, as the Minister put it, to decide for the authorities, which will make the decision themselves, as always. My point was that if the amendment had been allowed in, I suspect that the Government might have been in trouble in a vote at a later stage Bill. That was all that I was saying.
I am extremely sorry if I misunderstood the noble Lord.
In conclusion, I repeat that the amendments in this group would mean that the Bill would not deliver on its purpose of enabling the Government to set out clear and certain plans to control welfare spending and help secure the economic recovery. That is why they should be resisted.
My Lords, perhaps I may wind up on behalf of my noble friend, who moved Amendment 1 on my behalf. I thank the Minister for his range of responses. I emphasise that, yes, we believe the amendment would negate the Bill, but it would not prevent the Government doing what they wanted to, given a chance, over a three-year period. However, we believe that it is wrong to lock in a real-terms cut for three years. Effectively, it is for two years, given that the first year is by way of regulation.
On issues of tax, the Minister, in response to the Second Reading debate, said that a 50% tax rate would not garner the revenue we believed because people would order their affairs. Ordering their affairs, as set out in some detail in the HMRC publication that looked at this issue, would involve switching income from one year to another. It is quite possible that, as we speak and draw to the end of the current tax year and move towards, possibly, a 45% tax year, a great deal of income will shift from this year into next year. Will the Minister say whether he thinks this is okay and acquiesces with it, or whether it is a matter that the Government should address in some form? If you simply sit back, clever and well resourced people will reduce their tax liabilities as fully as they can. However, it does not inevitably have to be that way, particularly when the people who will pick up the burden of that avoidance are at the very low end of the income scale.
I take the argument that the noble Lord is making about 50p down to 45p. I am puzzled therefore as to why, during the entire period of the previous Government, who were in power from May 1997 until April 2010, the top rate was 50p. It reduced to 45p only on 6 April 2010. If it was an overriding cause of concern and a belief of the Government of that time, in which he served as a distinguished Minister, surely they would have kept the rate at that level and not proposed reducing it.
We are addressing the policies of this Government. We can spend all our time debating what previous Governments have done but we are addressing this Government’s determination to raise the revenue that they can from a 50% rate, rather than give what is a huge tax cut to a minority of people in our country at a time when people at the other end of the income scale are being asked to bear a real additional burden. That is what we are complaining about and we believe that the Government can and should do something about it.
There have been a range of powerful contributions to this debate. I agree entirely with my noble friends Lord Bach and Lady Hollis about this collection of things that are going on, particularly at the moment. New benefits, new structures and new payment details are being introduced in circumstances in which it is difficult for people to access good advice, to get justice when they wish to challenge, or even to understand the system with which they are faced.
The noble Lord, Lord Bates, referred to fiscal consolidation. Yes, we all agree about fiscal consolidation: the issue is how you go about it. We all agree about the importance of work and getting people into work, but it is how you go about it. The problem is that the Government have not produced the goods. Every time George Osborne presents a Budget or an Autumn Statement, the OBR revises growth downwards. Indeed, the latest GDP figures show that there has been no growth this year. The issue is not about whether we believe growth is the right way forward; it is about how you get it—and this Government have not delivered on that.
As to their impact on benefit spending, the Government’s failure to get Britain back to work is sending the social security bill up by something like £13.6 billion more than expected. Long-term unemployment is up by 55.7% this year. That is a manifestation of government failure in getting people into work and on growth in the economy. Borrowing has risen by 10% so far this year and it looks as though the Chancellor will miss his target to get the national debt falling by 2015.
On our record on benefits, I would say to the noble Lord, Lord Forsyth, that real-terms expenditure on out-of-work benefits fell by £7.45 billion under the previous Labour Government between 1996-97 and 2009-10, while real spending on out-of-work benefits in 2006, at something like £38 billion, was at its lowest point in 15 years. You do not have to take my word for Labour’s record on benefits. An analysis was made of the Labour Government’s record on welfare reform and it was found that they had made “strong progress” in their welfare-to-work agenda. Policies such as Welfare to Work, the New Deal and Jobcentre Plus were all a success. It was the noble Lord, Lord Freud, who came to that judgment.
I am most grateful to the noble Lord. I am a bit puzzled because he said in answer to my noble friend Lord Bates that we were discussing the policies of this Government, not the last one. He is a little selective. However, given what he has described—an economy which is not growing at all—how on earth does he expect to fund the increase in benefits that he says he is in favour of? That is the crux of the matter. It is not about where we would like to be or how the world might be different, the fact is that the economy is not growing. If the economy is not growing, how is it possible to expand the welfare budget?
I was talking about the last Labour Government in response to points that the noble Lord himself made earlier on. On growth, I would outline that there is one particular proposal that we in the Labour Party have been working on—the long-term jobs guarantee, and we have explained how it could be funded by, yes, restricting tax relief for the wealthiest in terms of pension contributions. It would get people into work, get them spending, and take them off benefits and welfare support. That is the way to do it. Perhaps I can turn this back to the noble Lord. The approach the Government have undertaken has simply failed to deliver growth; it is not happening. Everyone knows that and it does not need me to expound on it. The Government have failed to deliver.
It is because of that that we are challenging this burden of a real-terms cut. The noble Lord said that it is not a cut, but of course it is a cut in real terms because it is a cut in people’s living standards. It is also a cut that we do not know the magnitude of over the life of this Bill, which is why we object to it so strongly. We do not know what the rate of inflation is going to be in two years’ time. We can speculate on the impact of the downgrading of our credit rating, but getting growth in the economy and thus providing more employment is certainly more likely to impact in a positive way. That is what we would argue for and plan for. It is making the people at the bottom end of the income scale pay for the failure of this Government that we object to. This Bill is the wrong way to deal with benefits uprating. There is a tried and tested way that has operated for many years which is open to the Government rather than locking it down and forcing people into a real-terms cut in their living standards.
I suspect that we will have another round of this argument on Report because it is the fundamental part of our objection to the Bill, but in the mean time, I beg leave to withdraw the amendment.
Amendment 1 withdrawn.