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 will also speak to Amendments 5, 7 and 10 in this group. These amendments stand in my name and in those of my noble friend Lady Sherlock, the noble Lord, Lord Low of Dalston, and the right reverend Prelate the Bishop of Leicester. I say at the start that we view the amendments as consequential on Amendment 1, and we are advised that should these amendments be carried, they do not pre-empt a discussion on the subsequent amendments on the Marshalled List.
Amendments 1 and 7 would remove the reference to 1% in Clauses 1 and 2, and hence would remove the 1% cap on the uprating of the relevant sums and amounts. Amendments 5 and 10 would delete the prohibition on uprating such sums and amounts under the annual uprating of benefits and tax credits. As we explained in Committee, we fully intend these amendments to negate the fundamental purpose of this Bill, which is to lock in real-terms cuts to a range of benefits for the two years to March 2016. This follows on from the equivalent cut for next year, which has been implemented by statutory instrument.
The uprating of benefits and tax credits should proceed in accordance with the existing statutory framework, whereby the Secretary of State is required each year to review the rates of various benefits and tax credit components to see whether they have retained their value in relation to the general level of prices. There is no general requirement to fully uprate, but there is an obligation to assess on the basis of up to date information on the cost of living.
On these grounds alone, the Bill is completely unnecessary. If the Government are intent on three years of cuts by 1% uprated, they can use existing mechanisms, just as they have for 2013-14. They would then at least retain some flexibility to revisit the policy, especially if inflation were to surge above currently expected levels. If the Bill stands, there is no certainty about the level of real cuts that have been imposed on some of the most vulnerable people in our country.
The government assertion that committing these cuts to primary legislation is crucial to giving confidence to the markets has no credibility. It is frankly untenable to suggest that by locking into legislation these estimated benefit savings, which amount to less than 0.1% of government spending, the markets will be assured and comforted. It does not seem to have cut any ice with the rating agencies.
Let me reiterate Labour’s position. We will make no commitment now on spending or tax for the next Parliament, and we will set out our spending plans at the time of the next election. However, right now, we would uprate in line with inflation. I will come in a moment to how the Government can plug the hole in their increasingly fragile finances.
This Bill is misdirected on several other counts. We are told by the Secretary of State that cutting benefits and tax credits is necessary in advance of universal credit, as a contribution to fiscal consolidation. However, it does nothing for the deficit or borrowing. 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. Just last week, the FT joined an increasing chorus of those pointing out that fiscal tightening could raise the debt ratio in the short term, as fiscal gains are partly wiped out by the decline in output.
We also had the spectacle of the Prime Minister being rebuked by the OBR for asserting that the Government’s debt-reduction programme had not affected growth. 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 some two-thirds of those hurt by the 1% restriction are those who are actually in work.
Looking at percentages rather than cash amounts is misleading. One per cent of a small number is a very small number. Indeed, specifically included among the cuts are in-work support such as working tax credits, SSP, SPL and maternity 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. We are told that the Government are committed to eradicating child poverty, and of course we would accept that child poverty is not only about income levels, but improving income and relative income is an essential component of tackling poverty, and matters are being made worse by this Bill, with another 200,000 children being drawn into poverty. Compared with CPI uprating, this Bill and the 2013-14 order mean that 30% of all families are affected, losing on average £156 a year.
Worst of all, at a time when this Bill is reducing the living standards of the very poorest, the Government are rewarding those with the highest income, including some 8,000 millionaires, with a generous tax cut. The contrast could not be greater: a £2,000 a week tax cut for some; a 71p a week rise if you claim JSA.
By leaving inflation risk with claimants, this Bill is creating greater risk for the poor and uncertainty about their real incomes. The 2012 Autumn Statement cited energy and fuel prices as a source of potential risk over the coming year. It estimated that inflation would 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. Sterling has fallen some 8.5% against the dollar since the start of the year, pushing up import prices. All these matters will now affect the incomes of the poorest, and they are things that they have no way of influencing. They are being cut further adrift from the mainstream of society.
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 this Government, including council support changes and the bedroom tax, which are about to become a horrible reality. The IFS has analysed the effect of the 2013-14 tax and benefit changes in its 2013 Green Budget, concluding that the,
“broad pattern of tax giveaways and welfare takeaways 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 below-inflation uprating is the predominant cause of the losses in the bottom half of the income distribution and the reduction of the top rate of tax from 50% to 40% the main gain for the richest. So the rich need more to motivate them and the poor need less.
Our opposition to this Bill is clear. We oppose it locking in indeterminate cuts to real incomes through to April 2016. We argue that the normal uprating process should operate and have been clear that, right now, we would support uprating by inflation. We will continue to argue for the reversal of the proposed tax handout to the very rich. We heard the Minister at Second Reading and in Committee suggest that the saving that such a reversal would produce would be illusory because the rich would order their affairs to make sure that the will of the Government was defeated. We would maintain that the Government do not have to acquiesce in this. If they believe in tackling tax avoidance, they could secure the revenues that reversing this tax cut should generate. We are told by the Secretary of State that other countries have cut benefits. Well, so has this country. We have had cuts to contributory ESA, cuts to DLA, cuts to housing benefit, cuts to council tax support, cuts to child tax credits, cuts to tax credits and now cuts in this Bill, yet we still have no growth and debt continues to rise.
We are asked today to sign off this further three-year cut affecting the poorest, the ultimate real size of which we cannot be certain of—and this the day before a Budget that may well visit yet further cuts. I urge noble Lords to prevent this from happening.
My Lords, I have put my name to this amendment and will briefly signify my support. There is not a lot that I can add to the comprehensive account given by the noble Lord, Lord McKenzie. The only point I would stress was made by somebody on television last night—that we now live in an environment where inflation is considerably higher than we were used to in the first decade of this century. We understand that the new Governor of the Bank of England advocates that the inflation target should be allowed to float free. We are in an environment where inflation is set to hover around 3.5% or higher with no prospect of it reducing. In these circumstances, to cap the increase in benefits at 1% is simply unjustifiable. I support the amendment moved so comprehensively by the noble Lord.
My Lords, there is no one in this Chamber who would not like to see support for those on low incomes and families to be increased. What was striking when the noble Lord proposed this amendment was that, apart from a vague suggestion that it might be possible to find the money by pursuing tax evaders, there was no indication of where the £3 billion needed to provide uprating in line with inflation—assuming the Government’s forecasts are correct—could be found. That is deeply irresponsible and it is particularly irresponsible of an Opposition who will not say what they would do in government. In other words, while it is not their responsibility, their line is “You should spend the money”, but when it might be their responsibility, they are not prepared to say what they would do. That is completely dishonest politics.
We have a dangerous position in our country, partly caused by the present Government constantly harping on about how they have reduced the deficit by a quarter. According to a poll carried out by ITN and a separate poll by the Centre for Policy Studies, which may not be quite so objective, when asked the question, “Do you think by the end of this Parliament the national debt will have gone up by £600 billion, be just the same, or will have gone down by £600 billion?” only 6% got the answer correct: that it will have gone up by £600 billion. So here we are, living in a country where we have to make difficult decisions—this Bill is an example of having to make difficult decisions—and where the vast majority of people believe that the Government are cutting debt, when in fact all the Government are doing is reducing the amount by which the debt is increasing. I will wager that when we have a debate at the end of this Parliament and come the next election, the Opposition will pursue the same kind of irresponsible tactics which we see in this amendment. They will say, “The Government were elected to reduce the debt, but the debt has gone up by 50%. If we had been in government, it would have been different”. That is the politics of it.
Let us look at it from the point of view of people on low incomes—working or non-working—faced with inflation. If we follow the prescriptions contained in this amendment, the consequence will be that the pound will sink still further. The consequence of the pound sinking still further is that the energy and fuel costs that the noble Lord, Lord McKenzie, spoke of will go up. So how does it help people who are struggling to say “Your benefits will go up by inflation” if at the same time you pursue policies which will result in higher inflation and higher debt and leave an even bigger problem to solve at the end of the day, which will be solved on the backs of the poor?
The noble Lord said that the Government are handing out a tax-free benefit to the very rich. I remind him that when his party were in government, people on very high incomes were paying less in marginal rates of tax than they are now. I also remind him that the effect of cutting the top rate of tax from 50% to 45% will be, as has been proved over and over again in countries around the globe, that the revenue to the Treasury will go up. Although the noble Lord and his party quite rightly point to the excesses in the City arising from bonuses, and so on, they seem to forget that 52% of those obscene bonuses come back in tax and national insurance. Actually, it is more, because there is an employers’ contribution of 12%, so 64% of those bonuses come back to the Treasury in revenues.
The name of the game here is to increase revenues to the Treasury. Then we will be in a position to do something about welfare. We are now in this difficult position and my noble friend is having to take this painful legislation through the House. The Opposition should recognise that that is a consequence of their period in government. The noble Baroness shakes her head. While they were in government, welfare benefits went up by 60% in real terms.
Yes, the noble Baroness, Lady Hollis, makes the point that a large percentage went to pensioners, but I do not hear from the opposition Front Bench a cry that we should cut the benefits to pensioners to avoid this position. The very fact that she says that from a sedentary position indicates that she accepts that.
Whatever the merits of how the money was distributed, it went up by 60%. One pound in every £4 which this Government are spending—by the way, that is money which we have not got because we are having to borrow £150 billion every year to make that expenditure—is going to welfare. To argue that it is not necessary to constrain welfare expenditure in those circumstances is, frankly, totally irresponsible. It is the worst kind of politics.
The noble Lord seeks to present people on this side of the House as uncaring and unconcerned about the poor whereas, actually, if you are concerned about people who are hard up, you want to make sure that the costs of living for them and the stoppages in their pay packet are reduced to as low a level as possible. If we follow those prescriptions of continuing to spend money we have not got, of continuing to pay more in welfare than people are gaining in increased incomes in the private sector, that is the road to Carey Street and to undermining our whole welfare system of support.
The truth is that while Labour was in office, it was paying tax credits to people on up to £50,000 a year. It was a policy deliberately designed to create a client state, and it was a policy funded on the back of a bubble created by holding down interest rates. It was irresponsible economics and it was irresponsible public expenditure. A responsible Government, faced with the windfall tax revenues that they had, would have put some aside for a rainy day. Now we find ourselves with a huge, exploded welfare budget and difficult decisions that need to be taken.
I hope that the House will reject the amendment which, while we all appreciate the sentiment, would actually do down those who are hardest up in our society and having the most difficulty. The noble Baroness shakes her head. It is the consequence of spending money which we did not have.
My Lords, I hesitate to give the noble Lord a lesson in economics, but the problem that the Government currently face is a complete absence of growth. Further cuts in welfare benefits will make that worse. One thing that you can say for certain is that the people on the lowest incomes will spend that money and that that money will then feed into the economy, therefore doing something about the growth problem that the Government have exacerbated by what they have done in the past few years.
I do not think that was a lesson in economics but a lesson in magic. If that is the case, why do we not just double welfare benefits? People will spend even more, the economy will grow and everything will be fine. The noble Lord nods his head in agreement. As an individual or as a household, you cannot continue to spend more than you earn without getting into the kind of problems that we have seen among people who have taken out payday loans.
This is the payday loan approach to government. You have a big debt, so you take out another one. You pay a higher rate of interest on it but you hope that somehow you will be able to pay it back. In the end you are able to pay only the interest. At the moment the Government are printing money to fund their expenditure requirements. That is quantitative easing. In 1997 the Bank of England held no government bonds. Now it holds 27% of the entire bonds in issue. When interest rates rise, those bonds will fall in value. How will the difference in value be made up? That will be a cost for the taxpayer. Our level of borrowing now, which will have gone up by 50% by the end of this Parliament, will have to be financed and that will come out of the future welfare budget.
The noble Lord is describing a way of robbing our children of their living standards and creating a bigger problem for the next generation to meet the needs of those who are most vulnerable. This is a way of making it more expensive to create the safety net that we all support. This is not a lesson in economics but in the kind of fantasy approach to politics that got us into this position in the first place. That is why the Government are right to persevere with this legislation. Indeed, they have been very reasonable in their approach. They have tried to protect the most vulnerable and have agreed to increase welfare payments by 1%. This is extraordinary, given that we have an economy that is not growing at all.
The noble Lord seems to think that the reason why the economy is not growing is that the state is not large enough. How big does he want to the state to be? It is already taking nearly 50% of everything created by the Government and spending it, and that is not enough because they have to borrow on top of that.
If levels of taxation are high, which they are, and levels of regulation are high, we will not get the growth that is required. We need to constrain public expenditure to make room for the private sector to create wealth. Once we have a bigger cake, everyone can have a bigger slice, but if we try to proceed in this way we will end up with a smaller cake and those dependent on welfare benefits will be cruelly cheated. They will find their living standards destroyed by inflation, higher costs and the inability of the Government to finance the kind of programmes that Members opposite are prepared to say now that they would support, although they are not prepared to say so at a general election.
My Lords, I agree with a particular point that my noble friend has made and would like to add that the Bill has come forward on an especially interesting day. I refer to Cyprus. The warning is on the packet. There has been a certain amount of calm around, as though we had come through all our problems and were moving steadily forward into calm waters, and as though the eurozone was secure. The financial markets, with the euro increasing in value, may have had that illusion. However, it has all been blown away. I have not heard any recent news; I do not know whether there has been a decision yet about what Cyprus will do. We should remember that, at the moment, there is a very real risk. Clearly, people have been caught in Cyprus. If Portugal, Spain and Italy decide that this will be the European practice, people there may find that their savings and funds in their banks are not as secure as they had been assured they were. After all, everyone thought that there was a clear undertaking that below a certain level, around €100,000, their own bank accounts were at no risk. If that changes, we face a very serious situation.
There is complacency around, as I picked up from an article today by the chief economist of HSBC, as though with just a bit of going forward and a bit more luck we will be back on the old growth train and in the business that we were in before. What has been exposed is that over many years we have been living on borrowed money, on a construction boom in the financial services area and on public expenditure. Now that those have to be constrained, suddenly people are turning around and saying, “How, as a country, are we going to earn our living in future?”. We are finding that we have slipped in the leagues. In one of our most successful areas of overseas earnings, defence expenditure, we have now slipped a place and China has overtaken us. China is now taking away a number of the markets that our manufacturers used to serve extremely well. It is said that we hope to sell Typhoon to Oman, the UAE and one or two other countries, but the point has been made that its successor will be made in America, and that will be the end of one of our most successful overseas earnings. When you see where we earn our living in the world, we are not in a happy place.
That is why I very much agree with my noble friend Lord Forsyth. All of us in this House would like to say, “Let’s increase benefits. Let’s deal with all the hard cases and see how we can give people more money”. Look at the situation in Ireland, where benefits have been cut by, I think, 10%. There has been talk of cuts today but in fact we are taking about how big an increase the Government should impose, not an absolute cut in the amount. Other countries in Europe are cutting by 6%, 10% or 12% the actual amount that people are getting—what hardship that must represent.
This is not a pleasant speech to make. It is much more popular to say, “Let’s have some more benefit”. I say this against a background of a new situation that has suddenly come upon us: if this House—the unelected House of Lords—decides today to cut right through one of the decisions made as part of the prudent financial planning to find our way out of the problems that we are in, and if that triggers a loss of credibility in our national approach and the Government’s approach to tackling those serious problems, it will really be a problem for people on benefits if there is a run and we then find that the low interest rates that the Government have enjoyed for their substantial borrowing no longer apply.
I agree with my noble friend on this point. There is an illusion that somehow we are reducing our debt. We are not; we are reducing the rate at which the debt is increasing. One of the blessings that we have had is that at least we have been able to borrow at an extremely low rate because we had some credibility. If the House of Lords today kicks away one of the planks that help to shore up the credibility of a Government who have a plan to try to deal with our problems, and if those international interest rates are then demanded of the Government and the country when we try to borrow money, the problems that we will incur for all our people could be vastly greater. Look at the tragedies that exist now, such as the unemployment rates in Spain, which is 50% in certain age groups.
We have held things together so that we have a lower unemployment rate than the eurozone countries. There is so much that we have to hang on to. This is a dangerous time. I say seriously to your Lordships: do not tamper at this stage with this very difficult situation, at a time when we are least able to face it and when it could quite seriously endanger our whole economic structure. I do not think that people understand what a mess the world is in at present. There is a huge amount of complacency around. We are not by any means out of the woods yet, and it is our duty to ensure that we hold firm.
I intend to support my right honourable friend Iain Duncan Smith, whose commitment to this area I think we all admire enormously. He is doing the best that he can. He is agreeing to an increase in benefits for the most deserving people in this country, but not as large an increase as they might have hoped to see. That is the only realistic approach that can be taken at this time.
My Lords, I have lent my name in support of this amendment, and I am happy to speak in support of it.
This debate is about who should bear the greatest weight of the burden imposed by the Government’s need to reduce debt. I hope that the noble Lords, Lord King and Lord Forsyth, might consider accepting an invitation from me to come to the city of Leicester to explain to our local Child Poverty Commission why it is in the interests of children in poverty that they should become poorer at the moment because that will serve the national interest regarding debt, and that this House is working in their interests by reducing the uprating of their income to 1%, however much inflation rises. They might accept an invitation to explain that also to the unemployed and to voluntary associations in Leicester, which anticipate a tsunami of difficulties such as homelessness and dependence on food banks. They can come to listen to the response to this Bill from those who are dependent on benefits through no choice of their own, who can explain what that is like and how much harder it will get in the years ahead.
If the purpose of this Bill is to control welfare costs, this is not the right way to go about it. The key to reducing the benefit bill is to change the circumstances that lead many people to need benefits, such as the absence of job opportunities, too much short-term, low-paid work, the shortage of affordable housing, and expensive, patchy childcare. We should be focusing on those issues, not cutting benefits in real terms, which simply creates hardship without addressing the underlying issues.
This Bill is both unnecessary and ill conceived. It will harm the most vulnerable in our society and do nothing to promote work incentives. I have heard nothing at Second Reading, in Committee or today to make me change my view that this Bill ideologically shrinks the welfare state regardless of desperate need. Nor does it change my view that we are heading for a US-style welfare system that is dependent on food banks and hostels. We know that we can do better than this, we must do better than this, and we should amend the Bill.
My Lords, I do not think that anyone could claim that I was other than at the wet end of the Conservative Party. I am perfectly prepared to say that. However, I have to speak after the right reverend Prelate because he has expressed exactly what the problem with Britain is: we are to spend money that we do not have on people who are in need, at a rate we cannot afford. That is not at all a Christian comment. In the end, we have to live within our means. For those of us who were brought up in the difficulties of a poorly paid Anglican parsonage, the first lesson that we learnt was to spend within our means.
I disagree with my noble friend Lord Forsyth, who said that the previous Government were not responsible. They are responsible, because they spent the money that was there and which could now be available for what we need. We were put in this position by the party opposite because it had the best inheritance of any Government, but it spent it and borrowed on top of it. I cannot find a single speech from any right reverend Prelate from that time that warns the Government of the dangers of spending money that they did not have, borrowed in a way that could not be repaid.
I believe in an old sermon of my father’s, which distinguished between love and sentiment because “love” is a very tough word. It does not pretend there is an easy way out of the problems with which we are faced. Love says that we have to do this in a way that safeguards the future and does not merely deal with the present problem. People sometimes talk as if those of us on this side of the House do not know the problems with which we are faced. Many of us have worked for years, trying to deal with those problems and being concerned about the poor. We have found, though, that you have to be honest. The reason we have to cut in this way—not cut, but cut the addition that might otherwise have been paid—is simply because we live in a country that has spent more than it has earned for so long that it can no longer go on doing it.
I have to say to the right reverend Prelate, who did not provide an answer, that the answer is not to make things worse. All the things he is asking for are being done at the same time. Those are precisely the Government’s policies for getting the economy moving. I beg him not to pretend to people that there is another means of dealing with these matters. If we do what he proposes, in two, three or four years’ time we will not be talking about decreases in increases but about the very cuts in welfare benefits that are happening in the rest of Europe. We are talking as though we are nothing to do with the rest of Europe. Some of my colleagues on this side of the House sometimes talk about that far too much. We are in exactly the same position, except that we have so far weathered this storm better because we have a Government who have behaved more sensibly right from the beginning. I beg the right reverend Prelate not to pretend to the world that there is a simple answer. The only answer is this tough one and I am amazed that it has not had to be tougher. Nobody can go on living on debt. I leave the House with the comment made by my noble friend: this proposal from the right reverend Prelate and the party opposite is a payday loan approach, and that is what is so serious about it.
My Lords, in his speech moving the amendment, the noble Lord, Lord McKenzie, made it perfectly clear that it would break the Government’s policy proposal. There was no indication given of how much the benefit bill should rise, though the noble Lord, Lord McKenzie, indicated his preference. However, that is not what is in front of the House. If the amendment were to be passed there would be no proposal as to how much it should rise: 0.5%, 1.5%, 2%, 3% or whatever. Neither does the amendment offer any solutions: it does not offer any ameliorations, it does not seek any exemptions. However, Her Majesty’s Opposition say no to a 1% cap on working-age benefits, yet support a 1% cap on public sector workers’ pay. It is quite strange. I sometimes wonder whether we are living in a parallel universe where the economy is healthy, where there have not been any fundamental economic shocks and where Cypriots can get all their money out of their banks.
However, it is not like that and the Bill is not set in the sort of financial vacuum that some Members seem to think it is. I accept that borrowing is higher than it ought to be, though I wish it were less. I know that we have had to borrow in order to maintain the essence of our welfare state and I agree that growth is critical. However, in these tough times the Government have to take difficult decisions. These decisions are, no doubt, uncomfortable but it could have been worse. As I said at Second Reading, there were lots of things on the table for discussion which could have made this a much tougher prospect for us. As it stands, this is our biggest budget—the budget where we spend £1 in every £4 of government money—and, despite all previous efforts, it is still growing as a proportion of total government spend. Therefore, no matter what we may think, this budget has to make its contribution to helping to put our finances back on a sound footing.
Yesterday, there was a debate in the Moses Room in which the Government proposed a £2.545 billion reduction in the overall welfare spend for 2013-14. Her Majesty’s Opposition rejected this as “vicious” and “contemptible”. Today, we have before us in this Bill a budget proposal of £3.7 billion for the two years following, and that is also rejected by Her Majesty’s Opposition. Therefore, £6.245 billion of savings have been rejected in two days. Yesterday—I have not heard it yet today—I heard a vague assertion about tax avoidance, but it is my understanding that this Government are spending far more on tax avoidance than the previous Government did and putting far more effort into it. When she replies, perhaps the Minister can tell us how much success the Government have had compared with the previous Government.
However, we are talking about £6.245 billion of savings and, in return, the Opposition are offering a tax rise. I refer to the issue of the 50% or 45% rate, which at Second Reading the Minister stated the OBR said would raise £100 million. If you slice that £100 million per annum off the total in cuts which have been rejected over the past two days, that means that there is still £6 billion to find, just to round up the figures. Therefore, we should reject these amendments because they offer no solutions beyond borrowing even more, raising taxes significantly or making deep cuts elsewhere in government expenditure, putting the burden of raising the money to repay it on my children and grandchildren.
This Bill would, in the end, save more than £3 billion a year. In their final year, the previous Government were spending £4 for every £3 they raised from the people of this country in tax. In comparison, this Bill saves £3 billion, but that should be compared with the last year of the Labour Government, when they were borrowing £3 billion a week. This is not a comfortable position in which we find ourselves and I would prefer it not to be happening. I share the aspiration for growth and I want to see our country back on track again. However, as the International Monetary Fund said in its World Economic Outlook last October, Governments need to create the right conditions for growth. It said:
“To anchor market expectations, policymakers need to specify adequately detailed medium-term plans for lowering debt ratios, which must be backed by binding legislation”.
That is what the Bill proposes today and that is what the amendment just does not do. As we cannot get an answer to whether higher taxes, lower spending or borrowing alternatives—or a combination of the three—is being proposed, I have no hesitation whatever in recommending to my noble friends on the Liberal Democrat Benches that these amendments, should the Opposition put them to a vote, should be rejected.
My Lords, the noble Lord, Lord German, referred to the Opposition’s support for the cap on salary increases at 1%. I rise because I came across an interview that the shadow Chancellor, Ed Balls, gave when that policy was announced. This policy will impact on people with a salary above £21,000, below the benefit cap. When pressed on the “Today” programme about how he could justify limiting salary increases in the public sector to 1%, he said:
“And if people expect the Labour Party to say ‘We’ll just oppose’, we can’t do that. [It] would be irresponsible because the priority has got to be getting people into jobs rather than people being paid more”.
That is quite an interesting statement for the shadow Chancellor to make because, in my view, it very much reflects the purpose of this Bill and this amendment.
I do not think that my noble friends on the Front Bench have made life easy for themselves by making this a stand-alone Bill. It certainly should not be viewed that way. It needs to be viewed in the context of the introduction of universal credit, which will bring about benefits of £168 a month to 3 million families. That, because of the wage incentives and the attractiveness of work, will lead to an estimated 300,000 more people finding their way into employment. We need to be very clear that, in all of these measures, whether it be raising tax thresholds, universal credit or this Bill today, we are saying that the best route out of poverty is undoubtedly work.
The scale of the challenge we have in doing that is quite immense. Prior to the recession, unemployment in this country was around 1.62 million. It rose very sharply and when the party opposite left office the rate was 2.49 million. It continued on a trajectory up to 2.68 million. However, it has started to fall and has been coming down quite steadily for a few months and is now down to 2.5 million. The figures show that there are 1 million extra private sector jobs, and that is to be welcomed. Benefit changes that encourage growth and help people find their way into employment are surely things we ought to support.
It would also be nice to ask some of those who supported this amendment where they were last year when benefits were increased by 5.2% and salaries for the lowest paid went up by 1.7%. Where were their voices then? What is so compassionate about paying child benefit to people earning more than £50,000 or letting people earning up to £70,000 receive tax credits? We need to change the configuration so it is always in the interests of people to work and then we need to work to ensure that the jobs are there.
How do we create the jobs for that to happen? Clearly we need to get public spending under control so we can raise tax thresholds for individual workers and reduce corporation tax thresholds. We know that that creates employment the world over. That is why unemployment in this country is falling while in so many other countries it is rising. I understand the points that have been made quite seriously and the concerns that have been raised, but they are looking at this in isolation and, placed in context, this is undoubtedly a measure that in the years to come will reduce the levels of poverty in this country.
My Lords, there have been some very powerful speeches in this debate. I am very grateful to all my noble friends for their contributions and for laying out so clearly and eloquently the economic case for this Bill and for what we seek to achieve. As they have been so clear, I will not repeat much of what they have said. However, I will start by making clear to your Lordships’ House that the amendments before us would, in simple terms, remove the commitment to a 1% uprating from the Bill. The noble Lord, Lord McKenzie, said in Committee:
“We fully intend these amendments to undermine and negate the purpose of the Bill”.—[Official Report, 25/2/13; col. 855.]
My noble friend Lord Newby said in reply that these are the sort of amendments that equate to,
“a vote against the Bill at Second Reading”.—[Official Report, 25/2/13; col. 866.].
It is important that we understand what these amendments seek to do.
As has been made clear by my noble friends, these are not decisions that we take lightly. I do not deny that they will have impacts on those who receive the benefits in question or that those impacts will not be easy. However, we have made a conscious decision to protect those benefits which reflect the additional costs that disabled people face, while also protecting pensioners through our commitment to the triple lock.
The right reverend Prelate the Bishop of Leicester is right to highlight those in need and I am glad that he does. It is important that we all remember and are conscious of the people affected by some of these changes. However, I ask him and all noble Lords not to forget that, as part of the Government’s wider reforms, we are prioritising resources towards measures and reforms that support families and help to change lives.
Let me name just a few of those measures. We are expanding early-years education to ensure that children have access to early education and to support parents in work. We are attaching additional funding to disadvantaged pupils through the pupil premium, which will rise to £2.5 billion a year by 2014-15. We have protected the schools and NHS budgets to ensure that these vital services continue to support families. More than £1 billion of investment will go into schools. We are introducing universal credit—a new, radically simpler benefit payment designed to ensure that work pays.
As my noble friend Lord Bates already has acknowledged, this last change is about transforming our welfare system. It will significantly increase the incentive that people have to work. Indeed, we estimate that it will lead to up to 300,000 more people moving into work. It is important that we focus on that point for a moment. As my noble friends have already indicated in their speeches, we must not look at the changes that we are discussing today in isolation; we must see them in the wider context of the changes that the Government are making. They reflect the fact that this Government’s focus is on how to help people off benefits and into work.
We need to be aware of the level of support that people can receive while they are on out-of-work benefits. For many, this is supposed to be a temporary state—an interruption between periods of work. By making the system simpler, by reducing the risks from people moving into work and by making work pay, we can reinforce that temporary nature and ensure that more and more people are moving into work. That is what we are seeking to achieve through universal credit and, as I have said, I ask noble Lords to bear these wider changes in mind when considering this Bill and all the amendments that we will debate today.
This Bill is a short-term change, made at a desperately difficult time, as we seek to rebalance the public finances. However, in our other reforms we have made a huge commitment to the long term, a commitment to changing lives through helping people back to work. Although we still have challenges in the labour market, the fact is that more people are moving into work already. Unemployment is falling. Private sector employment is up by more than 1 million since the election and the number of people employed is at its highest level ever.
We are continuing to provide for a 1% increase in these benefit rates. As my noble friends have said, this will mean that the value falls in real terms, which is not a decision that we take lightly, but it is an increase and we must compare this, as some of my noble friends already have, with what is happening elsewhere. Ireland has cut unemployment benefit by 4% a year for two years since 2010. Portugal has cut unemployment benefit by 6%. Spain has cut payments to people who are unemployed for more than six months by 10%. Let me remind noble Lords that the UK’s deficit in 2010 was larger—I repeat, larger—than the latter two countries. I am not saying that that justifies the measures we are discussing today; they are justified by the need to rebalance the public finances. However, it is, I hope, a reminder that these are very difficult times. The actions this Government have taken and continue to take to reduce the deficit are helping to secure economic recovery, but there are still tough decisions to make.
While this group of amendments seeks in simple terms to remove the 1% figure from the Bill, as many of my noble friends have already pointed out, it does not suggest an alternative. It should be noted that if the amendments before us were to pass, they would make it possible for the Government to increase benefits by any amount that they wanted in the years in question, without reference to prices or any specified factors, including uprating by less than 1%. Let us assume that the intention would be to upgrade in line with CPI. That would mean that the £3 billion in savings from the Bill would not be delivered. I appreciate that the decisions we have made in the Bill are not easy. We never claimed that they were. However, they are absolutely necessary. This was made clear by my noble friends, who made contributions that were much more powerful than I could have made.
Let us not forget that the central purpose of the Bill is to set out clear plans on uprating that deliver significant and vital savings that will help us on the road to economic recovery, along which we simply must travel if we are to preserve for the future the kinds of things that we value and from which we will all benefit: a stable economy, a growing labour market and opportunities for the next generation.
When the noble Lord, Lord McKenzie, moved the amendment, he said that all the amendments in the group were linked and were consequential one on another. Perhaps it is premature for me to make this point, but I will make it clear that in the Government’s view the amendments are not consequential one on another. If Amendment 1 is agreed, the Government will not oppose Amendment 5. However, we will oppose Amendment 7. It is important to make that clear.
I have made the case for seeing these changes in a wider context, and my noble friends have made powerful contributions about the wider economic context. It is clear that the changes, while painful, are necessary. Therefore I urge the noble Lord to withdraw his amendment.
My Lords, I start by thanking the noble Lord, Lord Low, for his support for the amendments in this group. He made the very important point that we are potentially moving into a period of greater inflation. This point was made last week by the FT, which talked about the risks of stagflation in this country. I also thank the right reverend Prelate the Bishop of Leicester for his support. He posed the key question: how will making these people poorer help the national interest? What we heard from noble Lords who oppose the amendment did not help us on that point.
I say to the Minister and to the noble Lord, Lord Bates, who prayed in aid universal credit, that it would be good to know that universal credit is on track because from everything we hear it is not. Even with universal credit as proposed, we know that something like 1.8 million people will have their benefits from work reduced in comparison to their current position.
I stress that the amendment challenges the locking-in over a three-year period of the restrictions on uprating. Uprating by less than the rate of inflation is a real-terms cut. We should recognise that it is a cut in people’s benefits. The fundamental proposition in the amendment is that these things should be looked at in the normal way on an annual basis by reference to what is happening to prices.
The noble Lord, Lord King, and the Minister said that other countries are cutting benefits. Benefits have been cut in this country, too. Council tax benefit, housing benefit, DLA, ESA and tax credits have been cut by something like £18 billion to date.
Housing benefit is one such benefit. Council tax benefit has been dumped on local authorities with a 10% restriction on funding, which means that people’s support will be cut in cash terms. That is absolutely happening.
I say to the noble Lords, Lord King and Lord Forsyth, that it seemed that the mention of Cyprus was meant to lead us to a conclusion that bears no relation to reality. We are not dealing with a situation here that would take us anywhere close to the situation in Cyprus. We are talking about restrictions on uprating which, on the Government’s own figures, would amount to something like £1.9 billion.
The Government’s ability even to pay this level of benefit will partly depend on our ability to borrow enough money at low enough rates to continue the policy. Is the noble Lord not aware that there is a big shiver going through the eurozone about the financial situation? It has suddenly come back into the headlines. If it was thought at this moment that the Government were going to deviate from their previously planned approach—if it was voted down by your Lordships’ House—it would have a serious effect. Then the problems faced by some young people and people in poverty at the present time, as spoken to by the right reverend Prelate, could be seriously aggravated. Our job is to try to make the best we can of a very difficult situation.
My Lords, of course we are aware of what is going on in Europe, and I shall come on to issues of borrowing in a moment. We are talking here about an amount that is less than 0.1% of total government expenditure. The noble Lord cannot seriously be arguing that taking our position rather than that of the Government would bring the whole edifice crashing down. That simply does not reflect reality.
The problem that the Government have is that because they have failed to deliver growth in the economy there is a real risk—this is what is happening—that their austerity programme is making debt worse. This was again a point made in a very powerful article last week in the FT.
We have heard a great deal about the Labour Government’s record. When the Labour Government left office the economy was growing again and it was the austerity measures which choked off that growth. As to the Labour Government’s record on debt, before the international crisis hit, our debt levels were the second lowest in the G7, lower than when we came into office in 1997, I believe.
I am following the noble Lord’s argument very carefully. If he is saying that we can get growth again by spending money uprating benefits in line with inflation, why will he not therefore make the commitment that a Labour Government would do that?
My Lords, I make the commitment that we should review on the usual basis at each uprating period. No Government or Opposition immediately prior to a general election are going to pre-empt the programme they would have. The noble Lord knows that full well. He is making a silly political point.
There is a real risk that by cutting back you make the debt situation worse. It depends upon the multiplier. There have been some recent studies which suggest that it is made worse because the multiplier effect would mean that if you did not cut back you could create growth greater than the saving you are seeking to make. We shall hear from the Chancellor tomorrow about his view on borrowing for capital spend, for example. The relative merits of that depend upon the multiplier effect.
Ultimately, the argument in favour of the Government’s Bill as it stands is that it is locking in an unknown. You cannot know in year two or indeed the next year what the rate of inflation will be and you cannot know, therefore, the extent of the cut you are visiting on the poorest people in our country. That is what we object to in this Bill.
We could go on for ever in an economic debate, but I think it is time to test the opinion of the House.
2: Clause 1, page 1, line 4, at end insert “save for the exclusions specified in section (Protecting children’s benefits and tax credits)”
My Lords, I will also speak to the other amendments in this group. Amendments 2 and 8 are paving amendments for a new clause to protect child benefits and child tax credits from the effects of this Bill. The substantive amendment to which they refer is Amendment 11. This follows extensive discussion in Committee, and is designed to halt the disproportionately negative effects of the Bill on children and their welfare. Amendments 13, 14 and 15 are consequential, and no doubt the noble Baroness, Lady Meacher, will speak to her Amendment 14A.
The Bill affects 30% of all households. Of those with dependent children, it affects 87%. Of lone-parent households, it affects 95%. Conspicuously, 11.5 million children suffer as a result of this Bill. This is in addition to the effects that our austerity measures have already had on children. In 2012, the Institute for Fiscal Studies estimated that there would indeed be a reduction of 0.9% in real-terms income for all households from 2010 to 2016. For a couple with two children, that fall will already, without this Bill, be 4.2%: equivalent to a fall of £215 per year for a couple without children, or £1,250 for a couple with two children. This Bill adds to that discrepancy, and it is that which cannot be fair.
It is true that we need particular concern for those in or on the verge of poverty. This Bill fails that test, too. For the poorest 20% of households, the IFS estimates to which I have referred suggest that the reduction in income is 7% from 2010 to 2016. In addition, 60% of the Bill’s savings come from those in the poorest third of our population, and 3% from those in the richest third. This will mean that, on the Government’s estimates, 200,000 more children will be in poverty, half of them in working families.
That in itself must make us pause to see what other ways there are to make the £0.9 billion savings which the child-related parts of this Bill are designed to produce in 2015-16. It is not for us today to declare what those alternatives should be. However, they do exist. Whether through reducing tax reliefs on pension contributions for the wealthy, or through introducing national insurance contributions on employer pension contributions, there are a number of different ways in which we could explore raising this money, which would not affect children in the ways in which this Bill does. We need to find a way for the burden of our fiscal challenges, so well described in the previous debate, to fall on those who, like me and many Members of this House, can afford to meet it, rather on than those who cannot. The noble Lord, Lord Newby, spoke in Committee of the importance of reviving the economy for the benefit of the future. That is absolutely right, but not at the expense of children’s needs now.
The major thrust of these amendments is to defend the nine out of 10 children in this country who are affected by the Bill. This effect is cumulative; it comes on top of the reductions already made. It has been argued that since many people are currently seeing wage increases of only 1%, benefits should also rise by only 1%. However, this Bill is an additional blow for those with children whose wages have increased by only 1%. Not only are their wages declining but, by this Bill, provision for their children will decline, too. These benefits affect those in work just as much as those who are not in work. None of the benefits referred to in these amendments is an out-of-work benefit. This is a transfer of the burden from all of us to those with children, and that increased burden on children cannot be right.
I continue to be particularly concerned at the continued gradual erosion of child benefit. The 1% cap comes after three years of the freezing of child benefit, so it is a cap on a figure that has already been reduced. From 2011 to 2015, the increase in child benefit will be 2%, rather than the estimated 16% of CPI over that period. Therefore, a couple with three children with one earner, such as a corporal in the Army, will lose £552 a year by 2015. A couple—one a childminder, let us say, earning £240 a week and the other a postal worker on £395 a week—with two children will lose £3.51 a week by 2015.
Child benefit has long been a crucial part of the support for families in our culture. That is particularly so for those on low wages. For very many families, child benefit is explicitly set aside to provide for children. Parents will struggle by making savings on their own lifestyle, sometimes even by going without meals themselves, but they will ensure that the child benefit that they receive is spent on their children. We owe it to the next generation to ensure that this element of our society, our children, is not disadvantaged, and certainly not disadvantaged by so much more than households without children.
In addition, child benefit plays a particular role in support of those in work because it acts as an earnings disregard in the calculation of housing and council tax benefits. Any reduction in child benefit is therefore a disincentive to returning to work. For a two-child family in work, on a low income and living in rented accommodation, the cut between 2010 and 2015 is not only the £4.80 a week in child benefit but an extra £4.10 in lost benefits. This working family on a low income therefore loses almost £9 a week.
I need to refer briefly to the third element in this package, that of the lower disability addition of universal credit. That is already being reduced from its current £57 a week to £28 a week under universal credit. Now it will be reduced further by this Bill. It seems extraordinary to reduce a benefit before it has even come into effect, especially when it provides for the needs of disabled children and their extra financial demands. These children need our support so they can live full and creative lives, and therefore benefit not just themselves but all of us. Children already contribute more than their fair share to our austerity burden. This Bill adds to their burden. I hope that we shall at least remove this extra pressure on them by accepting this amendment. I beg to move.
My Lords, I thank the right reverend Prelate the Bishop of Ripon and Leeds for introducing this amendment. I also congratulate him on continuing to press his concerns in this area after failing to receive any comfort at earlier stages of the Bill. I congratulate the Lords spiritual in general for being willing to stand up for what they believe, despite the inevitable volley of artillery that came their way the moment they dared to raise their heads above the cathedral parapet. It may be that we have them to thank for the extended interest in welfare benefits, which is much more than we see normally. I am delighted to see it.
As we have heard, this amendment would remove a number of children’s benefits and credits from the scope of the Bill. Since we on these Benches wish to remove all benefits and tax credits from the scope of the Bill, we are pleased to support it. We have heard at different points in the passage of this Bill that it has a disproportionate impact on families and children. The Government’s impact assessment shows that two-thirds of households affected are families with children. We also know that the Bill will have a direct effect on child poverty in Britain. Ministers have previously announced—as the right reverend Prelate noted—that this Bill alone will put a further 200,000 children into relative poverty.
In Committee, I asked the Minister to tell the Committee what the impact would be on the three other poverty measures in the Child Poverty Act. I got nothing back at all. Now the Child Poverty Action Group has dragged some information from the Government by means of the Freedom of Information Act—although it should not have had to use a FOI request to get it. I would have hoped the Minister could have told us the information when I asked for it in Committee. The Government have not yet offered a narrative assessment even of measures, for example, of material deprivation. However, they were forced to admit what would happen to the number of children in absolute poverty. In response to that FOI request, the DWP admitted for the first time that it estimates that around 200,000 more children in Britain will be pushed into absolute poverty by this uprating policy.
This is a shocking figure, which reveals the depth of what is wrong with this policy. It also removes the Government’s defence that the problem is with the relative poverty measure, rather than with the impact on children themselves. On the back of those figures, some new analysis for the Child Poverty Action Group by Landman Economics found that an increase of 600,000 children in absolute poverty is likely between 2010 and 2015, and that is net of any improvements as a result of universal credit.
As we have heard at many stages of this Bill, too many parents go without to ensure that they can heat their homes and feed and clothe their children. As the costs of food and energy have soared, more parents spend more of their money on these basic costs. Yet vital support that they depend upon is being cut in real terms in order to hand a tax cut to the very richest. It is not only the Church of England that has come out against these priorities; Archbishop Peter Smith, vice-president of the Catholic Bishops’ Conference of England and Wales stated:
“It is unjustifiable that the poorest children, who often have no other safety net, will be left bearing the brunt of economic difficulties as a result of significant real-term cuts to social security”.
The archbishop noted something that many of us know: that like many other charities across the country, Catholic agencies supporting parents find themselves ever more confronted with parents unable to afford even basic essentials, such as healthy meals or warm clothes for their children. That would be exacerbated by this Bill.
The real shame is that so many of those families have no alternative way of reducing that problem. Most victims of this Bill are working families. The parents are already doing the right thing; they are out working. One of the real disappointments about the debates we have had is the failure to acknowledge that, far from this being something that penalises only people who are not working, it is in fact the very same people who have had below-inflation or no pay increases and who have struggled repeatedly to get out, get work and get hours, who are hit by these cuts to tax and benefit support.
The Bill is a completely inappropriate way to address the uprating of essential state support for families. We already have perfectly good mechanisms to uprate annually in the light of inflation and prevailing economic conditions. These are poor choices for the Government to be making. The families who will be hit are not responsible for the failure of the Government to get the economy growing again. They are just doing their best to manage in difficult times, but the Government are planning to cut the value of the help that they get from the state to fund a tax cut for people earning £1 million a year. We should not be doing this, and we on these Benches are pleased and proud to support the amendment.
My Lords, this amendment is simply a variation on the previous amendment. In the previous debate, we went through the arguments for why it is economically impossible to sustain inflation-related increases. I do not propose to repeat the arguments, but this amendment would result in exactly the same position, given that the exceptions proposed by the right reverend Prelate constitute a large part of the Bill. It is just a way of saying that, if one was going to make the same savings, one would have to make bigger reductions in the increases for everyone else, or else one would have to find the money. Once again, the right reverend Prelate did not tell us where the money would come from.
I am happy to give way to him if he wants to explain where the money would come from, but I suspect not. A large part of his flock of the clergy will be recipients of benefits because of the wages that they are paid by the Church of England. Everyone is in the same boat here. The noble Baroness, Lady Sherlock, argues that somehow it is possible to find money which we have not got and that she is proud to support the amendment because of the reduction in the top rate of tax paid by those who she describes as millionaires. I remind her that those people are paying 5% more in tax than they did under her Government. I also remind her that the effect of cutting those high rates of tax has been to increase revenue and therefore to make it possible to do more in that respect.
Surely, by now, we have learnt that lesson. It is a cheap political argument to say that it is possible to create money out of thin air and that this Government want to protect the rich at the expense of the poor. If we want to help the poor, we have to get the economy growing again. The noble Baroness says that the economy is not growing because of this Government. The economy is not growing because of the burden of debt which she and her fellow members of the Labour Party ran up.
I am utterly amazed by the noble Lord. He is now criticising us for spending £200 billion more than we planned, when part of that money is being used to provide the 1% uplift in benefits. Talk about wanting to have it both ways. On the one hand, he is criticising the Government for not borrowing enough, but now he is criticising the Government for borrowing more than we planned. The reason why we are having to borrow more than we planned is because of all the commitments made by the previous Government without a clue as to how they would fund them. That includes commitments on welfare. Welfare spending accounts for £1 in every £4 that the Government spend.
On the basis of the noble Lord’s criticism that we are spending £200 billion more, that would mean that £50 billion is going on welfare. In all the time that I have been involved in both Houses of Parliament, I have never seen a more irresponsible Opposition. It is not good enough for the right reverend Prelate to come to tell us that we need to do more to help working families with young children without explaining from where the money is to come or addressing the main problem.
My Lords, I have taken no part in this debate so far. Has the noble Lord not suggested somewhere where the money can come from; namely, that people like us could pay it? If children would benefit I am prepared to pay it. Is he and are we?
My Lords, I am grateful to the noble Lord, Lord Griffiths of Burry Port. I did not think that he was a bishop and I was addressing my remarks to the Bishops’ Bench, but I say to him that the burden of tax has gone up substantially, and the reductions in government expenditure have so far been quite limited. We are discussing not a cut in government expenditure but limiting the increase in government expenditure to 1%.
I have had several goes at persuading the right reverend Prelate to indicate where the money for his proposal might come from. One possibility might be for people to put wages up. If the Church of England were to put up its clergy’s wages, less would be claimed in benefits and more would be available for others, but that is not a practical proposition for the church because the church, like the Government, is faced with a financial crisis and has to live within its means. What is good for the church is good for the Government and is good for particular families.
The most irresponsible part of the arguments that have come from the Bishops’ Bench this afternoon is about what happens if inflation is allowed to let rip. I fear that that may be about to happen as we continue to print money and borrow. As the noble Lord, Lord McKenzie, pointed out, we are borrowing far more than we planned to meet our commitments and to be fair to the most vulnerable. What happens when inflation takes off? I remember the 1970s, when inflation was running at very high levels, at 20% and more, and interest rates were at 15% and more. Who suffered? Children, the poorest and families suffered. There is nothing Governments can do to protect them once inflation takes off.
We do not want to go back to that kind of society. It tried to cope with inflation by protecting people through indexation, but it was unable to keep up with it and the result was, as the then Labour Prime Minister put it so eloquently:
“Inflation is the father and mother of unemployment”.
Jim Callaghan said:
“We used to think that you could spend your way out of a recession, and now we know that you cannot”.
Those words were said as the Labour Government left in 1979, leaving another Tory Government to clean up the mess, just as we are doing now.
The right reverend Prelate’s amendment of course carries great emotional impact. We would all like to see working families with children have a higher standard of living, but the way to do that is to create the wealth that enables us to support those families and enables them to get the levels of income and employment that they need. You do not do it by shaving the edges of the currency, allowing inflation to take off and committing those families’ children as adults to a debt burden that, frankly, will be impossible to pay off. They would be paying the interest for the rest of their lives, and that would disadvantage their children. In rejecting this amendment, as I hope she will, my noble friend is speaking not just for our children but for our grandchildren, who are entitled to expect responsible government in these straitened times.
My Lords, I support what my noble friend Lord Forsyth said. When the right reverend Prelate comes to respond to the debate, I would be grateful if he would comment on the following point. He made great play, and I do not underestimate this, of the effect and impact of limiting the uprating of child benefit and child benefits generally to 1%. According to Appendix 3 of the helpful Library note on the Bill, regarding the child tax credit element, in 2011-12 the child element of child tax credit increased by 11.1%, a significant sum. That followed significant increases of 13% in 2008-09 and 12.5% in 2004-05. If one is to argue that limiting that increase now to 1% would have a significant effect, if you take it as a snapshot, that may be the case, but if one looks over time, one has to factor in those significantly higher-than-inflation increases that have occurred in the child tax credit element in the past.
One of the problems with trading figures with regard to child poverty is that you get some curious results. One of the most notable is that in 2010 there were 300,000 fewer people in poverty because the recession had caused the median income to drop—in other words, children were said to have been pulled out of poverty not because anything had changed in their lives but because the rest of society had got poorer. We have to be clear about what we are arguing for when we talk about the interests of children, which of course should be paramount.
I turn again to a theme in the debate on the previous amendment: one cannot just take this in isolation. One needs to look at what the Prime Minister has announced today on childcare, for example, which will make a significant difference to people by enabling them to move into employment. One needs to look at the pupil premium or the raising of tax thresholds, which means that someone on the minimum wage has seen their tax bill halved under this Government. One has to look at these things in the round. Unlike the Opposition, we have ring-fenced the budget for the National Health Service, on which people significantly depend. Again, in the round, we need to get this absolutely correct.
I will react to the charge that somehow there is an easy pot at the other end of the income scale to be tapped into. As a result of this Government’s actions, the richest pay more tax on capital gains, more stamp duty on their homes and more tax on their pensions and are less able to evade tax than was the case before. These factors need to be borne in mind in the broad reach of these changes that I know when taken in cold, clinical isolation, one year at a time, without reference to trends over time, may allow one to draw one conclusion but should be placed in the proper context. I seem to recall from my youth the good theological concept of placing individual verses in context in order to understand their meaning, and one might think it was a good idea to place this one measure in the broader context in order to understand what the Government are doing to bring people out of child poverty, which we accept is significant. Other measures, such as limiting the proposed increases in fuel duty—another factor that has a big impact on the poorest in society, particularly those with families—and caps on rail fares and on council tax, all seek to address the issues.
We also need to recognise that child poverty has a wider set of causes than cash payment alone, and in many ways, we are focusing here on cash payment on its own. We need to place in context the fact that the children’s opportunities and their likelihood of being in poverty are affected primarily by the extent to which they live in a workless household. Therefore, all our efforts to get people into work should be welcome.
A child may live in a family with problem debt. One would therefore think that noble Lords would welcome the measures that we are seeking to take to reduce indebtedness and to encourage people to live within their means, with universal credit being paid on a monthly basis so that people get used to being responsible. A child may live in poor housing or in a troubled area, have an unstable family environment or attend a failing school. His parents may not have the skills to get out and get the job that they need, or they may be in poor health. These are a broad range of issues that ought to be reflected in our debates about child poverty. In that context, I believe that in time, primarily through encouraging more people into employment, we will see the child poverty targets in the Child Poverty Act, which this Government signed up to and agreed to, achieved by their set target date of 2020.
My Lords, the whole House can agree on one thing. We all want to support families with children and ensure that children in this country have the opportunity to fulfil their potential. We have been discussing how we attempt to achieve that in the extremely difficult economic times in which we live.
I will spare noble Lords my speaking notes on the economic context, as we have already had a full debate on that. The only point I make in passing, in respect of the Opposition’s policies on deficit reduction, is that they passed legislation saying that by the forthcoming financial year it would be illegal not to have halved the deficit. It is therefore particularly surprising that they seem to have had no plan at the time to do it and have given no indication since of how they might have done it.
However, I must remind noble Lords again of the baseline from which these savings are being made. Tax credit expenditure increased by 340% under the previous Government compared to the benefits they replaced. Eligibility for tax credits was extended to nine out of 10 families with children and tax credits and child benefit accounted for £42 billion this year, which is over 40% of working-age welfare expenditure.
I will give noble Lords one other piece of context. The latest OECD figures show that of all the developed countries the UK, along with Ireland, spends the highest proportion of its national income on family benefits. We are not a country that takes these things lightly or a country that has not given very high priority to supporting families. We believe that that is absolutely a right priority and we support families with children as much as we can in the circumstances. Child benefit and tax credits exist to do that. However, as we have said, we have to focus resources where they are needed most.
A number of noble Lords, including the right reverend Prelate the Bishop of Leicester and the noble Lord, Lord Bates, have mentioned that this Bill is only one of a large number of measures that the Government are taking which affect families with children, in particular poor families with children. The noble Lord, Lord Bates, referred to the pupil premium, which will cost the Government £2.5 billion by next year. This will be worth £900 per disadvantaged child—and that is £900 in hard times. We are extending flexible support for early education. Since 2010, all three and four year-olds have been entitled to 15 hours of free childcare and we are extending this to 260,000 disadvantaged two year-olds from this year. This is immensely important to these families and it will be worth around £2,900 a year for the poorest families who benefit—£2,900 extra per family. We have found these hugely significant sums of money by making reductions elsewhere, because we place such a large priority on the poorest families.
As the noble Lord, Lord Bates, said, we protected the schools budget and the NHS budget. We are spending £1.2 billion on capital expenditure in schools. However, as the noble Lord, Lord Forsyth, has said, one of the most important things we have to do is leave our children and grandchildren with a lack of deficit or a deficit that they can manage. The savings in the Bill attempt to begin to do that.
The first group of amendments would remove child benefit, child tax credit and the lower rate of disabled child addition in universal credit from the Bill. This would remove nearly half the savings from the Bill, which is around £900 million in 2015-16. I should like to make a further point on universal credit, although it has not been the subject of much debate in this group of amendments. I am sure we will be dealing with this important issue in more detail when we debate Amendment 3, to which my noble friend Lady Stowell will respond. Suffice it to say that part of the principle underlying the decisions we have taken on disability and universal credit is the need for simplicity and our desire to target support to the most severely disabled children.
The right reverend Prelate the Bishop of Ripon and Leeds referred to child benefit and expressed his concern that it had been frozen or taken away from the highest earners. What he did not say was that the Government have increased child tax credit by £180—more than inflation—to more than cover, in the first few years, the reduction in child benefit. Taking child benefit and child tax credit together, we have tilted the expenditure away from affluent families and put more of the cash into poorer ones. I think that is a sensible priority and I am surprised that he appears not to agree.
A number of noble Lords have talked about the impact of the Bill on child poverty. As has been pointed out, the Bill is forecast to increase the number of children in absolute poverty by 200,000 and the number in relative poverty by 200,000. For the avoidance of doubt and in answer to the point made by the noble Baroness, Lady Sherlock, my noble friend Lady Stowell wrote to the noble Lord, Lord McKenzie, copied to other noble Lords, on 13 March. Her letter contained the figure about absolute poverty so, far from seeking to avoid mentioning it, we chose to circulate it. I am not saying that absolute poverty is not something we should be extremely concerned about but the term does not mean what most people think of as absolute poverty. The definition of absolute poverty is 60% of the median income in 2010-11 uprated to take account of inflation. The 200,000 children mentioned in respect of absolute poverty are very largely the same as the 200,000 who are mentioned in terms of relative poverty. You certainly cannot add those two numbers together.
At previous stages of the Bill, we have discussed the definition of child poverty and the importance of tackling child poverty. We know that if we focus on the relative income line we get some very odd results. We have pointed out previously that in 2010 300,000 fewer children were said to have moved out of poverty, not because anything changed in their lives but because the rest of society got poorer. The estimate on the impact of this Bill does not take account of policies which would cause child poverty figures to move in the other direction, such as universal credit which is expected to lift up to 250,000 children out of poverty, depending on the effect of the minimum income floor. We take the issues of cash and poverty, as currently defined, very seriously, but we also think that we need a broader definition of child poverty. That is why the Government are currently consulting on a wider definition. As I set out two weeks ago, and repeat today, this Government remain committed to eradicating child poverty. We believe that income will remain an important part of any new measure on child poverty, but focusing our resources on benefits alone is not enough. We have to take action to tackle the root causes of poverty, some of which I have described today.
I also take this opportunity to mention, as an example of what the Government are doing to support children and families in work with children, the announcement made today by the Prime Minister and Deputy Prime Minister concerning increasing eligibility for support to five times as many families as is currently the case through a new tax-free childcare scheme. Families where the parents are in work will be able to claim 20% of their childcare costs—equal to the basic rate of income tax—up to £6,000. The scheme will be phased in from the autumn of 2015. More than 2.5 million hard-working families will be eligible to benefit from these new proposals, compared with existing schemes offered by fewer than 5% of employers. Families on tax credits will be eligible to receive support for 70% of their childcare costs, and we have already committed an additional £200 million in universal credit, helping 100,000 more working families.
Today’s announcement of that further £200 million of additional support in universal credit will provide working families with the equivalent of 85% of their childcare costs where the lone parent or both parents pay income tax. That additional support will improve incentives to work and ensure that it is worth while for low and middle-income parents to work up to full-time hours. It will be phased in from April 2016 when childcare support moves from tax credits to universal credit. Together, these proposals will help to ensure that working families are not held back by the costs of childcare. They will remove disincentives to work for many mothers and provide flexibility and support for businesses to generate employment.
I hope I have been able to provide some reassurance that, although we are taking difficult decisions on welfare, they are necessary decisions. We are prioritising limited resources so that they go to measures that help families with children as well as those who aspire to work hard and get on. I therefore ask the right reverend Prelate to withdraw his amendment.
My Lords, I am grateful to all those who have taken part in this debate and, indeed, to the Minister for his extended response to the discussion. I am grateful to the noble Baroness, Lady Sherlock, for her support and for the information that 200,000 children will be in absolute poverty as a result of the Bill. We have also recently had information from the Trussell Trust about the number of children who are now being fed through food banks.
I thank the noble Lord, Lord Forsyth, for his contribution, but this is not simply a variation on the previous amendment. For one thing, it would cost only half as much at £0.9 billion, rather than the £2 billion to £3 billion which has been mentioned in relation to the whole Bill.
There have been a number of suggestions—not just from me but from a collection of other people—as to how this money could be raised. At an earlier stage in our discussions on the Bill, I made suggestions and the noble Lord, Lord Newby, responded that they were indeed possibilities but not ones that fitted in with the Government’s current priorities. That is a perfectly fair response but it is not fair to say that taxing the winter fuel allowance or dealing differently with things such as free television licences, tax relief on pension contributions, national insurance contributions or employer pension costs and so on are not possible. They are possibilities. I was not quite sure what—
I am most grateful to the right reverend Prelate. My criticism was that he did not say which of these he wanted to do. If the church’s position is that it wants to tax winter fuel benefits, please say so and say that the money from that could be used for this purpose. As for increasing taxes on pension contributions, he may not have noticed but the Government have already done that.
I thank the noble Lord and the noble Baroness for the answers they have given each other on this. It really is not my duty, as a Prelate in this House, to give the church’s view on exactly how the money should be raised. It is a task to say that there are alternatives and, indeed, to make suggestions as to how the money might be raised. There is no policy on exactly how it should be and I do not think that it would be for me to try to produce the solution to what we are doing. There are alternatives. I do not believe that they should be placed on children.
I wonder whether the right reverend Prelate will understand this point. He is making specific remarks as to how we should spend the money. Is it not reasonable to say that he should take the responsibility for making specific suggestions as to how we should save the money?
My Lords, I have made a number of specific suggestions as to ways in which this money could be provided from elsewhere. My basic point continues to be that it should not be raised by putting the pressure on children and their families. I am grateful to the Government—and to the noble Lord, Lord Bates, for raising the matter—for the child tax credit increase of £180 in 2011. It has to be said that that was, at the time, only the first of two announced upratings. The second, of £110, never happened because of the economic state in which we find ourselves. That above-inflation increase in child tax credit did something to ameliorate the pressure put on those in most difficulty, particularly children, by various other provisions made over the past few years.
I am grateful, too, for the announcements that the Minister has made this afternoon. However, one could say that if 20% of childcare is to be covered, that still means that those receiving that childcare need to find the other 80% in order to get the 20%. I absolutely agree with the Minister when he speaks of the need to tackle root causes and to make sure that more people are in work. I commend any efforts of any Government which lead in that direction.
However, these amendments are about children and we have moved much more widely in our discussion of them. I am still stuck with the statistic that the decrease in income for a couple without children will be 0.9% over the five years, but for a couple with two children it will be 4.2%. It is the differential between those two figures that we need to tackle. I recognise that attempts have been made to tackle them but they have been stubbornly unsuccessful so far. In view of the various things that the Government do for children—I certainly accept that they have a concern for children—I am sorry that they cannot accept the amendment. In the light of that, I wish to test the opinion of the House.
3: Clause 1, page 1, line 5, at end insert—
“(1A) Any mandatory 1% up-rating stipulated in subsection (1) shall not apply—
(a) to any components of the employment and support allowance (including personal allowances);(b) to sums specified in regulations under section 10(3) of the Welfare Reform Act 2012 in respect of an amount to be included under section 10(2) of that Act.”
My Lords, Amendment 3 would remove from the 1% uprating cap all aspects of the employment and support allowance, including the personal allowance component, the support group component for those in the support group and the work-related activity group component for those placed in the work-related activity group, which I may shorten to the WRAG as “the work-related activity group” is a bit of a mouthful and I do not wish to take up too much of your Lordships’ time—no more time, at any rate, than I need to. Paragraph (b) of the amendment would also remove the child disability addition under universal credit from the cap.
The Government have given the impression that disabled people are protected from the restriction of benefit increases to 1%, but this is not the case. Some disability benefits are protected—notably disability living allowance—but that does not mean that disabled people are protected from the restrictions introduced by the Bill as a whole. The only disabled people who are protected are those who receive no benefits other than the disability living allowance. The impact assessment makes clear that households where someone describes themselves as disabled are more likely to be affected than those where there is not a person who describes themselves as disabled: 34% of households as against 27%.
Even some benefits specifically targeted at disabled people are not protected. This applies particularly to employment and support allowance. ESA is paid at two different levels according to whether claimants are placed in the support group, meaning that their impairment or condition is such that they are not expected to look for work, or the WRAG. Both groups receive a personal allowance of £71 a week but those in the support group receive a support group component which is paid at a higher rate than the comparable component paid to those in the WRAG.
The Government have given the impression that those in the support group are protected from the 1% uprating cap but, in truth, only their support group component of £34 a week is protected: rather less than one-third of their benefit. This means overall that disabled people in the support group will see their ESA payments rise by only 1.4% rather than by inflation, not a lot better than if increases in the whole of their benefit were capped at 1%. As a result, a disabled person in the support group will be £62.76 a year worse off. Capping increases in their benefit at 1% will mean that households receiving ESA in the work-related activity group will be £87.65 a year worse off.
However, it is worse than this. Although some disability benefits and some disability elements and components may be protected, disabled people may lose out overall because of the complex interaction of different benefits and components. Disabled people do not only receive disability benefits; they have children and rent houses, and so they are not immune from restrictions in the uprating of children’s benefits, housing benefit and so on.
If a claimant in the support group does not have any other income, they are also likely to be entitled to housing benefit and council tax benefit. If they have children, they will also be entitled to child benefit and child tax credit. It can be seen that protecting the support group component protects only a small proportion of their overall benefit. For example, a lone parent who is in the support group and has two children will have lost £18 a week or almost £1,000 per year by 2015 compared with their position in 2011, simply due to uprating changes.
The amendment is essential if the Government are to fulfil their pledge to protect disabled people from the 1% uprating cap. A third of disabled people in the UK were found to be living in poverty before the global economic crisis. Disabled people routinely experience higher living costs associated with their disability, on things such as equipment, personal assistance and special diets, for example. In Committee, the Minister said that ESA for those in the WRAG group is intended to be a short-term benefit:
“Those who are placed in the work-related activity group are there because they have been found able to prepare for work”.—[Official Report, 25/2/13; col. 881.]
However, that does not make sense in terms of work incentives. People’s impairments often make it very difficult for them to work. Where this is not the case or the difficulties can be overcome, discriminatory attitudes in the workplace can present insurmountable barriers. In the current state of the economy, there just are not the jobs.
Finally, as we know, the work programme, by which the Government set such store, is just not working. In Committee, the Minister questioned the rationale for including the personal allowance in the amendment and for not subjecting it to the 1% cap. She said that treating the personal allowance differently from that in other parts of the benefit system would add an element of complexity and undermine the coherence of the system as a whole. That strikes me as a comparatively technical objection. If that is her principal concern, I ask her to look at the position again with me before Third Reading to see if we cannot find a way of achieving the purpose of the amendment without giving rise to the technical difficulties to which the Minister pointed.
The second limb of the amendment would remove the 1% uprating cap from the lower child disability addition under universal credit. The right reverend Prelate also spoke about that. This part of the amendment is particularly necessary given that rates of support for children in this group are already intended to be halved under universal credit. At present, families with a disabled child for whom they are in receipt of some level of disability living allowance may be entitled to receive support through the disability element of child tax credit, currently worth £57 a week. Under universal credit, that support is to be provided through disability additions within household benefit entitlements. But it is proposed to cut this support in half to just £28 a week. This change will affect all families with a disabled child unless the child is receiving the high-rate care component of the DLA or is registered blind.
In Committee, I spoke about the evidence in the Holes in the Safety Net review from the noble Baroness, Lady Grey-Thompson, of the impact of universal credit on disabled people and their families. I will not repeat the detail now but, in a word, it was that the effects would be disastrous. The Institute for Fiscal Studies estimates a growth in the number of children living in poverty of 400,000 between 2011 and 2015 and 800,000 by 2020. The Minister said in Committee that we cannot set too much store by such predictions because we do not know what direction government policy will take. But government policy seems to follow only a one-way direction of travel in this regard. We do know that the Government intend to take a further £10 billion out of welfare. The upshot of that can be only one thing: more child poverty. This measure can only serve to increase that; indeed, the Government have acknowledged that it will add 200,000 to the numbers of children in poverty—100,000 of them in working households.
The Children’s Society estimates that the cost of removing child disability addition from the cap would be just £2.4 million in 2014-15 and £4.2 million in 2015-16. In the scale of public expenditure, that is a trifling sum and I really hope that the Government see their way to thinking again on this aspect of my amendment at least.
The case for the amendment is compelling. It seeks to do no more than the Government already claim to have done by exempting from the cap a particularly vulnerable group among those who receive benefits—disabled people—and I hope that the House will support it. I beg to move.
My Lords, my noble friend Lord Deben is not in the Chamber, although I had a word with him outside. I am not sure that he was fair in asking the right reverend Prelate the Bishop of Ripon where he would find the money on the previous amendment. However, when we get into the guts of this amendment, it would be reasonable to expect the Official Opposition at that stage to explain where they would find it.
My memory goes back to Grand Committee on a couple of Bills in the final two years of the previous Government. They were held in the Moses Room; one was on housing and the other was on planning. I recall that the second one occurred in the very first week of the then Governor of the Bank of England—who is still the governor—who expressed anxiety that a recession was now becoming a real possibility. I asked why the Government, in their explanation of the text of the respective Bills on housing and planning, thought that future conditions would be like conditions in the past. I was told by both the Minister and knowledgeable government Back-Benchers in Grand Committee that I was not to worry my head about these things. There was no acceptance that the economic ice was beginning to thin and, specifically, I was told that the recession had not yet happened.
It was only later that I recalled a new year message in the 1950s or 1960s in the Observer by its essayist Paul Jennings in his weekly article. He explained that the new year had come in over a weekend and he had therefore had the opportunity to use the weekend to explore in his diary what the publishers thought he needed to know in the coming year, which they had not supplied in the previous one. It transpired that the answer was the thickness of ice. He explained that he was now in a position to tell the Observer’s readers that you required half an inch of ice to sustain a duck and an inch of ice to sustain an infant, going up in a series of categories until you reached 16 inches for a County-class locomotive and 24 inches for a regiment of foot. It was on reaching the statistic for a regiment of foot that Mr Jennings began to wonder how they knew. He imagined a scene in the Crimea when not much else was happening. The same young Mr Hemmings who took part in the film “The Charge of the Light Brigade” was riding up to Lord Raglan with the news that they had just lost another battalion of the Grenadiers.
If I move from that analogy to the departure of the previous Government, I recall that Mr Byrne, the Chief Secretary to the Treasury, left a note for his successor saying that there was no more money. As a message, that seems to me as daunting for a new Chief Secretary as the news to Lord Raglan that he had lost a battalion of the Grenadiers during what must have been the Crimean War. It is therefore reasonable to ask the Official Opposition where they would find the money for their support for this amendment. Indeed, perhaps the Official Opposition might express some regret for their mistakes in government and explain to the Bench of Bishops what went wrong in their economic policies.
In the same context as the intervention by the noble Lord, Lord Griffiths, I shall personally look forward in the hope that we will be able to come back to that subject on a future amendment, in which I would much enjoy joining with him.
My Lords, we have added our names to this amendment moved so comprehensively by the noble Lord, Lord Low. It requires that all the components of ESA—the personal allowance and the additional component for those in the work-related activity group, as well as those in the support group—are taken outside the 1% cap on uprating. As we have heard, the amendment rightly includes provision for children to be made under universal credit, although it remains to be seen how much progress the faltering universal credit will have made by the time the Bill is spent.
As we have argued on previous amendments, it is the vulnerable who are most affected by the Bill. This is particularly so for those on ESA for two specific reasons. They are much less able to increase their income through work and their living costs are generally higher. This is particularly so for those in the support group, who are furthest from the labour market, but also for those in the WRAG. It is worth remembering that there is a rigorous testing process for people who are unable to work due to ill health or disability. We know that the gateway to this benefit is tough. Although the process involving Atos has been improved, there are still many who end up on ESA only after a successful appeal.
Although individuals in the WRAG are closer to the labour market through their conditionality or otherwise, the route to paid work is not easy, as the noble Lord, Lord Low, said. We know that the Work Programme has not covered itself in glory in this regard. As things currently stand, individuals in the WRAG will lose something like £191 a year by 2015 as a result of this Bill. Those in the support group will fare little better in terms of income, being some £138 a year worse off by that date.
Macmillan has specifically drawn our attention to how these measures will affect people with cancer. Its estimate is that in excess of 40,000 cancer patients will be claiming ESA by 2015 with the presumption that they will be placed in the support group. Macmillan particularly stresses the impact of rising energy bills on this group. Like the noble Lord, Lord Low, I remind the Secretary of State that he should fulfil his commitment to make sure that people on ESA are being fully protected.
The noble Lord, Lord Brooke, challenged me to say where we think the money should come from. I thought I made it clear in the first debate that we think the Government should not proceed with the tax cut that is proposed for those earning £150,000 a year. The proposed tax cut from 50% to 45% would be a source of revenue. The Government say that this will not produce very much, but that assumes that people can get away with planning their income to defeat the thrust of that change. If the Government are alert to that, they could garner that revenue and we believe they should.
There is a wider argument about the extent of debt that can be sustained. The point I come back to is that the greater the failure of the Government in their economic policy—the greater the paucity or lack of growth in the economy—the more it will be necessary for the Government to borrow. If the Government can get growth back into the economy, that begins to ease the debt burden. There is another source there.
I also remind the noble Lord that these amendments take ESA out of the fixed uprating—the collar that this Bill puts around them—so a judgment would have to be made for each uprating period. Traditionally and rightly that has been an increase by the rate of inflation of one sort of another. That is what these amendments are doing. They are not technically, of themselves, proposing a different rate, although I made it clear that we support uprating by inflation for the year that we are about to enter.
It is clear from that combination of reasons that this proposal can and should be supported. It is not constrained by the economic position of the Government. It is the Government that have got themselves into a bind because they have failed to generate growth in the economy.
The total cost is certainly less than that proposed for the totality of the arrangements in the Bill. It would be a portion of that. The number of people in the support group is something like 200,000 and there are around 300,000 in the WRAG. If you assumed you were looking at a difference between uprating by inflation and uprating by 1%, that would be the calculation. I stress that this amendment is saying that you simply take ESA out of the 1% collar, and it leaves open the question of whether uprating next year and the year after should be by whatever inflation is then. However, this amendment does not put a figure on it.
The noble Lord is a signatory to this amendment. He is speaking for the Official Opposition and it obviously represents a cost. I wonder what that cost is. I do not see how the House can vote if it is not clear what extra costs are envisaged. If he is suggesting that there is no extra cost at all, I do not imagine the Government will find great difficulty with the amendment. Presumably there is a cost; I wonder if he knows the figure.
It depends on what the alternative proposition would be. I have tried to stress that this amendment takes ESA outside this 1% fixed uprating—outside that collar—so we would have to judge the impact at each uprating period thereafter. A judgment would have to be made in the light of inflation and general economic circumstances at that point in time. That seems a very clear proposition, is it not? It is certainly a basis on which we are very happy to support this amendment.
My Lords, all of us want to protect those who are furthest from the labour market or who have additional costs because of disability, and I think that all of us who have contributed to this debate so far and all of us in the Chamber today share that view. There is no disagreement among us on that.
That is what the Government are doing. We have not included key disability benefits, including disability living allowance and attendance allowance in the 1% annual uprating decision in the Bill. Nor have we included the disability premiums in working age benefits or the disability elements of tax credits in the Bill. We have also excluded the support group component of employment and support allowance and the higher of the universal credit disabled child additions. All these benefits will continue to be uprated by CPI. We have protected them because they help support those who are furthest from the labour market or who have additional costs because of disability.
In one of the exchanges that has just taken place, the noble Lord, Lord McKenzie, referred to cancer sufferers and made the point that we want to make sure that we provide them with the support that they need. It is worth reminding noble Lords that earlier this year, in January in fact, we introduced changes that will mean that more people with cancer will now qualify for the support group, which is protected, whereas before they might have been placed in the work-related activity group. We have taken on board the concerns in that area. They were valid concerns, and we were glad to be able to act on them.
Let me explain, however, why we have included the personal allowance and the work-related activity component of ESA in the Bill. The ESA personal allowance, which is subject to the 1% cap, is there to provide temporary basic support for everyday needs. It does not reflect disability or the additional costs of disability: hence it is set at the same rate as the personal allowance for the other working-age benefits such as jobseeker’s allowance, income support and housing benefit. The work-related activity group component—the additional component on top of the personal allowance—which is also subject to the 1% cap, is paid to those who are able to take steps to prepare for a return to work. As such, they will be referred for appropriate support, training and provision to ensure that they get the help that they need. It is the support group component that is paid in recognition of the fact that more severely ill and disabled people are less likely to be able to increase their income by moving into work and may have additional needs. That is why it is paid at a higher rate than the WRAG component, as the noble Lord, Lord Low, referred to it, and why it has been excluded from the Bill.
I will give noble Lords some comparison. The WRAG component goes on top of the personal allowance, which for a single person at the moment is £71 per week. For those who are considered perhaps to be ready, with some support, to be able to start thinking about moving back into work, that is £28.15 a week at today’s rate, while the support component is currently £34.05 a week. The noble Lord, Lord Low, questioned whether we were right to describe the work-related activity component of ESA as a temporary benefit. He may find it helpful if I remind him and other noble Lords that when the last Government introduced ESA—it was a new benefit that they brought in—the Command Paper that they published said:
“For the vast majority, ESA will be a temporary benefit as people recover from, or adapt to, their condition and prepare for a return to work”.
It also said that the support group should be the element that provides,
“security for the most severely disabled people”.
That is what the then Government set out when they introduced the new benefit.
Reference has been made to universal credit and to the component of it that is paid to parents of disabled children. In universal credit, a similar distinction is drawn between people who are in what we are currently calling the WRAG group and those who are in the support group: hence, the disabled child additions and their adult equivalents in universal credit are to be paid at a lower and a higher rate. The lower rate of the disabled child addition reflects that the parents are more able, with the right support, to move towards work. That is why it is part of this Bill. It is a payment that is made to the parents of children. However, the higher rate of the disabled child addition reflects the fact that parents of a severely disabled child who are entitled to the higher rate may not be able to increase their incomes through work. That is why it is not part of the Bill. That distinction is mirrored across into universal credit.
However, because I recognise the concerns that noble Lords have raised, I will stress again that the personal allowance—the payments for which increases will be capped at 1%—are not those that are paid to cover the additional costs associated with a person’s disability. There are fundamental distinctions here between additional cost disability benefits, such as DLA, which we have protected, and employment and support allowance; between the ESA support group component, which we have protected, and the WRAG and the personal allowance; and, finally, between parents providing care to a child receiving the higher rate of the universal credit disabled child addition, which we have protected, and the lower rate that is paid to parents who, with some support, could return to work.
Because all of us are concerned to see disabled people receive the support they need, it might be helpful for me to outline for noble Lords some of the wider support that the Government provide for disabled people. The Government are spending nearly £50 billion a year supporting disabled people. One of the ways in which we are doing this is by investing £320 million on disability employment programmes. I hear the comments that were made by the noble Lords, Lord Low and Lord McKenzie, about the Work Programme, but I disagree with them. I would also say that we have a scheme for disabled people called Access to Work, which in 2011-12 supported over 30,000 people at an average cost of over £3,200. We have invested more, another £15 million, in this area for this spending review. We have another programme called Work Choice, which provides tailored support to help disabled people facing the most complex barriers to employment find and stay in work. It is voluntary, and payable regardless of any benefits being claimed.
I know that many noble Lords are very familiar with the detail of different benefits that apply to disabled people and have been involved in debates and decisions in this area for many years. None the less, it is worth me making the wider point that the latest OECD figures show that the Government spend a higher proportion of GDP on disabled people’s benefits and services compared with the rest of the EU. Of 34 countries, only Norway and Iceland spend more. We take this responsibility very seriously and ensure that the support that disabled people rightly need is provided.
This Bill seeks to make savings where we can, while protecting benefits that reflect additional costs. The Bill is expected to create savings of around £3 billion over the two years in question. My noble friend Lord King asked the noble Lord, Lord McKenzie, whether he was aware of the cost of the amendment that we are debating. It would reduce those savings by around £400 million, which would clearly put additional pressures on public services.
I believe that our proposals are proportionate and fair. I recognise, of course, that there are people who are affected by the changes that we are making here, but I hope that I have been able to demonstrate that, when seen in the wider context, we are also providing comprehensive support to people who are disabled, which is right and which we will continue to do. I hope, therefore, that the noble Lord, Lord Low, feels able to withdraw his amendment.
I am grateful to all those who have spoken and to the Minister for her full reply. A fair amount of the discussion has been taken up with where we are going to get the money. It is certainly not my job to answer for the Opposition as to where they would get the money from, but I would say here that without wanting to open up a general discussion again on the management of the economy, especially at this stage of the debate, I do take the view that you can borrow your way out of a recession. This is a paradox, of course, and it is not clear how it is the case at first blush. However, running a national economy, where one person’s expenditure cut is a cut in someone else’s income, is different from running a domestic economy.
There is a clear difference of view here with those on the Benches to my left. I am not an economist but I would ask people to accept that there is a very respectable and quite populous strand of opinion that supports the proposition that I have just enunciated. It is not so self-evidently barmy, as was suggested earlier in the debate, to say that the Government would be able to meet the cost of these amendments by borrowing more. There is respectable opinion to support that. To those who say that the Government are already more in debt and borrowing more than they would like to be, I simply say that there is no reason why they should not borrow a bit more. If the amount of extra borrowing that they are engaging in is still not achieving lift-off for the economy, they just have to borrow a bit more until they do. I know that that will not commend itself to this side of the House, but it is a respectable point of view and it is the position that I take.
We have been asked about the cost of the amendment. As the noble Lord, Lord McKenzie, has said quite clearly, that obviously depends on a range of factors. One of those factors is certainly the rate of inflation. Therefore, it cannot be precisely quantified. In any case, the question about what we would do to get the extra money is answered by what I have already said in response to the Minister. A more pertinent question than how one would find the money is when one would find the money. The answer of the noble Lord, Lord McKenzie—a year at a time—is perfectly reasonable. Labour is prepared to say that it would uprate at the rate of inflation in the first year that we are talking about.
The only other thing I want to say in response to the Minister is that the Government have essentially been peddling a myth when they say that they are protecting disabled people in this Welfare Benefits Up-rating Bill. They are only partially doing so. The Government ought to be straight with the British people. I repeat: they are only partially protecting disabled people. It is because I believe that the Government should deliver on their pledge to fully protect disabled people with this benefits uprating measure that I have brought this amendment to the House. It is also why I ask the House to support it, and why I would like to test the opinion of the House.
4: Clause 1, page 2, line 2, at end insert—
“( ) Subsection (1) does not apply in relation to a tax year if, on the review in that tax year under section 150(1) of the Social Security Administration Act 1992, the Secretary of State determines that the general level of prices, measured by the Consumer Price Index, for Great Britain has increased by 3% or more over the period under review.”
My Lords, my Amendments 4 and 9 in this group take us into much lighter territory. I hope that the noble Lord, Lord Forsyth of Drumlean, will understand and relax, because the purpose of the amendments is not to attack the savings which it is the principal purpose of the Bill to achieve but only to protect the position of benefit recipients should the Office for Budget Responsibility’s estimates for inflation be exceeded by 3%, which is the figure that I have chosen for the purposes of the amendments.
The amendments are different from those which have gone before because, apart from anything else, they are much less susceptible to attack on grounds of financial privilege. A problem that I had with some of the earlier amendments, and I share some of the analysis, was that they were prone to attack on those grounds. I think that those of us who participated in consideration during the passage of the Welfare Reform Act last year felt that financial privilege was being used rather rashly in the other place, but the purpose of this House is to persuade the House of Commons perhaps to think again about some of the legislation that comes to us.
Amendment 4 would simply disapply the 1% limit on benefit uprating in the event of inflation reaching 3%. I would be interested in the view on this of the noble Lord, Lord Forsyth, because he knows a lot more about it than do. Judging where inflation will come out in September 2013 and September 2014 is an inexact science. We will learn tomorrow what the Office for Budget Responsibility and the Chancellor think about the situation, but the two years covered in the Bill, September 2013-14 and September 2014-15, are considered to be facing inflation increases of 2.6% and 2.2% respectively. The purpose of the amendment is to ask what happens if those estimates are wrong. They are forecasts; they are not scientifically worked through. We have therefore to ask ourselves what we do as a legislature if inflation reaches 3%.
Change in the real-terms value of benefits is very sensitive to inflationary increases. I have said that the Office for Budget Responsibility’s baseline is 2.6% for September 2013 and 2.2% for September 2014. That reduces the real value of benefits by 4% and produces a saving of £3 billion; that is already agreed and is in the Bill. However, checking Library figures, I am advised that if inflation exceeds Office for Budget Responsibility estimates by 1% in the two years covered by the Bill, it will reduce the real value of benefits in the hands of claimants by 6% and result in a windfall saving to the Treasury not of £3 billion, which is what the deficit reduction programme is looking for, but of £5.1 billion. You can multiply the figures. If the OBR baseline is exceeded by 2%, that reduces the real value of benefits by 8% and produces a windfall saving for the Treasury of £7.2 billion. I have no way of knowing whether any of that will happen. All I seek with this amendment is to ask what the Government will do if it does.
The financial context is slightly worrying and has been getting worse since the coalition Government promulgated this policy some months ago. We will learn more about this in the Budget tomorrow. The Budget may well be—and some of us will argue that it should be—looking to promote growth and loosen some of the constraints on inflation that the Bank of England’s Monetary Policy Committee is required to oversee. However, we have a Bank Governor-designate in Mr Mark Carney, who comes with a reputation of being prepared to live with higher levels of inflation. If that happens, then the 3% figure in the amendment may well be breached sooner rather than later. In some of the earlier debates the noble Lord, Lord McKenzie, rightly adverted to the fact that the markets are already pricing in higher inflation in the short term over the two years that the Bill covers.
As a legislature, we now face an increasing risk of inflation for these two financial years; I put it no higher than that. We very much need to take that into account. The CPI calculation of inflation is a national figure, worked out with average figures on a statistical basis, but someone said to me the other day that childcare costs have gone up 6%, as anybody who has studied the incidence of rising costs on low-income families will know. That is a long way in excess of the general CPI rates that we face, as with food prices, rents and energy prices, particularly for the low-income families that I am concerned about.
I am grateful to my noble friend for the considerable discussion that we had about this. He was generous in considering what I said, but it would be helpful if the House knew what the Government would do if the 3% inflation figure was breached. I am reasonably content that there are overriding powers in the Social Security Acts, but I do not think there are in the Tax Credits Acts; I might be wrong about that. What happens if something untoward happens to inflation and we end up in the 2014 and 2015 fiscal years with something unexpected suddenly coming over the horizon? Surely some of these reductions in the value of benefits that I have alluded to would be quite unconscionable as a windfall increase to the Treasury’s coffers in a way that is not intended, as I understand it, but may well happen by mistake?
I have looked carefully at my noble friend’s amendment and listened to his speech with care, but he does not provide the remedy in the amendment. It simply says that the uprating limited to 1% is cancelled if inflation reaches 3%. Would he indicate why he chose 3% and what the remedy would be? If he specifies a remedy, then we are back into the argument about cost.
The remedy would simply be that if 3% was breached, then the clauses in the Bill fall and there would be the default position of an annual uprating process. It would be at the Secretary of State’s discretion with the usual provisions of Section 150 of the Social Security Administration Act 1992. It would be taken year by year and would say that inflation was forging ahead in an unforeseen way. For myself, I would listen to an argument that said that we should stick to 1% on costs shown in those circumstances, but if 3% was breached we would go back to the status quo. That does not have a cost at all.
The noble Lord, Lord Forsyth, and I have been doing government uprating statements for 30 years together and I have never known a Government not get an uprating statement that they wanted if they had a majority. That is what I think would happen in these circumstances. However, the Secretary of State would be obliged to come back and say to both Houses that the circumstances were not what he had anticipated or what the Office of Budget Responsibility had calculated and that therefore there would be a chance for reconsideration. That is all I ask.
In fact, Clause 1(5) and Clause 2(4) of the Bill give the Treasury power to protect itself from the downside. These clauses say that if inflation falls below 1% it will not admit the full 1% uprating and will reserve the right to adjust it. Yet there is no limit to which the Treasury will allow inflation to increase before it comes back and argues its case in Parliament one way or the other. There is a 50:50 chance of this happening. I believe in my heart of hearts that the Government would respond to that. I do not believe it would be at all conscionable to leave 3.5% or 4% inflation with these 1% caps for the two years in this Bill.
We need more than that. We need some inflation-proofing and protection for recipients of benefits in the two years covered by the Bill if inflation races ahead. That is the burden of the argument. It is no more and no less than that. I do not think that it would be attacked on the grounds of financial privilege. It has no direct effect, as I see it, on deficit reduction. I am content that the Government get £3 billion in savings, but not content that they get £5 billion or £7 billion, because that is not what the Bill is designed to do. I argue in this amendment that there is no protection in particular for low-income families. I hope that my noble friend will give me some reassurance about what the Government will do in these eventualities. If he is not prepared to accept this amendment, I may well be tempted to test the opinion of the House. I beg to move.
My Lords, I am not an economist. I declare an interest as chief executive of a cancer research charity. My concerns are similar to those voiced by the noble Lord, Lord Kirkwood. The Bill locks in the 1% and does not contain a very important review provision. I am sure that my amendment is so anodyne that the Minister will say either that it is unnecessary or that he will accept it.
For that reason, I will be brief. It is important once more to challenge the myth that disabled people will be protected from the measures in the Bill when that is so clearly not the case. Let us remember that, by 2015, in excess of 40,000 cancer patients will be claiming ESA. It is the main benefit claimed by cancer patients, as we have already heard. For those cancer patients in the support group, only a proportion, the support component, of what they receive, will be protected, while their core payment will rise by only 1%, as my noble friend Lord Low mentioned.
Overall, cancer patients in the support group will see their ESA payments rise by only 1.4%, rather than by inflation, and Macmillan Cancer Support has estimated that, by 2015, cancer patients will be £138 worse off each year than if they had received the 2.2% rise which could have been expected with the CPI level as was in September 2012. I cite the £138 figure, but I am conscious that we do not yet know the true effect of the Bill. That figure shows how far ESA will fall behind inflation if the consumer prices index were to remain at the September 2012 level of 2.2%. However, it has now risen to 2.7%. If, as we have heard, inflation were to rise to 3% over the next three years, the loss to cancer patients and others in the ESA support group would be even greater. The actual impact on cancer patients and others supported by those payments is just as uncertain as the level of inflation itself.
In its current form, the Bill leaves no flexibility to protect vulnerable groups such as cancer patients if there is a significant rise in inflation over the next three years. For that reason, I support the amendment moved by the noble Lord, Lord Kirkwood. I fully expect the Minister to say that he will accept my amendment or that it is unnecessary because it is a matter of course that there will be a review by the Social Security Advisory Committee if we have such a rise in inflation. I very much look forward to hearing the Minister’s remarks about how the Government aim to continue to protect cancer patients as much as possible.
I should have asked my noble Lord friend Lord Kirkwood, this; he is an expert on uprating. The noble Baroness said that this is an anodyne amendment. I am not an expert on how uprating works, but does her amendment provide that if inflation is above 3%, the Bill does not apply and it will then be up to the Secretary of State to decide what increase he tries to get through both Houses of Parliament, which could in fact be 1%, if the economic situation is as it is? So it does not automatically provide that the current rate of inflation has to be included. Have I got that right?
That is correct. As normal, the House would receive an annual uprating SI, there would be a debate in the normal way and, if the Government of the day wanted to propose a particular uprating, there would be the normal impact assessment. The noble Lord, Lord Kirkwood, may want to clarify his amendment, but my amendment states that if we have a significant increase in inflation, we need the experts to conduct a review to say what will be the impact on benefit recipients.
My Lords, I have my name to Amendment 12. I support what my noble friend Lady Morgan of Drefelin said.
The Bill could see vulnerable cancer patients and other seriously ill patients losing out on almost £500 per year if inflation rises. That is a great deal of money for people who are not working and who are ill. I hope that the Minister will give some hope that those vulnerable people will not suffer and that he will support this helpful amendment.
The noble Lord, Lord Foulkes, normally cheers when I get up to speak, but not on this occasion, perhaps because we have found something to disagree on.
I must congratulate my noble friend Lord Kirkwood on this very ingenious amendment. I suspect that he started from a position opposed to the Government’s proposals, knowing his long and distinguished record in supporting people on low incomes. I am sure that he would have preferred that the status quo had a rival—
Since the noble Lord asked, let me tell him. I am looking him straight in the eye. I have voted for the Government all through this afternoon against my better judgment, but I say this to him: if any further cuts are introduced by the coalition Government for the rest of this Parliament, he can forget any support coming from my direction for the next two years.
The noble Lord and I both have our crosses to bear in the coalition. I am grateful for his confirmation that he does not support the principle. This is just a very clever device to try to get us back to where we started from without making a commitment to spend money. The amendment states that the provisions in the Bill which limit the benefit increases to 1% can be set aside if inflation reaches 3%. That is for very good reasons. The noble Lord argues the case about people on low incomes and the effects of inflation. The noble Baronesses, Lady Morgan and Lady Masham, in their amendment, have highlighted the desperate impact that inflation has on cancer patients who are not working.
The best way to protect those people is to ensure that inflation does not rise to 3%. The idea that it is inevitable that inflation will rise to 3% is deeply damaging.
If the noble Lord, Lord Foulkes, wishes to interrupt, I will be happy to give way, but otherwise I would be grateful if he did not make remarks from a sedentary position, which is distracting me from my argument—which of course, was his intention.
The best way to protect people is not to have inflation. One thing that sets inflation running uncontrollably is people’s expectations of inflation. When the noble Lord makes a speech saying, “I think that inflation is going to be more than 3%”, people hear that and think, in their wage negotiations, “Lord Kirkwood says that it will be more than 3%; the Government say that it will be two and a bit per cent”. Expectations drive the inflation rate, and inflation is devastating for the poorest in our society and for people on fixed incomes.
Therefore, we need to follow a policy that will limit the possibility of large increases in inflation. That is where we have a problem. To do that, we must show that we have control of public expenditure and have plans in place that can be relied on.
If the amendment were accepted, anyone looking at the Government’s plans for financial responsibility over the next two years would say, “They have marked down that social security and benefit payments will be this, but, of course, because of Lord Kirkwood’s amendment we cannot rely on that because if inflation is above that figure, the Secretary of State will need to take a decision”. They will note that he will be taking a decision in the run-up to an election and will therefore draw conclusions about what the pressures on the Secretary of State might be.
The amendment drives a coach and horses through the Government’s finances for anyone looking at whether they can rely on the Government delivering.
Yes, got it in one. The one thing that we learnt in the 1970s was that indexation, like other palliatives, is absolutely disastrous, because it sets the ball rolling, which gets faster and faster with people chasing inflation. Of course that is exactly what I am arguing.
If the noble Lord follows that argument through, is he therefore saying that, should inflation happen, that is just tough luck, and the poor cannot not have the possibility of any protection from the Secretary of State doing what he would now do, which is to consider all the options in the circumstances?
I have the highest regard and respect for the noble Baroness, Lady Hollis. She knows more about social security and understands the issues better than anyone else. I wish that she was on the Front Bench. If she was, she would be putting forward alternative proposals that might be more attractive and meet some of the points that are being considered, but she is not on the Front Bench and there are no alternative proposals.
We have to contain public expenditure not to within our means, because we are spending more than our means; the noble Lord, Lord McKenzie, pointed out that the Government are already borrowing and spending £200 billion more than was planned. I am simply arguing that if we continue like this the pound will continue to sink. The cost of energy, which, as the noble Lord, Lord Kirkwood pointed out, is a major cost for families, will go up. He supports windmills and other forms of energy generation that are the most expensive known to the planet and which are put on people’s bills without their knowledge as a tax and add to the pressure on these families. That is another example of where, if he is worried about poor households, he should abandon his attachment to windmills and other things that are raising energy costs and adding to inflation. The name of the game is to contain inflation by not having daft policies such as windmills and other energy policies. It is to act in a responsible way so that people will not decide that they do not wish to buy government debt, which is already a problem, and will not result in further pressure on the exchange rates.
I am sympathetic to the points that the noble Lord, Lord Kirkwood, has made and with which the noble Baronesses, Lady Morgan and Lady Masham, are concerned in respect of the people who are affected. The problem is that the remedy that they propose would make things much worse. It is not a good place to be. We would prefer not to have started from here, but it was Mr Gordon Brown who put us in this position, ably assisted by the noble Baroness, and we must sort this mess out. Clever as it is, this amendment is a smart attempt to get round the basic purpose of the Bill, which is fundamental to protecting people on low incomes.
I support the noble Lord, Lord Forsyth, but I want to go one step further. He has dealt incredibly effectively with the measured arguments put forward by my noble friend Lord Kirkwood in Amendment 9, but it does not quite hit the interesting amendment in the names of the noble Baronesses, Lady Morgan and Lady Masham. I want to make a couple of points drawn from the Office for Budget Responsibility report looking at this Bill and the impact assessment.
Front and foremost are two things. The first is the control of inflation and the second is the creation of employment. They will help the poor more than anything else. If we fail to tackle the debt, the cost of borrowing will rise, as my noble friend Lord Forsyth has said. If the cost of borrowing rises, inflation will rise on the back of it. Therefore it follows that tackling the deficit is the best thing that can be done to help the poor. In table 2 on page 6 of its forecast, the OBR estimates that inflation will be: 2.6% in 2013-14; 2.2% in 2014-15; 2% in 2015-16; and 2% in 2016-17 and thereafter. It is clearly assessing that the culmination of the effect of these and other measures being taken is to move us towards a situation in which inflation is on a steadily downward course. That is the OBR’s assessment, which was used as the basis of the 2012 Autumn Budget Statement. As noble Lords have said, we will find out tomorrow where we stand vis-à-vis that.
Other elements need to be taken into account. We have the Low Pay Commission’s report coming up shortly. The Low Pay Commission provides a report that influences the minimum wage. The report was submitted at the end of February. I do not know whether my noble friends on the Front Bench have had sight of that recommendation, but it, too, provides a lock. Despite in previous incarnations being against the minimum wage, the Government have said that they support the minimum wage and have always accepted the recommendations of the Low Pay Commission to increase income as a result. Taking that together with the changes to universal credit that are deemed to be providing additional benefits to people estimated at £168 a month for 3 million families and the likely increase in tax thresholds and their impact on the salaries and incomes of the poorest in our society, it seems fair and reasonable, as the noble Baronesses, Lady Morgan and Lady Masham, have suggested, periodically to undertake a review. Post-implementation reviews normally take place three to five years after implementation.
We are talking about some of the most vulnerable. I believe that the position affecting the poorest in our society will not be as great as some people anticipate and that the situation with the combination of policies that I have outlined will lead to an increase, but as we are not having the annual uprating review, some periodic review of how this is working against projections of inflation and of the impact on the poorest in society would be sensible. I encourage my noble friends on the Front Bench to support it if possible. Should such a review take place, it should not need focus on the one narrow measure that has been the theme of this debate but should assess the wider impact on the poorest in society, taking into account the other measures—the pupil premium, NHS, the lid on fuel increases, the increase in personal allowances, the increase in the national minimum wage et cetera—which we are talking about. With that, I support the noble Baroness, but I am afraid not my noble friend Lord Kirkwood.
My Lords, let me make it clear that we support each of these amendments. The request in the amendment in the name of the noble Baronesses, Lady Morgan of Drefelin and Lady Masham of Ilton, that there should be a review seems modest and straightforward. If the Government should seek to resist that, or a reasonable and clear alternative, I would be amazed.
The case is the same with the amendment of the noble Lord, Lord Kirkwood. As I understand the proposition, he is saying that should in any year the current expectations of inflation be in excess of 3%, which we currently expect to be the case, the 1% automatic uprating would not apply and there has to be an annual assessment, as happens at the moment. That assessment might lead to a 1% uprating, or to some other form of uprating, but there would not be the automatic application of 1%. Who knows what will happen to inflation? I do not predict that there will be a surge in inflation but, if there were to be, is any level of real cut in the standard of living of poor people acceptable to the Government? Is that what they are saying? They would be if they rejected this amendment.
We are talking about specific provisions in the Bill about the uprating of benefits. The noble Lord has worked quite hard to differentiate himself from the noble Lord, Lord Kirkwood, and his amendments. The suggestion that somehow having this provision in the Bill will fuel wage inflation across the land, fuel expectations up and down the country and bring the economy to a halt is, frankly, frivolous and a nonsense. The noble Lord knows that full well. He is an experienced parliamentarian and an able debater, but I do not believe that he did himself justice in the way he sought to pick away at the noble Lord’s amendment.
I was asking the noble Lord a straightforward question. He is enunciating the principle that if inflation were at 3% or more, it would be necessary to abandon a position that held the increase in benefits to 1%. I am simply saying that if that is the Opposition’s view, is it also their view in respect of public sector pay? If inflation turned out to be much higher, would the same apply to people working in the public sector? If not, why not?
My Lords, we are debating a different Bill. If the noble Lord wants to debate a proposition about public sector pay, let us have some propositions and we can consider that. The noble Lord knows full well that he is trying to lead the Opposition in a particular direction.
I come back to the point that the amendment of the noble Lord, Lord Kirkwood, is very straightforward. It just says that an automatic 1% uprating would not apply automatically if inflation reached a certain level. That seems entirely unobjectionable and I cannot see why the Government cannot accept it. If the Government do not accept it, they have to say what level of inflation, what level of real decrease in people’s circumstances, they would find acceptable, because that would be the consequence of rejecting the amendment. This is a very modest proposition. I really am surprised at the trouble that the Government are having with accepting it. I would hope at least that the noble Lord’s colleagues would stick with him on this issue as the arguments that we have heard against it are quite spurious.
My Lords, the first amendment in this group in the name of my noble friend Lord Kirkwood would mean that the Bill would apply only if inflation was below 3% for the purposes of uprating in that year.
I shall provide a reminder of what the official inflation forecasts currently show. While inflation is forecast to be above target—that is, 2% in the near term—it will fall back towards the target in the medium term. In the final year of the Bill, the current forecasts show that inflation for the purposes of uprating in that year will be 2.2%. That was the view of the Office for Budget Responsibility at the time of the Autumn Statement. The OBR produces independent and authoritative forecasts for the economy and public finances and we take decisions based on them.
However, the OBR is not alone in forecasting that inflation will fall back to target in the medium term. That is also the view of other major economic forecasters. I refer to the IMF, the OECD and the Bank of England. Indeed, the latest assessment of independent forecasters in February was that UK inflation would be 2.2% in the 12 months to quarter 1 of 2014 and in the 12 months to quarter 1 of 2015. That is an average assessment of people who make their living by doing this job.
The noble Lord, Lord Kirkwood, said that he thought there was a 50% chance of inflation being over 3% in the period covered by the Bill. I remind the House that that means a 50% chance that inflation will be over 3% by September 2014, because that is the last point at which the Bill has an effect in terms of benefit uprating. All I can say to my noble friend, for whom I have the greatest regard, is that his view is just not shared by any reputable international or national body that is making forecasts about inflation.
I am coming on to that. In fact, I will deal with it now. It is relevant to the point that was made by my noble friend Lord Forsyth. The purpose of the Bill, as we have debated about 20 times since Second Reading, is to give some certainty to the Government’s fiscal plans. The reason we are doing that is that a number of international bodies and rating agencies have said that this has a specific and significant impact on the way that they view the UK’s prospects. Entrenching something in a Bill has the effect of giving a degree of certainty, which is immensely useful with regard to the markets.
As my noble friend Lord Forsyth has said, there seems to be a sense that the markets think that we in the UK are in a very good position and that a little tweak here and there in terms of borrowing will make no difference. That is not the way the markets work. It starts off with a little tweak and then the markets feel that something is going wrong. Once that feeling takes hold, the markets can move very quickly.
As we have debated many times in your Lordships’ House, it does not need much of an increase in inflation to make a huge difference to the Government’s finances and the lives of ordinary people.
The reason why they have not moved is that the Government have not changed our underlying policy.
The effect of a 1% increase in inflation on someone with a £100,000 mortgage is £1,000. These are big differences and a 1% increase in the interest rate is by no means out of line with the interest rates being paid by a raft of European countries whose borrowing as a percentage of GDP is significantly less than ours. The risk in terms of interest rates is real and present. It is not some airy-fairy possibility that would come into play only if the Government were suddenly to go mad and spend huge amounts of money. It can happen with a relatively small change.
The Government remain committed to low and stable inflation. As we have said umpteen times, it is good for individuals and for business and is a prerequisite for economic prosperity. That is why the Government set the remit for the independent Monetary Policy Committee to target inflation. The Chancellor will set the remit at Budget tomorrow, as usual. I do not know what the remit will be but I know it will not be, to quote my noble friend Lord Kirkwood, to loosen the constraints so that inflation rips. I am confident that the Government’s commitment to low inflation will remain.
My noble friend Lord Kirkwood and the noble Lord, Lord McKenzie, said, “What happens if, contrary to what the Government have said, inflation does rip? Suppose we have a circumstance that we don’t believe is going to happen”. If Governments legislated for every circumstance that they did not believe was going to happen, we would have Bills thousands of pages long. The Government can legislate and act only on the basis of a central assumption of what the future, in respect of the particular area of public policy they are dealing with, is going to be like, and that is what we have done here.
I turn to the issue that many people have faced and in many cases continue to face—real-terms reductions in pay. Inflation risk is something that everyone has to face in everyday life. We have been taking about public servants but let us just talk about them a bit more. Public servants have seen their pay frozen and then increased by 1%. When inflation rose to 5.2% in September 2011, many public servants were in the middle of a pay freeze. The Opposition supported that policy and there was no inflation guarantee within it. This includes, for example, many hard-pressed personal advisers in jobcentres who are on modest incomes and are having to see restraint in their pay in these very tough times. That is the right policy. However, the consequences have been that many out-of-work benefit recipients have seen higher cash—yes, cash—increases in their benefits payments over the past three years than many Jobcentre Plus personal advisers have seen in their salaries.
These are difficult but necessary decisions. We must remember the tough circumstances that many people in work have faced and continue to face across the country as we deal with the effects of the economic crisis. As I have said, we believe that this Bill is necessary to set out a clear and credible plan to make savings from welfare, help reduce the deficit and restore economic recovery. We are taking the tough decisions because it is necessary to give confidence to the markets. Adding to the Bill conditions such as those proposed by my noble friend Lord Kirkwood would diminish the confidence that we require.
I now turn to Amendment 12, in the name of the noble Baroness, Lady Morgan of Drefelin. This amendment would place a duty on the Secretary of State to instruct the Social Security Advisory Committee to commence a review of the level of uprating if inflation reaches 3.2% in any of the relevant periods as defined in the amendment. I hope that during this and previous debates both I and my noble friend Lady Stowell have been able to convey to the House that we understand and share noble Lords’ concerns about measuring the impacts of the Bill and all our reforms on individuals. However, as the noble Baroness slightly suggested in her speech, we believe that the amendment is unnecessary.
Noble Lords will be aware that we already have comprehensive arrangements in place to report on the impacts of government policy. First, we have already published a full account of the impacts of this Bill based on the forecast set out by the OBR. Again, these forecasts are broadly shared by the other main economic forecasters. Noble Lords will be aware that we have also published the child poverty impacts of the Bill. The Government already have a suite of ongoing reporting mechanisms in place and report on the levels of poverty every year in the households below average income series. It is only by looking at poverty issues in the round that we can have a meaningful debate about poverty. Noble Lords will be aware that the Government are currently analysing responses to their consultation on new measures of child poverty, measures that will attempt to capture the wider reality of poverty in the UK today.
Later this year we shall see the first of what will become an annual report from the Social Mobility and Child Poverty Commission, which will report on the Government’s progress towards reducing child poverty, in particular meeting the targets in the Act and implementing the most recent UK strategy. This commission, chaired by Alan Milburn, will report to Parliament and will enable detailed scrutiny of the Government’s work to eradicate child poverty.
Finally, the Government regularly produce an analysis of the cumulative impact of changes on households across the income distribution. This information is published by the Treasury at every Budget and other major fiscal events. This analysis will use updated inflation projections. We believe that it is a better approach than that in the amendment as it looks at the cumulative impacts of all changes rather than artificially isolating just one policy. The publication of cumulative impacts is a coalition initiative and was not produced by the previous Administration.
The Government have taken unprecedented steps to increase transparency and enable effective scrutiny of policy-making by publishing detailed distributional analysis of the impacts of their reforms on households. Our published distributional analysis goes further than that of any previous Government. Having these mechanisms in place means that we are confident that the Government will be able to scrutinise the effects of this Bill and of our whole suite of welfare reforms. I therefore ask the noble Baroness to withdraw her amendment.
I think it is me, in fact, but let that pass. I am grateful to my noble friend. He and I had a good private discussion about this. I understand the Government’s position and he understands my position as well. I plead not guilty to his charge of being clever. All I am trying to do here is to get an insurance policy to protect people who are on benefits who may well need it. I hope I am wrong. He knows more about inflation than I do, but there is a real risk that in the demeanour of the coalition Government’s policy, which I would support, to try to attract higher levels of growth, it may be a price worth paying—not to let inflation rip, as my noble friend said, but to allow it to rise reasonably in expectation that growth would follow as a result of that. The shift in the policy changes that.
When the Bill was drafted we were in a different position. We are now—we will see tomorrow whether that is correct or not—in a position of the proposals of the noble Lord, Lord Heseltine, for growth, much of which I support. I must say to the noble Lord, Lord Forsyth, that I pay attention to what he says as Britain is a poorer place. These are huge sums of money and we need to work out collectively how we make provision for social protection in future. However, I say to my noble friend—I am looking him straight in the eye—that I cannot accept that this is a safe position to leave the House in. I want the protection—
Is not the key point here that the Government have to be able to convey credibility to those around the world who may lend us money? The noble Lord, Lord McKenzie, has made the point very well. We have to borrow a lot of money or there will be nothing like the present level of benefits if we find, as the Minister has made clear, that we are out on the market trying to borrow from countries and lenders who say, “I thought they had a clear plan. Now they’re qualifying it, they may not follow through”. I make this simple point. The noble Lord quite rightly talks about the risk of inflation rising. The risk that he is prepared to accept is that we lose our rating and then we will be in a very much worse state.
I thought that we had lost our rating. I have now lost my drift.
This is very simple. This is a one-way bet for the Chancellor. If the Government end up with a windfall of £1 billion or £2 billion over and above the saving that I am supporting here, that is completely unconscionable. I am moving this amendment only to try to get an element of inflation protection for benefit claimants. I am grateful to everybody who has taken part in the debate, even the noble Lord, Lord Forsyth. I am sorry to do this to my noble friend, but I want to test the opinion of the House.
Amendment 5 not moved.
Consideration on Report adjourned until not before 8.29 pm.